
[Federal Register Volume 80, Number 169 (Tuesday, September 1, 2015)]
[Notices]
[Pages 52815-52817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21551]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75762; File No. 600-35]


Notice of Filing and Request for Comment on Chicago Mercantile 
Exchange Inc.'s Request To Withdraw From Registration as a Clearing 
Agency

August 26, 2015.

I. Introduction

    Pursuant to Section 19(a)(3) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ on August 3, 2015, Chicago Mercantile Exchange 
Inc. (``CME'') filed with the Securities and Exchange Commission 
(``Commission'') a written request (the ``Written Request'') to 
withdraw from registration as a clearing agency under Section 17A

[[Page 52816]]

of the Exchange Act.\2\ The Commission is publishing this notice to 
solicit comments from interested persons concerning CME's request.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(a)(3).
    \2\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

II. Description

    The statements in this Item II concerning the background of CME's 
request for withdrawal from registration and its reasons for making the 
request have been submitted by CME in its Written Request. CME is 
registered as a derivatives clearing organization (``DCO'') with the 
Commodity Futures Trading Commission (``CFTC'') and offers clearing 
services for futures and swap products. Pursuant to Section 17A(l) of 
the Exchange Act,\3\ CME became deemed registered as a clearing agency 
solely for the purpose of clearing security-based swaps (``SBS''). To 
date, CME has never cleared SBS, has decided that it will not clear 
SBS, and has filed a rule change with the Commission (File Number SR-
CME-2014-49) reflecting CME's decision not to clear SBS.\4\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78q-1(l).
    \4\ See Securities Exchange Act Release No. 73615 (Nov. 17, 
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). The only 
exception is with respect to a set of very limited circumstances 
where single-name CDS contracts are created following the occurrence 
of a restructuring credit event in respect of a reference entity 
that is a component of an iTraxx Europe index CDS contract (``iTraxx 
Contract''). According to the standard terms of the iTraxx Contract, 
upon the occurrence of a restructuring credit event with respect to 
a reference entity that is a component of an iTraxx Contract, such 
reference entity will be ``spun out'' and maintained as a separate 
single-name CDS contract (a ``Restructuring European Single Name CDS 
Contract'') until settlement. If neither of the counterparties 
elects to trigger settlement, the positions in the Restructuring 
European Single Name CDS Contract will be maintained at CME until 
maturity of the index or the occurrence of a subsequent credit event 
for the same reference entity. CME stated that the clearing of 
Restructuring European Single Name CDS Contracts would be a 
necessary byproduct of clearing iTraxx Contracts, which commenced on 
February 2, 2015. CME has filed a rule change that will not permit 
market participants to increase, close out, or otherwise affect the 
size of a position in a Restructuring European Single Name CDS 
Contract, unless such increase, close-out, or change in size of a 
position in a Restructuring European single Name CDS Contract is due 
to (i) the occurrence of a credit event (where the Restructuring 
European Single Name CDS Contract needs to be settled and ceases to 
exist), (ii) a default management process (where a member defaults 
on its obligation to CME and CME needs to hedge and auction off the 
member's portfolio in order to determine the loss amount, or to 
transfer the defaulting member's customer positions to another 
clearing member), (iii) close-out of a defaulting customer's 
positions, or (iv) withdrawal from clearing membership by an 
existing clearing member, all in accordance with the existing CME 
rules. According to such rule change, CME may impose an increase or 
decrease in the position of a Restructuring European Single Name CDS 
contract only through its default management process under 
applicable CME rules. See Securities Exchange Act Release No. 34-
74055 (Jan. 14, 2015), 80 FR 2991 (Jan. 21, 2014) (SR-CME-2015-001).
---------------------------------------------------------------------------

A. Background

    CME. CME states in the Written Request that it is registered with 
the CFTC as a designated contract market. CME, which is also registered 
with the CFTC as a DCO, operates CME Clearing. CME Clearing is one of 
the world's leading central counterparty clearing providers and acts as 
the guarantor of every transaction that happens in CME's markets. CME 
Clearing offers clearing and settlement services for exchange-traded 
contracts as well as for over-the-counter derivatives transactions. CME 
Clearing also limits accumulation of losses or debt with twice daily 
mark-to-market settlement, and is responsible for settling trading 
accounts, clearing trades, collecting and maintaining performance bond 
funds, regulating delivery, and reporting trading data.
    Clearing Agency Exemption. On March 23, 2009, the Commission 
granted CME a temporary conditional exemption from the requirement to 
register as a clearing agency under Section 17A of the Exchange Act 
solely to perform the functions of a clearing agency for ``Cleared 
CDS.'' \5\
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 34-59578 (Mar. 13, 
2009), 74 FR 11781 (Mar. 19, 2009). The exemption was subsequently 
extended. See Securities Exchange Act Release No. 34-61164 (Dec. 14, 
2009), 74 FR 67258, (Dec. 18, 2009), Securities Exchange Act Release 
No. 34-61803 (Mar. 30, 2010), 75 FR 17181, (Apr. 5, 2010), and 
Securities Exchange Act Release No. 34-63388 (Nov. 29, 2010), 75 FR 
75522 (Dec. 3, 2010).
---------------------------------------------------------------------------

    Dodd-Frank Act. Section 763(b) of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') \6\ added 
Section 17A(l) to the Exchange Act,\7\ which provides, in relevant 
part, that a DCO registered with the CFTC that is required to register 
under Section 17A is deemed to be registered under Section 17A solely 
for the purpose of clearing SBS to the extent that, before the date of 
enactment of Section 17A(l), the DCO cleared swaps pursuant to an 
exemption from registration as a clearing agency. Pursuant to Section 
17A(l), CME became a registered clearing agency solely for the purpose 
of clearing SBS.\8\
---------------------------------------------------------------------------

    \6\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \7\ 15 U.S.C. 78q-1(l).
    \8\ See Securities Exchange Act Release No. 69284 (Apr. 3, 
2013), 78 FR 21046, 21047, n. 20 (Apr. 9, 2013).
---------------------------------------------------------------------------

    CME states in the Written Request that although it originally 
anticipated that it would begin clearing SBS, it has not, in fact, 
cleared SBS since the effective date of the Dodd-Frank Act, and does 
not engage in any clearing agency activity for SBS or any other 
security. On November 17, 2014, CME filed a rule change with the 
Commission reflecting its decision not to clear SBS and remove any 
provisions in its rulebook applicable to SBS.\9\
---------------------------------------------------------------------------

    \9\ See supra note 4.
---------------------------------------------------------------------------

    As a registered clearing agency, CME is required to comply with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to registered clearing agencies. These 
requirements include the obligation to file proposed rule changes 
pursuant to Section 19(b) of the Exchange Act.\10\ CME, as a DCO, 
generally implements rule changes by self-certifying that the new rule 
complies with the Commodity Exchange Act and the CFTC's regulations. 
For purpose of the Commodity Exchange Act and regulations thereunder, 
this self-certification process allows new rules and rule amendments to 
become effective ten business days after the date on which the CFTC 
receives the certification. CME notes that, while some proposed rule 
changes may become effective upon filing pursuant to Section 
19(b)(3)(A) of the Exchange Act,\11\ and Rule 19b-4(f) thereunder,\12\ 
others are required to go through a notice-and-comment period, pursuant 
to Section 19(b)(2),\13\ before the Commission takes action on the 
proposed rule change. CME states that this process can significantly 
delay the date that the rule change becomes fully effective. CME claims 
that, despite the absence of SBS clearing activity by CME, these 
overlapping but divergent rule review processes have in fact resulted 
in significant difficulties for CME.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
    \13\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

B. Withdrawal of CME Pursuant to Section 19(a)(3) of the Exchange Act

    Following the effectiveness of the proposed rule change (SR-CME-
2014-49) regarding CME's decision not to clear SBS, CME has been filing 
proposed rule changes pursuant to Section 19(b)(3)(A) of the Exchange 
Act \14\ and Rule 19b-4(f)(4)(ii) \15\ thereunder, rendering those 
changes immediately effective. Nonetheless, CME states in the Written 
Request that given the absence of any actual or potential securities 
clearing activity by CME, with the exception of the limited clearing 
activities CME may need to provide in connection with

[[Page 52817]]

Restructuring European Single Name CDS Contracts,\16\ CME believes that 
clearing agency registration is unwarranted and unnecessary. CME 
therefore submits its request for withdrawal of its clearing agency 
registration pursuant to Section 19(a)(3) of the Exchange Act \17\ and 
respectfully requests that the Commission grant CME's request.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(4)(ii).
    \16\ CME recognized that, as noted in SR-CME-2014-49, CME could 
be required to clear SBS in limited circumstances relating to its 
clearing services of certain iTraxx Europe index untranched CDS 
contracts. See supra note 4. CME has submitted a request to the 
Division of Trading and Markets for no-action relief to address the 
clearing of such SBS contracts.
    \17\ 15 U.S.C. 78s(a)(3).
---------------------------------------------------------------------------

    CME further states that if an affiliate of CME seeks to clear SBS 
or another securities product, such affiliate would do so after 
registering with the Commission pursuant to the process set forth in 
Commission Rule 17Ab2-1.\18\ CME represents in the Written Request that 
it will not seek to engage in securities clearing activity in reliance 
on any ``deemed registered'' status pursuant to Section 17A(l) of the 
Exchange Act.\19\
---------------------------------------------------------------------------

    \18\ 17 CFR 240.17Ab2-1.
    \19\ 15 U.S.C. 78q-1(1).
---------------------------------------------------------------------------

    Additionally, CME states that because CME never conducted any 
clearing activity for SBS, it has no known or anticipated claims 
associated with its clearing agency registration. Furthermore, CME 
represents in the Written Request that it will maintain all documents, 
books, and records, including correspondence, memoranda, papers, 
notices, accounts and other records (collectively ``records'') made or 
received by it in connection with proposed rule changes filed with the 
Commission or in connection with its index CDS clearance and settlement 
services as required to be maintained under Rule 17a-1(a) and (b).\20\ 
In the Written Request, CME further represents that it will produce 
such records and furnish such information at the request of any 
representative of the Commission, and will maintain such records for a 
period of 5 years from the effective date of the withdrawal of CME's 
registration as a clearing agency.
---------------------------------------------------------------------------

    \20\ 17 CFR 240.17a-1(a) and (b).
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the requested 
withdrawal is consistent with the Exchange 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/other.shtml), or
     Send an email to rule-comments@sec.gov. Please include 
File No. 600-35 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 600-35. 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/other.shtml). 
Comments are also 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.
    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 600-35 and should be 
submitted on or before September 22, 2015.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21551 Filed 8-31-15; 8:45 am]
 BILLING CODE 8011-01-P


