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Jason Silverstein

Executive Director and Associate General Counsel

Legal Department

December 22, 2015

VIA EMAIL

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 39.5(b). Acceptance of Certain FRAs for Clearing.

CME Submission No. 15-588

Dear Mr. Kirkpatrick:

Chicago Mercantile Exchange Inc. (“CME”), pursuant to Commodity Futures Trading 

Commission (“CFTC” or “Commission”) Regulation 39.5(b), hereby notifies the 

Commission of the acceptance of the following interest rate swaps (“IRS”) for clearing on 

November 10, 2014:

 Forward Rate Agreements denominated in Australian Dollar (“AUD”), Canadian 

Dollar (“CAD”), New Zealand Dollar (“NZD”), Polish Zloty (“PLN”), Swedish Krona 

(“SEK”) and South African Rand (“ZAR”) with maturities from 3 days to 3 years; and 

 Forward Rate Agreements denominated in Swiss Franc (“CHF”), Czech Koruna 

(“CZK”), Danish Krone (“DKK”), Hong Kong Dollar (“HKD”), Hungarian Forint 

(“HUF”), Norwegian Krone (“NOK”) and Singapore Dollar (“SGD”) with maturities 

from 3 days to 2 years (cumulatively with the aforementioned maturities from 3 

days to 3 years, the “FRAs”). 

This filing supplements our previous CME Submission No. 12-053, dated February 22, 

2012 (Mandatory Clearing Determination for Pre-Enactment Swaps and Swaps Cleared as 

of February 1, 2012) and CME Submission No. 12-275, dated August 30, 2012

(Notification of the Acceptance of Zero Coupon Swaps (USD, EUR and GBP) and 

Overnight Index Swaps (USD, EUR, GBP and JPY)), which together include information 

relevant to the FRAs pursuant to Commission Regulation 39.5(b)(3). The information in 

CME Submission Nos. 12-053 and 12- 275 with respect to IRS is incorporated herein. 

Pursuant to Regulation 39.5(b)(3)(iii), the product specifications for the swaps referenced 

above are attached hereto as Exhibit A.

39.5(b)(3)(i): Eligibility to Accept FRAs for Clearing

Pursuant to Regulation 39.5(b)(3)(i), CME states that it is eligible to accept the FRAs for 

clearing. Should the Commission determine that such swaps are required to be cleared, 

CME will be able to maintain compliance with the DCO core principles set forth in Section 

5b(c)(2) of the Commodity Exchange Act and the regulations promulgated thereunder.
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In accordance with Regulation 39.5(b)(3)(ii)-(viii), we are providing the following information 

in support of this submission:

39.5(b)(3)(ii)(A) Statement on Significant Outstanding Notional Exposures, Trading 

Liquidity and Pricing Data

Average daily notional volume information for the FRAs from SDR data for 1/1/2015 

through 11/30/2015 is shown below. 

FRA 

Currency

Average Daily 

Notional Volume

CZK $0.12

PLN $0.29

AUD $3.18

CAD $0.01

CHF $0.93

DKK $0.09

HKD n/a

HUF $0.30

NOK $1.19

NZD $0.41

SEK $2.44

SGD n/a

ZAR $0.92

Volumes measured 1/1/2015 through 11/30/2015

Figures are single-counted and shown in billions of USD Equivalent

39.5(b)(3)(ii)(B): Rule framework, capacity, operational expertise and resources, and 

credit support infrastructure

The rule framework for the FRAs is the same as all other IRS cleared by CME and can be 

found in the CME Rulebook. This Rulebook is available at www.cmegroup.com/marketregulation/rulebook.index.html, which includes links to pertinent product chapters in the 

CME Rulebook and incorporates the Manual of Operations for CME Cleared Interest Rate 

Swaps (the “IRS Manual”). CME Clearing’s “Risk Management and Financial Safeguards” 

brochure (the “Risk Management Brochure”) available at 

http://www.cmegroup.com/clearing/files/financialsafeguards.pdf contains information 

regarding CME’s risk management capacity, expertise, resources, and financial safeguards 

system.

39.5(b)(3)(ii)(C): Statement on the Mitigation of Systemic Risk

While markets in certain OTC derivatives asset classes continued to function well during 

the financial crisis, the crisis demonstrated the potential for systemic risk arising from the 

interconnectedness of OTC derivatives market participants and the limited transparency of 

bilateral counterparty relationships. To help mitigate systemic risk in the OTC derivatives 

markets, the G-20 Leaders agreed that all standardized OTC derivatives contracts should 

be cleared through central counterparties by the end of 2012. One of the key goals of the 
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Dodd-Frank Act is the reduction of systemic risk through the use of central clearing for 

OTC derivatives.

As a central counterparty, CME interposes itself between counterparties to the swaps (and 

other derivatives products) that it clears, becoming the buyer to every seller and the seller 

to every buyer. For each swap that it clears, CME provides all clearing house services, 

including a mark-to-market function, on a daily basis. Depending upon the particular asset 

class, CME may standardize contract-critical dates (e.g., start dates, last trade dates, 

expiry dates) and other contract terms. This may enable customers who hold positions to 

liquidate or to adjust positions simply by buying back or selling the relevant contracts. The 

associated benefits are considerable:

• Centralized clearing. Clearing the FRAs through CME allows market participants to free 

up counterparty credit lines. The daily mark-to-market process employed by CME enhances 

customer risk management.

• Operational efficiencies. Centralized clearing of swaps reduces operational burdens in 

several ways. Standardization and centralized clearing enables consolidation of collateral 

management and cash flows and eliminates the need for novations or tear-ups.

• Ease of position adjustment. In non-cleared markets, the only means to completely 

eliminate the risk of a swap is to (i) enter into a tear-up agreement with the swap counterparty, 

or (ii) enter into a novation (i.e., find another entity willing to assume its side of the swap). In 

either case, the tear-up or the novation must be approved by the bilateral swap counterparty. 

For most asset classes, central clearing may be used to offset by a contra trade.

As further described in the Risk Management Brochure, CME has the necessary resources 

available to clear the FRAs.

39.5(b)(3)(ii)(D): Statement on Competition and Appropriate Fees and Charges

CME does not believe that the clearance of the FRAs will have any negative impact, or 

impose any burden, on competition. CME’s schedule of fees for IRS can be found at 

http://www.cmegroup.com/trading/interest-rates/files/cleared-otc-irs-customer-fees.pdf.

39.5(b)(ii)(E): Statement on Legal Certainty and Insolvency

The bankruptcy of a DCO is governed by subchapter IV of Chapter 7 of the U.S. 

Bankruptcy Code (11 U.S.C. §§ 761-767), and by Part 190 (Bankruptcy) of the 

Commission’s regulations. Also relevant in the event that CME were to enter into 

bankruptcy proceedings is CME Rule 818 (Close-Out Netting) included in Chapter 8 

(Clearing House and Performance Bonds) of the CME Rulebook. CME Rule 818 (CloseOut Netting) is included in CME Rulebook Chapter 8.1

The bankruptcy of a clearing member that is a U.S. futures commission merchant (“FCM”) 

would be governed by subchapter IV of Chapter 7 of the U.S. Bankruptcy Code (11 U.S.C. 

§§ 761-767) and Part 190 (Bankruptcy) of the Commission’s regulations. If an FCM is 

 

1

http://www.cmegroup.com/rulebook/CME/I/8/8.pdf
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registered as a broker-dealer, certain aspects of its insolvency proceeding may also be 

governed by the Securities Investor Protection Act.

39.5(b)(3)(iii): Product Specifications

Attached as Exhibit A are the product-specifications for the FRAs, which are incorporated 

into CME’s IRS product scope on its website at www.cmegroup.com/irs.

39.5(b)(3)(iv): Participant Eligibility Standards 

CME Rule 8G04 (IRS Clearing Member Obligations) and the IRS Manual specify the 

requirements for IRS Clearing Members. 

39.5(b)(3)(v): Pricing Sources 

Chapter 8 (End of Day Valuations) of the IRS Manual describes IRS pricing. 

39.5(b)(3)(vi): Risk Management Procedures

The Risk Management Brochure2summarizes CME’s risk management procedures applicable 

to the clearing of IRS.

39.5(b)(3)(vii): Rules, manuals, policies, or procedures

The product rules for the FRAs are currently in Chapters 900 and 901 of the CME 

Rulebook and incorporated herein.3

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

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

If you require any additional information regarding this submission, please contact me at (212)

299-2228 or via e-mail at CMEGSubmissionInquiry@cmegroup.com. Please reference our 

CME Submission No. 15-588 in any related correspondence.

Sincerely,

/s/ Jason Silverstein

Executive Director & Associate General Counsel

Attachment: Exhibit A

 

2

http://www.cmegroup.com/clearing/files/financialsafeguards.pdf

3

http://www.cmegroup.com/rulebook/CME/VIII/900/900.pdf

http://www.cmegroup.com/rulebook/CME/VIII/901/901.pdf
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EXHIBIT A

39.5(iii): Product Specifications

Instrument 

Type

Acceptable 

Currencies

Leg Types Floating Rate Options Maturity Range

FRAs

AUD - Floating AUD-BBR-BBSW 3 days to 3 years

CAD - Floating CAD-BA-CDOR 3 days to 3 years

CHF - Floating CHF-LIBOR-BBA 3 days to 2 years

CZK - Floating CZK-PRIBOR-PRBO 3 days to 2 years

DKK - Floating DKK-CIBOR-DKNA13

DKK-CIBOR2-DKNA13

3 days to 2 years

HKD - Floating HKD-HIBOR-HKAB 3 days to 2 years

HUF - Floating HUF-BUBOR-Reuters 3 days to 2 years

NOK - Floating NOK-NIBOR-NIBR 3 days to 2 years

NZD - Floating NZD-BBR-FRA 3 days to 3 years

PLN - Floating PLN-WIBOR-WIBO 3 days to 3 years

SEK - Floating SEK-STIBOR-SIDE 3 days to 3 years

SGD - Floating SGD-SOR-VWAP,

SGD-SOR-Reuters (Incoming)

3 days to 2 years

ZAR - Floating ZAR-JIBAR-SAFEX 3 days to 3 years