Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Amend FINRA Rule 4240 (Margin Requirements for Credit Default Swaps), 43360-43363 [2011-18221]
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43360
Federal Register / Vol. 76, No. 139 / Wednesday, July 20, 2011 / Notices
and the 30-day operative delay, so that
the proposal may become effective
immediately upon filing. The
Commission waives the five-day prefiling notice requirement. In addition,
the Commission believes that waiving
the 30-day operative delay is consistent
with the protection of investors and the
public interest.13 This will allow the
Program to continue without
interruption and extend the benefits of
a pilot program that the Commission
approved and previously extended.
Accordingly, the Commission waives
the 30-day operative delay requirement
and designates the proposed rule change
as operative upon filing with the
Commission.
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:
sroberts on DSK5SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2011–068 on the
subject line.
Paper Comments
• Send paper comments 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–CBOE–2011–068. This file
number should be included on the
subject line if e-mail 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
change, or such shorter time as designated by the
Commission.
13 For the purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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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 the
CBOE. 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–CBOE–2011–068 and
should be submitted on or before
August 10, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–18222 Filed 7–19–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64892; File No. SR–FINRA–
2011–034]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change To Amend
FINRA Rule 4240 (Margin
Requirements for Credit Default
Swaps)
July 14, 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 July 11,
2011, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II, below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
PO 00000
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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from interested persons and is
approving the proposed rule change on
an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to extend to
January 17, 2012 the implementation of
FINRA Rule 4240 (Margin Requirements
for Credit Default Swaps) on an interim
pilot program basis and to make other
revisions to update the rule. FINRA
Rule 4240, as approved by the SEC on
May 22, 2009, and as extended by
FINRA on November 22, 2010, will
expire on July 16, 2011. The rule
implements an interim pilot program
with respect to margin requirements for
certain transactions in credit default
swaps.
The text of the proposed rule change
is set forth below. Proposed new
language is italicized; proposed
deletions are in brackets.
*
*
*
*
*
4000. Financial and Operational
Rules.
*
*
*
*
*
4200. Margin.
*
*
*
*
*
4240. Margin Requirements for Credit
Default Swaps.
(a) Effective Period of Interim Pilot
Program.
This Rule establishes an interim pilot
program (‘‘Interim Pilot Program’’) with
respect to margin requirements for any
transactions in credit default swaps
executed by a member (regardless of the
type of account in which the transaction
is booked), including those in which the
offsetting matching hedging transactions
(‘‘matching transactions’’) are effected
by the member in contracts that are
cleared through [the central
counterparty clearing services of the
Chicago Mercantile Exchange (‘‘CME’’)]
a clearing agency or derivatives clearing
organization that provides central
counterparty clearing services using a
margin methodology approved by
FINRA as announced in a Regulatory
Notice (‘‘approved margin
methodology’’). The Interim Pilot
Program shall automatically expire on
[July 16, 2011] January 17, 2012. For
purposes of this Rule, the term ‘‘credit
default swap’’ (‘‘CDS’’) shall [mean any
‘‘eligible credit default swap’’ as defined
in Securities Act Rule 239T(d), as well
as any other CDS that would otherwise
meet such definition but for being
subject to individual negotiation,]
include any product that is commonly
known to the trade as a credit default
swap and is a swap or security-based
swap as defined pursuant to Section
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1a(47) of the Commodity Exchange Act
and Section 3(a)(68) of the Exchange
Act, respectively, or the joint rules and
guidance of the CFTC and the SEC and
their staff. [and t]The term ‘‘transaction’’
shall include any ongoing CDS position.
(b) Central Counterparty Clearing
Arrangements.
Any member, prior to establishing any
clearing arrangement with respect to
CDS transactions that makes use of any
central counterparty clearing services
provided by any clearing agency or
derivatives clearing organization [,
pursuant to Securities Act Rule
239T(a)(1),] must notify FINRA in
advance in writing, in such manner as
may be specified by FINRA in a
Regulatory Notice.
(c) Margin Requirements.
(1) CDS Cleared [on the Chicago
Mercantile Exchange] Through a
Clearing Agency or Derivatives Clearing
Organization Using an Approved
Margin Methodology.
Members shall require as a minimum
for computing customer or broker-dealer
margin, with respect to any customer or
broker-dealer transaction in CDS with a
member in which the member executes
a matching transaction that makes use of
the central counterparty clearing
facilities of [the CME (‘‘CME matching
customer-side transaction’’)] a clearing
agency or derivatives clearing
organization using an approved margin
methodology pursuant to this Rule, the
applicable margin pursuant to [CME
rules (sometimes referred to in such
rules as a ‘‘performance bond’’)] the
rules of such clearing agency or
derivatives clearing organization
regardless of the type of account in
which the transaction in CDS is booked.
Members shall, based on the risk
monitoring procedures and guidelines
set forth in paragraph (d) of this Rule,
determine whether the applicable [CME]
clearing agency or derivatives clearing
organization requirements are adequate
with respect to their customer and
broker-dealer accounts and the positions
in those accounts and, where
appropriate, increase such margin in
excess of such minimum margin. For
this purpose, members are permitted to
use the margin requirements set forth in
Supplementary Material .01 of this Rule.
The aggregate amount of margin the
member collects from customers and
broker-dealers for transactions in CDS
must equal or exceed the aggregate
amount of margin the member is
required to post at [CME] the clearing
agency or derivatives clearing
organization with respect to those
customer and broker-dealer
transactions.
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[CME matching customer-side
t]Transactions that are cleared through
a clearing agency or derivatives clearing
organization using an approved margin
methodology pursuant to this Rule are
not subject to the provisions of
paragraph (c)(2) of this Rule.
(2) CDS That Are Cleared on Central
Counterparty Clearing Facilities That Do
Not Use an Approved Margin
Methodology [Other Than the CME] or
That Settle Over-the-Counter (‘‘OTC’’).
Members shall require, with respect to
any transaction in CDS that makes use
of central counterparty clearing facilities
[other than the CME] that do not use an
approved margin methodology pursuant
to this Rule or that settle OTC, the
applicable minimum margin as set forth
in Supplementary Material .01 of this
Rule regardless of the type of account in
which the transaction in CDS is booked.
However, members shall, based on the
risk monitoring procedures and
guidelines set forth in paragraph (d) of
this Rule, determine whether such
margin is adequate with respect to their
customer and broker-dealer accounts
and, where appropriate, increase such
requirements.
(d) through (e) No Change.
. . . Supplementary Material:
.01 No Change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of 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. FINRA 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
1. Purpose
On May 22, 2009, the Commission
approved FINRA Rule 4240,3 which
implements an interim pilot program
(the ‘‘Interim Pilot Program’’) with
respect to margin requirements for
certain transactions in credit default
swaps (‘‘CDS’’). On November 22, 2010,
3 See Securities Exchange Act Release No. 59955
(May 22, 2009), 74 FR 25586 (May 28, 2009) (Notice
of Approval of Proposed Rule Change; File No. SR–
FINRA–2009–012) (‘‘Approval Order’’).
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43361
FINRA extended the implementation of
Rule 4240 to July 16, 2011.4
As explained in the Approval Order,5
FINRA Rule 4240, coterminous with
certain Commission actions,6 is
intended to address concerns arising
from systemic risk posed by CDS,
including, among other things, risks to
the financial system arising from the
lack of a central clearing counterparty to
clear and settle CDS. On July 21, 2010,
President Obama signed into law the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ‘‘DoddFrank Act’’),7 Title VII of which
established a comprehensive new
regulatory framework for swaps and
security-based swaps, including certain
CDS. The new legislation was intended
among other things to enhance the
authority of regulators to implement
new rules designed to reduce risk,
increase transparency, and promote
market integrity with respect to such
products.
FINRA believes it is appropriate to
extend the Interim Pilot Program for a
limited period, to January 17, 2012,
pending the final implementation of
new Commodity Futures Trading
Commission (‘‘CFTC’’) and SEC rules
pursuant to Title VII of the Dodd-Frank
Act that would provide greater
regulatory clarity as to margin
requirements for the products addressed
by FINRA Rule 4240.
4 See Securities Exchange Act Release No. 63391
(November 30, 2010), 75 FR 75718 (December 6,
2010) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change; File No. SR–FINRA–
2010–063).
5 See 74 FR 25588 through 25589.
6 In early 2009 the Commission enacted interim
final temporary rules (the ‘‘interim final temporary
rules’’) providing enumerated exemptions under the
federal securities laws for certain CDS to facilitate
the operation of one or more central clearing
counterparties in such CDS. See Securities Act
Release No. 8999 (January 14, 2009), 74 FR 3967
(January 22, 2009) (Temporary Exemptions for
Eligible Credit Default Swaps To Facilitate
Operation of Central Counterparties To Clear and
Settle Credit Default Swaps); Securities Act Release
No. 9063 (September 14, 2009), 74 FR 47719
(September 17, 2009) (Extension of Temporary
Exemptions for Eligible Credit Default Swaps To
Facilitate Operation of Central Counterparties To
Clear and Settle Credit Default Swaps); Securities
Act Release No. 9158 (November 19, 2010), 75 FR
72660 (November 26, 2010) (Extension of
Temporary Exemptions for Eligible Credit Default
Swaps To Facilitate Operation of Central
Counterparties To Clear and Settle Credit Default
Swaps). See also Securities Exchange Act Release
No. 59578 (March 13, 2009), 74 FR 11781 (March
19, 2009) (Order Granting Temporary Exemptions
in Connection with Request of Chicago Mercantile
Exchange Inc. and Citadel Investment Group, L.L.C.
Related to Central Clearing of Credit Default
Swaps); Securities Exchange Act Release No. 59165
(December 24, 2008), 74 FR 133 (January 2, 2009)
(Order Granting Temporary Exemptions for BrokerDealers and Exchanges Effecting Transactions in
Credit Default Swaps).
7 Public Law 111–203, 124 Stat. 1376 (2010).
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Federal Register / Vol. 76, No. 139 / Wednesday, July 20, 2011 / Notices
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FINRA has revised the definition of
‘‘CDS’’ set forth in paragraph (a) of the
Rule to reflect the effectiveness of the
definitions of ‘‘swap’’ and ‘‘securitybased swap’’ in Section 1a(47) of the
Commodity Exchange Act 8 and Section
3(a)(68) of the Act,9 respectively,
pursuant to the Dodd-Frank Act.
FINRA has revised FINRA Rule
4240(a) to clarify that the Interim Pilot
Program applies with respect to margin
requirements for any transactions in
CDS executed by a member (regardless
of the type of account in which the
transaction is booked), including those
in which the offsetting matching
hedging transactions (‘‘matching
transactions’’) are effected by the
member in contracts that are cleared
through a clearing agency or derivatives
clearing organization that provides
central counterparty clearing services
using a margin methodology approved
by FINRA as announced in a Regulatory
Notice (‘‘approved margin
methodology’’). FINRA believes that this
serves the interest of regulatory
efficiency and is consistent with the
goals set forth in the Approval Order,
which noted that FINRA would
consider margin methodology proposals
from central clearing counterparties and
would amend Rule 4240 as
appropriate.10
FINRA has requested the Commission
to find good cause pursuant to Section
19(b)(2) of the Act 11 for approving the
proposed rule change prior to the 30th
day after its publication in the Federal
Register, such that FINRA can prevent
FINRA Rule 4240 from lapsing and
implement the proposed rule change on
July 16, 2011. The proposed rule change
will expire on January 17, 2012.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,12 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that the
proposed rule change will further the
purposes of the Act because, consistent
with the goals set forth by the
Commission when it adopted the
interim final temporary rules with
respect to the operation of central
87
U.S.C. 1a(47).
U.S.C. 78c(a)(68).
10 See 74 FR 25589. FINRA has made conforming
revisions to paragraphs (b), (c)(1) and (c)(2) of the
Rule. See Exhibit 5.
11 15 U.S.C. 78s(b)(2).
12 15 U.S.C. 78o–3(b)(6).
9 15
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counterparties to clear and settle CDS,
and pending the final implementation of
new CFTC and SEC rules pursuant to
Title VII of the Dodd-Frank Act, the
margin requirements set forth by the
proposed rule change will help to
stabilize the financial markets.
public interest.15 This allows the
existing pilot program to continue
without interruption and extend the
benefits of a pilot program that the
Commission has previously approved
and extended.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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:
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
III. Commission’s Findings and Order
Granting Accelerated Approval of a
Proposed Rule Change
FINRA has requested that the
Commission find good cause pursuant
to Section 19(b)(2) of the Act for
approving the proposed rule change
prior to the 30th day after publication in
the Federal Register.13 The Commission
finds good cause for approving the
proposed rule change prior to the 30th
day after the date of publication of
notice of filing. The accelerated
approval will, consistent with the goals
set forth by the Commission when it
adopted the interim final temporary
rules with respect to the operation of
central counterparties to clear and settle
CDS, and pending the final
implementation of new CFTC and SEC
rules pursuant to Title VII of the DoddFrank Act, help to stabilize the financial
markets by setting forth margin
requirements for certain transactions in
CDS. The Commission believes the
proposed revisions to paragraph (a) of
FINRA Rule 4240 are consistent with
the goals set forth in the Approval
Order, which noted that FINRA would
consider margin methodology proposals
from central clearing counterparties and
would amend Rule 4240 as
appropriate.14
In particular, the Commission finds
that the proposed rule change is
consistent with Section 15A(b)(6) of the
Act, which requires, among other
things, that FINRA rules be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
PO 00000
13 15
U.S.C. 78s(b)(2).
Section II.A.1. of this release.
14 See
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Fmt 4703
Sfmt 4703
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2011–034 on the
subject line.
Paper Comments
• Send paper comments 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–FINRA–2011–034. This file
number should be included on the
subject line if e-mail 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 (https://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
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
15 In approving this rule change, the Commission
notes that it has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
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Federal Register / Vol. 76, No. 139 / Wednesday, July 20, 2011 / Notices
should submit only information that
you wish to make available publicly.
All submissions should refer to File
Number SR–FINRA–2011–034 and
should be submitted on or before
August 10, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–18221 Filed 7–19–11; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64886; File No. SR–BX–
2011–042]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Modify Rule
7027 of the NASDAQ OMX BX Pricing
Schedule
July 14, 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 July 1,
2011, NASDAQ OMX BX, Inc. (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
sroberts on DSK5SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
BX proposes to modify Rule 7027 of
its pricing schedule. BX will implement
the proposed change immediately upon
filing. The text of the proposed rule
change is available at the Exchange’s
principal office, at https://
www.nasdaqomxbx.cchwallstreet.com,
the Commission’s Public Reference
Room, and at the Commission’s Web
site at https://www.sec.gov.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, BX
included statements concerning the
purpose of and basis for the proposed
rule change and discussed any
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BILLING CODE 8011–01–P
16 17
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. BX has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
BX is amending Rule 7027, which
allows affiliated members to aggregate
their activity under certain provisions of
BX’s fee schedule that make fees
dependent upon the volume of their
activity. For example, various
provisions of Rule 7018 contain pricing
tiers, under which the fees charged to,
or rebates received by, members are
dependent upon their share volumes.
Affiliated members that might not
qualify for a favorable pricing tier by
themselves may be able to qualify by
aggregating their activity.
Under the rule, a member may request
that BX aggregate its activity with the
activity of its affiliates. A member
requesting aggregation of affiliate
activity is required to certify to BX the
affiliate status of entities whose activity
it seeks to aggregate, and is required to
inform BX immediately of any event
that causes an entity to cease to be an
affiliate. In contrast with the common
definition of affiliate, which identifies
one entity as an affiliate of another if it
controls it, is controlled by it, or is
under common control with it, Rule
7027 requires that one affiliated member
own 100% of the voting interests in the
other, or that they are both under the
common control of a parent that owns
100% of each.
BX conducts a review of information
regarding the entities, and reserves the
right to request additional information
to verify the affiliate status of an entity.
BX then approves a request unless it
determines that the member’s
certification is not accurate.3 Although
BX is not changing the process for
review and approval, it has determined
that it would promote the clarity of the
rule to add text describing this process.
Because BX’s bills are prepared on a
monthly basis, recognizing an affiliation
in the middle of a month would require
BX to engage in a complex proration of
members’ bills. Accordingly, it has been
3 In the event of an inaccurate certification, BX
would refer the matter to its regulatory services
provider, the Financial Industry Regulatory
Authority (‘‘FINRA’’), to investigate whether the
member had violated BX rules and to take
appropriate disciplinary action.
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43363
BX’s practice to recognize an affiliation
request either at the beginning of the
month in which the affiliation occurs or
at the beginning of the following month.
BX believes, however, that the clarity of
the rule would be enhanced by adopting
a stated policy with respect to the
timing of recognition of aggregation
requests. Accordingly, BX is amending
the rule by adding a new paragraph
(a)(2). The paragraph stipulates that if
two or more members become affiliated
on or prior to the sixteenth day of a
month, and submit a request for
aggregation on or prior to the twentysecond day of the month, an approval of
the request by BX shall be deemed
effective as of the first day of the month.
Thus, for example, if one member
acquires another, the acquisition is
completed by June 16, and the members
file a request for aggregation by June 22,
BX’s approval of the request would
allow the members to aggregate all
activity during June. This would be the
case regardless of the time required for
BX to review and approve the request.
However, if members become affiliated
after the sixteenth day of the month, or
do not submit a request for aggregation
until after the twenty-second day, the
request would not be recognized until
the following month.
2. Statutory Basis
BX believes that the proposed rule
change is consistent with the provisions
of Section 6 of the Act,4 in general, and
with Section 6(b)(5) of the Act 5 in
particular, in that the proposal is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. BX believes that the
change will result in the adoption of a
clear policy with respect to the
meaning, administration, and
enforcement of Rule 7027, thereby
promoting members’ understanding of
the parameters of the rule and the
efficiency of its administration.
BX further believes that the proposed
rule change is consistent with Section
6(b)(4) of the Act,6 in that it provides for
the equitable allocation of reasonable
dues, fees and other charges among
4 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
6 15 U.S.C. 78f(b)(4).
5 15
E:\FR\FM\20JYN1.SGM
20JYN1
]]>Agencies
[Federal Register Volume 76, Number 139 (Wednesday, July 20, 2011)]
[Notices]
[Pages 43360-43363]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18221]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64892; File No. SR-FINRA-2011-034]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Order Granting Accelerated
Approval of Proposed Rule Change To Amend FINRA Rule 4240 (Margin
Requirements for Credit Default Swaps)
July 14, 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 July 11, 2011, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by FINRA. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and is approving 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 the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to extend to January 17, 2012 the implementation
of FINRA Rule 4240 (Margin Requirements for Credit Default Swaps) on an
interim pilot program basis and to make other revisions to update the
rule. FINRA Rule 4240, as approved by the SEC on May 22, 2009, and as
extended by FINRA on November 22, 2010, will expire on July 16, 2011.
The rule implements an interim pilot program with respect to margin
requirements for certain transactions in credit default swaps.
The text of the proposed rule change is set forth below. Proposed
new language is italicized; proposed deletions are in brackets.
* * * * *
4000. Financial and Operational Rules.
* * * * *
4200. Margin.
* * * * *
4240. Margin Requirements for Credit Default Swaps.
(a) Effective Period of Interim Pilot Program.
This Rule establishes an interim pilot program (``Interim Pilot
Program'') with respect to margin requirements for any transactions in
credit default swaps executed by a member (regardless of the type of
account in which the transaction is booked), including those in which
the offsetting matching hedging transactions (``matching
transactions'') are effected by the member in contracts that are
cleared through [the central counterparty clearing services of the
Chicago Mercantile Exchange (``CME'')] a clearing agency or derivatives
clearing organization that provides central counterparty clearing
services using a margin methodology approved by FINRA as announced in a
Regulatory Notice (``approved margin methodology''). The Interim Pilot
Program shall automatically expire on [July 16, 2011] January 17, 2012.
For purposes of this Rule, the term ``credit default swap'' (``CDS'')
shall [mean any ``eligible credit default swap'' as defined in
Securities Act Rule 239T(d), as well as any other CDS that would
otherwise meet such definition but for being subject to individual
negotiation,] include any product that is commonly known to the trade
as a credit default swap and is a swap or security-based swap as
defined pursuant to Section
[[Page 43361]]
1a(47) of the Commodity Exchange Act and Section 3(a)(68) of the
Exchange Act, respectively, or the joint rules and guidance of the CFTC
and the SEC and their staff. [and t]The term ``transaction'' shall
include any ongoing CDS position.
(b) Central Counterparty Clearing Arrangements.
Any member, prior to establishing any clearing arrangement with
respect to CDS transactions that makes use of any central counterparty
clearing services provided by any clearing agency or derivatives
clearing organization [, pursuant to Securities Act Rule 239T(a)(1),]
must notify FINRA in advance in writing, in such manner as may be
specified by FINRA in a Regulatory Notice.
(c) Margin Requirements.
(1) CDS Cleared [on the Chicago Mercantile Exchange] Through a
Clearing Agency or Derivatives Clearing Organization Using an Approved
Margin Methodology.
Members shall require as a minimum for computing customer or
broker-dealer margin, with respect to any customer or broker-dealer
transaction in CDS with a member in which the member executes a
matching transaction that makes use of the central counterparty
clearing facilities of [the CME (``CME matching customer-side
transaction'')] a clearing agency or derivatives clearing organization
using an approved margin methodology pursuant to this Rule, the
applicable margin pursuant to [CME rules (sometimes referred to in such
rules as a ``performance bond'')] the rules of such clearing agency or
derivatives clearing organization regardless of the type of account in
which the transaction in CDS is booked. Members shall, based on the
risk monitoring procedures and guidelines set forth in paragraph (d) of
this Rule, determine whether the applicable [CME] clearing agency or
derivatives clearing organization requirements are adequate with
respect to their customer and broker-dealer accounts and the positions
in those accounts and, where appropriate, increase such margin in
excess of such minimum margin. For this purpose, members are permitted
to use the margin requirements set forth in Supplementary Material .01
of this Rule.
The aggregate amount of margin the member collects from customers
and broker-dealers for transactions in CDS must equal or exceed the
aggregate amount of margin the member is required to post at [CME] the
clearing agency or derivatives clearing organization with respect to
those customer and broker-dealer transactions.
[CME matching customer-side t]Transactions that are cleared through
a clearing agency or derivatives clearing organization using an
approved margin methodology pursuant to this Rule are not subject to
the provisions of paragraph (c)(2) of this Rule.
(2) CDS That Are Cleared on Central Counterparty Clearing
Facilities That Do Not Use an Approved Margin Methodology [Other Than
the CME] or That Settle Over-the-Counter (``OTC'').
Members shall require, with respect to any transaction in CDS that
makes use of central counterparty clearing facilities [other than the
CME] that do not use an approved margin methodology pursuant to this
Rule or that settle OTC, the applicable minimum margin as set forth in
Supplementary Material .01 of this Rule regardless of the type of
account in which the transaction in CDS is booked. However, members
shall, based on the risk monitoring procedures and guidelines set forth
in paragraph (d) of this Rule, determine whether such margin is
adequate with respect to their customer and broker-dealer accounts and,
where appropriate, increase such requirements.
(d) through (e) No Change.
. . . Supplementary Material:
.01 No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of 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. FINRA 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
1. Purpose
On May 22, 2009, the Commission approved FINRA Rule 4240,\3\ which
implements an interim pilot program (the ``Interim Pilot Program'')
with respect to margin requirements for certain transactions in credit
default swaps (``CDS''). On November 22, 2010, FINRA extended the
implementation of Rule 4240 to July 16, 2011.\4\
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\3\ See Securities Exchange Act Release No. 59955 (May 22,
2009), 74 FR 25586 (May 28, 2009) (Notice of Approval of Proposed
Rule Change; File No. SR-FINRA-2009-012) (``Approval Order'').
\4\ See Securities Exchange Act Release No. 63391 (November 30,
2010), 75 FR 75718 (December 6, 2010) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change; File No. SR-FINRA-
2010-063).
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As explained in the Approval Order,\5\ FINRA Rule 4240, coterminous
with certain Commission actions,\6\ is intended to address concerns
arising from systemic risk posed by CDS, including, among other things,
risks to the financial system arising from the lack of a central
clearing counterparty to clear and settle CDS. On July 21, 2010,
President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ``Dodd-Frank Act''),\7\ Title VII of which
established a comprehensive new regulatory framework for swaps and
security-based swaps, including certain CDS. The new legislation was
intended among other things to enhance the authority of regulators to
implement new rules designed to reduce risk, increase transparency, and
promote market integrity with respect to such products.
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\5\ See 74 FR 25588 through 25589.
\6\ In early 2009 the Commission enacted interim final temporary
rules (the ``interim final temporary rules'') providing enumerated
exemptions under the federal securities laws for certain CDS to
facilitate the operation of one or more central clearing
counterparties in such CDS. See Securities Act Release No. 8999
(January 14, 2009), 74 FR 3967 (January 22, 2009) (Temporary
Exemptions for Eligible Credit Default Swaps To Facilitate Operation
of Central Counterparties To Clear and Settle Credit Default Swaps);
Securities Act Release No. 9063 (September 14, 2009), 74 FR 47719
(September 17, 2009) (Extension of Temporary Exemptions for Eligible
Credit Default Swaps To Facilitate Operation of Central
Counterparties To Clear and Settle Credit Default Swaps); Securities
Act Release No. 9158 (November 19, 2010), 75 FR 72660 (November 26,
2010) (Extension of Temporary Exemptions for Eligible Credit Default
Swaps To Facilitate Operation of Central Counterparties To Clear and
Settle Credit Default Swaps). See also Securities Exchange Act
Release No. 59578 (March 13, 2009), 74 FR 11781 (March 19, 2009)
(Order Granting Temporary Exemptions in Connection with Request of
Chicago Mercantile Exchange Inc. and Citadel Investment Group,
L.L.C. Related to Central Clearing of Credit Default Swaps);
Securities Exchange Act Release No. 59165 (December 24, 2008), 74 FR
133 (January 2, 2009) (Order Granting Temporary Exemptions for
Broker-Dealers and Exchanges Effecting Transactions in Credit
Default Swaps).
\7\ Public Law 111-203, 124 Stat. 1376 (2010).
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FINRA believes it is appropriate to extend the Interim Pilot
Program for a limited period, to January 17, 2012, pending the final
implementation of new Commodity Futures Trading Commission (``CFTC'')
and SEC rules pursuant to Title VII of the Dodd-Frank Act that would
provide greater regulatory clarity as to margin requirements for the
products addressed by FINRA Rule 4240.
[[Page 43362]]
FINRA has revised the definition of ``CDS'' set forth in paragraph
(a) of the Rule to reflect the effectiveness of the definitions of
``swap'' and ``security-based swap'' in Section 1a(47) of the Commodity
Exchange Act \8\ and Section 3(a)(68) of the Act,\9\ respectively,
pursuant to the Dodd-Frank Act.
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\8\ 7 U.S.C. 1a(47).
\9\ 15 U.S.C. 78c(a)(68).
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FINRA has revised FINRA Rule 4240(a) to clarify that the Interim
Pilot Program applies with respect to margin requirements for any
transactions in CDS executed by a member (regardless of the type of
account in which the transaction is booked), including those in which
the offsetting matching hedging transactions (``matching
transactions'') are effected by the member in contracts that are
cleared through a clearing agency or derivatives clearing organization
that provides central counterparty clearing services using a margin
methodology approved by FINRA as announced in a Regulatory Notice
(``approved margin methodology''). FINRA believes that this serves the
interest of regulatory efficiency and is consistent with the goals set
forth in the Approval Order, which noted that FINRA would consider
margin methodology proposals from central clearing counterparties and
would amend Rule 4240 as appropriate.\10\
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\10\ See 74 FR 25589. FINRA has made conforming revisions to
paragraphs (b), (c)(1) and (c)(2) of the Rule. See Exhibit 5.
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FINRA has requested the Commission to find good cause pursuant to
Section 19(b)(2) of the Act \11\ for approving the proposed rule change
prior to the 30th day after its publication in the Federal Register,
such that FINRA can prevent FINRA Rule 4240 from lapsing and implement
the proposed rule change on July 16, 2011. The proposed rule change
will expire on January 17, 2012.
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\11\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change will
further the purposes of the Act because, consistent with the goals set
forth by the Commission when it adopted the interim final temporary
rules with respect to the operation of central counterparties to clear
and settle CDS, and pending the final implementation of new CFTC and
SEC rules pursuant to Title VII of the Dodd-Frank Act, the margin
requirements set forth by the proposed rule change will help to
stabilize the financial markets.
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\12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
FINRA has requested that the Commission find good cause pursuant to
Section 19(b)(2) of the Act for approving the proposed rule change
prior to the 30th day after publication in the Federal Register.\13\
The Commission finds good cause for approving the proposed rule change
prior to the 30th day after the date of publication of notice of
filing. The accelerated approval will, consistent with the goals set
forth by the Commission when it adopted the interim final temporary
rules with respect to the operation of central counterparties to clear
and settle CDS, and pending the final implementation of new CFTC and
SEC rules pursuant to Title VII of the Dodd-Frank Act, help to
stabilize the financial markets by setting forth margin requirements
for certain transactions in CDS. The Commission believes the proposed
revisions to paragraph (a) of FINRA Rule 4240 are consistent with the
goals set forth in the Approval Order, which noted that FINRA would
consider margin methodology proposals from central clearing
counterparties and would amend Rule 4240 as appropriate.\14\
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\13\ 15 U.S.C. 78s(b)(2).
\14\ See Section II.A.1. of this release.
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In particular, the Commission finds that the proposed rule change
is consistent with Section 15A(b)(6) of the Act, which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.\15\ This allows the existing pilot program to continue
without interruption and extend the benefits of a pilot program that
the Commission has previously approved and extended.
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\15\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2011-034 on the subject line.
Paper Comments
Send paper comments 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-FINRA-2011-034. This
file number should be included on the subject line if e-mail 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 (https://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 FINRA.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
[[Page 43363]]
should submit only information that you wish to make available
publicly.
All submissions should refer to File Number SR-FINRA-2011-034 and
should be submitted on or before August 10, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-18221 Filed 7-19-11; 8:45 am]
BILLING CODE 8011-01-P
