• Deletion of CME Rule 537 (“Substitution of Futures for Forwards (SUB)”) and Conforming Amendments

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • SER-6288
      • Notice Date
      • 06 July 2012
      • Effective Date
      • 09 July 2012
    • Effective Monday, July 9, 2012, CME will delete Rule 537 (“Substitution of Futures for Forwards (SUB)”).  The Rule was adopted in 2005 and deployed in CME Eurodollar futures but failed to gain any traction.  As a result of the significant number of regulatory changes resulting from the passage of the Dodd-Frank Act, particularly in connection with the clearing of OTC products, CME has decided to eliminate Rule 537 from the CME Rulebook.  The deletion of Rule 537 also necessitates various conforming amendments to other CME Rules. 
       
      The deletion of Rule 537 and the conforming amendments are set forth below, with additions underscored and deletions overstruck.
       
      If you have any questions concerning this matter, please contact Erin Schwartz, Senior Rules & Regulatory Outreach Specialist, Market Regulation Department, at 312.341.3083.
       
      For media inquiries concerning this Special Executive Report, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.
       
      CME Chapter 5
      536.            RECORDKEEPING REQUIREMENTS FOR PIT, GLOBEX, AND NEGOTIATED TRADES
      536.E.            Negotiated Trades
      All orders executed in accordance with Rules 526, 537 and 538, unless otherwise exempted by rule, are subject to the recordation requirements pursuant to Section A.1.
       
      537.            [RESERVED]SUBSTITUTION OF FUTURES FOR FORWARDS (SUB)
      A Substitution of futures contracts for over-the-counter (OTC) forward instruments shall be permitted by arrangement between eligible contract participants and comprised of two discrete transactions, where, the buyer and seller of the futures contract must be, respectively, the buyer and seller of the forward instrument. The forward instrument component shall involve the commodity underlying the futures contract (or a derivative, by-product or related product of such commodity). The quantity covered by the forward instrument must be approximately equivalent to the quantity covered by the futures contract. The parties to the transaction shall maintain a record of the transaction together with all pertinent memoranda. The forward instrument component of a Sub transaction must comply with applicable CFTC forward regulatory requirements, if any. The Exchange shall determine eligible futures contracts and over-the-counter instruments.
      CME Chapter 8
      804.            SUBSTITUTION
      Except with respect to trades made pursuant to HRules 526H, 537, 538 and 853, the Clearing House shall, through the process of novation, be substituted as, and assume the position of, seller to the buyer and buyer to the seller of the relevant number of Exchange or Marketplace contracts upon the successful matching of trade data submitted to the Exchange by the clearing members on the long and short sides of a trade. With respect to contracts that are traded on and matched by another exchange or market, the Clearing House shall be substituted as, and assume the position of, seller to buyer and buyer to seller of the relevant number of such contracts upon matching of trade data submitted to and accepted by the Exchange.
      Upon such substitution, each clearing member shall be deemed to have bought the contracts from or sold the contracts to the Clearing House, as the case may be, and the Clearing House shall have all the rights and be subject to all the liabilities of such member with respect to such transaction. Such substitution shall be effective in law for all purposes.
      With regard to trades made pursuant to HRules 526H, 537, 538 and 853, the Clearing House shall be substituted at the time payment of the first settlement variation and performance bond due for such trades pursuant to HRule 814H is confirmed by the appropriate settlement bank for both members.
       
      808.            CME CLEARPORT: PROCEDURES FOR TRADE SUBMISSION
      [Sections (A) and (B) are unchanged.]
      (C) Submission of Transactions. The process of submission of a Transaction shall not be deemed to have been completed unless and until the Parties to the Transaction have successfully concluded the submission of the Transaction to the Exchange as an exchange of futures for physicals ("EFP"), an exchange of futures for risk ("EFR"), or a Block Trade or as a Substitution transaction, as applicable, pursuant to the respective provisions of Exchange rules 538, and 526 and 537, and the provisions of this rule.
      [The remainder of the rule is unchanged.]
       
      CME Chapter 452 – Three-Month Eurodollar Futures
      45230.        [RESERVED]SCOPE OF CLEARED ONLY FUTURES RULE
      Unless otherwise noted below, the following Rules supersede the Rules presented earlier in this chapter. All other contract specifications remain the same as presented earlier in this chapter.
      45231.  [RESERVED]CLEARED ONLY FUTURES CHARACTERISTICS
      45231.A.        Nature of Cleared Only Futures Contracts
      “Cleared only” futures contracts shall be permitted for clearing during such hours, and for final settlement and last day of clearing on such dates, as may be determined by the Exchange. “Cleared only” futures contracts shall be permitted for final settlement and last day of clearing on any London bank business day that is also an Exchange business day, other than the applicable standard dates for final settlement and termination of trading in futures that are offered for “trading and clearing.” Cleared only contracts may be assigned to the Clearing House only through the Substitution process per CME Rule 537.
      45231.B.               Clearing Unit
      (Refer to Rule 45202.B Trading Unit.)
      45231.C.               Price Increments
      Positions shall be marked in terms of the IMM Index, 100.0000 minus the three-month Eurodollar interbank time deposit rate on an annual basis for a 360-day year. (For example, a rate of 7.20 percent shall be quoted as 92.8000.)
      Minimum fluctuations of the IMM Index shall be in multiples of .0025 Index points, equal to $6.25 per contract. For each .0025 increase in the Index, the Clearing House shall credit $6.25 per contract to those clearing members holding open long positions and debit $6.25 per contract from those clearing members holding open short positions. For each .0025 decline in the Index, the Clearing House shall debit $6.25 per contract from those clearing members holding open long positions and credit $6.25 per contract to those clearing members holding open short positions.
      45231.D.               Position Accountability
      (Refer to Rule 45202.D. Position Accountability)
      45231.E.               Accumulation of Positions
      (Refer to Rule 45202.E. Accumulation of Positions)
      45231.F.                                [Reserved]
      45231.G.               Last Day of Clearing
      Clearing of a “cleared only” futures contracts shall terminate at 11:00 a.m. London Time* on any London bank business day that is also an Exchange business day, that is permissible under Rule 45231.A., and that is mutually agreed to by buyer and seller.
      * This is 5:00 a.m. Chicago Time except when Daylight Savings Time is in effect in either, but not both, London or Chicago.
      45231.H.               Contract Modifications
      (Refer to Rule 45202.H. Contract Modifications)

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