SUBMISSION COVER SHEET

IMPORTANT: Check box if Confidential Treatment is requested

Registered Entity Identifier Code (optional): 14-540

Organization: Chicago Mercantile Exchange Inc. ("CME")

Filing as a: DCM SEF DCO SDR 

Please note - only ONE choice allowed.

Filing Date (mm/dd/yy): December 4, 2014 Filing Description: Amendments to 

Chapter 8H of CME Rulebook

SPECIFY FILING TYPE 

Please note only ONE choice allowed per Submission.

Organization Rules and Rule Amendments

Certification § 40.6(a)

Approval § 40.5(a)

Notification § 40.6(d)

Advance Notice of SIDCO Rule Change § 40.10(a)

SIDCO Emergency Rule Change § 40.10(h)

Rule Numbers: Rule 8H01, 8H04, 8H820, 8H930.C, 8H931-34, 8H938

New Product Please note only ONE product per Submission.

Certification § 40.2(a) 

Certification Security Futures § 41.23(a)

Certification Swap Class § 40.2(d)

Approval § 40.3(a)

Approval Security Futures § 41.23(b)

Novel Derivative Product Notification § 40.12(a)

Swap Submission § 39.5

Official Product Name: 

Product Terms and Conditions (product related Rules and Rule Amendments)

Certification § 40.6(a) 

Certification Made Available to Trade Determination § 40.6(a)

Certification Security Futures § 41.24(a)

Delisting (No Open Interest) § 40.6(a) 

Approval § 40.5(a)

Approval Made Available to Trade Determination § 40.5(a)

Approval Security Futures § 41.24(c)

Approval Amendments to enumerated agricultural products § 40.4(a), § 40.5(a)

“Non-Material Agricultural Rule Change” § 40.4(b)(5)

Notification § 40.6(d)

Official Name(s) of Product(s) Affected: 

Rule Numbers: 
Jason Silverstein

Executive Director and Associate General Counsel

Legal Department

December 4, 2014

VIA ELECTRONIC PORTAL

Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

RE: CFTC Regulation 40.6(a) Certification. Notification Regarding Amendments 

to Chapter 8H of CME Rulebook.

CME Submission No. 14-540

Dear Mr. Kirkpatrick:

Chicago Mercantile Exchange Inc. (“CME”) is notifying the Commodity Futures Trading Commission 

(“CFTC” or “Commission”) that it is self-certifying amendments to Chapter 8H of the CME Rulebook 

effective on December 19, 2014. The proposed amendments are designed to make explicit that CME will 

not clear security-based swaps out of CME, that is, the entity registered as a derivatives clearing 

organization with the CFTC. 

CME currently offers clearing for over-the-counter (“OTC”) credit default swap (“CDS”) index products. To 

date, CME has not offered clearing for single name CDS products, which are categorized as securitybased swaps and therefore under the exclusive jurisdiction of the Securities and Exchange Commission. 

The proposed changes would amend Rule 8H01 to explicitly state that CME will not clear SBSs, with the 

exception of Restructuring European Single Name CDS Contracts created following the occurrence of a 

Restructuring Credit Event in respect of an iTraxx Component Transaction. The clearing of Restructuring 

European Single Name CDS Contracts will be a necessary byproduct after such time that CME begins 

clearing iTraxx Europe index CDS. Additionally, to remove references to SBS in the current CME 

Rulebooks, CME will accordingly amend or delete Rules 8H04 (CDS Clearing Member Obligations and 

Qualifications), 8H820 (Performance Bond for Security-Based Swaps), 8H930.C (Acceptable 

Performance Bond Deposits for CDS Products), 8H931 (Rule Changes Relating to Security-Based 

Swaps), 8H932 (Records Relating to Disciplinary Proceedings and Security-Based Swaps), 8H933 

(Notice Regarding Certain Disciplinary Matters Related to Security-Based Swaps), 8H934 (Reports to 

CDS Clearing Members), and 8H938 (Summary Suspensions Relating to Security-Based Swap Clearing 

Activities).

Analysis of the Proposed Rules under Derivatives Clearing Organization (“DCO”) Core Principles

CME reviewed the derivatives clearing organization core principles (“Core Principles”) as set forth in the 

Commodity Exchange Act (“CEA”). During the review, CME identified the following Core Principles as 

potentially being impacted. 

• Public Information: The proposed rules will be added to CME’s publicly available rulebooks, and 

will inform market participants that CME will not clear security-based swaps. CME does not 

currently clear security-based swaps; these products are under the exclusive jurisdiction of the 

Securities and Exchange Commission.

1 North End Avenue New York, NY 10282 T 212 299 2228 F 212 299 2299 jason.silverstein@cmegroup.com cmegroup.com

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CME certifies that the proposed rules comply with the CEA and the regulations thereunder. There

were no substantive opposing views.

Notice of this submission has been concurrently posted on CME Group’s website 

at http://www.cmegroup.com/market-regulation/rule-filings.html.

If you require any additional information regarding this submission, please contact me at 212-299-2228 

or Jason.Silverstein@cmegroup.com. Please reference our CME Submission No. 14-540 in any related 

correspondence.

Sincerely,

/s/ Jason Silverstein

Executive Director & Associate General Counsel

Attachment: Exhibit 1 

1 North End Avenue New York, NY 10282 T 212 299 2228 F 212 299 2299 jason.silverstein@cmegroup.com cmegroup.com

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EXHIBIT 1

(Underlined text indicates additions. Overstruck text indicates deletions.)

CME RULEBOOK

CHAPTER 8-H Credit Default Swaps Clearing

Rule 8H01. SCOPE OF CHAPTER

This chapter sets forth the rules governing clearing and settlement of all CDS Products. In the 

event there is a conflict between a Rule in this Chapter 8H and another Rule in the Rulebooks, 

the Rule in this Chapter 8H shall supersede the conflicting Rule with respect to CDS Contracts. 

Rules 8F01-8F25 and 802, 804, 808, 813, 816, 824, 912, 913, 930 and 975 shall not apply to 

CDS Contracts. Chapter 6 shall be modified for CDS Contracts as set forth below. The Clearing 

House shall adopt, establish, publish and amend from time to time a Clearing House Manual of 

Operations for CME Cleared Credit Default Swaps (the “CDS Manual”). The CDS Manual shall 

contain, among other things, information and directions for preparing trade data, completing 

prescribed memoranda and meeting other Clearing House requirements for CDS Products. The 

CDS Manual and amendments thereto shall constitute part of the Rules. In the event of conflict 

between the Rules applicable to CDS Products or CDS Clearing Members acting in their 

capacity as such and the CDS Manual, such Rules will govern. The Clearing House will not 

clear Security-Based Swaps, except for Restructuring European Single Name CDS Contracts 

created following the occurrence of a Restructuring Credit Event in respect of an iTraxx 

Component Transaction.

****

Rule 8H02 – Rule 8H03 – No Change.

 

Rule 8H04. CDS CLEARING MEMBER OBLIGATIONS AND QUALIFICATIONS

CDS Clearing Members shall be subject to the requirements for CDS Clearing Members set forth 

in Chapter 8H, all CME Rules applicable to CDS Products, the Clearing House Manual and the 

CDS Manual unless an exemption has been granted by the CDS Risk Committee. In addition, 

CDS Clearing Members are subject to all CME, CBOT and NYMEX Rules, as applicable, when 

clearing products traded on, or subject to the rules of, CME, CBOT or NYMEX. CDS Clearing 

Members must execute all agreements and documents required by the Clearing House.

The Clearing House may approve an application for CDS Clearing Membership to permit the 

clearing of security-based swaps submitted by any corporation, partnership, limited liability 

company, or any other type of entity, provided that it determines such applicant satisfies 

applicable requirements. Applicants within one of the enumerated categories of participants in 

Section 17A(b)(3)(B) of the Securities Exchange Act of 1934 are specifically eligible to become 

CDS Clearing Members for the purpose of clearing security-based swaps.

A CDS Clearing Member must satisfy the requirements set forth below:

1. A CDS Clearing Member must be registered with its primary regulator and, if relevant under 

the laws of the jurisdiction of its organization, or incorporation, in “good standing” under each 

regulatory regime to which it is subject at the time it applies for CDS clearing membership and it 

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must maintain its good standing status, if applicable, while it is a CDS Clearing Member. A CDS 

Clearing Member and, if applicable, its parent guarantor must be subject to a legal and 

insolvency regime acceptable to the Clearing House.

2. A CDS Clearing Member must be in compliance with all applicable regulatory capital 

requirements and it must maintain minimum capital (as defined in CFTC Regulation 39.12(a)(2)) 

of $50 million. For a CDS Clearing Member that is a bank, “capital” shall mean Tier 1 Capital 

(as defined in accordance with regulation applicable to the relevant bank and acceptable to the 

Clearing House or, in the absence of any such regulation, as defined by the Basel Committee on 

Banking Supervision of the Bank for International Settlements).

3. The capital requirement with respect to the participation of a CDS Clearing Member in the 

Clearing House shall be scalable to the risks posed by such CDS Clearing Member. Accordingly, 

a CDS Clearing Member must maintain capital (as defined in 8H04.2 above) at least equal to 

20% of the aggregate performance bond requirement for its proprietary and customer CDS 

Contracts.

4. A CDS Clearing Member and any applicant for CDS clearing membership shall be engaged in 

or demonstrate immediate capacity to engage in the conduct of the business of a CDS Clearing 

Member and to perform all other obligations of a CDS Clearing Member as described or 

referenced in these Rules or in the CDS Manual; provided that, in the event that a CDS Clearing 

Member does not have the capabilities to perform such responsibilities or obligations, such CDS 

Clearing Member may contract with a third party (including an Affiliate) to fulfill certain 

operational or risk requirements; provided that all agreements relating to such service shall be 

subject to the prior review and approval by the Clearing Clearing Member utilization of service 

providers, including limitations on the number of CDS Clearing Members to which a service 

provider may provide services.

5. A CDS Clearing Member that is not also a CME, CBOT, NYMEX or COMEX Clearing 

Member shall maintain a membership-equivalent deposit with the Clearing House of at least $5 

million in cash or collateral, which shall be valued in the sole discretion of the Clearing House, 

to assure performance of all obligations arising out of CDS Products submitted by it to the 

Clearing House. Such deposit shall be used only for the purposes described in these Rules.

6. A CDS Clearing Member must comply with the requirements set forth in Rule 970, provided 

that, if the CDS Clearing Member is regulated by a regulatory authority other than the CFTC, 

then it shall submit to the Clearing House annual audited financial statements as well as all 

unaudited financial statements provided to its primary regulator within five days after such 

statements are provided to its regulator as well as reports of a type and frequency determined by 

the Clearing House and CDS Risk Committee in order to monitor compliance with the capital 

requirements described in Rule 8H04.2. All financial statements and other reports shall be in the 

English language.

7. The books and records of a CDS Clearing Member regarding CDS Products cleared by the 

Clearing House shall be made promptly available for inspection upon request by the Clearing 

House and such books and records shall be subject to reasonable standards of confidentiality.

8. Each CDS Clearing Member, regardless of whether it is a Futures Commission Merchant, 

shall keep the types of information and records that are described in Section 4g of the 

Commodity Exchange Act and CFTC regulations thereunder including, but not limited to, 

Regulation 1.35, with respect to all CDS Products submitted for clearing.

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9. Each CDS Clearing Member shall nominate at least two officers or employees to be members 

to the CDS Default Management Committee. Upon Clearing House request, each CDS Clearing 

Member shall submit nominations for an Independent Member of the CDS Risk Committee.

10. Each CDS Clearing Member must demonstrate, at all times, either directly or through a 

approved service provider in accordance with Rule 8H04.4, the operational capabilities and 

infrastructure necessary to facilitate physical settlement of CDS Products cleared by such CDS 

Clearing Member.

11. Each CDS Clearing Member shall use systems and appropriate procedures to track 

accurately, and to provide to the Clearing House accurately, the CDS positions and collateral of 

each of its cleared swaps customers.

12. The Clearing House may, and in cases in which the Securities and Exchange Commission by 

order directs, shall, deny CDS Clearing Membership to any person subject to a statutory 

disqualification, as such term is defined in the Securities Exchange Act of 1934.

** **

Rule 8H05 – Rule 8H819 – No Change.

 

Rule 8H820. Reserved PERFORMANCE BOND FOR SECURITY-BASED SWAPS

Performance bond requirements will be as determined by Exchange staff from time to time and 

as set forth in Rule 820. With respect to performance bond requirements that apply to securitybased swap clearing activities, the Clearing House must determine that each item that is 

enumerated as being acceptable performance bond pursuant to Rule 820 has been determined to 

assure the safety and liquidity of the Clearing House as is required by Section 17A(b)(3)(F) of 

the Securities Exchange Act of 1934.

** **

Rule 8H821 – Rule 8H930.B – No Change.

 

Rule 8H930.C. Acceptable Performance Bond Deposits for CDS Products 

CDS Clearing Members may, without limitation upon other assets accepted by any such CDS 

Clearing Member, accept from their account holders as performance bond cash currencies of any 

denomination, readily marketable securities (as defined by SEC Rule 15c3-1(c)(11) and 

applicable SEC interpretations), money market mutual funds allowable under CFTC Regulation 

1.25, bank-issued letters of credit and "London Good Delivery" gold, as defined by the London 

Bullion Market Association.

CDS Clearing Members shall not accept as performance bond from an account holder securities 

that have been issued by the account holder or an affiliate of the account holder unless the CDS 

Clearing Member files a petition with and receives permission from Clearing House staff. 

Bank-issued letters of credit must be in a form acceptable to the Clearing House. Such letters of 

credit must be drawable in the United States. CDS Clearing Members shall not accept as 

performance bond from an account holder letters of credit issued by the account holder, an 

affiliate of the account holder, the clearing member, or an Affiliate of the clearing member.

All assets deposited by account holders to meet performance bond requirements must be and 

remain unencumbered by third party claims against the depositing account holder.

Except to the extent that Clearing House staff shall prescribe otherwise, cash currency 

performance bond deposits shall be valued at market value. All other performance bond deposits 

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other than letters of credit shall be valued at an amount not to exceed market value less 

applicable haircuts as set forth in SEC Rule 240.15c3-1.

Acceptable performance bond assets for security-based swaps and the applicable haircuts related 

to such assets will be set forth on a public website.] The Clearing House has discretion to make 

adjustments to the asset haircuts at any time. Any such adjustment to the applicable asset haircut 

will be promptly communicated to CDS Clearing Members. [Any adjustments to the applicable 

asset haircut schedule for security based swap clearing activities must be based on an analysis of 

appropriate factors including, for example, historical and implied price volatilities, market 

composition, current and anticipated market conditions, and other relevant information. The 

Clearing House will conduct regular reviews of its then-current haircut schedules and make any 

necessary adjustments.

** **

Rule 8H930.D – Rule 8H930.J – No Change.

 

Rule 8H931. Reserved RULE CHANGES RELATING TO SECURITY-BASED SWAPS

Rules that relate to the Clearing House’s activities as a clearing agency clearing security-based 

swaps will be adopted, altered, amended or repealed in accordance with the applicable 

requirements of Section 19(b) of the Securities Exchange Act of 1934. The Clearing House will 

promptly notify all CDS Clearing Members of any proposal it has made to change, revise, add or 

repeal any rule that relates to its activities as a securities clearing agency. Such notice will 

include the text or a brief description of any such proposed rule change, along with its purpose 

and effect, in accordance with the requirements of the Securities Exchange Act of 1934. CDS 

Clearing Members may submit comments with respect to any such proposal and such comments 

shall be filed in accordance with the requirements the Securities Exchange Act of 1934.

Rule 8H932. Reserved RECORDS RELATING TO DISCIPLINARY PROCEEDINGS 

AND SECURITY-BASED SWAPS 

The Clearing House will maintain records of any disciplinary proceeding related to the activities 

of a CDS Clearing Member involving security-based swaps in accordance with the requirements 

of the Securities Exchange Act of 1934 and SEC Rule 17a-1.

Rule 8H933. Reserved NOTICE REGARDING CERTAIN DISCIPLINARY MATTERS 

RELATED TO SECURITY-BASED SWAPS 

The Clearing House will notify the Securities and Exchange Commission and the appropriate 

regulatory agency, as such term is defined by Section 3(a)(34) of the Securities Exchange Act of 

1934, regarding any final disciplinary sanction, denial of participation, prohibition or limitation 

with respect to access and/or summary suspension taken against a CDS Clearing Member 

relating to activities involving security-based swaps.

Rule 8H934. Reserved REPORTS TO CDS CLEARING MEMBERS 

As soon as practicable after the end of each calendar year, the Clearing House will make 

available financial statements of CME Inc. audited by independent public accountants to all CDS 

Clearing Members engaged in security-based swap clearing activities. 

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These financial statements will at a minimum include: (i) the balance of the clearing fund and the 

breakdown of the fund balance between the various forms of contributions to the fund, e.g., cash 

and secured open account indebtedness; (ii) the types and amounts of investments made with 

respect to the cash balance; (iii) the amounts charged to the clearing fund during the year in 

excess of a defaulting clearing member’s Guaranty Fund contribution; and (iv) any other charges 

to the fund during the year not directly related and chargeable to a specific clearing member’s 

Guaranty Fund contribution. The Clearing House will also make available to CDS Clearing 

Members clearing security-based swaps a report of CME Group Inc. by independent public 

accountant regarding its system of internal accounting control, describing any material 

weaknesses discovered and any corrective action taken or proposed to be taken. 

The Clearing House will also furnish to all CDS Clearing Members engaged in security-based 

swap clearing activities, within 40 days following the close of each fiscal quarter, unaudited 

quarterly financial statements. These unaudited quarterly financial statements shall at a minimum 

consist of: (i) a statement of financial position as of the end of the most recent fiscal quarter and 

as of the end of the corresponding period of the preceding fiscal year; (ii) a statement of changes 

in financial position for the period between the end of the last fiscal year and the end of the most 

recent fiscal quarter and for the corresponding period of the preceding fiscal year; and (iii) a 

statement of results of operations, which may be condensed, for the most recent fiscal quarter 

and for the period between the end of the last fiscal year and the end of the most recent fiscal 

quarter and for the corresponding periods of the preceding fiscal year.

** **

Rule 8H935 – Rule 8H937 – No Change.

****

Rule 8H938. Reserved SUMMARY SUSPENSIONS RELATING TO SECURITY-BASED 

SWAP CLEARING ACTIVITIES 

The Clearing House may only summarily suspend and close the accounts of a CDS Clearing 

member engaged in security-based swap clearing activities who: (i) has been and is expelled or 

suspended from any self-regulatory organization, (ii) is in default of any delivery of funds or 

securities to the clearing agency, or (iii) is in such financial operating difficulty that the clearing 

agency determines and so notifies the appropriate regulatory agency for the member that such 

suspension and closing of accounts are necessary for the protection of the clearing agency, its 

members, creditors, or investors.

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