FINANCIAL AND REGULATORY BULLETIN
TO: Chief Financial Officers
Chief Compliance Officers
DATE: January 2, 2015
SUBJECT: Enforcement Position – Individual Member Trading Policy
CFTC’s enhanced customer protection rules imposed significant regulatory obligations on FCMs. One section of such customer protection enhancements involving risk management recently became effective in July 2014. As part of those rules, CFTC Regulation 1.11: Risk Management Program, broadly requires, FCMs to establish, maintain and enforce a system of risk management policies and procedures designed to monitor and manage the risks across defined sections of accounts and across exchanges. Also, in the CFTC’s effort to enhance FCMs’ risk management, effective November 14, 2014, FCMs are required to take an undermargined capital charge for futures customer, noncustomer and omnibus accounts with margin calls outstanding greater than one business day.
In light of these enhanced risk management requirements, CME Group is aligning performance bond policies for clearing members across CME, CBOT, NYMEX and COMEX. Effective January 2, 2015, CME Group will expand CME’s current Individual Member Trading Policy to individual members of CME, CBOT, NYMEX and COMEX. The individual member trading policy is based on a portion of the individual member’s membership value, a clearing member’s ability to have the Exchange force a sale of the membership in accordance with Exchange Rule 133 and the clearing member’s priority claim on the proceeds of such sale in accordance with Exchange Rule 110. Specifically, based on a portion of the membership value, the individual member trading policy allows individual members who own and hold their membership to continue to trade futures and options products within their Exchange and division of membership held (“covered products”) while undermargined or in debit beyond a reasonable time provided the undermargined/debit amount is less than the lessor of:
1) $100,000; or,
2) ½ the current value of the membership.
This policy shall not be available to individual members if (1) their membership is assigned to a clearing member in accordance with Exchange Rule 902; or (2) a clearing member is guaranteeing a loan made to the individual member for the purchase of the membership.
This policy only allows individual members to continue to trade covered products and to provide market liquidity within limits. No portion of the membership value may be considered acceptable performance bond collateral. Therefore no portion of the membership value may be utilized in computing an account’s margin equity when computing the required performance bond calls, the FCM’s undermargined capital charges or their residual interest requirement. Further the membership may not be used to offset/secure debit/deficits on the segregation statement or balance sheet or residual interest requirements.
In accordance with Exchange Rule 930, the clearing member must continue to call the account for performance bond funds and reflect any applicable undermargined capital charges for the account when it computes its net capital. As always, undermargined capital charges are not a substitute for performance bond funds or prudent risk management policies by the clearing member. An FCM’s risk management policies and procedures must support the decision to allow individual members to utilize this policy.
CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.