The Dodd-Frank Act amended Section 5b of the Commodity Exchange Act by adding new Derivatives Clearing Organization (“DCO”) Core Principle R regarding Legal Risk. The CFTC has proposed to adopt new Regulation 39.27, which contains requirements to implement Core Principle R. The Regulation will require a DCO that provides clearing services outside of the U.S. to, among other things, “specify a choice of law” in its contractual agreements.
Previously, CME Group published proposed CME, CBOT and NYMEX Rule 905 and requested comments from interested parties prior to the rule being made effective. No objections or significant comments were received. Therefore, CME, CBOT and NYMEX Rule 905 was adopted and made effective on April 4, 2011. The Rule is presented below.
Rule 905. Choice of Law.
The Rules of the Exchange shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to its conflict-of-law principles. Except as otherwise provided in Chapters 4, 5 and 6 of the Rulebook, any action, claim, dispute or litigation of any kind between the Clearing Member and the Exchange arising from the Clearing Member’s membership in the Exchange shall be adjudicated in a federal or state court in Chicago, Illinois. Clearing Members consent to the jurisdiction of such court and to service of process by any means authorized by Illinois or U.S. federal law, and shall not seek to transfer the venue of such litigation.
If you have any questions, please contact the Legal Department at (312) 930-3333.