Customer Protection & Segregation

  • 16 Jul 2020
  • By CME Group
  • Topics: Clearing

As a derivatives clearing house regulated by the Commodity Futures Trading Commission (“CFTC”), CME Clearing (or the “Clearing House”) and its clearing members adhere to the customer protection requirements imposed by the CFTC. These include but are not limited to obligations to segregate customer positions and funds from clearing members own (i.e., house) positions and funds. This regime disallows customer funds from being used to cover losses accruing in a clearing member’s house accounts.

Market participants that face CME Clearing directly are clearing members. Pursuant to CFTC regulations, any clearing member that acts as an intermediary providing clearing services for unaffiliated market participants (i.e., customers) at CME Clearing must be registered with the CFTC as a Futures Commission Merchant (“FCM”). FCM registration requires compliance with specific CFTC regulatory requirements related to customer protection, including but not limited to obligations for the segregation of customer positions, funds and collateral (i.e., funds).

In order to provide segregation throughout the clearing ecosystem, segregation requirements are applied at the FCM-, Clearing House-, and depository institution-level. Consistent with CFTC regulations, CME Clearing’s segregation arrangements require that customer positions and funds (e.g., performance bond) are segregated from the positions and funds of their clearing members. Further, customer funds are also segregated from the CME Clearing’s own funds.

Segregation of customer funds and positions for exchange-traded derivatives positions from that of cleared swaps derivatives positions is generally required, unless a CFTC order permits them to be commingled. For markets we clear, positions and funds held by CME are subject to the following segregation regimes for customers:[1]   

  • Customer Segregated Accounts for customers that clear exchange-traded derivatives listed on a CME Group Exchange; and
  • Cleared Swaps Customer Accounts for customers that trade swaps that are cleared by CME Clearing.

While the standard is for a customer’s exchange-traded derivatives positions and funds to be held separately from its cleared swaps derivative positions and funds, a customer may elect to have these positions and funds commingled – known as “portfolio margining”— subject to a CFTC order permitting such commingling. Where a customer makes this election, exchange-traded derivatives positions and funds that can gain margin efficiencies across account classes through risk offsets  (e.g., exchange-traded interest rates futures in some cases) will be moved from the Customer Segregated Account to the Cleared Swaps Customer Account.

References

  1. Note, an FCM clearing member may also support the clearing of foreign (i.e., non-U.S.) futures for customers in a separate account class – i.e., a Secured 30.7 Account.

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