80 FR 79983 - Order Granting Chicago Mercantile Exchange Inc.'s Request To Withdraw From Registration as a Clearing Agency

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 246 (December 23, 2015)

Page Range		79983-79984
FR Document		2015-32192
Federal Register, Volume 80 Issue 246 (Wednesday, December 23, 2015)
[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Notices]
[Pages 79983-79984]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-32192]


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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.
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    \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).
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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\
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    \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.
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    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.
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    \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).
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    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\
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    \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.
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    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.
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    \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.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(a)(3) of the 
Exchange Act,\16\ that:
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    \16\ 15 U.S.C. 78s(a)(3).
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    (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
Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices 79983

Washington, DC 20549, on official II. Discussion and Commission significant difficulties for CME.8
business days between the hours of 10 Findings Furthermore, CME concluded that given
a.m. and 3 p.m. Copies of such filing the absence of any actual or potential
CME is registered as a derivatives securities clearing activity by CME (with
also will be available for inspection and
clearing organization (‘‘DCO’’) with the the limited exception of potentially
copying at the principal office of Commodity Futures Trading
FINRA. All comments received will be clearing Restructuring European Single
Commission (‘‘CFTC’’) and offers Name CDS Contracts), it believed that
posted without change; the Commission clearing services for futures and swap
does not edit personal identifying clearing agency registration is
products. Pursuant to Section 17A(l) of unnecessary and that future rule filings
information from submissions. You the Exchange Act,4 CME became (whether eligible for immediate
should submit only information that ‘‘deemed registered’’ as a clearing effectiveness or not) would be wasteful
you wish to make available publicly. All agency solely for the purpose of clearing of both the Commission’s and CME’s
submissions should refer to File security-based swaps (‘‘SBS’’). To date, resources and serve no statutory
Number SR–FINRA–2015–054 and CME has represented that it never purpose. CME therefore submitted its
should be submitted on or before cleared SBS and that it will not clear request for withdrawal of its clearing
January 13, 2016. SBS (subject to the limited exception as agency registration pursuant to Section
For the Commission, by the Division of described below).5 CME also has filed 19(a)(3) of the Exchange Act,9 which
Trading and Markets, pursuant to delegated an immediately-effective rule change states that a self-regulatory organization
authority.96 with the Commission (File Number SR– may ‘‘withdraw from registration by
CME–2014–49) reflecting its decision filing a written notice of withdrawal
not to clear SBS.6 with the Commission,’’ upon such terms
Robert W. Errett,
Deputy Secretary.
As a registered clearing agency, CME and conditions as the Commission, by
is required to comply with the rule, deems necessary or appropriate in
[FR Doc. 2015–32189 Filed 12–22–15; 8:45 am]
requirements of the Exchange Act and the public interest or for the protection
BILLING CODE 8011–01–P the rules and regulations thereunder of investors.
applicable to registered clearing Based upon the representations made
agencies. These requirements include by CME to the Commission, the
SECURITIES AND EXCHANGE the obligation to file proposed rule Commission has determined that
COMMISSION changes pursuant to Section 19(b) of the granting CME’s request to withdraw
Exchange Act.7 CME, as a DCO, from registration is appropriate. CME
[Release No. 34–76678; File No. 600–35] generally implements rule changes by represents it is not performing actions
self-certifying that the new rule that require registration as a clearing
Order Granting Chicago Mercantile complies with the Commodity Exchange agency under Section 17A of the
Exchange Inc.’s Request To Withdraw Act and the CFTC’s regulations. Exchange Act and has provided specific
From Registration as a Clearing Following the effectiveness of the assurances regarding record-keeping,
Agency proposed rule change (SR–CME–2014– record-production and the lack of
49) regarding CME’s decision not to potential for future claims against it
December 17, 2015. resulting from its registration as a
clear SBS, CME claimed that the
I. Introduction overlapping but divergent rule review clearing agency.10 In its Written
processes required pursuant to the Request, CME represents that it will not
On August 3, 2015, Chicago Commodity Exchange Act and the seek to engage in securities clearing
Mercantile Exchange Inc. (‘‘CME’’) filed Exchange Act have resulted in activity in reliance on any ‘‘deemed
with the Securities and Exchange registered’’ status pursuant to Section
Commission (‘‘Commission’’) a written 4 15 U.S.C. 78q–1(l).
17A(l) of the Exchange Act.11 CME
request (the ‘‘Written Request’’) 1 to 5 See Written Request at 2. further represents that if an affiliate of
withdraw from registration as a clearing 6 See Securities Exchange Act Release No. 73615 CME seeks to clear SBS or another
(Nov. 17, 2014), 79 FR 69545 (Nov. 21, 2014) (SR– securities product, such affiliate would
agency under Section 17A of the CME–2014–49). The only exception is with respect do so after registering with the
Exchange Act (‘‘Exchange Act’’).2 The to a set of very limited circumstances beyond CME’s
Commission pursuant to the process set
Commission published notice of CME’s control where single-name CDS contracts are
forth in Commission Rule 17Ab2–1.12
created following the occurrence of a restructuring
request in the Federal Register on credit event in respect of a reference entity that is Additionally, CME states that because
September 1, 2015, to solicit comments a component of an iTraxx Europe index CDS CME never conducted any clearing
from interested persons.3 The contract (‘‘iTraxx Contract’’). According to the activity for SBS, it has no known or
Commission received no comments standard terms of the iTraxx Contract, upon the
occurrence of a restructuring credit event with anticipated claims associated with its
regarding the request. For the reasons respect to a reference entity that is a component of clearing agency registration.13
discussed below, the Commission is an iTraxx Contract, such reference entity will be Furthermore, CME represents in the
granting CME’s request to withdraw its ‘‘spun out’’ and maintained as a separate single- Written Request that it will maintain all
name CDS contract (a ‘‘Restructuring European
registration as a clearing agency and Single Name CDS Contract’’) until settlement. If documents, books, and records,
requiring CME to retain and produce neither of the counterparties elects to trigger including correspondence, memoranda,
upon request certain records. settlement, the positions in the Restructuring papers, notices, accounts and other
European Single Name CDS Contract will be
maintained at CME until maturity of the index or 8 See
96 17 CFR 200.30–3(a)(12). Written Request at 4–5.
the occurrence of a subsequent credit event for the
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1 See 9 See Written Request. See also 15 U.S.C.
Letter from Larry E. Bergmann and Joseph same reference entity. CME stated that the potential
C. Lombard, on behalf of CME, to Brent J. Fields, clearing of Restructuring European Single Name 78s(a)(3).
10 See Written Request at 2, 5–6.
Secretary, Securities and Exchange Commission CDS Contracts would be a necessary byproduct of
(August 3, 2015). clearing iTraxx Contracts. The Commission notes 11 See Written Request at 2, note 3. See also 15
2 15 U.S.C. 78q–1. that CME has obtained no-action relief from the U.S.C. 78q–1(l).
3 Securities Exchange Act Release No. 34–75762 Division of Trading and Markets with regard to this 12 See Written Request at 2, note 3. See also 17

(Aug. 26, 2015), 80 FR 52815 (Sept. 1, 2015) (600– circumstance. CFR 17Ab2–1.
35). 7 15 U.S.C. 78s(b). 13 See Written Request at 6.

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79984 Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices

records (collectively ‘‘records’’) made or SECURITIES AND EXCHANGE (i)–(ii) No change.
received by it in connection with COMMISSION (b)–(c) No change.
proposed rule changes filed with the . . . Interpretations and Policies:
[Release No. 34–76672; File No. SR–CBOE– .01 No change.
Commission or in connection with its 2015–113]
index CDS clearance and settlement * * * * *
services as required to be maintained Self-Regulatory Organizations; The text of the proposed rule change
under Rule 17a–1(a) and (b).14 In the Chicago Board Options Exchange, is also available on the Exchange’s Web
Written Request, CME further represents Incorporated; Notice of Filing and site (http://www.cboe.com/AboutCBOE/
that it will produce such records and Immediate Effectiveness of a Proposed CBOELegalRegulatoryHome.aspx), at
Rule Change Relating to the Technical the Exchange’s Office of the Secretary,
furnish such information at the request
Disconnect Mechanism and at the Commission’s Public
of any representative of the
Reference Room.
Commission, and will maintain such December 17, 2015.
records for a period of 5 years from the Pursuant to Section 19(b)(1) of the II. Self-Regulatory Organization’s
effective date of the withdrawal of Securities Exchange Act of 1934 Statement of the Purpose of, and
CME’s registration as a clearing (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Statutory Basis for, the Proposed Rule
agency.15 As noted above, no comments notice is hereby given that, on December Change
were received in response to the 8, 2015, Chicago Board Options In its filing with the Commission, the
published notice of CME’s Written Exchange, Incorporated (the ‘‘Exchange’’ Exchange included statements
Request to withdraw from registration as or ‘‘CBOE’’) filed with the Securities concerning the purpose of and basis for
a clearing agency, which included and Exchange Commission the proposed rule change and discussed
CME’s representations regarding (‘‘Commission’’) the proposed rule any comments it received on the
maintenance of records and record change as described in Items I, II and III proposed rule change. The text of these
production, as well as CME’s below, which Items have been prepared statements may be examined at the
representations regarding any potential by the Exchange. The Commission is places specified in Item IV below. The
for claims associated with its clearing publishing this notice to solicit Exchange has prepared summaries, set
agency registration. comments on the proposed rule change forth in sections A, B, and C below, of
from interested persons. the most significant aspects of such
III. Conclusion statements.
I. Self-Regulatory Organization’s
It is therefore ordered, pursuant to Statement of the Terms of Substance of A. Self-Regulatory Organization’s
Section 19(a)(3) of the Exchange Act,16 the Proposed Rule Change Statement of the Purpose of, and
that: The Exchange proposes to amend Statutory Basis for, the Proposed Rule
Rule 6.23C related to the Exchange’s Change
(1) Effective December 17, 2015,
CME’s registration as a clearing agency Technical Disconnect Mechanism. The 1. Purpose
under Section 17A of the Exchange Act text of the proposed rule change is
provided below. Rule 6.23C(a) provides that when a
is withdrawn and (additions are italicized; deletions are CBOE Application Server (‘‘CAS’’) 3
(2) For a period of 5 years from the [bracketed]) loses communication with a Client
effective date of withdrawal of * * * * * Application 4 such that a CAS does not
registration as a clearing agency, CME Chicago Board Options Exchange, receive an appropriate response to a
will maintain all the records required to Incorporated Rules Heartbeat Request 5 within ‘‘x’’ period of
be maintained pursuant to Rule 17A– time, the Technical Disconnect
* * * * *
1(a) and (b) which are in CME’s Rule 6.23C Technical Disconnect Mechanism will automatically logoff the
possession and will produce such Trading Permit Holder’s (‘‘TPH’’)
(a) When a CBOE Application Server
records upon the request of any affected Client Application. If that
(‘‘CAS’’) loses communication with a
representative of the Commission. occurs, the current rule provides that
Client Application such that a CAS does
the Technical Disconnect Mechanism, if
By the Commission. not receive an appropriate response to a
applicable, will automatically cancel all
Heartbeat Request within ‘‘x’’ period of
Robert W. Errett, the TPH’s Market-Maker quotes posted
time, the Technical Disconnect
Deputy Secretary. Mechanism will automatically logoff the through the affected Client
[FR Doc. 2015–32192 Filed 12–22–15; 8:45 am] Trading Permit Holder’s affected Client 3 CBOE currently has numerous CASs serving
BILLING CODE 8011–01–P Application and automatically cancel TPHs.
all the Trading Permit Holder’s Market- 4 For relevant purposes, a ‘‘Client Application’’ is

Maker quotes, if applicable, and open the system component, such as a CBOE-supported
orders with a time-in-force of ‘‘day’’ workstation or a TPH’s custom trading application,
resting in the Book (which excludes through which a TPH communicates its quotes and/
or orders to a CAS. Messages are passed between
orders resting on a PAR workstation or a Client Application and a CAS. A Market-Maker
order management terminal) (‘‘day may send quotes to the Exchange from one or more
orders’’), if the Trading Permit Holder Client Applications, and a TPH may send orders to
enables that optional service, posted the Exchange from one or more Client Applications.
5 A ‘‘Heartbeat Request’’ refers to a message from
through the affected Client Application. a CAS to a Client Application to check connectivity
tkelley on DSK3SPTVN1PROD with NOTICES

The following describes how the and which requires a response from the Client
Technical Disconnect Mechanism works Application in order to avoid logoff. The Heartbeat
for each of the Exchange’s application Request acts as a virtual pulse between a CAS and
a Client Application and allows a CAS to
14 See Written Request at 5, note 15. See also 17 programming interfaces (‘‘APIs’’): continually monitor its connection with a Client
CFR 240.17a–1(a) and (b).
Application. Failure to receive a response to a
15 See Written Request at 5, note 15. 1 15 U.S.C. 78s(b)(1). Heartbeat Request within the Heartbeat Response
16 15 U.S.C. 78s(a)(3). 2 17 CFR 240.19b–4. Time is indicative of a technical or system issue.

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Document Created: 2018-03-02 09:21:08
Document Modified: 2018-03-02 09:21:08
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 79983