The CFTC recently approved the attached rule amendments expanding the notification requirements to all clearing members, rather than only DSRO members, for minimum and early warning capital deficiencies, noncurrent books and records, material inadequacies and segregation/secured deficiencies. The amendments further provide notification requirements for clearing member failure to comply with any additional accounting, reporting, financial and/or operational requirements set by the Clearing House Finance Committee.

The rule amendments only require timely and direct notice to the CME. The DSRO will maintain primary responsibility for any follow-up work necessary. Please note the following significant changes.

Rule 970.A.3. � Financial Requirements

The amendment expands the notification requirements to all clearing members for failure to maintain minimum and early warning capital requirements, failure to maintain current books and records, and the determination of the existence of a material inadequacy.

Rule 970.B. � Financial Requirements

The rule for non-FCMs was clarified to include the filing, notification and approval requirements set forth in the rules of the Exchange as well as those requirements set forth in CFTC Regulations 1.10, 1.12, 1.17 and 1.18.

Rule 970.D. � Financial Requirements

The rule was amended to require immediate written notice to the Audit Department of a clearing member�s failure to comply with any additional accounting, reporting, financial and/or operational requirements prescribed by the Clearing House Finance Committee. (For example, CME capital deficiencies based on Risk Based Capital Requirements.)

Rule 971.C. � Segregation and Secured Requirements

The rule was expanded to require all clearing members to provide written notice of a failure to maintain excess segregation and/or secured funds. Further, to maintain consistency with CFTC regulations, the notification requirement was amended to immediate written notice when a firm knows or should know of such failure.

If you have any questions, please call the Audit Department at (312) 930-3230 or e-mail us at audits@cme.com

Formal Rule Change

970. FINANCIAL REQUIREMENTS

A. All clearing members, including non-FCMs, must comply with the requirements set forth in CFTC Regulations 1.10, 1.12, 1.17 and 1.18. This includes, but is not limited to, the following:

3. Notification requirements when a clearing member:

a. Fails to maintain minimum capital requirements;
b. Fails to maintain early warning capital requirements;
c. Fails to maintain current books and records; or
d. Determines the existence of a material inadequacy as specified in CFTC Regulation 1.16(d)(2);

In addition to the notifications required by CFTC regulations, all clearing members must provide written notice to the Audit Department of the above events.

B. For non-FCMs, all filing, notification, and approval requirements set forth in CFTC Regulations 1.10, 1.12, 1.17 and 1.18 and in the rules of the Exchange must be submitted to or obtained from the Audit Department rather than the Commission.

D. The Clearing House Committee may prescribe additional accounting, reporting, and other financial and/or operational requirements and clearing members must comply with such requirements. All clearing members must provide notice to the Audit Department of a failure to comply with the additional accounting, reporting, financial, and/or operational requirements. The Audit Department must receive immediate written notification when a clearing member knows or should know of such failure.

[Remainder of Rule Unchanged]

971. SEGREGATION AND SECURED REQUIREMENTS

C. All [A] clearing members [for which the Exchange is the designated self-regulatory organization] must provide written notice to the Audit Department of a failure [if it fails] to maintain sufficient funds in segregation or set aside in separate accounts. The Audit Department must receive immediate written notification when a [within twenty-four (24) hours after the] clearing member knows or should know [becomes aware] of such failure.

[Remainder of Rule Unchanged]