[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73124-73126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28768]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73727; File No. SR-CME-2014-15]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Aligning Performance Bond and Guaranty Fund Collateral Acceptance With 
CFTC Regulation 39.33 Requirements

December 3, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``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 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. 78q-1(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 certain changes to 
its collateral acceptance practices. More specifically, CME is 
proposing to issue two advisories to clearing member firms announcing 
that it will narrow the range of acceptable collateral types for 
guaranty fund deposits to cash and U.S. Treasury Bills, Notes and Bonds 
with time to maturity of ten years or less.

II. Self-Regulatory Organizations 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 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 certain changes to its collateral acceptance practices. More 
specifically, CME is narrowing the range of acceptable collateral types 
for guaranty fund deposits to cash and U.S. Treasury Bills, Notes and 
Bonds with time to maturity of ten years or less. The changes that are 
the subject of these filings are designed to better position the 
utilization of clearing members' guaranty fund deposits as qualifying 
liquidity resources under CFTC Regulation 39.33.
    The removal of IEF2, U.S. Agencies, and U.S. Treasury STRIPs and 
securities with time to maturity exceeding ten years does not 
materially impact the nature or level of risks presented by CME as the 
post-haircut risk profile of guaranty fund collateral deposits will be 
unchanged. Further, the impact to CME and its clearing firms is minimal 
as fewer than 22% of guaranty fund assets currently on deposit will 
have to be substituted in order to conform to the amended eligibility 
criteria.
    CME is also re-categorizing its eligible performance bond 
collateral types so that the assets in each category meet the 
definition of qualifying liquidity resources under CFTC Regulation 
39.33. Category 1 will consist only of assets that independently meet 
the criteria of qualifying liquidity resources. Category 2 and Category 
3 will consist of assets that are qualifying liquidity resources due to 
being supported by CME's credit facility. Amended Category 2 and 
Category 3 limits are designed to ensure such assets remain covered by 
CME's credit facility and thus continue to meet the definition of 
qualifying liquidity resources. The specifics are as follows: 
collateral accepted under the IEF2 program will be moved from Category 
1 to Category 3 and will be qualifying liquidity resources backed by 
CME's credit facility; letters of credit and collateral accepted under 
the IEF5 program will be moved from Category 2 to Category 1 since cash 
and committed lines of credit are qualifying liquidity resources 
without being supported by CME's credit facility; TIPS will be moved 
from Category 3 to Category 2 and STRIPs will be moved from Category 1 
to Category 2 to align the assets and limits of Category 2 with the 
terms of CME's credit facility; and the acceptance of stocks in 
Category 3 will be limited to $1 billion per clearing member in 
alignment with borrowing base limits in the CME credit facility. 
Additionally, CME is capping IEF2 acceptance at $5 billion rather than 
a percentage cap in order to mitigate the impact of re-categorization 
on its clearing membership. The re-categorization and limits do not 
materially impact the nature or level of risks presented by CME as the 
post-haircut risk profile of deposited performance bond collateral 
deposits will be unchanged and no performance bond currently on deposit 
would have to be substituted to align with limits upon the re-
categorization.
    A summary of the changes described in the Advisory Notices is set 
forth below:

                   Guaranty Fund Acceptable Collateral
------------------------------------------------------------------------
                  Current                                New
------------------------------------------------------------------------
<bullet> Cash                               <bullet> Cash
<bullet> U.S. Treasury Bills/Notes/Bonds/   <bullet> U.S. Treasury Bills/
 Strips                                      Notes/Bonds *
<bullet> U.S. Agencies (capped at 50% of
 total)

[[Page 73125]]

 
<bullet> IEF2 (Money Market Mutual Funds)
------------------------------------------------------------------------
* Time to maturity not to exceed 10 years.


                          Performance Bond Acceptable Collateral Categories and Limits
----------------------------------------------------------------------------------------------------------------
                                                     Current
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             Category 1                           Category 2 *                          Category 3 **
----------------------------------------------------------------------------------------------------------------
Cash                                  U.S. Government Agencies              TIPS (capped at $1bn per firm)
U.S. Treasuries                       Select MBS                            Gold (capped at $500mm per firm)
IEF2 (Money Market Mutual Funds)      Letters of Credit                     Stocks
                                      IEF5 (Interest Bearing Cash)          IEF4 (corporate bonds)
                                                                            Foreign Sovereign Debt (capped at
                                                                             $1bn per firm)
----------------------------------------------------------------------------------------------------------------
* Capped at 40% of core requirement per currency requirement per firm.
** Capped at 40% of core requirement per currency requirement per firm or $5 billion per firm, the lesser of the
  two.


----------------------------------------------------------------------------------------------------------------
                                                       New
-----------------------------------------------------------------------------------------------------------------
             Category 1                           Category 2 *                          Category 3 **
----------------------------------------------------------------------------------------------------------------
                                                        Category 2 & 3 Capped at $7bn Per Firm
----------------------------------------------------------------------------------------------------------------
Cash                                  U.S. Government Agencies              IEF2 [dagger] (Money Market Mutual
U.S. Treasuries                       Strips                                 Funds)
IEF5 (Interest Bearing Cash)          TIPS (capped at $1bn per firm)        Gold (capped at $500mm per firm)
Letters of Credit *                   Select MBS                            Stocks (capped at $1bn per firm)
                                                                            IEF4 (corporate bonds)
                                                                            Foreign Sovereign Debt (capped at
                                                                             $1bn per firm)
----------------------------------------------------------------------------------------------------------------
* Capped at 40% of core requirement per currency requirement per firm.
* Capped at 40% of core requirement per currency requirement per firm.
** Capped at 40% of core requirement per currency requirement per firm or $5 billion per firm, the lesser of the
  two.
[dagger] Not included in the 40% requirement.


    Note:  The changes described in this filing and above do not 
impact the current limitations on collateral acceptance that 
separately apply to CME's swap clearing offering, namely, that 
letters of credit are not acceptable collateral for all swaps, 
stocks are not eligible collateral for either IRS or CDS, and 
corporate bonds are not eligible collateral for CDS.

    CME, a derivatives clearing organization, notes that it is 
implementing the proposed changes as part of an effort to discharge its 
regulatory obligations under the Commodity Exchange Act more 
effectively. CFTC Regulation 39.33(c)(1) requires a systemically 
important DCO (``SIDCO'') like CME to maintain eligible liquidity 
resources that, at a minimum, will enable it to meet its intraday, 
same-day and multiday obligations to perform settlements with a high 
degree of confidence under a wide range of stress scenarios, including 
a default by the clearing member creating the largest aggregate 
liquidity obligation in extreme but plausible market conditions. 
Further, CFTC Regulation 39.35 requires each SIDCO to adopt rules and 
procedures to address losses exceeding available financial resources. 
Finally, CFTC Regulation 39.13(g)(10) requires each derivatives 
clearing organization to limit the assets it accepts as initial margin 
to those that have minimal liquidity risk.
    CME believes the proposed rule change is also entirely consistent 
with the requirements of the Exchange Act and the rules and regulations 
thereunder, including Section 17A of the Exchange Act.\5\ Although the 
proposed changes to CME's current performance bond categorization and 
limits may impact the makeup of the collateral used by a CME clearing 
member to meet its margin requirements, the changes will have no impact 
on the level of margin collected. The proposed changes actually would 
increase the qualifying liquidity resources available to CME in the 
event of a clearing member default. In addition, narrowing the scope of 
acceptable guaranty fund collateral, in conjunction with other CME 
rules, is designed to facilitate the ready availability of guaranty 
fund deposits to meet CME's settlement obligations in the event of a 
clearing member default. The proposed changes to guaranty fund 
collateral eligibility, in conjunction with other CME rules, are also 
designed to address liquidity shortfall scenarios. CME believes all of 
these purposes are in accordance with the requirements of the Exchange 
Act and will strengthen CME's existing default rules and procedures and 
will therefore promote the prompt and accurate clearance and settlement 
of securities transactions and, to the extent applicable, derivatives 
agreements, contracts, and transactions, to assure the safeguarding of 
securities and funds which are in the custody or control of CME or for 
which it is responsible, and, in general, to protect investors and the 
public interest in a way that is consistent with Section 17A(b)(3)(F) 
of the Exchange Act.\6\
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    \5\ 15 U.S.C. 78q-1.
    \6\ 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 
involve a narrowing of the range of acceptable collateral types for 
guaranty

[[Page 73126]]

fund deposits to cash and U.S. Treasury Bills, Notes and Bonds with 
time to maturity of ten years or less. These measures will strengthen 
CME's existing default rules and procedures.

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

    CME Inc. has filed the proposed rule change pursuant to Section 
19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(4)(ii) \8\ thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(4)(ii).
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    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 proposed rule change 
that clarified that CME has decided not to clear security-based swaps, 
except in a very limited set of circumstances.\9\ 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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    \9\ 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 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 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. If the Commission takes such 
action, the Commission shall institute proceedings under Section 
19(b)(2)(B) \10\ of the Act to determine whether the proposed rule 
change should be approved or disapproved.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3644435a531b55595b5b535842457645535518515940"><span class="__cf_email__" data-cfemail="3240475e571f515d5f5f575c4641724157511c555d44">[email protected]</span></a>. Please include 
File No. SR-CME-2014-15 on the subject line.

Paper Comments

    <bullet> 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-2014-15. 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 of 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-2014-15 and 
should be submitted on or before December 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28768 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P


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