CFTC Permits U.S. Clearinghouse to Clear
Washington, D.C. – The Commodity Futures Trading Commission (CFTC) has issued an order permitting implementation by The Clearing Corporation of its plan to have certain transactions executed on a European futures exchange cleared through U.S. futures firms (Futures Commission Merchants or FCMs) and a U.S. clearinghouse. Based in Chicago, the Clearing Corporation is registered with and regulated by the CFTC, as are participating FCMs.
The order addresses clearing in the U.S. of sixteen types of commodity futures and option contracts traded on the Eurex Deutschland exchange, located in Frankfurt, Germany. Those include interest rate futures such as those based on the German government’s Bund, Bobl, and Schatz instruments and futures based on European security indices such as the DAX and the Dow Jones Euro Stoxx and Global Titans indices.
Under the order, cash and securities deposited by a U.S. company or other futures customer with an FCM to margin its positions in those contracts may be carried in the FCM’s customer-segregated funds account under Section 4d of the Commodity Exchange Act. Segregated funds protections include CFTC regulatory restrictions concerning where those funds may be held and how they may be invested, as well as prohibitions against commingling with proprietary funds or use for any other purpose.
With the order, the CFTC has issued an interpretation confirming that the protections of U.S. bankruptcy law, particularly those set forth in Part 190 of the CFTC regulations, will apply equally to the customer positions in the contracts covered by the order and carried in customer-segregated funds accounts.
The order requires the Clearing Corporation to continue to fully comply with the rules and core principles applicable to all clearinghouses under the Commodity Exchange Act, including fulfilling all of its risk management and self-regulatory obligations. The order also requires the Clearing Corporation and every participating FCM to provide to CFTC the same information about customer positions resulting from Eurex transactions as is required about any other position cleared by a U.S. clearinghouse and carried in a customer-segregated funds account.
Acting Chairman Sharon Brown-Hruska stated,
“The Clearing Corporation’s plan to provide clearing services for U.S. and foreign customers of certain European-based futures and options contracts represents a significant and innovative endeavor. The clearing link will foster the development of global markets and bring economic benefits to customers. In addition the link will enhance the Commission’s ability to provide the necessary regulatory protections for customers, firms, and the system as a whole. The arrangement represents an opportunity for customers to work through U.S. FCMs, for customer assets to be held in segregated accounts in U.S. banks protected by CFTC regulations and U.S. bankruptcy law, and for both the Clearing Corporation and participating U.S. FCMs to compete with overseas firms for the business of clearing these transactions.”
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