SUBMISSION COVER SHEET

IMPORTANT: Check box if Confidential Treatment is requested

Registered Entity Identifier Code (optional): 16-448 (1 of 5)

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 20, 2016 Filing Description: Request for Approval to 

Commingle Significantly and Reliably Correlated Base Guaranty Fund Products 

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: 

Rule Numbers: 
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Christopher Bowen 

Managing Director and Chief Regulatory Counsel

Legal Department

December 20, 2016

BY ELECTRONIC FILING

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 40.5 Submission. Request for Approval to Commingle Significantly 

and Reliably Correlated Base Guaranty Fund Products

CME Submission No.16-448 (1 of 5)

Dear Mr. Kirkpatrick:

Pursuant to Commodity Futures Trading Commission (“CFTC” or “Commission”) Regulations 39.15 

and 40.5, Chicago Mercantile Exchange Inc. (“CME”), The Board of Trade of the City of Chicago, Inc. 

(“CBOT”), New York Mercantile Exchange, Inc. (“NYMEX”) and Commodity Exchange, Inc. (“COMEX”) 

(each an “Exchange” and collectively, the “Exchanges”) respectfully request that the Commission 

approve the adoption of proposed rule 831 (Commingling of Eligible Base Futures and Swaps 

Positions). Currently, clearing members for Exchange-listed futures and options on futures (“Exchange 

Clearing Members”) and clearing members for over-the-counter swaps (“OTC Clearing Members”) 

(collectively, “Clearing Members”) readily obtain risk offsets between significantly and reliably 

correlated futures and options on futures (collectively, “futures”) and swaps products in proprietary 

accounts. The Exchanges propose rule 831 to conditionally extend similar flexibility and benefits to 

customer accounts. The Exchanges intend these changes to become effective on the earlier of 

February 3, 2017 or the receipt of regulatory approval.

Approving the Exchanges’ request would benefit market participants and the overall derivatives 

markets without discernible negative consequences. Such benefits would accrue from enabling 

customers to readily obtain margin offsets for eligible futures and swaps in accordance with 

Commission Regulation 39.13(g)(4) – thus (i) allowing for more efficient capital usage; (ii) improving 

the efficiency and effectiveness of CME Clearing's risk management framework for portfolio margining; 

and (iii) encouraging greater customer utilization of clearing – thereby facilitating risk reduction. 

I. Background

A. Process Driven Rule

The Exchanges note that this request, although limited in its scope with regard to covered products, 

builds on an already well-regulated portfolio margining process. Proposed rule 831 would authorize 

the clearing house division of CME (“CME Clearing” or the “Clearing House”) and its Clearing Members

to commingle correlated futures and swaps positions, and any money, securities, or property received 

to margin, guarantee or secure such positions, in cleared swaps customer accounts subject to section 
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

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4d(f) of the Commodity Exchange Act (“CEA” or “Act”).

1 Proposed rule 831 would be subject to the 

following conditions. First, proposed rule 831 would apply only to futures and swaps that are Base 

Guaranty Fund Products2 margined under the same Standard Portfolio Analysis of Risk (“SPAN”)

methodology.

3 Second, the proposed rule would apply only after CME Clearing has determined that 

commingled positions in related products suitably qualify for margin offsets in accordance with 

Commission Regulation 39.13(g)(4).

In this regard, Commission Regulation 39.13(g)(4) governs spread and portfolio margining and provides 

that “a derivatives clearing organization [“DCO”] may allow reductions in initial margin requirements for 

related positions if the price risks with respect to such positions are significantly and reliably correlated”

[acronym and emphasis added]. Commission Regulation 39.13(g)(4) gives meaning to “significantly 

and reliably correlated” positions by stating that “[t]he price risks of different positions will only be 

considered to be reliably correlated if there is a theoretical basis for the correlation in addition to an 

exhibited statistical correlation.” Commission Regulation 39.13(g)(4) further provides that the 

theoretical basis for such correlation may include the following:

(A) The products on which the positions are based are complements of, or substitutes 

for, each other;

(B) One product is a significant input into the other product(s);

(C) The products share a significant common input; or

(D) The prices of the products are influenced by common external factors.

Accordingly, in addition to empirically finding a compliant statistical correlation, CME Clearing would 

ensure that all related positions that could obtain commingled risk offsets under proposed rule 831 

satisfy the theoretical basis requirement noted above.

B. Annotation of the Proposed Rule’s Provisions

The text of proposed Exchange rule 831 (COMMINGLING OF ELIGIBLE BASE FUTURES AND 

SWAPS POSITIONS), which is also included in Appendix A, reads as follows:

Rule 831. COMMINGLING OF ELIGIBLE BASE FUTURES AND SWAPS POSITIONS

The Clearing House may identify non-swap Base Guaranty Fund Products that may 

be commingled with positions in swap Base Guaranty Fund Products in order to 

provide risk offsets for customer positions if and only if the price risks with respect to 

such products are significantly and reliably correlated (such products, “Base Eligible 

Products”). The price risks of different positions will only be considered to be 

significantly and reliably correlated if there is a theoretical basis for the correlation in 

addition to an exhibited statistical correlation. Upon such identification, Base Clearing 

Members may elect that a customer’s positions in Base Eligible Products be 

commingled in a cleared swaps account. If the Clearing House determines at any time 

that any Base Eligible Products are non-risk reducing when commingled, the Clearing 

House may either restrict the commingling of additional Base Eligible Product positions 

or require moving or liquidating such positions. 

 

1 For ease of discussion, except as otherwise noted, references to the separation or commingling of products or positions in this 

request incorporates the separation or commingling of money, securities and property received to margin, guarantee or secure 

such products and positions. 

2 Exchange rule 802.A. identifies Base Guaranty Fund Products as CME-cleared products other than credit default swaps, 

interest rate swaps and any positions commingled with interest rate swaps pursuant to CME rule 8G831. 

3 Section II.A of this request (Criteria for Defining Eligible Futures, Options, and Swaps) provides a comprehensive list of clearedonly Base Guaranty Fund Products that are margined under SPAN.
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

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Proposed Exchange rule 831 initially states “[t]he Clearing House may identify non-swap Base 

Guaranty Fund Products that may be commingled with positions in swap Base Guaranty Fund Products 

in order to provide risk offsets for customer positions...” This provision emphasizes the intent of the 

rule, which is to provide customers with margin offsets in an administratively efficient manner when 

appropriate. 

The proposed rule next limits the products that qualify for commingling to non-swap and swap Base 

Guaranty Fund Products that “are significantly and reliably correlated.” The proposed text follows the 

initial language of CME rule 8G831, a Commission-approved rule that authorizes the commingling of 

Base Guaranty Fund Products with interest rate swaps (which are not Base Guaranty Fund Products) 

in cleared swaps customer accounts in order to provide risk offsets “on the basis that the price risks 

with respect to such products are significantly and reliably correlated.” As stated by the proposed rule, 

“[t]he price risks of different positions will only be considered to be significantly and reliably correlated 

if there is a theoretical basis for the correlation in addition to an exhibited statistical correlation.” This 

condition is consistent with the requirements of Commission Regulation 39.13(g)(4), which governs the 

application of spread and portfolio margining for related positions.

After applying the standards to traded or cleared products, the proposed rule’s text authorizes, but does 

not mandate, that Base Clearing Members commingle eligible futures and swaps positions in a cleared 

swaps customer account.

In order to ensure that the Clearing House has authority to address any unforeseen circumstances –

even though the Exchange does not foresee any potential negative consequences arising from 

commingling as proposed – the last provision of the proposed rule explicitly authorizes the Clearing 

House to unwind commingling should it determine at any time that the commingling of eligible products 

is not risk-reducing.

Appendix B contains the Advisory Notice from CME Clearing to all Clearing Member Firms and back 

office Managers that would provide public notice of the text of rule 831 upon approval. All CME Clearing 

staff are expected to familiarize themselves, and comply with the provisions of, all such CME Clearing 

Advisory Notices.

II. Information Required Under Commission Regulation 39.15(b)(2)

Section 4d(f)(2) of the Act by default requires segregation of cleared swaps customer positions and 

futures positions. The Commission’s regulations, however, recognize that the commingling of futures 

positions with swaps positions in cleared swaps customer accounts subject to the requirements of 

section 4d(f) of the Act may under certain circumstances benefit clearing operations and customers. 

Commission Regulation 39.15(b)(2) allows DCOs such as CME, and its Clearing Members, upon CFTC 

approval pursuant to the process outlined in Commission Regulation 40.5, to commingle customer 

futures positions with swaps positions in cleared swaps customer accounts. 

Subparts (A) through (L) of Commission Regulation 39.15(b)(2) describe information a DCO must 

include in a submission seeking to commingle futures positions with customer cleared swaps positions 

in CEA section 4d(f) accounts. With regard to such information, the Commission’s adopting release for 

CFTC Regulation 39.15(b)(2) underscored that to the extent that the Commission adopted the "legally 

segregated, operationally commingled" (“LSOC”) customer protection model for CEA section 4d(f) 

accounts, "a DCO could more easily justify the approval of rules...allowing the commingling of futures, 

options and swaps, since the impact of any different risk from the product being brought into the portfolio 

would be limited to the customer who chooses to trade that product.”4 The Commission further 

emphasized that, under the LSOC model, "its specific concerns" in connection with commingling 

requests "may be minimized", and it may "revisit its ongoing need for all of the information listed in" 

Commission Regulation 39.15(b)(2)(A)-(L). Since that time, the Commission has issued its part 22 

 

4 See Derivatives Clearing Organization General Provisions and Core Principles, 76 Fed. Reg. 69344, 69391, n. 189 (Nov. 8, 

2011).
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

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regulations, which implement the LSOC model for customer cleared swaps. Accordingly, subparts (A) 

through (L) of Commission Regulation 39.15(b)(2) are discussed below in this context.

A. Criteria for Defining Eligible Futures, Options, and Swaps

Commission Regulation 39.13(g)(4) authorizes reductions in initial margin requirements for related 

positions with price risks that are significantly and reliably correlated. Proposed Exchange rule 831

therefore requires a significant and reliable correlation between commingled positions in accordance 

with Commission Regulation 39.13(g)(4). The table below includes a list of CME cleared-only Base 

Guaranty Fund Products that are margined under SPAN and subject to this request. The list also 

includes the significantly and reliably correlated futures with which they could be commingled to obtain 

partial risk offsets:

Contract Product 

Code

Offsetable 1 Offsetable 2 Offsetable 3 Offsetable 4 Offsetable 

5

Offsetable 

6

Malaysian 

Palm Oil 

Calendar 

Swaps

CPC CPO - USD 

MALAYSIAN 

CRUDE PALM 

CAL FUT

OPS - USD 

MALAYSIAN 

PALM OLEIN CAL 

SWAP

OPF - USD 

MALAYSIAN 

PALM OLEIN 

CAL FUT

S&P 

Goldman 

Sachs 

Commodity 

Index (GSCI) 

Enhanced ER 

Swaps

RRE Offsetable with 

basket of 

components

Urea 

(Granular) 

FOB US Gulf 

Swaps

UFN UFG - UREA 

(GRANULAR) 

FOB EGYPT 

SWAP

DFL - DAP FOB 

NOLA SWAP

UFZ - UREA 

(PRILLED BULK) 

FOB YUZHNY 

SWAP

UFU - UAN FOB 

NOLA SWAP

Urea 

Ammonium 

Nitrate (UAN) 

FOB New 

Orleans, 

Louisiana 

(NOLA) 

Swaps

UFU UFG - UREA 

(GRANULAR) 

FOB EGYPT 

SWAP

UFZ - UREA 

(PRILLED BULK) 

FOB YUZHNY 

SWAP

DFT - DAP FOB 

TAMPA SWAP

UFN - UREA 

(GRANULAR) 

FOB U.S. GULF 

SWAP

Diammonium 

Phosphate 

(DAP) FOB 

NOLA Swaps

DFL UFG - UREA

(GRANULAR) 

FOB EGYPT 

SWAP

UFZ - UREA 

(PRILLED BULK) 

FOB YUZHNY 

SWAP

UFN - UREA 

(GRANULAR) 

FOB U.S. GULF 

SWAP

DFT - DAP FOB 

TAMPA SWAP

Urea FOB 

Yuzhny 

Swaps

UFZ DFT - DAP FOB 

TAMPA SWAP

UFG - UREA 

(GRANULAR) 

FOB EGYPT 

SWAP

DFL - DAP FOB 

NOLA SWAP 

UFN - UREA 

(GRANULAR) 

FOB U.S. GULF 

SWAP

UFU - UAN 

FOB NOLA 

SWAP

S&P-GSCI ER 

Index 2 

Month 

Forward 

Swaps

SE2 Offsetable with 

basket of 

components

Cleared OTC 

Bloomberg 

Commodity 

Index (CI) 

Swaps

DGS Offsetable with 

basket of 

components

DRS -

BLOOMBERG 

ROLL SELECT 

COMMODITY 

INDEX

GI - S&P-GSCI 

COMMODITY 

INDEX FUTURE

GA - GSCI ER 

FUTURES

Bloomberg CI 

Index 3 

Month 

Forward 

Swaps

DG3 Offsetable with 

basket of 

components
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Urea FOB 

Egypt Swaps

UFG UFZ - UREA 

(PRILLED BULK) 

FOB YUZHNY 

SWAP

DFL - DAP FOB 

NOLA SWAP

DFT - DAP FOB 

TAMPA SWAP

UFN - UREA 

(GRANULAR) 

FOB U.S. GULF 

SWAP

UFU - UAN 

FOB NOLA 

SWAP

USD 

Malaysian 

Palm Olein 

Calendar 

Swaps

OPS OPF - USD 

MALAYSIAN 

PALM OLEIN 

CAL FUT

CPC -

MALAYSIAN 

CRUDE PALM OIL 

CAL SWAP

CPC -

MALAYSIAN 

CRUDE PALM 

OIL CAL SWAP

CPO - USD 

MALAYSIAN 

CRUDE PALM 

CAL FUT

S&P-GSCI ER 

Index 3 

Month 

Forward 

Swaps

SE3 Offsetable with 

basket of 

components

S&P-GSCI 

Excess 

Return Index 

Swaps

SES Offsetable with 

basket of 

components

GI - S&P-GSCI 

COMMODITY 

INDEX FUTURE

70 -

BLOOMBERG 

COMMODITY 

INDEX 

FUTURES

GA - GSCI ER 

FUTURES

Bloomberg CI 

Index 2 

Month 

Forward 

Swaps

DG2 Offsetable with 

basket of 

components

DAP FOB 

Tampa Swaps

DFT UFZ - UREA 

(PRILLED BULK) 

FOB YUZHNY 

SWAP

UFG - UREA 

(GRANULAR) 

FOB EGYPT 

SWAP

DFL - DAP FOB 

NOLA SWAP

UFU - UAN FOB 

NOLA SWAP

Cleared OTC 

London Silver 

(cash margin)

LSF No offsetable 

product

Cleared OTC 

London Gold 

(cash margin)

GBC No offsetable 

product

Cleared OTC 

London Gold 

(collateral 

margin)

GB NY-PL -

PLATINUM 

FUTURES 

NYMEX

CX-SI - COMEX 

5000 SILVER 

FUTURES

NY-PA -

PALLADIUM 

FUTURES 

NYMEX

CX-GC - COMEX 

100 GOLD 

FUTURES

CX-GCK -

GOLD 

KILO 

FUTURES

CX-HG -

COMEX 

COPPER 

FUTURES

The next table below shows the average daily volume (“ADV”) and average daily open interest (“ADOI”) 

for the above referenced cleared-only products between September 1, 2016 and November 30, 2016:

Contract Category Product 

Code

ADV (9/1/16-11/30/16) ADOI (9/1/16-11/30/16)

Malaysian Palm Oil 

Calendar Swaps

Grain And 

Oilseed

CPC 441 20490

S&P Goldman Sachs 

Commodity Index (GSCI) 

Enhanced ER Swaps

Commodity 

Futures Index

RRE 478 15776

Urea (Granular) FOB US 

Gulf Swaps

Fertilizer UFN 53 1363

Urea Ammonium Nitrate 

(UAN) FOB New Orleans, 

Louisiana (NOLA) Swaps

Fertilizer UFU 22 863

Diammonium Phosphate 

(DAP) FOB NOLA Swaps

Fertilizer DFL 5 252

Urea FOB Yuzhny Swaps Fertilizer UFZ 0 49

S&P-GSCI ER Index 2 

Month Forward Swaps

Commodity 

Futures Index

SE2 0 0
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Cleared OTC Bloomberg 

Commodity Index (CI) 

Swaps

Commodity 

Futures Index

DGS 0 0

Bloomberg CI Index 3 

Month Forward Swaps

Commodity 

Futures Index

DG3 0 0

Urea FOB Egypt Swaps Fertilizer UFG 0 0

USD Malaysian Palm Olein 

Calendar Swaps

Grain And 

Oilseed

OPS 0 0

S&P-GSCI ER Index 3 

Month Forward Swaps

Commodity 

Index

SE3 0 0

S&P-GSCI Excess Return 

Index Swaps

Commodity 

Futures Index

SES 0 153

Bloomberg CI Index 2 

Month Forward Swaps

Commodity 

Futures Index

DG2 0 0

DAP FOB Tampa Swaps Fertilizer DFT 0 0

Cleared OTC London Silver 

(cash margin)

Precious 

Metals

LSF 0 0

Cleared OTC London Gold 

(cash margin)

Precious 

Metals

GBC 0 0

Cleared OTC London Gold 

(collateral margin)

Precious 

Metals

GB 0 0

B. Managing Price Risk Characteristics

Proposed rule 831 would facilitate margin offsets through the commingling of Base Guaranty Fund 

futures and swaps in cleared swaps customer, or LSOC accounts. The commingled futures would 

receive LSOC protections and be subject to swap margin standards. A commingled portfolio of futures 

and swaps, whether in a proprietary account or a customer account, reduces overall risk by taking two 

portfolios with opposite directional risk and combining them into a commingled portfolio with less risk 

exposure.

CME Clearing has considerable experience clearing and managing the risks of commodity futures and 

swaps contracts subject to its Base Guaranty Fund. Base Guaranty Fund Products, margined under 

CME’s proprietary SPAN margin methodology, that would be commingled under proposed rule 831 

would have to exhibit significantly and reliably correlated price risks that satisfy the criteria for margin 

offsets under CFTC Regulation 39.13(g)(4)(i). In accordance with CFTC Regulation 39.13(g)(4)(i), CME

Clearing’s SPAN margin setting methodology and procedures for Base Guaranty Fund Products5 allow 

for risk offsets between positions when daily price changes of the underlying products demonstrate a 

significant, stable correlation over time and are supported by an economic rationale (theoretical basis).

The level and stability of the correlation between the products must consistently be present in both 

normal and stressed market conditions in order to permit and validate risk offsets. However, even where 

a significant correlation is determined between products, the strength of the correlation does not 

necessarily imply that a risk offset is appropriate or that the risk offset should be equivalent to the price 

correlation level between the products. Similar to outright margin levels, risk offsets, when offered must 

also satisfy the 99% coverage standard, which is confirmed via regular back testing. In addition to 

statistical correlations, a number of other factors are also considered when validating risk offsets 

including seasonality, volatility, comparative liquidity characteristics, and ability to liquidate as a portfolio 

in a default scenario.

Within the margin-setting methodology for Base Guaranty Fund Products, risk offsets, where offered 

between commingled Base Guaranty Fund futures and swaps would be offered as inter-commodity 

spread credits. Within SPAN, risk offsets, including inter-commodity spread credits are not implicitly 

 

5 A summary of SPAN is provided in section II.I.
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offered between different products. Products which display short term correlations are not given a risk 

offset at CME Clearing.

Prior to setting inter-commodity spread credit levels, CME Clearing determines credit ratios considering 

a variety of factors, including but not limited to market trading convention and relative size of the 

contracts, among other factors. In accordance with CFTC Regulation 39.13(g)(4), all CME Clearing 

inter-commodity spread credits at a minimum meet the following requirements before any credit is 

offered between two products: i) a minimum daily change correlation level under defined time periods; 

and ii) existence of an economic rationale for the credit. Once these requirements are met, CME 

Clearing reviews benchmark inter-commodity spread credit levels against various historical volatility 

periods and sets them to a maximum of 99% of historical volatility levels over a given time period.

Regardless of the potential implied risk offset suggested by statistically yielded correlations, the Futures 

and Options Margin Working Group, which is comprised of members of CME Clearing risk 

management, will only provide a risk offset where it observes durational stability of the relationship and 

an economic rationale for the risk offset. The Clearing House monitors inter-commodity spread credit 

levels on an ongoing basis. Reporting is in place where current inter-commodity spread credits reach 

a certain level in comparison to the benchmark levels. Through ongoing monitoring and reporting, the 

Futures and Options Margin Working Group may elect to adjust inter-commodity spread credit levels, 

in accordance with CFTC Regulation 39.13(g)(4)(ii).

Inversely established positions, when commingled pursuant to proposed rule 831, would readily satisfy 

the criteria for reductions in initial margin under Commission Regulation 39.13(g)(4). By way of a 

specific example, CME Clearing intends to commingle positions in Palm Oil and Olein futures and 

swaps. Potentially offsetting positions in these products qualify for risk offsets because their underlying 

price risk characteristics are significantly and reliably correlated, as discussed above. Palm Oil futures 

and swaps are both Base Guaranty Fund Products margined by CME under SPAN and which reference 

the third forward month Bursa Malaysia’s Crude Palm Oil futures (FCPO) as their underlying commodity 

reference price. Both products also follow the same trading schedule and the same methodology for 

determining daily and final settlement prices, thereby providing a direct natural correlation. Similarly, 

both Palm Olein futures and swaps are Base Guaranty Fund Products margined by CME under SPAN 

and which reference the third forward month of Thomson Reuters’ Malaysian RBD Palm Olein 

assessment as their underlying commodity reference price. Both products also follow the same trading 

schedule and the same methodology to determine daily and final settlement prices.

C. Execution Venues

CME Clearing is the DCO for contracts listed for trading on the Exchanges, each of which is also a 

designated contract market (“DCM”). Eligible futures contracts would be executed on an Exchange in 

accordance with each market’s rules. The primary method of execution for the futures executed on 

these markets is through the CME Globex platform. Futures can also be privately negotiated and 

submitted to CME ClearPort for clearing subject to Commission-certified or approved DCM rules. The 

Base products listed in section II. A which are subject to this request for approval are not listed for 

trading on an Exchange and therefore may be executed bilaterally. In any event, the manner of 

execution for futures and swaps would not be impacted by the Exchanges’ proposed commingling rule.

All futures or swaps products cleared by CME Clearing are subject to the rules of the Clearing House 

as well as the relevant products rules reflected in the Exchange rulebooks.

D. Liquidity

The Futures and Options Margin Working Group also considers the liquidity of related products when 

determining the appropriateness of current or potential risk offsets. In addition to liquidity considerations 

made in setting outright margin levels, with regard to inter-commodity spread credits, the Clearing 

House assesses factors such as open interest and average daily volume in determining whether a 

credit should be offered, or continue to be offered. Additionally, the Clearing House and representatives 

from Clearing Members conduct default management drills that includes a liquidity component at least 
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twice a year. These drills provide the Clearing House with a top-down view from external bidding firms 

into how both outright margin levels and inter-commodity spread credits compare against liquidity 

levels. Therefore, when determining risk offsets for products, the Futures and Options Margin Working 

Group adjusts the extent of offsets to account for the liquidity of the markets for each product. Even 

where risk offsets are provided between like futures and swaps contracts, where for example a futures 

and swap contract both use the same underlying price series, the risk offsets would be adjusted to 

account for the liquidity of the markets and where applicable, the contributing factors related to financial

settlement or physical settlement of the contracts. 

E. Availability of Reliable Prices for the Futures and the Swaps

Listed futures contracts and the swaps that CME Clearing accepts for clearing are settled to prices 

published by price reporting agencies, other exchanges or derived from trading on the Exchanges. For 

example, prices for both Palm Oil futures and swaps are based upon trading activity on Bursa 

Malaysia’s Crude Palm Oil futures (FCPO), the global benchmark contract for Crude Palm Oil. Prices 

for both Palm Olein futures and swaps are based upon prices reported by a Thomson Reuters’

assessment of Malaysian RBD Palm Olein, a reliable data source.

F. Financial, Operational, and Managerial Standards for Clearing Members

To be permitted to commingle customer futures and swaps in CEA section 4d(f) accounts, a firm must 

be a Clearing Member of the relevant Exchange listing the futures product(s). Further, the Clearing 

Member must be approved to clear OTC derivatives that are Base Guaranty Fund Products6 and have 

LSOC accounts established for any customer cleared swaps positions.7 Clearing membership requires

successful completion of the membership application process at CME whereas FCM registration 

requires successful completion of the application process with the National Futures Association. CME 

Clearing conducts regular reviews of and requires regular reporting from existing Clearing Members to 

ensure applicable membership standards continue to be satisfied.

1. Financial Standards

Clearing Members must satisfy minimum regulatory capital requirements under applicable law

(including Commission regulations), in addition to the requirements imposed under Exchange rules.

Relevant Exchange rules include 901 (General Requirements and Obligations), 902 (Clearing

Membership Assignment Requirements), 930 (Performance Bond Requirements: Account Holder 

LeveI), 970 (Financial Requirements), 971 (Segregation, Secured and Sequestered Requirements), 

972 (Reductions in Capital) and CME rules 8F004 (OTC Clearing Member Obligations and 

Qualifications) and 8F011 (Financial Requirements).

8 These rules are available at 

http://www.cmegroup.com/rulebook/CME/index.html, and are enclosed in Appendix C. Currently, under

CME rule 8F004, an OTC Clearing Member "must maintain minimum capital of: $5 million if it clears 

only agricultural OTC Derivatives; and $50 million if it clears other OTC Derivatives, excluding credit 

default swaps and interest rate swaps.”

2. Operational and Managerial Standards

In addition to complying with applicable Commission regulations and National Futures Association

rules, Clearing Members that would be permitted to commingle futures and swaps in CEA section 4d(f)

accounts are required to comply with CME Clearing's operational and risk management rules and

requirements for the swaps. These include Exchange rules referenced above under Financial 

 

6 See CME rule 8F002. 

7 See CME rule 8F003. 

8 CME, as the DCO clearing on behalf of the Exchanges, also accepts for clearing certain over-the-counter (“OTC”) instruments 

that are not listed on an Exchange. Accordingly, CME’s Rulebook includes rule chapters, such as Chapter 8F, that are specific 

to OTC clearing and which are not duplicated in the rulebooks of CBOT, NYMEX or COMEX. For this reason distinctions will be 

made throughout this submission between rules included in the rulebooks of each Exchange versus ‘cleared-only’ rules which 

are only in the CME Rulebook.
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

9

Standards, in addition to rules 809 (Trade Data Processing System), 949 (Credit Controls), 950

(Supervision), 954 (Customer Complaints), 957 (Confirmations to Customers), 981 (Anti-Money

Laundering and Economic Sanctions Compliance), 982 (Risk Management), 983 (Disaster Recover 

and Business Continuity) and CME rules 8F003 (Classification of Positions), 8F009 (Customer 

Registration), 8F010 (Risk Management), and 8F015 (Trade Submission on CME ClearPort). These 

rules are available at http://www.cmegroup.com/rulebook/CME/index.html and enclosed in Appendix 

C.

G. Systems and Procedures to Oversee Clearing Members' Risk Management of 

Commingled Customer Positions

To become a Clearing Member, a firm must demonstrate, among other things, sufficient risk

management capabilities for the relevant product class(es) covered by the relevant membership.

Clearing Members that would be permitted to commingle futures and swaps in CEA section 4d(f) 

accounts are subject to Exchange rule 982 and CME rule 8F010, both of which address the subject of 

risk management:

Exchange Rule 982. RISK MANAGEMENT

All clearing members must have written risk management policies and procedures in 

place to ensure they are able to perform certain basic risk and operational functions at 

all times. At a minimum, the following areas must be considered in the firm's policies 

and procedures, depending on the firm's size and its business and product mix:

A. Trade Submission and Account Monitoring. Clearing members must have 

procedures in place to demonstrate compliance in the following areas for trades 

executed through both electronic platforms and open outcry:

1. Monitoring the credit risks of accepting trades, including give-up trades, of specific 

customers.

2. Monitoring the risks associated with proprietary trading.

3. Limiting the impact of significant market moves through the use of tools such as 

stress testing or position limits.

4. Maintaining the ability to monitor account activity on an intraday basis, including 

overnight.

5. Ensuring order entry systems include the ability to set automated credit controls or 

position limits or requiring a firm employee to enter orders.

6. Defining sources of liquidity for increased settlement obligations.

B. Additional and/or Alternative Requirements. Exchange or Clearing House staff may 

prescribe additional and/or alternative requirements in order for clearing members to 

comply with this rule.

C. Each clearing member shall promptly provide to Clearing House staff, upon request, 

information and documents regarding its risk management policies, procedures and 

practices, including, without limitation, information and documents relating to the 

liquidity of its financial resources, settlement procedures and operational issues.

D. Each clearing member shall make information and documents regarding its risk 

management policies, procedures and practices available to the CFTC upon the 

CFTC's request.
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In addition, all FCM clearing members must comply with the risk management requirements set forth 

in CFTC Regulation 1.11: Risk Management Program for futures commission merchants.

CME Rule 8F010. RISK MANAGEMENT

OTC Clearing Members will be subject to risk management and monitoring practices 

by CME relating to transactions submitted to the Clearing House. OTC Clearing 

Members shall promptly provide all information requested by Clearing House staff, 

including, without limitation, information respecting risk, settlement, liquidity, and 

operational issues. OTC Clearing Members shall make information and documents 

regarding their risk management policies, procedures and practices available to the 

CFTC upon the CFTC’s request.

In limited circumstances, the Clearing House may decline to accept certain OTC 

Derivatives trades or migration positions if the Clearing House determines in good faith 

that, based on the exercise of prudent risk management standards, the Clearing House 

should not accept the OTC Derivatives trades or migration positions. In the event that 

the Clearing House declines to accept certain OTC Derivative trades or migration 

positions, it shall incur no liability with respect to the trades and positions that are not 

accepted. It shall be the sole responsibility of the OTC Clearing Members who are 

parties to such trades or positions to take action as they deem necessary or proper for 

their own protection.

In addition, if the Clearing House determines in good faith that, based on the exercise 

of prudent risk management standards, that an OTC Clearing Member poses undue 

risk to the Clearing House based on its OTC Derivatives portfolio, the Clearing House 

may take any or all of the following actions with respect to such OTC Clearing Member: 

(i) impose an additional performance bond requirement; (ii) prohibit the addition of any 

new OTC Derivative positions, or (iii) require the reduction or unwinding of OTC 

Derivatives positions.

OTC Clearing Members shall permit on-site risk reviews in accordance with CME rules 

and subject to reasonable standards of confidentiality. OTC Clearing Members will also 

be subject to on-going oversight by the Clearing House Risk Committee regarding their 

activities related to the CME Clearing House. All such inquiries shall be conducted in 

a manner consistent with oversight of CME Clearing Members and in accordance with 

reasonable standards of confidentiality.

In connection with implementing these risk management rules, CME Clearing monitors Clearing 

Member risk management pursuant to the Clearing House’s risk management framework, developed 

in accordance with Commission Regulation 39.13(b).

9 This risk management framework would be 

equally effective with regard to oversight of risk management by Clearing Members permitted to

commingle futures and swaps in CEA section 4d(f) accounts. Furthermore, as explained in section L,

positions in customer commingled futures and swaps would be kept in CME Clearing's system at the 

level of individually registered customer accounts whereas the collateral supporting such commingled 

positions would be held subject to LSOC requirements. CME Clearing would stress test the commingled 

customer portfolios as required under Commission Regulation 39.13(h)(3).

 

9 Commission regulation 39.13(b) requires that each DCO “establish and maintain written policies, procedures, and controls, 

approved by its board of directors, which establish an appropriate risk management framework that, at a minimum, clearly 

identifies and documents the range of risks to which the derivatives clearing organization is exposed, addresses the monitoring 

and management of the entirety of those risks, and provides a mechanism for internal audit. The risk management framework 

shall be regularly reviewed and updated as necessary.”
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11

As part of the Clearing House’s risk management framework, CME Clearing risk management staff 

establishes risk limits on each Clearing Member10 and monitors Clearing Members throughout the day 

by measuring risk through the firm's exposures and profit/loss, using real time market observations.

Such daily monitoring includes, among others, the following components:

 Monitoring price moves of products in relation to current margin levels;

 Examining real-time profit/loss for each firm to detect large losses or large short options 

positions;

 Examining trading activity across Clearing Members’ books, looking for large increases in

positions, transfers and/or give-up activity that could trigger a significant margin call; and

 Monitoring for extreme abnormalities in a firm's trading behavior and individual trade

characteristics to identify potential erroneous trade entries (e.g. "fat finger" trades).

CME Clearing assigns to each Clearing Member tolerance levels for intra-day and aggregate trading

activity based on the firm's capital, creditworthiness, trading history, and risk management capabilities 

and policies. Exceptions to a firm's tolerance levels are escalated to CME Clearing senior management 

to determine appropriate measures to be taken.

In addition to daily risk management procedures, CME Clearing conducts on-site reviews of Clearing 

Member firms every one to two years, as appropriate under the circumstances particular to each firm.

CME Clearing risk management staff conducts these reviews. CME Clearing evaluates standard 

measures of firm financial performance, such as liquidity, capital adequacy, asset quality, 

earnings/profitability, risk management, and any recent changes to the firm's business profile. CME 

Clearing also reviews the firm's risk models, reporting structures, and internal escalation procedures to 

ensure risk management processes are sufficiently thorough and properly maintained. This includes a 

review of the firm's risk management procedures for customer and proprietary exposures, its 

operational capabilities, and default management preparedness. Staff presents results of on-site 

reviews to CME Clearing's senior management team. The results may be the basis for corrective 

actions to the extent that potential weaknesses or other areas of concerns are identified.

H. CME Clearing's Financial Resources for Commingled Customer Positions

CME Clearing maintains three separate financial safeguards packages: one for interest rate swaps,

one for cleared-only credit default swaps, and one for all other products cleared by CME Clearing,

including but not limited to futures and options on futures (the “Base Financial Safeguards”). Each 

financial safeguards package is governed by and complies with Commission Regulation 39.11, which 

implements DCO Core Principle B (Financial Resources).

The futures and swaps commingled in CEA section 4d(f) accounts pursuant to this request for approval 

would be covered by the Base Financial Safeguards. In accordance with Exchange rules 816 (Guaranty 

Fund Deposit) and 802 (Protection of the Clearing House) (available at 

http://www.cmegroup.com/rulebook/CME/index.html and enclosed as part of Appendix C), the Base 

Financial Safeguards are comprised of: (i) performance bonds (or margin) of the defaulting Clearing 

Member (and, under the Commission's LSOC regulations, of any customer that caused the Clearing 

Member's default);11 (ii) the Base guaranty fund contribution of the defaulting Clearing Member; (iii)

CME Clearing's capital contribution of $100 million to the Base Guaranty Fund; (iv) the Base guaranty 

fund contributions of non-defaulting Base Clearing Members; and (v) CME Clearing's rights to assess 

non-defaulting Base Clearing Members to make additional contributions to the guaranty fund. The size 

of the Base Financial Safeguards (inclusive of CME Clearing’s contribution, guaranty fund, and 

assessments) was US $11.75 billion as of September 30, 2016.

Consistent with Commission Regulations 39.11(a)(1) and 39.33(a)(1), the size of the guaranty fund is 

sized to cover simultaneous defaults by the two Base Clearing Members (and any affiliated Clearing 

 

10 As required under CFTC regulation 39.13(h).

11 See Commission regulation 22.15 (Treatment of Cleared Swaps Customer Collateral on an Individual Basis).
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

12

Member) creating the largest financial exposures to CME Clearing in extreme but plausible market 

conditions. The stress-testing methodology employed by CME Clearing for sizing the Base Financial 

Safeguards’ guaranty fund leverages a combination of extreme but plausible stress scenarios, which 

leverages a 99.9% confidence interval.

I. Overview of Margin Offsets under the SPAN Margin Methodology

All products subject to this request for approval are margined using the SPAN methodology. SPAN 

evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and 

physical instruments might reasonably incur over a specified time period. This is done by computing 

the gains and losses the portfolio would incur under different market conditions. At the core of the 

methodology is the SPAN risk array—a set of numeric values that indicate how a particular contract will 

gain or lose value under various conditions—with each condition comprising a risk scenario. The 

numeric value for each risk scenario represents the gain or loss that particular contract could 

experience for a particular combination of price – or underlying price – changes, volatility changes, and 

decrease in time to expiration.

SPAN is comprised of the following parameters, which are calibrated to achieve a desired coverage 

level, which in line with CFTC Regulation 39.13(g) for CME Clearing is at least 99% on a portfolio-level 

on an ex post basis:

- Price scan ranges (scan risk) – the maximum price movement reasonably likely to occur for 

each instrument or, for options, their underlying instrument;

- Volatility scan ranges – the maximum change reasonably likely to occur for the volatility of each 

option's underlying price;

- Intra-commodity spreading parameters – rates and rules for evaluating risk among portfolios 

of closely related products, for example products with particular patterns of calendar spreads;

- Inter-commodity spreading parameters – rates and rules for evaluating risk offsets between 

related products;

12

- Delivery (spot) risk parameters – rates and rules for evaluating the increased risk of positions 

in physically-deliverable products as they approach or enter their delivery period; and

- Short option minimum parameters – rates and rules for evaluating the irreducible minimum risk 

associated with portfolios of deep out-of-the-money short option positions.

Risk arrays are calculated for all of CME Clearing cleared products and a SPAN risk parameter file is 

prepared, which contains the above data. Current and historical SPAN risk parameter files are 

published on the CME Group website. 

SPAN divides the instruments in each portfolio into groupings called combined commodities. Each 

combined commodity represents all instruments on the same ultimate underlying – for example, all 

futures ultimately related to the S&P 500 index. For each combined commodity in the portfolio, SPAN 

evaluates the risk factors described above, and then takes the sum of the scan risk, the intra-commodity 

spread charge, and the delivery risk, before subtracting the inter-commodity spread credit. SPAN next 

compares the resulting value with the short option minimum; whichever value is larger is called the 

SPAN risk requirement. The resulting values across the portfolio summed yields the total risk for the 

portfolio.

 

12 The output of CME Clearing’s margin offset determinations for various products is available at 

http://www.cmegroup.com/clearing/margins. 
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

13

J. CME Clearing's Default Management Abilities with Respect to Commingled 

Positions

The Clearing House is confident in its abilities to manage a potential default with respect to any futures 

and swaps commingled in CEA section 4d(f) accounts pursuant to this request for approval. Any default 

involving such commingled positions would be covered by CME Clearing's Base Financial Safeguards, 

as explained in section H above. Commingled positions under this rule would be subject to CME

Clearing's default management procedures for Base Guaranty Fund Products. Those procedures are 

discussed below in section K.

K. Procedures for Clearing Member and Customer Defaults Involving Commingled 

Positions

A default by an FCM Clearing Member may be triggered by a default originating at the clearing firmlevel or by a default of one or more of its cleared swaps customers that causes the FCM to default to 

CME. Any default by a Base FCM Clearing Member – including a default involving customer 

commingled positions – would also be governed by CME’s rules and default management procedures 

for the Base asset class. This includes rules 802 (Protection of the Clearing House) and 975 

(Emergency Financial Conditions). In extreme circumstances (e.g., where the monetary impact of a 

default exceeds the waterfall), rule 818 (Close-out Netting) may also be implicated. These rules are 

available at http://www.cmegroup.com/rulebook/CME/, and copies are enclosed as part of Exhibit C. 

CME Clearing’s default management rules and procedures are based on the Clearing House’s depth 

of default management experience from many years as a derivatives clearing house and input garnered 

from semi-annual default management drills. The drills are structured consistent with existing Clearing 

Member exposures and contain large and complex portfolios representative of the risks held by existing 

Clearing Members. The results of each drill are reviewed by the Clearing House Risk Committee and 

changes to default management processes are implemented as warranted. 

Prior even to a default by the FCM Clearing Member, the Clearing House would seek to port the 

customer positions to a solvent FCM Clearing Member. CME Clearing may conduct an auction for 

selected participants to bid on the defaulted Clearing Member’s customer or house portfolios. Upon a 

Clearing Member default the Clearing House may hedge the defaulting clearing member’s portfolio to 

minimize risk or liquidate the house book. The hedging strategy would be dependent upon prevailing 

market conditions, with the goal of establishing a sufficiently risk-neutral portfolio to ensure a successful 

auction. Post-hedging, the default portfolio may be auctioned among non-defaulting Base Clearing 

Members. 

The introduction of commingled portfolios provides certain additional hedging and liquidation 

mechanisms, which could provide benefits in the default management process through the 

commingling of swaps and futures which may be natural hedges and would be risk managed together 

both in business-as-usual and default management scenarios. 

L. Arrangements for Obtaining Position Data for the Futures and the Swaps in CEA 

Section 4d(f) Accounts

Because they would reside in CEA section 4d(f) accounts, the customer commingled futures and swaps 

(and collateral associated therewith) would be part of the customer "cleared swaps" account class 

under part 190 of the Commission’s Bankruptcy regulations,13 and would be treated in accordance with 

the Commission's part 22 LSOC regulations.14 For swaps, positions in CME Clearing's system are 

maintained at the level of individually registered customer accounts. This is accomplished by requiring 

the relevant Clearing Members to register their swaps customers with CME Clearing.15 For each such 

 

13 17 CFR part 190.

14 17 CFR part 22.

15 See CME rule 8F009 (Customer Registration), included as part of Appendix C.
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

14

customer, (i) a separate position account is created at the clearing level, and (ii) the Clearing Member 

specifies an account ID that is recorded when trades for that customer are submitted for clearing.

Trades for which the customer account ID matches the registered value are posted to that customer's 

clearing-Ievel position account. Futures commingled under this request would also flow into the relevant

customer's clearing-level position account. Accordingly, CME Clearing would have daily position data 

at the individual customer level for futures and swaps held in CEA section 4d(f) accounts.

III. Conclusion

For the reasons stated above, the Exchanges respectfully request that the Commission approve 

proposed Exchange rule 831 to permit CME Clearing and its Clearing Members to commingle positions 

in significantly and reliably correlated futures and swaps and related funds in cleared swaps customer 

accounts subject to section 4d(f) of the Act. 

The Exchanges certify that proposed rule 831 complies with the Act and regulations promulgated 

thereunder. More specifically, the proposed commingling rule comports with: (i) DCO Core Principle G 

(Risk Management) and Commission Regulation 39.13(g)(4) (Spread and Portfolio Margins), which 

provides, in pertinent part, that a DCO "may allow reductions in initial margin requirements for related 

positions if the price risks with respect to such positions are significantly and reliably correlated"; and 

(ii) DCO Core Principle F (Treatment of Funds) and Commission Regulation 39.15(b)(2) promulgated 

thereunder.

No substantive opposing views regarding the proposed commingling rules have been expressed to the 

Exchanges. The Exchanges certify that this submission has been concurrently posted on its website at

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

Should you have any questions regarding this submission, please contact the undersigned at (212) 

299-2200 or CMEGSubmissionInquiry@cmegroup.com. Please reference our Submission No. 16-448 

in any related correspondence.

Sincerely,

/s/ Christopher Bowen 

Managing Director and Chief Regulatory Counsel
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 299 2299 christopher.bowen@cmegroup.com cmegroup.com

15

Attachments: Appendix A: Proposed Text of Exchange Rule 831 (COMMINGLING OF ELIGIBLE 

BASE FUTURES AND SWAPS POSITIONS)

Appendix B: CME Clearing Advisory Notice on the adoption of proposed

rule 831 (Commingling of Eligible Base Futures and Swaps Positions)

Appendix C: Select Relevant Rules
16

Appendix A

CME/CBOT/NYMEX/COMEX Rulebook

Chapter 8

Clearing House and Performance Bonds

(additions underlined, deletions overstruck)

Rule 831. COMMINGLING OF ELIGIBLE BASE FUTURES AND SWAPS POSITIONS

The Clearing House may identify non-swap Base Guaranty Fund Products that may be 

commingled with positions in swap Base Guaranty Fund Products in order to provide risk 

offsets for customer positions if and only if the price risks with respect to such products are 

significantly and reliably correlated (such products, “Base Eligible Products”). The price risks 

of different positions will only be considered to be significantly and reliably correlated if there is 

a theoretical basis for the correlation in addition to an exhibited statistical correlation. Upon 

such identification, Base Clearing Members may elect that a customer’s positions in Base 

Eligible Products be commingled in a cleared swaps account. If the Clearing House determines 

at any time that any Base Eligible Products are non-risk reducing when commingled, the 

Clearing House may either restrict the commingling of additional Base Eligible Product 

positions or require moving or liquidating such positions.
17

Appendix B

TO: Clearing Member Firms; Back Office Managers

FROM: CME Clearing 

ADVISORY #: [ ]

Date: [ ]

SUBJECT: Adoption of New CME/CBOT/NYMEX/COMEX Rule 831. (Commingling of Eligible 

Base Futures and Swaps Positions)

Please be advised that the Commodity Futures Trading Commission (Commission) – at the 

request of Chicago Mercantile Exchange Inc. (CME), The Board of Trade of the City of Chicago, 

Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX) and Commodity Exchange, Inc. 

(COMEX) – approved New Rule 831. (Commingling of Eligible Base Futures and Swaps 

Positions) on [ ].

New Rule 831. authorizes CME Clearing and Exchange Clearing Members, subject to certain 

conditions, to commingle certain SPAN-margined positions in correlated Base Guaranty Fund 

futures and swaps in cleared swaps customer accounts in order to readily obtain risk offsets. 

New Rule 831. builds on CME Clearing’s ongoing compliance with Commission Regulation 

39.13(g)(4), which allows reductions in initial margin requirements for related positions with 

price risks that are significantly and reliably correlated. Commission Regulation 39.13(g)(4) 

provides that “[t]he price risks of different positions will only be considered to be reliably 

correlated if there is a theoretical basis for the correlation in addition to an exhibited 

statistical correlation.” The text of New Rule 831. incorporating this Commission requirement 

is below. The relevant Base Guaranty Fund swaps [] can be found here.

CME/CBOT/NYMEX/COMEX Rule 831. COMMINGLING OF ELIGIBLE BASE 

FUTURES AND SWAPS POSITIONS

The Clearing House may identify non-swap Base Guaranty Fund Products that 

may be commingled with positions in swap Base Guaranty Fund Products in 

order to provide risk offsets for customer positions if and only if the price risks 

with respect to such products are significantly and reliably correlated 
18

(such products, “Base Eligible Products”). The price risks of different positions 

will only be considered to be significantly and reliably correlated if there is a 

theoretical basis for the correlation in addition to an exhibited statistical 

correlation. Upon such identification, Base Clearing Members may elect that a 

customer’s positions in Base Eligible Products be commingled in a cleared 

swaps account. If the Clearing House determines at any time that any Base 

Eligible Products are non-risk reducing when commingled, the Clearing House 

may either restrict the commingling of additional Base Eligible Product 

positions or require moving or liquidating such positions.

For further information, please contact CME Clearing at (312) 207-2525, or email at 

cs@cmegroup.com.
19

Appendix C

Select Relevant Rules

CME Rulebook

Chapter 8 - Clearing House and Performance Bonds

809. Trade Data Processing System

809.A. Trade Data

Every clearing member must submit accurate trade data for the day's business to the Clearing House 

no later than the time specified by the Clearing House.

809.B. Matched and Unmatched Trades

The Clearing House shall process all trade data submitted by clearing members but shall accept only 

those trade records (transactions) which are in agreement with the corresponding trade records 

submitted by the opposite clearing members.

Trade records will be matched, to the extent the opposite trade information is consistent, through the 

tiered matching process.

Resubmitted trade data will be processed by the Clearing House. Trades with unmatched trade 

information remaining after the tiered matching process will be rejected and outtrade notices will be 

issued to clearing members.

Trades unreconciled after the final reconciliation must be submitted on the following business day as 

"as-of-trades."

809.C. Trade Register and Clearing Reports

From the trade data cleared during each day's reconciliation, the Clearing House will produce a trade 

register for each clearing member which will itemize by commodity and contract: the opening long 

and short position, the contracts bought and/or sold during the day, the prices at which executed, and 

the settlement amounts.

The Clearing House will also produce a recap ledger for each clearing member that will itemize 

various position and financial information that includes but is not limited to, commodity positions, 

settlement amounts and performance bond information.

809.D. Reconciliation of Outtrades

It shall be the primary responsibility of the clearing member to see that all trades are cleared prior to 

the opening of the following day's open outcry market. 

Each member, if applicable, and clearing member firm shall designate a person or persons who will 

be available and responsible for reconciling the member or clearing member firm's outtrades. The 

person or persons shall be qualified to resolve outtrades as the member or clearing member firm's 

designated outtrade representative. Failure to have a qualified representative available, with all 

materials necessary to reconcile outtrades, at the time specified above shall constitute negligence in 

the determination of responsibility for any outtrades. If one firm cannot locate another firm's broker or 

representative for clearing purposes during these time periods, it shall report such fact to the 

President of the Clearing House. If the President of the Clearing House or his designee cannot find 

the broker or representative of the firm, fines will be assessed in the amounts of $1,000, $2,000 or 

$3,000 sequentially, for violations occurring within a 30-day period.
20

816. Guaranty Fund Deposit

Each clearing member shall make a Base Guaranty Fund deposit with the Exchange as security for 

its obligations to the Clearing House. The minimum Base Guaranty Fund deposit of a clearing 

member shall equal the greater of (a) a minimum amount specified by the Clearing House Risk 

Committee or (b) the clearing member's proportionate share of the "Aggregate Guaranty Fund 

Deposit." The Aggregate Guaranty Fund Deposit shall be an amount determined by the Clearing 

House.

Each clearing member's proportionate share of the Aggregate Guaranty Fund Deposit shall consist 

of:

(i) a specified percentage of the Aggregate Guaranty Fund Deposit multiplied by the clearing 

member's proportionate share (including the total risk performance bond requirement in respect of 

positions in its cross-margin accounts and any applicable short option value) of the average 

aggregate risk performance bond requirement (including the risk performance bond requirement in 

respect of positions in all cross-margin accounts and any applicable short option value) for the 

preceding three months; plus

(ii) a specified percentage of the Aggregate Guaranty Fund Deposit multiplied by the clearing 

member's proportionate share of the total number of contracts executed on the Exchange and any 

applicable exchange or market during the preceding three months; plus

(iii) a specified percentage of the Aggregate Guaranty Fund Deposit multiplied by the clearing 

member’s proportionate share of foreign currency settlements for the preceding three months.

The percentages in (i) through (iii) above shall be determined and modified by the Clearing House 

Risk Committee as appropriate. Some contracts may be weighted more heavily than others in order 

to reflect the greater risk associated with those contracts. The average aggregate risk performance 

bond requirement, the total number of contracts executed, the gross notional amount of open interest 

cleared and each clearing member's proportionate share of each will be calculated by the Clearing 

House, and a report setting forth such information and the clearing member's required Base Guaranty 

Fund deposit will be given to the clearing member each quarter, and the Clearing House may provide 

such reports on an interim basis at any time during the quarter as the Clearing House staff shall 

determine. On a quarterly basis, if such report indicates that the clearing member's current Base 

Guaranty Fund deposit with the Clearing House is smaller than the amount required, the clearing 

member shall increase its amount within five business days. If such report indicates that the clearing 

member's current Base Guaranty Fund deposit with the Exchange is larger than the amount required, 

the clearing member may withdraw the excess amount. If, prior to the issuance of the quarterly 

report, the Clearing House determines that an increase in the Base Guaranty Fund deposit is 

necessary to protect the financial integrity of the Clearing House, the clearing member, upon demand 

of the Clearing House, shall increase its Base Guaranty Fund deposit amount within five business 

days.

A clearing member's Base Guaranty Fund deposit may be in a form as set forth in the Manual. Such 

Base Guaranty Fund deposit forms and amounts shall be subject to the terms and conditions as 

approved by Exchange staff.

Chapter 8F - Over-the-Counter Derivative Clearing

8F004. OTC Clearing Member Obligations and Qualifications

OTC Clearing Members are subject to all relevant CME, CBOT and NYMEX Rules and the Clearing 

House Manual unless an exemption has been granted by staff or the Clearing House Risk 
21

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

Clearing House. 

The qualifications and requirements to become an OTC Clearing Member are set forth below. A 

CME, CBOT, NYMEX and COMEX Clearing Member clearing OTC Derivatives must satisfy the 

requirements set forth below.

1. An OTC Clearing Member must be in “good standing” under each applicable regulatory regime to 

which it is subject at the time it applies for OTC clearing membership and it must maintain its good 

standing status while it is an OTC Clearing Member. 

2. An OTC Clearing Member must be in compliance with all applicable regulatory capital 

requirements and an OTC Clearing Member must maintain minimum capital of: 

(i) $5 million if it clears only agricultural OTC Derivatives; and 

(ii) $50 million if it clears other OTC Derivatives, excluding credit default swaps and interest 

rate swaps.

3. [Reserved] 

4. [Reserved] 

5. [Reserved] 

6. An OTC Clearing Member and an OTC Clearing Member applicant shall be engaged in or 

demonstrate immediate capacity to engage in the conduct of the business of an OTC Clearing 

Member. 

7. [Reserved] 

8. An OTC Clearing Member must comply with the financial requirements set forth in CME Rule 970. 

However, if the OTC Clearing Member is regulated by another regulatory authority, then it shall 

submit to CME 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. 

All financial statements shall be in the English language. 

9. The books and records of an OTC Clearing Member regarding OTC Derivatives cleared by the 

Clearing House shall be made promptly available for inspection upon request by CME and such 

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

10. Each OTC Clearing Member that 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 OTC 

Derivatives submitted for clearing. 

11. Each Base OTC Clearing Member shall make at least two traders (one primary and one backup) 

per OTC Derivative Product Category available to the Clearing House to participate in the Active 

Base OTC Default Management Committee immediately upon notice from the Clearing House that it 

is convening the Active Base OTC Default Management Committee for (i) a potential or actual default 

of a Base OTC Clearing Member and (ii) for OTC Derivative default drill exercises. 

Upon acceptance as a Base OTC Clearing Member and upon any update request by Clearing House, 

each Base OTC Clearing Member shall provide a list of traders that the Base OTC Clearing Member 

nominates for the Active Base OTC Default Management Committee. Base OTC Clearing Member 

shall make traders available for each OTC Derivative Product Category requested by the Clearing 
22

House until the end of the relevant default management process or drill. Any such trader shall have a 

title at the level of Vice President (or equivalent title) and shall have the minimum level of experience 

prescribed by the Clearing House from time to time in the relevant OTC Derivatives. 

12. Each OTC Clearing Member shall participate in OTC Derivative default drill exercises as 

prescribed by the Clearing House.

8F007. Guaranty Fund Deposit

An OTC Clearing Members’ guaranty fund deposit may be used to cover losses incurred by the 

Clearing House if a defaulting OTC Clearing Member’s assets, including amounts available pursuant 

to any guarantee from an affiliated Clearing Member, available to the Clearing House are insufficient 

to cover such loss, regardless of the cause of default.

The detailed guaranty fund deposit rules applicable to Clearing Members are set forth in Rule 816.

8F009. Customer Registration

All OTC Derivatives including, but not limited to, give-ups or transfers that are cleared at CME shall 

be identified with an account number which identifies the originator of that transaction, specifying 

whether the transaction was executed as a proprietary transaction of the OTC Clearing Member or 

arises from a transaction by a customer. OTC Clearing Members shall register, on CME approved 

forms, all of the “ultimate” (or end) customer.

8F010. Risk Management

OTC Clearing Members will be subject to risk management and monitoring practices by CME relating 

to transactions submitted to the Clearing House. OTC Clearing Members shall promptly provide all 

information requested by Clearing House staff, including, without limitation, information respecting 

risk, settlement, liquidity, and operational issues. OTC Clearing Members shall make information and 

documents regarding their risk management policies, procedures and practices available to the CFTC 

upon the CFTC’s request.

In limited circumstances, the Clearing House may decline to accept certain OTC Derivatives trades or 

migration positions if the Clearing House determines in good faith that, based on the exercise of 

prudent risk management standards, the Clearing House should not accept the OTC Derivatives 

trades or migration positions. In the event that the Clearing House declines to accept certain OTC 

Derivative trades or migration positions, it shall incur no liability with respect to the trades and 

positions that are not accepted. It shall be the sole responsibility of the OTC Clearing Members who 

are parties to such trades or positions to take action as they deem necessary or proper for their own 

protection.

In addition, if the Clearing House determines in good faith that, based on the exercise of prudent risk 

management standards, that an OTC Clearing Member poses undue risk to the Clearing House 

based on its OTC Derivatives portfolio, the Clearing House may take any or all of the following 

actions with respect to such OTC Clearing Member: 1) impose an additional performance bond 

requirement; 2) prohibit the addition of any new OTC Derivative positions, or 3) require the reduction 

or unwinding of OTC Derivatives positions.

OTC Clearing Members shall permit on-site risk reviews in accordance with CME Rules and subject 

to reasonable standards of confidentiality. OTC Clearing Members will also be subject to on-going 

oversight by the Clearing House Risk Committee regarding their activities related to the CME 

Clearing House. All such inquiries shall be conducted in a manner consistent with oversight of CME 

Clearing Members and in accordance with reasonable standards of confidentiality.

8F013. Insolvency and Liquidation
23

In the event of a bankruptcy or insolvency of an OTC Clearing Member or any other clearing member 

carrying OTC Derivatives in its proprietary or customer accounts, the default Rules and risk 

management procedures of CME shall apply, including, but not limited to, the provisions in Rule 975. 

Upon the bankruptcy or insolvency of such a clearing member, the Clearing House will terminate, or 

offset, any open OTC Derivatives of the bankrupt or insolvent Clearing Member and of its customers, 

however, the Clearing House shall have discretion to transfer such customer positions to one or more 

other Clearing Members. The Clearing House may mitigate or eliminate the risks incurred by it as a 

result of offsetting or terminating such open OTC Derivatives by any one or more of the following 

means: 1) replace all or a portion of the OTC Derivatives of the defaulting clearing member by 

entering into a transaction with a solvent clearing member(s); 2) replace all or a portion of the OTC 

Derivatives of the defaulting clearing member by entering into OTC Derivatives for its own account in 

the open market; and/or 3) enter into OTC Derivatives (or exchange-traded contracts) to hedge the 

economic risks imposed on it as a result of offsetting or terminating such OTC Derivatives by any 

commercially reasonable means. The Clearing House may also replace any OTC Derivatives it enters 

into to replace or hedge economic risks from any terminated transaction by substituting a transaction 

with a solvent clearing member(s) that offsets the original terminated transaction.

Any Close-out Amount incurred by the Clearing House in liquidating, transferring and establishing, 

adjusting and/or replacing positions resulting from the clearing member’s default will be deducted 

from the defaulting clearing member’s collateral held by CME. In the event the collateral of the 

defaulting clearing member is not sufficient to satisfy the Close-Out Amount, the unsatisfied costs will 

be a claim by the Clearing House against the defaulting clearing member.

8F014. Mitigation of Losses

In the event of a default of a Base OTC Clearing Member, all Base OTC Clearing Members shall work 

cooperatively with their customers, other Base OTC Clearing Members and the Clearing House to 

mitigate any losses that may occur as a result of such default and shall ensure that human resources 

required to be provided by Base OTC Clearing Members to any Active Base OTC Default 

Management Committee are promptly made available.

Base OTC Clearing Members shall, upon request from the Clearing House: 1) provide commercially 

reasonable bids in all auctions of the defaulted Base OTC Clearing Member’s portfolio containing 

OTC Derivative Product Category cleared by the Base OTC Clearing Member and on the auction 

terms prescribed by the Clearing House; and 2) take any other action as reasonably requested by the 

Emergency Financial Committee or Clearing House Risk Committee.

8F015. Trade Submission on CME Clearport

A. This rule governs all OTC Derivatives that the Clearing House has designated as eligible for 

clearing that are submitted for clearing via CME ClearPort and that are not extinguished and replaced 

by positions in regulated futures and options (“Transactions"). The parties to a Transaction and any 

person authorized under Section C of this Rule with brokering capability or trade submission authority 

(generically defined as "Broker" or "Brokers") must comply with applicable registration procedures for 

participation in CME ClearPort and must continue to comply with applicable registration procedures 

for OTC Derivatives, as may be amended from time to time. Transactions are also subject to the 

other rules in this chapter.

B. Each Transaction must be submitted in accordance with the procedures established by the 

Clearing House for this purpose, as amended from time to time. The parties to a Transaction and any 

Brokers authorized to submit Transactions on such a party’s behalf to the Clearing House and 

authorized for related activities shall be exclusively responsible, both individually and jointly, for 

accurately confirming the details of the Transaction to the Clearing House. Once submitted, all 

Transactions shall be deemed final. Neither the Clearing House nor a Clearing Member carrying the 

account of either party will have any responsibility in the confirmation of trade terms for Transactions.
24

C. Each Clearing Member must register with the Clearing House staff in the manner required for any 

customer authorized by the Clearing Member to submit transactions to the Clearing House pursuant 

to this rule, and must also register with the Clearing House staff the applicable account numbers for 

each such customer. For each such account, the Clearing Member carrying that account also must 

submit to Clearing House staff in the manner provided the name of any Broker who has registered 

with Clearing House staff for services provided under this rule, and who is authorized by the customer 

to act on its behalf in the submission of Transactions pursuant to this rule and related activity. For 

any such Brokers authorized by the customer and submitted to Clearing House staff by the Clearing 

Member, such submission to Clearing House staff of the Broker’s information by the Clearing Member 

will not constitute an endorsement or ratification of the customer's authorization of the Broker. 

Moreover, submission of a Broker authorized by a customer will not mean that the Clearing Member 

is in privity with, has a relationship with or is otherwise standing behind any of the customer's 

authorized Brokers, and the Clearing Member will have no responsibility for any such Brokers 

selected by the customer and no duty or obligation to supervise the activities of any such Brokers.

D. For each account number that has been registered with the Clearing House staff pursuant to 

Section C of this rule, a credit check or explicit clearing member acceptance or rejection of a 

transaction must occur depending on the transaction type.

Chapter 9 - Clearing Members

901. General Requirements and Obligations

Membership in the Clearing House is a privilege and license granted by the Board and may be 

withdrawn by the Board for cause at any time. Clearing House staff may grant exemptions to the 

General Requirements and Obligations set forth below for Clearing Members if it is determined that 

such an exemption will not jeopardize the financial integrity of the Clearing House. Subject to such 

exemptions, each applicant for qualification as a clearing member must satisfy the following 

requirements:

A. It shall be a corporation (defined by the Rules of the Exchange to include a limited liability 

company), partnership or other entity approved by Exchange staff. It shall agree to: 1) abide by all 

Exchange Rules and to cooperate in their enforcement; 2) be responsible, even after it has withdrawn 

as a clearing member, for any violations of Exchange Rules committed by it while it was a clearing 

member; and 3) continue to meet all requirements applicable to clearing members, including all 

financial requirements provided by these rules;

B. It shall have an authorized representative (i.e., officer, principal, or partner) who shall represent the 

clearing member before the Exchange and its committees. Such authorized representative shall be 

responsible to the Exchange for any representations made to the Exchange as if such person were a 

member as defined by Rule 400.

C. It shall be qualified to do business in the State of Illinois or the State of New York or have a valid 

agency agreement with an entity qualified to do business in the State of Illinois or the State of New 

York.

D. It shall be engaged in or demonstrate immediate capacity to engage in the conduct of the business 

of a clearing member;

E. It shall demonstrate such fiscal and moral integrity as would justify the Clearing House's 

assumption of the risks inherent in clearing its trades;

F. It shall demonstrate financial capitalization commensurate with Exchange requirements as set by 

the Clearing House Risk Committee;
25

G. If any person directly or indirectly controls, owns 10% or more of, or has the right to 10% or more 

of the profits of two or more clearing members, then each such clearing member shall guarantee the 

obligations of the others to the Clearing House and shall execute a written guarantee to the Clearing 

House on a form approved by the Clearing House.

H. It shall notify the Exchange prior to any significant business transaction or significant change in 

operations which shall include, but is not limited to the following:

1. The merger, combination or consolidation between the clearing member and another person or 

entity;

2. The assumption or guarantee by the clearing member of all or substantially all of the liabilities of 

another in connection with a direct or indirect acquisition of all or substantially all of that person's or 

entity's assets;

3. The sale by the clearing member of a significant part of its business and/or assets to another 

person or entity;

4. A change in the direct or indirect beneficial ownership of 20% or more of the clearing member;

5. Any change in the system provider used by the clearing member to process its trades; and

6. A significant increase in the number of members that a clearing member qualifies.

Additionally, a clearing member that qualifies members must provide fifteen days notice to the 

Exchange of any proposal to terminate such business or any material part of such business.

The Clearing House Risk Committee or Exchange staff, upon such notice, may disapprove or 

approve, subject to certain conditions, such changes in structure or operations if it determines that the 

proposed change could jeopardize the financial or operational integrity of the Exchange.

I. It shall agree to guarantee and assume complete responsibility for the financial obligations 

attendant to: 1) all trades and orders executed or accepted for execution by a member it qualifies, 

including trades and orders executed, or which such member fails to execute, negligently, 

fraudulently or in violation of Exchange rules; 2) an unpaid arbitration award issued by a panel of the 

Arbitration Committee against a member it qualifies in circumstances where the dispute is related to a 

matter described in number 1) above; 3) an unpaid restitution order issued against a member it 

qualifies by a panel of the Business Conduct Committee, the Clearing House Risk Committee or a 

hearing panel of the Board of Directors; and 4) unpaid Exchange disciplinary fines imposed upon a 

member it qualifies if the member is also an employee of the clearing member or its affiliate, subject 

to a determination by the sanctioning entity.

J. It shall notify the Financial and Regulatory Surveillance Department in a timely manner of any 

material change in key personnel who are responsible to act on behalf of the clearing member

K. [Reserved]

L. It shall submit to the Clearing House a written guarantee, on a form provided by the Clearing 

House, from each person or entity owning 5% or more of the equity securities of the clearing member, 

that shall guarantee all obligations of the clearing member to the Clearing House arising out of 

accounts cleared by the clearing member that are:

1. non-customer accounts, including proprietary accounts as defined by CFTC Regulation 1.3(y); and
26

2. accounts carried by another futures commission merchant if such accounts would be considered 

non-customer accounts, including proprietary accounts as defined by CFTC Regulation 1.3(y), of the 

clearing member, if carried directly by the clearing member.

Notwithstanding anything herein to the contrary, the guarantee required by this Rule 901.L. shall not 

apply to any obligations of the clearing member to pay an assessment to the Clearing House 

pursuant to Rule 802.B.

Each clearing member must submit and maintain with the Financial and Regulatory Surveillance 

Department a current list of every person or entity which is directly, or indirectly through 

intermediaries, the beneficial owner of 5% or more of any class of equity security of the clearing 

member. If such person or entity owns the clearing member indirectly through intermediaries, all 

intermediaries must be listed including, if a corporation, all shareholders who own 5% or more of any 

class of equity security, or, if a partnership, all general and any limited or special partners who have 

contributed 5% or more of the partnership's capital. If the intermediary's shareholders or partners are 

not individuals, the clearing member must include the chain of ownership of 5% shareholders, general 

partners and 5% limited or special partners until individuals are listed.

If a corporation directly or indirectly owns 5% or more of the equity securities of the clearing member, 

the written guarantee shall be signed by an appropriate officer of the corporation, and a resolution 

granting such officer authority to sign the guarantee shall also be submitted to the Clearing House. 

Clearing House staff may also require each person or entity owning 5% or more of the equity 

securities of such parent corporation, or of parents of such parent corporation, to execute guarantees.

For purposes of this Rule 901.L., the term "equity security" shall include any stock, partnership 

interest or similar security; or any security convertible, with or without consideration, into such a 

security, or carrying any warrant or right to subscribe to or purchase such a security; or any such 

warrant or right; or any other security that Clearing House staff shall deem to be of similar nature and 

consider necessary or appropriate to treat as an equity security.

M. It shall guarantee and assume financial responsibility for all trading activity routed through a 

Globex portal, or routed through any other electronic trading system to CME for clearing of such 

transactions. Such activity is guaranteed to CME by the clearing member via any connection, 

terminal, link, telecommunications hub or handheld unit provided by the clearing member to a third 

party as well as any other applicable electronic trading systems and terminals that the clearing 

member provides to a third party to enter orders.

N. It shall be responsible for the acts of Globex terminal operators accessing the Globex system 

through its connections, including direct connections or other connections that it provides to firms that 

are under common ownership with it. It shall be the duty of the clearing member to supervise its 

employees and agents acting as Globex terminal operators to ensure such employees and agents 

comply with Exchange rules, and any violation of Exchange rules by such terminal operators shall be 

considered a violation by the clearing member.

O. It shall agree to guarantee and assume complete responsibility for trades executed on 

Marketplaces for which the Exchange provides clearing services.

P. Each clearing member shall use systems and appropriate procedures to track accurately, and to 

provide to the Clearing House accurately, the positions and collateral of each of the cleared swaps 

customers.

Q. Requirement to Establish Uncommitted Repo. Each clearing member that is a U.S. Government 

Securities Broker-Dealer or has a U.S. Government Securities Broker-Dealer affiliate shall enter into 

(or arrange for such affiliate to enter into) a master repurchase agreement with CME on terms 

substantially similar to those set out by the Clearing House.
27

R. Reserved

S. The obligation(s) of a clearing member to pay settlement variation and/or performance bond during 

each clearing cycle is not extinguished until all required cash and/or collateral is deposited into the 

correct CME bank account at the relevant custodial or settlement bank

902. Clearing Membership Assignment Requirements

902.A. Assignment Requirement

Subject to exemptions granted by Exchange staff, each CME clearing member shall have at least: 

two CME memberships, two IMM memberships, two IOM memberships and one GEM membership 

assigned to the Clearing House. A clearing member which was an IMM Class A clearing member on 

or prior to May 6, 1987, shall have at least one CME membership, three IMM memberships, two IOM 

memberships and one GEM membership assigned to the Clearing House. A higher Division 

membership may be substituted for a lower Division membership to satisfy these requirements.

At least one CME, one IMM, one IOM and one GEM membership required for clearing membership 

pursuant to this Rule must be owned by the clearing member or a person, including a parent 

company, with an acceptable proprietary interest in such clearing member. One CME, one IMM, and 

one IOM membership required for clearing membership may be independently assigned.

Upon default of a clearing member in meeting its obligations to the Clearing House or upon the 

Clearing House Risk Committee's determination that a clearing member's financial position 

jeopardizes the financial integrity of the Clearing House, the Clearing House may direct the sale of 

any or all of the clearing member's assigned CME memberships. The proceeds from the sale of the 

CME memberships shall be used to satisfy Rule 110 obligations.

902.B. [Reserved]

902.C. Assignment Process

A membership may be assigned upon the completion of an Exchange-approved form. A membership 

may be assigned on behalf of only one clearing member and may not be subject to any Rule 110 

claims at the time of assignment. Upon submitting an assignment form to the Membership Services 

Department, the membership shall be notified of the assignment. Parties will have ten days after the 

notification of the assignment to submit any Rule 110 claims against the membership being assigned. 

After all Rule 110 claims have been resolved to the satisfaction of the Exchange, the membership 

shall be assigned.

902.D. Assignment Substitutions

A clearing member may substitute a membership for an assigned membership provided that the 

clearing member continues to meet the assignment requirements of this Rule.

In the event a clearing member has a valid claim against a member that it qualifies and the member’s 

membership is assigned to another clearing member, the clearing member utilizing the membership 

for assignment shall have 10 business days to substitute another membership to fulfill the assignment 

requirements of this Rule.

902.E. Assignment Withdrawal Disputes

In the event a member wants to withdraw his assigned membership over the objection of the clearing 

member to which the membership is assigned, such member must request permission to do so from 

Clearing House staff. The request must be in writing with a copy delivered to the clearing member to 

which the membership is assigned.

902.F. Lien on Memberships

Each clearing member hereby grants to the Clearing House a first priority and unencumbered lien 

against all memberships required for clearing membership by the Exchange.
28

930. Performance Bond Requirements: Account Holder Level

930.A. Performance Bond System

The Standard Portfolio Analysis of Risk (“SPAN®”) Performance Bond System is the performance 

bond system adopted by the Exchange. SPAN-generated performance bond requirements shall 

constitute Exchange performance bond requirements. All references to performance bond within the 

rules of the Exchange shall relate to those computed by the SPAN system, except for cleared overthe-counter (“OTC”) foreign exchange (“FX”) and interest rate swap (“IRS”) transactions, where the 

Historical Value at Risk (“HVaR”) Performance Bond System is used for cleared OTC FX and IRS 

transaction performance bonds.

Performance bond systems other than the SPAN system may be used to meet Exchange 

performance bond requirements if the clearing member can demonstrate that its system will always 

produce a performance bond requirement equal to or greater than the SPAN performance bond 

requirements.

930.B. Performance Bond Rates

1. Non-Security Futures and OTC Derivatives

Exchange staff shall determine initial and maintenance performance bond rates used in determining 

Exchange performance bond requirements. The Board reserves the right to change or modify any 

performance bond levels determined by Exchange staff.

2. Security Futures

a. Initial and maintenance performance bond (or “margin”) rates used in determining Exchange 

performance bond requirements applied to Security Futures on behalf of Customers, whether effected 

on the Exchange or on a Marketplace apart from Exchange but cleared by the Clearing House per 

Chapter 8B, and held in a futures account, shall be established at levels no lower than those 

prescribed by CFTC Regulation Section 41.45; and, SEC Regulation 242.403, including any 

successor Regulations.

b. As used in this Rule, the term “Customer” does not include (a) an “exempted person” as defined in 

CFTC Regulation 41.43(a)(9) and SEC Regulation 242.401(a)(9); or (b) Market Makers as defined 

below.

A Person shall be a “Market Maker” for purposes of this Rule, and shall be excluded from the 

requirements set forth in CFTC Regulations 41.42 through 41.49; and, SEC Regulations 242.400 

through 242.406 in accordance with CFTC Regulation 41.42(c)(2)(v) and SEC Regulation 

242.400(c)(2)(v), with respect to all trading in Security Futures for its own account, if such Person is 

an Exchange Member that is registered with the Exchange as a “Security Futures Dealer.”

Each Market Maker shall: (a) be a member of the Exchange and be registered as a floor trader or a 

floor broker with the CFTC under Section 4f(a)(1) of the CEA; or, be registered as a dealer with the 

SEC under Section 15(b) of the Exchange Act; (b) maintain records sufficient to prove compliance 

with the requirements set forth in this Rule and CFTC Regulation 41.42(c)(2)(v) and SEC Regulation 

242.400(c)(2)(v), including without limitation, trading account statements and other financial records 

sufficient to detail activity and verify conformance with the standards set forth herein; and (c) hold 

itself out as being willing to buy and sell Security Futures for its own account on a regular or 

continuous basis.

A Market Maker satisfies condition (c) above if, at a minimum, any of the following three requirements 

are fulfilled:
29

(1) The Market Maker:

(i) Provides continuous two-sided quotations throughout the trading day for all delivery months of 

Security Futures Contracts representing a meaningful proportion of the total trading volume of 

Security Futures Contracts on the Exchange, subject to relaxation during unusual market conditions 

as determined by the Exchange (such as a fast market in either a Security Futures Contract or a 

security underlying a Security Futures Contract) at which times the Market Maker must use its best 

efforts to quote continuously and competitively; and

(ii) When providing quotations, quotes with a maximum bid/ask spread no more than the greater of 

$0.20 or 150% of the bid/ask spread in the primary market for the security underlying each Security 

Futures Contract.

(2) The Market Maker:

(i) Responds to at least 75% of the requests for quotation for all delivery months of Security Futures 

Contracts representing a meaningful proportion of the total trading volume of Security Futures 

Contracts on the Exchange, subject to relaxation during unusual market conditions as determined by 

the Exchange (such as a fast market in either a Security Futures Contract or a security underlying a 

Security Futures Contract) at which times the Market Maker must use its best efforts to quote 

competitively; and

(ii) When responding to requests for quotation, quotes within five seconds with a maximum bid/ask 

spread no more than the greater of $0.20 or 150% of the bid/ask spread in the primary market for the 

security underlying each Security Futures Contract.

(3) The Market Maker:

(i) Is assigned to a group of Security Futures Contracts listed on the Exchange that is either unlimited 

in nature (“Unlimited Assignment”); or, is assigned to no more that 20% of the Security Futures 

Contracts listed on the Exchange (“Limited Assignment”); 

(ii) At least 75% of the Market Maker’s total trading activity in Exchange Security Futures Contracts is 

in its assigned Security Futures Contracts, measured on a quarterly basis; 

(iii) During at least 50% of the trading day the Market Maker has bids or offers in the market that are 

at or near the best market, except in unusual market conditions as determined by the Exchange (such 

as a fast market in either a Security Futures Contract or a security underlying a Security Futures 

Contract), with respect to at least 25% (in the case of an Unlimited Assignment) or at least one (in the 

case of a Limited Assignment) of its assigned Security Futures Contracts; and 

(iv) The requirements in (ii) and (iii) above are satisfied on: (a) at least 90% of the trading days in 

each calendar quarter by Market Makers who have undertaken an Unlimited Assignment; or (b) at 

least 80% of the trading days in each calendar quarter by Market Makers who have undertaken a 

Limited Assignment; or (c) on at least 80% of the trading days in each calendar quarter by Market 

Makers who have undertaken either an Unlimited Assignment or Limited Assignment but where the 

Exchange is listing four (4) or fewer Security Futures Contracts.

For purposes of clauses (1) and (2) above, beginning on the 181st calendar day after the 

commencement of trading of Security Futures Contracts on the Exchange, a “meaningful proportion 

of the total trading volume of Security Futures Contracts on the Exchange” shall mean a minimum of 

20% of such trading volume.

Any Market Maker that fails to comply with the applicable Rules of the Exchange, CFTC Regulations 

41.41 through 41.49 and SEC Regulations 242.400 through 242.406 shall be subject to disciplinary 
30

action in accordance with Chapter 4. Appropriate sanctions in the case of any such failure shall 

include, without limitation, a revocation of such Market Maker’s registration as a Security Futures 

Dealer.

c. The Exchange shall establish initial and maintenance performance bond requirements applicable to 

Security Futures and held in a futures account, provided that the performance bond requirement for 

any long or short position held by a clearing member on behalf of a Customer shall not be less than 

20% of the current market value of the relevant Contract; or, such other requirement as may be 

established by the CFTC and SEC for purposes of CFTC Regulation 41.45(b)(1) and SEC Regulation 

242.403(b)(1) except as provided below. 

d. Initial and maintenance performance bond requirements for offsetting positions involving Security 

Futures and related positions are provided in the schedule below, for purposes of CFTC Regulation 

41.45(b)(2) and SEC Regulation 242.403(b)(2).

Performance Bond (or “Margin”) Requirements for Offsetting Positions

DESCRIPTION OF 

OFFSET

SECURITY 

UNDERLYING THE 

SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

Long security future 

(or basket of 

security futures 

representing each 

component of a 

narrow-based 

securities index) 

and long put option 

on the same 

underlying security 

(or index)

Individual stock or 

narrow-based 

security index

20% of the current 

market value of the 

long security future, 

plus pay for the long 

put in full.

The lower of: (1) 

10% of the 

aggregate exercise 

price of the put plus 

the aggregate put 

out-of-the-money 

amount, if any; or (2) 

20% of the current 

market value of the 

long security future.

DESCRIPTION 

OF OFFSET

SECURITY 

UNDERLYING 

THE SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

Short security 

future (or basket 

of security futures 

representing each 

component of a 

narrow-based 

securities index) 

and short put 

option on the 

same underlying 

security or index

Individual stock or 

narrow-based 

security index

20% of the current 

market value of the 

short security 

future, plus the 

aggregate put inthe-money amount, 

if any. The put sale 

may be applied.

20% of the current 

market value of the 

short security 

future, plus the 

aggregate put inthe-money amount, 

if any

Long security 

future and short 

position in the 

same security (or 

security basket) 

Individual stock or 

narrow-based 

security index

The initial margin 

required under 

regulation T for the 

short stock or 

stocks.

5% of the current 

market value as 

defined in 

Regulation T of the 

stock or stocks 
31

underlying the 

security future

underlying the 

security future.

Long Security 

future (or basket 

of security futures 

representing each 

component of a 

narrow-based 

index) and short 

call option on the 

same underlying 

security (or index)

Individual stock or 

narrow-based 

security index

20% of the current 

market value of the 

long security future, 

plus the aggregate 

call in-the-money 

amount, if any. 

Proceeds from the 

call sale may be 

applied.

20% of the current 

market value of the 

long security future, 

plus the aggregate 

call in-the-money 

amount, if any.

Long a basket of 

narrow-based 

security futures 

that together 

tracks a broadbased index and 

short a broadbased security 

index call option 

contract the same 

index

Narrow-based 

security index

20% of the current 

market value of the 

long basket of 

narrow-based 

security futures, 

plus the aggregate 

call in-the-money 

amount, if any. 

Proceeds from the 

call sale may be 

applied.

20% of the current 

market value of the 

long basket of 

narrow-based 

security futures, 

plus the aggregate 

call in-the-money 

amount, if any.

Short a basket of 

narrow-based 

security futures 

that together 

tracks a broadbased security 

index and short a 

broad-based 

security index put 

option contract on 

the same index

Narrow-based 

security index

20% of the current 

market value of the 

short basket of 

narrow-based 

security futures, 

plus the aggregate 

put in-the-money 

amount, if any. 

Proceeds from the 

put sale may be 

applied.

20% of the current 

market value of the 

short basket of 

narrow-based 

security futures, 

plus the aggregate 

put in-the-money 

amount, if any.
32

DESCRIPTION 

OF OFFSET

SECURITY 

UNDERLYING 

THE SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

Long a basket of 

narrow-based 

security futures 

that together 

tracks a broadbased security 

index and long a 

broad-based 

security index put 

option contract on 

the same index

Narrow-based 

security index

20% of the current 

market value of the

long basket of 

narrow-based 

security futures, 

plus pay for the 

long put in full.

The lower of: (1) 

10% of the 

aggregate exercise 

price of the put, 

plus the aggregate 

put out-of-themoney amount, if 

any; or (2) 20% of 

the current market 

value of the long 

basket of security 

futures.

Short a basket of 

narrow-based 

security futures 

that together 

tracks a broadbased security 

index and long a 

broad-based 

security index call 

option contract on 

the same index

Narrow-based 

security index

20% of the current 

market value of the 

short basket of 

narrow-based 

security futures, 

plus pay for the 

long call in full.

The lower of: (1) 

10% of the 

aggregate exercise 

price of the call, 

plus the aggregate 

call out-of-themoney amount if 

any; or (2) 20% of 

the current market 

value of the short 

basket of security 

futures.

Long security 

future and short 

security future on 

the same 

underlying security 

(or index)

Individual stock or 

narrow-based 

security index.

The greater of: 5% 

of the current 

market of the long 

security future; or

(2) 5% of the 

current market 

value of the short 

security future.

The greater of: 5% 

of the current 

market value of the 

long security future; 

or (2) 5% of the 

current market 

value of the short 

security future.

Long security 

future, long put 

option, and short 

call option. The 

long security 

future, long put 

and short call 

must be on the 

same underlying 

security and the 

put and call must 

have the same 

exercise price. 

(Conversion)

Individual stock or 

narrow-based 

security index.

20% of the current 

market value of the 

long security future, 

plus the aggregate 

call in-the-money 

amount, if any, plus 

pay for the put in 

full. Proceeds from 

the call sale may 

be applied.

10% of the 

aggregate exercise 

price, plus the 

aggregate call inthe-money amount, 

if any.
33

DESCRIPTION 

OF OFFSET

SECURITY 

UNDERLYING 

THE SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

Long security 

future, long put 

option and short 

call option. The 

long security 

future, long put 

and short call 

must be on the 

same underlying 

security and the 

put exercise price 

must be below the 

call exercise price 

(Collar)

Individual stock or 

narrow-based 

security index.

20% of the current 

market value of the 

long security future, 

plus the aggregate 

call in-the-money 

amount, if any, plus 

pay for the put in 

full. Proceeds from 

call sale may be 

applied.

The lower of: (1) 

10% of the 

aggregate exercise 

price of the put plus 

the aggregate put 

out-of-the-money 

amount, if any; or 

(2) 20% of the 

aggregate exercise 

price of the call, 

plus the aggregate 

call in-the-money 

amount, if any.

Long (short) a 

basket of security 

futures that 

together tracks a 

narrow-based 

index and short 

(long) a narrowbased index future

Individual stock or 

narrow-based 

security index.

The greater of: (1) 

5% of the current

market value of the 

long security 

future(s); or (2) 5% 

of the current 

market value of the 

short security 

future(s).

The greater of: (1) 

5% of the current 

market value of the 

long security 

future(s); or (2) 5% 

of the current 

market value of the 

short security 

future(s).

Long (short) a 

security future and 

short (long) an 

identical security 

future traded on a 

different market.

Individual stock or 

narrow-based 

security index.

The greater of: (1) 

3% of the current 

market value of the 

long security 

future(s); or (2) 3% 

of the current 

market value of the 

short security 

future(s).

The greater of: (1) 

3% of the current 

market value of the 

long security 

future(s); or (2) 3% 

of the current 

market value of the 

short security 

future(s).

Short security 

future and long 

position in the 

same security (or 

securities basket) 

underlying the 

security future

Individual stock or 

narrow-based 

security index.

The initial margin 

required under 

Regulation T for 

the long stock or 

stocks.

5% of the current 

market value, as 

defined in 

Regulation T, of the 

long stock or 

stocks.

Short security 

future and long 

position in a 

security 

immediately 

convertible into 

the same security 

underlying the 

security future, 

without restriction, 

including the 

payment of money

Individual stock or 

narrow-based 

security index.

The initial margin 

required under 

Regulation T for 

the long security.

10% of the current 

market value, as 

defined in 

Regulation T, of the 

long security.
34

DESCRIPTION 

OF OFFSET

SECURITY 

UNDERLYING 

THE SECURITY 

FUTURE

INITIAL MARGIN 

REQUIREMENT

MAINTENANCE 

MARGIN 

REQUIREMENT

Short security 

future (or basket 

of security futures 

representing each 

component of a 

narrow-based 

securities index) 

and long call 

option or warrant 

on the same 

underlying security 

(or index)

Individual stock or 

narrow-based 

security index.

20% of the current 

market value of the 

short security 

future, plus pay for 

the call in full.

The lower of: (1) 

10% of the 

aggregate exercise 

price of the call, 

plus the aggregate 

call out-of-themoney amount, if 

any; or (2) 20% of 

the current market 

value of the short 

security future.

Short security 

future, short put 

option, and long 

call option. The 

short security 

future, short put 

and long call must 

be on the same 

underlying security 

and the put and 

call must have the 

same exercise 

price. (Reverse 

Conversion)

Individual stock or 

narrow-based 

security index.

20% of the current 

market value of the 

short security 

future, plus the 

aggregate put inthe-money amount, 

if any, plus pay for 

the call in full. 

Proceeds from put 

sale may be 

applied.

10% of the 

aggregate exercise 

price, plus the 

aggregate put inthe-money amount, 

if any.

Long (short) a 

basket of security 

futures, each 

based on a 

narrow-based 

security index that 

together tracks the 

broad-based index 

and short (long) a 

broad-based index 

future

Narrow-based 

security index

5% of the current 

market value of the 

long (short) basket 

of security futures.

5% of the current 

market value of the 

long (short) basket 

of security futures.

930.C. Acceptable Performance Bond Deposits

1. Non-Security Futures and OTC Derivatives 

Clearing members may 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, warrants, warehouse receipts and shipping certificates that are 

registered as deliverable for commodities traded on Chicago Mercantile Exchange Inc., Chicago 

Board of Trade Inc., New York Mercantile Exchange, Inc. or Commodity Exchange, Inc., and “London 

Good Delivery” gold, as defined by the London Bullion Market Association. 

Clearing members shall not accept as performance bond from an account holder securities that have 

been issued, sponsored or otherwise guaranteed by the account holder or an affiliate of the account 
35

holder unless the clearing member files a petition with and receives permission from Clearing House 

staff. 

Unless permitted (either not restricted or specifically authorized) by the U.S. Department of 

Treasury’s Office of Foreign Assets Control (“OFAC”) and/or any Sanctioning Body, as applicable, 

Clearing members may not accept from their account holders as performance bond any debt or 

equity issued by Sanctioned Parties as defined in Rule 543, assets in which Sanctioned Parties have 

an interest, or any other assets that are or would be subject to blocking restrictions or sectoral 

sanction restrictions imposed by the OFAC or are subject to similar restrictions imposed by another 

Sanctioning Body. 

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. 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 other than letters 

of credit, warrants, warehouse receipts and shipping certificates shall be valued at an amount not to 

exceed market value less applicable haircuts as set forth in SEC Rule 240.15c3-1. Warrants, 

warehouse receipts and shipping certificates shall be valued at an amount not to exceed the market 

value of the commodities

2. Security Futures 

a. Clearing Members may accept from their Customers as performance bond (or “margin”) for 

Security Futures held in a futures account, deposits of cash, margin securities (subject to the 

limitations set forth in the following sentence), exempted securities, any other assets permitted under 

Regulation T of the Board of Governors of the Federal Reserve System (as in effect from time to 

time) to satisfy a performance bond deficiency in a securities margin account, and any combination of 

the foregoing, each as valued in accordance with CFTC Regulations 41.46(c) and 41.46(e); and, SEC 

Regulations 242.404(c) and 242.404(e). Shares of a money market mutual fund that meet the 

requirements of CFTC Regulation 1.25 may be accepted as a performance bond deposit from a 

Customer for purposes of this Rule. 

b. A Clearing Member shall not accept as performance bond from any Customer securities that have

been issued by such Customer or an Affiliate of such Customer unless such Clearing Member files a 

petition with and receives permission from the Exchange for such purpose. 

c. All assets deposited by a Customer to meet performance bond requirements must be and remain 

unencumbered by third party claims against the depositing Customer.

930.D. Acceptance of Orders

Clearing members may accept orders for an account provided sufficient performance bond is on 

deposit in the account or is forthcoming within a reasonable time. 

For an account which has been subject to calls for performance bond for an unreasonable time, 

clearing members may only accept orders that reduce the performance bond requirements of existing 

positions in the account. 

Clearing members may not accept orders for an account that has been in debit an unreasonable time.
36

930.E. Calls for Performance Bond

1. Clearing members must issue calls for performance bond that would bring an account up to the 

initial performance bond requirement: a) when performance bond equity in an account initially falls 

below the maintenance performance bond requirement; and b) subsequently, when performance 

bond equity plus existing performance bond calls in an account is less than the maintenance 

performance bond requirement. 

Such calls must be made within one business day after the occurrence of the event giving rise to the 

call. Clearing members may call for additional performance bond at their discretion. Notwithstanding 

the foregoing, a clearing member is not required to call for or collect performance bond for day trades. 

2. Clearing members shall only reduce a call for performance bond through the receipt of 

performance bond deposits permitted under subsection C. of this rule. Clearing members may cancel 

a call for performance bond through: a) the receipt of performance bond deposits permitted under 

subsection C. of this rule only if such deposits equal or exceed the amount of the total performance 

bond call; or b) inter-day favorable market movements and/or the liquidation of positions only if 

performance bond equity in the account is equal to or greater than the initial performance bond 

requirement. Clearing members shall reduce an account holder's oldest outstanding performance 

bond call first.

3. Clearing members must maintain written records of all performance bond calls issued and satisfied 

in whole or in part.

930.F. Release of Excess Performance Bond

Subject to exceptions granted by Exchange staff, clearing members may only release performance 

bond deposits from an account if such deposits are in excess of initial performance bond 

requirements.

930.G. Loans to Account Holders

Clearing members may not make loans to account holders to satisfy their performance bond 

requirements unless such loans are secured as defined in CFTC Regulation 1.17(c)(3). The 

proceeds of such loans must be treated in accordance with CFTC Regulation 1.30.

930.H. Aggregation of Accounts and Positions

Clearing members may aggregate and net positions in accounts under identical ownership within the 

same classifications of customer segregated, customer secured, Cleared Swaps Customer, and 

nonsegregated for performance bond purposes. Clearing members may compute performance bond 

requirements on identically owned concurrent long and short positions on a net basis.

930.I. Hedge Positions

Clearing members shall have reasonable support to classify positions as bona-fide hedge and risk 

management positions, as defined by Rule 559, that are afforded hedge performance bond rates.

930.J. Omnibus Accounts

1. Clearing members shall collect performance bond on a gross basis for positions held in domestic 

and foreign omnibus accounts. 

2. For omnibus accounts, initial performance bond requirements shall equal maintenance 

performance bond requirements. 
37

3. Clearing members shall obtain and maintain written instructions from domestic and foreign 

omnibus accounts for positions which are entitled to spread or hedge performance bond

930.K. Liquidation of Accounts

1. Non-Security Futures and OTC Derivatives 

If an account holder fails to comply with a performance bond call within a reasonable time (the 

clearing member may deem one hour to be a reasonable time), the clearing member may close out 

the account holder's trades or sufficient contracts thereof to restore the account holder's account to 

required performance bond status. Clearing members shall maintain full discretion to determine 

when and under what circumstances positions in any account shall be liquidated. 

2. Security Futures 

If a Customer fails to comply with a performance bond (or “margin”) call within a reasonable period of 

time (the clearing member may deem one hour to be a reasonable period of time), the relevant 

clearing member shall take the deduction required with respect to an undermargined account in 

computing its net capital under applicable CFTC and SEC Regulations. 

If at any time there is a liquidating deficit in an account in which security futures are held, the clearing 

member shall take steps to liquidate positions in the account promptly and in an orderly manner.

930.L. Clearing House Authority to Require Additional Performance Bond

The Clearing House, in its sole discretion, has the authority to require clearing members to collect 

additional performance bond from specific account holders in circumstances deemed necessary by 

the Clearing House.

930.M. Failure to Maintain Performance Bond Requirements

If a clearing member fails to maintain performance bond requirements for an account in accordance 

with this rule, the Exchange or the Clearing House may direct such clearing member to immediately 

liquidate all or part of the account’s positions to eliminate the deficiency.

930.N. OTC Derivatives Undermargined Capital Charge

Clearing members must compute an OTC derivatives undermargined capital charge for customer and 

noncustomer accounts containing cleared swap positions when performance bond calls on the 

accounts have been outstanding for more than three business days. The OTC derivatives 

undermargined capital charge is calculated as the amount of funds required in such account to meet 

maintenance performance bond requirements less account equity and acceptable performance bond 

collateral. Provided, to the extent a deficit is excluded from current assets in the net capital 

computation, such amount shall not also be deducted under this rule.

949. Credit Controls

Clearing Members shall comply with all credit control policies developed by the Exchange for 

customer and proprietary transactions. Such credit control policies may include, but not be limited to, 

registration of credit control administrators with the Exchange, definition of credit control limits, and 

maintenance of written procedures verifying compliance with Exchange credit control requirements. 

For general reference purposes, credit control functionality that may be developed for Globex is a 
38

system or service pursuant to Rule 578. Any credit control functionality required by the Exchange 

shall be in addition to a clearing member’s internal risk monitoring and credit control procedures.

950. Supervision

Each clearing member shall adopt and enforce written procedures pursuant to which it will supervise 

in accordance with the requirements of these Rules and the CEA and CFTC Regulations thereunder, 

each customer's account(s), including, but not limited to, the solicitation of any such account(s). For 

purposes of this rule, the term "customer" does not include another futures commission merchant.

954. Customer Complaints

Each clearing member shall retain all written customer complaints, and make and retain a record of 

the date each complaint was received, the associated person who serviced the account, a general 

description of the matter complained of, and what, if any, action was taken by the clearing member 

regarding the complaint. With respect to verbal complaints, each clearing member shall develop and 

implement a written program approved by senior management that requires clearing member staff to 

direct individuals with verbal complaints to place such complaints in written form and submit such 

complaints to the Compliance Officer of the clearing member. Such complaints and related records 

must be maintained at the clearing member's principal place of business.

957. Confirmations to Customers

A clearing member shall confirm to the customer every transaction made for the customer no later 

than the following business day. Such confirmation shall be in electronic or written form and shall 

show facts relevant to the economic terms of the transaction, such as the product bought or sold, the 

quantity, the price, the expiration, maturity date or the contract month/year (as applicable), and, for 

options, strike price, put or call and expiration.

970. Financial Requirements

A. Subject to exemptions granted by Exchange staff, all clearing members, including non-FCMs, must 

comply with the requirements set forth in CFTC Regulations 1.10, 1.12, 1.17 and 1.18. This includes, 

but is not limited to, the following:

1. Maintenance of minimum capital requirements of at least $5 million except that a clearing member 

that is a bank must maintain minimum Tier I Capital (as defined in accordance with regulation 

applicable to the relevant bank) of at least $5 billion; 

2. Submission of a Form 1-FR, FOCUS Report or other requested information within the specified 

period of time; 

3. Notification requirements when a clearing member: 

a. Fails to maintain minimum capital requirements; 

b. Fails to maintain early warning capital requirements; 

c. Fails to maintain current books and records; or 

d. Determines the existence of a material inadequacy as specified in CFTC Regulation 1.16(d)(2); 

e. Changes its fiscal year; or

f. Changes its public accountant; 
39

In addition to the notifications required by CFTC regulations, all clearing members must provide 

written notice to the Financial and Regulatory Surveillance Department of the above events. 

4. Completely and accurately computing and recording the balances in the net capital computation 

including capital requirements; 

5. Subordination agreement requirements, including the filing of such agreements; and

6. Preparation of a monthly computation of adjusted net capital and minimum financial requirements.

B. For non-FCMs, all filing, notification, and approval requirements set forth in CFTC Regulations 

1.10, 1.12, 1.17 and 1.18 and in the rules of the Exchange must be submitted to or obtained from the 

Financial and Regulatory Surveillance Department, if necessary, rather than the Commission. NonFCM clearing members shall make available to the CFTC, upon the CFTC’s request, copies of 

financial reports required to be submitted to the Financial and Regulatory Surveillance Department 

under this Rule.

C. In conjunction with the requirements set forth in CFTC Regulations 1.10, 1.12, 1.17, and 1.18, 

clearing members must comply with the following requirements: 

1. Submit a monthly Form 1-FR or FOCUS Report and the Exchange Supplementary Information 

schedule including an unaudited monthly Form 1-FR or FOCUS Report as of the clearing member’s 

fiscal year-end, within the time requirements set forth in CFTC Regulation 1.10. A clearing member 

must include with its Form 1-FR or FOCUS Report a Statement of Income (loss) for the period 

between the date of the most recent financial statement or, at the option of the clearing member, the 

most recent certified financial statement filed with the Financial and Regulatory Surveillance 

Department and the date for which the report is made. 

2. Submit a certified Form 1-FR or FOCUS Report as of the clearing member’s fiscal year-end within 

the time requirements set forth in CFTC Regulation 1.10. A clearing member must include with its 

certified Form 1-FR or FOCUS Report, a reconciliation from the certified Form 1-FR or FOCUS 

Report to the monthly Form 1-FR or FOCUS Report as of the same date or a statement that no 

differences were noted. 

3. A clearing member for which CME is the designated self-regulatory organization may request the 

Financial and Regulatory Surveillance Department’s permission to change its fiscal year. Such 

request will only be granted for good cause and in accordance with the requirements of CFTC 

Regulation 1.10(e)(2). The Financial and Regulatory Surveillance Department’s grant of the change 

in fiscal year will fulfill the approval requirements of CFTC Regulation 1.10(e)(2). 

4. A clearing member for which CME is the designated self-regulatory organization may request an 

extension of time to file a monthly Form 1-FR, monthly FOCUS Report, certified Form 1-FR or 

certified FOCUS Report from the Financial and Regulatory Surveillance Department. Such extension 

will only be granted for good cause and in accordance with the requirements of CFTC Regulations 

1.10(f) and 1.16(f). The Financial and Regulatory Surveillance Department’s grant of an extension 

will fulfill the approval requirements of CFTC Regulations 1.10(f) and 1.16(f). 

D. Exchange staff may prescribe additional accounting, reporting, and other financial and/or 

operational requirements and clearing members must comply with such requirements. All clearing 

members must provide notice to the Financial and Regulatory Surveillance Department of a failure to 

comply with the additional accounting, reporting, financial, and/or operational requirements. The

Financial and Regulatory Surveillance Department must receive immediate written notification when a 

clearing member knows or should know of such failure. 

E. Financial statement filing requirements under this Rule must be met through Exchange-approved 

electronic transmissions, except for certified Form 1-FRs or FOCUS Reports. Personal Identification 
40

Numbers (PINs) must be submitted by authorized signers of the Form 1-FR or FOCUS Report. The 

PIN will constitute and become a substitute for the manual signature of the authorized signer to the 

electronically filed Form 1-FR or FOCUS Report. The PIN is a representation by the authorized 

signer that, to the best of his or her knowledge, all information contained in the statement being 

transmitted under the PIN is true, correct and complete. The unauthorized use of a PIN for electronic 

attestation by an unauthorized party is expressly prohibited. 

F. Exchange staff may grant exceptions to the financial and reporting requirements of Rule 970 for 

good cause if it is determined that such exceptions will not jeopardize the financial integrity of the 

Exchange.

971. Segregation, Secured and Cleared Swaps Customers Account Requirements

A. All clearing members must comply with the requirements set forth in CFTC Regulations 1.20 

through 1.30, 1.32, 1.49 and 30.7, and Part 22 of the CFTC Regulations. This includes, but is not 

limited to, the following:

1. Maintaining sufficient funds at all times in segregation, secured 30.7 and Cleared Swaps Customer 

accounts; 

2. Computing, recording and reporting completely and accurately the balances in the: 

a. Statement of Segregation Requirements and Funds in Segregation; 

b. Statement of Secured Amounts and Funds Held in Separate Accounts; and 

c. Statement of Segregation Requirements and Cleared Swaps Customer Collateral Held in Cleared 

Swaps Customer Accounts. 

3. Obtaining satisfactory segregation, secured 30.7 and Cleared Swaps Customer account 

acknowledgment letters and identifying segregated, secured 30.7 and Cleared Swaps Customer 

accounts as such; and 

4. Preparing complete and materially accurate daily segregation, secured 30.7 and Cleared Swaps 

Customer amount computations in a timely manner.

B. All FCM clearing members must submit a daily segregated, secured 30.7 and Cleared Swaps 

Customer amount statement, as applicable, through Exchange-approved electronic transmissions by 

12:00 noon on the following business day. 

C. In addition to complying with all applicable CFTC regulations, in order for each of an FCM clearing 

member’s customer segregated, secured 30.7 and Cleared Swaps Customer accounts held at a 

depository to be included as segregated and secured 30.7 funds and Cleared Swaps Customer 

Collateral in their respective origin and calculation:

1. The FCM clearing member must provide the Financial and Regulatory Surveillance Department 

with access to the account information, in a form and manner prescribed by the Financial and 

Regulatory Surveillance Department; and

2. The depository must allow the FCM clearing member to provide the Financial and Regulatory 

Surveillance Department with access to the account information, in a form and manner prescribed by 

the Financial and Regulatory Surveillance Department.

D. All FCM clearing members must submit a report of investments in a manner as prescribed through 

Exchange-approved electronic transmissions as of the 15th of the month (or the following business 

day if the 15th is a holiday or weekend) and last business day of the month by the close of business 
41

on the following business day. The report of investments shall be prepared and shall identify 

separately for segregated and secured 30.7 funds and Cleared Swaps Customer Collateral held: 

1. The dollar amount of funds held in cash and each permitted investment identified in CFTC 

Regulation 1.25(a); and 

2. The identity of each depository holding funds and the dollar amount held at each depository.

E. All disbursements not made for the benefit of a customer from a segregated, secured 30.7 or 

Cleared Swaps Customer account which exceed 25% of the FCM clearing members excess 

segregated, secured 30.7 or Cleared Swaps Customer of the respective origin must be pre-approved 

in writing by the clearing member’s Chief Executive Officer, Chief Financial Officer or their authorized 

representative with knowledge of the firm’s financial requirements and position. 

1. In determining if a disbursement exceeds the 25% level, such disbursement must be: 

a. Compared to the most recent calculation of excess segregated, secured 30.7 and Cleared Swaps 

Customer amounts; and 

b. A single disbursement must be reviewed individually and in the aggregated with all other 

disbursements not made for the benefit of a customer of the respective segregated, secured 30.7 or 

Cleared Swaps Customer origin since the last calculation of excess funds. 

2. Upon approval of a single disbursement or the disbursement which in the aggregated exceeds the 

25% level as defined in Rule 971.E.1., the FCM clearing member must provide immediate notification 

to the Financial and Regulatory Surveillance Department through Exchange-approved electronic 

transmissions. Such notification shall include: 

a. Confirmation that the FCM clearing member’s Chief Executive Officer, Chief Financial Officer or 

authorized representative with knowledge of the firm’s financial requirements and position preapproved in writing the disbursement(s); 

b. The amount(s) and recipient(s) of such disbursement(s); and 

c. A description of the reasons for the single or multiple transaction(s) that resulted in the 

disbursement(s). 

3. The FCM clearing member’s Chief Executive Officer and Chief Financial Officer will remain 

responsible for the pre-approvals by their authorized representative and for compliance with this rule.

F. All clearing members must provide written notice to the Financial and Regulatory Surveillance 

Department of a failure to maintain sufficient funds in segregation, secured 30.7 or Cleared Swaps 

Customer accounts. The Financial and Regulatory Surveillance Department must receive immediate 

written notification when a clearing member knows or should have known of such failure. 

G. Each statement and report filing required under this Rule must be submitted by the Chief 

Executive Officer, Chief Financial Officer or their authorized representative as approved by CME 

using their assigned User Identification (“User ID”). The User ID will constitute and become a 

substitute for the manual signature of the authorized signer to the electronically submitted daily 

segregated, secured 30.7 and Cleared Swaps Customer amount statements. The User ID is a 

representation by the authorized signer that, to the best of his or her knowledge, all information 

contained in the statement being transmitted under the User ID is true, correct and complete. The 

unauthorized use of a User ID for electronic attestation by an unauthorized party is expressly 

prohibited.
42

H. Exchange staff may prescribe additional segregation, secured 30.7 and Cleared Swaps Customer 

amount requirements.

972. Reductions in Capital

A clearing member must provide written notice to the Financial and Regulatory Surveillance 

Department as set forth below of any substantial reduction in capital as compared to the most recent 

filing of a financial report. 

1. If any event or series of events, including any withdrawal, advance, loan or loss would cause, on a 

net basis, a reduction in net capital as reported on the Form 1–FR, or in tentative net capital as 

reported on the FOCUS Report for broker/dealers, of 20% or more, notice must be provided within 

two business days of the event or series of events causing the reduction; and 

2. If equity capital of the clearing member or a subsidiary or a consolidated affiliate would be 

withdrawn by action of a stockholder or a partner or by redemption or repurchase of shares of stock 

by any of the consolidated entities or through the payment of dividends or any similar distribution, or 

an unsecured advance or loan would be made to a stockholder, partner, sole proprietor, employee or 

affiliates, such that the withdrawal, advance or loan would cause, on a net basis, a reduction in 

excess net capital of 30% or more, notice must be provided at least two business days prior to the 

withdrawal, advance or loan that would cause the reduction. 

3. A clearing member that is a bank must provide notice if any event or series of events, including any 

withdrawal, advance, loan or loss would cause, on a net basis, a reduction in Tier I capital as reported 

on the most recent filing of a financial report, of 20% or more. Notice must be provided within five 

business days of the event or series of events causing the reduction or when the clearing member 

knows or should know of the reduction in Tier I capital.

The foregoing shall not apply in the case of a reduction in capital resulting from (1) the repayment or 

prepayment of subordinated liabilities for which notice has been given in accordance with Rule 970 or 

(2) any futures or securities transaction in the ordinary course of business between a clearing 

member and any affiliate where the clearing member makes payment to or on behalf of such affiliate 

for such transaction and then receives payment from such affiliate for such transaction within two 

business days from the date of the transaction.

981. Anti-Money Laundering and Economic Sanctions Compliance

Each clearing member shall develop and implement a written compliance program approved in 

writing by senior management reasonably designed to achieve and monitor the clearing member’s 

compliance with all applicable requirements of the Bank Secrecy Act (31 U.S.C. § 5311 et seq.), the 

International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq. ) (“IEEPA”), the Trading 

with the Enemy Act (50 U.S.C. App. § 1 et seq.) (“TWEA”), and the Executive Orders and regulations 

issued pursuant thereto, including the regulations issued by the U.S. Department of the Treasury and, 

as applicable, the Commodity Futures Trading Commission. That compliance program shall, at a 

minimum, 

1. Establish and implement policies, procedures and internal controls reasonably designed to assure 

compliance with all applicable provisions of the Bank Secrecy Act, IEEPA, TWEA, and all applicable 

Executive Orders and regulations issued pursuant thereto; 

2. Provide for independent testing for compliance to be conducted by clearing member personnel or 

by a qualified outside party; 

3. Designate an individual or individuals responsible for implementing and monitoring the day-to-day 

operations and internal controls of the program; and 
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4. Provide ongoing training for appropriate personnel. Clearing members must also supervise and 

ensure that their guaranteed introducing brokers are in compliance with the provisions contained in 

this Rule.

982. Risk Management

All clearing members must have written risk management policies and procedures in place to ensure 

they are able to perform certain basic risk and operational functions at all times. At a minimum, the 

following areas must be considered in the firm’s policies and procedures, depending on the firm’s size 

and its business and product mix: 

A. Trade Submission and Account Monitoring. Clearing members must have procedures in place to 

demonstrate compliance in the following areas for trades executed through both electronic platforms 

and open outcry:

1. Monitoring the credit risks of accepting trades, including give-up trades, of specific customers. 

2. Monitoring the risks associated with proprietary trading. 

3. Limiting the impact of significant market moves through the use of tools such as stress testing or 

position limits.

4. Maintaining the ability to monitor account activity on an intraday basis, including overnight. 

5. Ensuring order entry systems include the ability to set automated credit controls or position limits or 

requiring a firm employee to enter orders. 

6. Defining sources of liquidity for increased settlement obligations.

B. Additional and/or Alternative Requirements. Exchange or Clearing House staff may prescribe 

additional and/or alternative requirements in order for clearing members to comply with this Rule. 

C. Each clearing member shall promptly provide to Clearing House staff, upon request, information 

and documents regarding its risk management policies, procedures and practices, including, without 

limitation, information and documents relating to the liquidity of its financial resources, settlement 

procedures and operational issues. 

D. Each clearing member shall make information and documents regarding its risk management 

policies, procedures and practices available to the CFTC upon the CFTC’s request.

In addition, all FCM clearing members must comply with the risk management requirements set forth 

in CFTC Regulation 1.11: Risk Management Program for futures commission merchants.

983. Disaster Recovery and Business Continuity

All clearing members must have written disaster recovery and business continuity policies and 

procedures in place to ensure they are able to perform certain basic operational functions in the event 

of a significant internal or external interruption to their operations. At a minimum, the following areas 

must be considered in the firm’s policies and procedures, depending on the firm’s size and its 

business and product mix:

A. Clearing members must have procedures in place to allow them to continue to operate during 

periods of stress or to transfer accounts to another fully operational clearing member with minimal 

disruption to either the Exchange or their customers. In order to satisfy this requirement, clearing 

members must perform: 
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1. Periodic testing of disaster recovery and business continuity plans. 

2. Duplication of critical systems at back up sites. 

3. Periodic back-up of critical information. 

B. Key Staff Contacts. Clearing members must maintain and, at the request of the Exchange, provide 

accurate and complete information for their key personnel. Clearing members must inform the 

Exchange in a timely manner whenever a change to their key personnel is made. 

C. Additional and/or Alternative Requirements. Exchange staff may prescribe additional and/or 

alternative requirements in order for clearing members to comply with this Rule.