RBA: Assessment of Chicago Mercantile Exchange Inc. against the Financial Stability Standards for Central Counterparties Standard 20: Disclosure of Rules, Key Policies and Procedures, and Market Data

CME's rulebooks are publicly available on its website. Since the CME exchanges are ‘separate, self-regulatory organisations’, CME maintains three rulebooks – one for CME, one for CBOT, and one combined rulebook for NYMEX/COMEX.^[1] These rulebooks are broadly harmonised; remaining exceptions are explained on the CME Group website. Rules governing CME's trading, clearing and settlement activities for exchange-traded and OTC products are set out in these rulebooks; in addition, each rulebook has rules concerning products specific to each exchange. The contracts for which CME is seeking a licence in Australia are governed by the CME and CBOT rulebooks.

CME's key policies are reflected in information publicly available in its Financial Safeguards brochure,^[2] CME rulebooks, CME bylaws and on its website more generally. This includes the expected coverage of initial and variation margin requirements, the process for managing a clearing participant default, acceptable collateral and haircuts, governance arrangements, participation requirements, and segregation and portability arrangements. Further, CME provides detailed procedures and policies to clearing participants prior to membership, and on an ongoing basis when changes are made. CME also provides details on some policies, such as its Investment Policy, to clearing participants on request.

Specific disclosure requirements are dealt with under CCP Standards 1.4, 2.2, 12.3, 13.4, 15.4, 17.2 and 17.3.

The CME rulebooks outline the nature and scope of novation.^[3] Specifically, Rule 804 specifies that novation is deemed to occur upon successful matching of trade data submitted to the exchange by the clearing participants on the long and short sides of a trade. The exceptions to this are block trades, EFRPs^[4] and transfer of trades or customer accounts. For these trades, novation occurs at the time initial margin and the first variation margin payments are confirmed by the settlement banks for both clearing participants. From the point of novation, each clearing participant is deemed to have entered into the trade with CME, and CME assumes the risk exposure with respect to the transaction.

Rule 8G05 specifies that novation is deemed to occur when an IRS product is submitted to CME that satisfies all relevant rules and procedures. A back-loaded IRS trade will be guaranteed by CME at the time that payment of initial mark-to-market, margin and any other applicable OTC cash flows are confirmed by the appropriate settlement bank for both IRS clearing participants.

CME provides a description of its system design and operations on its website, including the structure of default waterfalls, tools to aid clearing participants in calculating margins, swaps customer protection (i.e. LSOC) standards (see CCP Standard 13), margin model information, information on how the clearing process for OTC and exchange-traded products works and the daily operational timeline.

CME publishes the rights and obligations of participants in its rulebooks and in the Clearing Membership Handbook.^[5] CME also provides an overview of clearing participation requirements on its website^[6] and offers more detailed procedures to clearing participants on a non-public basis.

CME publishes its rulebooks and clearing system user guides on its website; some procedures are also provided to clearing participants privately. CME offers online training to clearing participants. In addition, CME provides hands-on training for personnel of new clearing participants, and on an ad hoc basis as required.

CME has published a document that provides responses to the CPSS-IOSCO Disclosure Framework for Financial Market Infrastructures, and describes its approach to meeting the Principles.^[7] The document will be updated every two years, or when there are material changes to CME's risk management framework.

CME's Disclosure Framework document contains data on the value of open interest, volumes, Guaranty Funds and assessment powers. In addition, CME makes available on its website: daily volume and settlement data; monthly reports on volume data; quarterly reports with information on trading highlights, average daily volumes, open interest and historical volatility; clearing fee information; a list of its settlement banks; a list of its clearing participants; and information about its financial condition in its annual report.

CME publishes monthly and quarterly reports on volume data across its product offerings.