Document ID: SEC-2011-1673-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Mercantile Exchange, Inc.
Posted Date: 2011-11-01T04:00Z

[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67512-67514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28213]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65637; File No. SR-CME-2011-12]

 Self-Regulatory Organizations; Chicago Mercantile Exchange, 
Inc.; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change To Expand Its OTC FX Swaps Clearing Offering

October 26, 2011.
    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 October 17, 2011, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of Terms of Substance of 
the Proposed Rule Change

    The proposed rule changes amend current CME rules to expand its 
cleared-only, foreign currency (``FX'') swaps offering to support the 
introduction of (1) Twenty-six new foreign FX currency derivatives for 
over-the counter (``OTC'') cash settlement; and (2) eleven new FX non-
deliverable forward transaction currency pairs for traditional, OTC 
cash settlement. Both types of new FX derivatives products will be 
offered as cleared-only products.
    The text of the proposed rule change is available on CME's Web site 
at http://www.cmegroup.com, at the principal office of CME, and at the 
Commission's Public Reference Room.

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.

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

    CME currently offers clearing for certain U.S. Dollar/Chilean Peso 
(``USD/CLP'') spot, forward and swap contracts that are executed 
between two counterparties on an over-the-counter (``OTC'') basis. 
These products, described in CME Rule 274H, are listed for clearing-
only; after two counterparties submit qualifying transactions to CME, 
the transactions are novated to the CME Clearing House. For purposes of 
CME Rules, the minimum-fluctuations currency is the Chilean peso and 
the clearing-unit currency is the U.S. dollar.
    CME's proposed rule changes are intended to amend certain rules to 
support the introduction of additional cleared-only OTC foreign 
currency derivatives. More specifically, the proposed filing would add: 
(1) Twenty-six new foreign exchange (``FX'') currency derivatives for 
over-the counter (``OTC'') cash settlement; and (2) eleven new FX non-
deliverable forward (``NDF'') transaction currency pairs for 
traditional, OTC cash settlement. As mentioned above, both categories 
of new FX derivatives products will be offered as cleared-only 
products.
    The twenty-six new FX pairs are branded as CME WM/Reuters spot, 
forward and swap products. They include the following currency pairs: 
GBP/USD; USD/CAD; USD/JPY; USD/CHF; AUD/USD; USD/MXN; NZD/USD; USD/ZAR; 
EUR/USD; USD/NOK; USD/SEK; USD/CZK; USD/HUF; USD/PLN; USD/ILS; USD/TRY; 
USD/DKK; EUR/GBP; EUR/JPY; EUR/CHF; AUD/JPY; CAD/JPY; EUR/AUD; USD/HKD; 
USD/SGD; and USD/THB. Although the twenty-six new OTC CME WM/Reuters 
currency pairs are capable of being physically deliverable, they may 
also be cash settled in U.S. dollars to the OTC FX benchmark WM/Reuters 
London FX Closing Spot Rate (4 p.m. London time).
    The eleven new NDF FX pairs are very similar to CME's current USD/
CLP product. These cash-settled OTC products will include the following 
currency pairs: USD/BRL; USD/RMB; USD/RUB; USD/COP; USD/PEN; USD/KRW; 
USD/INR; USD/MYR; USD/IDR; USD/TWD; and USD/PHP. Like the current CME 
USD/CLP product, the USD versus BRL, RMB, RUB, COP, PEN, KRW, INR, MYR, 
IDR, TWD and PHP products are offered as NDF-style contracts 
financially or cash settled in U.S. dollars with positions held in 
clearing at the original trade price marked to the applicable standard 
OTC NDF settlement rate option (many are central bank determined/
sanctioned rates). For example, final settlements for USD/BRL spot 
transactions are concluded based on the difference between (1) The spot 
exchange rate of Brazilian real per U.S. dollar ``Central Bank of 
Brazil PTAX offered rate'' as reported for the valid value date for 
cash settlement by Banco Central do Brasil for the formal exchange 
market, and (2) the original trade price for each transaction, and (3) 
the result divided by the BRL per USD spot exchange rate to convert 
notional BRLs to USDs. Cash settlement of cleared only transactions

[[Page 67513]]

occurs on a net basis at the customer account level.
    OTC FX transactions that are executed bilaterally through brokers, 
ECNs or other FX trading platforms, when submitted to CME Clearing, are 
novated for purposes of clearing and application of financial 
safeguards, bookkeeping, trade processing, and final delivery or cash 
settlement. These contracts will be carried in CME's OTC sequestered 
account class.
    CME Clearing uses the SPAN system to establish performance bond or 
``margin'' requirements for FX spot, forwards and swaps. Initial 
performance bond requirements are established at levels that are 
consistent with observed levels of volatility in the particular 
currency pairing and generally aligned with initial margin levels 
applied to current CME FX futures and option contracts, where 
applicable. CME Clearing collects and pays in cash between the 
counterparties each day. CME Clearing will accept as collateral cash or 
any other instruments currently designated as approved collateral for 
posting for performance bonds. In order to calculate variation 
requirements, settlement prices will be established for each contract 
and for each delivery date referencing data collected from a variety of 
market sources.
    CME notes that it has also submitted the proposed rule changes that 
are the subject of this filing to its primary regulator, the Commodity 
Futures Trading Commission (``CFTC'').
    CME believes the proposed rule changes are consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act because they involve clearing of swaps and thus relate solely to 
CME's swaps clearing activities pursuant to its registration as a 
derivatives clearing organization under the Commodity Exchange Act 
(``CEA'') and do 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 Exchange Act, such as promoting 
market transparency for over-the-counter derivatives 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 clearing for an expanded range 
of FX OTC swap products.

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-2011-12 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-2011-12. 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. 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-2011-12 and should be 
submitted on or before November 22, 2011.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    In its filing, CME requested that the Commission approve this 
request on an accelerated basis, for good cause shown. CME has 
articulated three reasons for granting this request on an accelerated 
basis. 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 changes relate solely 
to FX swap products and therefore relate solely to its 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.
    Section 19(b) of the Act \3\ 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 the 
requirements of Section 17A of the Act,\4\ 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 promote the prompt and 
accurate clearance and settlement of derivative agreements, contracts, 
and transactions because it should allow CME to enhance its services in 
clearing foreign currency derivative products, thereby promoting the 
prompt and accurate clearance and settlement of derivative agreements, 
contracts, and transactions.\5\
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    \3\ 15 U.S.C. 78s(b).
    \4\ 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).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds good cause for accelerating approval because: 
(i) The proposed rule change does not

[[Page 67514]]

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) CME has indicated that not providing accelerated 
approval would have a significant impact on the foreign currency 
derivative products clearing business of CME 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 
regulator.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) \6\ of the 
Act, that the proposed rule change (SR-CME-2011-12) is approved on an 
accelerated basis.
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    \6\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
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    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-28213 Filed 10-31-11; 8:45 am]
BILLING CODE 8010-01-P