Document ID: SEC-2014-1140-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Mercantile Exchange, Inc.
Posted Date: 2014-07-09T04:00Z

[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Notices]
[Pages 39033-39035]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16045]

[[Page 39033]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72530; File No. SR-CME-2014-24]

Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Settlement Procedures Regarding Five CME Cleared OTC FX Spot, Forward 
and Swap Contracts

July 3, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on June 23, 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 primarily prepared 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 changes 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 proposed rule changes that are limited to its 
business as a derivatives clearing organization (``DCO''). More 
specifically, the proposed rule changes contain amendments to certain 
aspects of CME's settlement procedures for five of CME's Cleared Over-
the-Counter Foreign Exchange Spot, Forward and Swap Contracts.

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 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 DCO with the Commodity Futures Trading 
Commission (``CFTC'') and offers clearing services for many different 
futures and swaps products. The proposed rule changes that are the 
subject of this filing are limited to CME's business as a DCO offering 
clearing services for CFTC-regulated swaps products. CME currently 
offers clearing services for cleared-only OTC FX contracts on a number 
of different currency pairs. These CME Cleared OTC FX Spot, Forward and 
Swap Contracts are non-deliverable foreign currency forward contracts 
and, as such, are considered to be ``swaps'' under applicable 
regulatory definitions.\5\ CME proposes to make amendments to five of 
these contracts. There is currently no open interest in these 
contracts.
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    \5\ See Commodity Futures Trading Commission and Securities and 
Exchange Commission Joint Final Rule Defining ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement;'' Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping; Final Rule, 77 FR 
48207, 48255 (August 13, 2012).
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    The amendments would impact the following CME rules:
     CME Rule 277H.02.A.--Day of Cash Settlement and 
277H.02.B.--[Reserved] and the addition of an Interpretation of Chapter 
277H of Cleared OTC U.S. Dollar/Peruvian Nuevo Sol (USD/PEN) Spot, 
Forwards and Swaps Contracts (Rulebook Chapter: 277H; Code: USDPEN);
     CME Rule 273H.02.A.--Day of Cash Settlement and 
273H.02.B.--[Reserved] and the addition of an Interpretation of Chapter 
273H of Cleared OTC U.S. Dollar/Columbian Peso (USD/COP) Spot, Forwards 
and Swaps Contracts (Rulebook Chapter: 273H; Code: USDCOP);
     CME Rule 274H.02.B.--Procedures if No Cash Settlement 
Price is Available of Cleared OTC U.S. Dollar/Chilean Peso (USD/CLP) 
Spot, Forwards and Swaps Contracts (Rulebook Chapter: 274H; Code: 
USDCLP);
     CME Rule 257H.02.A.--Day of Cash Settlement of Cleared OTC 
U.S. Dollar/Brazilian Real (USD/BRL) Spot, Forwards and Swaps Contracts 
(Rulebook Chapter: 257H; Code: USDBRL); and
     CME Rule 283H.02.A.--Day of Cash Settlement of Cleared OTC 
U.S. Dollar/Philippines Peso (USD/PHP) Spot, Forwards and Swaps 
Contracts (Rulebook Chapter: 283H; Code: USDPHP).
    In summary, the amendments would modify the rules above to align 
them with procedures currently used in the over-the-counter (OTC) non-
deliverable forward (NDF) market in order to reduce basis risk for 
market participants.
    The rules governing the cleared only USD/PEN and USD/COP contracts 
are being conformed to internationally accepted practices. The 
amendments would include new procedures to settle these contracts to 
the EMTA COP/EMTA PEN Indicative Survey Rate, as applicable, when the 
``Tasa Representativa del Mercado or TRM'' Colombian peso per U.S. 
dollar rate or the ``PEN INTERBANK AVE (PEN05)'' Peruvian Nuevo Sol per 
U.S. dollar rate, as applicable, are unavailable. The new procedures 
are designed to follow current cash market practices by instituting 
certain back-up survey processes that would be available in the event 
the primary survey rates are unavailable. The back-up process is 
administered by EMTA, a prominent trade group for the emerging markets 
trading and investment community, and involves the consolidation of 
survey results gathered through polling of a set of participating 
banks.
    The amendments to the USD/BRL and USD/PPH contracts are also 
designed to conform the rules to internationally accepted practices. 
For example, the amendments specify that, for each applicable cleared 
contract for the valid value date for cash settlement in one or two 
business days, as applicable, for the appropriate currency. Each 
contract would be liquidated under the rules by cash settlement at a 
price equal to the daily final settlement price.\6\
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    \6\ Based on Staff's conversation with CME personnel on June 30, 
2014, CME provided the following clarification for this paragraph:
    The amendments to the USD/BRL and USD/PHP contracts are also 
designed to conform the rules to internationally accepted practices. 
For example, Rule 257H.02.A is being amended to read as follows: 
``Each Cleared OTC Contract, for a valid value date for cash 
settlement in two Business Days, shall be liquidated by cash 
settlement at a price equal to the daily Final Settlement Price for 
that day.'' The previous formulation of Rule 257H.02.A specified one 
business day. In contrast, the language of Rule 283H.02.A is being 
amended to specify: ``Each Cleared OTC Contract, for the valid value 
date for cash settlement in one Business Day, shall be liquidated by 
cash settlement at a price equal to the daily Final Settlement Price 
(FSP) for that day.'' The previous formulation of Rule 283H.02.A 
specified two business days.
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    CME is amending the CME Rulebook regarding the USD/CLP contract to 
specify that in the event that the ``CLP D[Oacute]LAR OBS (CLP10)'' 
Chilean pesos per U.S. dollar rate is not published on a valid date for 
cash settlement, and the EMTA CLP Indicative Survey does not provide a 
rate, then Force Majeure shall be in effect.

[[Page 39034]]

    The changes that are described in this filing are limited to CME's 
business as a DCO clearing products under the exclusive jurisdiction of 
the CFTC and do not materially impact CME's security-based swap 
clearing business in any way. The changes will be effective on filing. 
CME notes that it has also certified the proposed rule changes that are 
the subject of this filing to its primary regulator, the CFTC, in a 
separate filing, CME Submission No. 14-175. The text of the CME 
proposed rule amendments is attached as Exhibit 5 to CME's filing with 
the Commission, with additions underlined and deletions in brackets.
    CME believes the proposed rule changes are consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act.\7\ CME is proposing the amendments to align its current rules 
related to five OTC FX swap contracts more closely with procedures 
currently used in the OTC NDF market for the purpose of reducing basis 
risk for market participants. These amendments which are designed to 
reduce basis risk will benefit market participants clearing OTC FX 
swaps contracts with CME and, as such, should be seen to be designed to 
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 the clearing agency or 
for which it is responsible, and, in general, to protect investors and 
the public interest consistent with Section 17A(b)(3)(F) of the 
Exchange Act.\8\
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    Furthermore, the proposed changes are limited in their effect to 
products offered under CME's authority to act as a DCO. The products 
that are the subject of this filing are under the exclusive 
jurisdiction of the CFTC. As such, the proposed CME changes are limited 
to CME's activities as a DCO clearing swaps that are not security-based 
swaps, futures that are not security futures and forwards that are not 
security forwards. CME notes that the policies of the CFTC with respect 
to administering the Commodity Exchange Act 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.
    Because the proposed changes are limited in their effect to OTC FX 
products offered under CME's authority to act as a DCO, the proposed 
changes are properly classified as effecting 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, 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.

As such, the changes are therefore consistent with the requirements of 
Section 17A of the Exchange Act \9\ and are properly filed under 
Section 19(b)(3)(A) \10\ and Rule 19b-4(f)(4)(ii) \11\ thereunder.
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    \9\ 15 U.S.C. 78q-1.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(4)(ii).
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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 amendments 
are designed to align CME's current rules related to five OTC FX swap 
contracts more closely with procedures currently used in the OTC NDF 
market for the purpose of reducing basis risk for market participants 
and are operational processing changes. These operational processing 
changes will help reduce market participants' basis risk and should not 
be seen to impact 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. 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) \12\ of the Act and Rule 19b-4(f)(4)(ii) \13\ 
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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(4)(ii).
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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

     Use 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-2014-24 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-2014-24. 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

[[Page 39035]]

Number SR-CME-2014-24 and should be submitted on or before July 30, 
2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-16045 Filed 7-8-14; 8:45 am]
BILLING CODE 8011-01-P