[Federal Register Volume 80, Number 151 (Thursday, August 6, 2015)]
[Notices]
[Pages 47014-47018]
[FR Doc No: 2015-19290]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75582; File No. SR-CME-2015-014]

Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Expand Performance Bond Collateral Program To Include Australian
Government Debt, Singapore Government Debt, and Ontario and Quebec
Canadian Provincial Debt

July 31, 2015.
    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 July 24, 2015, Chicago Mercantile Exchange Inc. (``CME'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as 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) thereunder,\4\ 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.

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

    CME is proposing to announce via Advisory Notice the expansion of
its collateral program to include Australian Government debt, Singapore
Government debt, and Ontario and Quebec Provincial debt. More
specifically, CME is proposing to issue a CME Clearing Advisory Notice
to clearing member firms announcing an expansion of its performance
bond collateral program for Base, IRS and CDS Guaranty Fund products to
include certain discount bills, notes and bonds issued by the
Australian Government (``AGBs''), Singapore Government (``SGBs''), and
the Canadian Provinces of Ontario and Quebec (``CPBs''). The text of
the proposed rule change is below. Italicized text indicates additions;
bracketed text indicates deletions.
* * * * *

CME Group Advisory Notice
    TO: Clearing Member, Firms Chief Financial Officers, Back Office
Managers
    FROM: CME Clearing.
    SUBJECT: Canadian provincial debt, Australian sovereign debt and
Singapore sovereign debt.
    DATE: May 27, 2015.
    CME Clearing (CME) announces the addition of Australia and
Singapore to our list of acceptable foreign sovereign debt. CME also
announces the addition of Canadian provincial debt from Ontario and
Quebec. Australian and Singapore sovereign debt, and Canadian
provincial debt are acceptable for Base, CDS, and IRS performance bond
requirements and are part of Category 4 assets for Base and IRS and
Category 3 assets for CDS. These additions to our acceptable collateral
list will be effective July 20, 2015, pending regulatory approval.
Please see the applicable haircuts and limits below.

----------------------------------------------------------------------------------------------------------------
                                                                  Haircut schedule
                                                          --------------------------------
                                                                  Time to maturity
            Asset class                  Description      --------------------------------         Notes
                                                              0 to <= 5      >5 to <=10
                                                                years           years
----------------------------------------------------------------------------------------------------------------
Foreign Sovereign Debt............  Discount Bills from                5%  ..............   Australian
                                     the following                                          debt is capped at
                                     countries:                                             $250 million USDE
                                      Australia..                                   per clearing member.
                                      Singapore..
                                    Notes and Bonds from               6%            7.5%   Singapore
                                     the following                                          debt is capped at
                                     countries:                                             $100 million USDE
                                      Australia..                                   per clearing member.
                                      Singapore..
Canadian Provincials..............  Discount Bills from               25%  ..............   Canadian
                                     the following                                          Provincial debt is
                                     provinces:                                             capped at $100
                                      Ontario....                                   million USDE per
                                      Quebec.....                                   clearing member.
                                    Notes and Bonds from              25%  ..............   Provincials
                                     the following                                          that exceed 5 years
                                     provinces:                                             time to maturity are
                                      Ontario....                                   not acceptable.
                                      Quebec.....
----------------------------------------------------------------------------------------------------------------

    For questions regarding these new collateral types, please contact
the Financial Unit at<PHONE_NUMBER> or Collateral Services at (312)
648-3775.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filings 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 announce via Advisory
Notice the expansion of its collateral program to include Australian
Government debt, Singapore Government debt, and Ontario and Quebec
Provincial debt. More specifically, CME is proposing to issue a CME
Clearing Advisory Notice to clearing member firms announcing an
expansion of its performance bond collateral program for Base, IRS and
CDS Guaranty Fund products to include certain discount bills, notes and
bonds issued by the Australian Government (``AGBs''), Singapore
Government (``SGBs''), and the Canadian Provinces of Ontario and Quebec
(``CPBs'').
AGBs
    CME continues to seek diversification of both its clearing member
and collateral bases where appropriate. Acceptance of AGBs will
diversify CME's performance bond collateral base and enable posting of
high-quality assets widely held by participants in Australia, where CME
obtained local regulatory authorization to offer direct clearing
services. CME's credit team evaluated AGBs as eligible performance bond
collateral pursuant to requests from market participants and
recommended their acceptance to CME's clearing house risk committee
(``CHRC''). The decision to accept AGBs is reflective of the global
nature of the IRS swaps market as these instruments are likely to be
held by, or accessible to, AUD IRS participants. We believe high
quality foreign sovereign debt subject to prudent limits will increase
the likelihood that high quality financial institutions from foreign
jurisdictions will consider clearing membership at CME. Additional
clearing members from foreign jurisdictions will add an increased
element of geographic diversification to CME's membership base and
potentially mitigate the negative impact of systemic events through
reduced geographic concentration.
    CME deemed AGBs with a time to maturity of 10 years or less as
eligible collateral after reaching a favorable determination regarding
these instruments' liquidity profile in a stressed market environment.
The AGBs will be category 4 assets for products supported by the Base
and IRS guaranty funds and Category 3 assets for products supported by
the CDS guaranty fund. Assets in these categories are capped per
clearing firm at a level established to ensure such assets are
convertible into cash on a same-day basis via pledge to CME's credit
facility. To better ensure liquidity is available to CME in times of
market stress, the AGBs are further subject to a sub-limit restricting
clearing firms from posting more than $250 million of AGBs at any one
time.
    All clearing members will be eligible to post AGBs as performance
bond but CME expects such collateral to originate

primarily if not exclusively from Australian market participants in OTC
IRS markets due to their natural access to AGBs. Currently, CME has a
limited number of indirect Australian IRS participants and no direct
Australian IRS participants. As such, the per-clearing member cap on
AGBs should result in these instruments accounting for a de minimis
portion of CME's overall collateral holdings. As a comparative example,
CME accepts as performance bond debt instruments issued by the Japanese
government with per-firm limits at four times than the proposed limits
for AGBs (i.e., up to $1B per clearing member for JPY debt). Currently,
only 0.5% of the overall limit for JPY debt is being utilized.
Initially, we expect similarly de minimis amounts of AGBs.
    Acceptance of AGBs will not impact the overall nature and level of
risk presented by CME as the level of margin collected will remain the
same; only the constitution of CME's collateral holdings may change.
CME analysis indicates the AGBs satisfy each of the characteristics for
high-quality liquid assets the Bank for International Settlements (BIS)
has created for collateral evaluation, and thus exhibit minimal credit,
market and liquidity risk. The risk profile and haircut schedule for
AGBs are consistent with those for similarly rated foreign-issued debt
accepted by CME as performance bond collateral.
SGBs
    Acceptance of SGBs will diversify CME's performance bond collateral
base and enable posting of high-quality assets widely held by
participants in Singapore, where CME is seeking regulatory
authorization to offer direct clearing services. CME's credit team
evaluated SGBs as eligible performance bond collateral pursuant to
requests from market participants and recommended their acceptance to
CME's clearing house risk committee. The decision to accept SGBs is
reflective of the global nature of the CME's markets as these
instruments are likely to be held by, or accessible to, Singaporean
participants. We believe high quality foreign sovereign debt subject to
prudent limits will increase the likelihood that high quality financial
institutions from foreign jurisdictions will consider clearing
membership at CME. Additional clearing members from foreign
jurisdictions will add an increased element of geographic
diversification to its membership base and potentially mitigate the
negative impact of systemic events through reduced geographic
concentration.
    CME deemed SGBs with a time to maturity of 10 years or less as
eligible collateral after reaching a favorable determination regarding
these instruments' liquidity profile in a stressed market environment.
The SGBs will be category 4 assets for products supported by the Base
and IRS guaranty funds and Category 3 assets for products supported by
the CDS guaranty fund. Assets in these categories are capped per
clearing firm at a level established to ensure such assets are
convertible into cash on a same-day basis via pledge to CME's credit
facility. To better ensure liquidity is available to CME in times of
market stress, the SGBs are further subject to a sub-limit restricting
clearing firms from posting more than $100 million of SGBs at any one
time.
    All clearing members will be eligible to post SGBs as performance
bond but CME expects such collateral to originate primarily if not
exclusively from Singapore market participants due to their natural
access to SGBs. Currently, CME has a limited number of indirect
Singapore participants and no direct Singapore clearing members. As
such, the per-clearing member cap on SGBs should result in these
instruments accounting for a de minimis portion of CME's overall
collateral holdings. As a comparative example, CME accepts as
performance bond debt instruments issued by the Japanese government
with per-firm limits at ten times than the proposed limits for SGBs
(i.e., up to $1B per clearing member for JPY debt). Currently, only
0.5% of the overall limit for JPY debt is being utilized. Initially, we
expect similarly de minimis amounts of SGBs.
    Acceptance of SGBs will not impact the overall nature and level of
risk presented by CME as the level of margin collected will remain the
same; only the constitution of CME's collateral holdings may change.
CME analysis indicates the SGBs satisfy each of the characteristics for
high-quality liquid assets the Bank for International Settlements (BIS)
has created for collateral evaluation, and thus exhibit minimal credit,
market and liquidity risk. The risk profile and haircut schedule for
SGBs are consistent with those for similarly rated foreign-issued debt
accepted by CME as performance bond collateral.
CPBs
    Acceptance of CPBs will diversify CME's performance bond collateral
base and enable posting of high-quality assets widely held by
participants in Ontario and Quebec, where CME has local regulatory
authorization to offer direct clearing services. CME's credit team
evaluated CPBs as eligible performance bond collateral pursuant to
requests from market participants and recommended their acceptance to
CME's clearing house risk committee (``CHRC''). The decision to accept
CPBs is reflective of the global nature of the CME's markets as these
instruments are likely to be held by, or accessible to, Canadian
clearing members and market participants. We believe high quality
foreign sovereign debt subject to prudent limits will increase the
likelihood that high quality financial institutions from foreign
jurisdictions will consider clearing membership at CME. Additional
clearing members from foreign jurisdictions will add an increased
element of geographic diversification to CME's membership base and
potentially mitigate the negative impact of systemic events through
reduced geographic concentration.
    CME deemed CPBs with a time to maturity of 5 years or less as
eligible collateral after reaching a favorable determination regarding
these instruments' liquidity profile in a stressed market environment.
The CPBs will be category 4 assets for products supported by the Base
and IRS guaranty funds and Category 3 assets for products supported by
the CDS guaranty fund. Assets in these categories are capped per
clearing firm at a level established to ensure such assets are
convertible into cash on a same-day basis via pledge to CME's credit
facility. To better ensure liquidity is available to CME in times of
market stress, the CPBs are further subject to a sub-limit restricting
clearing firms from posting more than $100 million of CPBs at any one
time.
    All clearing members will be eligible to post CPBs as performance
bond but CME expects such collateral to originate primarily if not
exclusively from Canadian market participants due to their natural
access to CPBs. The per-clearing member cap on CPBs should result in
these instruments accounting for a de minimis portion of CME's overall
collateral holdings. As a comparative example, CME accepts as
performance bond debt instruments issued by the Japanese government
with per-firm limits at ten times than the proposed limits for CPBs
(i.e., up to $1B per clearing member for JPY debt). Currently, only
0.5% of the overall limit for JPY debt is being utilized. Initially, we
expect similarly de minimis amounts of CPBs.
    Acceptance of CPBs will not impact the overall nature and level of
risk presented by CME as the level of margin collected will remain the
same; only the constitution of CME's collateral

holdings may change. CME analysis indicates the CPBs satisfy each of
the characteristics for high-quality liquid assets the Bank for
International Settlements (BIS) has created for collateral evaluation,
and thus exhibit minimal credit, market and liquidity risk. The risk
profile and haircut schedule for CPBs are consistent with those for
similarly rated foreign-issued debt accepted by CME as performance bond
collateral.
* * * * *
    A summary of the changes described in the Advisory Notice is set
forth in the following chart:

----------------------------------------------------------------------------------------------------------------
                                                                  Haircut schedule
                                                          --------------------------------
                                                                  Time to maturity
            Asset class                  Description      --------------------------------         Notes
                                                                             >5 to <=10
                                                           0 to <=5 years       years
----------------------------------------------------------------------------------------------------------------
Foreign Sovereign Debt............  Discount Bills from                5%  ..............   Australian
                                     the following                                          debt is capped at
                                     countries:                                             $250 million USDE
                                      Australia..                                   per clearing member
                                      Singapore..
                                    Notes and Bonds from               6%            7.5%   Singapore
                                     the following                                          debt is capped at
                                     countries:                                             $100 million USDE
                                      Australia..                                   per clearing member
                                      Singapore..
Canadian Provincials..............  Discount Bills from               25%  ..............   Canadian
                                     the following                                          Provincial debt is
                                     provinces:                                             capped at $100
                                      Ontario....                                   million USDE per
                                      Quebec.....                                   clearing member
                                    Notes and Bonds from              25%  ..............   Provincials
                                     the following                                          that exceed 5 years
                                     provinces:.                                            time to maturity are
                                      Ontario....                                   not acceptable
                                      Quebec.....
----------------------------------------------------------------------------------------------------------------

* * * * *
    The proposed rule changes that are described in this filing are
limited to CME's business as a derivatives clearing organization
clearing products under the exclusive jurisdiction of the Commodity
Futures Trading Commission (``CFTC''). CME has not cleared security
based swaps and does not plan to and therefore the proposed rule
changes do not impact CME's security-based swap clearing business in
any way. The proposed changes would become effective immediately. CME
notes that it has also submitted the proposed rule changes that are the
subject of this filing to its primary regulator, the CFTC, in CME
Submission Numbers 15-228R, 15-229RR, and 15-230R.

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 changes
involve expanding its collateral program to include Australian
Government debt, Singapore Government debt, and Ontario and Quebec
Provincial debt. More specifically, CME is proposing to issue a CME
Clearing Advisory Notice to clearing member firms announcing an
expansion of its performance bond collateral program for Base, IRS and
CDS Guaranty Fund products to include certain discount bills, notes and
bonds issued by the Australian Government (``AGBs''), Singapore
Government (``SGBs''), and the Canadian Provinces of Ontario and Quebec
(``CPBs'').

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) \5\ of the Act and Rule 19b-4(f)(4)(ii) \6\
thereunder. CME has designated that this proposal constitutes 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, and 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,
which renders the proposed change effective upon filing.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(4)(ii).
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    CME believes that the proposal does not significantly affect any
securities clearing operations of CME because CME recently filed a
proposed rule change that clarified that CME has decided not to clear
security-based swaps, except in a very limited set of circumstances.\7\
The rule filing reflecting CME's decision not to clear security-based
swaps removed any ambiguity concerning CME's ability or intent to
perform the functions of a clearing agency with respect to security-
based swaps. Therefore, this proposal will have no effect on any
securities clearing operations of CME.
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    \7\ 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 regards to Restructuring European Single Name CDS
Contracts created following the occurrence of a Restructuring Credit
Event in respect of an iTraxx Component Transaction. The clearing of
Restructuring European Single Name CDS Contracts will be a necessary
byproduct after such time that CME begins clearing iTraxx Europe
index CDS.
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    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.

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<EMAIL_ADDRESS>Please include
File No. SR-CME-2015-014 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-2015-014. 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-2015-014 and
should be submitted on or before August 27, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19290 Filed 8-5-15; 8:45 am]
BILLING CODE 8011-01-P