Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Facilitate Changing its Methodology for Calculation of the “Cash Mark-to-Market” Performance Bonds for Cleared OTC FX Swaps From SPAN® to HVaR, 23768-23770 [2012-9527]
Download as PDF
23768
Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices
pay a fee that they would otherwise
have to pay. The Waiver is equitable
and not unfairly discriminatory because
the Exchange believes that the Waiver
will encourage TPHs to transact
business in FLEX Options using the
CFLEX System and encourage trading of
customized options in an exchange
environment.8 The Exchange believes
such increased business will provide
greater FLEX Options trading
opportunities for all market
participants. Also, the transaction fees
collected from this increased business
will allow the Exchange to recoup costs
expended in building and developing
the CFLEX System.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose 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
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A) 9 of the Act and paragraph (f)
of Rule 19b–4 10 thereunder. 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,
tkelley on DSK3SPTVN1PROD with NOTICES
8 The
Exchange believes that FLEX Options
provide TPHs and investors with an improved but
comparable alternative to the over-the-counter
(‘‘OTC’’) market in customized options, which can
take on contract characteristics similar to FLEX
Options. The Exchange believes market participants
benefit from being able to trade customized options
in an exchange environment in several ways,
including, but not limited to the following: (i)
Enhanced efficiency in initiating and closing out
positions; (ii) increased market transparency; and
(iii) heightened contra-party creditworthiness due
to the role of The Options Clearing Corporation as
issuer and guarantor of FLEX Options.
9 15 U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f).
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Jkt 226001
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 email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–037 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–2012–037. 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 (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 the filing
also will be available for inspection and
copying at the principal office of the
Exchange. 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–
2012–037 and should be submitted on
or before May 11, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9526 Filed 4–19–12; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66813; File No. SR–CME–
2012–11]
Self-Regulatory Organizations;
Chicago Mercantile Exchange Inc.;
Notice of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change To Facilitate Changing its
Methodology for Calculation of the
‘‘Cash Mark-to-Market’’ Performance
Bonds for Cleared OTC FX Swaps
From SPAN® to HVaR
April 16, 2012.
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 April 2,
2012, the Chicago Mercantile Exchange
Inc. (‘‘CME’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I and II
below, which items have been prepared
primarily by CME. The Commission is
publishing this Notice and Order to
solicit comments on the proposed rule
change from interested persons and to
approve the proposed rule change on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of Terms of Substance of the
Proposed Rule Change
CME proposes to make certain
changes that are related to its current
cleared-only Cleared Over-the-Counter
(‘‘OTC’’) foreign currency (‘‘FX’’)
product offering to facilitate changing
its methodology for calculation of the
‘‘cash mark-to-market’’ performance
bonds for OTC FX Swaps from Standard
Portfolio Analysis (‘‘SPAN®’’) to
Historical Value at Risk (‘‘HVaR’’). The
text of the proposed rule change is
available at CME’s Web site at https://
www.cmegroup.com/market-regulation/
rule-filings.html.
II. Self-Regulatory Organization’s
Statement of Purpose of, and Statutory
Basis for, the Proposed Rule Change
In its filing 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 III below. CME has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
BILLING CODE 8011–01–P
1 15
11 17
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CFR 200.30–3(a)(12).
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2 17
E:\FR\FM\20APN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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tkelley on DSK3SPTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of Purpose of, and Statutory
Basis for, the Proposed Rule Change
CME proposes a rule change that
would facilitate changing its
methodology for calculation of the
‘‘cash mark-to-market’’ performance
bonds for OTC FX Spot, Forward, and
Swap transactions from SPAN® to
HVaR. This action is consistent with an
analogous migration in performance
bond methodology for CME Group’s
cleared OTC Interest Rate Swaps (‘‘IRS’’)
completed in 2011.
CME currently has a total of thirtyeight (38) OTC FX products listed for
clearing (twelve non-deliverable
forward FX pairs and twenty-six CME
WM/Reuters OTC Cash-Settlement
Forwards FX pairs).3 CME Rule 930.A.
‘‘Performance Bond System,’’ would be
amended to note cleared OTC FX
transactions will use the HVaR
Performance Bond System for
margining. The proposed rule change
would be effective on April 16, 2012,
when CME intends to migrate all 38
OTC FX pairs currently listed for
clearing from the current SPAN to HVaR
methodology for determining
performance bonds.
Consistent with best practices
recommendations, CME’s margin model
covers losses over any 5-day period in
a large universe of portfolios during
99% of days. HVaR methodology is the
model of choice for the risk departments
3 These 38 products include twelve (‘‘12’’) cleared
OTC non-deliverable forward or ‘‘NDFs,’’ namely,
U.S. Dollar/Brazilian Real (‘‘USD/BRL’’), U.S.
Dollar/Chinese Renminbi (‘‘USD/RMB’’ aka,
‘‘CNY’’), U.S. Dollar/Malaysian Ringgit (‘‘USD/
MYR’’), U.S. Dollar/Indonesian Rupiah (‘‘USD/
IDR’’), U.S. Dollar/Indian Rupee (‘‘USD/INR’’), U.S.
Dollar/Korean Won (‘‘USD/KRW’’), U.S. Dollar/
Philippine Peso (‘‘USD/PHP’’), U.S. Dollar/Taiwan
Dollar (‘‘USD/TWD’’), U.S. Dollar/Chilean Peso
(‘‘USD/CLP’’), U.S. Dollar/Colombian Peso (‘‘USD/
COP’’), U.S. Dollar/Peruvian New Sol (‘‘USD/PEN’’)
and U.S. Dollar/Russian Ruble (‘‘USD/RUB’’) nondeliverable forwards (‘‘NDFs’’); and twenty-six
(‘‘26’’) CME WM/Reuters OTC FX Cash-Settlement
Forwards, namely, Australian Dollar/U.S. Dollar
(‘‘AUD/USD’’), U.S. Dollar/Swiss Franc (‘‘USD/
CHF’’), U.S. Dollar/Canadian Dollar (‘‘USD/CAD’’),
New Zealand Dollar/U.S. Dollar (‘‘NZD/USD’’), U.S.
Dollar/Norwegian Krone (‘‘USD/NOK’’), U.S.
Dollar/Swedish Krona (‘‘USD/SEK’’), U.S. Dollar/
Denmark Krone (‘‘USD/DKK’’), Euro/U.S. Dollar
(‘‘EUR/USD’’), U.S. Dollar/Japanese Yen (‘‘USD/
JPY’’), Great British Pound/U.S. Dollar (‘‘GBP/
USD’’), U.S. Dollar/Mexican Peso (‘‘USD/MXN’’),
U.S. Dollar/Singapore Dollar (‘‘USD/SGD’’), U.S.
Dollar/Polish Zloty (‘‘USD/PLN’’), U.S. Dollar/
South African Rand (‘‘USD/ZAR’’), Australian
Dollar/Japanese Yen (‘‘AUD/JPY’’), Euro/Australian
Dollar (‘‘EUR/AUD’’), Canadian Dollar/Japanese
Yen (‘‘CAD/JPY’’), Euro/Great British Pound (‘‘EUR/
GBP’’), Euro/Japanese Yen (‘‘EUR/JPY’’), Euro/
Swiss Franc (‘‘EUR/CHF’’), U.S. Dollar/Czech
Koruna (‘‘USD/CZK’’), U.S. Dollar/Hungarian Forint
(‘‘USD/HUF’’), U.S. Dollar/Turkish Lira (‘‘USD/
TRY’’), U.S. Dollar/Israeli Shekel (‘‘USD/ILS’’), U.S.
Dollar/Thailand Baht (‘‘USD/THB’’), and U.S.
Dollar/Hong Kong Dollar (‘‘USD/HKD’’).
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of most if not all financial services firms
and is widely considered to be a proxy
for market risk. It is also wellunderstood and easily replicable. In the
HVaR framework, past events are used
for coming up with possible scenarios in
the future. This approach implicitly
assumes that historical data series
provide rich sample sets of the possible
probability distribution of the relevant
financial variable. CME has arranged for
receipt of FX historical data by FX pair
by maturity curve from Super
Derivatives. In depth analysis and stress
testing of sample FX portfolios will be
done upon receipt of data.
The margin methodology, at a high
level, follows these four steps:
1. Generate matrix of historical
returns
2. Compute volatility scaling factors
and apply them individually to each
tenor in each scenario
3. Generate scenarios by applying the
scaled return matrix to today’s forward
curve and compute the profit (loss) of
the portfolio in each scenario.
4. Rank the scenarios by maximum
loss to maximum gain and take the
required percentile as a margin. In our
model, we chose to take the 4th largest
loss over the 5-year period, which
corresponds to approximately 99.7%
confidence interval.
CME believes the proposed rule
change is consistent with the
requirements of the Act and particularly
with Section 17A of the Act because it
involves clearing of swaps and futures
contracts and thus relate solely to CME’s
swaps and futures clearing activities
pursuant to its registration as a
derivatives clearing organization under
the Commodity Exchange Act (‘‘CEA’’)
and does not significantly affect any
securities clearing operations of the
clearing agency or any related rights or
obligations of the clearing agency or
persons using such service. CME further
notes that the policies of the CEA with
respect to clearing are comparable to a
number of the policies underlying the
Act, such as promoting market
transparency for over-the-counter
derivatives and futures markets,
promoting the prompt and accurate
clearance of transactions, and protecting
investors and the public interest. The
proposed rule changes accomplish those
objectives by offering investors
enhancements in relation to its FX OTC
swap product offering CME.
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.
PO 00000
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23769
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. 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 may be
submitted by using the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml), or send
an email to rule-comments@sec.gov.
Please include File No. SR–CME–2012–
11 on the subject line.
• Paper comments should be sent 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–CME–2012–11. 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 (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 CME
and on CME’s Web site at https://
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
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Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
should refer to File Number SR–CME–
2012–11 and should be submitted on or
before May 11, 2012.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
Section 19(b) of the Act 4 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. The Commission
finds that the proposed rule change is
consistent with the requirements of the
Act, in particular with the requirements
of Section 17A of the Act,5 and the rules
and regulations thereunder applicable to
CME. Specifically, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act, which 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 possession or control
of the clearing agency or for which it is
responsible and to protect investors and
the public interest because it should
allow CME to enhance its margin
evaluation and collection related to
clearing FX products.6
In its filing CME requested that the
Commission approve this proposed rule
change prior to the thirtieth day after
the date of publication of the notice of
the filing. CME has articulated three
reasons for so granting approval. One,
the products covered by this filing and
CME’s operations as a derivatives
clearing organization for such products
are regulated by the CFTC under the
CEA. Two, the proposed rule change
relates solely to FX products and
therefore relate solely to CME’s swaps
clearing activities and do not
significantly relate to CME’s functions
as a clearing agency for security-based
swaps. Three, not approving this request
on an accelerated basis will have a
significant impact on the swap clearing
business of CME as a designated
clearing organization.
The Commission finds good cause for
granting approval of the proposed rule
change prior to the thirtieth day after
publication of the notice of its filing
because: (i) The proposed rule change
does not significantly affect any
securities clearing operations of the
clearing agency (whether in existence or
contemplated by its rules) or any related
rights or obligations of the clearing
agency or persons using such service;
(ii) the clearing agency has indicated
that not providing accelerated approval
would have a significant impact on its
FX clearing business as a designated
clearing organization; and (iii) the
activity relating to the non-security
clearing operations of the clearing
agency for which the clearing agency is
seeking approval is subject to regulation
by another federal regulator.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–CME–2012–
11) is approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9527 Filed 4–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66819; File No. SR–FINRA–
2011–058]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Amendment No. 1 to Proposed Rule
Change To Amend FINRA Rule 6433
(Minimum Quotation Size
Requirements for OTC Equity
Securities)
April 17, 2012.
I. Introduction
On October 6, 2011, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend FINRA Rule 6433 (Minimum
Quotation Size Requirements for OTC
Equity Securities). The proposed rule
change was published for comment in
the Federal Register on October 20,
2011.3 The Commission received seven
comment letters on the proposed rule
change—two from individual investors,
three from an inter-dealer quotation
7 17
4 15
U.S.C. 78s(b).
5 15 U.S.C. 78q–1. In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
6 15 U.S.C. 78q–1(b)(3)(F).
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Jkt 226001
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65568
(October 14, 2011), 76 FR 65307 (October 20, 2011)
(Notice of Filing of File No. SR–FINRA–2011–058)
(‘‘Original Proposal’’).
1 15
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
system and two from a member firm.4
FINRA responded to comments on
December 23, 2011.5 The Commission
published an order instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act,6 to determine
whether to approve or disapprove the
proposed rule change, in the Federal
Register on January 24, 2012.7 The
comment period closed on February 14,
2012, and FINRA’s rebuttal period
closed on February 28, 2012. The
Commission received one comment
letter in response to the Proceedings
Order.8 On April 17, 2012, FINRA filed
Amendment No. 1 to the proposed rule
change. The text of Amendment No. 1
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
As stated in the Original Proposal,
FINRA is amending FINRA Rule 6433
(Minimum Quotation Size Requirements
for OTC Equity Securities) (the ‘‘Rule’’)
to, among other things, (1) Simplify the
tier structure, (2) parallel the approach
taken by the national securities
exchanges for securities priced at or
above $1.00, (3) expand the scope of the
Rule to apply to all quotations or orders
displayed on an inter-dealer quotation
system, (4) incorporate the requirements
of FINRA Rule 6434 (Minimum Pricing
Increments for OTC Equity Securities) 9
4 Letters to Elizabeth M. Murphy, Secretary,
Commission, from Suzanne H. Shatto, Seattle,
Washington, dated October 20, 2011; Naphtali M.
Hamlet, Seattle, Washington, dated October 21,
2011; Daniel Zinn, General Counsel, OTC Markets
Group, Inc., dated November 10, 2011; Michael T.
Corrao, Managing Director, Knight Capital Group,
Inc., dated November 16, 2011 (‘‘Knight #1’’); R.
Cromwell Coulson, President and CEO, OTC
Markets, dated November 18, 2011; Daniel Zinn,
General Counsel, OTC Markets Group, Inc., dated
December 29, 2011; Michael T. Corrao, Managing
Director, Knight Capital Group, Inc., dated January
13, 2012 (‘‘Knight #2’’).
Comment letters are available at www.sec.gov.
5 On December 23, 2011, FINRA responded to
comment letters received by the SEC as of that date.
See letter to Elizabeth M. Murphy, Secretary,
Commission, from Stephanie M. Dumont, Senior
Vice President and Director of Capital Markets
Policy, FINRA (‘‘FINRA Response Letter’’).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 66168
(January 17, 2012), 77 FR 3515 (January 24, 2012)
(Order Instituting Proceedings to Determine
Whether to Disapprove File No. SR–FINRA–2011–
058) (‘‘Proceedings Order’’).
8 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Daniel Zinn, General Counsel,
OTC Markets Group Inc., dated February 14, 2012.
9 See Securities Exchange Act Release No. 62359
(June 22, 2010), 75 FR 37488 (June 29, 2010) (File
No. SR–FINRA–2009–054; ‘‘Order Approving NMSPrincipled Rules for OTC Equity Securities’’).
FINRA Rule 6434 became effective on February 11,
E:\FR\FM\20APN1.SGM
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Agencies
[Federal Register Volume 77, Number 77 (Friday, April 20, 2012)]
[Notices]
[Pages 23768-23770]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9527]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66813; File No. SR-CME-2012-11]
Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change To Facilitate Changing its Methodology for Calculation of
the ``Cash Mark-to-Market'' Performance Bonds for Cleared OTC FX Swaps
From SPAN[supreg] to HVaR
April 16, 2012.
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 April 2, 2012, the Chicago Mercantile Exchange Inc. (``CME'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I and II below, which items
have been prepared primarily by CME. The Commission is publishing this
Notice and Order to solicit comments on the proposed rule change from
interested persons and to approve the proposed rule change on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of Terms of Substance of
the Proposed Rule Change
CME proposes to make certain changes that are related to its
current cleared-only Cleared Over-the-Counter (``OTC'') foreign
currency (``FX'') product offering to facilitate changing its
methodology for calculation of the ``cash mark-to-market'' performance
bonds for OTC FX Swaps from Standard Portfolio Analysis
(``SPAN[supreg]'') to Historical Value at Risk (``HVaR''). The text of
the proposed rule change is available at CME's Web site at https://www.cmegroup.com/market-regulation/rule-filings.html.
II. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing 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 III below. CME has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
[[Page 23769]]
A. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
CME proposes a rule change that would facilitate changing its
methodology for calculation of the ``cash mark-to-market'' performance
bonds for OTC FX Spot, Forward, and Swap transactions from SPAN[supreg]
to HVaR. This action is consistent with an analogous migration in
performance bond methodology for CME Group's cleared OTC Interest Rate
Swaps (``IRS'') completed in 2011.
CME currently has a total of thirty-eight (38) OTC FX products
listed for clearing (twelve non-deliverable forward FX pairs and
twenty-six CME WM/Reuters OTC Cash-Settlement Forwards FX pairs).\3\
CME Rule 930.A. ``Performance Bond System,'' would be amended to note
cleared OTC FX transactions will use the HVaR Performance Bond System
for margining. The proposed rule change would be effective on April 16,
2012, when CME intends to migrate all 38 OTC FX pairs currently listed
for clearing from the current SPAN to HVaR methodology for determining
performance bonds.
---------------------------------------------------------------------------
\3\ These 38 products include twelve (``12'') cleared OTC non-
deliverable forward or ``NDFs,'' namely, U.S. Dollar/Brazilian Real
(``USD/BRL''), U.S. Dollar/Chinese Renminbi (``USD/RMB'' aka,
``CNY''), U.S. Dollar/Malaysian Ringgit (``USD/MYR''), U.S. Dollar/
Indonesian Rupiah (``USD/IDR''), U.S. Dollar/Indian Rupee (``USD/
INR''), U.S. Dollar/Korean Won (``USD/KRW''), U.S. Dollar/Philippine
Peso (``USD/PHP''), U.S. Dollar/Taiwan Dollar (``USD/TWD''), U.S.
Dollar/Chilean Peso (``USD/CLP''), U.S. Dollar/Colombian Peso
(``USD/COP''), U.S. Dollar/Peruvian New Sol (``USD/PEN'') and U.S.
Dollar/Russian Ruble (``USD/RUB'') non-deliverable forwards
(``NDFs''); and twenty-six (``26'') CME WM/Reuters OTC FX Cash-
Settlement Forwards, namely, Australian Dollar/U.S. Dollar (``AUD/
USD''), U.S. Dollar/Swiss Franc (``USD/CHF''), U.S. Dollar/Canadian
Dollar (``USD/CAD''), New Zealand Dollar/U.S. Dollar (``NZD/USD''),
U.S. Dollar/Norwegian Krone (``USD/NOK''), U.S. Dollar/Swedish Krona
(``USD/SEK''), U.S. Dollar/Denmark Krone (``USD/DKK''), Euro/U.S.
Dollar (``EUR/USD''), U.S. Dollar/Japanese Yen (``USD/JPY''), Great
British Pound/U.S. Dollar (``GBP/USD''), U.S. Dollar/Mexican Peso
(``USD/MXN''), U.S. Dollar/Singapore Dollar (``USD/SGD''), U.S.
Dollar/Polish Zloty (``USD/PLN''), U.S. Dollar/South African Rand
(``USD/ZAR''), Australian Dollar/Japanese Yen (``AUD/JPY''), Euro/
Australian Dollar (``EUR/AUD''), Canadian Dollar/Japanese Yen
(``CAD/JPY''), Euro/Great British Pound (``EUR/GBP''), Euro/Japanese
Yen (``EUR/JPY''), Euro/Swiss Franc (``EUR/CHF''), U.S. Dollar/Czech
Koruna (``USD/CZK''), U.S. Dollar/Hungarian Forint (``USD/HUF''),
U.S. Dollar/Turkish Lira (``USD/TRY''), U.S. Dollar/Israeli Shekel
(``USD/ILS''), U.S. Dollar/Thailand Baht (``USD/THB''), and U.S.
Dollar/Hong Kong Dollar (``USD/HKD'').
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Consistent with best practices recommendations, CME's margin model
covers losses over any 5-day period in a large universe of portfolios
during 99% of days. HVaR methodology is the model of choice for the
risk departments of most if not all financial services firms and is
widely considered to be a proxy for market risk. It is also well-
understood and easily replicable. In the HVaR framework, past events
are used for coming up with possible scenarios in the future. This
approach implicitly assumes that historical data series provide rich
sample sets of the possible probability distribution of the relevant
financial variable. CME has arranged for receipt of FX historical data
by FX pair by maturity curve from Super Derivatives. In depth analysis
and stress testing of sample FX portfolios will be done upon receipt of
data.
The margin methodology, at a high level, follows these four steps:
1. Generate matrix of historical returns
2. Compute volatility scaling factors and apply them individually
to each tenor in each scenario
3. Generate scenarios by applying the scaled return matrix to
today's forward curve and compute the profit (loss) of the portfolio in
each scenario.
4. Rank the scenarios by maximum loss to maximum gain and take the
required percentile as a margin. In our model, we chose to take the 4th
largest loss over the 5-year period, which corresponds to approximately
99.7% confidence interval.
CME believes the proposed rule change is consistent with the
requirements of the Act and particularly with Section 17A of the Act
because it involves clearing of swaps and futures contracts and thus
relate solely to CME's swaps and futures clearing activities pursuant
to its registration as a derivatives clearing organization under the
Commodity Exchange Act (``CEA'') and does not significantly affect any
securities clearing operations of the clearing agency or any related
rights or obligations of the clearing agency or persons using such
service. CME further notes that the policies of the CEA with respect to
clearing are comparable to a number of the policies underlying the Act,
such as promoting market transparency for over-the-counter derivatives
and futures markets, promoting the prompt and accurate clearance of
transactions, and protecting investors and the public interest. The
proposed rule changes accomplish those objectives by offering investors
enhancements in relation to its FX OTC swap product offering CME.
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.
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. 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 may be submitted by using the
Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml), or send an email to rule-comments@sec.gov. Please include
File No. SR-CME-2012-11 on the subject line.
Paper comments should be sent 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-CME-2012-11. 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 (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 CME and on CME's Web
site at https://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
[[Page 23770]]
should refer to File Number SR-CME-2012-11 and should be submitted on
or before May 11, 2012.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
Section 19(b) of the Act \4\ 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. The Commission finds that the proposed rule change is
consistent with the requirements of the Act, in particular with the
requirements of Section 17A of the Act,\5\ and the rules and
regulations thereunder applicable to CME. Specifically, the Commission
finds that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act, which 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 possession or control of the
clearing agency or for which it is responsible and to protect investors
and the public interest because it should allow CME to enhance its
margin evaluation and collection related to clearing FX products.\6\
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\4\ 15 U.S.C. 78s(b).
\5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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In its filing CME requested that the Commission approve this
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing. CME has articulated three
reasons for so granting approval. One, the products covered by this
filing and CME's operations as a derivatives clearing organization for
such products are regulated by the CFTC under the CEA. Two, the
proposed rule change relates solely to FX products and therefore relate
solely to CME's swaps clearing activities and do not significantly
relate to CME's functions as a clearing agency for security-based
swaps. Three, not approving this request on an accelerated basis will
have a significant impact on the swap clearing business of CME as a
designated clearing organization.
The Commission finds good cause for granting approval of the
proposed rule change prior to the thirtieth day after publication of
the notice of its filing because: (i) The proposed rule change does not
significantly affect any securities clearing operations of the clearing
agency (whether in existence or contemplated by its rules) or any
related rights or obligations of the clearing agency or persons using
such service; (ii) the clearing agency has indicated that not providing
accelerated approval would have a significant impact on its FX clearing
business as a designated clearing organization; and (iii) the activity
relating to the non-security clearing operations of the clearing agency
for which the clearing agency is seeking approval is subject to
regulation by another federal regulator.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-CME-2012-11) is approved on an
accelerated basis.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
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\7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-9527 Filed 4-19-12; 8:45 am]
BILLING CODE 8011-01-P