[Federal Register Volume 75, Number 233 (Monday, December 6, 2010)]
[Notices]
[Pages 75718-75719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30429]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63391; File No. SR-FINRA-2010-063]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Extend to July 16, 2011, the Pilot Period for
FINRA Rule 4240 (Margin Requirements for Credit Default Swaps)
November 30, 2010.
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 November 22, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by FINRA. FINRA
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b 4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to extend to July 16, 2011, FINRA Rule 4240
(Margin Requirements for Credit Default Swaps) on an interim pilot
program basis. FINRA Rule 4240, as approved by the SEC on May 22, 2009,
will expire on November 30, 2010. The rule implements an interim pilot
program with respect to margin requirements for transactions in credit
default swaps executed by a member (regardless of the type of account
in which the transaction is booked), including those in which the
offsetting matching hedging transactions are effected by the member in
credit default swap contracts that are cleared through the central
counterparty clearing services of the Chicago Mercantile Exchange.
The text of the proposed rule change is below. Proposed new
language is underlined; proposed deletions are in brackets:
* * * * *
4000. FINANCIAL AND OPERATIONAL RULES
* * * * *
4200. MARGIN
* * * * *
4240. Margin Requirements for Credit Default Swaps
(a) Effective Period of Interim Pilot Program.
This Rule establishes an interim pilot program (``Interim Pilot
Program'') with respect to margin requirements for any transactions
in credit default swaps executed by a member (regardless of the type
of account in which the transaction is booked), including those in
which the offsetting matching hedging transactions (``matching
transactions'') are effected by the member in contracts that are
cleared through the central counterparty clearing services of the
Chicago Mercantile Exchange (``CME''). The Interim Pilot Program
shall automatically expire on [November 30, 2010] July 16, 2011. For
purposes of this Rule, the term ``credit default swap'' (``CDS'')
shall mean any ``eligible credit default swap'' as defined in
Securities Act Rule 239T(d), as well as any other CDS that would
otherwise meet such definition but for being subject to individual
negotiation, and the term ``transaction'' shall include any ongoing
CDS position.
(b) through (e) No Change.
* * * Supplementary Material:
.01 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, FINRA 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. FINRA 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
On May 22, 2009, the Commission approved FINRA Rule 4240,\4\ which
implements an interim pilot program (the ``Interim Pilot Program'')
with respect to margin requirements for transactions in credit default
swaps (``CDS'') executed by a member (regardless of the type of account
in which the transaction is booked), including those in which the
offsetting matching hedging transactions are effected by the member in
credit default swap contracts that are cleared through the central
counterparty clearing services of the Chicago Mercantile Exchange
(``CME''). On September 21, 2009, FINRA extended the implementation of
Rule 4240 to November 30, 2010.\5\
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\4\ See Securities Exchange Act Release No. 59955 (May 22,
2009), 74 FR 25586 (May 28, 2009) (Notice of Approval of Proposed
Rule Change; File No. SR-FINRA-2009-012) (``Approval Order'').
\5\ See Securities Exchange Act Release No. 60722 (September 25,
2009), 74 FR 50856 (October 1, 2010) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2009-063).
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As explained in the Approval Order, FINRA Rule 4240 is intended to
be coterminous with certain Commission actions intended to address
concerns arising from systemic risk posed by CDS, including, among
others, risks to the financial system arising from the lack of a
central clearing counterparty to clear and settle CDS.\6\ Recently, the
Commission has determined to extend the period for which certain of
these actions are in effect.\7\ FINRA believes it
[[Page 75719]]
is appropriate to extend the implementation of the Interim Pilot
Program accordingly, to July 16, 2011.\8\
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\6\ See 74 FR 25588 through 25589. In early 2009 the Commission
enacted interim final temporary rules (the ``interim final temporary
rules'') providing enumerated exemptions under the Federal
securities laws for certain CDS to facilitate the operation of one
or more central clearing counterparties in such CDS. See Securities
Act Release No. 8999 (January 14, 2009), 74 FR 3967 (January 22,
2009) (Temporary Exemptions for Eligible Credit Default Swaps To
Facilitate Operation of Central Counterparties To Clear and Settle
Credit Default Swaps); Securities Act Release No. 9063 (September
14, 2009) (Extension of Temporary Exemptions for Eligible Credit
Default Swaps To Facilitate Operation of Central Counterparties To
Clear and Settle Credit Default Swaps). See also Securities Exchange
Act Release No. 59578 (March 13, 2009), 74 FR 11781 (March 19, 2009)
(Order Granting Temporary Exemptions in Connection with Request of
Chicago Mercantile Exchange Inc. and Citadel Investment Group,
L.L.C. Related to Central Clearing of Credit Default Swaps);
Securities Exchange Act Release No. 59165 (December 24, 2008), 74 FR
133 (January 2, 2009) (Order Granting Temporary Exemptions for
Broker-Dealers and Exchanges Effecting Transactions in Credit
Default Swaps).
\7\ See Securities Act Release No. 9158 (November 19, 2010), 75
FR 72260 (November 26, 2009) (Extension of Temporary Exemptions for
Eligible Credit Default Swaps To Facilitate Operation of Central
Counterparties To Clear and Settle Credit Default Swaps).
\8\ See Exhibit 5.
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FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, such that FINRA can implement the proposed rule
change immediately. The proposed rule change will expire on July 16,
2011. FINRA is proposing to implement the proposed rule change on
November 30, 2010.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change will
further the purposes of the Act because, consistent with the goals set
forth by the Commission when it adopted the interim final temporary
rules with respect to the operation of central counterparties to clear
and settle CDS, the margin requirements set forth by the proposed rule
change will help to stabilize the financial markets.
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\9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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FINRA requests that the Commission waive the five-day pre-filing
notice requirement specified in Rule 19b-4(f)(6)(iii) under the
Act.\12\ FINRA proposes to make the proposed rule change operative on
November 30, 2010.
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\12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires a self-regulatory organization to submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Commission has waived the five-day pre-filing
period in this case.
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FINRA has requested that the Commission waive the 30-day operative
delay, so that the proposed rule change may become operative upon
filing. The Commission hereby grants FINRA's request and believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest.\13\ This will allow the existing
pilot program to continue without interruption and extend the benefits
of a pilot program that the Commission approved and previously
extended. For these reasons, the Commission designates the proposed
rule change as effective and operative on November 30, 2010.
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\13\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
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 (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2010-063 on the subject line.
Paper Comments
Send paper comments in triplicate Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-063. This
file number should be included on the subject line if e-mail 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 (http://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 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 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-2010-063
and should be submitted on or before December 27, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30429 Filed 12-3-10; 8:45 am]
BILLING CODE 8011-01-P