• Clearing Membership Assignment Requirements

      • To
      • Chief Financial Officers, Chief Compliance Officers
      • From
      • Audit Department, Clearing House Division
      • #
      • AIB 09-03
      • Notice Date
      • 01 July 2009
      • Effective Date
      • 01 July 2009
    • As part of the NYMEX Rulebook harmonization process, several amendments to the clearing membership assignment requirements of Chicago Mercantile Exchange Inc. (“CME”), Chicago Board of Trade, Inc. (“CBOT”), New York Mercantile Exchange, Inc. (“NYMEX”) and Commodity Exchange, Inc. (COMEX”) (collectively “Exchanges”) were adopted under the respective Rule 902 (Clearing Membership Assignment Requirements) of the individual exchanges. 
       
      Pursuant to Rule 902 of the Exchanges, assigned memberships and shares are pledged to the Clearing House as security for a clearing member’s obligations. Assigned memberships and shares may be sold by the Clearing House in the event of insolvency of a clearing member. The proceeds of such sale will be used to fulfill the obligations of the clearing member.
       
      The CME Group Inc. share requirements along with the number of memberships, including specific divisions as applicable, of the respective exchanges required for clearing membership are set forth in Rule 902.A. (Assignment Requirements). Further, Rule 902.A. sets forth the requirements for the ownership of such assigned memberships and shares. In brief, the rule amendments will generally allow up to 50% of the memberships and shares to be independently assigned for clearing membership. The remaining memberships and shares must be owned by the clearing member or a person, including parent company, with an acceptable proprietary interest[1] in the clearing member.  
       
      CME Rule 902
       
      CME Rule 902 was amended to revert to the prior CME requirement that at least one CME, one IMM, one IOM and one GEM membership and 50% of the shares required for clearing membership must be owned by the clearing member or by a person with an acceptable proprietary interest in the clearing member; and that the remaining memberships and shares may be independently assigned.

       

      All new clearing member applicants are immediately subject to this rule. CME clearing members approved before July 1, 2009 which owned all of their memberships or had them assigned by individuals with an acceptable proprietary interest would be allowed to substitute one independently assigned membership immediately, with another replacement no earlier than January 1, 2010 and the final replacement no earlier than July 1, 2010. Furthermore, 50% of the assigned shares would be immediately available for independent assignment.
       
      CBOT Rule 902
       
      CBOT Rule 902 was amended in a parallel manner to CME Rule 902, with the caveat that if only one CBOT Full membership is required to be assigned for clearing membership, then that one membership must be owned by the clearing member or a person, including parent company, with an acceptable proprietary interest in the clearing member. The grandfathering provisions for CBOT clearing members approved on or before November 29, 2007 would remain in effect.
       
      NYMEX Rule 902
       
      NYMEX Rule 902 is amended to require that 50% of assigned memberships and shares required for NYMEX clearing membership must be owned by the clearing member or by a person, including parent company, with an acceptable proprietary interest in the clearing member. The remaining membership and shares may be independently assigned by any person. Further, 50% of assigned memberships required for COMEX clearing membership must be owned by the clearing member or by a person, including parent company, with an acceptable proprietary interest in the clearing member. The remaining membership may be independently assigned by any person. Any NYMEX/COMEX clearing member approved on or before February 2, 2009 would be grandfathered for this rule preserving their conferred assignments.
       
       
      It is important to note that all memberships and shares assigned, including firm owned and independent assignments, are pledged to the Clearing House as security for a clearing member’s obligations and may be sold by the Clearing House in the event of insolvency of a clearing member.
       
      In the attached formal rule changes, additions are underlined and deletions are lined-out. The rule amendments were effective June 26, 2009.
       
      If you have any questions, please call the Audit Department at (312) 930-3230 or at (212) 299-2120.  

      [1] For purposes of Rule 902 of the Exchanges, an acceptable proprietary interest is defined as at least a $500,000 interest in the clearing member and includes the person’s interest in the ownership equity of the clearing member plus the person’s subordinated debt to the clearing member.

      CME Rule 902.

       

      902.             CLEARING MEMBERSHIP ASSIGNMENT REQUIREMENTS 

      902.A.            Assignment Requirement
      Subject to exemptions granted by Exchange staff, each CME clearing member shall have at least: two CME memberships, two IMM memberships, two IOM memberships, and one GEM membership assigned to the Clearing House. A clearing member which was an IMM Class A clearing member on or prior to May 6, 1987, shall have at least one CME membership, three IMM memberships, two IOM memberships, and one GEM membership assignedto the Clearing House. A higher Division membership may be substituted for a lower Division membership to satisfy these requirements. 
      Subject to exemptions granted by Exchange staff, each CME clearing member shall assign at least the number of CME Group Class A Shares set forth in the table below:
      Number of CME Group Class A Shares Needed for Membership[1]

       
      Type of Membership
      CME Only Clearing Member
      Joint Member of CME (Clearing) and CBOT
      or
      CME (Clearing) and NYMEX
       
      Joint Clearing Member of CME (Clearing), CBOT and NYMEX
       
       
      Rule
      900.A.
       
      CME             Clearing Members
      Clearing Members;
      FCMs,
      Non-FCMs,
      Closely Held and Sole Proprietorships
       
      8,000
      *12,000
       
       
       
       
       
      *16,000
       
       
      Member firm plus all 100% affiliates
      (Umbrellas)
      8,000
      12,000
       
       
       
      16,000
       
       
      Rule 900.B.
      CME Corporate Equity Members
      Corporate Equity Members (Inactive Clearing)
      8,000
      12,000 (w/CBOT Full)
       
      16,000
      *(w/CBOT Full)
       
       
      9,750 (w/CBOT Assoc.)
       
      13,750
      (w/CBOT Assoc.)
       
       
      Family of Funds (holding equity)
      8,000
      12,000
       
      16,000
       
       

       
      * The 12,000 and 16,000 share requirements for joint members shall include CBOT clearing members with a grandfathered share requirement of 4,725.
      Assigned Class A Shares may not be sold, pledged, hypothecated, lent, reregistered or otherwise transferred without the prior approval of the Exchange. Each clearing member assigning Class A Shares to the Clearing House hereby acknowledges that the Clearing House has control over such Class A Shares and further agrees to comply with any policies or procedures established by the Clearing House to affect control over Class A shares.
      All At least one of the CME, one IMM, and one IOM memberships and 50% of the Class A Shares required for clearing memberships pursuant to this rule must be owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest in such clearing member.The GEM membership required for clearing membership must be owned by the clearing member or a person with an acceptable proprietary interest in the clearing member., if such clearing member was approved for membership after June 1, 2003. One CME, one IMM, and one IMM membership and 50% of the Class A Shares required for clearing membership may be independently assigned. 
       
      However, a clearing member approved for membership on or before July 1, 2009, for which all of the memberships required for clearing membership were owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest in such clearing member, as of         July 1, 2009, may substitute one independently assigned membership no earlier than July 1, 2009; a second independently assigned membership no earlier than January 1, 2010; and a third independently assigned membership no earlier than July 1, 2010,
       
      A clearing member approved for membership on or before June 1, 2003, may continue to maintain the same number of independent membership assignments and the same ratio of independent Class A Share assignments as the clearing member held on June 1, 2003 (i.e., up to one CME, one IMM, and one IOM memberships, and up to 50 percent of the Class A Shares). If a clearing member approved on or before June 1, 2003, or a person with an acceptable proprietary interest in the clearing member, subsequently purchases a membership or Class A Shares and substitutes such asset for one which was previously an independent assignment, such membership or Class A Shares must thereafter be owned by the clearing member or a person with an acceptable proprietary interest.
      Upon default of a clearing member in meeting its obligations to the Clearing House or upon the Clearing House Risk Committee's determination that a clearing member's financial position jeopardizes the financial integrity of the Clearing House, the Clearing House may direct the sale of any or all of the clearing member's assigned CME memberships and Class A Shares. The proceeds from the sale of the CME memberships shall be used to satisfy Rule 110 obligations.
       
       *   *   *   *
      902.C.    Assignment Process
      A membership and/or Class A Shares may be assigned upon the completion of an Exchange-approved form. A membership and Class A Shares may be assigned on behalf of only one clearing member and may not be subject to any Rule 110 claims at the time of assignment. Upon submitting an assignment form to the Shareholder Relations and Membership Services Department, the membership shall be notified of the assignment. Parties will have ten days after the notification of the assignment to submit any Rule 110 claims against the membership being assigned. After all Rule 110 claims have been resolved to the satisfaction of the Exchange, the membership shall be assigned.
       
       

       

      CBOT Rule 902.

       

      902. CLEARING MEMBERSHIP ASSIGNMENT REQUIREMENTS

      902.A.    Assignment Requirement
      Subject to exemptions granted by Exchange staff, a CBOT Clearing FCM shall have at least two Series B-1 (Full) memberships assigned to the Clearing House, and all other CBOT clearing members shall have at least one Series B-1 (Full) membership assigned to the Clearing House.
      Subject to exemptions granted by Exchange staff, each CBOT clearing member shall assign at least the number of CME Group Class A Shares set forth in the table below:
      Number of CME Group Class A Shares Needed for Clearing Membership 

      Type of Membership
      CBOT Clearing Member        
      Joint Clearing Member of      
      CBOT and CME
      Or CBOT and NYMEX (including a NYMEX Member Firm)
       
      Joint Clearing Member of CBOT, CME and NYMEX (including a NYMEX Member Firm)
      Clearing FCMs
      8,000
      12,000
      16,000
      Clearing Closely Held Corporate Members
      8,000*
      12,000
      16,000
      Clearing Corporate Members
      8,000*
      12,000
      16,000
      Sole Proprietor Clearing Members
      8,000*
      12,000
      16,000

         *Clearing Closely Held Corporate Members, Clearing Corporate Members and Sole Proprietor Clearing Members that qualified as clearing member firms as of July 12, 2007, will have a “grandfathered” share requirement of 4,725. The 12,000 and 16,000 share requirements for joint clearing members shall include CBOT clearing members with a grandfathered share requirement of 4,725.
      Assigned Class A Shares may not be sold, pledged, hypothecated, lent, reregistered or otherwise transferred without the prior approval of the Exchange. Each clearing member assigning Class A Shares to the Clearing House hereby acknowledges that the Clearing House has control over such Class A Shares and further agrees to comply with any policies or procedures established by the Clearing House to affect control over Class A shares.
      At least one Series B-1 (Full) membership and at least 50% of All of thememberships and Class A Shares required for clearing memberships pursuant to this rule must be owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest in such clearing member, if such clearing member was approved for membership after November 29, 2007. If two Series B-1 (Full) memberships are required for clearing membership, one of those memberships may be independently assigned. The remaining 50% of the shares required for clearing membership may also be independently assigned.
       
      A clearing member approved for membership on or before November 29, 2007, may continue to maintain the same number of independent membership assignments and the same ratio of independent Class A Share assignments as the clearing member held on November 29, 2007. If a clearing member approved on or before November 29, 2007, or a person with an acceptable proprietary interest in the clearingmember, subsequently purchases a membership or Class A Shares and substitutes such asset for one which was previously an independent assignment, such membership or Class A Shares must thereafter be owned by the clearing member or a person with an acceptable proprietary interestif necessary to meet the minimum requirements of the previous paragraph.
      Upon default of a clearing member in meeting its obligations to the Clearing House or upon the Clearing House Risk Committee's determination that a clearing member's financial position jeopardizes the financial integrity of the Clearing House, the Clearing House may direct the sale of any or all of the clearing member's assigned CBOT memberships and Class A Shares. The proceeds from the sale of the CBOT memberships shall be used to satisfy Rule 110 obligations.
       *   *   *  *
      902.C.    Assignment Process
      A membership and/or Class A Shares may be assigned upon the completion of an Exchange-approved form. A membership and Class A Shares may be assigned on behalf of only one clearing member and may not be subject to any Rule 110 claims at the time of assignment. Upon submitting an assignment form to the Shareholder Relations and Membership Services Department, the membership shall be notified of the assignment. Parties will have ten days after the notification of the assignment to submit any Rule 110 claims against the membership being assigned. After all Rule 110 claims have been resolved to the satisfaction of the Exchange, the membership shall be assigned.
       
       

       

      Proposed Amendments to NYMEX Chapter 9

      900.  CATEGORIES OF CLEARING MEMBERS
      The Exchange may establish different clearing member categories and alter the rights and responsibilities of such categories. The term "clearing member" as used in the Rules, shall include all clearing member categories established by the Exchange, including Clearing FCMs, unless otherwise specified.
      900.A.  NYMEX Clearing Members
      NYMEX Clearing Members shall have all applicable rights, responsibilities and privileges attendant thereto, subject to the provisions of these rules and shall be qualified to clear transactions for all NYMEX products and any COMEX products for which cross-divisional trading privileges have been granted by the Board.
      900.B.  COMEX Clearing Members
      COMEX Clearing Members shall have all applicable rights, responsibilities and privileges attendant thereto, subject to the provisions of these rules and shall be qualified to clear transactions for all COMEX products and any NYMEX products for which cross-divisional trading privileges have been granted by the Board.
      902.      CLEARING MEMBERSHIP ASSIGNMENT REQUIREMENTS
      902.A.    Assignment Requirement
      (A) Subject to exemptionsexceptions granted by Exchange staff, each clearing memberfirm, as a condition of obtaining and maintaining Clearing Member privileges, shall be required to own and or have at leastconferred upon it two (2) Exchange memberships in each Division in which it desires Clearing Member privileges assigned to the Clearing House. The firm shall also be required to designate one or two individuals as its "conferring Members". Conferring Members may individually own the membership(s) and or hold such memberships via ABC Agreement. In addition, until further notice from the Exchange, each NYMEX Division Clearing Member shall at all times own or have assigned topledged/conferred upon it at least: 8,000 shares in CME Group Class A Shares.common stock; 12,000 shares in CME Group common stock if it is a Clearing Member at NYMEX and CME or CBOT; and 16, 000 shares in CME Group common stock if it is a Clearing Member at NYMEX, CME and CBOT.

      (B) In the case of one conferring Member, such Member shall be an executive officer, general partner or an executive officer of a corporate general partner of the firm.

      (C) In the case of two conferring Members, at least one member shall be an executive officer, general partner or an executive officer of a corporate general partner of the firm; the other conferring Member need only be a bona fide full time employee of the fi      rm.

      (D) As used in this Rule, an executive officer, general partner or an executive officer of a corporate general partner must have the power to direct the affairs of the firm with respect to transactions executed on the Exchange or shall be the senior commodity officer of the firm.

      (E) Trades done for the account of any parent, subsidiary, affiliate, etc. of a Clearing Member, if not itself a Clearing Member shall be at non-Member rates; only the firm obtaining Clearing Member status hereunder may receive Member rates.

      A NYMEX Division Clearing Member shall at all times own or have assigned to it at least 12,000 CME Group Class A Shares if it is also either: (a) a clearing member of CME or (b) a CBOT clearing member (including a CBOT clearing member with a grandfathered share requirement of 4,725) or a CBOT member firm that has an 8,000 share requirement. If the CBOT member firm has a 1,750 share requirement, the combined share requirement will by 9,750.
      A NYMEX Division Clearing Member shall at all times own or have assigned to it at least 16,000 CME Group Class A Shares if it is also both: (a) a clearing member of CME and (b) a CBOT clearing member (including a CBOT clearing member with a grandfathered share requirement of 4,725) or a CBOT member firm that has an 8,000 share requirement. If the CBOT member firm has a 1,750 share requirement, the combined share requirement will be 13,750.
      Assigned Class A Shares may not be sold, pledged, hypothecated, lent, reregistered or otherwise transferred without the prior approval of the Exchange. Each clearing member assigning Class A Shares to the Clearing House hereby acknowledges that the Clearing House has control over such Class A Shares and further agrees to comply with any policies or procedures established by the Clearing House to affect control over Class A Shares.
      At least one membership and 50% of the Class A Shares required for clearing membership pursuant to this rule must be owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest in such clearing member, if such clearing member was approved for membership after July 1, 2009.  The second membership and the remaining 50% of the Class A Shares may be independently assigned.
      A clearing member approved for membership on or before July 1, 2009, may continue to maintain the same number of independent membership assignments and the same ratio of independent Class A Share assignments as the clearing member held on July 1, 2009.  If a clearing member approved on or before July 1, 2009, or a person with an acceptable proprietary interest in the clearing member, subsequently purchases a membership or Class A Shares and substitutes such asset for one which was previously an independent assignment, such membership or Class A Shares must thereafter be owned by the clearing member or a person with an acceptable proprietary interest if necessary to meet the minimum requirements of the previous paragraph.
      Upon default of a clearing member in meeting its obligations to the Clearing House or upon the Clearing House Risk Committee's determination that a clearing member's financial position jeopardizes the financial integrity of the Clearing House, the Clearing House may direct the sale of any or all of the clearing member's assigned memberships and Class A Shares. The proceeds from the sale of the memberships shall be used to satisfy Rule 110 obligations.
      902.B.   [Reserved]
      902.C.    Assignment Process
      A membership and/or Class A Shares may be assigned upon the completion of an Exchange-approved form.  A membership and Class A Shares may be assigned on behalf of only one clearing member and may not be subject to any Rule 110 claims at the time of assignment. Upon submitting an assignment form to the Membership Services Department, the membership shall be notified of the assignment. Parties will have ten days after the notification of the assignment to submit any Rule 110 claims against the membership being assigned. After all Rule 110 claims have been resolved to the satisfaction of the Exchange, the membership shall be assigned.
      902.D.    Assignment Substitutions
      A clearing member may substitute a membership and/or Class A Shares for an assigned membership and/or Class A Shares provided that the clearing member continues to meet the assignment requirements of this Rule.
      In the event a clearing member has a valid claim against a member that it qualifies and the member’s membership is assigned to another clearing member, the clearing member utilizing the membership for assignment shall have 10 business days to substitute another membership to fulfill the assignment requirements of this Rule.
      902.E.    Assignment Withdrawal Disputes
      In the event a member wants to withdraw his assigned membership over the objection of the clearing member to which the membership is assigned, such member must request permission to do so from Clearing House staff. The request must be in writing with a copy delivered to the clearing member to which the membership is assigned.
      902.F.     Lien on Memberships and Class A Shares
      (F) Each Clearing Member hereby grants to the Clearing House a first priority and unencumbered lien against all memberships and any CME GroupClass A shares requiresd for clearing membership onby the Exchange.
      974. FAILURE TO MEET MINIMUM FINANCIAL REQUIREMENTS
      A. If, in the opinion of the Audit Department, a clearing member fails to meet the minimum financial requirements as prescribed herein or neglects to promptly furnish a statement upon request, a recommendation may be made to the Clearing House Risk Committee to suspend the privileges of the clearing member. Upon such recommendation, the Clearing House Risk Committee shall conduct a hearing and such clearing member shall show cause why its privileges should not be suspended. Upon finding that the minimum financial requirements are being violated, the Clearing House Risk Committee may suspend the privileges of such clearing member in accordance with the provisions of Chapter 4 of these rules. The CFTC shall be immediately notified of any clearing member which fails to meet the minimum financial requirements. Any suspended clearing member may appeal the decision of the Clearing House Risk Committee to the Board.

      B. If any       Rule 106.J. member firm has notified the Exchange of a bankruptcy proceeding or a definite intention to file for bankruptcy pursuant to Rule 442, or if the Exchange otherwise becomes aware of such a proceeding or intention, or if, in the opinion of the Audit Department, any non-clearing member firm that is an FCM fails to meet CFTC minimum financial requirements or neglects to promptly furnish a statement upon request, the membership privileges of the member firm may be suspended, subject to approval of any two of the following individuals: the Chief Executive Officer, the President, the President of the Clearing House, the Chairman of the Board, or the Chief Operating Officer. Any two of these individuals may reinstate the membership privileges of such a suspended member firm, in their discretion, if the suspended member firm provides evidence satisfactory to the Audit Department of its financial responsibility or that it meets CFTC minimum financial requirements.
       
      [1] Revised December 2008.

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