FIA.org 

By Electronic Mail 

May 24, 2023 

Mr. Christopher J. Kirkpatrick 

Secretary of the Commission 

Commodity Futures Trading Commission 

1155 2Pt Street NW 

Washington DC 20581 

CME Group 

Re: Petition for Order under Section 4(c) of the Commodity Exchange Act 

Dear Mr. Kirkpatrick: 

Background. As you are aware, on July 19, 2018, the Commodity Futures Trading Commission 

("Commission") issued an Order granting derivatives clearing organizations ("DCOs") an 

exemption from the provisions of Commission Rule l .25(a), 1 pursuant to which DCOs are 

authorized to invest euro-denominated futures and cleared swaps customer 'funds in eurodenominated sovereign debt issued by the French Republic and the Federal Republic of Germany 

("Designated Foreign Sovereign Debt"), subject to the terms and conditions set out in the Order 

(the "2018 Order").2 The 2018 Order further granted DCOs an exemption from the provisions of 

Commission Rule 1.25( d) to authorize such DCOs to enter into agreements for resale or repurchase 

(collectively, "repurchase agreements") with respect to Designated Foreign Sovereign Debt with 

foreign banks and foreign securities brokers or dealers3 and to hold Designated Foreign Sovereign 

Debt in a safekeeping account at a foreign bank. 4 

Commission rules referred to in this Petition are found at 17 CFR Chapter I (2022). 

2 Order Granting Exemption from Certain Provisions of the Commodity Exchange Act Regarding Investment 

of Customer Funds and from Certain Related Commission Regulations, 83 Fed. Reg. 35241 (Jul. 25, 2018). The 2018 

Order was issued following receipt of an application for exemption under section 4(c) of the Act submitted by ICE 

Clear US Inc., ICE Clear Credit LLC, and ICE Clear Europe Limited (collectively, the "ICE DCOs"). 

3 Commission Rule l.25(d)(2) provides that an FCM may enter into repurchase agreements only with a bank 

as defined in section 3(a)(6) of the Securities Exchange Act of 1934, a domestic branch of a foreign bank insured by 

the Federal Deposit Insurance Corporation, a securities broker or dealer, or a government securities broker or 

government securities dealer registered with the Securities and Exchange Commission ("SEC"). Under the 2018 

Order, a foreign bank must qualify as a permitted depository under Commission Rule l .49(d)(3) and must be located 

in a money center country or another jurisdiction that has adopted the euro as its currency; a foreign dealer must be 

located in a money center country and subject to regulation by a national financial regulator. 

4 Commission Rule l.25(d)(7) provides that securities transferred to an FCM under a repurchase agreement 

must be held in a safekeeping account with a bank as referred to in Rule l .25(d)(2), a Federal Reserve Bank, a DCO, 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page2 

CME Group Inc. ("CME") and the Futures Industry Association ("FIA") 5 each submitted a 

comment letter in response to the Commission's request for comment on the ICE DCOs' 

application, in which in which they generally supported the application, but also encouraged the 

Commission to extend any relief granted to all DCOs.6 FIA also urged the Commission to extend 

this relief to all FCM clearing members. 

The Commission elected to extend the requested relief to all DC Os but declined to extend the relief 

to FCMs, noting that FCMs are "a separate class of registrant subject to differing regulatory 

obligations that the Commission would need to consider on their own terms." Although FCMs are 

clearly a separate class of registrant, we submit FCMs have identical regulatory obligations with 

respect to the protection of customer funds. That is: (i) FCMs are required to "treat and deal with 

all money, securities, and property received by [an FCM] to margin, guarantee, or secure the trades 

or contracts of any customer ... as belonging to such customer"; (ii) such customer funds may 

only be deposited with a bank or trust company, a DCO or another FCM; (iii) investments of 

customer funds are subject to the requirements of Commission Rules 1.25 and 1.26; and (iv) 

customer funds may only be held in such denominations and depositories that meet the 

requirements of Commission Rule 1.49. 

FCMs also face the same challenges in assuring the protection of foreign currencies received from 

customers to margin cleared transactions. As the Commission observed in issuing the 2018 Order, 

cash held in an unsecured deposit account at a commercial bank is exposed to the credit risk of the 

bank. This risk is effectively eliminated, however, if a DCO or FCM is permitted to invest 

customer cash in the appropriate foreign currencies in Designated Foreign Sovereign Debt. 

Further, although investments through reverse repurchase agreements involve exposure to a 

commercial counterparty, "a DCO [ or FCM] would receive the additional benefit of receiving 

securities as collateral against that counterparty's credit risk". 7 Moreover, "in the event a securities 

custodian enters insolvency proceedings, [ a DCO or FCM] would have a claim to specific 

securities rather than a general claim against the assets of the custodian".8 From a risk management 

perspective, therefore, investing customer funds in Designated Foreign Sovereign Debt, whether 

or the Depository Trust Company. Under the 2018 Order, the foreign bank must meet the location and qualification 

requirements set out in Commission Rule l.49(c) and (d). 

5 FIA is the leading global trade organization for the futures, options, and centrally cleared derivatives markets, 

with offices in London, Brussels, Singapore and Washington DC. FIA's mission is to support open, transparent and 

competitive markets; protect and enhance the integrity of the financial system; and promote high standards of 

professional conduct. FIA's membership includes clearing firms, exchanges, clearinghouses, trading firms and 

commodities specialists from more than 48 countries, as well as technology vendors, lawyers and other professionals 

serving the industry. FIA's core constituency consists of firms that operate as clearing members in global derivatives 

markets, including firms registered with the Commission as futures commission merchants. 

6 Letter from Sunil Cutinho, Senior Managing Director and President, CME Clearing, to Christopher J. 

Kirkpatrick, Secretary to the Commission, dated January 16, 2018; and letter from Walt L. Lukken, President and 

Chief Executive Officer, FIA, to Christopher J. Kirkpatrick, Secretary to the Commission, dated January 16, 2018. 

83 Fed. Reg. 35241, 35242 (Jul. 25, 2018). 

Id. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page3 

by direct investment or reverse repurchase transaction is often a "prudent alternative to holding 

cash at-a commercial bank".9 

It is for this reason that, as a matter of appropriate risk management, and in certain cases as a result 

of governmental guidance, many clearing organizations located outside of the United States restrict 

the amount of cash that they may hold overnight. 1° Consequently, clearing organizations subject 

to EMIR impose strict cut-off times for FCMs and other clearing members to withdraw cash 

margin. On the other hand, non-US clearing organizations allow an FCM later cutoff times for 

withdrawal of securities margin. 

For other reasons, e.g., capital requirements or balance sheet management, not all banks will accept 

foreign currencies, and those that do may place limits on the amount of foreign currencies they are 

willing to accept. FCMs have found that, in certain cases, banks may charge an FCM high rates 

for holding foreign currencies deposited by customers. 11 As a result, FCMs face significant 

challenges in appropriately managing the risks of holding foreign currencies that customers 

deposit. , 

For all of the above reasons, FCMs, no less than DCOs, should have an opportunity to invest 

customer funds in Designated Foreign Sovereign Debt, provided such investments would meet the 

objectives of Commission Rule 1.25, i.e., preserving principal and maintaining liquidity. 12 

Petition for Amended Order. By means of this petition, FIA and the CME13 (collectively, the 

"Petitioners") are requesting the Commission, pursuant to section 4(c) of the Commodity 

Exchange Act ("Act"), 14 to adopt an order amending the 2018 Order or grant such other relief as 

9 Id. 

1

° For example, Article 45 of the regulatory technical standards on requirements for central counterparties, 

which gives effect to the provisions in EMIR governing the investment policies of EU central counterparties, provides: 

II 

12 

Where cash is maintained overnight in accordance with paragraph I then not less than 95% of such 

cash, calculated over an average period of one calendar month, shall be deposited through 

arrangements that ensure the collateralization of the cash with highly liquid financial instruments 

meeting the requirements under Article 45. 

Customers depositing such foreign currencies may absorb these costs. 

Commission Rule l.25(b ). 

13 The CME is acting solely on behalf of its affiliated DCO, the Chicago Mercantile Exchange. However, the 

CME expects that an amended Order would apply equally to all DCOs. 

14 Section 4( c) authorizes the Commission, by rule, regulation or order, to grant an exemption from any 

provision of the Act "[i]n order to promote responsible economic or financial innovation and fair competition". The 

Commission must find that the exemption is consistent with the public interest and the purposes of the Act and will 

not have a material adverse effect on the ability of the Commission or any contract market to discharge its regulatory 

or self-regulatory responsibilities under the Act. The relief requested herein will provide an exemption from certain 

provisions of section 4d of the Act and Commission Rules 1.25 and 1.49 thereunder. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page4 

the Commission may deem appropriate, to: (i) authorize FCMs to invest customer funds 15 in 

Designated Foreign Sovereign Debt and to enter into repurchase agreements with respect to such 

Designated Foreign Sovereign Debt to the same extent that DCOs are authorized to do so under 

the 2018 Order; and (ii) further extend the relief granted in the 2018 Order by authorizing both 

DCOs and FCMs to invest customer funds in, and enter into repurchase agreements with respect 

to certain "Specified Foreign Sovereign Debt", 16 subject to the terms and conditions below. 

Further, we ask that the amended Order exempt FCMs and DCOs from the provisions of 

Commission Rule 1.25( d)(2) and authorize such FCMs and DCOs to enter into repurchase 

agreements with respect to Specified Foreign Sovereign Debt with foreign banks and foreign 

securities brokers or dealers and to hold Specified Foreign Sovereign Debt in a safekeeping 

account at a foreign bank. As discussed below, however, we are also asking that the terms and 

conditions of this amended Order differ in certain important respects from the terms and conditions 

of the 2018 Order. 

Separately, the Petitioners ask the Commission to codify the relief initially provided to FCMs by 

the Market Participants Division ("Division") in CFTC Letter No. 21-02 and extended to DCOs 

by the Division of Clearing and Risk in CFTC Letter No. 22-21, which letters collectively 

authorize FCMs and DCOs to invest in adjustable rate securities that correlate closely to the 

Secured Overnight Financing Rate ("SOFR"), consistent with the provisions of Commission Rule 

1.25(b )(2)(iv). 17 

B. Terms and Conditions under the 2018 Order. The Petitioners expect that any 

Order or other relief the Commission would issue in connection with this petition would contain 

several conditions comparable to those set out in the 2018 Order. Specifically, we anticipate that: 

• A DCO or FCM would be permitted to invest customer funds only in Specified Foreign 

Sovereign Debt denominated in specified currencies to the extent that customers hold 

balances in such specified currencies in segregation. 18 

• Any foreign bank with which a DCO or PCM enters into repurchase agreements will 

qualify as a permitted depository under Commission Rule 1.49( d)(3) and will be located in 

a money center country; any foreign broker or dealer with which a DCO or FCM enters 

15 For purposes of this request for no-action, we define the term "customer funds" to include both "futures 

customer funds" and the "foreign futures and foreign options secured amount", as each term is defined in Commission 

Rule 1.3, and cleared swaps customer collateral, as defined in Commission Rule 22.1. 

16 For purposes of this request, the term "Specified Foreign Sovereign Debt" means, in addition to the 

sovereign debt of France and Germany, the sovereign debt of Canada, Japan and the United Kingdom (each, a 

"Specified Jurisdiction") that, in each case, satisfy the terms and conditions set out herein. 

17 CFTC No-Action Letter No. 21-02 (Jan. 4, 2021); CFTC Letter No. 22-21 (Dec. 23, 2022). 

18 For the avoidance of doubt, a DCO or FCM would be permitted to purchase only Specified Foreign Sovereign 

Debt of the country for which the specified currency is the fiat currency. That is, for example, a DCO or FCM holding 

Pound Sterling on behalf of customers would be able to purchase only Gilts issued by the United Kingdom with such 

Pound Sterling. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page 5 

into repurchase agreements will be located in a money center country and will be subject 

to regulation by a national financial regulator. 

• A DCO or FCM must hold customer Specified Foreign Sovereign Debt in a depository 

that meets the location and qualification requirements of Commission Rule 1.49( c) and 

(d). 

• If the two-year credit default spread of an issuing sovereign is greater than 45 basis points, 

a DCO or FCM (i) must discontinue investing customer funds in the relevant debt through 

repurchase agreements as soon as practicable, and (ii) may not make any new direct 

investments using customer funds. 19 

C. Additional Terms and Conditions. 

1. Specified Foreign Sovereign Debt. The 2018 Order was limited to 

investments in the euro-denominated sovereign debt of France and Germany. It was the ICE 

DCOs' position that restricting the proposed relief to investments in the publicly traded sovereign 

debt of France and Germany would be consistent with the objectives of Rule 1.25, i.e., preserving 

principal and maintaining liquidity. The ICE DCOs demonstrated that the euro-denominated 

sovereign debt of France and Germany compared favorably to the sovereign debt of the United 

States, particularly in presenting a low risk of default and maintaining significant liquidity. We 

agree with the analysis of the ICE DCOs and incorporate that analysis herein. 

In addition to investments in the euro-denominated sovereign debt of France and Germany, 

however, the Petitioners request the Commission to extend the exemption to include investments 

in the sovereign· debt of (i) Canada, (ii) Japan and (iii) the United Kingdom, in each case 

denominated in the respective currency of each country. As demonstrated below, the expanded 

Specified Foreign Sovereign Debt presents a low risk of default and maintains significant liquidity. 

2. Time to maturity. The 2018 Order provides that the dollar-weighted 

average of the time-to-maturity of each DCO's portfolio of investments in Designated Foreign 

Sovereign Debt, both direct investments and reverse repurchase agreements, may not exceed 60 

days. In lieu of the 60-day weighted-average time to maturity, the Petitioners believe that a dollarweighted average of the time-to-maturity of six months, computed on a currency-by-currency 

basis, would better assure sufficient liquidity, while preserving principal consistent with the 

provisions of Rule l .25(b ). FIA member firms report that the 60-day weighted-average of the 

time-to-maturity would be too limiting. The new issuance supply of the Specified Foreign 

Sovereign Debt meeting this restriction is limited and would be thinly traded/quoted, forcing 

participants to invest in less-liquid secondary market securities. 

3. Remaining maturity. The 2018 Order provided that DCO may not make 

a direct investment in any Specified Foreign Sovereign Debt with a remaining maturity greater 

19 The 2018 Order did not indicate whether the calculation of the basis point spread was to be based on the bid, 

offer or mid-level. We propose that the basis point spread be determined using the mid-level. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page6 

than 180 days. The Petitioners ask that the amended order issued hereunder provide that a DCO 

or FCM may not make a direct investment in any Specified Foreign Sovereign Debt with a 

remaining maturity greater than two years. An expansion to a two-year remaining maturity 

standard will help assure sufficient new issuances of Specified Foreign Sovereign Debt to provide 

additional supply and liquidity. An expansion to a two-year remaining maturity standard is 

consistent, further, with the two-year weighted average time-to-maturity in Rule l .25(b )( 4). 

D. Specified Foreign Sovereign Debt Compared with US Treasury Securities. As 

noted above, in their request for exemption, the ICE DCOs demonstrated that the eurodenominated sovereign debt of France and Germany compared favorably to the sovereign debt of 

the United States, particularly in presenting a low risk of default and maintaining significant 

liquidity. As such, authorizing investments in such sovereign debt would be consistent with the 

purposes of Commission Rule 1.25, i.e., preserving capital and maintaining liquidity. We suggest 

that it similarly would be consistent with the purposes of Rule 1.25 if the Commission were to 

authorize FCMs to invest in Specified Foreign Sovereign Debt, subject to the terms and conditions 

above. 

1. Low risk of default. In their request for exemption, the ICE DCOs 

demonstrated that the Designated Foreign Sovereign Debt, i.e., the sovereign debt of France and 

Germany, was generally regarded as having a low risk of default by comparing the credit ratings 

of France and Germany with the credit ratings of the US. The credit ratings of the Specified 

Foreign Debt similarly compare favorably to US credit ratings. The S&P credit rating for the US 

and France is AA, while the credit rating for Germany is AAA. The S&P credit ratings for Canada 

(AAA), Japan (A+) and the United Kingdom (AA) are comparable, reflecting the view that each 

jurisdiction is well able to service its public debt. 20 

We believe the low risk of default among the Specified Jurisdictions is further demonstrated by 

the relatively narrow spreads in credit default swaps on each jurisdiction's sovereign debt, as 

reflected in the following chart. The chart shows the mid-level current spreads and historic midlevel high and low spreads for the period April 2018 - April 2023. In each case, the spreads for 

20 The following chart confirms that Moody's and Fitch share the same views on the ability of each jurisdiction 

to service its debt. 

Credit Ratings (UPDATED) 

Country s&P Moody's Fitch 

United States AA+u Aaa AAAu 

Canada AAA Aaa AA+u 

France AAu Aa2u Aau 

Germany AAAu Aaau AAAu 

United Kingdom AAu Aa3u M-u 

Japan A+u Al Au 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page 7 

the Specified Foreign Sovereign Debt are within the 45 basis point limit the Commission set in the 

2018 Order. 

Mid Levels - 2Year CDS Spreads in bps (April 2018 - April 2023) 

Canada 93.96 92.4 5.2 15.1 

us 18.56 23.6 7.3 13.9 

United Kingdom 15.19 17.8 4.3 12.2 

France 12.86 21.9 5.1 9.6 

Japan 9.97 18.3 4.2 7.4 

Germany 5.63 19.3 2.7 5.3 

Based on the foregoing, the Petitioners submit that the risk of default among the Specified 

Jurisdictions is comparable to the risk of default by the US government. Consequently, 

investments in such Specified Foreign Sovereign Debt would be consistent with the objective of 

preserving capital, as set forth in Rule 1.25(b ). 

2. Significant Liquidity. As reflected in Appendix 1 to this request, the 

trading markets for each of the Specified Jurisdictions demonstrate high liquidity and accessibility 

at various maturities. Among other data, Appendix 1 sets out the outstanding debt of each 

Specified Jurisdiction and the US (both marketable and non-marketable) and the marketable public 

debt (in USD equivalents) where the time-to-maturity is two years or less.21 As Appendix 1 also 

demonstrates, there is also an active secondary market for each of the Specified Foreign Sovereign 

Debt. In addition, there are active repo markets for the Specified Foreign Sovereign Debt as 

supported by the chart set out in Appendix 2, published by the Bank of International Settlements. 

Appendix 2 provides data on total repurchase and reverse repurchase transactions against 

sovereign debt as ofmid-2016.22 

21 Source: Bloomberg, as of April 2023. 

22 Source: Repo market functioning, CGFS Papers, No. 59, Committee on the Global Financial System, Bank 

for International Settlements, dated April 2017. The depth of liquidity in the European market for repurchase and 

reverse repurchase transactions is described in detail in the most recent survey published by the International Capital 

Market Association, available at hu s://www.icma rou .or assets/lCMA-Euro ean-Re o-Market-Surve -Number44.pdf. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page 8 

The high level of liquidity is further reflected in the relatively tight bid-offer spreads among bills 

and short coupons and evidences our belief that the markets in Specified Foreign Sovereign Debt 

is sufficiently liquid to permit DCOs and FCMs to sell any such investments when necessary to 

obtain cash without substantial devaluation.23 

In sum, the Petitioners believe the Specified Foreign Sovereign Debt would constitute a 

conservative and prudent investment consistent with the purposes of Rule 1.25. Subject to the 

terms and conditions set out above, we request the Commission to authorize FCMs to invest in 

Specified Foreign Sovereign Debt. 

II. Adjustable Rate Securities 

As noted above, in January 2021, the Markets Participants Division issued a no-action letter 

authorizing FCMs to invest in certain adjustable rate securities that correlate to SOFR, consistent 

with the provisions of Commission Rule 1.25(b )(2)(iv). This no-action letter was scheduled to 

terminate on December 31, 2022. However, by letter dated December 23, 2022, the Market 

Participants Division and Division of Clearing and Risk expanded the scope of this no-action relief 

to cover DC Os and extended the relief to the earlier of December 31, 2024 or the effective date of 

any final Commission action addressing the addition of SOFR as a permitted benchmark for 

investments of customer funds. 24 For the reasons set forth in the above-referenced CFTC letters, 

the Petitioners ask the Commission to codify the staff's no-action relief, authorizing FCMs and 

DCOs to invest in adjustable rate securities that correlate to SOFR, consistent with the provisions 

of Commission Rule 1.25(b )(2)(iv). 

III. Additional Matters 

A. US Treasury ETFs. As the Commission is aware, certain DCOs, including the 

Chicago Mercantile Exchange, accept qualifying Short-Term US Treasury ETFs as initial margin 

for open positions. 25 Based on our analysis to date, it appears that US Treasury ETFs have 

23 We note that securities are marked-to-market daily and any change in value is reflected in the daily 

segregation calculation required under Commission Rules 1.32, 30. 7 and 22.2. Therefore, any devaluation in Specified 

Foreign Sovereign Debt securities is_ taken into account in the FCM's relevant segregation computation. If the 

devaluation in securities impairs the FCM's excess residual interest, the FCM is required to increase residual interest 

to maintain its Targeted Residual Interest amount, effectively protecting the customer. 

24 CFTC No-Action Letter No. 22-21 (Dec. 23, 2022). 

25 Consistent with the definition of a US Treasury ETF set out in the Securities and Exchange Commission staff 

no-action letter discussed immediately below, a US Treasury ETF is defined to mean: (i) an open-ended management 

company registered with the SEC under the Investment Company Act of 1940, as amended ("1940 Act") that issues 

securities redeemable at the net asset value ("NA V"); that (ii) invests solely in cash and US government securities that 

are eligible securities under paragraph ( a)( 11) of Rule 2a-7 under the 1940 Act, limited to US Treasury floating and 

fixed rate bills, notes, and bonds with a remaining term to final maturity of 12 months or less, government money 

market funds as defined in Rule 2a-7, and/or repurchase and reverse repurchase agreements with a remaining term to 

final maturity of 12 months or less collateralized by US Treasury securities or other government securities with a 

remaining term to final maturity of 12 months or less. 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page 9 

characteristics that may be consistent with already permitted investments under Rule 1.25 and may 

provide FCMs and DCOs an opportunity to diversify further their investments of customer funds. 

The Petitioners, therefore, request the Commission to authorize FCMs and DCOs to invest 

customer funds in Short-Term US Treasury ETFs. 

We also ask the Commission to confirm that US Treasury ETFs will be subject to the same capital 

haircuts as the staff of the Securities and Exchange Commission ("SEC") currently permits. 26 In 

this regard, the staff of the SEC's Division of Trading and Markets recently issued a no-action 

letter in which the staff stated that staff would not recommend that the Commission initiate an 

enforcement action to under section 15(c)(3) of the Securities and Exchange Act Exchange Act 

and SEC Rule 15c3-1 thereunder, if a broker-dealer elects to take the haircut deduction specified 

in paragraph (c)(2)(vi)(D)(l) of Rule 15c3-1 (currently 2%) on the market value of the greater of 

the portion of the broker-dealer's long or short position in the size of a redemption unit or multiple 

of a redemption unit) of US Treasury ETF shares, subject to the following conditions: 

• The broker-dealer is not aware of any substantial operational problem that the US Treasury 

ETF may be experiencing; 

• The US Treasury ETF shares can be redeemed by a broker-dealer through an authorized 

participant, the redemption of the US Treasury ETF's shares can be settled in exchange for 

a basket of the ETF's underlying securities and/or cash by T+ 1, and the US Treasury ETF 

has committed in its registration statement to permit shareholders, except in extraordinary 

circumstances, to settle transactions within that timeframe; and 

• The US Treasury ETF's shares are listed for trading on a national securities exchange and 

trades of such shares are settled in accordance with the standard settlement cycle prescribed 

by Rule 15c6-1 under the Exchange Act.27 

B. Cleared Repurchase Agreements 

As the Commission may recall, over the past several years, FIA's FCM member firms have been 

weighing the costs and benefits of cleared repur~hase transactions and whether FIA should request 

the Commission to amend, or otherwise grant relief from, the provisions of Rule 1.25( d), which 

26 For the avoidance of doubt, FCMs would apply the haircuts as prescribed by the SEC staff no-action relief 

for qualifying US Treasury ETFs pledged by customers for purposes of initial margin, capital and segregation 

calculations. 

27 Letter from Michael A. Macchiaroli, Associate Director, Division of Trading and Markets, to Kris Dailey, 

Vice President, Risk Oversight & Operational Regulation, Financial Industry Regulatory Authority ("FINRA"), dated 

June 2, 2022. This letter, which may be accessed at https://www.sec.gov/divisions/marketreg/mr-noaction/2022/finra060222-l5c3-1.pdf, supersedes an earlier letter on the same issue from Michael A. Macchiaroli, Associate Director, 

Division of Trading and Markets to Mark D. Fitterman, Senior Counsel, Morgan, Lewis & Bockius LLP, on behalf of 

Invesco PowerShares Capital Management LLC, dated March 6, 2018. 
Mr. Christopher J. l(jrkpatrick 

May 24, 2023 

Page 10 

restrict permitted counterparties to banks and broker-dealers.28 In October 2022, the SEC proposed 

rules establishing standards for covered clearing agencies for US Treasury securities that may 

affect FCMs' ability to access cleared repurchase transactions.29 Although we remain interested 

in cleared repurchase transactions as a permissible investment, we believe it would be appropriate 

to postpone further consideration until the SEC has taken final action on its proposed rules. 

* * * * 

The Petitioners respectfully request the Commission, pursuant to section 4( c) of the Act, to adopt 

an order amending the 2018 Order, or grant such other relief as the Commission may deem 

appropriate, authorizing DCOs, FIA's FCM member firms and similarly situated FCMs, 

notwithstanding sections 4d(a) and 4d(t) of the Act and the provisions of Rule 1.25, to: 

• Invest customer funds in the sovereign debt of Canada, France, Germany, Japan and the 

United l(jngdom, subject to terms and conditions set forth above; 

• Buy and sell such Specified Foreign Sovereign Debt pursuant to agreements for resale or 

repurchase; and 

• Invest in adjustable rate securities that correlate closely to the Secured Overnight Financing 

Rate, consistent with the provisions of Commission Rule 1.25(b)(2)(iv). 

For the reasons set forth above, we believe that that requested relief is consistent with the public 

interest and the purposes of the Act and the Commission's rules. In particular, such relief will be 

consistent with the objectives of preserving principal and maintaining liquidity as required under 

Commission Rule 1.25(b ), while permitting DCOs and FCMs to manage more efficiently the 

investment of customer funds. Further, because the DCOs and FCMs that will take advantage of 

the reliefrequested herein will be subject to the continued oversight of the Commission and, in the 

case ofFCMs, the Joint Audit Committee with respect to such activities, the requested relief "will 

not have a material adverse effect on the ability of the Commission or any contract market 

... to discharge its regulatory or self-regulatory duties under this Act".30 

Separately, we ask the Commission to confirm that US Treasury ETFs will be subject to the same 

capital haircuts as the staff of the SEC currently permits. 

28 See, letter from Walt L. Lukken, President and Chief Executive Officer, FIA, to Christopher J. Kirkpatrick, 

Secretary to the Commission, dated September 14, 2019. 

29 Standards for Covered Clearing Agenciesfor US. Treasury Securities and Application of the Broker-Dealer 

Customer Protection Rule With Respect to U.S. TreasWJ' Securities, 87 Fed. Reg. 64610 (Oct. 25, 2022). 

30 Act§ 4(c)(2). 
Mr. Christopher J. Kirkpatrick 

May 24, 2023 

Page 11 

If the Commission or the staff have any questions regarding this request for exemption pursuant 

to section 4( c) of the Act and guidance with regard to other matters discussed herein, please do not 

hesitate to contact me at 202.466.5460 or alurton@fia.org~ or Michael Kobida, Executive Director, 

Collateral Services, at 312.454.8961 or michael.kobida@cmegroup.com. 

Respectfully submitted, 

Allison Lurton 

General Counsel and Chief Legal Officer 

Futures Industry Association 

Sean Downey 

Managing Director 

Clearing CCO, ERO & Policy 

M +1 (312) 316-4948 

sean.downey@cmegroup.com 

CME Group 

cc: Rostin Behnam, Chainnan 

Kristin N. Johnson, Commissioner 

Christy Goldsmith Romero, Commissioner 

Summer K. Mersinger, Commissioner 

Caroline D. Pham, Commissioner 

M. Clark Hutchison III, Director, Division of Clearing and Risk 

Amanda Olear, Director, Market Participants Division 

Enclosure: Appendix 1 and Appendix 2 
Appendix 1 

Support for Rule 1.25 

Specified Sovereign Debt 

Expansion 

F 

1 
Canada Jo .., United Klnadom f,-.n,e Garmany Unlt1d stoles 

BIiis Short Couoons BIik Short Coupans BIils Short Coupons Iii , Short CouD11ns IOl1 Short Couaons a111, Short Cou.,.,ns 

• 3/6/12mo bill tenors • 2yr notes auction is • 3/6/12mo bill tenors • 2yr notes auctions • 1/3/6mo blll tenors • Syr auctions are • 3/6/12mo bill tenors • More issuance and • Issued weekly and • Very liquid and trade • 4/8/13/26 week and • 2yr notes are 

• Bi-monthly auctions: about 4x a quarter • Weekly auctions, occur monthly on • Weekly auctions, confirmed quarterly, • Issued weekly on more frequently quite liquid similarly to US Ts 119 CMB bills are auctioned monthly 

Tuesday auction, • Frequency could occur every Friday for month end occur every Friday expected to occur Monday • Short dated bunds issued weekly 

Thursday settle change depending on 3mo * Very liquid market every ~4 weeks • Very liquid market are less frequently * 52 week bill issued 

• The 6mo and 12mo government budget •Gmo / twice a month for on-the-run quoted in the screens every 4 weeks 

bills are re-opened * Less liquid • there is *12m/ once a month as competitively as * Cash management 

every 2 weeks to build stlll trading but it • The 6mo and 12mo other markets, bills do not have a 

liquidity would just be more bills are less Hquid therefore has the regular schedule 

• 3mo tenor Is the expensive compared to the 3mo widest market 

Auction frequency largest, never new, has bill 

more liquidity • Daily volume may be 

small, as buyers tend 

to hold to maturity 

9·12Bn CAD 3Bn CAD, but will * 3mo: S.7Tn JPY 2.BTn JPY Currently £500mm -£3-3.SBn • Every 5 weeks, there Size varies per tenor, ~(4Bn on average for Sizes vary based on Treasury financing needs; 

depend on • 6mo: 3.4Tn JPY lmo/£500mm is about 8 yards in ""€1-2.SBn shorter dated average since beginning of 2022: 

There are bi-weekly government budget *12mo: 3.STn JPY 3mo/£lbn 6m, but si2:e supply for 2-Syrs in securities 4wk: 49Bn USD 

auctions (3mo, 6mo, varies maturity Bwk: 39Bn USD 

lyr), which helps keep 13wk: 60Bn USD 

the current on the run 26wk: SlBn USD 

bills liquid 52wk: 34 Bn USO 

119 day CMB: 39Bn USO 

Auction size (in local currency) 6mo and lyr bills are 

Primary market (issuance size) auctioned twice ( once Typical blll maturities are 3M, 6M, and 12M. Typical bill maturities are lM, 3M, and 6M with Typical auction size in b!Us is ~{S.5bn every Typical auction size Is €3-Gbn every week 

as new and once as Heavy Issuance in the 1-SY. with £34bn ($44.?bnj outstanding at 3/17/22. week 

reopening) Maturities can also range between 1 and 364 

days. 

3mo bills are reopening of previously issued Average 2 week trading volume of JGB is Weekly gilt trading volumes is around ~£140Bn Average dally trading volume of OAT futures is Average daily secondary market trading volume Average daily trading volume "-'$157bn for bills 

bills around ¥6Tn with average bid-ask spreads of across end user and dealer with "'£40Bn in the around ""'€14bn with activity in the underlying of bunds are around historical average of and $94811 for <2yr notes. 

Average trading volume post When Issued (WI} lbp. front end 1<7y} cash market significantly less. ~t:19Bn per day. 

Secondary Market ( volume trading is 1·2Bn CAD Secondary a lot less liquid. On average, 0-2y 

liquidity) trades In ¥300-SOOBn a day, or ¥3-STn over Bills - secondary market is typically thin with 

two weeks <£500mm-£lbn clearing per week depending 

on outstandings. 

F 
canada la an United Kln1dom Ft•nce GetmlM Un~•dStltu 

nm, Short CouDOns llltr Short Couoons INlf Short Counons BINS Short Coupons IIDI> Short Couoons ems Short Couoons 

0.5-lbp 1-2bps • 3mo: 1-2bps lbp 2bps 3-4bps Can vary but for on the 3-4.Sbps for on the run ~3bps in the screen; Dependent on issue 0.5-lbp on the tun: O.Sbp 

• 6/12mo: 34bps run1 it Is expected to "'Sbps in the short.est 

Bid offer spread be 1-2bps maturity 

https://www.bankofcanada.ca/markets/govern https://www.mof.go.jp/english/jgbs/auction/ca https://www.pwlb.gov.uk/data/pdfdatareport? https://www.aft.gouv.fr/en/dernieres- bllglii·lbJJ::&t. dcut:icbc· https://www.treasurydlrect.gov/lndiv/products 

ment-securftfes-auctions/calls-for-tenders-and- lendar/index.htm reportCode=D5D adjudications fimmzage tuc delc liD$;lill.11i2 al: /prod_auctions_glance.htm 

Auction website results/ ~c:il1:2c:1l12cimaecmaclsc~ausai12 -ct::;iUIUil 

l otal Outstanding Debt (In l.196Tn 10.179Tn 2.836Tn 2.452Tn l.803Tn 24.IIOTn 

USD, as of March 22, 2022 by 

Bloomberg) 

454Bn 2.8Tn 360.296Bn 540.514Bn 579.754Bn 10.379Tn 

Total Amount Outstanding for 

2yrs or less (in USO of March 

22, 2022 by Bloomberg) 

Trading desk uses FIT more than BVAL; FIT may Trading desk references BGN pricing Trading desk references BGN pricing, does not Desk uses internal pricing and references Desk uses internal pricing and references Desk uses Internal pricing and external vendor 

Pricing be few bps wider than internal desk's pricing use BVAL external vendor (Tradeweb) external vendor {Tradeweb) (Tradeweb), sometimes FIT 

Rating (S&P/Moody's/Fitch) AAA/Aaa/AA+ A+/AI/A AA/Aa3/AA- AA/Aa2/AA AAA/ Aaa/ AAA AA+/Aaa/AAA 

The Bank of Canada participates in weekly Sank of Japan participates in weekly Bills are used more frequently for liquidity Compared to German debt, daily trading Among European debt, bunds are one of the Daily trading volumes for U.S Treasuries are 

repurchilses for the short coupons and can buy repurchases, "'¥5009n-2.0Tn compared to short coupons. volumes for Fre-nch government securities have most liquid. This is shown from the reliltively stable with very tight bid-ask spreads. Strong 

up to 18mos in duration Gilts relatively liquidity with SOE, been relativelv more volatile with significantly stable historical trading volume along with liquidity with robust domestic and foreign 

JGBs relatively liquidity with healthy trading Insurance/Pensions, and Overseas investors smaller notional amounts. Minimal trading in tight bid-offer spreads. demand. 

Market stress in the market reCently has volume and tight bid-ask spreads. BoJ owns holding 90% of the market. Trading volume short term OATs. 

obviously made the products slightly less liquid "'44% of outstanding with Banks and Insurance has been relatively stable wtth gradual increase 

but this rs the case across Canada's as a whole Companies owned a combined 34%. Foreign over the past few years. 

and not limited to the front-end. Investors own "'50% of the outstanding T-Bill 

Other Comments market. 

BOJ conducts purchasing operation called 

Rinban with the following amount and 

frequency for March. They have been reducing 

the siz.e and frequency since July 2018. 

F 
120 

100 

80 

60 

40 

20 

0 

United Statu -ii 

Canada 

:trance ~ -;I 

German 

united 

i<:1n· dom 

I •, 

~·~,u,•~ 

·•~ I ' ...... ~ .... ln_,~.,~" ------~ I 

.....,,~~~~itl!!!eU"iiK ...,...,..~~'t~~~~,,..,,,-~n c 1111111'111,-..-...,.111r=111&...,-

104.9 6.8 107.23 92.4 5.2 93.96 79.9 3.6 80.69 

26.5 9.7 22.85 23.6 7.3 18.56 20.7 4.8 14.26 

25.6 6.1 14.14 21.9 5.1 12.86 19.1 2.7 11.58 

21.6 3.6 7.8 19.3 2.7 5.63 17 0.3 3.46 

20.2 5.8 17.29 17.8 4.3 15.19 15.5 2.9 13.1 

20.5 6.1 11.4 18.3 4.2 9.98 16.2 2.1 8.55 

Historical Ask/Mid/Bid 2yr Sovereign CDS Spreads from April 2018\pril 2023 and the Current Spreads 
-,-----~_:.~_~_----. -

~------IN'~ I •.-

• . ' .. - . ' • ·-· . 

= II • 

. --

Source : The Bank of International Settlements 

Size of repo markets Table l 

Repo and reverse repo transactions against government bonds (mid· 2016) 

Jurisdiction Amounts outstanding As a share of global total As a share of outstanding 

(m USO billions) (in%) government debt securities 

in jurisdiction (in %) 

Euro area 2,800 32 32 

United States 2.700 30 16 

Japan1 2,200 23 21 

United Kingdom 900 10 33 

Canada 211 2 18 

Australia 106 l 18 

Mexico 79 l 21 

Sweden 74 1 44 

Switzerland2 10 0.1 11 

Totat 8.800 100 

Ontyrepos againit secunt1es issued by thecentr.-1 govemment are included. Euro .wea repos anc;tude those b.Klced 

by the central govemments of Austria. Belgium. Finland. France. Germany. lta~. the Netherlands and Spain. The 

global total ,s defined as the total of the ,.msdichons in the ~hie. The numbers may not add up due to rounding. 

1 Includes transactions against non-government bonds.: however. most repo transacuons in Japan are made 

against gavemment bond colateral " Comprises onty repo transacbOn~ denominated in Sw,ss fr.ancs against 

high-quality l,quid!ty as$et (HQlAl collateral (wh1Ch does not excluswety c:ons,st of government debtl conducted 

in Swrtzerland. 

Sources: Bank of England Sterhng Money Matlcet Survey (United Kingdom); other nat10nal central banks,; ICMA 

Repo Survey (euro .1reat· TokyO Money Market Survey (Japan); SIFMA (United Stat~s); BIS debt secunt,es s~tishes. F