SUBMISSION COVER SHEET

IMPORTANT: Check box if Confidential Treatment is requested

Registered Entity Identifier Code (optional): 22-334

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

Filing as a: DCM SEF DCO SDR

Please note - only ONE choice allowed.

Filing Date (mm/dd/yy): 08/16/22 Filing Description: Modifications to CME’s

Collateral Policy

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: See filing.

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:
20 S. Wacker Drive Chicago, IL 60606 T 312 930 8167 Sean.Downey@cmegroup.com cmegroup.com

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Sean Downey

Clearing Chief Compliance Officer & Head of Policy

CME Clearing

August 16, 2022

VIA ELECTRONIC PORTAL

Mr. Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, DC 20581

Re: CFTC Regulation 40.6(a) Certification. Modifications to CME’s

Collateral Policy.

CME Submission No. 22-334

Dear Mr. Kirkpatrick:

Pursuant toCommodityFutures Trading Commission (“CFTC” or“Commission”) Regulation 40.6(a), Chicago

Mercantile Exchange Inc. (“CME” or “Clearing House”), as a derivatives clearing organization (“DCO”),

certifies to the Commission modifications to the CME’s Collateral Policy effective on August 31, 2022 (the

“Amendments”).

The Collateral Policy is maintained by the Clearing House and substantive amendments must be approved

by the Clearing House Risk Committee (“CHRC”) and Clearing House Oversight Committee (“CHOC”).

The Amendments have been approved by the CHRC and CHOC.

The Amendments are primarily with respect to increasing the hard-dollar based collateral limit imposed on 

the Clearing House’s acceptance of standby and pass-through bank-issued letters of credit (“LOCs”). As 

background, CME accepts LOCs as performance bond collateral for exchange-listed derivatives and does 

not permit financial affiliated clearing members to post LOCs with respect to their house performance bond 

requirements. Furthermore, LOCs are primarily used by commercial end-users. 

Currently, the collateral limit for LOCs, per clearing member, is the lesser of 25% of a clearing member’s 

total Base products’ performance bond requirement (applied per account class) or $500 million (“nonexempt limit”), unless an exemption is granted by the Clearing House. Under a limited exemption, the limit,

per clearing member, is the lesser of 50% of a clearing member’s total Base products’ performance bond

requirement (applied per account class) or $1 billion (“exempt limit”). Any amount in excess of the nonexempt limit must be posted by a clearing member on behalf of qualifying commercial end-users that meet 

the exemption requirements and must be approved by CME’s internal Collateral Committee, which is 

comprised of senior-level staff of the Clearing House. The exemption requires representations and 

warranties from the qualifying commercial end-user that it is not a “financial entity,” as defined in Section 

2(h)(7)(C) of the Commodity Exchange Act (“CEA” or “Act”).

The Amendments would increase the hard-dollar based collateral limit for LOCs to $1 billion for the nonexempt limit and $2 billion for the exempt limit; for the avoidance of doubt, the LOC percentage-based 

limits for both the exempt and non-exempt limits would remain at 25% and 50%, respectively. In addition, 

the methodology for how CME determines credit limits on the LOC issuing banks will also remain the same.

CME is implementing the Amendments for a number of reasons. In particular, the Amendments are 
20 S. Wacker Drive Chicago, IL 60606 T 312 930 8167 Sean.Downey@cmegroup.com cmegroup.com

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intended to better align the limits for LOCs with current market dynamics and further support the ability of 

commercial end-users to effectively hedge their business risks. 

For background, the Clearing House has not adjusted its collateral limit for LOCs since 2014. 

Commensurate with market participants’ exposures and increased volatility, the total amount of 

performance bond on deposit has appropriately increased since 2014, but the non-exempt and exempt 

limits for LOCs have remained constant. More recently in early 2022, increased volatility has been 

observed in commodities’ markets and as noted above, commercial end-users predominantly utilize LOCs, 

since they commonly rely on LOCs to finance hedging of physical exposures via exchange-listed 

derivatives.

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In line with this, utilization of LOCs has increased which is consistent with increases to 

performance bond requirements. By way of example, wheat prices increased approximately 75% in the 

last two-years,

2 which directly impacts commercial end-users hedging the price of physical wheat via wheat 

futures. Such hedgers would not only require financing for the more expensive physical wheat purchased,

but also the performance bond required by the Clearing House, which, in theory, would increase by the 

same percentage above (even with assuming volatility remains constant). Thus, increasing the hard-dollar 

based collateral limit for LOCs not only recognizes current market dynamics and price inflation across a 

variety of commodities markets, but also allows commercial end-users to more effectively hedge risk. 

While increasing the hard-dollar based collateral limit for LOCs would have significant benefits for 

commercial end-users’ management of business risks, it will not have a material impact on the nature or 

level of risks faced by the Clearing House. In particular, the expected portion of LOCs posted to CME 

relative to total collateral on deposit will not materially change as a result of the Amendments. As a point 

of comparison, although the amount of LOCs posted to CME has increased in recent years, the portion of 

LOCs posted relative to total collateral on deposit has remained relatively constant, between 1% and 2%. 

Pursuant to the Amendments, if all clearing members doubled their current levels of total LOCs posted, 

LOCs would still represent only 4% of total collateral on deposit, provided that all other factors remain 

constant. Notwithstanding this, the restrictions on the ability of clearing members to post LOCs (e.g., 

exchange-listed derivatives only and criteria for the exempt limit) and percentage-based limit will remain 

the same. 

In addition, the Amendments shall remove the regulatory approval history section of the Collateral Policy, 

as well as other non-substantive, clarifying modifications. 

DCO Core Principle Review

CME reviewed the DCO core principles (“Core Principles”) as set forth in the CEA and identified that

the Amendments may have some bearing on the following Core Principle:

• DCO Core Principle D – Risk Management: While the Amendments may increase the use of 

LOCs as performance bond, CME does not believe this will materially affect its risk 

management. Consistent with CFTC Regulation 39.13(g)(10) and (13), LOCs have minimal, 

credit, and liquidity risks and the proposed increases to the hard-dollar based collateral limit 

for LOCs will not negatively impact CME’s ability to draw on such LOCs quickly.

CME has requested confidential treatment with respect to the revised Collateral Policy, which has been 

submitted concurrently with this self-certification. CME certifies that the Amendments comply with the Act

and regulations thereunder. There were no substantive opposing views to this action.

1 See Jill Cetina, Matthew McCormick & Pon Sagnanert, Commodity Financing Markets Shaken by Russia Invasion; Monitoring for U.S. 

Financial Stress, Federal Reserve Bank of Dallas (April 14, 2022), https://www.dallasfed.org/research/economics/2022/0414.

2 The average price of front month wheat futures was $5.49/bushel in 2020 and is $9.58/bushel in 2022, year-to-date.
20 S. Wacker Drive Chicago, IL 60606 T 312 930 8167 Sean.Downey@cmegroup.com cmegroup.com

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If you require any additional information regarding this submission, please contact me at 312-930-8167 or

via email at sean.downey@cmegroup.com. Please reference CME Submission No. 22-334 in any related

correspondence.

Sincerely,

/s/Sean Downey

Clearing Chief Compliance Officer& Head of Policy

CME Clearing

Attachment: Exhibit A – Modified Collateral Policy (blackline format) (attached under separate cover) 

(confidential treatment requested)