Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; Order Approving Proposed Rule Change To Amend Rules Relating to Credit Default Swap Guaranty Fund, 13668 [2012-5513]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 45 (Wednesday, March 7, 2012)]
[Notices]
[Page 13668]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66506; File No. SR-CME-2012-01]


 Self-Regulatory Organizations; Chicago Mercantile Exchange, 
Inc.; Order Approving Proposed Rule Change To Amend Rules Relating to 
Credit Default Swap Guaranty Fund

March 2, 2012

I. Introduction

    On January 23, 2012, Chicago Mercantile Exchange Inc. (``CME'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-CME-2012-01 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on February 1, 2012.\3\ The Commission received no 
comment letters regarding the proposal. For the reasons discussed 
below, the Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-66250 (January 26, 
2012), 77 FR 5070 (February 1, 2012). In its filing with the 
Commission, CME included statements concerning the purpose of and 
basis for the proposed rule change. The text of these statements is 
incorporated into the discussion of the proposed rule change in 
Section II below.
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II. Description

    The rule change would replace CME's ``aggregate performance bond 
requirement'' standard, which determines how CME calculates each CDS 
Clearing Member's allocation to the CDS Guaranty Fund, with a new 
standard that CME believes better allocates tail risk. Currently CME 
rules provide that each CDS Clearing Member's allocation to the CDS 
Guaranty Fund will be the greater of (i) $50,000,000 and (ii) its 
proportionate share of the 90-day trailing average of its aggregate 
performance bond requirements and average gross notional open interest 
outstanding at the Clearing House. The proposal would change the CDS 
Guaranty Fund so that the allocation will be made on the basis of each 
CDS Clearing Member's potential residual loss (``PRL''). PRL is a 
stress test of the tail risk CDS Clearing Member portfolios bring to 
the market. CME is also proposing to make conforming changes to its CDS 
Manual of Operations.

III. Discussion

    Section 19(b)(2)(B) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\4\ In particular, Section 17A(b)(3)(F) \5\ of the Act 
requires, among other things, that the rules of a clearing agency be 
designed 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.
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    \4\ 15 U.S.C. 78s(b)(2)(B).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change would allow CME to change the method used 
for calculating individual CDS Clearing Member contributions to the CDS 
Guaranty Fund and is designed to more accurately align the allocation 
of its CDS Guaranty Fund requirement to CDS Clearing Members based on 
the risk presented by each such member. Thus, the proposed rule change 
to change CME's CDS Guaranty Fund allocation is consistent with the 
requirement in Section 17A(b)(3)(F) that CME safeguard the securities 
and funds which are in the custody or control of CME or for which it is 
responsible.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act and the 
rules and regulations thereunder.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) \6\ of the 
Act, that the proposed rule change (File No. SR-CME-2012-01) be, and 
hereby is, approved.\7\
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    \6\ 15 U.S.C. 78s(b)(2).
    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5513 Filed 3-6-12; 8:45 am]
BILLING CODE 8011-01-P