Initial Assessment of Chicago Mercantile Exchange Inc.

On 30 September 2014 the Minister granted a clearing and settlement (CS) facility licence to Chicago Mercantile Exchange Inc. (CME). This licence permits CME to clear only over-the-counter (OTC) interest rate derivatives and non-Australian dollar denominated interest rate derivatives traded on the CME market or the Chicago Board of Trade market, for which CME permits portfolio margining for the OTC interest rate derivatives. In respect of its responsibilities under part 7.3 of the Corporations Act 2001 (the Act), the Reserve Bank (the Bank) provided advice to the Minister on CME's CS facility licence application in September. As part of its advice, the Bank carried out an initial assessment of CME against the Financial Stability Standards for Central Counterparties (CCP Standards).

The assessment, provided to the Minister as an attachment to the Bank's advice, formed part of a broader assessment of the sufficient equivalence of CME's home regulatory regime in the United States in relation to the degree of protection from systemic risk, a matter about which the Minister must be satisfied before granting a licence under section 824B(2) of the Act. The Bank has published guidance on its approach to assessing sufficient equivalence. This approach includes considering observed outcomes in the overseas regulatory regime relative to those in Australia, as reflected in an initial assessment by the Bank of the CS facility licence applicant against the Bank's CCP Standards. As demonstrated here, it is also the Reserve Bank's stated intention to publish such assessments.

The Assessment also describes the Bank's initial regulatory priorities for CME. These initial priorities include a set of expectations related to CME's provision of services to the Australian market, which aim to ensure that CME's operational and governance arrangements promote stability in the Australian financial system. The Bank's other expectations reflect areas where the Bank considers that CME should make changes to its policies, or progress as a matter of priority, work that is already ongoing, in order to enhance its observance of the CCP Standards.