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General Requirements Chicago Mercantile Exchange® (CME) clearing members must demonstrate fiscal and moral integrity, as well as sufficient financial capitalization, to justify the risks assumed in clearing their trades. Specifically, clearing members must be corporations (including C Corporations, Subchapter S Corporations, and Limited Liability Companies), partnerships (including Limited Partnerships and General Partnerships), or cooperative associations. Clearing members who meet certain eligibility requirements may request inactive clearing membership approval and receive an exemption from Exchange capital, monthly financial reporting and examination requirements, but must submit annual certified financial statements. Clearing members with inactive clearing status have no customers, do not qualify traders and do not clear their trades directly with the Exchange. Financial Requirements - Capital and Reporting Note: See below for Inactive Clearing Member Financial Requirements – Capital and Reporting. Clearing members must maintain adjusted net capital in excess of the greatest of:
Clearing members must submit a monthly Form 1-FR or FOCUS Report, including Exchange Supplemental Information, through the WinJammer™ system within 17 business days of month-end. Furthermore, broker/dealer clearing members are required to submit certified financial statements within 60 days of fiscal year-end. Clearing members who are not registered as broker/dealers are required to submit certified financial statements within 90 days of year-end. Inactive Clearing Member Financial Requirements – Capital and Reporting. Inactive clearing members are required to submit certified financial statements within 90 days of fiscal year-end. They are not subject to Exchange capital requirements and are not required to file monthly financial statements with CME. Security Deposits All clearing members must provide a security deposit with the Exchange, which is either the greater of the minimum requirement or its proportionate share of the "Aggregate Security Deposit." The Aggregate Security Deposit is determined by the Clearing House Risk Committee and set at a percentage of the average aggregated CME performance bond requirements for the preceding three months. U.S. dollars, U.S. treasury and agency securities, units in the CME Interest Earning Facility and/or shares in the CME’s Interest Earnings Facility 2 Program may be used to meet the security deposit requirements. The minimum security deposit in $500,000. The security deposit is determined by the proportionate risk that a clearing member represents to the Exchange, as measured by its performance bond requirements and trading volume. The amount is based 85% on the clearing member's risk performance bond requirements with the Exchange for the preceding three months and 15% on the clearing member’s average number of contracts executed during the preceding three months. For purposes of the 15% volume component of the Aggregated Security Deposit, the Clearing House Risk Committee may apply different weighting to the volume of a particular contract(s) if the Committee determines that such contract(s) represents a disproportionate exposure to the Clearing House. The Clearing House recalculates the security deposit each quarter (more frequently if necessary). As part of a restructuring of CME’s financial safeguards system, the Exchange increased the security deposit pool from 1.75% of total aggregate risk performance bond requirements to 3.75% in September 2002. The increase began being phased in on April 1, 2001, and is anticipated to result in a security deposit pool of approximately $700 million. Membership Requirements — Assigned Shares and Memberships Assigned Class A shares, Class B shares and the associated memberships are pledged to the Exchange as security for a clearing member's obligations. Assigned shares and memberships are subject to sale by the Exchange in the event of insolvency of a clearing member, and the proceeds thereof will be used to fulfill the obligations of the clearing member. All clearing members are required to have at least two CME memberships and the associated Class B-1 shares, at least two International Monetary Market® (IMM) memberships and the associated Class B-2 shares, at least two Index and Option Market® (IOM) memberships and the associated Class B-3 shares, at least one Growth and Emerging Markets® (GEM) membership and the associated Class B-4 share, and at least 8,000 Class A shares assigned to the clearing member. For clearing members approved after June 1, 2003, all Class A shares and Class B shares and their associated memberships required to be assigned for clearing membership privileges must be owned by the clearing member or a person, including a parent company, with an acceptable proprietary interest in the clearing member. An acceptable proprietary interest is defined as $500,000 and includes the person's interest in the ownership equity of the clearing member plus the person's subordinated debt to the clearing member. Voting rights are not considered when determining an owner's proprietary interest. The Exchange allows clearing members to satisfy the assignment requirements with Class A shares and Class B shares and the associated memberships that are accumulated from multiple sources. Clearing members may accumulate Class A shares and Class B shares, together with the associated memberships, from “partial bundles” or from unrestricted Class A shares traded on a secondary market, as well as acquiring “full bundles.” Additionally, non-member shareholders are allowed to pledge their Class A shares and B shares, together with the associated memberships, to clearing members, subject to restrictions imposed by the Exchange. Shares and memberships which are assigned to a clearing member may not be subject to a lien of any kind. Parent Guarantee Requirements Clearing members must provide parent guarantees for all non-customer and proprietary obligations. Such obligations include:
A clearing member must submit a parent guarantee for any person or entity which owns, directly or indirectly, 5% or more of the clearing member. The guarantor will be severally liable to the Exchange for all non-customer and proprietary obligations of the clearing member. A clearing member's ultimate parent should provide a parent guarantee unless an intermediate company providing a guarantee has capital greater than or equal to $300,000,000. Note: If the parent company is a regulated entity, capital shall be defined as adjusted net capital. If the parent company is a non-regulated entity, capital shall be defined as assets less liabilities plus acceptable subordinated debt. An individual or entity is required to execute a full guarantee if the individual or entity owns, directly or indirectly, 50% or more of the clearing member. A partial guarantee is required for individuals or entities which own, directly or indirectly, 5% or more but less than 50% of the clearing member. The individual or entity need only provide a guarantee to the extent of their ownership. Guarantees executed by a corporation or limited liability company must be signed by an authorized officer of the company. In addition, the guarantor’s decision to issue the guarantee must be submitted in writing, and must grant the officer the authority to sign the guarantee. Guarantees executed by general or limited partnerships must be signed by a general partner. Clearing members may request exemption from the parent guarantee requirements if (1) they maintain $300,000,000 or more in adjusted net capital, or (2) they do not clear, execute and give-up, or qualify individual traders who execute non-customer or proprietary trades for CME contracts. The Audit Department reviews such requests. |
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