[Federal Register Volume 80, Number 151 (Thursday, August 6, 2015)]
[Notices]
[Pages 47014-47018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19290]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75582; File No. SR-CME-2015-014]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Expand Performance Bond Collateral Program To Include Australian 
Government Debt, Singapore Government Debt, and Ontario and Quebec 
Canadian Provincial Debt

July 31, 2015.
    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 July 24, 2015, Chicago Mercantile Exchange Inc. (``CME'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II 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) thereunder,\4\ 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 proposing to announce via Advisory Notice the expansion of 
its collateral program to include Australian Government debt, Singapore 
Government debt, and Ontario and Quebec Provincial debt. More 
specifically, CME is proposing to issue a CME Clearing Advisory Notice 
to clearing member firms announcing an expansion of its performance 
bond collateral program for Base, IRS and CDS Guaranty Fund products to 
include certain discount bills, notes and bonds issued by the 
Australian Government (``AGBs''), Singapore Government (``SGBs''), and 
the Canadian Provinces of Ontario and Quebec (``CPBs''). The text of 
the proposed rule change is below. Italicized text indicates additions; 
bracketed text indicates deletions.
* * * * *

[[Page 47015]]

CME Group Advisory Notice
    TO: Clearing Member, Firms Chief Financial Officers, Back Office 
Managers
    FROM: CME Clearing.
    SUBJECT: Canadian provincial debt, Australian sovereign debt and 
Singapore sovereign debt.
    DATE: May 27, 2015.
    CME Clearing (CME) announces the addition of Australia and 
Singapore to our list of acceptable foreign sovereign debt. CME also 
announces the addition of Canadian provincial debt from Ontario and 
Quebec. Australian and Singapore sovereign debt, and Canadian 
provincial debt are acceptable for Base, CDS, and IRS performance bond 
requirements and are part of Category 4 assets for Base and IRS and 
Category 3 assets for CDS. These additions to our acceptable collateral 
list will be effective July 20, 2015, pending regulatory approval. 
Please see the applicable haircuts and limits below.

----------------------------------------------------------------------------------------------------------------
                                                                  Haircut schedule
                                                          --------------------------------
                                                                  Time to maturity
            Asset class                  Description      --------------------------------         Notes
                                                              0 to <= 5      >5 to <=10
                                                                years           years
----------------------------------------------------------------------------------------------------------------
Foreign Sovereign Debt............  Discount Bills from                5%  ..............   Australian
                                     the following                                          debt is capped at
                                     countries:                                             $250 million USDE
                                      Australia..                                   per clearing member.
                                      Singapore..
                                    Notes and Bonds from               6%            7.5%   Singapore
                                     the following                                          debt is capped at
                                     countries:                                             $100 million USDE
                                      Australia..                                   per clearing member.
                                      Singapore..
Canadian Provincials..............  Discount Bills from               25%  ..............   Canadian
                                     the following                                          Provincial debt is
                                     provinces:                                             capped at $100
                                      Ontario....                                   million USDE per
                                      Quebec.....                                   clearing member.
                                    Notes and Bonds from              25%  ..............   Provincials
                                     the following                                          that exceed 5 years
                                     provinces:                                             time to maturity are
                                      Ontario....                                   not acceptable.
                                      Quebec.....
----------------------------------------------------------------------------------------------------------------

    For questions regarding these new collateral types, please contact 
the Financial Unit at (312) 207-2594 or Collateral Services at (312) 
648-3775.
* * * * *

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

    In its filings with the Commission, CME included statements 
concerning the purpose 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 such 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 announce via Advisory 
Notice the expansion of its collateral program to include Australian 
Government debt, Singapore Government debt, and Ontario and Quebec 
Provincial debt. More specifically, CME is proposing to issue a CME 
Clearing Advisory Notice to clearing member firms announcing an 
expansion of its performance bond collateral program for Base, IRS and 
CDS Guaranty Fund products to include certain discount bills, notes and 
bonds issued by the Australian Government (``AGBs''), Singapore 
Government (``SGBs''), and the Canadian Provinces of Ontario and Quebec 
(``CPBs'').
AGBs
    CME continues to seek diversification of both its clearing member 
and collateral bases where appropriate. Acceptance of AGBs will 
diversify CME's performance bond collateral base and enable posting of 
high-quality assets widely held by participants in Australia, where CME 
obtained local regulatory authorization to offer direct clearing 
services. CME's credit team evaluated AGBs as eligible performance bond 
collateral pursuant to requests from market participants and 
recommended their acceptance to CME's clearing house risk committee 
(``CHRC''). The decision to accept AGBs is reflective of the global 
nature of the IRS swaps market as these instruments are likely to be 
held by, or accessible to, AUD IRS participants. We believe high 
quality foreign sovereign debt subject to prudent limits will increase 
the likelihood that high quality financial institutions from foreign 
jurisdictions will consider clearing membership at CME. Additional 
clearing members from foreign jurisdictions will add an increased 
element of geographic diversification to CME's membership base and 
potentially mitigate the negative impact of systemic events through 
reduced geographic concentration.
    CME deemed AGBs with a time to maturity of 10 years or less as 
eligible collateral after reaching a favorable determination regarding 
these instruments' liquidity profile in a stressed market environment. 
The AGBs will be category 4 assets for products supported by the Base 
and IRS guaranty funds and Category 3 assets for products supported by 
the CDS guaranty fund. Assets in these categories are capped per 
clearing firm at a level established to ensure such assets are 
convertible into cash on a same-day basis via pledge to CME's credit 
facility. To better ensure liquidity is available to CME in times of 
market stress, the AGBs are further subject to a sub-limit restricting 
clearing firms from posting more than $250 million of AGBs at any one 
time.
    All clearing members will be eligible to post AGBs as performance 
bond but CME expects such collateral to originate

[[Page 47016]]

primarily if not exclusively from Australian market participants in OTC 
IRS markets due to their natural access to AGBs. Currently, CME has a 
limited number of indirect Australian IRS participants and no direct 
Australian IRS participants. As such, the per-clearing member cap on 
AGBs should result in these instruments accounting for a de minimis 
portion of CME's overall collateral holdings. As a comparative example, 
CME accepts as performance bond debt instruments issued by the Japanese 
government with per-firm limits at four times than the proposed limits 
for AGBs (i.e., up to $1B per clearing member for JPY debt). Currently, 
only 0.5% of the overall limit for JPY debt is being utilized. 
Initially, we expect similarly de minimis amounts of AGBs.
    Acceptance of AGBs will not impact the overall nature and level of 
risk presented by CME as the level of margin collected will remain the 
same; only the constitution of CME's collateral holdings may change. 
CME analysis indicates the AGBs satisfy each of the characteristics for 
high-quality liquid assets the Bank for International Settlements (BIS) 
has created for collateral evaluation, and thus exhibit minimal credit, 
market and liquidity risk. The risk profile and haircut schedule for 
AGBs are consistent with those for similarly rated foreign-issued debt 
accepted by CME as performance bond collateral.
SGBs
    Acceptance of SGBs will diversify CME's performance bond collateral 
base and enable posting of high-quality assets widely held by 
participants in Singapore, where CME is seeking regulatory 
authorization to offer direct clearing services. CME's credit team 
evaluated SGBs as eligible performance bond collateral pursuant to 
requests from market participants and recommended their acceptance to 
CME's clearing house risk committee. The decision to accept SGBs is 
reflective of the global nature of the CME's markets as these 
instruments are likely to be held by, or accessible to, Singaporean 
participants. We believe high quality foreign sovereign debt subject to 
prudent limits will increase the likelihood that high quality financial 
institutions from foreign jurisdictions will consider clearing 
membership at CME. Additional clearing members from foreign 
jurisdictions will add an increased element of geographic 
diversification to its membership base and potentially mitigate the 
negative impact of systemic events through reduced geographic 
concentration.
    CME deemed SGBs with a time to maturity of 10 years or less as 
eligible collateral after reaching a favorable determination regarding 
these instruments' liquidity profile in a stressed market environment. 
The SGBs will be category 4 assets for products supported by the Base 
and IRS guaranty funds and Category 3 assets for products supported by 
the CDS guaranty fund. Assets in these categories are capped per 
clearing firm at a level established to ensure such assets are 
convertible into cash on a same-day basis via pledge to CME's credit 
facility. To better ensure liquidity is available to CME in times of 
market stress, the SGBs are further subject to a sub-limit restricting 
clearing firms from posting more than $100 million of SGBs at any one 
time.
    All clearing members will be eligible to post SGBs as performance 
bond but CME expects such collateral to originate primarily if not 
exclusively from Singapore market participants due to their natural 
access to SGBs. Currently, CME has a limited number of indirect 
Singapore participants and no direct Singapore clearing members. As 
such, the per-clearing member cap on SGBs should result in these 
instruments accounting for a de minimis portion of CME's overall 
collateral holdings. As a comparative example, CME accepts as 
performance bond debt instruments issued by the Japanese government 
with per-firm limits at ten times than the proposed limits for SGBs 
(i.e., up to $1B per clearing member for JPY debt). Currently, only 
0.5% of the overall limit for JPY debt is being utilized. Initially, we 
expect similarly de minimis amounts of SGBs.
    Acceptance of SGBs will not impact the overall nature and level of 
risk presented by CME as the level of margin collected will remain the 
same; only the constitution of CME's collateral holdings may change. 
CME analysis indicates the SGBs satisfy each of the characteristics for 
high-quality liquid assets the Bank for International Settlements (BIS) 
has created for collateral evaluation, and thus exhibit minimal credit, 
market and liquidity risk. The risk profile and haircut schedule for 
SGBs are consistent with those for similarly rated foreign-issued debt 
accepted by CME as performance bond collateral.
CPBs
    Acceptance of CPBs will diversify CME's performance bond collateral 
base and enable posting of high-quality assets widely held by 
participants in Ontario and Quebec, where CME has local regulatory 
authorization to offer direct clearing services. CME's credit team 
evaluated CPBs as eligible performance bond collateral pursuant to 
requests from market participants and recommended their acceptance to 
CME's clearing house risk committee (``CHRC''). The decision to accept 
CPBs is reflective of the global nature of the CME's markets as these 
instruments are likely to be held by, or accessible to, Canadian 
clearing members and market participants. We believe high quality 
foreign sovereign debt subject to prudent limits will increase the 
likelihood that high quality financial institutions from foreign 
jurisdictions will consider clearing membership at CME. Additional 
clearing members from foreign jurisdictions will add an increased 
element of geographic diversification to CME's membership base and 
potentially mitigate the negative impact of systemic events through 
reduced geographic concentration.
    CME deemed CPBs with a time to maturity of 5 years or less as 
eligible collateral after reaching a favorable determination regarding 
these instruments' liquidity profile in a stressed market environment. 
The CPBs will be category 4 assets for products supported by the Base 
and IRS guaranty funds and Category 3 assets for products supported by 
the CDS guaranty fund. Assets in these categories are capped per 
clearing firm at a level established to ensure such assets are 
convertible into cash on a same-day basis via pledge to CME's credit 
facility. To better ensure liquidity is available to CME in times of 
market stress, the CPBs are further subject to a sub-limit restricting 
clearing firms from posting more than $100 million of CPBs at any one 
time.
    All clearing members will be eligible to post CPBs as performance 
bond but CME expects such collateral to originate primarily if not 
exclusively from Canadian market participants due to their natural 
access to CPBs. The per-clearing member cap on CPBs should result in 
these instruments accounting for a de minimis portion of CME's overall 
collateral holdings. As a comparative example, CME accepts as 
performance bond debt instruments issued by the Japanese government 
with per-firm limits at ten times than the proposed limits for CPBs 
(i.e., up to $1B per clearing member for JPY debt). Currently, only 
0.5% of the overall limit for JPY debt is being utilized. Initially, we 
expect similarly de minimis amounts of CPBs.
    Acceptance of CPBs will not impact the overall nature and level of 
risk presented by CME as the level of margin collected will remain the 
same; only the constitution of CME's collateral

[[Page 47017]]

holdings may change. CME analysis indicates the CPBs satisfy each of 
the characteristics for high-quality liquid assets the Bank for 
International Settlements (BIS) has created for collateral evaluation, 
and thus exhibit minimal credit, market and liquidity risk. The risk 
profile and haircut schedule for CPBs are consistent with those for 
similarly rated foreign-issued debt accepted by CME as performance bond 
collateral.
* * * * *
    A summary of the changes described in the Advisory Notice is set 
forth in the following chart:

----------------------------------------------------------------------------------------------------------------
                                                                  Haircut schedule
                                                          --------------------------------
                                                                  Time to maturity
            Asset class                  Description      --------------------------------         Notes
                                                                             >5 to <=10
                                                           0 to <=5 years       years
----------------------------------------------------------------------------------------------------------------
Foreign Sovereign Debt............  Discount Bills from                5%  ..............   Australian
                                     the following                                          debt is capped at
                                     countries:                                             $250 million USDE
                                      Australia..                                   per clearing member
                                      Singapore..
                                    Notes and Bonds from               6%            7.5%   Singapore
                                     the following                                          debt is capped at
                                     countries:                                             $100 million USDE
                                      Australia..                                   per clearing member
                                      Singapore..
Canadian Provincials..............  Discount Bills from               25%  ..............   Canadian
                                     the following                                          Provincial debt is
                                     provinces:                                             capped at $100
                                      Ontario....                                   million USDE per
                                      Quebec.....                                   clearing member
                                    Notes and Bonds from              25%  ..............   Provincials
                                     the following                                          that exceed 5 years
                                     provinces:.                                            time to maturity are
                                      Ontario....                                   not acceptable
                                      Quebec.....
----------------------------------------------------------------------------------------------------------------

* * * * *
    The proposed rule changes that are described in this filing are 
limited to CME's business as a derivatives clearing organization 
clearing products under the exclusive jurisdiction of the Commodity 
Futures Trading Commission (``CFTC''). CME has not cleared security 
based swaps and does not plan to and therefore the proposed rule 
changes do not impact CME's security-based swap clearing business in 
any way. The proposed changes would become effective immediately. CME 
notes that it has also submitted the proposed rule changes that are the 
subject of this filing to its primary regulator, the CFTC, in CME 
Submission Numbers 15-228R, 15-229RR, and 15-230R.

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 
involve expanding its collateral program to include Australian 
Government debt, Singapore Government debt, and Ontario and Quebec 
Provincial debt. More specifically, CME is proposing to issue a CME 
Clearing Advisory Notice to clearing member firms announcing an 
expansion of its performance bond collateral program for Base, IRS and 
CDS Guaranty Fund products to include certain discount bills, notes and 
bonds issued by the Australian Government (``AGBs''), Singapore 
Government (``SGBs''), and the Canadian Provinces of Ontario and Quebec 
(``CPBs'').

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) \5\ of the Act and Rule 19b-4(f)(4)(ii) \6\ 
thereunder. CME has designated 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.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(4)(ii).
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    CME believes that the proposal does not significantly affect any 
securities clearing operations of CME because CME recently filed a 
proposed rule change that clarified that CME has decided not to clear 
security-based swaps, except in a very limited set of circumstances.\7\ 
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 have no effect on any 
securities clearing operations of CME.
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    \7\ See Securities Exchange Act Release No. 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 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.

[[Page 47018]]

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 No. SR-CME-2015-014 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-2015-014. 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/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 filing also will 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-2015-014 and 
should be submitted on or before August 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19290 Filed 8-5-15; 8:45 am]
BILLING CODE 8011-01-P