[Federal Register Volume 79, Number 239 (Friday, December 12, 2014)]
[Notices]
[Pages 73919-73921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29102]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73776; File No. SR-CME-2014-29]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Clarifying Changes to CME Rule 814 and CME Rule 901

December 8, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given 
that, on November 26, 2014, Chicago Mercantile Exchange Inc. (``CME'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared primarily by CME. CME filed the proposal 
pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(4)(ii) 
\4\ thereunder, so that the proposal was effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CME is filing a proposed rule change that is limited to its 
business as a derivatives clearing organization. More specifically, the 
proposed rule change would make amendments to CME Rule 814 and CME Rule 
901 to specify the time at which a settlement bank becomes responsible 
to the clearing house to perform variation margin settlement and the 
point during the clearing cycle at which a clearing member's 
obligations to the clearing house cease. The proposed revisions would 
not modify clearing house operations but merely clarify to the 
marketplace the clearing cycle currently in place.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CME included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. CME has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of these statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    CME is registered as a derivatives clearing organization with the 
Commodity Futures Trading Commission (``CFTC'') and operates a 
substantial business clearing futures and swaps contracts subject to 
the jurisdiction of the CFTC. CME is proposing to make amendments to 
CME Rule 814 and CME Rule 901 to specify the time at which a settlement 
bank becomes responsible to the clearing house to perform variation 
margin settlement and the point during the clearing cycle at which a 
clearing member's obligations to the clearing house cease. The proposed 
revisions would not modify clearing house operations but merely clarify 
to the marketplace the clearing cycle currently in place. CME notes 
that it has also made a corresponding filing with the CFTC, in 
Submission No. 14-280, regarding the proposed changes.

[[Page 73920]]

    The proposed changes would reflect the best practices outlined in 
the Principles for Financial Market Infrastructures (``PFMIs''), 
adopted by the joint Committee on Payment and Settlement Systems and 
the Technical Committee of the International Organization of Securities 
Commissions.\5\ Principle 8 of the PFMIs (Settlement finality) states 
that an ``FMI's rules and procedures should clearly define the point at 
which settlement is final'' and that ``[a]n FMI should be designed to 
provide clear and certain final settlement of payments, transfer 
instructions, or other obligations.'' \6\
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    \5\ See Committee on Payment and Settlement Systems and 
Technical Committee of the International Organization of Securities 
Commissions, Principles for Financial Market Infrastructures (Apr. 
16, 2012), available at http://www.bis.org/publ/cpss101a.pdf.
    \6\ Id. at 64.
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    Revised CME Rule 814 (Settlement Variation) will specify that 
``settlement variation is deemed final when an irrevocable commitment 
to pay has been provided to the Clearing House by a settlement bank in 
a form or manner as approved by the Clearing House.'' The amendment to 
Rule 814 codifies CME's uniform practice in regard to its settlement 
bank legal agreements, which provide that the settlement bank's 
obligation arises upon CME's receipt of the settlement bank's 
irrevocable commitment to pay.
    CME Rule 901.S (General Requirements and Obligations) is being 
added to state that ``the obligation(s) of a clearing member to pay 
settlement variation and/or performance bond during each clearing cycle 
is not extinguished until all required cash and/or collateral is 
deposited into the correct CME bank account at the relevant custodial 
or settlement bank.'' The proposed changes increase the transparency of 
the CME legal framework in this area and align the existing rules with 
global PFMI standards by specifying the times at which settlement bank 
obligations to the clearing house arise and clearing member obligations 
are extinguished.
    CME believes the proposed rule change is consistent with the 
requirements of the Act including Section 17A.\7\ Because the proposed 
change clarifies in CME's rules the time at which a settlement bank 
becomes responsible to the clearing house to perform variation margin 
settlement and the point during the clearing cycle at which a clearing 
member's obligations to the clearing house cease,\8\ it promotes the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivatives agreements, contracts, and 
transactions, assures the safeguarding of securities and funds which 
are in the custody or control of CME or for which it is responsible, 
and, in general, protects investors and the public interest in a way 
that is consistent with Section 17A(b)(3)(F) of the Act.\9\
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    \7\ 15 U.S.C. 78q-1.
    \8\ Pursuant to a teleconference with CME's counsel on December 
4, 2014, staff in the Division of Trading and Markets has modified 
this sentence to clarify CME's intended explanation of the statutory 
basis for the proposed rule change.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CME does not believe that the proposed rule change will have any 
impact, or impose any burden, on competition. The proposed changes 
specify the time at which a settlement bank becomes responsible to the 
clearing house to perform variation margin settlement and the point 
during the clearing cycle at which a clearing member's obligations to 
the clearing house cease. The proposed revisions will not modify 
clearing house operations but merely clarify to the marketplace the 
clearing cycle currently in place.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    CME has not solicited, and does not intend to solicit, comments 
regarding this proposed rule change. CME has not received any 
unsolicited written comments from interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(4)(ii) \11\ 
thereunder. CME asserts that this proposal constitutes a change in an 
existing service of CME that (a) primarily affects the clearing 
operations of CME with respect to products that are not securities, 
including futures that are not security futures, and swaps that are not 
security-based swaps or mixed swaps, and forwards that are not security 
forwards; and (b) does not significantly affect any securities clearing 
operations of CME or any rights or obligations of CME with respect to 
securities clearing or persons using such securities-clearing service, 
which renders the proposed change effective upon filing. CME believes 
that the proposal does not significantly affect any securities clearing 
operations of CME because CME recently filed a rule change that 
clarified that CME has decided not to clear security-based swaps, 
except in a very limited set of circumstances.\12\ The rule filing 
reflecting CME's decision not to clear security-based swaps removed any 
ambiguity concerning CME's ability or intent to perform the functions 
of a clearing agency with respect to security-based swaps. Therefore, 
this proposal will not have an effect on any securities clearing 
operations of CME.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(4)(ii).
    \12\ See Securities Exchange Act Release No. 34-73615 (Nov. 17, 
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). The only 
exception is with regards to Restructuring European Single Name 
Credit Default Swap (``CDS'') Contracts created following the 
occurrence of a Restructuring Credit Event in respect of an iTraxx 
Component Transaction. The clearing of Restructuring European Single 
Name CDS Contracts will be a necessary byproduct after such time 
that CME begins clearing iTraxx Europe index CDS.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CME-2014-29 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CME-2014-29. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/

[[Page 73921]]

rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filings will also be 
available for inspection and copying at the principal office of CME and 
on CME's Web site at http://www.cmegroup.com/market-regulation/rule-filings.html.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-CME-2014-29 
and should be submitted on or before January 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29102 Filed 12-11-14; 8:45 am]
BILLING CODE 8011-01-P