• Exchange Rule 971.C. - View-only Access to Bank and Trust Accounts

      • To
      • Chief Executive Officers, Chief Compliance Officers and Chief Financial Officers
      • From
      • Audit Department, Clearing House Division
      • #
      • 12-11
      • Notice Date
      • 31 October 2012
      • Effective Date
      • 03 December 2012
    • In the continuing effort to enhance the regulation of customer funds at the clearing firm level, the futures industry has adopted rules that require more transparency from FCM clearing members.  In conjunction with the NFA, CME adopted Rule 971.C. which was announced in August 2012 and will require FCM clearing members to provide the Audit Department with view-only full access to all customer accounts - segregated, secured, and cleared swaps accounts - at a bank or trust company.  This rule provides the Audit Department with enhanced capabilities to review and verify FCM funds held at a bank or trust company to further the protection of customer funds.
       
      In addition, the rule amendments include a re-numbering of existing sections to incorporate the addition of Rule 971.C.
       
      In the attached formal rule change, additions are underlined and deletions are struck. The Rule will be effective December 3, 2012. To ensure readiness by the effective date, CME will contact FCM clearing members directly to discuss the form and manner of access to account information. 
       
      If you have any questions, please call the Audit Department at (312) 930-3230.
       
       


       
      Revisions to CME/CBOT/NYMEX Rule 971[1]
       
      Chapter 9. CLEARING MEMBERS
       
      Rule 971. SEGREGATION, SECURED AND SEQUESTERED REQUIREMENTS
       
      A. All clearing members must comply with the requirements set forth in CFTC Regulations 1.20 through 1.30, 1.32, 1.49, and 30.7, and CME Rules 8F100 through 8F136. This includes, but is not limited to, the following:
       
      1. Maintaining sufficient funds at all times in segregation, secured 30.7 and sequestered accounts;
       
      2. Computing, recording and reporting completely and accurately the balances in the:
       
      a. Statement of Segregation Requirements and Funds in Segregation;
      b. Statement of Secured Amounts and Funds Held in Separate Accounts; and
      c. Statement of Sequestration Requirements and Funds Held in Sequestered Accounts.
       
      3. Obtaining satisfactory segregation, secured 30.7 and sequestered account acknowledgement letters and identifying segregated, secured 30.7 and sequestered accounts as such; and
       
      4. Preparing complete and materially accurate daily segregation, secured 30.7 and sequestered amount computations in a timely manner.
       
      B. All FCM clearing members must submit a daily segregated, secured 30.7 and sequestered amount statement, as applicable, through Exchange-approved electronic transmissions by 12:00 noon on the following business day.
       
      C. In addition to complying with all applicable CFTC regulations, in order for each of an FCM clearing member’s customer segregated, secured 30.7 and Cleared Swaps Customer accounts held at a bank or trust company to be included as segregated, secured 30.7 and Cleared Swaps Customer funds in their respective origin and calculation: 
       
      1. The FCM clearing member must provide the Audit Department with view-only full access via the internet to the account information, in a form and manner prescribed by the Audit Department; and
       
      2. The bank or trust company must allow the FCM clearing member to provide the Audit Department with view-only full access via the internet to the account information, in a form and manner prescribed by the Audit Department.
       
      CD. All FCM clearing members must submit a report of investments in a manner as prescribed through Exchange-approved electronic transmissions as of the 15th of the month (or the following business day if the 15th is a holiday or weekend) and last business day of the month by the close of business on the following business day. The report of investments shall be prepared and shall identify separately for segregated, secured 30.7 and sequestered funds held: 
       
      1.         The dollar amount of funds held in cash and each permitted investment identified in CFTC Regulation 1.25(a); and
       
      2.         The identity of each depository holding funds and the dollar amount held at each depository.
       
      DE. All disbursements not made for the benefit of a customer from a segregated, secured 30.7 or sequestered account which exceed 25% of the FCM clearing member’s excess segregated, secured 30.7 or sequestered of the respective origin must be pre-approved in writing by the FCM clearing member’s Chief Executive Officer, Chief Financial Officer or their authorized representative with knowledge of the firm’s financial requirements and position.
       
      1.         In determining if a disbursement exceeds the 25% level, such disbursement must be:
       
      a.         Compared to the most recent calculation of excess segregated, secured 30.7 and sequestered amounts; and
      b.         A single disbursement must be reviewed individually and in the aggregate with all other disbursements not made for the benefit of a customer of the respective segregated, secured 30.7 or sequestered origin since the last calculation of excess funds. 
       
      2.         Upon approval of a single disbursement or the disbursement which in the aggregate exceeds the 25% level as defined in Rule 971.DE.1., the FCM clearing member must provide immediate notification to the Audit Department through Exchange-approved electronic transmissions. Such notification shall include:
       
      a.         Confirmation that the FCM clearing member’s Chief Executive Officer, Chief Financial Officer or their authorized representative with knowledge of the firm’s financial requirements and position pre-approved in writing the disbursement(s);
      b.         The amount(s) and recipient(s) of such disbursement(s); and
      c.         A description of the reasons for the single or multiple transaction(s) that resulted in the disbursement(s).
       
      3.         The FCM clearing member’s Chief Executive Officer and Chief Financial Officer will remain responsible for the pre-approvals by their authorized representatives and for compliance with this rule.
       
      EF. All clearing members must provide written notice to the Audit Department of a failure to maintain sufficient funds in segregation, secured 30.7 or sequestered accounts. The Audit Department must receive immediate written notification when a clearing member knows or should have known of such failure.
       
      FG. Each statement and report filing required under this Rule must be submitted by the Chief Executive Officer, Chief Financial Officer or their authorized representative as approved by CME using their assigned User Identification (“User ID”). The User ID will constitute and become a substitute for the manual signature of the authorized signer to the electronically submitted daily segregated, secured 30.7 and sequestered amount statements. The User ID is a representation by the authorized signer that, to the best of his or her knowledge, all information contained in the statement being transmitted under the User ID is true, correct and complete. The unauthorized use of a User ID for electronic attestation by an unauthorized party is expressly prohibited. 
       
      GH. Exchange staff may prescribe additional segregation, secured 30.7 and sequestered amount requirements.
       
       
       

      [1] Please note that, as of November 5, 2012, all references in Rule 971 to “sequestered” accounts will (in accordance with new Part 22 of the CFTC’s regulations) be revised to “Cleared Swaps Customer Accounts.”

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