
[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Notices]
[Pages 60563-60565]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23834]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73275; File No. SR-CME-2014-31]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
2, Related to Clearing of Certain iTraxx Europe Index Untranched CDS 
Contracts on Indices Administered by Markit

October 1, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4

[[Page 60564]]

thereunder,\2\ notice is hereby given that on September 2, 2014, 
Chicago Mercantile Exchange Inc. (``CME'') filed with the Securities 
and Exchange Commission (``Commission'') Amendment No. 2 (the ``iTraxx 
Filing Amendment'') to its previously submitted proposed rule change 
\3\ related to the clearing of certain iTraxx Europe index credit 
default swaps (``CDS'').\4\ The iTraxx Filing Amendment is intended to 
provide further description and detail of certain aspects of the 
proposed rule change, as described in Items I, II and III below, which 
Items have been prepared primarily by CME. The Commission is publishing 
this notice to solicit comments on the iTraxx Filing Amendment from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 34-72833 (Aug. 13, 
2014), 79 FR 48797 (Aug. 18, 2014) (SR-CME-2014-31) (hereinafter 
referred to as the ``iTraxx Filing'').
    \4\ On August 18, 2014, CME filed Amendment No. 1 to the 
proposed rule change. CME withdrew Amendment No. 1 on August 29, 
2014.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    On August 11, 2014, CME submitted to the Commission the iTraxx 
Filing, pursuant to which, CME proposes to revise its clearing rules 
(the ``CDS Product Rules'') to enable CME to offer clearing of certain 
iTraxx Europe index untranched CDS contracts on indices administered by 
Markit (``iTraxx Contracts''). The iTraxx Filing is currently under 
review by the Commission. The purpose of the iTraxx Filing Amendment is 
to provide further description and detail of certain aspects of the 
proposed rule change contained within the iTraxx Filing. The iTraxx 
Filing Amendment should be read in conjunction with the iTraxx Filing. 
All capitalized terms not defined herein shall have the meaning given 
to them in the iTraxx Filing or the CDS Product Rules. The text of the 
proposed amendment is also available at the 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 the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose and basis for the proposed 
amendment and discussed any comments it received on the proposed 
amendment. The text of these statements may be examined at the places 
specified in Item IV below. The self-regulatory organization 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

    Pursuant to this iTraxx Filing Amendment, CME intends to provide 
further description and detail of certain aspects of the proposed 
amendments to the Manual of Operations for CME Cleared Credit Default 
Swaps (the ``CDS Manual'') contained within the iTraxx Filing as 
further discussed below. Additionally, CME intends to provide further 
description and detail relating to risk management for certain iTraxx 
Contracts based on the 2003 ISDA Definitions under CME's proposed risk 
model framework as described in File Number SR-CME-2014-28, as amended 
(the ``CDS Risk Model Filing'').\5\
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    \5\ See Securities Exchange Act Release No. 34-72834 (Aug. 13, 
2014), 79 FR 48805 (Aug. 18, 2014) (SR-CME-2014-28) and Securities 
Exchange Act Release No. 34-72959 (Sep. 2, 2014), 79 FR 53234 (Sep. 
8, 2014) (SR-CME-2014-28). The proposed rule change, as amended, is 
currently under review by the Commission.
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1. CDS Manual of Operations
    In connection with the proposed rule changes in this iTraxx Filing 
Amendment and in the iTraxx Filing, CME also proposes to make 
administrative changes to its CDS Manual in connection with the 
clearance of iTraxx Contracts. Specifically, amendments are proposed 
where CDX Contracts are described as the only CDS Contracts which CME 
clears and deletions are proposed to reflect that iTraxx Contracts have 
differing transaction types and standard currencies to the CDX 
Contracts which CME currently clears, and also to reflect the fact that 
restructuring will be a credit event for iTraxx Contracts. Also, a 
reference which relates to outdated aspects of the CDS risk model is 
proposed to be deleted.
2. Risk Management
    Certain iTraxx Contracts which CME proposes to clear will, 
following the implementation date of the 2014 ISDA Definitions, be 
bifurcated such that certain iTraxx Component Transactions will 
continue to reference the 2003 ISDA Definitions and certain other 
iTraxx Component Transactions will reference the 2014 ISDA Definitions. 
Consistent with CME's treatment of CDS products with different product 
terms, CME will position iTraxx Component Transactions that do not 
incorporate the same set of credit derivatives definitions as separate 
cleared CDS Contracts upon the occurrence of a restructuring credit 
event in respect of such iTraxx Component Transactions.
    The computation of the spread risk, interest rate risk, and 
liquidity and concentration risk components in CME's risk model 
framework is described in the CDS Risk Model Filing and will be 
agnostic to whether the 2003 ISDA Definitions or the 2014 ISDA 
Definitions are applicable, therefore allowing risk offsets across 
iTraxx Component Transactions that refer to the same reference entity 
but that do not incorporate the same set of credit derivatives 
definitions. No risk offsets will be provided for computation of 
idiosyncratic risk requirements for iTraxx Component Transactions which 
refer to the same reference entity but that do not incorporate the same 
set of credit derivatives definitions. The applicability of the post 
credit event risk requirement will be based on whether a credit event 
occurs by reference to the relevant credit derivatives definitions 
(2003 ISDA Definitions or the 2014 ISDA Definitions) and the relevant 
transaction type that is applicable to an iTraxx Component Transaction. 
The post credit event risk requirement will be computed on a net 
notional basis for a particular reference entity within an iTraxx index 
where a Credit Event has been determined under the relevant credit 
derivatives definitions. CME notes that this iTraxx Filing Amendment 
does not purport to make any changes to CME's risk management as 
proposed in the CDS Risk Model Filing or as described in the parts of 
the CDS Manual that are not proposed to be amended in accordance with 
the CDS Risk Model Filing.
    CME has identified iTraxx Contracts as products that have become 
increasingly important for market participants to manage risk with 
respect to European corporate and financial entities' credit risk. CME 
believes the proposed changes to its CDS Product Rules are consistent 
with the requirements of the Exchange Act including Section 17A of the 
Exchange Act.\6\ The proposed changes in conjunction with the CDS risk 
model changes described in the CDS Risk Model Filing will facilitate 
CME's clearance of iTraxx Contracts, which would expand CME's CDS index 
product offering and therefore provide investors with an expanded range 
of derivatives products for clearing. CME

[[Page 60565]]

notes that the facilitation of clearance of iTraxx Contracts is of 
particular importance as the CFTC has determined that iTraxx Contracts 
that are subject to a 5Y or 10Y tenor are subject to mandatory clearing 
under Section 2(h) of the Commodity Exchange Act (``CEA'').\7\ As such, 
the proposed changes are 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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    \6\ 15 U.S.C. 78q-1.
    \7\ 7 U.S.C. 2(h).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CME does not believe that the proposed rule changes would have any 
impact, or impose any burden, on competition. On the contrary, the 
clearance of iTraxx Contracts will promote competition since some of 
CME's competitors, including ICE Clear Credit LLC, ICE Clear Europe 
Limited and LCH.Clearnet S.A., already offer clearing of iTraxx 
Contracts. CME will therefore be able to provide market participants 
with an expanded choice for clearing iTraxx Contracts.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Amendment Received From Members, Participants, or Others

    Written comments relating to the iTraxx Filing Amendment have not 
been solicited or received. CME will notify the Commission of any 
written comments received by CME.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of notice of the iTraxx 
Filing \9\ in the Federal Register or within such longer period up to 
90 days (i) as the Commission may designate if it finds such longer 
period to be appropriate and publishes its reasons for so finding or 
(ii) as to which the self-regulatory organization consents, the 
Commission will:
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    \9\ See supra note 3.
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    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Amendment No. 2 
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 Number SR-CME-2014-31 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-2014-31. 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 the 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-2014-31 
and should be submitted on or before October 22, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23834 Filed 10-6-14; 8:45 am]
BILLING CODE 8011-01-P


