Proposal To Provide Exemptive Relief To Facilitate Cross-Margining of Customer Positions Cleared at Chicago Mercantile Exchange, Inc. and Fixed Income Clearing Corporation

COMMODITY FUTURES TRADING COMMISSION <CFR>17 CFR Chapter I</CFR> <SUBJECT>Proposal To Provide Exemptive Relief To Facilitate Cross-Margining of Customer Positions Cleared at Chicago Mercantile Exchange, Inc. and Fixed Income Clearing Corporation</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Commodity Futures Trading Commission. <HD SOURCE="HED">ACTION:</HD> Proposed order and request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Commodity Futures Trading Commission (“CFTC” or “Commission”) is proposing to issue an order pursuant to the Commodity Exchange Act (“CEA”) that would provide exemptive relief from the CEA and Commission regulations related to segregation and protection of futures customer funds. The order would permit joint clearing members of the Chicago Mercantile Exchange, Inc. (“CME”) and the Fixed Income Clearing Corporation (“FICC”) that are dually registered as broker-dealers with the Securities and Exchange Commission (“SEC”) and futures commission merchants (“FCMs”) with the Commission (“BD-FCMs”) to hold futures customer funds in a commingled customer account at FICC. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by January 16, 2026. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments by any of the following methods: • <E T="03">CFTC Comments Portal: https://comments.cftc.gov.</E> Select the “Submit Comments” link for this proposed order and follow the instructions on the Public Comment Form. • <E T="03">Mail:</E> Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. • <E T="03">Hand Delivery/Courier:</E> Follow the same instructions as for Mail, above. Please submit your comments using only one of these methods. Submissions through the CFTC Comments Portal are encouraged. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to <E T="03">https://comments.cftc.gov.</E> You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (FOIA), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  17 CFR 145.9. Commission regulations referred to herein are found at 17 CFR chapter 1 (2025) and are accessible on the Commission's website at <E T="03">https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.</E> </FTNT> The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse, or remove any or all of your submission from <E T="03">https://comments.cftc.gov</E> that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the FOIA. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Eileen A. Donovan, Deputy Director, 202-418-5096, <E T="03">edonovan@cftc.gov,</E> Robert B. Wasserman, Deputy Director, 202-418-5092, <E T="03">rwasserman@cftc.gov,</E> Division of Clearing and Risk, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581; or Elizabeth Arumilli, Special Counsel, 312-596-0632, <E T="03">earumilli@cftc.gov,</E> Division of Clearing and Risk, Commodity Futures Trading Commission, 77 West Jackson Boulevard, Suite 800, Chicago, IL 60604. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP1-2">A. The Petition</FP> <FP SOURCE="FP1-2">B. Background</FP> <FP SOURCE="FP-2">II. Section 4(c) of the CEA</FP> <FP SOURCE="FP-2">III. Segregation of Customer Funds</FP> <FP SOURCE="FP1-2">A. Commingling</FP> <FP SOURCE="FP1-2">B. Protection for the Margin of Cross-Margining Participants in the Event of a BD-FCM Bankruptcy</FP> <FP SOURCE="FP1-2">C. Protection for the Collateral Posted by Cross-Margining Customers in the Event of a FICC Bankruptcy or a Proceeding Under Title II of the Dodd-Frank Act</FP> <FP SOURCE="FP1-2">D. Protection for Customers Not Participating in Cross-Margining</FP> <FP SOURCE="FP-2">IV. Customer Protection—Permitted Depository</FP> <FP SOURCE="FP-2">V. Proposed Partial and Conditional Exemption From Section 4d of the CEA and Commission Regulations 1.20 and 1.49</FP> <FP SOURCE="FP-2">VI. Related Matters</FP> <FP SOURCE="FP1-2">A. Regulatory Flexibility Act</FP> <FP SOURCE="FP1-2">B. Paperwork Reduction Act</FP> <FP SOURCE="FP1-2">C. Cost and Benefit Considerations</FP> <FP SOURCE="FP1-2">D. Section 15(a) Factors</FP> <FP SOURCE="FP-2">VII. Request for Comment</FP> <FP SOURCE="FP-2">VIII. Proposed Order of Exemption</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. The Petition</HD> CME and FICC (“Petitioners”) have petitioned the Commission to grant an exemptive order pursuant to section 4(c) of the CEA. The exemptive order would provide relief necessary for Petitioners to make their existing cross-margining arrangement available to certain customers, as described below. <SU>2</SU> <FTREF/> <FTNT> <SU>2</SU>  The petition is available at <E T="03">https://www.cftc.gov/sites/default/files/filings/documents/2025/CME_FICC_XM_4c_Request_(Final_5.14.2025).pdf.</E> </FTNT> The Commission is proposing to issue an order granting Petitioners the relief sought, subject to certain conditions discussed below (the “Proposed Order”). <HD SOURCE="HD2">B. Background</HD> On January 16, 2024, the SEC promulgated a rule that, when effective, will mandate the central clearing of most U.S. Treasury cash and repurchase transactions (“Treasury Clearing Requirement”). <SU>3</SU> <FTREF/> The Treasury Clearing Requirement is designed to reduce risk and increase operational efficiency by requiring clearing of specified U.S. Treasury security transactions through a central counterparty. Centralized clearing reduces the risk of default by imposing a central counterparty between buyers and sellers. A central counterparty can lower the potential for a single market participant's failure to destabilize other market participants or the financial system more broadly by substituting its own creditworthiness and liquidity for the creditworthiness and liquidity of the initial counterparties. <SU>4</SU> <FTREF/> <FTNT> <SU>3</SU>  Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With Respect to U.S. Treasury Securities, 89 FR 2714 (Jan. 16, 2024). </FTNT> <FTNT> <SU>4</SU>   <E T="03">Id.</E> </FTNT> Currently, only one central counterparty, FICC, provides centralized clearing services for cash market transactions in U.S. Treasury securities, and for repurchase and reverse purchase transactions involving U.S. Treasury securities. FICC is registered as a clearing agency with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”)  <SU>5</SU> <FTREF/> and is subject to regulation under section 17A of the Exchange Act, SEC Rule 17ad-22 (as a “covered clearing agency”), <SU>6</SU> <FTREF/> and other SEC rules. FICC is designated by the Financial Stability Oversight Council (“FSOC”) as a systemically important financial market utility (“SIFMU”). <SU>7</SU> <FTREF/> <FTNT> <SU>5</SU>  15 U.S.C. 78a <E T="03">et seq.</E> </FTNT> <FTNT> <SU>6</SU>  17 CFR 240.17ad-22. </FTNT> <FTNT> <SU>7</SU>  12 U.S.C. 5463. </FTNT> Increasing clearing efficiency will decrease the cost to market participants of the Treasury Clearing Requirement. One way to increase clearing efficiency is through cross-margining arrangements that allow for cross-margining of U.S. Treasury security positions with positions in related products with correlated price risks held at another clearing organization. Cross-margining arrangements allow joint members or affiliated members of two clearing organizations to have their initial margin requirements reduced by accounting for risk offsets between positions held at each of the clearing organizations. <SU>8</SU> <FTREF/> <FTNT> <SU>8</SU>  Efficiencies gained through the ability to net off-setting risks within cross-margining arrangements may be affected by existing rules and regulations for other, related resource requirements. As one example, staff is aware that market participants have raised potential concerns related to cross product netting benefits under applicable capital rules. </FTNT> Petitioners have an existing cross-margining arrangement. <SU>9</SU> <FTREF/> CME clears a variety of U.S. Treasury futures contracts and other interest rate futures contracts that have price risks that are correlated with U.S. Treasury security products cleared at FICC. CME is registered as a derivatives clearing organization (“DCO”) with the Commission and is subject to regulation under the Commodity Exchange Act (“CEA”)  <SU>10</SU> <FTREF/> and Commission regulations. As a DCO, CME clears transactions in futures contracts and options on futures contracts listed for trading on the CME Group exchanges (and transactions in other types of derivatives). CME is also designated by the FSOC as a SIFMU. <FTNT> <SU>9</SU>   <E T="03">See</E> The Amended and Restated Cross-Margining Agreement between FICC an ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 111k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━