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[Federal Register Volume 90, Number 13 (Wednesday, January 22, 2025)]
[Notices]
[Pages 7713-7714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01410]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102200; File No. 600-44]

CME Securities Clearing, Inc.; Notice of Filing of an Application 
for Registration as a Clearing Agency Under Section 17A of the 
Securities Exchange Act of 1934

January 15, 2025.
    On December 13, 2024, CME Securities Clearing, Inc. (``CMESC'') 
filed with the Securities and Exchange Commission (``Commission'') an 
application on Form CA-1 (``Application'') under section 17A of the 
Securities Exchange Act of 1934 (``Exchange Act'') seeking to register 
as a clearing agency.\1\ Specifically, the Application states that 
CMESC is applying to register as a clearing agency to provide central 
counterparty clearing services to market participants for their 
secondary cash market transactions in U.S. Treasury securities and 
transactions in repurchase and reverse repurchase agreements involving 
U.S. Treasury securities.\2\ The Application provides detailed 
information regarding how CMESC proposes to satisfy the requirements of 
the Exchange Act. The proposed Rules of CMESC are included as Exhibit 
E-3 to CMESC's Form CA-1 application.
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    \1\ 15 U.S.C. 78q-1.
    \2\ See Exhibit J.
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    The Commission is publishing this notice to solicit comments on the 
Application. To grant CMESC's request to register as a clearing agency, 
the Commission must find that it satisfies the requirements of the 
Exchange Act and the rules and regulations thereunder, including the 
determinations required under Exchange Act section 17A(b)(3)(A) through 
(I).\3\ Pursuant to section 17A of the Exchange Act, the Commission is 
directed, having due regard for the public interest, the protection of 
investors, the safeguarding of securities and funds, and maintenance of 
fair competition among brokers and dealers, clearing agencies, and 
transfer agents, to use its authority to: (i) facilitate the 
establishment of a national system for the prompt and accurate 
clearance and settlement of transactions in securities (other than 
exempt securities); and (ii) facilitate the establishment of linked or 
coordinated facilities for clearance and settlement of transactions in 
securities in accordance with the findings and to carry out the 
objectives set forth in section 17A.\4\ The Commission will consider 
any comments it receives in making its determination about whether to 
grant CMESC's request to be registered as a clearing agency.
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    \3\ 15 U.S.C. 78s(a); 15 U.S.C. 78q-1(b)(3).
    \4\ 15 U.S.C. 78q-1(a)(2)(A).
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    The Application states that CMESC would be wholly owned by its 
parent company, CME Group, Inc.\5\ CMESC is a corporation registered in 
the state of Delaware.\6\ CMESC would have its own Board of Directors, 
made up of at least five independent directors, one member 
representative, and one user representative.\7\ CMESC would also have 
several Board committees, including a Nominating Committee, Audit 
Committee, Regulatory Oversight Committee, and Risk Management 
Committee.\8\
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    \5\ See Exhibit C and C-1 (narrative description of ownership 
and diagrams of overall CME Group structure).
    \6\ See Exhibit E-1 (certificate of incorporation).
    \7\ See Exhibit C-2 (diagram of CMESC's structure); Exhibit E-2B 
(Board of Directors Charter).
    \8\ See Exhibit E-2C (Risk Management Committee Charter); E-2D 
(Nominating Committee Charter); E-2E (Audit Committee Charter), and 
Exhibit E-2F (Regulatory Oversight Committee Charter).
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    CMESC's proposed Rules describe two types of participants: first, 
Members, which would be able to clear proprietary Eligible Securities 
Transactions through CMESC and to authorize Users with respect to 
clearing Eligible Securities Transactions through CMESC; and second, 
Users, which

[[Page 7714]]

would be authorized by a Member and would be further classified as 
Independent Users or Supported Users. CMESC states that the primary 
difference between these User Types is that an Independent User is 
obligated to post margin and make variation payments to CMESC for its 
Independent User Account, whereas that obligation falls to a Supported 
User's authorizing Member in relation to the Supported User's Supported 
User Account at the Corporation. For both types of Users, the User is 
directly liable to the Corporation for settlement of their cleared 
transactions.\9\
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    \9\ See Exhibit J.
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    A Member that authorizes a User is responsible for guaranteeing the 
financial performance of that User beyond the margin posted to the 
User's Account at the Applicant, and in this respect Members, but not 
Users, are required to make contributions to the Applicant's Guaranty 
Fund. A person will be admitted as a User only with the authorization 
of a Member and may utilize the Clearing Services as a User only for so 
long as it has a Member's authorization in place. In contrast to 
Members, CMESC does not impose direct financial responsibility 
requirements on User applicants and instead relies upon Members that 
authorize Users to determine the appropriate financial responsibility 
standards to impose, based on their assessment of a User's financial 
circumstances and their obligations to conduct due diligence of their 
authorized Users.\10\
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    \10\ See id.
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    In Exhibit J, the Application provides information regarding 
CMESC's risk management framework, which CMESC describes as being 
intended to: (i) reduce the potential impact of a participant default 
via credit risk management standards and ongoing monitoring, and (ii) 
ensure that CMESC has sufficient financial and liquidity resources to 
manage the default of a certain number of participants. CMESC states 
that it would use onboarding requirements for each of its Members to 
mitigate counterparty risk and would apply financial responsibility 
requirements to its Members. CMESC may take action against a Member for 
its failure to remain in compliance with such requirements. 
Additionally, CMESC states that it would seek to mitigate counterparty 
and liquidity risk through various mechanisms, including its credit 
rating process for Members, credit limits, daily risk monitoring, 
margin collection, settlement variation exchange, backtesting, and 
stress testing.\11\
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    \11\ See id.
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    With respect to risk management, the Application states that CMESC 
would maintain and structure a Guaranty Fund using its stress test 
methodology that is designed to ensure that the size of the Guaranty 
Fund is at least equal to the largest theoretical loss to the 
Registrant resulting from the Default of two Member Families, covering, 
if applicable, a predefined number of User accounts, in extreme but 
plausible market conditions.\12\ The Application also states that CMESC 
would establish credit and liquidity ``waterfalls'' that would apply in 
the event of a default, to prevent losses to its Participants and 
minimize the potential for market disruption.\13\
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    \12\ See id.
    \13\ See id.
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    With respect to systems, the Application states that CMESC's 
systems will be hosted in a virtual private cloud environment and in 
physical datacenters.\14\ Among other things, the Application describes 
CMESC's approach to operational resilience, availability and disaster 
recovery, and data backup.\15\
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    \14\ See Exhibit K; Exhibit M.
    \15\ See Exhibit M.
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    With respect to fees, the Application states that CMESC continues 
to engage the marketplace on its ultimate fee structure, which it plans 
to finalize as it approaches the launch date for operating its clearing 
agency. The Application also states that cleared repo and cleared U.S. 
Treasuries services that it offers will operate in a competitive 
environment, which in turn is expected to impact fees, and that fees 
for Members and Users will be published on CMESC's website when its 
clearing services are launched after filing a proposed rule change with 
the Commission pursuant to section 19(b)(3)(A) of the Exchange Act.\16\
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    \16\ See Exhibit E-5.
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    CMESC's application on Form CA-1, including each exhibit thereto 
referenced above, is available online at www.sec.gov/rules/other/shtml 
as well as in the Commission's Public Reference Room. Interested 
persons are invited to submit written data, views, and arguments 
concerning the Application, including whether the application is 
consistent with the Exchange Act and the rules and regulations 
thereunder applicable to clearing agencies (e.g., Exchange Act Rules 
17Ad-22, 17Ad-25, 17Ad-26, and Regulation SCI, among others).\17\
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    \17\ See 17 CFR 240.17Ad-22, 240.17Ad-25, and 240.17Ad-26; 17 
CFR 242.1000 through 242.1007.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include 
File Number 600-44 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090. All submissions should refer to File Number 600-44.
    To help the Commission process and review your comments more 
efficiently, please use only one method of submission. The Commission 
will post all comments on the Commission's internet website (https://www.sec.gov/rules/other.shtml).
    Copies of the Form CA-1, all subsequent amendments, all written 
statements with respect to the Form CA-1 that are filed with the 
Commission, and all written communications relating to the Form CA-1 
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 website viewing and printing in the 
Commission's Public Reference Section, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number 600-44 and should be 
submitted on or before March 10, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(16).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01410 Filed 1-21-25; 8:45 am]
BILLING CODE 8011-01-P
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