Document ID: SEC-2014-1093-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Mercantile Exchange, Inc.
Posted Date: 2014-07-02T04:00Z

[Federal Register Volume 79, Number 127 (Wednesday, July 2, 2014)]
[Notices]
[Pages 37784-37786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15473]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72478; File No. SR-CME-2014-25]

Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Collateral Acceptance Practices for Products in the Base 
Guaranty Fund

June 26, 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 June 23, 2014, 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. 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CME is proposing to announce via advisory notice a certain change 
to its collateral acceptance practices. More specifically, CME is 
proposing to issue an advisory to clearing member firms announcing a 
change to the acceptable collateral types for base guaranty fund 
products. The text of the proposed rule change is below. Italicized 
text indicates additions; bracketed text indicates deletions.

CME Group Advisory Notice #14-194

TO: Clearing Member Firms
FROM: CME Clearing

SUBJECT: Exchange Traded Fund (ETF) and Stock Programs

CME Clearing is expanding its existing collateral program to include 
additional Exchange Traded Funds (ETFs) that may be used as performance 
bond collateral for Base Guaranty Fund products effective June 23rd, 
2014. Currently, CME Clearing accepts a select number of ETFs through 
its Stock Program. The existing haircut of 30% will be applied to ETFs. 
Please see CME's Financial and Collateral Management page for the 
updated acceptance criteria for ETFs and stocks. On the 5th business 
day of every month, a new list of acceptable ETFs and stocks will be 
posted to CME's Financial and Collateral Management page.

Both ETFs and stocks are part of category 3 assets. Therefore, ETFs and 
stocks in combination with other category 3 assets will be capped at 
the lesser of 40% of core requirement per currency or $5 billion per 
clearing member firm. Please see the list of category 3 assets below. 
ETFs and stocks combined are capped at $1 billion per clearing member 
firm.

In accordance with CME Rule 930.C, a clearing member cannot accept an 
accountholder security that has been ``issued, sponsored or otherwise 
guaranteed by the accountholder.'' In addition, any ETF that is 
sponsored by the clearing member or its parent or affiliate company may 
not be pledged for the clearing member's house performance bond 
requirement. For any questions related to the ETF and Stock Programs, 
please contact the Risk Management department at 312-648-3888 or the 
Financial Management group at 312-207-2594.

Category 3 Assets
 IEF 2 (Money Market Funds)
 IEF 4 (Corporate Bonds)
 Gold
 ETFs and Stocks
 Foreign Sovereign Debt

The list of proposed ETFs that may be used as performance bond 
collateral for Base Guaranty Fund products effective June 23rd, 2014 is 
as follows:

TICKER NAME
SPY US SPDR S&P 500 ETF TRUST
IWM US ISHARES RUSSELL 2000 ETF
QQQ US POWERSHARES QQQ TRUST SERIES
XLU US UTILITIES SELECT SECTOR SPDR
IYR US ISHARES US REAL ESTATE ETF
XLI US INDUSTRIAL SELECT SECT SPDR
XLE US ENERGY SELECT SECTOR SPDR
XLV US HEALTH CARE SELECT SECTOR
XLK US TECHNOLOGY SELECT SECT SPDR
XLP US CONSUMER STAPLES SPDR
XLY US CONSUMER DISCRETIONARY SELT
DIA US SPDR DJIA TRUST
XLB US MATERIALS SELECT SECTOR SPDR
XOP US SPDR S&P OIL & GAS EXP & PR
IVV US ISHARES CORE S&P 500 ETF
VNQ US VANGUARD REIT ETF
VTI US VANGUARD US TOTAL STOCK MKT
IBB US ISHARES NASDAQ BIOTECHNOLOGY
LQD US ISHARES IBOXX INVESTMENT GRA
BND US VANGUARD TOTAL BOND MARKET
AGG US ISHARES CORE U.S. AGGREGATE
VOO US VANGUARD S&P 500 ETF
REM US ISHARES MORTGAGE REAL ESTATE
BSV US VANGUARD SHORT-TERM BOND ETF

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 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 make a certain change 
to its collateral acceptance practices through the issuance of an 
advisory notice to its clearing members. More specifically, CME is 
expanding its existing collateral program to include

[[Page 37785]]

additional Exchange Traded Funds (``ETFs'') that may be used as 
performance bond collateral for CME's Base Guaranty Fund products. The 
proposed change would not impact CME's collateral acceptance practices 
relating to products in its CDS Guaranty Fund. CME also notes that 
although the proposed change would expand the eligible performance bond 
collateral for products in the Base Guaranty Fund, the proposed change 
would have no impact on the level of margin collected but rather would 
simply impact the makeup of the collateral used by a clearing member to 
meet its margin requirements.
    Currently, CME accepts a select number of ETFs as collateral in 
connection with the products associated with certain non-CDS guaranty 
funds. ETFs accepted by CME as collateral are chosen through historical 
analysis of the ETF market and stock market. ETFs accepted as 
collateral conform to CME's credit risk criteria and are monitored by 
CME daily for price changes and are subject to periodic eligibility 
review. The existing haircut of 30% for currently accepted ETFs would 
be applied to the newly-added ETFs under the proposed change. Both ETFs 
and stocks are part of CME's ``Category 3'' assets. Therefore, ETFs and 
stocks in combination with other category 3 assets would be capped at 
the lesser of 40% of core requirement per currency or $5 billion per 
clearing member firm. ETFs and stocks combined are capped at $1 billion 
per clearing member firm. An updated table showing CME Base Guaranty 
Fund performance bond limits is included below.

                      Updated Performance Bond Acceptable Collateral Categories and Limits
----------------------------------------------------------------------------------------------------------------
             Category 1                           Category 2 *                          Category 3 **
----------------------------------------------------------------------------------------------------------------
                                     Category 2 & 3 Capped at $7bn Per Firm
----------------------------------------------------------------------------------------------------------------
Cash:
    U.S. Treasuries                   U.S. Government Agencies Strips       IEF2 [dagger] (Money Market Mutual
                                                                             Funds)
    IEF5 (Interest Bearing Cash)      TIPS (capped at $1bn per firm)        Gold (capped at $500mm per firm)
     Letters of Credit *
    *Capped at 40% of core            Select MBS                            ETFs and Stocks (capped at $1bn per
     requirement per currency         * Capped at 40% of core requirement    firm)
     requirement per firm              per currency requirement per firm    IEF4 (corporate bonds) Foreign
                                                                             Sovereign Debt (capped at $1bn 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
----------------------------------------------------------------------------------------------------------------

    The advisory also clarifies that, in accordance with CME Rule 
930.C, a CME clearing member cannot accept an accountholder security 
that has been ``issued, sponsored or otherwise guaranteed by the 
accountholder.'' In addition, the advisory would clarify that any ETF 
that is sponsored by the clearing member or its parent or affiliate 
company may not be pledged for the clearing member's house performance 
bond requirement.
    The proposed change in this filing is limited to products 
associated with CME's Base Guaranty Fund and therefore does not impact 
products associated with CME's CDS guaranty fund. CME accepts a 
narrower range of collateral for CDS clearing and does not currently 
accept letters of credit, stocks or corporate bonds as acceptable 
collateral for CDS; the proposed rule change in this filing would not 
impact these current practices. The proposed rule change would become 
effective immediately.
    CME believes the proposed rule change is consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act.\5\ The proposed change would amend CME's collateral acceptance 
practices to permit the use of additional ETFs that may be used as 
performance bond collateral for CME's Base Guaranty Fund products. 
Although the proposed change would expand the eligible performance bond 
collateral for Base Guaranty Fund products, the proposed change would 
have no impact on the level of margin collected but rather would simply 
impact the makeup of the collateral used by a clearing member to meet 
its margin requirements. Expanded collateral choices for market 
participants will 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.\6\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Furthermore, the proposed change is limited to products associated 
with CME's Base Guaranty Fund, which means the proposed change is 
limited in its effect to products that are under the exclusive 
jurisdiction of the CFTC. As such, the proposed change is limited to 
CME's activities as a DCO clearing swaps that are not security-based 
swaps. 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 change is limited in its effect to products 
associated with CME's Base Guaranty Fund and therefore offered under 
CME's authority to act as a DCO, the proposed change is 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 change is therefore consistent with the requirements 
of

[[Page 37786]]

Section 17A of the Exchange Act \7\ and are properly filed under 
Section 19(b)(3)(A) \8\ and Rule 19b-4(f)(4)(ii) \9\ thereunder.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

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 change would 
simply expand the eligible performance bond collateral for CME's Base 
Guaranty Fund. These expanded collateral choices will benefit market 
participants by offering greater flexibility.

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) \10\ of the Act and Rule 19b-4(f)(4)(ii) \11\ 
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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

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-2014-25 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-2014-25. 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-2014-25 and 
should be submitted on or before July 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15473 Filed 7-1-14; 8:45 am]
BILLING CODE 8011-01-P