[Federal Register: May 15, 2003 (Volume 68, Number 94)]
[Notices]
[Page 26364-26366]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15my03-118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47812; File No. SR-CME-2003-01]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change by the Chicago
Mercantile Exchange To Adopt, on a Permanent Basis, a Standard Under
Which a Market Maker Can Qualify for Exclusion From CME's Margin Rules
May 7, 2003.
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 May 7, 2003, the Chicago Mercantile Exchange (``CME'' or
``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 CME. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested
[[Page 26365]]
persons and to grant accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Amendments
CME proposes to adopt, on a permanent basis, CME Rule 930.B.2.b.(3)
(herein referred to as ``Market Maker Exclusion''). On November 8,
2002, the Commission approved the Market Maker Exclusion on a pilot
basis, ending May 7, 2003 (the ``Pilot'').\3\ CME believes that
permanent approval of the Market Maker Exclusion is consistent with the
jointly adopted margin rules of the Commission and the Commodity
Futures Trading Commission (``CFTC'') (collectively, ``Commissions'').
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\3\ See Securities Exchange Act Release No. 46792 (November 8,
2002), 67 FR 69273 (November 15, 2002).
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Below is the text of the proposed rule change that CME proposes to
adopt on a permanent basis.
* * * * *
930.B. Performance Bond Rates
1. Non-Security Futures (No Change).
2. Security Futures
a.-b. (1) and (2) (No change).
(3) The Market Maker:
(i) Is assigned to a group of Security Futures Contracts listed on
the Exchange that is either unlimited in nature (``Unlimited
Assignment''); or, is assigned to no more that 20% of the Security
Futures Contracts listed on the Exchange (``Limited Assignment'');
(ii) At least 75% of the Market Maker's total trading activity in
Exchange Security Futures Contracts is in its assigned Security Futures
Contracts, measured on a quarterly basis;
(iii) During at least 50% of the trading day the Market Maker has
bids or offers in the market that are at or near the best market,
except in unusual market conditions as determined by the Exchange (such
as a fast market in either a Security Futures Contract or a security
underlying a Security Futures Contract), with respect to at least 25%
(in the case of an Unlimited Assignment) or at least one (in the case
of a Limited Assignment) of its assigned Security Futures Contracts;
and
(iv) The requirements in (ii) and (iii) are satisfied on (a) at
least 90% of the trading days in each calendar quarter by Market Makers
who have undertaken an Unlimited Assignment; or (b) at least 80% of the
trading days in each calendar quarter by Market Makers who have
undertaken a Limited Assignment; or (c) on at least 80% of the trading
days in each calendar quarter by Market Makers who have undertaken
either an Unlimited Assignment or Limited Assignment but where the
Exchange is listing four (4) or fewer Security Futures Contracts.
For purposes of clauses (1) and (2) above, beginning on the 181st
calendar day after the commencement of trading of Security Futures
Contracts on the Exchange, a ``meaningful proportion of the total
trading volume of Security Futures Contracts on the Exchange'' shall
mean a minimum of 20% of such trading volume.
Any Market Maker that fails to comply with the applicable Rules of
the Exchange, CFTC Regulations 41.41 through 41.49 and SEC Regulations
242.400 through 242.406 shall be subject to disciplinary action in
accordance with Chapter 4. Appropriate sanctions in the case of any
such failure shall include, without limitation, a revocation of such
Market Maker's registration as a Security Futures Dealer.
c.-d. (No Change).
* * * * *
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 CME 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 III below. The 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
The CME proposes to adopt, on a permanent basis, the Market Maker
Exclusion, which sets forth the standards under which a CME member may
be excluded from the Exchange's margin requirements as a ``market
maker.'' The CME believes that the proposed rule change is consistent
with Commission Rule 400(c)(2)(v) under the Act \4\ and CFTC Rule
41.42(c)(2)(v),\5\ which establish standards by which members of
national securities exchanges may qualify as Security Futures Dealers
and therefore be excluded from customer margin requirements for
security futures.
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\4\ 17 CFR 242.400(c)(2)(v).
\5\ 17 CFR 41.42(c)(2)(v).
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The CME notes that the Market Maker Exclusion has not actually been
deployed in practice at the Exchange to date. In addition, the CME
notes that the Commission has received no comment letters on this
matter during the pilot period. The CME proposes no changes to the
Market Maker Exclusion and, therefore, CME proposes to adopt the
proposed rule change on a permanent basis.
2. Statutory Basis
The CME believes that the proposed rule change is consistent with
section 6(b)(5) of the Act \6\ in that it promotes competition and is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and to protect
investors and the public interest. The CME believes that the proposed
rule change is designed to accomplish these goals by permitting members
to trade security futures, as permitted under the Commission's Rule.
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\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CME does not believe that the proposed rule change will have an
impact on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments on the proposed rule change have not been solicited and
none have been received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference
[[Page 26366]]
Room. Copies of such filing will also be available for inspection and
copying at the principal office of the CME. All submissions should
refer to File No. SR-CME-2003-01 and should be submitted by June 5,
2003.
IV. Commission Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\7\ In
particular, the Commission believes that the proposed rule change is
consistent with the requirements of section 6(b)(5) of the Act,\8\
which requires, among other things, that the rules of the Exchange be
designed to promote just and equitable principles of trade and, in
general, to protect investors and the public interest.\9\ In addition,
the Commission believes that the proposed rule change is consistent
with section 7(c)(2)(B) of the Act,\10\ which provides, among other
things, that the margin requirements for security futures must preserve
the financial integrity of markets trading security futures, prevent
systemic risk, be consistent with the margin requirements for
comparable exchange-traded options, and provide that the margin levels
for security futures may be no lower than the lowest level of margin,
exclusive of premium, required for any comparable exchange-traded
option.
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\7\ 15 U.S.C. 78s(b)(2).
\8\ 15 U.S.C. 78f(b)(5).
\9\ In approving the proposed rule, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78g(c)(2)(B).
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The Commission believes that the CME's standards for market makers
under Rule 930.B.2.b.(3) are consistent with the Act, and Rule
400(c)(2)(v) thereunder.\11\ Specifically, Rule 400(c)(2)(v) provides
that the Commissions' joint margin rules do not apply to a member of a
national securities exchange that is registered with such exchange as a
``Security Futures Dealer'' pursuant to exchange rules that must meet
several criteria, including a requirement that a Security Futures
Dealer be required to ``to hold itself out as being willing to buy and
sell security futures for its own account on a regular and continuous
basis.'' The Commission believes that the affirmative obligations
required by the CME pursuant to Rule 930.B.2.b.(3) satisfy this
requirement.
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\11\ 17 CFR 240.400(c)(2)(v).
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The CME has requested that the Commission approve the proposed rule
change prior to the thirtieth day after publication of notice of the
filing in the Federal Register. The Commission finds good cause for
approving the proposed rule change prior to the thirtieth day after the
date of publication of notice of filing thereof in the Federal
Register. The Commission believes that accelerated approval of the
proposed rule change should enable CME members to trade security
futures as market makers under the Market Maker Exclusion without undue
delay. The Commission notes that it approved the Market Maker Exclusion
as a temporary pilot to give members of the public an opportunity to
comment on the substance of the Market Maker Exclusion. The Commission
received no comments on the Pilot. Accordingly, the Commission finds
good cause, consistent with section 19(b)(2) of the Act,\12\ to approve
the proposed rule change prior to the thirtieth day after publication
of the notice of filing.
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\12\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore Ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the proposed rule change (File No. SR-CME-2003-01) be
approved, on a permanent basis, on an accelerated basis.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12148 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P