CFTC spares CME Clearing enforcement action relating to client fund depositories

The U.S. Commodity Futures Trading Commission’s (Commission) Divisions of Clearing and Risk and Swap Dealer and Intermediary Oversight (Divisions) today issued a no-action letter stating that the Divisions will not recommend that the Commission take enforcement action against the Clearing House of the Chicago Mercantile Exchange, Inc. (CME Clearing), and certain clearing members of CME Clearing, or depositories holding customer funds for such clearing members, in connection with the execution and submission to the Commission of a modified version of the template acknowledgment letter in Appendix A to Commission Regulation 1.20.

CME Clearing has been one of the most instrumental firms at the forefront of international trade reporting and processing regulation, not only in North America but more recently in Europe, where its CME Clearing Europe division gained regulatory approval under the European Market Infrastructure Regulation (EMIR) to operate as a central counterparty.

Regulation 1.20 requires futures commission merchants (FCMs) to obtain, from each depository with which the FCM deposits customer funds, a written acknowledgment that the depository had been informed that the funds deposited were customer funds being held in accordance with the Commodity Exchange Act. As part of its recent customer protection rulemaking, the Commission adopted a standardized template acknowledgment letter to be executed by FCMs and their respective depositories holding customer funds.

CME Clearing operates a program that permits its clearing members to pledge certain types of high quality corporate bonds as initial margin for futures and certain cleared swaps positions. Under the program, a clearing member opens customer segregated accounts and/or cleared swaps customer accounts with a depository that participates in the program, and the bonds are pledged to such accounts as initial margin collateral. CME Clearing requested permanent relief to permit FCMs participating in this program to use a modified version of the template acknowledgment letter that would recognize that all property deposited in these accounts is subject to CME Clearing’s first priority, perfected security interest.

For the official release, click here.

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