Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Enhancements to Its Risk Model for Credit Default Swaps, 6555-6558 [2015-02251]

Download as PDF Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices of applicants and the acquiring fund, or their affiliates. Filing Date: The applications were filed on December 22, 2014. Applicants’ Address: 800 Nicollet Mall, BC–MN–H04N, Minneapolis, MN 55402. Minnesota Municipal Income Portfolio Inc. [File No. 811–7680] First American Minnesota Municipal Income Fund II Inc. [File No. 811– 21193] Summary: Each applicant, a closedend investment company, seeks an order declaring that it has ceased to be an investment company. Applicants transferred their assets to Nuveen Minnesota Municipal Income Fund, and on October 22, 2014, made distributions to their shareholders based on net asset value. Expenses of $259,711 and $88,537, respectively, incurred in connection with the reorganizations were paid by the investment advisers of applicants and the acquiring fund, or their affiliates. Filing Date: The applications were filed on December 22, 2014. Applicants’ Address: 800 Nicollet Mall, BC–MN–H04N, Minneapolis, MN 55402. rljohnson on DSK3VPTVN1PROD with NOTICES BlackRock Fixed Income Value Opportunities [File No. 811–22252] Summary: Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. On December 17, 2014, applicant made a liquidating distribution to its shareholders, based on net asset value. Applicant has retained $58,600 in cash in a liquidating trust to pay contingent liabilities, and any remaining assets will be distributed to shareholders. Expenses of approximately $30,500 incurred in connection with the liquidation were paid by applicant. Filing Date: The application was filed on December 22, 2014. Applicant’s Address: 100 Bellevue Pkwy., Wilmington, DE 19809. Williams Capital Management Trust [File No. 811–21186] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On September 22, 2014, applicant made a liquidating distribution to its shareholders, based on net asset value. Expenses of $30,000 incurred in connection with the liquidation were paid by applicant. Filing Dates: The application was filed on November 25, 2014, and amended on December 22, 2014. Applicant’s Address: 650 Fifth Ave., 9th Floor, New York, NY 10019. VerDate Sep<11>2014 14:46 Feb 04, 2015 Jkt 235001 Pacific Corporate Group Private Equity Fund [File No. 811–8637] Summary: Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. On December 30, 2014, applicant made a liquidating distribution to its shareholders, based on net asset value. Applicant has retained $188,657 to pay its outstanding expenses. Additional expenses of $109,555 incurred in connection with reorganization were previously paid by applicant. Filing Date: The application was filed on January 16, 2015. Applicant’s Address: 1015 Ocean Blvd., Coronado, CA 92118. Salient MLP & Energy Infrastructure Fund [File No. 811–22530] Summary: Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. Applicant transferred its assets to Salient Midstream & MLP Fund, and on November 17, 2014, made distributions to its shareholders based on net asset value. Expenses of $89,525 incurred in connection with the reorganization were paid by applicant and the acquiring fund. Filing Date: The application was filed on December 15, 2014. Applicant’s Address: 4265 San Felipe, 8th Floor, Houston, TX 77027. Nomura Partners Funds, Inc. [File No. 811–1090] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. Applicant transferred the assets of its remaining series to Nomura High Yield Fund, a series of The Advisors’ Inner Circle Fund III, and on December 8, 2014, made distributions to its shareholders based on net asset value. Applicant did not incur any expenses in connection with the reorganization. Filing Date: The application was filed on December 16, 2014. Applicant’s Address: 4 Copley Place, 5th Floor, CPH–0326, Boston, MA 02116. American Fidelity Dual Strategy Fund, Inc. [File No. 811–8873] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On December 2, 2014, applicant made a liquidating distribution to its shareholders, based on net asset value. Expenses $18,530 incurred in connection with the liquidation were paid by American Fidelity Assurance Company, applicant’s investment adviser. PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 6555 Filing Dates: The application was filed on December 1, 2014, and amended on January 8, 2015. Applicant’s Address: 2000 N Classen Blvd., Oklahoma City, OK 73106. Clipper Fund, Inc. [File No. 811–3931] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. Applicant transferred its assets to Clipper Fund, a series of Clipper Funds Trust, and on December 17, 2014, made distributions to shareholders based on net asset value. Expenses of approximately $361,841 incurred in connection with the reorganization were paid by applicant and Davis Selected Advisors, L.P., applicant’s investment adviser. Filing Date: The application was filed on December 29, 2014. Applicant’s Address: c/o Davis Advisors—Legal Department, 2949 E. Elvira Rd., Ste. 101, Tucson, AZ 85756. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–02303 Filed 2–4–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74179; File No. SR–CME– 2015–002] Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Enhancements to Its Risk Model for Credit Default Swaps January 30, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 21, 2015, Chicago Mercantile Exchange Inc. (‘‘CME’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II and III 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) 4 thereunder, so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4)(ii). 2 17 E:\FR\FM\05FEN1.SGM 05FEN1 6556 Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change CME is proposing to add a new CDS Guaranty Fund charge to CDS Clearing Members that clear CDS Products that reference themselves or their affiliates and delete the current threshold-based approach. Specifically, CME proposes to add a new risk component to its CDS Stress Test Methodology to capture selfreferencing risk arising from contracts that include component transactions for which the reference entity is a clearing member or one of its affiliates. In addition, CME proposes to add a new stress exposure calculation to size the self-referencing risk. II. Self-Regulatory Organization’s Statement of the 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 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 rljohnson on DSK3VPTVN1PROD with NOTICES 1. Purpose CME is proposing to add a new CDS Guaranty Fund charge to CDS Clearing Members that clear CDS Products that reference themselves or their affiliates and delete the current threshold-based approach. Specifically, CME proposes to add a new risk component to its CDS Stress Test Methodology to capture selfreferencing risk arising from contracts that include component transactions for which the reference entity is a Clearing Member or one of its affiliates. In addition, CME proposes to add a new stress exposure calculation to size the anticipated maximum self-referencing risk. Although CME does not permit a CDS Clearing Member or a customer to enter into or maintain a single-name CDS position referencing the clearing member or an affiliate, a self-referencing CDS position may arise where the CDS Clearing Member or its affiliate is the Reference Entity in respect of a component transaction within the index VerDate Sep<11>2014 14:46 Feb 04, 2015 Jkt 235001 referenced in a CDS position. For example, such a situation may arise in the context of index CDS contracts which reference CDS Clearing Members or their affiliates. In such cases, the CDS Clearing Member (a ‘‘CDS SR Clearing Member’’), either through its own account or that of a customer, has exposure to a CDS Product that references itself or its affiliate (each, an ‘‘SR Transaction’’). CME proposes to address this potential exposure to selfreferencing risk by allocating an additional ‘‘jump-to-default’’ (‘‘JTD’’) risk for each CDS SR Clearing Member under its Stress Test Methodology. CME considers a CDS Clearing Member default to be an extreme tail risk event which is subject to the CDS financial safeguards, including mutualization across all other CDS Clearing Members via the CDS Guaranty Fund. Currently, CDS SR Clearing Members that clear self-referencing indices for themselves or their customers are required to collateralize the selfreferencing exposure in an amount specified in the CME Rules. CME is now proposing to adopt a risk-based approach without reference to any preset threshold to capture this selfreferencing risk. The additional risk associated with CDS SR Clearing Members will be added to the stress scenarios used to size the CDS Guaranty Fund and CME will require each CDS SR Clearing Member to make an additional CDS Guaranty Fund Deposit to address this risk (such additional deposit, the ‘‘CDS SR Deposit’’). The aggregate amount of CDS SR Deposits will be sized to cover the net selfreferencing exposure of the two CDS SR Clearing Members whose combined default would create the largest possible loss to CME in extreme but plausible market conditions 5 using the stress testing methodology and will be allocated proportionately to each CDS SR Clearing Member. The required CDS SR Deposit will be allocated to each CDS SR Clearing Member in proportion to each such CDS SR Clearing Member’s net self-referencing exposure.6 5 For purposes of determining the largest potential residual losses, the self-referencing exposure of a CDS SR Clearing Member will be aggregated with that of any affiliated CDS SR Clearing Member. 6 CME received a notice of non-objection to the proposed rule change contained herein from the Commodity Futures Trading Commission (‘‘CFTC’’). See Letter from Phyllis Dietz, Acting Director, CFTC, to Jason Silverstein, Executive Director and Associate General Counsel, CME (December 22, 2014). The CFTC imposed conditions in the notice of non-objection. In accordance with the CFTC conditions, CME will monitor the self-referencing risk brought by CDS SR Clearing Members on a daily basis. In the event the self-referencing potential residual loss of three or more CDS SR PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 A new CME Rule 8H06 (CDS SR Deposit) has been added to reflect accurately these proposed changes to the CDS Guaranty Fund in the CME Rules, and CME Rule 8H802.B (Satisfaction of Clearing House Obligations) has been amended to reflect the introduction of the CDS SR Deposit. In addition, provisions in CME Rule 80104.A (Clearing Through Clearing Member’s House (or Proprietary) Account) and CME Rule 80104.B (Clearing Through Clearing Members Customer Account) that relate to the requirement by clearing members that clear self-referencing indices for themselves or their customers to collateralize the self-referencing exposure in an amount specified in the CME Rules have been deleted. 2. Statutory Basis CME believes the proposed rule change is consistent with the requirements of the Exchange Act, including Section 17A of the Exchange Act 7 and the applicable regulations thereunder. The proposed rule change is designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivatives agreements, contracts, and transactions, 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, and, in general, to protect investors and the public interest consistent with Section 17A(b)(3)(F) of the Exchange Act.8 The proposed rule change accomplishes these objectives because it is intended to capture more accurately the risk associated with CDS Clearing Members that clear CDS Products that references themselves or their affiliates. A CDS Clearing Member default may result in contagion among financial institutions, widening spreads and exposing portfolios consisting of index CDS that reference financial entities to potential wrong-way risk. For example, the default of a CDS Clearing Member based in the United States, which is not referenced in an index referencing European names, could lead to overall widening of the credit spreads among financial institutions worldwide, leading to widening of spreads in nonUS indices. This may lead to variations in correlations between such non-US indices and other North American Clearing Members exceeds the equivalent of 50 million Euros each, CME will require additional initial margin from each such CDS SR Clearing Member to cover the incremental portion of the selfreferencing risk it brings above 50 million Euros. 7 15 U.S.C. 78q–1. 8 15 U.S.C. 78q–1(b)(3)(F). E:\FR\FM\05FEN1.SGM 05FEN1 rljohnson on DSK3VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices indices, potentially adversely impacting certain portfolios which are sensitive to such correlations. This increase in potential exposure caused by contagion is addressed in the Proposed CDS Risk Model and Stress Test Methodology via incorporation of stressed correlation scenarios. CME will also promote the efficient use of margin for the clearinghouse and its Clearing Members and their customers, by enabling CME to provide appropriate portfolio margining treatment between index and singlename CDS positions and as such contribute to the safeguarding of securities and funds in CME’s custody or control or for which CME is responsible and the protection of investors.9 CME also believes the proposed rule change is consistent with the requirements of Rule 17Ad–22 of the Exchange Act.10 In particular, in terms of financial resources, CME believes that the proposed rule change will continue to ensure sufficient margin to cover its credit exposure to its clearing members, consistent with the requirements of Rule 17Ad–22(b)(2) 11 and Rule 17Ad– 22(d)(14),12 and that the CDS Guaranty Fund contributions and required margin will provide sufficient financial resources to withstand a default by the two participant families to which it has the largest exposures in extreme but plausible market conditions consistent with the requirements of Rule 17Ad– 22(b)(3).13 CME is adding a CDS Guaranty Fund deposit using this approach to address self-referencing risk, which has historically not been a material risk in relation to the CDS products cleared by CME to date. In anticipation of clearing additional products, CME proposes to replace the existing threshold-based margin requirement with a risk-based additional CDS Guaranty Fund charge. In addition, CME believes that the proposed rule change is consistent with CME’s requirement to limit its exposures to potential losses from defaults by its participants under normal market conditions pursuant to 17Ad–22(b)(1).14 CME also believes that the proposed rule change will continue to allow for it to take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the event of clearing member 9 Id. 10 17 CFR 240.17Ad–22. CFR 240.17Ad–22(b)(2). 12 17 CFR 240.17Ad–22(d)(14). 13 17 CFR 240.17Ad–22(b)(3). 14 17 CFR 240.17Ad–22(b)(1). insolvencies or defaults, in accordance with Rule 17Ad–22(d)(11).15 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 rule change reflects enhancements to CME’s CDS Risk Model. Consequently, CME does not believe that the proposed rule change would significantly affect the ability of Clearing Members or other market participants to continue to clear CDS, consistent with the risk management requirements of CME, or otherwise limit market participants’ choices for selecting clearing services. For the foregoing reasons, the Proposed CDS Risk Model does not, in CME’s view, impose any unnecessary or inappropriate burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the Proposed CDS Risk Model have not been solicited or received. CME will notify the Commission of any written comments received by CME. 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) 16 of the Act and Rule 19b– 4(f)(4)(ii) 17 thereunder. CME asserts 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. 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 11 17 VerDate Sep<11>2014 14:46 Feb 04, 2015 15 17 CFR 240.17Ad–22(d)(11). U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f)(4)(ii). 16 15 Jkt 235001 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 6557 circumstances.18 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 securitybased swaps. Therefore, this proposal will not have an effect on any securities clearing operations of CME. At any time within 60 days of the filing of the proposed 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 (https://www.sec.gov/ rules/sro.shtml), or • Send an email to rule-comments@ sec.gov. Please include File No. SR– CME–2015–002 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–2015–002. 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 18 See Securities Exchange Act Release No. 34– 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. E:\FR\FM\05FEN1.SGM 05FEN1 6558 Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices 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 or 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 https://www.cmegroup.com/marketregulation/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–2015–002 and should be submitted on or before February 26, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–02251 Filed 2–4–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74184; File No. SR–NYSE– 2014–65] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change Amending Its Continued Listing Requirements in Relation to the Late Filing of a Company’s Annual Report With the Securities and Exchange Commission as Set Forth in Section 802.01E of the Exchange’s Listed Company Manual rljohnson on DSK3VPTVN1PROD with NOTICES January 30, 2015. On December 4, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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 its continued listing requirements in relation to the late filing of a company’s annual report with the Commission as set forth in Section 802.01E of the Exchange’s Listed Company Manual (‘‘Late Filer Rule’’). The proposed rule change was 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 14:46 Feb 04, 2015 Jkt 235001 published for comment in the Federal Register on December 17, 2014.3 The Commission received no comment letters regarding the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether these proposed rule changes should be disapproved. The 45th day for this filing is January 31, 2015. The Commission is extending the 45day time period for Commission action on the proposed rule change. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, pursuant to Section 19(b)(2) of the Act 5 and for the reasons stated above, the Commission designates March 17, 2015, as the date by which the Commission should either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–02267 Filed 2–4–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74178; File No. SR–BOX– 2015–06] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Its Rules for the Listing and Trading on the Exchange of Options Settling to the RealVolTM SPY Index (‘‘Index’’) January 30, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 3 See Securities Exchange Act Release No. 73821 (December 11, 2014), 79 FR 75217 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 5 15 U.S.C. 78s(b)(2). 6 17 CFR 200.30–3(a)(31). PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 21, 2015, BOX Options Exchange LLC (the ‘‘Exchange’’) 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 by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rules 6010, 6040, 6090, and 10120 to allow for the listing and trading on the Exchange of options settling to the RealVolTM SPY Index (‘‘Index’’). The text of the proposed rule change is available from the principal office of the Exchange, at the Commission’s Public Reference Room and also on the Exchange’s Internet Web site at https:// boxexchange.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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. The self-regulatory organization 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 The Exchange proposes to amend its rules to provide for the listing and trading on the Exchange of options settling to the RealVolTM SPY Index (‘‘Index’’). The Index measures the realized volatility of the SPDR® S&P 500® Exchange Traded Fund (ETF) (this security is known by its symbol ‘‘SPY’’). At settlement, the Index is based on the daily closing values of SPY, over the previous 21 trading days, as calculated by the RealVol Daily Formula, and promulgated by The VolX Group Corporation (‘‘VolX®’’). Options on the Index (proposed symbol ‘‘VOLS’’) will be P.M. cash-settled and will have 1 15 2 17 E:\FR\FM\05FEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 05FEN1

Agencies

[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Notices]
[Pages 6555-6558]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02251]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74179; File No. SR-CME-2015-002]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Related to Enhancements to Its Risk Model for Credit Default Swaps

January 30, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on January 21, 2015, Chicago Mercantile Exchange 
Inc. (``CME'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change described in Items I, II and 
III 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) \4\ thereunder, so that the proposal was effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit

[[Page 6556]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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

    CME is proposing to add a new CDS Guaranty Fund charge to CDS 
Clearing Members that clear CDS Products that reference themselves or 
their affiliates and delete the current threshold-based approach. 
Specifically, CME proposes to add a new risk component to its CDS 
Stress Test Methodology to capture self-referencing risk arising from 
contracts that include component transactions for which the reference 
entity is a clearing member or one of its affiliates. In addition, CME 
proposes to add a new stress exposure calculation to size the self-
referencing risk.

II. Self-Regulatory Organization's Statement of the 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 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

1. Purpose
    CME is proposing to add a new CDS Guaranty Fund charge to CDS 
Clearing Members that clear CDS Products that reference themselves or 
their affiliates and delete the current threshold-based approach. 
Specifically, CME proposes to add a new risk component to its CDS 
Stress Test Methodology to capture self-referencing risk arising from 
contracts that include component transactions for which the reference 
entity is a Clearing Member or one of its affiliates. In addition, CME 
proposes to add a new stress exposure calculation to size the 
anticipated maximum self-referencing risk.
    Although CME does not permit a CDS Clearing Member or a customer to 
enter into or maintain a single-name CDS position referencing the 
clearing member or an affiliate, a self-referencing CDS position may 
arise where the CDS Clearing Member or its affiliate is the Reference 
Entity in respect of a component transaction within the index 
referenced in a CDS position. For example, such a situation may arise 
in the context of index CDS contracts which reference CDS Clearing 
Members or their affiliates. In such cases, the CDS Clearing Member (a 
``CDS SR Clearing Member''), either through its own account or that of 
a customer, has exposure to a CDS Product that references itself or its 
affiliate (each, an ``SR Transaction''). CME proposes to address this 
potential exposure to self-referencing risk by allocating an additional 
``jump-to-default'' (``JTD'') risk for each CDS SR Clearing Member 
under its Stress Test Methodology. CME considers a CDS Clearing Member 
default to be an extreme tail risk event which is subject to the CDS 
financial safeguards, including mutualization across all other CDS 
Clearing Members via the CDS Guaranty Fund.
    Currently, CDS SR Clearing Members that clear self-referencing 
indices for themselves or their customers are required to collateralize 
the self-referencing exposure in an amount specified in the CME Rules. 
CME is now proposing to adopt a risk-based approach without reference 
to any preset threshold to capture this self-referencing risk. The 
additional risk associated with CDS SR Clearing Members will be added 
to the stress scenarios used to size the CDS Guaranty Fund and CME will 
require each CDS SR Clearing Member to make an additional CDS Guaranty 
Fund Deposit to address this risk (such additional deposit, the ``CDS 
SR Deposit''). The aggregate amount of CDS SR Deposits will be sized to 
cover the net self-referencing exposure of the two CDS SR Clearing 
Members whose combined default would create the largest possible loss 
to CME in extreme but plausible market conditions \5\ using the stress 
testing methodology and will be allocated proportionately to each CDS 
SR Clearing Member. The required CDS SR Deposit will be allocated to 
each CDS SR Clearing Member in proportion to each such CDS SR Clearing 
Member's net self-referencing exposure.\6\
---------------------------------------------------------------------------

    \5\ For purposes of determining the largest potential residual 
losses, the self-referencing exposure of a CDS SR Clearing Member 
will be aggregated with that of any affiliated CDS SR Clearing 
Member.
    \6\ CME received a notice of non-objection to the proposed rule 
change contained herein from the Commodity Futures Trading 
Commission (``CFTC''). See Letter from Phyllis Dietz, Acting 
Director, CFTC, to Jason Silverstein, Executive Director and 
Associate General Counsel, CME (December 22, 2014). The CFTC imposed 
conditions in the notice of non-objection. In accordance with the 
CFTC conditions, CME will monitor the self-referencing risk brought 
by CDS SR Clearing Members on a daily basis. In the event the self-
referencing potential residual loss of three or more CDS SR Clearing 
Members exceeds the equivalent of 50 million Euros each, CME will 
require additional initial margin from each such CDS SR Clearing 
Member to cover the incremental portion of the self-referencing risk 
it brings above 50 million Euros.
---------------------------------------------------------------------------

    A new CME Rule 8H06 (CDS SR Deposit) has been added to reflect 
accurately these proposed changes to the CDS Guaranty Fund in the CME 
Rules, and CME Rule 8H802.B (Satisfaction of Clearing House 
Obligations) has been amended to reflect the introduction of the CDS SR 
Deposit. In addition, provisions in CME Rule 80104.A (Clearing Through 
Clearing Member's House (or Proprietary) Account) and CME Rule 80104.B 
(Clearing Through Clearing Members Customer Account) that relate to the 
requirement by clearing members that clear self-referencing indices for 
themselves or their customers to collateralize the self-referencing 
exposure in an amount specified in the CME Rules have been deleted.
2. Statutory Basis
    CME believes the proposed rule change is consistent with the 
requirements of the Exchange Act, including Section 17A of the Exchange 
Act \7\ and the applicable regulations thereunder. The proposed rule 
change is designed to promote the prompt and accurate clearance and 
settlement of securities transactions and, to the extent applicable, 
derivatives agreements, contracts, and transactions, 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, and, in 
general, to protect investors and the public interest consistent with 
Section 17A(b)(3)(F) of the Exchange Act.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed rule change accomplishes these objectives because it 
is intended to capture more accurately the risk associated with CDS 
Clearing Members that clear CDS Products that references themselves or 
their affiliates. A CDS Clearing Member default may result in contagion 
among financial institutions, widening spreads and exposing portfolios 
consisting of index CDS that reference financial entities to potential 
wrong-way risk. For example, the default of a CDS Clearing Member based 
in the United States, which is not referenced in an index referencing 
European names, could lead to overall widening of the credit spreads 
among financial institutions worldwide, leading to widening of spreads 
in non-US indices. This may lead to variations in correlations between 
such non-US indices and other North American

[[Page 6557]]

indices, potentially adversely impacting certain portfolios which are 
sensitive to such correlations. This increase in potential exposure 
caused by contagion is addressed in the Proposed CDS Risk Model and 
Stress Test Methodology via incorporation of stressed correlation 
scenarios.
    CME will also promote the efficient use of margin for the 
clearinghouse and its Clearing Members and their customers, by enabling 
CME to provide appropriate portfolio margining treatment between index 
and single-name CDS positions and as such contribute to the 
safeguarding of securities and funds in CME's custody or control or for 
which CME is responsible and the protection of investors.\9\
---------------------------------------------------------------------------

    \9\ Id.
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    CME also believes the proposed rule change is consistent with the 
requirements of Rule 17Ad-22 of the Exchange Act.\10\ In particular, in 
terms of financial resources, CME believes that the proposed rule 
change will continue to ensure sufficient margin to cover its credit 
exposure to its clearing members, consistent with the requirements of 
Rule 17Ad-22(b)(2) \11\ and Rule 17Ad-22(d)(14),\12\ and that the CDS 
Guaranty Fund contributions and required margin will provide sufficient 
financial resources to withstand a default by the two participant 
families to which it has the largest exposures in extreme but plausible 
market conditions consistent with the requirements of Rule 17Ad-
22(b)(3).\13\ CME is adding a CDS Guaranty Fund deposit using this 
approach to address self-referencing risk, which has historically not 
been a material risk in relation to the CDS products cleared by CME to 
date. In anticipation of clearing additional products, CME proposes to 
replace the existing threshold-based margin requirement with a risk-
based additional CDS Guaranty Fund charge. In addition, CME believes 
that the proposed rule change is consistent with CME's requirement to 
limit its exposures to potential losses from defaults by its 
participants under normal market conditions pursuant to 17Ad-
22(b)(1).\14\ CME also believes that the proposed rule change will 
continue to allow for it to take timely action to contain losses and 
liquidity pressures and to continue meeting its obligations in the 
event of clearing member insolvencies or defaults, in accordance with 
Rule 17Ad-22(d)(11).\15\
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    \10\ 17 CFR 240.17Ad-22.
    \11\ 17 CFR 240.17Ad-22(b)(2).
    \12\ 17 CFR 240.17Ad-22(d)(14).
    \13\ 17 CFR 240.17Ad-22(b)(3).
    \14\ 17 CFR 240.17Ad-22(b)(1).
    \15\ 17 CFR 240.17Ad-22(d)(11).
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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 rule change 
reflects enhancements to CME's CDS Risk Model. Consequently, CME does 
not believe that the proposed rule change would significantly affect 
the ability of Clearing Members or other market participants to 
continue to clear CDS, consistent with the risk management requirements 
of CME, or otherwise limit market participants' choices for selecting 
clearing services. For the foregoing reasons, the Proposed CDS Risk 
Model does not, in CME's view, impose any unnecessary or inappropriate 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments relating to the Proposed CDS Risk Model have not 
been solicited or received. CME will notify the Commission of any 
written comments received by CME.

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) \16\ of the Act and Rule 19b-4(f)(4)(ii) \17\ 
thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

    CME asserts 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. 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.\18\ 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 not have an effect on any securities clearing 
operations of CME.
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    \18\ See Securities Exchange Act Release No. 34-73615 (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 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 (https://www.sec.gov/rules/sro.shtml), or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-CME-2015-002 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-2015-002. 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

[[Page 6558]]

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 or 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 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 should refer to File Number SR-CME-2015-002 and 
should be submitted on or before February 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02251 Filed 2-4-15; 8:45 am]
BILLING CODE 8011-01-P
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