Document ID: SEC-2011-1693-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Mercantile Exchange, Inc.
Posted Date: 2011-11-03T04:00Z

[Federal Register Volume 76, Number 213 (Thursday, November 3, 2011)]
[Notices]
[Pages 68242-68243]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28462]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65655; File No. SR-CME-2011-07]

Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Order Approving Proposed Rule Change To Accept Additional Credit 
Default Index Swaps for Clearing

October 28, 2011.

I. Introduction

    On September 9, 2011, the Chicago Mercantile Exchange Inc. 
(``CME'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-CME-2011-07 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder.\2\ The proposed rule change was published 
for comment in the Federal Register on September 28, 2011.\3\ The 
Commission received no comment letters regarding the proposal. For the 
reasons discussed below, the Commission is granting approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-65378 (September 22, 
2011), 76 FR 60110 (September 28, 2011). In its filing with the 
Commission, CME included statements concerning the purpose of and 
basis for the proposed rule change. The text of these statements are 
incorporated into the discussion of the proposed rule change in 
Section II below.
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II. Description

    The rule change will permit CME to expand its ability to clear 
credit default swap (``CDS'') contracts referencing broad-based 
securities indices by permitting CME to clear CDS contracts referencing 
the Markit CDX North American High Yield Index Series 11, 12, 13, 14, 
15, 16 and 17, in each case solely with respect to contracts 
referencing the applicable index with an original tenor of five years. 
As of the date that it filed this rule change, CME offered for clearing 
CDS contracts referencing the Markit CDX North American Investment 
Grade Index Series 10, 11, 12, 13, 14, 15, 16 and 17.\4\
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    \4\ CME subsequently filed a rule change pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(4)(i) thereunder to allow 
it to clear CDS contracts referencing the Markit CDX North American 
Investment Grade Index Series 9. See Securities Exchange Act Release 
No. 34-65489 (October 5, 2011), 76 FR 63339 (October 12, 2011). For 
CDS contracts referencing the Markit CDX North American Investment 
Grade Index Series 9 and 10, CME's rule permit the clearing of 
contracts referencing the applicable index with an original tenor of 
five, seven or ten years. For CDS contracts referencing the Markit 
CDX North American Investment Grade Index Series 11, 12, 13, 14, 15, 
16 and 17, CME's rule permit the clearing of contracts referencing 
the applicable index with an original tenor of three, five, seven or 
ten years.
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III. Discussion

    Section 19(b)(2)(B) of the Act 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.\5\ In particular, Section 17A(b)(3)(F) of the Act \6\ 
requires, among other things, that the rules of a clearing agency be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and, to the extent applicable, derivative 
agreements, contracts and transactions, and to assure the safeguarding 
of securities and funds which are in the custody or control of such 
clearing agency or for which it is responsible.
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    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change would make additional CDS contracts 
eligible for central clearing at CME and thus would facilitate the 
prompt and accurate clearance and settlement of derivative agreements, 
contracts and transactions. CME's rules and procedures for clearing CDS 
contracts referencing broad-based securities indices, particularly 
those pertaining to its risk management operations and financial 
safeguards systems, are also designed to limit the risk of financial 
loss to CME and its members as a result of these additional CDS 
contracts. Thus, the proposed rule change to permit CME to clear and 
settle CDS contracts referencing the Markit CDX North American High 
Yield Index Series 11, 12, 13, 14, 15, 16 and 17 is consistent with the 
requirement that CME assure the safeguarding of securities and funds 
which are in its custody or control or for which it is responsible.\7\
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    \7\ Moreover, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 was passed by Congress and signed into law by 
the President to, among other things, ensure that, wherever possible 
and appropriate, derivatives contracts formerly traded exclusively 
in the over-the-counter market be cleared. See, e.g., Report of the 
Senate Committee on Banking, Housing, and Urban Affairs regarding 
The Restoring American Financial Stability Act of 2010, S. Rep. No. 
111-176 at 34 (stating that ``[s]ome parts of the OTC market may not 
be suitable for clearing and exchange trading due to individual 
business needs of certain users. Those users should retain the 
ability to engage in customized, uncleared contracts while bringing 
in as much of the OTC market under the centrally cleared and 
exchange-traded framework as possible.''). The Commission believes 
that expanding CME's ability to clear CDS contracts referencing 
broad-based securities indices will facilitate bringing additional 
security-based swaps into clearing, particularly with respect to the 
individual components of these indices.

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[[Page 68243]]

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \8\ and the 
rules and regulations thereunder.
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    \8\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-CME-2011-07) be, and 
hereby is, approved.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    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. 2011-28462 Filed 11-2-11; 8:45 am]
BILLING CODE 8011-01-P