Order Granting Chicago Mercantile Exchange Inc.'s Request To Withdraw From Registration as a Clearing Agency, 79983-79984 [2015-32192]

Download as PDF Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices 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 should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2015–054 and should be submitted on or before January 13, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.96 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–32189 Filed 12–22–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76678; File No. 600–35] Order Granting Chicago Mercantile Exchange Inc.’s Request To Withdraw From Registration as a Clearing Agency December 17, 2015. I. Introduction tkelley on DSK3SPTVN1PROD with NOTICES On August 3, 2015, Chicago Mercantile Exchange Inc. (‘‘CME’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a written request (the ‘‘Written Request’’) 1 to withdraw from registration as a clearing agency under Section 17A of the Exchange Act (‘‘Exchange Act’’).2 The Commission published notice of CME’s request in the Federal Register on September 1, 2015, to solicit comments from interested persons.3 The Commission received no comments regarding the request. For the reasons discussed below, the Commission is granting CME’s request to withdraw its registration as a clearing agency and requiring CME to retain and produce upon request certain records. 96 17 CFR 200.30–3(a)(12). Letter from Larry E. Bergmann and Joseph C. Lombard, on behalf of CME, to Brent J. Fields, Secretary, Securities and Exchange Commission (August 3, 2015). 2 15 U.S.C. 78q–1. 3 Securities Exchange Act Release No. 34–75762 (Aug. 26, 2015), 80 FR 52815 (Sept. 1, 2015) (600– 35). 1 See VerDate Sep<11>2014 18:05 Dec 22, 2015 Jkt 238001 II. Discussion and Commission Findings CME is registered as a derivatives clearing organization (‘‘DCO’’) with the Commodity Futures Trading Commission (‘‘CFTC’’) and offers clearing services for futures and swap products. Pursuant to Section 17A(l) of the Exchange Act,4 CME became ‘‘deemed registered’’ as a clearing agency solely for the purpose of clearing security-based swaps (‘‘SBS’’). To date, CME has represented that it never cleared SBS and that it will not clear SBS (subject to the limited exception as described below).5 CME also has filed an immediately-effective rule change with the Commission (File Number SR– CME–2014–49) reflecting its decision not to clear SBS.6 As a registered clearing agency, CME is required to comply with the requirements of the Exchange Act and the rules and regulations thereunder applicable to registered clearing agencies. These requirements include the obligation to file proposed rule changes pursuant to Section 19(b) of the Exchange Act.7 CME, as a DCO, generally implements rule changes by self-certifying that the new rule complies with the Commodity Exchange Act and the CFTC’s regulations. Following the effectiveness of the proposed rule change (SR–CME–2014– 49) regarding CME’s decision not to clear SBS, CME claimed that the overlapping but divergent rule review processes required pursuant to the Commodity Exchange Act and the Exchange Act have resulted in 4 15 U.S.C. 78q–1(l). Written Request at 2. 6 See Securities Exchange Act Release No. 73615 (Nov. 17, 2014), 79 FR 69545 (Nov. 21, 2014) (SR– CME–2014–49). The only exception is with respect to a set of very limited circumstances beyond CME’s control where single-name CDS contracts are created following the occurrence of a restructuring credit event in respect of a reference entity that is a component of an iTraxx Europe index CDS contract (‘‘iTraxx Contract’’). According to the standard terms of the iTraxx Contract, upon the occurrence of a restructuring credit event with respect to a reference entity that is a component of an iTraxx Contract, such reference entity will be ‘‘spun out’’ and maintained as a separate singlename CDS contract (a ‘‘Restructuring European Single Name CDS Contract’’) until settlement. If neither of the counterparties elects to trigger settlement, the positions in the Restructuring European Single Name CDS Contract will be maintained at CME until maturity of the index or the occurrence of a subsequent credit event for the same reference entity. CME stated that the potential clearing of Restructuring European Single Name CDS Contracts would be a necessary byproduct of clearing iTraxx Contracts. The Commission notes that CME has obtained no-action relief from the Division of Trading and Markets with regard to this circumstance. 7 15 U.S.C. 78s(b). 5 See PO 00000 Frm 00167 Fmt 4703 Sfmt 4703 79983 significant difficulties for CME.8 Furthermore, CME concluded that given the absence of any actual or potential securities clearing activity by CME (with the limited exception of potentially clearing Restructuring European Single Name CDS Contracts), it believed that clearing agency registration is unnecessary and that future rule filings (whether eligible for immediate effectiveness or not) would be wasteful of both the Commission’s and CME’s resources and serve no statutory purpose. CME therefore submitted its request for withdrawal of its clearing agency registration pursuant to Section 19(a)(3) of the Exchange Act,9 which states that a self-regulatory organization may ‘‘withdraw from registration by filing a written notice of withdrawal with the Commission,’’ upon such terms and conditions as the Commission, by rule, deems necessary or appropriate in the public interest or for the protection of investors. Based upon the representations made by CME to the Commission, the Commission has determined that granting CME’s request to withdraw from registration is appropriate. CME represents it is not performing actions that require registration as a clearing agency under Section 17A of the Exchange Act and has provided specific assurances regarding record-keeping, record-production and the lack of potential for future claims against it resulting from its registration as a clearing agency.10 In its Written Request, CME represents that it will not seek to engage in securities clearing activity in reliance on any ‘‘deemed registered’’ status pursuant to Section 17A(l) of the Exchange Act.11 CME further represents that if an affiliate of CME seeks to clear SBS or another securities product, such affiliate would do so after registering with the Commission pursuant to the process set forth in Commission Rule 17Ab2–1.12 Additionally, CME states that because CME never conducted any clearing activity for SBS, it has no known or anticipated claims associated with its clearing agency registration.13 Furthermore, CME represents in the Written Request that it will maintain all documents, books, and records, including correspondence, memoranda, papers, notices, accounts and other 8 See Written Request at 4–5. Written Request. See also 15 U.S.C. 78s(a)(3). 10 See Written Request at 2, 5–6. 11 See Written Request at 2, note 3. See also 15 U.S.C. 78q–1(l). 12 See Written Request at 2, note 3. See also 17 CFR 17Ab2–1. 13 See Written Request at 6. 9 See E:\FR\FM\23DEN1.SGM 23DEN1 79984 Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices records (collectively ‘‘records’’) made or received by it in connection with proposed rule changes filed with the Commission or in connection with its index CDS clearance and settlement services as required to be maintained under Rule 17a–1(a) and (b).14 In the Written Request, CME further represents that it will produce such records and furnish such information at the request of any representative of the Commission, and will maintain such records for a period of 5 years from the effective date of the withdrawal of CME’s registration as a clearing agency.15 As noted above, no comments were received in response to the published notice of CME’s Written Request to withdraw from registration as a clearing agency, which included CME’s representations regarding maintenance of records and record production, as well as CME’s representations regarding any potential for claims associated with its clearing agency registration. SECURITIES AND EXCHANGE COMMISSION III. Conclusion I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.23C related to the Exchange’s Technical Disconnect Mechanism. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 6.23C Technical Disconnect (a) When a CBOE Application Server (‘‘CAS’’) loses communication with a Client Application such that a CAS does not receive an appropriate response to a Heartbeat Request within ‘‘x’’ period of time, the Technical Disconnect Mechanism will automatically logoff the Trading Permit Holder’s affected Client Application and automatically cancel all the Trading Permit Holder’s MarketMaker quotes, if applicable, and open orders with a time-in-force of ‘‘day’’ resting in the Book (which excludes orders resting on a PAR workstation or order management terminal) (‘‘day orders’’), if the Trading Permit Holder enables that optional service, posted through the affected Client Application. The following describes how the Technical Disconnect Mechanism works for each of the Exchange’s application programming interfaces (‘‘APIs’’): It is therefore ordered, pursuant to Section 19(a)(3) of the Exchange Act,16 that: (1) Effective December 17, 2015, CME’s registration as a clearing agency under Section 17A of the Exchange Act is withdrawn and (2) For a period of 5 years from the effective date of withdrawal of registration as a clearing agency, CME will maintain all the records required to be maintained pursuant to Rule 17A– 1(a) and (b) which are in CME’s possession and will produce such records upon the request of any representative of the Commission. By the Commission. Robert W. Errett, Deputy Secretary. [FR Doc. 2015–32192 Filed 12–22–15; 8:45 am] tkelley on DSK3SPTVN1PROD with NOTICES BILLING CODE 8011–01–P 14 See Written Request at 5, note 15. See also 17 CFR 240.17a–1(a) and (b). 15 See Written Request at 5, note 15. 16 15 U.S.C. 78s(a)(3). VerDate Sep<11>2014 18:05 Dec 22, 2015 Jkt 238001 [Release No. 34–76672; File No. SR–CBOE– 2015–113] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Technical Disconnect Mechanism December 17, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on December 8, 2015, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) 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. 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00168 Fmt 4703 Sfmt 4703 (i)–(ii) No change. (b)–(c) No change. . . . Interpretations and Policies: .01 No change. * * * * * The text of the proposed rule change is also available on the Exchange’s Web site (https://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 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 Exchange 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 Exchange 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 Rule 6.23C(a) provides that when a CBOE Application Server (‘‘CAS’’) 3 loses communication with a Client Application 4 such that a CAS does not receive an appropriate response to a Heartbeat Request 5 within ‘‘x’’ period of time, the Technical Disconnect Mechanism will automatically logoff the Trading Permit Holder’s (‘‘TPH’’) affected Client Application. If that occurs, the current rule provides that the Technical Disconnect Mechanism, if applicable, will automatically cancel all the TPH’s Market-Maker quotes posted through the affected Client 3 CBOE currently has numerous CASs serving TPHs. 4 For relevant purposes, a ‘‘Client Application’’ is the system component, such as a CBOE-supported workstation or a TPH’s custom trading application, through which a TPH communicates its quotes and/ or orders to a CAS. Messages are passed between a Client Application and a CAS. A Market-Maker may send quotes to the Exchange from one or more Client Applications, and a TPH may send orders to the Exchange from one or more Client Applications. 5 A ‘‘Heartbeat Request’’ refers to a message from a CAS to a Client Application to check connectivity and which requires a response from the Client Application in order to avoid logoff. The Heartbeat Request acts as a virtual pulse between a CAS and a Client Application and allows a CAS to continually monitor its connection with a Client Application. Failure to receive a response to a Heartbeat Request within the Heartbeat Response Time is indicative of a technical or system issue. E:\FR\FM\23DEN1.SGM 23DEN1

Agencies

[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Notices]
[Pages 79983-79984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32192]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76678; File No. 600-35]


Order Granting Chicago Mercantile Exchange Inc.'s Request To 
Withdraw From Registration as a Clearing Agency

December 17, 2015.

I. Introduction

    On August 3, 2015, Chicago Mercantile Exchange Inc. (``CME'') filed 
with the Securities and Exchange Commission (``Commission'') a written 
request (the ``Written Request'') \1\ to withdraw from registration as 
a clearing agency under Section 17A of the Exchange Act (``Exchange 
Act'').\2\ The Commission published notice of CME's request in the 
Federal Register on September 1, 2015, to solicit comments from 
interested persons.\3\ The Commission received no comments regarding 
the request. For the reasons discussed below, the Commission is 
granting CME's request to withdraw its registration as a clearing 
agency and requiring CME to retain and produce upon request certain 
records.
---------------------------------------------------------------------------

    \1\ See Letter from Larry E. Bergmann and Joseph C. Lombard, on 
behalf of CME, to Brent J. Fields, Secretary, Securities and 
Exchange Commission (August 3, 2015).
    \2\ 15 U.S.C. 78q-1.
    \3\ Securities Exchange Act Release No. 34-75762 (Aug. 26, 
2015), 80 FR 52815 (Sept. 1, 2015) (600-35).
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    CME is registered as a derivatives clearing organization (``DCO'') 
with the Commodity Futures Trading Commission (``CFTC'') and offers 
clearing services for futures and swap products. Pursuant to Section 
17A(l) of the Exchange Act,\4\ CME became ``deemed registered'' as a 
clearing agency solely for the purpose of clearing security-based swaps 
(``SBS''). To date, CME has represented that it never cleared SBS and 
that it will not clear SBS (subject to the limited exception as 
described below).\5\ CME also has filed an immediately-effective rule 
change with the Commission (File Number SR-CME-2014-49) reflecting its 
decision not to clear SBS.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(l).
    \5\ See Written Request at 2.
    \6\ See Securities Exchange Act Release No. 73615 (Nov. 17, 
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). The only 
exception is with respect to a set of very limited circumstances 
beyond CME's control where single-name CDS contracts are created 
following the occurrence of a restructuring credit event in respect 
of a reference entity that is a component of an iTraxx Europe index 
CDS contract (``iTraxx Contract''). According to the standard terms 
of the iTraxx Contract, upon the occurrence of a restructuring 
credit event with respect to a reference entity that is a component 
of an iTraxx Contract, such reference entity will be ``spun out'' 
and maintained as a separate single-name CDS contract (a 
``Restructuring European Single Name CDS Contract'') until 
settlement. If neither of the counterparties elects to trigger 
settlement, the positions in the Restructuring European Single Name 
CDS Contract will be maintained at CME until maturity of the index 
or the occurrence of a subsequent credit event for the same 
reference entity. CME stated that the potential clearing of 
Restructuring European Single Name CDS Contracts would be a 
necessary byproduct of clearing iTraxx Contracts. The Commission 
notes that CME has obtained no-action relief from the Division of 
Trading and Markets with regard to this circumstance.
---------------------------------------------------------------------------

    As a registered clearing agency, CME is required to comply with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to registered clearing agencies. These 
requirements include the obligation to file proposed rule changes 
pursuant to Section 19(b) of the Exchange Act.\7\ CME, as a DCO, 
generally implements rule changes by self-certifying that the new rule 
complies with the Commodity Exchange Act and the CFTC's regulations. 
Following the effectiveness of the proposed rule change (SR-CME-2014-
49) regarding CME's decision not to clear SBS, CME claimed that the 
overlapping but divergent rule review processes required pursuant to 
the Commodity Exchange Act and the Exchange Act have resulted in 
significant difficulties for CME.\8\ Furthermore, CME concluded that 
given the absence of any actual or potential securities clearing 
activity by CME (with the limited exception of potentially clearing 
Restructuring European Single Name CDS Contracts), it believed that 
clearing agency registration is unnecessary and that future rule 
filings (whether eligible for immediate effectiveness or not) would be 
wasteful of both the Commission's and CME's resources and serve no 
statutory purpose. CME therefore submitted its request for withdrawal 
of its clearing agency registration pursuant to Section 19(a)(3) of the 
Exchange Act,\9\ which states that a self-regulatory organization may 
``withdraw from registration by filing a written notice of withdrawal 
with the Commission,'' upon such terms and conditions as the 
Commission, by rule, deems necessary or appropriate in the public 
interest or for the protection of investors.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b).
    \8\ See Written Request at 4-5.
    \9\ See Written Request. See also 15 U.S.C. 78s(a)(3).
---------------------------------------------------------------------------

    Based upon the representations made by CME to the Commission, the 
Commission has determined that granting CME's request to withdraw from 
registration is appropriate. CME represents it is not performing 
actions that require registration as a clearing agency under Section 
17A of the Exchange Act and has provided specific assurances regarding 
record-keeping, record-production and the lack of potential for future 
claims against it resulting from its registration as a clearing 
agency.\10\ In its Written Request, CME represents that it will not 
seek to engage in securities clearing activity in reliance on any 
``deemed registered'' status pursuant to Section 17A(l) of the Exchange 
Act.\11\ CME further represents that if an affiliate of CME seeks to 
clear SBS or another securities product, such affiliate would do so 
after registering with the Commission pursuant to the process set forth 
in Commission Rule 17Ab2-1.\12\
---------------------------------------------------------------------------

    \10\ See Written Request at 2, 5-6.
    \11\ See Written Request at 2, note 3. See also 15 U.S.C. 78q-
1(l).
    \12\ See Written Request at 2, note 3. See also 17 CFR 17Ab2-1.
---------------------------------------------------------------------------

    Additionally, CME states that because CME never conducted any 
clearing activity for SBS, it has no known or anticipated claims 
associated with its clearing agency registration.\13\ Furthermore, CME 
represents in the Written Request that it will maintain all documents, 
books, and records, including correspondence, memoranda, papers, 
notices, accounts and other

[[Page 79984]]

records (collectively ``records'') made or received by it in connection 
with proposed rule changes filed with the Commission or in connection 
with its index CDS clearance and settlement services as required to be 
maintained under Rule 17a-1(a) and (b).\14\ In the Written Request, CME 
further represents that it will produce such records and furnish such 
information at the request of any representative of the Commission, and 
will maintain such records for a period of 5 years from the effective 
date of the withdrawal of CME's registration as a clearing agency.\15\ 
As noted above, no comments were received in response to the published 
notice of CME's Written Request to withdraw from registration as a 
clearing agency, which included CME's representations regarding 
maintenance of records and record production, as well as CME's 
representations regarding any potential for claims associated with its 
clearing agency registration.
---------------------------------------------------------------------------

    \13\ See Written Request at 6.
    \14\ See Written Request at 5, note 15. See also 17 CFR 240.17a-
1(a) and (b).
    \15\ See Written Request at 5, note 15.
---------------------------------------------------------------------------

III. Conclusion

    It is therefore ordered, pursuant to Section 19(a)(3) of the 
Exchange Act,\16\ that:
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(a)(3).
---------------------------------------------------------------------------

    (1) Effective December 17, 2015, CME's registration as a clearing 
agency under Section 17A of the Exchange Act is withdrawn and
    (2) For a period of 5 years from the effective date of withdrawal 
of registration as a clearing agency, CME will maintain all the records 
required to be maintained pursuant to Rule 17A-1(a) and (b) which are 
in CME's possession and will produce such records upon the request of 
any representative of the Commission.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-32192 Filed 12-22-15; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.