23768 Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices 

8The Exchange believes that FLEX Options 

provide TPHs and investors with an improved but 

comparable alternative to the over-the-counter 

(‘‘OTC’’) market in customized options, which can 

take on contract characteristics similar to FLEX 

Options. The Exchange believes market participants 

benefit from being able to trade customized options 

in an exchange environment in several ways, 

including, but not limited to the following: (i) 

Enhanced efficiency in initiating and closing out 

positions; (ii) increased market transparency; and 

(iii) heightened contra-party creditworthiness due 

to the role of The Options Clearing Corporation as 

issuer and guarantor of FLEX Options. 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f). 11 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

pay a fee that they would otherwise 

have to pay. The Waiver is equitable 

and not unfairly discriminatory because 

the Exchange believes that the Waiver 

will encourage TPHs to transact 

business in FLEX Options using the 

CFLEX System and encourage trading of 

customized options in an exchange 

environment.8 The Exchange believes 

such increased business will provide 

greater FLEX Options trading 

opportunities for all market 

participants. Also, the transaction fees 

collected from this increased business 

will allow the Exchange to recoup costs 

expended in building and developing 

the CFLEX System. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A) 9 of the Act and paragraph (f) 

of Rule 19b–4 10 thereunder. 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 rulecomments@sec.gov. Please include File 

Number SR–CBOE–2012–037 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2012–037. 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 a.m. and 3 p.m. Copies of the filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. 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–CBOE– 

2012–037 and should be submitted on 

or before May 11, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–9526 Filed 4–19–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66813; File No. SR–CME– 

2012–11] 

Self-Regulatory Organizations; 

Chicago Mercantile Exchange Inc.; 

Notice of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change To Facilitate Changing its 

Methodology for Calculation of the 

‘‘Cash Mark-to-Market’’ Performance 

Bonds for Cleared OTC FX Swaps 

From SPAN® to HVaR 

April 16, 2012. 

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 April 2, 

2012, the Chicago Mercantile Exchange 

Inc. (‘‘CME’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in Items I and II 

below, which items have been prepared 

primarily by CME. The Commission is 

publishing this Notice and Order to 

solicit comments on the proposed rule 

change from interested persons and to 

approve the proposed rule change on an 

accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of Terms of Substance of the 

Proposed Rule Change 

CME proposes to make certain 

changes that are related to its current 

cleared-only Cleared Over-the-Counter 

(‘‘OTC’’) foreign currency (‘‘FX’’) 

product offering to facilitate changing 

its methodology for calculation of the 

‘‘cash mark-to-market’’ performance 

bonds for OTC FX Swaps from Standard 

Portfolio Analysis (‘‘SPAN®’’) to 

Historical Value at Risk (‘‘HVaR’’). The 

text of the proposed rule change is 

available at CME’s Web site at http:// 

www.cmegroup.com/market-regulation/ 

rule-filings.html. 

II. Self-Regulatory Organization’s 

Statement of Purpose of, and Statutory 

Basis for, the Proposed Rule Change 

In its filing 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 III below. CME has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices 23769 

3These 38 products include twelve (‘‘12’’) cleared 

OTC non-deliverable forward or ‘‘NDFs,’’ namely, 

U.S. Dollar/Brazilian Real (‘‘USD/BRL’’), U.S. 

Dollar/Chinese Renminbi (‘‘USD/RMB’’ aka, 

‘‘CNY’’), U.S. Dollar/Malaysian Ringgit (‘‘USD/ 

MYR’’), U.S. Dollar/Indonesian Rupiah (‘‘USD/ 

IDR’’), U.S. Dollar/Indian Rupee (‘‘USD/INR’’), U.S. 

Dollar/Korean Won (‘‘USD/KRW’’), U.S. Dollar/ 

Philippine Peso (‘‘USD/PHP’’), U.S. Dollar/Taiwan 

Dollar (‘‘USD/TWD’’), U.S. Dollar/Chilean Peso 

(‘‘USD/CLP’’), U.S. Dollar/Colombian Peso (‘‘USD/ 

COP’’), U.S. Dollar/Peruvian New Sol (‘‘USD/PEN’’) 

and U.S. Dollar/Russian Ruble (‘‘USD/RUB’’) nondeliverable forwards (‘‘NDFs’’); and twenty-six 

(‘‘26’’) CME WM/Reuters OTC FX Cash-Settlement 

Forwards, namely, Australian Dollar/U.S. Dollar 

(‘‘AUD/USD’’), U.S. Dollar/Swiss Franc (‘‘USD/ 

CHF’’), U.S. Dollar/Canadian Dollar (‘‘USD/CAD’’), 

New Zealand Dollar/U.S. Dollar (‘‘NZD/USD’’), U.S. 

Dollar/Norwegian Krone (‘‘USD/NOK’’), U.S. 

Dollar/Swedish Krona (‘‘USD/SEK’’), U.S. Dollar/ 

Denmark Krone (‘‘USD/DKK’’), Euro/U.S. Dollar 

(‘‘EUR/USD’’), U.S. Dollar/Japanese Yen (‘‘USD/ 

JPY’’), Great British Pound/U.S. Dollar (‘‘GBP/ 

USD’’), U.S. Dollar/Mexican Peso (‘‘USD/MXN’’), 

U.S. Dollar/Singapore Dollar (‘‘USD/SGD’’), U.S. 

Dollar/Polish Zloty (‘‘USD/PLN’’), U.S. Dollar/ 

South African Rand (‘‘USD/ZAR’’), Australian 

Dollar/Japanese Yen (‘‘AUD/JPY’’), Euro/Australian 

Dollar (‘‘EUR/AUD’’), Canadian Dollar/Japanese 

Yen (‘‘CAD/JPY’’), Euro/Great British Pound (‘‘EUR/ 

GBP’’), Euro/Japanese Yen (‘‘EUR/JPY’’), Euro/ 

Swiss Franc (‘‘EUR/CHF’’), U.S. Dollar/Czech 

Koruna (‘‘USD/CZK’’), U.S. Dollar/Hungarian Forint 

(‘‘USD/HUF’’), U.S. Dollar/Turkish Lira (‘‘USD/ 

TRY’’), U.S. Dollar/Israeli Shekel (‘‘USD/ILS’’), U.S. 

Dollar/Thailand Baht (‘‘USD/THB’’), and U.S. 

Dollar/Hong Kong Dollar (‘‘USD/HKD’’). 

A. Self-Regulatory Organization’s 

Statement of Purpose of, and Statutory 

Basis for, the Proposed Rule Change 

CME proposes a rule change that 

would facilitate changing its 

methodology for calculation of the 

‘‘cash mark-to-market’’ performance 

bonds for OTC FX Spot, Forward, and 

Swap transactions from SPAN® to 

HVaR. This action is consistent with an 

analogous migration in performance 

bond methodology for CME Group’s 

cleared OTC Interest Rate Swaps (‘‘IRS’’) 

completed in 2011. 

CME currently has a total of thirtyeight (38) OTC FX products listed for 

clearing (twelve non-deliverable 

forward FX pairs and twenty-six CME 

WM/Reuters OTC Cash-Settlement 

Forwards FX pairs).3 CME Rule 930.A. 

‘‘Performance Bond System,’’ would be 

amended to note cleared OTC FX 

transactions will use the HVaR 

Performance Bond System for 

margining. The proposed rule change 

would be effective on April 16, 2012, 

when CME intends to migrate all 38 

OTC FX pairs currently listed for 

clearing from the current SPAN to HVaR 

methodology for determining 

performance bonds. 

Consistent with best practices 

recommendations, CME’s margin model 

covers losses over any 5-day period in 

a large universe of portfolios during 

99% of days. HVaR methodology is the 

model of choice for the risk departments 

of most if not all financial services firms 

and is widely considered to be a proxy 

for market risk. It is also wellunderstood and easily replicable. In the 

HVaR framework, past events are used 

for coming up with possible scenarios in 

the future. This approach implicitly 

assumes that historical data series 

provide rich sample sets of the possible 

probability distribution of the relevant 

financial variable. CME has arranged for 

receipt of FX historical data by FX pair 

by maturity curve from Super 

Derivatives. In depth analysis and stress 

testing of sample FX portfolios will be 

done upon receipt of data. 

The margin methodology, at a high 

level, follows these four steps: 

1. Generate matrix of historical 

returns 

2. Compute volatility scaling factors 

and apply them individually to each 

tenor in each scenario 

3. Generate scenarios by applying the 

scaled return matrix to today’s forward 

curve and compute the profit (loss) of 

the portfolio in each scenario. 

4. Rank the scenarios by maximum 

loss to maximum gain and take the 

required percentile as a margin. In our 

model, we chose to take the 4th largest 

loss over the 5-year period, which 

corresponds to approximately 99.7% 

confidence interval. 

CME believes the proposed rule 

change is consistent with the 

requirements of the Act and particularly 

with Section 17A of the Act because it 

involves clearing of swaps and futures 

contracts and thus relate solely to CME’s 

swaps and futures clearing activities 

pursuant to its registration as a 

derivatives clearing organization under 

the Commodity Exchange Act (‘‘CEA’’) 

and does not significantly affect any 

securities clearing operations of the 

clearing agency or any related rights or 

obligations of the clearing agency or 

persons using such service. CME further 

notes that the policies of the CEA with 

respect to clearing are comparable to a 

number of the policies underlying the 

Act, such as promoting market 

transparency for over-the-counter 

derivatives and futures markets, 

promoting the prompt and accurate 

clearance of transactions, and protecting 

investors and the public interest. The 

proposed rule changes accomplish those 

objectives by offering investors 

enhancements in relation to its FX OTC 

swap product offering CME. 

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. 

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. 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 may be 

submitted by using the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml), or send 

an email to rule-comments@sec.gov. 

Please include File No. SR–CME–2012– 

11 on the subject line. 

• Paper comments should be sent in 

triplicate to Elizabeth M. Murphy, 

Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC, 20549–1090. 

All submissions should refer to File 

Number SR–CME–2012–11. 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 

a.m. and 3 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 


tkelley on DSK3SPTVN1PROD with NOTICES
23770 Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices 

4 15 U.S.C. 78s(b). 

5 15 U.S.C. 78q–1. In approving this proposed 

rule change, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

6 15 U.S.C. 78q–1(b)(3)(F). 

7 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 65568 

(October 14, 2011), 76 FR 65307 (October 20, 2011) 

(Notice of Filing of File No. SR–FINRA–2011–058) 

(‘‘Original Proposal’’). 

4Letters to Elizabeth M. Murphy, Secretary, 

Commission, from Suzanne H. Shatto, Seattle, 

Washington, dated October 20, 2011; Naphtali M. 

Hamlet, Seattle, Washington, dated October 21, 

2011; Daniel Zinn, General Counsel, OTC Markets 

Group, Inc., dated November 10, 2011; Michael T. 

Corrao, Managing Director, Knight Capital Group, 

Inc., dated November 16, 2011 (‘‘Knight #1’’); R. 

Cromwell Coulson, President and CEO, OTC 

Markets, dated November 18, 2011; Daniel Zinn, 

General Counsel, OTC Markets Group, Inc., dated 

December 29, 2011; Michael T. Corrao, Managing 

Director, Knight Capital Group, Inc., dated January 

13, 2012 (‘‘Knight #2’’). 

Comment letters are available at www.sec.gov. 

5On December 23, 2011, FINRA responded to 

comment letters received by the SEC as of that date. 

See letter to Elizabeth M. Murphy, Secretary, 

Commission, from Stephanie M. Dumont, Senior 

Vice President and Director of Capital Markets 

Policy, FINRA (‘‘FINRA Response Letter’’). 

6 15 U.S.C. 78s(b)(2)(B). 

7See Securities Exchange Act Release No. 66168 

(January 17, 2012), 77 FR 3515 (January 24, 2012) 

(Order Instituting Proceedings to Determine 

Whether to Disapprove File No. SR–FINRA–2011– 

058) (‘‘Proceedings Order’’). 

8See letter to Elizabeth M. Murphy, Secretary, 

Commission, from Daniel Zinn, General Counsel, 

OTC Markets Group Inc., dated February 14, 2012. 

9See Securities Exchange Act Release No. 62359 

(June 22, 2010), 75 FR 37488 (June 29, 2010) (File 

No. SR–FINRA–2009–054; ‘‘Order Approving NMSPrincipled Rules for OTC Equity Securities’’). 

FINRA Rule 6434 became effective on February 11, 

should refer to File Number SR–CME– 

2012–11 and should be submitted on or 

before May 11, 2012. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

Section 19(b) of the Act 4 directs the 

Commission to approve a proposed rule 

change of a self-regulatory organization 

if it finds that such proposed rule 

change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

such organization. The Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act, in particular with the requirements 

of Section 17A of the Act,5 and the rules 

and regulations thereunder applicable to 

CME. Specifically, the Commission 

finds that the proposed rule change is 

consistent with Section 17A(b)(3)(F) of 

the Act, which requires, among other 

things, that the rules of a clearing 

agency be designed to assure the 

safeguarding of securities and funds 

which are in the possession or control 

of the clearing agency or for which it is 

responsible and to protect investors and 

the public interest because it should 

allow CME to enhance its margin 

evaluation and collection related to 

clearing FX products.6

In its filing CME requested that the 

Commission approve this proposed rule 

change prior to the thirtieth day after 

the date of publication of the notice of 

the filing. CME has articulated three 

reasons for so granting approval. One, 

the products covered by this filing and 

CME’s operations as a derivatives 

clearing organization for such products 

are regulated by the CFTC under the 

CEA. Two, the proposed rule change 

relates solely to FX products and 

therefore relate solely to CME’s swaps 

clearing activities and do not 

significantly relate to CME’s functions 

as a clearing agency for security-based 

swaps. Three, not approving this request 

on an accelerated basis will have a 

significant impact on the swap clearing 

business of CME as a designated 

clearing organization. 

The Commission finds good cause for 

granting approval of the proposed rule 

change prior to the thirtieth day after 

publication of the notice of its filing 

because: (i) The proposed rule change 

does not significantly affect any 

securities clearing operations of the 

clearing agency (whether in existence or 

contemplated by its rules) or any related 

rights or obligations of the clearing 

agency or persons using such service; 

(ii) the clearing agency has indicated 

that not providing accelerated approval 

would have a significant impact on its 

FX clearing business as a designated 

clearing organization; and (iii) the 

activity relating to the non-security 

clearing operations of the clearing 

agency for which the clearing agency is 

seeking approval is subject to regulation 

by another federal regulator. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (SR–CME–2012– 

11) is approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–9527 Filed 4–19–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66819; File No. SR–FINRA– 

2011–058] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 to Proposed Rule 

Change To Amend FINRA Rule 6433 

(Minimum Quotation Size 

Requirements for OTC Equity 

Securities) 

April 17, 2012. 

I. Introduction 

On October 6, 2011, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend FINRA Rule 6433 (Minimum 

Quotation Size Requirements for OTC 

Equity Securities). The proposed rule 

change was published for comment in 

the Federal Register on October 20, 

2011.3 The Commission received seven 

comment letters on the proposed rule 

change—two from individual investors, 

three from an inter-dealer quotation 

system and two from a member firm.4

FINRA responded to comments on 

December 23, 2011.5 The Commission 

published an order instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act,6 to determine 

whether to approve or disapprove the 

proposed rule change, in the Federal 

Register on January 24, 2012.7 The 

comment period closed on February 14, 

2012, and FINRA’s rebuttal period 

closed on February 28, 2012. The 

Commission received one comment 

letter in response to the Proceedings 

Order.8 On April 17, 2012, FINRA filed 

Amendment No. 1 to the proposed rule 

change. The text of Amendment No. 1 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

As stated in the Original Proposal, 

FINRA is amending FINRA Rule 6433 

(Minimum Quotation Size Requirements 

for OTC Equity Securities) (the ‘‘Rule’’) 

to, among other things, (1) Simplify the 

tier structure, (2) parallel the approach 

taken by the national securities 

exchanges for securities priced at or 

above $1.00, (3) expand the scope of the 

Rule to apply to all quotations or orders 

displayed on an inter-dealer quotation 

system, (4) incorporate the requirements 

of FINRA Rule 6434 (Minimum Pricing 

Increments for OTC Equity Securities) 9


tkelley on DSK3SPTVN1PROD with NOTICES