
[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67515-67517]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28208]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65635; File No. SR-CME-2011-15]


Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Amend Its Rules Relating to Interest Rate Swaps Clearing

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 19, 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

[[Page 67516]]

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 text of the proposed rule change is below. Italicized text 
indicates additions; [bracketed] text indicates deletions.
* * * * *

CHICAGO MERCANTILE EXCHANGE INC. RULEBOOK

Rule 100--Rule 8G06--No Change

* * * * *
Rule 8G07. IRS FINANCIAL SAFEGUARDS AND GUARANTY FUND DEPOSIT
    1. (i) The Clearing House shall establish a financial safeguards 
package to support IRS clearing, and each IRS Clearing Member shall 
make an IRS Guaranty Fund deposit with the Clearing House. An IRS 
Clearing Member's deposit to the IRS Guaranty Fund and assessments 
against it pursuant to these Rules may be used to cover losses incurred 
by the Clearing House if a defaulted IRS Clearing Member's assets, 
including amounts available pursuant to any guarantee from an Affiliate 
of an IRS Clearing Member, available to the Clearing House are 
insufficient to cover such loss, regardless of the cause of default. 
The Clearing House shall calculate the requirements for the IRS 
financial safeguards package, which shall be composed of:
    (a) A funded portion, determined by the Clearing House using stress 
test methodology equal to the theoretical two largest IRS Clearing 
Member losses produced by such stress test or such other methodology 
determined by the IRS Risk Committee (such amount, plus any additional 
funds required to be deposited by IRS Clearing Members as a result of 
the minimum contribution requirement below, the ``IRS Guaranty Fund''), 
and
    (b) an unfunded portion, determined by the Clearing House using 
stress test methodology equal to the theoretical third and fourth 
largest IRS Clearing Member losses produced by such stress test (and 
assuming for purposes of the model that already-defaulted IRS Clearing 
Members will fail to contribute) or such other methodology determined 
by the IRS Risk Committee. Upon a default, after application of the IRS 
Guaranty Fund, each IRS Clearing Member (excluding any insolvent or 
defaulted IRS Clearing Member) shall be subject to assessment of its 
previously-assigned proportionate share of such amount (collectively 
the ``IRS Assessments'').
    (ii) Each IRS Clearing Member's minimum contribution to the IRS 
Guaranty Fund shall be the greater of:
    (a) such IRS Clearing Member's proportionate share of the share of 
the theoretical two largest IRS Clearing Member losses described in 
paragraph (i) above, each clearing member's relative portion being 
based on the 90-day trailing average of its aggregate performance bond 
requirements and average gross notional open interest outstanding at 
the Clearing House (or such other shorter time interval determined by 
the IRS Risk Committee); or
    (b) (x) $50,000,000 for a non-Affiliated IRS Clearing Member or (y) 
$25,000,000 for each Affiliated IRS Clearing Member, where one 
Affiliated IRS Clearing Member provides its primary clearing services 
for customers as a FCM with any proprietary business of such FCM only 
incidental to providing such clearing service for customers and the 
other Affiliated IRS Clearing Member only provides IRS clearing 
services through its proprietary account for itself and its Affiliates. 
An ``Affiliated IRS Clearing Member'' shall mean an IRS Clearing Member 
with an Affiliate that is also an IRS Clearing Member.
* * * * *

Rule 8G07(2)--End--No Change

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 proposes to make certain rule changes that affect the minimum 
guaranty fund requirements for Interest Rate Swap (``IRS'') Clearing 
Members at CME. The text of current CME Rule 8G07 provides that the 
minimum guaranty fund requirement for an IRS Clearing Member is 
$50,000,000. The proposed rule changes would amend Rule 8G07 to provide 
that, in instances where two separate IRS Clearing Members are 
affiliated, the minimum IRS Guaranty Fund requirement for each firm 
would be $25,000,000. This proposed change would be subject to the 
condition that only one of the affiliated IRS Clearing Members provide 
IRS clearing services only through the IRS proprietary account, and the 
other affiliated IRS Clearing Member provides its primary clearing 
services for customers as a FCM with any proprietary business of such 
FCM only incidental to providing such clearing service for customers. 
Each of the affiliated IRS Clearing Members would be required 
independently to meet capital and other requirements of clearing 
membership as set forth in the CME Rules.
    To accommodate the changes discussed above, CME would also make 
corresponding changes to its Manual of Operations for CME Cleared 
Interest Rate Swaps, including revisions to operational processing 
times and processes, IRS Guaranty Fund calculations and IRS assessments 
allocations and amendment to the default management auction process 
requiring only IRS Clearing Members with open positions in a currency 
to bid for a defaulted IRS Clearing Member's portfolio in such 
currency.
    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''). The text of the CME rule 
proposed amendments is in Section I above, with additions italicized 
and deletions in brackets.

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

[[Page 67517]]

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-2011-15 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-2011-15. 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 
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-2011-15 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 interest rate swap clearing 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 interest rate swaps, 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 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 swap 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-2011-15) is approved on an 
accelerated basis.
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    \6\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Trading and Markets, pursuant 
to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28208 Filed 10-31-11; 8:45 am]
BILLING CODE 8011-01-P


