Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”),
CME is filing a proposed rule change that is limited to its business as a derivatives clearing organization (“DCO”). More specifically, the proposed rule change contains amendments to clarify that netting will occur separately for each of the proprietary accounts, futures customer accounts, and clearing swap customer accounts of each Clearing Member at the time of close-out.
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.
CME is registered as a DCO with the Commodity Futures Trading Commission (“CFTC”) and offers clearing services for many different futures and swaps products. The proposed rule changes that are the subject of this filing are limited to CME's business as a DCO offering clearing services for CFTC-regulated swaps products. More specifically, the proposed rule change would adopt amendments to CME Rule 818.C (Netting and Offset) and CME Rules 8G01 and 8H01 to clarify that netting will occur separately for each of the proprietary accounts, futures customer accounts, and clearing swap customer
CME Rule 818.C provides for the master netting agreement that applies in the event of a CME Bankruptcy Event (as defined in Rule 818) or default (as described in Rule 818). The proposed amendments clarify that netting will occur separately for each of the proprietary accounts, futures customer accounts, and clearing swap customer accounts of each Clearing Member at the time of close-out. The proposed amendments add sub-clauses to clarify that the relevant account classes will be closed out separately consistent with applicable CFTC Regulations and § 4d of the Commodity Exchange Act (“CEA”). Clearing Member's proprietary, futures customer, and cleared swaps customer account classes will be closed out separately from one another, and cleared swaps customers will be closed out on an individual customer basis. Further, the proposed amendments add a provision clarifying that in the event of a Bankruptcy Event that is preceded by (or occurs simultaneously with) a limited recourse event in Interest Rate Swaps (“IRS”) and Credit Default Swaps (“CDS”), the amount of any variation margin haircut that is applied as a result of the limited recourse Rules (CME Rule 8G802.B for IRS and CME Rule 8H802.B for CDS) will not be available for netting with losses from products subject to other financial safeguards under Rule 818.C.
CME is also amending Rules 8G01 and 8H01 to further clarify that Rule 818 (Close-Out Netting) will apply for all products in the event of a CME Bankruptcy Event or default and will not be superseded by the conflict of rules provisions of Rules 8G01 and 8H01, respectively.
The changes that are described in this filing are limited to CME's business as a DCO clearing products under the exclusive jurisdiction of the CFTC and CME has made a decision not to clear security-based swaps.
CME believes the proposed rule changes are consistent with the requirements of the Exchange Act including Section 17A of the Exchange Act.
Furthermore, the proposed changes are limited in their effect to products offered under CME's authority to act as a DCO. The products that are the subject of this filing are under the exclusive jurisdiction of the CFTC. As such, the proposed CME changes are limited to CME's activities as a DCO clearing swaps that are not security-based swaps, futures that are not security futures and forwards that are not security forwards. CME notes that the policies of the CFTC with respect to administering the Commodity Exchange Act are comparable to a number of the policies underlying the Exchange Act, such as promoting market transparency for over-the-counter derivatives markets, promoting the prompt and accurate clearance of transactions and protecting investors and the public interest.
Because the proposed changes are limited in their effect to products offered under CME's authority to act as a DCO, the proposed changes are properly classified as effecting 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, 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.
As such, the changes are therefore consistent with the requirements of Section 17A of the Exchange Act
CME does not believe that the proposed rule change will have any impact, or impose any burden, on competition. The proposed amendments simply clarify and solidify CME's legal netting procedures framework. Further, the changes are limited to CME's derivatives clearing business and CME has made a decision not to clear security-based swaps and therefore would not impose any burden on competition that is inappropriate in furtherance of the purposes of the Act.
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.
The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)
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:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
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–2014–52 and should be submitted on or before December 30, 2014.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.