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Rule2026-07643

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

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Published

April 20, 2026

Issuing agencies

Commodity Futures Trading Commission

Abstract

The Commodity Futures Trading Commission ("CFTC" or "Commission") is issuing an order pursuant to the Commodity Exchange Act ("CEA") that provides exemptive relief from the CEA and Commission regulations related to segregation and protection of futures customer funds. The order permits 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.

Full Text

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<title>Federal Register, Volume 91 Issue 75 (Monday, April 20, 2026)</title>
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[Federal Register Volume 91, Number 75 (Monday, April 20, 2026)]
[Rules and Regulations]
[Pages 20880-20897]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07643]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

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

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is issuing an order pursuant to the Commodity Exchange
Act (``CEA'') that provides exemptive relief from the CEA and
Commission regulations related to segregation and protection of futures
customer funds. The order permits 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.

DATES: Applicable as of April 15, 2026.

FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Deputy Director,
202-418-5096, <a href="/cdn-cgi/l/email-protection#94f1f0fbfafbe2f5fad4f7f2e0f7baf3fbe2">[email&#160;protected]</a>, Robert B. Wasserman, Chief Counsel,
202-418-5092, <a href="/cdn-cgi/l/email-protection#c8babfa9bbbbadbaa5a9a688abaebcabe6afa7be">[email&#160;protected]</a>,

[[Page 20881]]

Abigail S. Knauff, 202-418-5123, Associate Director, <a href="/cdn-cgi/l/email-protection#2d4c46434c584b4b6d4e4b594e034a425b">[email&#160;protected]</a>,
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, <a href="/cdn-cgi/l/email-protection#85e0e4f7f0e8ece9e9ecc5e6e3f1e6abe2eaf3">[email&#160;protected]</a>,
Division of Clearing and Risk, Commodity Futures Trading Commission, 77
West Jackson Boulevard, Suite 800, Chicago, IL 60604.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
A. The Petition
B. Background
II. Section 4(c) of the CEA
III. Segregation of Customer Funds
A. Commingling
B. Protection for the Margin of Cross-Margining Participants in
the Event of a BD-FCM Bankruptcy
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
D. Protection for Customers Not Participating in Cross-Margining
IV. Customer Protection--Permitted Depository
V. Additional Comments
A. Operational Resilience
B. Public Information
C. Termination of Cross-Margining Participation
D. Cross-Margining and Bank Capital Rules
E. Timing
VI. CEA Section 4(c) Determination To Grant Partial and Conditional
Exemption From Section 4d of the CEA and Commission Regulations 1.20
and 1.49
VII. Findings and Conclusions
VIII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost and Benefit Considerations
D. Section 15(a) Factors
IX. Order of Exemption

I. Introduction

A. The Petition

CME and FICC (``Petitioners'') petitioned the Commission to grant
an exemptive order pursuant to section 4(c) of the CEA to provide
relief necessary for Petitioners to extend an existing proprietary
cross-margining arrangement to certain customers, as described
below.\1\ On December 17, 2025, the Commission published in the Federal
Register a notice and request for public comment regarding the proposed
Commission order.\2\ In response to its request for public comment, the
Commission received five comment letters by the deadline of January 16,
2026.\3\ Those comments are addressed below. After consideration of the
comments and for the reasons set forth in this release, the Commission
is issuing an order granting Petitioners the relief sought, subject to
certain conditions discussed below (``Order'').
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\1\ The petition is available at <a href="https://www.cftc.gov/sites/default/files/filings/documents/2025/CME_FICC_XM_4c_Request_">https://www.cftc.gov/sites/default/files/filings/documents/2025/CME_FICC_XM_4c_Request_</a>(Final_5.14.2025).pdf.
\2\ Proposal To Provide Exemptive Relief To Facilitate Cross-
Margining of Customer Positions Cleared at Chicago Mercantile
Exchange, Inc. and Fixed Income Clearing Corporation, 90 FR 58525
(Dec. 17, 2025), <a href="https://www.govinfo.gov/content/pkg/FR-2025-12-17/pdf/2025-23150.pdf">https://www.govinfo.gov/content/pkg/FR-2025-12-17/pdf/2025-23150.pdf</a>.
\3\ Comment letters were submitted on January 16, 2026 by the
Alternative Investment Management Association (AIMA), Better
Markets, the Futures Industry Association (FIA), the International
Swaps and Derivatives Association (ISDA), and the Securities
Industry and Financial Markets Association (SIFMA) and the Asset
Management Group of SIFMA (SIFMA/SIFMA AMG). All comments referred
to herein are available on the Commission's website, at <a href="https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7639">https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7639</a>.
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B. Background

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'').\4\ 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.\5\
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\4\ 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), <a href="https://www.govinfo.gov/content/pkg/FR-2024-01-16/pdf/2023-27860.pdf">https://www.govinfo.gov/content/pkg/FR-2024-01-16/pdf/2023-27860.pdf</a>.
\5\ Id.
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Currently, only one central counterparty, FICC, is providing
centralized clearing services for cash market transactions in U.S.
Treasury securities, and for repurchase and reverse purchase
transactions involving U.S. Treasury securities.\6\ FICC is registered
as a clearing agency with the SEC under the Securities Exchange Act of
1934 (``Exchange Act'') \7\ and is subject to regulation under section
17A of the Exchange Act, SEC Rule 17ad-22 (as a ``covered clearing
agency''),\8\ and other SEC rules. FICC is designated by the Financial
Stability Oversight Council (``FSOC'') as a systemically important
financial market utility (``SIFMU'').\9\
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\6\ ICE Clear Credit, LLC and CME Securities Clearing Inc. are
also registered to clear U.S. Treasury securities. See ICE Clear
Credit LLC; Order Granting an Application for Registration as a
Clearing Agency Under Section 17A of the Securities Exchange Act of
1934, 91 FR 5528 (Feb. 6, 2026), <a href="https://www.govinfo.gov/content/pkg/FR-2026-02-06/pdf/2026-02333.pdf">https://www.govinfo.gov/content/pkg/FR-2026-02-06/pdf/2026-02333.pdf</a>; CME Securities Clearing, Inc.;
Order Granting an Application for Registration as a Clearing Agency
Under Section 17A of the Securities Exchange Act of 1934, 90 FR
55926 (Dec. 4, 2025), <a href="https://www.govinfo.gov/content/pkg/FR-2025-12-04/pdf/2025-21908.pdf">https://www.govinfo.gov/content/pkg/FR-2025-12-04/pdf/2025-21908.pdf</a>. However, neither are actively clearing
U.S. Treasury securities as of the date of this order.
\7\ 15 U.S.C. 78a et seq.
\8\ 17 CFR 240.17ad-22.
\9\ 12 U.S.C. 5463.
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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.\10\
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\10\ 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.
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Petitioners have a cross-margining arrangement for proprietary
(non-customer) positions that was originally approved by the Commission
in 2004 and last amended in 2024 (hereinafter ``the proprietary cross-
margining agreement'').\11\ 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 DCO with the Commission and is
subject to regulation under the CEA \12\ 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 including

[[Page 20882]]

interest rate swaps).\13\ CME is also designated by the FSOC as a
SIFMU.
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\11\ See The Amended and Restated Cross-Margining Agreement
between FICC and CME dated January 22, 2024 (the ``FICC-CME XM
Agreement'') available at: https://www.dtcc.com/~/media/Files/
Downloads/legal/rules/ficc_cme_crossmargin_agreement.pdf.
\12\ 7 U.S.C. 1 et seq.
\13\ The scope of products eligible for customer cross-margining
agreement includes eligible futures and securities positions.
Options on futures and swaps, as defined in 7 U.S.C. 1a(47) and 17
CFR 1.3, were not analyzed as part of the Commission's review of
this request for exemptive relief to expand the proprietary cross-
margining agreement to include customer clearing.
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The proprietary cross-margining arrangement between the Petitioners
is offered to their joint clearing members and pairs of affiliated
clearing members for proprietary (non-customer) positions. The
proprietary cross-margining arrangement permits a participating joint
clearing member or pair of affiliated clearing members to have initial
margin requirements at FICC and CME reduced in response to risk offsets
across positions in futures on U.S. Treasury securities and other
interest rate futures cleared at CME and eligible Treasury market
transactions cleared at FICC. The Commission and the SEC have approved
the original proprietary cross-margining arrangement and the amendments
thereto.\14\ Under the proprietary cross-margining arrangement,
eligible positions of a participating clearing member are identified
and treated as a combined portfolio for margin calculation purposes.
Both FICC and CME use their own margin models to calculate initial
margin requirements for the combined portfolio, then use the more
conservative result to determine the margin savings percentage to be
applied to the portfolio. Each of FICC and CME then requires the
participating clearing member to post initial margin in an amount
calculated using its independent margin model reduced by that margin
savings percentage.\15\
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\14\ See, most recently, CFTC, Request for Approval of Amended
and Restated Cross-margining Agreement and Service Level Agreement
between CME and FICC, (Sept. 1, 2023) available at <a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/ClearingOrganizationRules/51167">https://www.cftc.gov/IndustryOversight/IndustryFilings/ClearingOrganizationRules/51167</a>; SEC, Self-Regulatory Organizations,
Fixed Income Clearing Corporation, Order Approving Proposed Rule
Change to Amend and Restate the Cross-Margining Agreement Between
FICC and CME, 90 FR 31043 (Jul. 11, 2025). The Commission approved
the rule pursuant to the Commission determination procedure set
forth in Commission Regulation 40.5(d)(1).
\15\ An example is available on CME's website. See CME-FICC
Cross Margining for Customers, Clearing Member Firms: Customer
Onboarding and Workflow Guide, <a href="https://www.cmegroup.com/markets/interest-rates/files/cme-ficc-cross-margining-for-indirect-users.pdf">https://www.cmegroup.com/markets/interest-rates/files/cme-ficc-cross-margining-for-indirect-users.pdf</a>
at 8 (2026). In this example, without cross-margining, the total
initial margin requirement for a portfolio with positions at CME and
FICC is $343.24 million, consisting of the sum of $174 million of
initial margin required by CME for positions cleared at CME and
$169.24 million of initial margin required by FICC for positions
cleared at FICC. For cross-margining, CME and FICC both
independently calculate the initial margin using their respective
models, but include in their initial margin calculations the
positions in the portfolio cleared at the other clearing
organization. In the example, the FICC model is more conservative,
resulting in an 80% margin reduction with cross-margining as
compared to the CME model's margin reduction calculation of 81.1%.
As a result, CME and FICC both apply an 80% margin reduction to
their respective initial margin requirements for the portfolio. The
total initial margin requirement with cross-margining is reduced to
$68.648 million.
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This proprietary cross-margining arrangement is only available for
the proprietary positions of clearing members, and not for the
positions of customers who clear through an intermediary. Excluding
customer positions may increase the costs of central clearing for
customers clearing both Treasury securities transactions and certain
Treasury and interest rate futures, by setting margin requirements that
do not account for the risk offsets of their combined portfolio and are
thus higher than those of clearing members who have access to cross-
margining.
Industry experts have called for expanded access to cross-
margining. The CFTC's Global Markets Advisory Committee (``GMAC'')
recommended that the Commission allow CME and FICC to make the benefits
of cross-margining available to a broad range of customers, including
customers subject to the new Treasury Clearing Requirement. The GMAC's
recommendation covered specific topics such as structure, customer
protection, and implementation.\16\ The Group of Thirty Working Group
on Treasury Market Liquidity also highlighted the need for expansion of
cross-margining to the customer level. In their report related to
Treasury market resilience, they suggested a review be conducted to
``examine impediments to the use of the cross-margining service that
FICC and [CME] have had in place since 2004'' and further opined that
``[w]ider use of cross-margining would reduce the risk that increases
in initial margin requirements on the futures leg of cash-futures basis
trades result in forced sales of Treasury securities . . . .'' \17\
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\16\ See CFTC Global Markets Advisory Committee Advances Key
Recommendations, CFTC Release No. 8860-24 (Feb. 8, 2024). The ``GMAC
Recommendation'' is available at <a href="https://www.cftc.gov/media/9591/gmac_FICC_CME110623/download">https://www.cftc.gov/media/9591/gmac_FICC_CME110623/download</a>.
\17\ See Group of Thirty Working Group on Treasury Market
Liquidity, U.S. Treasury Markets: Steps Toward Increased Resilience
(July 2021), available at: <a href="https://group30.org/publications/detail/4950">https://group30.org/publications/detail/4950</a> (citing Younger, Joshua. 2021 ``Cross-Margining and Financial
Stability.'' Program on Financial Stability, Yale School of
Management, Yale University, New Haven, June 22).
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Accordingly, CME and FICC seek to expand their proprietary cross-
margining program to make it available to certain customers.
Specifically, the cross-margining program would be available to
customers of joint clearing members of FICC and CME that are BD-FCMs.
The cross-margined positions and associated margin would be carried in
a futures customer account on the books and records of an eligible BD-
FCM and generally subject to the regulations and protections of the CEA
and Commission regulations, including CEA section 4d and the
Commission's regulations for segregation and protection of futures
customer funds.
This cross-margining expansion to customers, however, would
conflict with applicable legal requirements. Section 4d of the CEA
requires that futures customer funds be segregated and prohibits the
commingling of futures customer funds and futures customer positions
with any other positions and funds. However, section 4d further
provides that, ``in accordance with such terms and conditions as the
Commission may prescribe by rule, regulation, or order,'' futures
customer funds may be commingled with other customer funds.\18\ The
expansion of the proprietary cross-margining arrangement to include
clearing for customers would require that BD-FCMs hold securities
positions and associated funds in their futures customer accounts.
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\18\ 7 U.S.C. 6d.
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In addition, section 4d requires that futures customer funds be
held with a bank or trust company, and section 5b(c)(2)(F) of the CEA
requires, in part, that a DCO hold member and participant funds in a
manner by which to minimize the risk of loss or of delay in the access
by the DCO to the assets and funds. Commission Regulations 1.20 and
1.49(d) implement these statutory requirements in part by limiting the
depositories that may hold futures customer funds to a bank or trust
company, an FCM, or a DCO. While FICC is an SEC covered clearing
agency, it is not a DCO and therefore not a permitted depository for
futures customer funds without Commission exemptive relief.
Petitioners consequently petitioned the Commission to grant an
exemptive order pursuant to section 4(c) of the CEA to provide relief
necessary for them to make their cross-margining arrangement available
to certain customers. Specifically, Petitioners sought exemptive relief
to:
<bullet> Permit BD-FCMs \19\ to deposit at FICC, and permit FICC to
hold,

[[Page 20883]]

customer funds and margin associated with futures positions,
notwithstanding that FICC is not a permitted depository under section
4d of the CEA and Commission Regulations 1.20 and 1.49(d), and to
permit CME to treat FICC as a permissible location to hold customer
funds and margin even though FICC is not a permitted depository under
section 4d of the CEA and Commission Regulations 1.20 and 1.49(d); and
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\19\ Section 4(c) of the CEA provides that the Commission may
provide an exemption ``on its own initiative or on application of
any person,'' so parties receiving exemptive relief are not limited
to those who directly petition the Commission. 7 U.S.C. 6(c).
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<bullet> Permit BD-FCMs to hold in the futures account, as defined
in Commission Regulation 1.3, of the BD-FCM, securities positions and
associated funds together with the futures customer positions and funds
held by the BD-FCM.

II. Section 4(c) of the CEA

Section 4(c)(1) of the CEA empowers the Commission to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction or class of transactions (including any
person or class of persons offering, entering into, rendering advice or
rendering other services with respect to, the agreement, contract, or
transaction), from any of the provisions of the CEA, subject to
exceptions not relevant here.\20\ In enacting section 4(c), Congress
noted that its goal ``is to give the Commission a means of providing
certainty and stability to existing and emerging markets so that
financial innovation and market development can proceed in an effective
and competitive manner.'' \21\ The Commission may grant such an
exemption by rule, regulation, or order, after notice and opportunity
for hearing, and may do so on application of any person or on its own
initiative.
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\20\ 7 U.S.C. 6(c)(1).
\21\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179,
3213.
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Section 4(c)(2) of the CEA provides that the Commission may grant
exemptions to section 4(a) under section 4(c)(1) only when it
determines that the requirements for which an exemption is being
provided should not be applied to the agreements, contracts, or
transactions at issue; that the exemption is consistent with the public
interest and the purposes of the CEA; that the agreements, contracts,
or transactions will be entered into solely between appropriate
persons; and that the exemption will not have a material adverse effect
on the ability of the Commission or any contract market or derivatives
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the CEA.\22\
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\22\ 7 U.S.C. 6(c)(2).
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The Commission believes that issuing the Order, which grants the
exemption sought by Petitioners, is in the public interest and would
promote responsible economic and financial innovation and fair
competition.\23\ Comment letters from AIMA, FIA, ISDA, and SIFMA/SIFMA
AMG agreed with this conclusion and expressly supported the issuance of
an order permitting CME and FICC to expand their cross-margining
program to customers.\24\ AIMA, ISDA, and SIFMA/SIFMA AMG stated that
the customer cross-margining arrangement will support financial
stability, resiliency and/or efficiency.\25\ SIFMA/SIFMA AMG stated the
arrangement will achieve ``broader capital efficiency while maintaining
the customer and market resiliency protections of centralized
clearing.'' \26\ ISDA stated the arrangement will ``tailor margin
requirements with actual portfolio risk.'' \27\
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\23\ While not concluding section 4(c)(2) applies to the Order,
the Commission also believes that the Order would meet the standards
in section 4(c)(2) of the CEA.
\24\ AIMA Comment Letter at 3; FIA Comment Letter at 2; ISDA
Comment Letter at 1; SIFMA/SIFMA AMG Comment Letter at 1.
\25\ ISDA Comment Letter at 2; SIFMA/SIFMA AMG Comment Letter at
2; AIMA Comment Letter at 2.
\26\ SIFMA/SIFMA AMG Comment Letter at 2.
\27\ ISDA Comment Letter at 1-2.
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In addition, FIA, ISDA, and SIFMA/SIFMA AMG agree that the cross-
margining arrangement will support the implementation of mandatory
Treasury clearing by reducing margin costs and increasing liquidity in
the Treasury market.\28\ SIFMA/SIFMA AMG stated that cross-margining
lowers clearing costs, counterbalancing ``potential clearing cost
increases Treasury market participants may experience with mandatory
clearing of certain U.S. Treasury transactions taking effect later this
year and in 2027.'' \29\ SIFMA/SIFMA AMG also stated the arrangement
``generally will enhance liquidity in the Treasury markets.'' \30\ FIA
noted the arrangement ``helps to eliminate duplicative margin
requirements without diminishing overall risk management standards.''
\31\ ISDA argued that reducing duplicative margin will ``make clearing
more efficient and offset some of the additional financial resource
requirements that the industry will face. . . .'' \32\
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\28\ FIA Comment Letter at 2; ISDA Comment Letter at 2; SIFMA/
SIFMA AMG Comment Letter at 2.
\29\ SIFMA/SIFMA AMG Comment Letter at 2.
\30\ Id.
\31\ FIA Comment Letter at 2.
\32\ ISDA Comment Letter at 2.
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The Commission believes the Order meets the standards in section
4(c)(1) for an exemption. The discussion below describes why the
Commission has reached this conclusion.

III. Segregation of Customer Funds

The protection of customers--and the safeguarding of money,
securities, or other property deposited by customers--is a fundamental
component of the regulatory and oversight framework of the futures and
swaps markets. Section 4d(a)(2) of the CEA requires an FCM to segregate
from its own assets all money, securities, and other property deposited
by futures or cleared swaps customers to margin, secure, or guarantee
their futures, options on futures, or cleared swaps positions. Section
4d(a)(2) further requires an FCM to treat customer funds as belonging
to the customer and prohibits an FCM from using the funds deposited by
a customer to margin or extend credit to any person other than the
customer that deposited the funds. Similarly, section 4d(b) of the CEA
prohibits a DCO and any depository that has received such funds from
holding, disposing of, or using such funds as belonging to the
depositing FCM or any person other than the customers of such FCM.
Customer segregation is an essential protection to ensure funds are
held exclusively as the property of customers, even during an FCM
insolvency.
CEA section 4d(a)(2) prohibits commingling futures customer
positions executed on a contract market, and futures customer funds
supporting such positions, with any property not required to be so
segregated. Commingling of futures customer funds with other funds may
take place only in accordance with such terms as the Commission may
provide by rule, regulation, or order.\33\ Further, Commission
Regulation 1.20 requires FCMs and DCOs to separately account for all
futures customer funds and segregate such funds as belonging to futures
customers, and it requires FCMs and DCOs to deposit futures customer
funds in a manner that identifies them as futures customer funds.
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\33\ 7 U.S.C. 6d(a)(2).
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A. Commingling

The customer cross-margining arrangement permitted by the Order
allows a BD-FCM to commingle cross-margined securities positions and
associated margin with cross-margined

[[Page 20884]]

futures positions and associated margin. Permitting this commingling
allows for the provision of risk offsets for customer positions in
eligible futures and eligible securities cleared at CME and FICC
through BD-FCMs.
CME and FICC detailed in their petition the structure of the
arrangement they plan to implement under the Order and the way it is
designed to protect customer funds. As explained in more detail below,
the Order sets forth conditions in reliance on this structure.
At a high level, a customer wishing to cross-margin its futures
positions cleared at CME with its securities positions cleared at FICC
will elect to have its FICC-cleared U.S. Treasury securities positions
and associated funds held in a commingled futures account at the BD-
FCM, to facilitate margining all of the positions as a portfolio. The
BD-FCM will post funds to support cross-margined futures positions with
CME and funds to support cross-margined securities positions with FICC.
FICC will record cross-margined securities positions and associated
funds (``XM Securities Customer Property'') in accounts on FICC's books
and records, the margin being recorded on FICC's books and records in
margin accounts in the name of the BD-FCM for the benefit of its cross-
margining customers (``FICC XM Customer Margin Accounts''). FICC will
hold the margin in either a Federal Reserve Bank of New York
(``FRBNY'') account (the ``FICC FRBNY Segregated Account'') or at a
commercial bank that is insured by the Federal Deposit Insurance
Corporation (a ``FICC Segregated Bank Account'').
More specifically, the Order permits, subject to relevant terms and
conditions, the following structure:
1. The BD-FCM will be required to carry all of a cross-margining
customer's positions and associated margin, including XM Securities
Customer Property held at FICC, in a futures account as defined in
Commission Regulation 1.3, subject to CEA section 4d(a) and related
Commission regulations as modified by the Order. This will apply to
both required collateral and any excess collateral.
2. The cross-margining customer will be required to: (a) agree to
have its XM Securities Customer Property carried in a futures account;
and (b) enter into a subordination agreement pursuant to which it will
agree that its claim for the return of XM Securities Customer Property
will not receive customer treatment under the Exchange Act or the
Securities Investor Protection Act of 1970 (``SIPA'') \34\ and that
such property will not be treated as ``customer property'' as defined
in section 741, subchapter III (stock broker liquidation) of chapter 7
of the U.S. Bankruptcy Code in a liquidation of the BD-FCM.
---------------------------------------------------------------------------

\34\ 15 U.S.C. 78aaa-78lll.
---------------------------------------------------------------------------

3. FICC will record a cross-margining customer's cross-margined
securities positions in an account on its books and records for
recording a BD-FCM's cross-margining customers' transactions (``FICC XM
Customer Position Account'').
4. FICC will credit margin it collects from a BD-FCM for the BD-
FCM's cross-margining customers to an account on its books and records
in the name of the BD-FCM for the benefit of its customers (``FICC XM
Customer Margin Account''). FICC will hold all funds credited to the
FICC XM Customer Margin Accounts either in: (a) the FICC FRBNY
Segregated Account; \35\ or (b) a FICC Segregated Bank Account, each of
which will be opened in the name of FICC and clearly labeled, and for
accounts at a commercial bank, acknowledged as held for the benefit of
cross-margining customers.
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\35\ The CFTC has recognized important benefits to a clearing
organization of using Federal Reserve bank accounts. See 81 FR
53467, 53468 (noting the lower credit and liquidity risks with a
deposit at a Federal Reserve Bank than a deposit at a commercial
bank). As a SIFMU, FICC is permitted to have an account at a Federal
Reserve Bank, subject to requirements of the Federal Reserve,
particularly 12 CFR 234.5. FICC has an existing FRBNY bank account
currently used to maintain securities customer collateral that is
not associated with cross-margining (``Segregated Customer
Margin'').
FICC represents it is unable to obtain another separate Federal
Reserve account to hold cross-margining customer collateral. In
order to hold cross-margining customer collateral in an account at a
Federal Reserve Bank, FICC will need to, if permitted to do so, co-
locate Segregated Customer Margin and cross-margining customer
collateral in the same FRBNY bank account to deposit both types of
collateral in a Federal Reserve Bank. As discussed further below in
section III.C, because FICC is not a registered DCO, and thus a FICC
bankruptcy would not be governed by subchapter IV of chapter 7 of
the Bankruptcy Code, 11 U.S.C. 761 et. seq., the implications of
such co-location of customer collateral are different than if FICC
were a registered DCO.
In connection with the customer cross-margining framework under
the Order, FICC will amend its rules to provide that the FICC FRBNY
Segregated Account may hold cash cross-margining customer margin in
addition to (SEC regulated) segregated customer margin (but no other
assets) and (if FICC is permitted by the Federal Reserve to hold
cash cross-margining customer collateral in the FRBNY Segregated
Account) the FRBNY account notice will be amended to specify that
the cash in the FICC FRBNY Segregated Account is also held pursuant
to the Order and the corresponding related SEC order. Otherwise,
FICC will hold such cash cross-margining customer collateral in a
Segregated Bank Account that will only hold cross-margining customer
collateral and will be at a commercial bank.
---------------------------------------------------------------------------

5. FICC's accounts referred to in A.4 above will be separate
accounts from the accounts holding (a) FICC's own assets, (b) margin
for the BD-FCM's proprietary positions, and (c) except as discussed in
footnote 35 above, margin for positions of the BD-FCM's customers that
do not participate in cross-margining. Although FICC itself is not a
registered DCO and is not a permitted depository under Commission
Regulation 1.49(d), as discussed in more detail below, FICC will hold
cross-margining customer margin (``XM Customer Margin'') consistently
with all requirements under Commission Regulations 1.20 and 1.49 as
applicable to DCOs \36\ as well as with the requirements of Commission
Regulations 39.15(b)(1) and (c) and 39.36(g).
---------------------------------------------------------------------------

\36\ Funds held in the FICC FRBNY Segregated Account will be
held subject to the exception for Segregated Customer Margin
discussed in footnote 35 above.
---------------------------------------------------------------------------

6. FICC will have amended its rules \37\ so that: (a) all assets
credited to the FICC XM Customer Margin Accounts will be treated as
``financial assets'' \38\ credited to a ``securities account;'' (b)
FICC will be a ``securities intermediary'' for that margin account and
each BD-FCM, acting on behalf of its customers, will be an
``entitlement holder'' and have a ``security entitlement'' with respect
to

[[Page 20885]]

assets it deposits in such margin account; (c) the FICC XM Customer
Margin Accounts and the account(s) holding Treasury Securities
Segregated Margin discussed in footnote 35 above will be the only types
of securities accounts, as that term is defined in section 8-501(a) of
the NYUCC, that FICC maintains, and FICC will not establish any
additional such securities accounts without obtaining the permission of
both the CFTC and the SEC.
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\37\ Pursuant to section 19(b) of the Securities Exchange Act,
15 U.S.C. 78s(b), a self-regulatory organization such as FICC must
submit any proposed change in its rules to the SEC for approval. The
Order requires FICC to, consistent with section 19(b), amend its
rulebook as necessary to implement the undertakings set forth in the
petition. Thus, the relief set forth in the Order can only become
effective when FICC proposes, and the SEC approves, such amendments
to the FICC rulebook. FICC proposed such rule changes in December
2025. The SEC has approved these rules. See Notice of Filing of
Partial Amendment No. 2 and Order Granting Accelerated Approval of
Proposed Rule Change, as Modified by Partial Amendment Nos. 1 and 2,
to Amend and Restate the Second Amended and Restated Cross-Margining
Agreement between FICC and CME and Amend Related GSD Rules; Exchange
Act Release No. 34-105249 (April 15, 2026) [File No. SR-FICC-2025-
025] (``FICC Approval Order''). See also Notice of Filing of Partial
Amendment No. 2 and Notice of No Objection to Advance Notice, as
Modified by Partial Amendment Nos. 1 and 2, to Amend and Restate the
Second Amended and Restated Cross-Margining Agreement between FICC
and CME and Amend Related GSD Rules; Exchange Act Release No. 105197
(Apr. 10, 2026); 91 FR 19221 (Apr. 14, 2026) [File No. SR-FICC-2025-
801]. The SEC approved a related exemptive order to facilitate this
customer cross-margining agreement on April 15, 2026. See Order
Under Section 36 of the Securities Exchange Act of 1934 (the
``Exchange Act'') Granting Conditional Exemptive Relief from Section
15(c)(3) of and Rule 15c3-3 under the Exchange Act for Cross-
Margining of Cleared U.S. Treasury Securities and Related Futures
(``SEC Exemptive Order''). The notices for the FICC Approval Order
and the SEC Exemptive Order are published elsewhere in this issue of
the Federal Register.
\38\ All quoted terms in this paragraph refer to such terms as
defined in Article 8 of the New York Uniform Commercial Code
(``NYUCC'').
---------------------------------------------------------------------------

7. CME will continue to hold margin posted to CME as required by
CEA section 4d and Commission Regulations 1.20, 1.49, 39.15(b)(1) and
(c), and 39.36(g) in the same manner as it treats all other futures
customer margin.

B. Protection for the Margin of Cross-Margining Participants in the
Event of a BD-FCM Bankruptcy 39
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\39\ As a technical matter, an insolvency of a broker-dealer
(including a BD-FCM) that has customers that are neither insiders
nor a broker-dealer or bank that is not trading on behalf of
customers that are themselves neither a broker-dealer or a bank,
would proceed under the Securities Investors Protection Act, 15
U.S.C. 78aaa et. seq. (``SIPA''). See id. sections 5(a)(3), 9(a), 15
U.S.C. 78eee(a)(3), 78fff-3(a). However, a trustee under SIPA is
subject to the same duties as a trustee under chapter 7 of the
Bankruptcy Code, including (in the case of a BD-FCM), subchapter IV
of chapter 7, the commodity broker liquidation provisions. SIPA
section 7(b), 15 U.S.C. 78fff-1(b). Accordingly, such a proceeding
is referred to herein as a ``BD-FCM bankruptcy.''
---------------------------------------------------------------------------

The cross-margining framework under the Order will protect cross-
margined customer funds in the event of the bankruptcy of a
participating BD-FCM. Participating customers' funds will be protected
by ensuring that claims for cross-margined positions and related
collateral are treated as customer claims under subchapter IV of
chapter 7 of the Bankruptcy Code and Part 190 of the Commission's
regulations (``Part 190'') regarding bankruptcy. For the reasons
discussed below, the Commission concludes that the cross-margining
customers would thus have the same priority right to receive
distribution on their allowed claims against the customer property as
other customers of the insolvent BD-FCM in the futures account class.
Futures customers of each participating BD-FCM are protected as a
group by ensuring, consistent with the Order, that commingled customer
funds, including those held by FICC, are treated as ``customer
property'' held by the BD-FCM in its capacity as an FCM, thus
supporting the goal that all claims for customer property are paid in
full.
1. FICC-Held Customer Property as Futures Customer Property Under Part
190
Three points support the treatment of FICC-held customer property
as futures customer property under Part 190. First, Part 190 includes
within the scope of customer property any property held by or for the
account of the debtor, from or for the account of a customer, including
property received, acquired, or held to margin, guarantee, secure,
purchase or sell a commodity contract.\40\ As discussed above, and
required by the Order, FICC will credit margin it collects in
connection with a cross-margining customer's positions to a FICC XM
Customer Margin Account in the name of the BD-FCM for the benefit of
its cross-margining customers, which are futures customers. Similarly,
FICC will record a cross-margining customer's positions in a FICC XM
Customer Position Account, which will be an account of the BD-FCM that
is established for the purpose of recording the transactions of cross-
margining customers. The BD-FCM will also record on its books and
records the XM Securities Customer Property as being held in the BD-
FCM's futures customer account, and such property will be intended to
serve as collateral for futures positions.
---------------------------------------------------------------------------

\40\ 17 CFR 190.09(a)(1)(i)(A).
---------------------------------------------------------------------------

Moreover, pursuant to section 7 of the FICC-CME XM Agreement
(``Agreement''), if the BD-FCM defaults, and its cross-margined
customer positions at both CME and FICC are liquidated, under
circumstances where CME is ``worse-off'' (as such term is defined in
the Agreement) than FICC, some or all of the margin at FICC will be
payable to CME. Thus, the collateral in a FICC XM Customer Margin
Account in fact is held by or for the account of the BD-FCM, from or
for the account of the BD-FCM's cross-margining customers as property
received, acquired, or held to margin, guarantee, secure, purchase or
sell the commodity contracts in the BD-FCM's cross-margining customer
accounts at CME.\41\
---------------------------------------------------------------------------

\41\ Also, as required by the Order, a BD-FCM will be required
to pledge its interest in the XM Securities Customer Property to CME
to secure the obligations of the BD-FCM with respect to the
customer's futures positions cleared by CME. The BD-FCM will
likewise require each cross-margining customer to pledge XM
Securities Customer Property to the BD-FCM to collateralize the
cross-margining customer's obligations arising under its CME-cleared
customer positions. Accordingly, this provides further basis for the
XM Securities Customer Property to constitute customer property on
account of being ``property received, acquired, or held to margin,
guarantee, secure, purchase or sell a commodity contract.''
---------------------------------------------------------------------------

For these reasons, the Commission concludes that, because of this
structure, the XM Securities Customer Property would be appropriately
viewed as customer property pursuant to Commission Regulation
190.09(a)(1)(i)(A).
Second, pursuant to paragraph (2)(ii) of Commission Regulation
190.01's definition of ``account class,'' the securities positions and
associated collateral held in a BD-FCM's futures account pursuant to
this Commission-approved customer cross-margining program will be
treated as being held in the futures account class.\42\ Moreover, the
XM Securities Customer Property would also constitute ``customer
property'' under Part 190 to the extent it consists of securities held
in a portfolio margining account carried as a futures account.\43\
---------------------------------------------------------------------------

\42\ 17 CFR 190.01 (``The principle in paragraph (2)(i) of this
definition will be applied to securities positions and associated
collateral held in a commodity account class pursuant to a cross
margining program approved by the Commission (and thus treated as
part of that commodity account class)'').
\43\ 17 CFR 190.09(a)(1)(i)(G) (``Customer property includes . .
. All cash, securities, or other property . . . received, acquired,
or held by or for the account of the debtor, from or for the account
of a customer . . . which is: . . . (G) Securities held in a
portfolio margining account carried as a futures account . . . .'')
---------------------------------------------------------------------------

Third, XM Securities Customer Property held at FICC will also
qualify as ``customer property'' under Part 190 by virtue of being
cash, securities, or other property that would be segregated for
customers on the filing date.\44\ As described above, FICC will credit
margin posted for cross-margining customers' positions to a FICC XM
Customer Margin Account on its books and records. This account will
exclusively hold margin for cross-margining customers, and (as noted
above) will also serve as collateral for associated futures positions
at CME. All XM Customer Margin will also be segregated in terms of its
custody. Lastly, the BD-FCM will be required, consistent with
Commission Regulation 1.20, to separately account for all cross-
margining customers' margin and positions. As a result of this
consistent segregation, the Commission concludes that XM Securities
Customer Property will be appropriately segregated for customers on the
filing date and therefore ``customer property'' under Part 190.
---------------------------------------------------------------------------

\44\ 17 CFR 190.09(a)(1)(ii)(A).
---------------------------------------------------------------------------

2. Customer Claims for the FICC-Held Customer Positions and Margin at
FICC as Allowable Claims Under Part 190
In the event of an FCM bankruptcy, property is allocated to the
FCM's

[[Page 20886]]

customers based on account and customer class as well as on net equity
claims.\45\ For the reasons discussed below, the Commission concludes
that a cross-margining customer's claims for XM Securities Customer
Property would be allowable claims under Part 190 against customer
property in the futures account class because they would be within the
scope of the ``net equity'' definition of the Bankruptcy Code, and also
because they would be incorporated into ``Step 1'' of the ``net
equity'' calculation set out in Commission Regulation 190.08(b).
---------------------------------------------------------------------------

\45\ 17 CFR 190.09.
---------------------------------------------------------------------------

A customer's ``net equity'' is defined in the Bankruptcy Code to
include the balance remaining in the customer's accounts immediately
after (i) the transfer, liquidation, or identification for delivery of
the customer's positions and (ii) offset of the customer's
obligations.\46\ Under the cross-margining framework permitted by the
Order, the BD-FCM will be required to credit XM Securities Customer
Property to a futures customer account within the meaning of Commission
Regulation 1.3. Accordingly, the Commission concludes that, independent
of Part 190 of the Commission's regulations, such amounts would give
rise to cross-margining customer net equity claims under section
761(17) of the Bankruptcy Code, since such amounts would constitute
part of the balance remaining in the customers' accounts.
---------------------------------------------------------------------------

\46\ 11 U.S.C. 761(17).
---------------------------------------------------------------------------

In addition, the definition of ``net equity'' in section 761(17) of
the Bankruptcy Code states that it is subject to such rules and
regulations as the Commission promulgates under the CEA. Moreover,
section 20(a)(5) of the CEA \47\ provides that, notwithstanding the
Bankruptcy Code, the Commission may provide by rule or regulation, with
respect to a commodity broker that is a debtor under chapter 7 of the
Bankruptcy Code, how the net equity of a customer is to be determined.
---------------------------------------------------------------------------

\47\ 7 U.S.C. 24(a)(5).
---------------------------------------------------------------------------

Commission Regulation 190.08 prescribes a five-step process for
calculating a customer's net equity based on the customer property,
including any commodity contracts, held by the debtor for or on behalf
of the customer less any indebtedness of the customer to the debtor.
Step 1 of that process, set out in Commission Regulation 190.08(b)(1),
requires consideration of the sum of: (A) the ledger balance; (B) the
open trade balance; and (C) the realizable market value, determined as
of the close of the market on the last preceding market day, of any
securities or other property held by or for the debtor from or for such
account, plus accrued interest, if any.
The ``ledger balance'' is calculated by: (A) adding, among other
things, (1) cash deposited to purchase, margin, guarantee, secure, or
settle a commodity contract, (2) cash proceeds of liquidations of any
securities or other property held by or for the debtor from or for the
futures account plus accrued interest, and (3) gains realized on
trades; and (B) subtracting, among other things, losses realized on
trades.\48\ The ``open trade balance'' is calculated by subtracting the
unrealized loss in value of the open commodity contracts held by or for
the customer's futures account from the unrealized gain in value of the
open commodity contracts held by or for such account.\49\
---------------------------------------------------------------------------

\48\ 17 CFR 190.08(b)(1)(ii).
\49\ 17 CFR 190.08(b)(1)(iii).
---------------------------------------------------------------------------

For purposes of these calculations, securities positions and
associated collateral held in a futures account pursuant to a
Commission-approved cross-margining program are treated as customer
property held in a futures account class.\50\ Accordingly, under Part
190, cross-margining customers' claims with respect to cash margin held
at FICC would form part of the ledger balance because they are for cash
deposited to margin and secure commodity contracts,\51\ while the
securities margin and in-the-money securities positions would be
property held by the insolvent BD-FCM for the cross-margining
customers' futures account. ``Securities positions'' (i.e., open repo
positions) and associated payment amounts constitute ``securities or
other property'' under Regulation 190.08(b)(1)(i)(C). To the extent
open securities transactions had been liquidated or otherwise resulted
in realized gains, those amounts would form part of the ledger balance.
Therefore, under both section 761 of the Bankruptcy Code and Part 190,
cross-margining customers will have allowable net equity claims for XM
Securities Customer Property, and the Commission concludes that they
will receive adequate protection in bankruptcy.
---------------------------------------------------------------------------

\50\ 17 CFR 190.01 (paragraph (2)(ii) of the definition of
``account class'').
\51\ 17 CFR 190.08(b)(1)(ii)(A)(1).
---------------------------------------------------------------------------

FIA commented that the Commission needs to clarify how the net
equity calculation under Part 190 applies to customer collateral. In
particular, FIA requested further clarification or examples of the net
equity calculation with respect to a customer's claim for repurchase
agreement positions. FIA questioned how unrealized gains/losses in the
value of open securities transactions like repurchase agreements would
be calculated. Specifically, FIA asked whether unrealized gains in the
value of securities positions would be included in open trade balances
under Commission Regulation 190.08(b)(1)(i)(B) or as ``realizable
market value . . . of any securities or other property'' under
Regulation 190.08(b)(1)(C) and whether unrealized losses in value of
securities positions would be included in open trade balances under
Commission Regulation 190.08(b)(1)(i)(B) or, even though a loss would
constitute a negative value, as ``realizable market value . . . of any
securities or other property'' under Commission Regulation
190.08(b)(1)(C).\52\
---------------------------------------------------------------------------

\52\ FIA Comment Letter at 5 (Jan. 16, 2026).
---------------------------------------------------------------------------

As discussed in the footnote, these unrealized gains or losses in
the value of securities positions are not part of the ledger
balance.\53\
---------------------------------------------------------------------------

\53\ This is because unrealized gains or losses are not included
within the calculation formula in Regulation 190.08(b)(1)(ii) which
defines the ledger balance. They are neither cash deposited to
purchase, margin, guarantee, secure or settle a commodity contract;
cash proceeds of liquidations of any securities or other property
(such proceeds would be part of realized gains or losses); gains or
losses realized on trades (same); the face amount of a letter of
credit; disbursements to or on behalf of customers; or costs
attributable to the payment of commissions, etc.
---------------------------------------------------------------------------

Commission Regulation 190.08(b)(1)(iii) provides that ``[f]or
purposes of this paragraph (b)(1), the open trade balance of a
customer's account shall be computed by subtracting the unrealized loss
in value of the open commodity contracts for such account from the
unrealized gain in value of the open commodity contracts held by or for
such account'' (emphasis supplied). Thus, gains or losses in the value
of securities positions would not be part of the calculation of the
``open trade balance.''
Rather, as noted above, unrealized gains (or losses) in the value
of securities positions (i.e., open repo positions) would appear to fit
more comfortably under Commission Regulation 190.08(b)(1)(i)(C):
realizable market value of any securities or other property. The
``realizable market value'' of these securities positions can be
established upon liquidation. Such value may also be based in part on
associated payment amounts that can be determined but have not yet been
settled. If not liquidated, those securities positions ``may be valued
by the trustee using such professional assistance as the trustee deems
necessary in its sole discretion under

[[Page 20887]]

the circumstances'' pursuant to Commission Regulation 190.08(d)(5).
3. FICC Will Make Customer Positions Portable
Commission Regulation 190.07(a) provides, inter alia, that a DCO
may not have rules that interfere with the acceptance by its clearing
members of transfers of commodity contracts, and the property margining
or securing such contracts, from an FCM that is a debtor, if such
transfers have been approved by the Commission, subject to certain
provisos. FICC will amend its current rules to expressly allow the
porting of cleared positions and associated margin at FICC in the event
a clearing member becomes insolvent.\54\ Pursuant to section (e)(viii)
of the Order, FICC will be required to amend its rules to provide that,
as required under Commission Regulation 190.07(a), FICC will not
interfere with transfers of XM Securities Customer Property that are
approved by the Commission pursuant to Part 190 (subject to FICC's
right to liquidate positions and manage risk).
---------------------------------------------------------------------------

\54\ See footnote 37.
---------------------------------------------------------------------------

4. Default Management Complexity
Better Markets commented that cross-margining could make clearing
member default management more complex by increasing systemic
interconnections and reducing the room for error due to collateral
reduction.\55\ SIFMA/SIFMA AMG suggested that the Commission act to
ensure that FICC and CME's default management and customer protection
procedures are adequate before approving the exemption.\56\
---------------------------------------------------------------------------

\55\ Better Markets Comment Letter at 2.
\56\ SIFMA/SIFMA AMG Comment Letter at 3.
---------------------------------------------------------------------------

With respect to default management, the FICC-CME XM Agreement,
section 7, sets forth a detailed procedure governing default management
protocols. Commission Regulation 39.16(b) requires CME to ``maintain a
current written default management plan that . . . include[es] any
necessary coordination with . . . other entities . . .'' as well as
testing of that plan ``on at least an annual basis.'' This requirement
includes default management under a cross-margining program.\57\
---------------------------------------------------------------------------

\57\ Analogous obligations apply to FICC under SEC regulations.
See, e.g., 17 CFR 240.17ad-22(e)(13) (testing and review of default
procedures).
---------------------------------------------------------------------------

As discussed above, the Commission crafted the Order to include
conditions designed to include customer protection arrangements that
are well supported legally. Further, the Order conditions the exemptive
relief on CME, FICC, and the participating BD-FCMs complying with those
conditions.
Given the default management requirements under CFTC and SEC
regulations of CME and FICC, respectively, and with the inclusion of
the conditions specified in the Order, the Commission concludes that
the cross-margining program is well designed to meet the goals of the
CEA for default management and customer protection. The Commission does
not view the complexity of the cross-margining program to be such that
permitting its expansion to customers would undermine compliance with
the standards of the CEA and the Commission's regulations.

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

FCM customer funds that are held at a registered DCO, such as CME,
will be protected in the unlikely event of the bankruptcy of that DCO
under subchapter IV of chapter 7 of the Bankruptcy Code, pertaining to
commodity brokers.\58\ The term ``commodity broker'' includes both FCMs
and DCOs.\59\ Subchapter IV of chapter 7 of the Bankruptcy Code, and
Part 190, which implements those statutory provisions, provide a
reticulated and comprehensive set of protections for customer funds in
the context of futures accounts, cleared swaps accounts, and foreign
futures accounts, each of which falls under an account class. However,
FICC is not a DCO, and so customer funds held at FICC will not be
protected under subchapter IV in the event of FICC's bankruptcy. Nor
are funds held at FICC protected under the Securities Investor
Protection Act \60\ or subchapter III of chapter 7 of the Bankruptcy
Code,\61\ both of which apply only to broker-dealers, and not to
securities clearing agencies.
---------------------------------------------------------------------------

\58\ 11 U.S.C. 761 et. seq.
\59\ See 11 U.S.C. 101(6), 761(2).
\60\ 15 U.S.C. 78aaa et. seq.
\61\ 11 U.S.C. 741 et. seq.
---------------------------------------------------------------------------

For the reasons discussed below, the Commission is of the view that
cross-margining customers' margin held at FICC would nonetheless be
protected and not be available to creditors in the unlikely event of a
FICC bankruptcy, except for margining or settling eligible customer
positions, and would not form part of FICC's estate.
This protection will be implemented using NYUCC \62\ Article 8, as
applied to FICC's rulebook as it will be amended. Specifically, the
Order requires FICC to take steps that the Commission believes ensure
that participating BD-FCMs, on behalf of their customers, would be
``entitlement holders'' within the meaning of Article 8, with respect
to all components of the cross-margining margin. Moreover, the only
other entitlement holders would be BD-FCM members of FICC with respect
to (non-cross-margined) segregated customer margin deposited by a BD-
FCM (on behalf of securities customers). As explained further below,
entitlement holders with respect to a particular type (e.g., issue) of
financial asset have priority claims with respect to all interests in
that financial asset held by FICC.
---------------------------------------------------------------------------

\62\ See generally NY CLS UCC, Art. 8. FICC is located in New
York.
---------------------------------------------------------------------------

As an SEC-registered clearing agency, FICC is a ``clearing
corporation,'' and thus falls within the definition of a ``securities
intermediary'' in the NYUCC.\63\
---------------------------------------------------------------------------

\63\ See NYUCC 8-102(a)(5)(i) (definition of ``clearing
corporation''), 8-102(14)(i) (definition of ``securities
intermediary'').
---------------------------------------------------------------------------

Under the NYUCC, a ``securities account'' means an account to which
a financial asset is or may be credited in accordance with an agreement
under which the person maintaining the account undertakes to treat the
person for whom the account is maintained as entitled to exercise the
rights that comprise the financial asset. Section (e)(v) of the Order
requires that FICC shall, consistent with section 19(b) of the
Securities Exchange Act,\64\ amend FICC's rules to provide that any
assets credited to a FICC XM Customer Margin Account will be used
exclusively to settle and margin the customer positions and for no
other purpose.\65\ Further, section (e)(iv) requires FICC to amend
FICC's rules \66\ to provide that all assets credited to a FICC XM
Customer Margin Account would be treated as ``financial assets'' \67\
credited to a ``securities account.'' \68\
---------------------------------------------------------------------------

\64\ 15 U.S.C. 78s(b).
\65\ See footnote 37.
\66\ FICC has also proposed this rule amendment. See id.
\67\ FICC Rule 4, section 1a, currently provides in relevant
part that ``[a]ll assets credited to each Segregated Customer Margin
Custody Account shall be treated as `financial assets' within the
meaning of Article 8 of the NYUCC.'' The Commission concludes that
this would include both securities and cash--while securities are
included within the term ``financial assets'' by statute, NYUCC 8-
102(9)(a)(i), that term also includes any property that is held by a
securities intermediary for another person in a securities account
``if the securities intermediary has expressly agreed with the other
person that the property is to be treated as a financial asset under
this Article.''
\68\ The Commission concludes that treatment of the FICC XM
Customer Margin Account as a ``securities account'' under the NYUCC
does not depend on, nor affect, the treatment of such account as a
futures account for purposes of the customer cross-margining
framework. See NYUCC 8-101, legislative intent (``Except as
otherwise expressly provided in this act, the provisions of this act
are not intended to change or to control the definitions of the
terms `security' and `commodity' contained in any other laws[.]'');
8-501, comment 1 (``A securities account is a consensual arrangement
in which the intermediary undertakes to treat the customer as
entitled to exercise the rights that comprise the financial asset''
and ``[t]he effect of concluding that an arrangement is a securities
account is that the rules of [the NYUCC] apply.'').

---------------------------------------------------------------------------

[[Page 20888]]

Under the NYUCC, with exceptions not relevant here, a person
acquires a security entitlement if a securities intermediary either (1)
indicates by book entry that a financial asset has been credited to the
person's securities account, or (2) receives a financial asset from the
person and accepts it for credit to the person's securities
account.\69\ A person who is either identified in the records of a
securities intermediary as having a security entitlement against the
securities intermediary, or acquires a securities entitlement by virtue
of section 8-501(b)(2), is an entitlement holder. The Commission is of
the view that, in each case, both prongs would apply and the BD-FCM,
acting on behalf of its customers, would be the entitlement holder and
would have a security entitlement with respect to the assets credited
to the FICC XM Customer Margin Account.
---------------------------------------------------------------------------

\69\ See NYUCC 8-501(b)(1) and (2).
---------------------------------------------------------------------------

Among the entitlement holder's rights is the right to have
financial assets held by the securities intermediary returned and not
be subject to the claims of general creditors. Per NYUCC section 8-
503(a), to the extent necessary for a securities intermediary to
satisfy all security entitlements with respect to a particular
financial asset, all interests in that financial asset held by the
securities intermediary are held by the securities intermediary for the
entitlement holders, are not property of the securities intermediary,
and are not subject to claims of creditors of the securities
intermediary, except as otherwise provided in section 8-511. The
relevant exception under NYUCC section 8-511(c) for ``a creditor of the
clearing corporation who has a security interest in that financial
asset'' would not be inconsistent with this approach, as FICC will be
required by section (e)(vi) of the Order to amend its rules to provide
that FICC shall not grant a security interest in either XM Customer
Margin (except with respect to CME's security interest discussed below)
or FICC Treasury securities customer margin. Thus, the Commission is of
the view that, under the NYUCC, the assets credited to the FICC XM
Customer Margin Account would not form part of FICC's estate but would
instead be reserved for BD-FCMs for the benefit of their futures
customers, subject to CME's security interest as discussed in more
detail below.\70\
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\70\ See NYUCC 8-102. The Bankruptcy Code points to otherwise
applicable non-bankruptcy law (such as the NYUCC) to determine
whether the debtor has an interest in an asset such that the asset
forms part of the debtor's estate. See, e.g., Butner v. U.S., 440
U.S. 48, 54-55 (1979), Collier on Bankruptcy section 541.03. Under
Title II of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (``Dodd-Frank Act''), the FDIC as receiver of
a covered financial company is bound to respect security
entitlements in a number of relevant ways. See, e.g., 12 U.S.C. 5390
(a)(1)(D) (FDIC resolution subject to legally enforceable securities
entitlements), (b)(5) (``This section shall not affect secured
claims or security entitlements in respect of assets or property
held by the covered financial company, except to the extent that the
security is insufficient to satisfy the claim, and then only with
regard to the difference between the claim and the amount realized
from the security''), (c)(12)(B) (security entitlements not
avoidable).
As a result, the Commission is of the view that NYUCC 8-503
would ensure that margin posted to FICC by BD-FCMs to secure cross-
margining customer positions would not form part of FICC's estate in
a bankruptcy, and the rights of the BD-FCM on behalf of its cross-
margining customers with respect to such margin would not be
disturbed in a resolution under Title II of the Dodd-Frank Act.
Petitioners note that Article 8 of the NYUCC is also the basis on
which the Depository Trust Company, banks that hold securities for
customers, and numerous other custodians depend to ensure that
securities and other assets they hold for their clients will not
form part of their respective estates.
---------------------------------------------------------------------------

Because FICC would not use XM Customer Margin or Treasury
Securities Segregated Margin other than for purposes of securing or
settling cross-margining customer cross-margined positions or the
positions of customers that posted segregated customer margin,
respectively, it is less likely there would ever be a shortfall in the
particular financial assets (here, individual issues of Treasury
securities or cash) needed to satisfy the security entitlements related
to either type of margin.\71\ Moreover, FICC has represented that the
FICC XM Customer Margin Accounts and the account(s) holding FICC
Treasury Securities Segregated Margin will be the only types of
securities accounts that FICC maintains. As a result, the only
entitlement holders that FICC would have would be Netting Members \72\
acting on behalf of customers who posted: (1) XM Customer Margin in
relation to the FICC XM Customer Margin Accounts or (2) Treasury
Securities Segregated Margin in relation to the account(s) holding
Treasury Securities Segregated Margin.\73\ This is enforced by Section
(i)(1) of the Order, which provides that FICC shall not establish any
additional securities accounts without obtaining the consent of the
Commission and the SEC. The Commission observes that, under NYUCC
section 8-501, only a person with a securities account at a securities
intermediary can have a security entitlement with respect to that
intermediary.
---------------------------------------------------------------------------

\71\ The rights of entitlement holders under Article 8 work
differently than the rights of customers of an FCM or DCO under
subchapter IV. In the latter case, the customers have a pro rata
interest in customer property considered on an omnibus basis. By
contrast, an entitlement holder's property interest under NYUCC 8-
503 is an interest with respect to a specific issue of securities or
financial assets. NYUCC 8-503 comment 1. The Commission is of the
view that, in light of the overall structure of the program, this
distinction does not entail a materially increased degree of risk to
futures customers.
\72\ ``Netting Member'' is used herein as defined in FICC's
Government Securities Division Rulebook. A Netting Member is a FICC
member that is a member of FICC's Comparison System and Netting
System.
\73\ Petition at 14.
---------------------------------------------------------------------------

Because the rights of entitlement holders are tied to particular
issues of securities (e.g., CUSIPs) or financial assets (here, pursuant
to FICC rules, including cash) rather than particular accounts, if
there were a shortfall with respect to a particular security or cash in
either the FICC XM Customer Margin Accounts or the account(s) holding
Treasury Securities Segregated Margin, the rights of customers who
posted XM Customer Margin or Treasury Securities Segregated Margin
would apply to any of those particular securities (or cash) held by
FICC.\74\ This would include the specific securities (or cash) which
might otherwise be traceable to FICC members that are not entitlement
holders. This further reduces the likelihood of any deficit.
---------------------------------------------------------------------------

\74\ See NYUCC 8-503(b) (``An entitlement holder's property
interest with respect to a particular financial asset under
subsection (a) is a pro rata property interest in all interests in
that financial asset held by the securities intermediary, without
regard to the time the entitlement holder acquired the security
entitlement or the time the securities intermediary acquired the
interest in that financial asset.'').
---------------------------------------------------------------------------

If, despite the foregoing, any such deficit were to arise with
respect to a particular financial asset, NYUCC section 8-503(b)
provides for all entitlement holders of a securities intermediary with
respect to that particular financial asset to share such deficit on a
pro rata basis.

D. Protection for Customers Not Participating in Cross-Margining

The Commission concludes that the cross-margining arrangement
permitted by the Order does not present unacceptable risk to customers
not participating in cross-margining. The Commission believes that a
variety of protections, described by Petitioners and detailed below,
will mitigate the risk of a shortfall of available assets for
distribution resulting from customers' participation in cross-
margining.

[[Page 20889]]

The first protection is Petitioners' cross-margining margin
calculation methodology. Under the cross-margining arrangement
permitted by the Order, eligible positions of a participating customer
will be identified and considered as a combined portfolio. Each of CME
and FICC will use its own margin model to determine the amount of
margin savings percentage resulting from combining the portfolio and
then will jointly apply the more conservative result. Thus, under the
framework, both CME and FICC will use, as part of calculating the
margin requirement, the same methodology developed by CME under the
supervision of the Commission for non-cross-margined positions, unless
the margin methodology developed by FICC under the supervision of the
SEC provides a more conservative result. Given this, the margin the BD-
FCM will collect after cross-margining will at no time be less than
what will be required by CME's margin methodology. Thus, the risk that
the BD-FCM will hold inadequate margin for cross-margining positions is
no different in kind, and no greater, than the risk that the BD-FCM
will hold inadequate margin for other types of positions.
Better Markets, FIA, and SIFMA/SIFMA AMG addressed in their
comments the importance of adequate cross-margining margin
requirements.\75\ SIFMA/SIFMA AMG and FIA urged the Commission to
ensure that margin requirements are sufficiently conservative.\76\
SIFMA/SIFMA AMG proposed that the Commission stress test the margin
calculations before approval of the proposal.\77\ FIA believes it is
``critical that both FICC and CME have in place plans to avoid market
shocks from urgent changes to margin levels'' and that ``FICC, CME and
the regulators . . . actively review the appropriateness of margin
levels and maximum offsets to ensure that margin is at all times
sufficient.'' \78\ Better Markets commented that the Commission should
consider that the risks may not be well-managed in cross-margining.\79\
Better Markets stated that assumptions about correlations can break
down in stress and would have CME apply conservative assumptions around
correlation breaks.\80\
---------------------------------------------------------------------------

\75\ Better Markets Comment Letter at 2; SIFMA/SIFMA AMG Comment
Letter at 3; FIA Comment Letter at 4.
\76\ SIFMA/SIFMA AMG Comment Letter at 3; FIA Comment Letter at
4.
\77\ SIFMA/SIFMA AMG Comment Letter at 3.
\78\ FIA Comment Letter at 4.
\79\ Better Markets Comment Letter at 2.
\80\ Id.
---------------------------------------------------------------------------

While the Commission agrees with commenters about the importance of
sufficiently conservative margin requirements, the Commission believes
the margin requirements under the cross-margining program will be
commensurate with the risks of each portfolio as required by Commission
Regulation 39.13(g)(2)(i). The Commission has found that CME has
maintained sufficient margin coverage for the proprietary cross-
margining program that was originally implemented in 2004. As part of
its ongoing supervision of CME, the Commission will conduct stress
testing of the cross-margining program to determine that the risk
exposures and margin offsets (the cross-margining levels) remain
appropriate for the accounts participating in the cross-margin program.
Further, the CME-FICC cross-margining program contains features aimed
at maintaining conservative margin requirements, including each entity
independently applying its own margin model to calculate potential
margin requirements and then using the more conservative result. In
addition to this, the program applies an 80 percent cap on margin
benefits obtained through cross-margining, further ensuring
conservativeness. As CME will be applying the same margin methodology
used in the proprietary cross-margining program to the customer cross-
margining program, the Commission expects the margin collected for
customer cross-margining participants will continue to be commensurate
with the risks of each portfolio.
Further, the Commission will continue to use its existing authority
under the CEA, in particular Core Principle D, and its regulations (in
particular, Sec. 39.13(g)) to ensure that margin levels remain
commensurate with the risks of each portfolio. The Commission`s
oversight of CME, including its existing cross-margining programs,
includes conducting yearly examinations and quarterly supervisory
meetings to ensure, amongst other things, that CME maintains adequate
margin levels.
Second, the Commission concludes that futures customers of each
participating BD-FCM would be protected from a loss during a BD-FCM
bankruptcy because, as discussed above, all customer funds, including
cross-margining customer funds held by FICC, would be treated as
``customer property'' for purposes of applying subchapter IV of chapter
7 of the Bankruptcy Code and Part 190. This ensures that during a BD-
FCM bankruptcy, all commingled customer funds in the futures account
would receive similar protections, and non-participating customers
would not experience a shortfall of the commingled customer funds
caused by different treatment of cross-margining futures customer funds
in bankruptcy.
Third, as described above, the Commission believes the risk that in
the event of FICC's bankruptcy there would be any shortfall in the
funds needed to satisfy the entitlements of cross-margining customers
is low, given the protections provided under NYUCC Article 8 and the
rule changes that FICC has undertaken to make--in particular, the fact
that only the segregated accounts (for cross-margining customers and
securities customers) would be entitlement holders. In addition, in
order to allow the Commission to confirm that FICC would be at all
times holding sufficient funds in its segregated accounts to satisfy
all security entitlements, FICC will provide the Commission and the SEC
each business day with reporting on the cash and, by CUSIP, securities
(a) owed to BD-FCMs on behalf of their cross-margining customers or
securities customers and (b) maintained in such accounts. This
constitutes an additional protection that will minimize the risk that
FICC could pose to customers not participating in cross-margining.
Fourth, CME will have a security interest in the FICC customer
property, and CME and FICC cross-guaranty to pay the other amounts owed
by a defaulted clearing member in accordance with an agreed calculation
methodology. In the event that CME faces a deficit based on amounts
owed to CME by a defaulted BD-FCM with respect to its cross-margining
customers' positions cleared at CME, FICC would guarantee those
obligations up to the value of the relevant customers' FICC customer
property. Petitioners designed these features to allow CME to look to
the FICC customer property to satisfy deficits owing to CME by the
cross-margining customers, reducing the risk of a shortfall that could
adversely impact non-participating customers.
Finally, the Commission concludes that the availability of
customer-level cross-margining under the customer cross-margining
framework should not adversely affect the portability of non-
participating futures customers. Part 190 permits a bankruptcy or SIPA
trustee of a failed BD-FCM to transfer the margin and positions of a
non-participant customer even if it cannot similarly

[[Page 20890]]

transfer a cross-margining customer's positions and margin.\81\
---------------------------------------------------------------------------

\81\ See Commission Regulation 190.07(d)(2) (``if all eligible
commodity contract accounts held by a debtor cannot be transferred
under this section, a partial transfer may nonetheless be made.'').
---------------------------------------------------------------------------

The Commission accepts that, given the protections described above,
CME and FICC should not be required to subordinate the claims of cross-
margining customers relative to other futures customers pursuant to the
special distribution framework in framework 1 of appendix B to Part
190.\82\ That framework would effectively subordinate the claims of
cross-margining customers relative to other customers.\83\ In light of
the foregoing, the Commission concludes that the risks posed to the BD-
FCM futures customer account from the cross-margining program are not
materially greater in degree or kind than the risks posed by other
futures positions and portfolio margining programs. Accordingly, under
the Order, the special distribution framework will not be applied to
the cross-margining framework thereunder, and BD-FCMs will be permitted
to hold cross-margining customers' assets commingled with non-cross-
margining futures customers' assets.
---------------------------------------------------------------------------

\82\ This is consistent with the approach set forth in the GMAC
Recommendation, III.2, at p. 3.
\83\ Under that framework, if the percentage shortfall for
cross-margining customers, considered alone, would be greater than
that for non-cross-margining customers, considered alone, then the
cross-margining customers would be treated separately from non-
cross-margining customers, thus protecting the non-cross-margining
customers. If, instead, the percentage shortfall for non-cross-
margining customers is equal to or greater than the percentage
shortfall for cross-margining customers, then the cross-margining
customers and the non-cross-margining customers will be paid pro
rata over the same pool, to the disadvantage of the cross-margining
customers.
---------------------------------------------------------------------------

IV. Customer Protection--Permitted Depository

The CEA and Commission regulations also protect futures customer
funds by requiring that the funds be held only at a permitted
depository. Pursuant to Commission Regulation 1.20(b), FCMs are only
permitted to hold futures customer funds with a bank or trust company,
a DCO, or another FCM. Similarly, under Commission Regulation 1.20(g),
DCOs are only permitted to hold futures customer funds with a bank or
trust company, which may include a Federal Reserve Bank with respect to
deposits by DCOs that have been designated as SIFMUs by the FSOC.
Moreover, pursuant to Commission Regulation 1.49(d), a depository in
the United States holding customer funds required to be segregated
pursuant to the CEA and Commission regulations must: (A) be a bank or
trust company, a DCO, or an FCM; and (B) provide appropriate written
acknowledgment as required under Commission Regulations 1.20 and 1.26.
Because FICC is not a bank, trust company, DCO, or FCM, it is not a
permitted depository under Commission Regulations 1.20 and 1.49.
As discussed above, the customer cross-margining framework under
the Order will require BD-FCMs to post to FICC, and FICC to hold, XM
Customer Margin. The Commission agrees with Petitioners that it is
consistent with the public interest to permit FICC to hold XM Customer
Margin subject to the terms and conditions of the Order. As a
designated SIFMU and an SEC covered clearing agency,\84\ FICC is
subject to requirements and safeguards, including in relation to
capital requirements and risk management, pursuant to SEC regulations,
that are broadly similar to those that apply under Commission
regulations to a systemically important DCO.\85\ Furthermore, the
Commission agrees with Petitioners that FICC would hold XM Customer
Margin in a manner that is consistent with how DCOs are required to
hold futures customer funds under CEA section 4d(b).\86\ Further, as
required by section (e)(vii) of the Order, FICC would deposit cross-
margining customer funds in accounts at the FRBNY, or at a FDIC-insured
commercial bank, with names that clearly identify the accounts as
holding futures customer funds. Moreover, the Commission concludes that
the design and safeguards of the customer cross-margining framework
under the Order, as described above,\87\ will leverage both Part 190
and commercial law, in particular the NYUCC, effectively to ensure that
XM Customer Margin held at FICC is available either to CME to satisfy
shortfalls in its futures customer account and/or returned to customers
regardless of the solvency of FICC. Thus, the Commission concludes that
FICC as a depository offers similar safeguards and financial security
as a DCO registered with the Commission, which is a permitted
depository under Commission Regulations 1.20 and 1.49. Accordingly, the
Commission believes that allowing BD-FCMs to deposit customer funds
with FICC, and FICC to hold such funds in the manner described herein,
is consistent with the objectives of the CEA and Commission regulations
promulgated thereunder.
---------------------------------------------------------------------------

\84\ See Section 3(a)(23)(A) of the Exchange Act, 15 U.S.C.
78c(a)(23)(A); SEC Rule 17Ab2-1.
\85\ Compare, e.g., 17 CFR 39.33(a)(1) and 240.17ad-
22(e)(4)(ii); 17 CFR 39.11(e), 39.33(c), and 240.17ad-22(e)(7)(i)
and (ii).
\86\ See section III.A., supra, Commingling.
\87\ See section III.B, supra, Protection for the Margin of
Cross-Margining Participants in the Event of a BD-FCM Bankruptcy.
---------------------------------------------------------------------------

V. Additional Comments

The Commission received additional comments about cross-margining
programs generally that pertain to DCO operational resilience; DCO
publicly available information; termination of a cross-margining
agreement; the impact of current bank capital rules; and the timing of
the Commission's action.

A. Operational Resilience

SIFMA/SIFMA AMG commented that the Commission should ensure CME and
FICC have sufficient operational resilience, suggesting that ``the
margin calculation mechanisms and any optimization platforms offered by
the clearing houses be appropriately resilient and tested for
operational resilience.'' \88\ SIFMA/SIFMA AMG recommended that CME and
FICC have ``developed and fully transparent fallback procedures for any
operational issues. . . .'' \89\ The Commission believes the
requirements of the CEA, in particular Core Principles B--Financial
Resources, D--Risk Management, and I--System Safeguards, and the
Commission's implementing regulations (in particular, Commission
Regulations 39.11, 39.13, and 39.18) that are applicable to CME, and
the SEC operational resilience requirements that are applicable to FICC
as a covered clearing agency are sufficient to address operational
resilience of these clearinghouses.\90\ Further, the Commission notes
that CME and FICC have operated the proprietary cross-margining program
for over 20 years. As SIFMA/SIFMA AMG did not identify any unique
operational risks caused by extending the proprietary cross-margining
arrangement to customers warranting additional operational resilience
measures, the Commission did not amend the Order based on this comment.
---------------------------------------------------------------------------

\88\ SIFMA/SIFMA AMG Comment Letter at 3.
\89\ Id.
\90\ See 17 CFR 240.17ad-22(e)(17) (requiring each covered
clearing agency to establish, implement, maintain and enforce
written policies and procedures reasonably designed to manage
operational risks by: identifying plausible sources of internal and
external operational risk, mitigating their impact through the use
of appropriate systems, policies, procedures, and controls; ensuring
that systems have a high degree of security, resilience, operational
reliability, and adequate scalable capacity; and establishing and
maintaining business continuity plan that addresses events posing
significant risk of disrupting operations.)

---------------------------------------------------------------------------

[[Page 20891]]

B. Public Information

AIMA proposed that CME-FICC cross-margining methodology should be
supported by publicly available documentation that includes ``(i) the
risk factors and correlation assumptions underlying cross-product
offsets; (ii) the stress scenarios and lookback windows used in
determining margin requirements; (iii) the processes for model
calibration, backtesting and performance monitoring; and (iv) the
governance framework for changes to margin models or offset
parameters.'' \91\
---------------------------------------------------------------------------

\91\ AIMA Comment Letter at 2.
---------------------------------------------------------------------------

The Commission did not propose a public information condition
specific to the expansion of the proprietary cross-margining program to
include customer clearing. Commission Regulation 39.21(a) requires a
DCO to ``provide to market participants sufficient information to
enable the market participants to identify and evaluate accurately the
risks and costs associated with using the services of the'' DCO, and
Sec. 39.21(c)(3) requires, in relevant part, the DCO to post on its
website ``[i]nformation concerning its margin-setting methodology. . .
.''. CME already provides information about the SPAN margin methodology
that will be applied to cross-margined accounts on its website.
Similarly, SEC regulations \92\ require a covered clearing agency to
``[p]rovide sufficient information to enable participants to identify
and evaluate the risks, fees, and other material costs they incur by
participating in the covered clearing agency, and FICC provides a tool
that allows users to estimate potential cross-margin reductions.
Accordingly, the Commission declines to impose a new public information
requirement for the cross-margining program's margin methodology merely
because the program will be expanded to include customer clearing. CME
and FICC propose to use the same margin methodology as the proprietary
cross-margining program that has been in operation for over twenty
years, and the Commission proposes no changes that would necessitate
different public information than that provided for the proprietary
program.
---------------------------------------------------------------------------

\92\ Specifically, 17 CFR 240.17ad-22(e)(23)(ii).
---------------------------------------------------------------------------

C. Termination of Cross-Margining Participation

AIMA cautioned that without additional Commission required
protections, a customer's cross-margining capabilities could be
unilaterally suspended or terminated, potentially subjecting a customer
to an intraday initial margin surge, which could force a customer to
unwind certain trades and/or stress collateral during volatility.\93\
AIMA requested that the Commission require CME, FICC and BD-FCMs to
provide customers with clear, objective, and transparent criteria that
govern when cross-margining access may be suspended or terminated;
require criteria that prohibit discriminatory or commercially motivated
suspensions or terminations that are unrelated to bona fide risk
concerns; and require prior written notice before a customer's cross-
margining capabilities are suspended or terminated.\94\
---------------------------------------------------------------------------

\93\ AIMA Comment Letter at 2.
\94\ Id.
---------------------------------------------------------------------------

The CEA and Commission regulations place responsibility for risk
management on DCOs and FCMs,\95\ and any attempt to restrict their
ability to terminate cross-margining participants could compromise
their ability to properly manage the risk. The Commission believes that
CME, FICC, and BD-FCMs, will be best positioned to assess current mark
risk conditions and should therefore retain the discretion to manage
risk as necessary, including by potentially suspending or terminating
cross-margining participants from cross-margining programs in a timely
fashion and without the delay imposed by issuing advance notice.
Therefore, the Commission declines to impose additional conditions in
the order regarding suspending or terminating cross-margining
participation.
---------------------------------------------------------------------------

\95\ See, e.g., Core Principle D(iii) (7 U.S.C. 7a-
1(c)(2)(D)(iii)), Commission Regulation 39.13 (including, e.g.,
Sec. 39.13(g)(8)(ii) (a DCO ``shall require its clearing members to
collect customer initial margin at a level that is . . .
commensurate with the risk presented by each customer account. . . .
the [DCO] shall also have reasonable discretion in determining
whether and by how much customer initial margin requirements shall,
at a minimum, exceed clearing initial margin requirements for
categories of customers determined by the clearing member to have
heightened risk profiles.'')); Commission Regulation 1.73(a)(4)
(Each FCM that is a clearing member of a DCO shall ``conduct stress
tests under extreme but plausible conditions of all positions . . .
in each customer account that could pose material risk to the [FCM]
at least once per week.'').
---------------------------------------------------------------------------

D. Cross-Margining and Bank Capital Rules

FIA commented that cross-margining's treatment in banking capital
rules reduces the usefulness of cross-margining.\96\ FIA encouraged the
Commission to engage with U.S. prudential regulators to revise the
capital rules for banking organizations to permit ``a banking
organization, including a subsidiary BD-FCM, to recognize [the cross-
margining] risk-offset when calculating exposures to a customer for
regulatory capital purposes.'' \97\ ISDA also commented that
adjustments to bank capital regulation to recognize corresponding
cross-product netting will contribute to increased market
efficiency.\98\ As the comments are outside of the scope of the
proposal and the Commission's statutory authority, the Commission
declines to adopt changes to the Order to address them. However, the
Commission will continue to engage with the prudential regulators where
possible as they consider amendments to the existing bank capital
framework.
---------------------------------------------------------------------------

\96\ FIA Comment Letter at 3.
\97\ Id.
\98\ ISDA Comment Letter at 2.
---------------------------------------------------------------------------

E. Timing

Finally, ISDA urged the Commission to finalize the proposal
expeditiously, so it may issue the Order in advance of the
implementation of the Treasury Clearing Requirement.\99\ The Commission
acknowledges the extent of industry's preparations underway to comply
with the Treasury Clearing Requirement by the December 31, 2026
implementation date for eligible cash market Treasury transactions and
the June 30, 2027 implementation date for eligible repo market
transactions \100\ and is therefore issuing the Order as effective
immediately so that CME, FICC, BD-FCMs, and their customers may
implement the expanded customer cross-margining arrangement as soon as
operationally feasible.
---------------------------------------------------------------------------

\99\ ISDA Comment Letter at 2.
\100\ SEC Press Release, SEC Extends Compliance Dates and
Provides Temporary Exemption for Rule Related to Clearing of U.S.
Treasury Securities (Feb. 25, 2025), <a href="https://www.sec.gov/newsroom/press-releases/2025-43-sec-extends-compliance-dates-provides-temporary-exemption-rule-related-clearing-us-treasury">https://www.sec.gov/newsroom/press-releases/2025-43-sec-extends-compliance-dates-provides-temporary-exemption-rule-related-clearing-us-treasury</a>.
---------------------------------------------------------------------------

VI. CEA Section 4(c) Determination To Grant Partial and Conditional
Exemption From Section 4d of the CEA and Commission Regulations 1.20
and 1.49

The Commission observes that the Order is consistent with the
public interest and the purposes of the CEA.\101\ In light of the
foregoing, the Commission exempts CME, FICC, and BD-FCM members of CME
and FICC from section 4d of the CEA and Commission Regulations 1.20 and
1.49, subject to the conditions detailed above, to the extent necessary
to permit the customer cross-margining framework described herein. The
Commission will

[[Page 20892]]

allow the commingling of futures customer funds and futures customer
positions with cross-margined securities assets held at BD-FCMs, for
the purpose of customer cross-margining between positions held at CME
and FICC. Further, the Commission permits CME and the BD-FCM members to
deposit with FICC, and FICC to receive and hold, such futures customer
funds even though FICC is not a permitted depository under Commission
regulations.
---------------------------------------------------------------------------

\101\ These include, as relevant here, ``to ensure the financial
integrity of all transactions subject to [the CEA] and the avoidance
of systemic risk'' and ``to promote responsible innovation.'' See
CEA section 3(b), 7 U.S.C. 5(b).
---------------------------------------------------------------------------

The Commission has in the past permitted FCMs to commingle customer
futures or swap positions with cleared positions in other products for
the purposes of achieving risk offsets and portfolio margining, subject
to specific terms and conditions designed to protect both participating
and non-participating customers.\102\ As discussed above, the
Commission concludes that CME and FICC will hold the commingled
customer funds in a manner consistent with the customer protections
intended by the CEA and Commission regulations. Customer assets will be
segregated from other assets, and other customer protections in
Commission regulations, such as the written acknowledgement from a
depository regarding its obligations with regard to customer funds,
will apply.
---------------------------------------------------------------------------

\102\ See, e.g., Order, Treatment of Funds Held in Connection
with Clearing by ICE Clear Credit of Credit Default Swaps (Jan. 14,
2013); Order, Treatment of Funds Held in Connection with Clearing by
ICE Clear Europe Limited of Contracts Traded on ICE Futures Europe,
ICE Futures US, and ICE Endex (Mar. 26, 2015).
---------------------------------------------------------------------------

The Commission concludes the Order contains the terms necessary to
ensure adequate protection for futures customer funds. The Order
provides for the safe treatment of cross-margining customer funds
through terms requiring FICC and CME to carry cross-margining customer
assets separately and treat them as belonging to the customers of the
BD-FCM.\103\ The Order also contains terms supporting the bankruptcy
treatment for cross-margining customer funds described above, including
a term requiring BD-FCMs to enter into agreements with participating
customers acknowledging their assets' bankruptcy treatment; terms on
FICC holding customer margin segregated in a ``securities account'' at
appropriate depositories and agreeing to treat such margin as
``financial assets,'' as such terms are defined under NYUCC Article 8;
and a term requiring FICC to permit the porting of customer
property.\104\ The Order further requires Petitioners to have the rules
and agreements necessary to ensure customer cross-margining functions
as described above, by having rules on customer and position
eligibility and on the granting of security interests in cross-
margining customer property.\105\ The Order also contains terms to
ensure adequate margin is collected under the customer cross-margining
program and to ensure adequate regulatory oversight.\106\
---------------------------------------------------------------------------

\103\ Order, sections (b), (d) and (e)(v).
\104\ Order, sections (c), (e)(iv), (e)(vii) and (e)(viii).
\105\ Order, sections (e)(i)-(iii) and (e)(vi).
\106\ Order, sections (f)-(k).
---------------------------------------------------------------------------

The Commission believes that the cross-margining framework under
the Order will make it likely that customer funds will appropriately be
protected during a BD-FCM bankruptcy. As described above, the customer
funds held by FICC would constitute ``customer property'' held by the
BD-FCM in its capacity as an FCM for the purposes of distribution in
bankruptcy and would be available to customers. This is designed to
ensure that cross-margining customers will have the same priority right
to receive distribution on their allowed claims against the customer
property as other customers of the insolvent BD-FCM in the futures
account class. In addition, FICC and CME will provide for the porting
of the commingled cross-margined positions in the event of a clearing
member default.
As described in section III.B above, the risks to cross-margining
customers posed by a FICC bankruptcy will be addressed. FICC will,
consistent with the Order, take steps to ensure any assets credited to
a FICC XM Customer Margin Account will be available for distribution to
customers in a FICC bankruptcy or a proceeding under Title II of the
Dodd-Frank Act. For the reasons discussed in section III.C above, under
applicable law, customer property will not be used to satisfy the
claims of FICC's creditors, except for margining or settling customer
positions, and will not form part of FICC's estate. Accordingly, the
Commission believes cross-margining customer funds will be adequately
protected in a FICC bankruptcy or Title II proceeding.
For the reasons discussed in section III.D above, the Commission
also concludes customers who do not participate in cross-margining are
unlikely to be impacted by the cross-margining arrangement. As
described above, the more conservative cross-margining margin
methodology of either CME or FICC will be applied. Also, customer funds
are likely to be effectively protected in the unlikely event of a FICC
bankruptcy, making it unlikely non-participating customers would
experience losses in that case. Further, portability for non-
participating customers is not adversely affected by other customers
participating in cross-margining. The Commission does not believe the
risks posed to the BD-FCM futures customer account from the cross-
margining program under the Order are materially greater in degree or
kind than the risks posed by other futures positions and portfolio
margining programs. Thus, the Commission does not impose via its Order
the special distribution framework in framework 1 of appendix B to Part
190.
The Commission also concludes, for the reasons discussed in section
IV above, that customers will not be harmed by allowing FICC to act as
a depository for customer funds. As discussed above, FICC will offer
similar safeguards and financial security as a DCO registered with the
Commission, because it is a designated SIFMU and an SEC covered
clearing agency. BD-FCMs depositing customer funds with FICC, and FICC
holding such funds, is consistent with safety and security purposes of
the Commission regulations requiring that only certain depositories
hold customer funds.
The Commission concludes the participants will be appropriate
persons. The definition of ``appropriate person'' under section 4(c)(3)
of the CEA includes specified categories of persons as well as ``other
persons that the Commission determines to be appropriate in light of
their financial or other qualifications, or the applicability of
appropriate regulatory protections'' (emphasis added).
Each of FICC, CME, and the eligible BD-FCMs is an appropriate
person under prong (F), (I), or (J) of the definition.
The Commission determines cross-margining customers should be
treated as appropriate persons for purposes of section 4(c)(3) of the
CEA in light of the existing and appropriate regulatory protections for
eligible customers under the CEA and Commission regulations as well as
the safeguards under the customer cross-margining framework.
Specifically, the Commission accepts Petitioners' assertion that each
eligible customer will be a person that is permitted to transact
through a BD-FCM. In other words, such customers are already persons
that Congress and regulators have determined to be appropriate to
engage in such transactions. Allowing eligible customers to opt into
cross-margining under the customer cross-margining framework will not
unduly expose such customers to additional risk.

[[Page 20893]]

Additionally, the customer cross-margining framework under the Order
and the Order itself include the customer protection and risk
management safeguards discussed above to ensure that the requested
relief will not cause any material adverse effect on the Commission's
or CME's ability to fulfill its regulatory or self-regulatory duties.
Finally, the Commission concludes that, in light of the risk
mitigants and customer protections discussed above, customer cross-
margining under the Order will support the stability of the broader
financial system. Cross-margining will, on balance, lower the cost of
central clearing for Treasury securities transactions and certain
Treasury and interest rate futures, by decreasing customers' initial
margin requirements to reflect the risk of a combined portfolio.
Lowering clearing costs will support the implementation, and lower the
financial burden, of the Treasury Clearing Requirement, which itself
supports financial stability by increasing central clearing. In light
of the foregoing, the Commission believes the Order will promote
responsible economic and financial innovation and fair competition, and
is consistent with the public interest, as that term is used in section
4(c) of the CEA.

VII. Findings and Conclusions

After careful review and consideration of the comments, and for the
reasons cited herein and set forth in the Proposal, the Commission has
determined that the requirements of Section 4(c) of the CEA have been
met with respect to granting Petitioners the relief sought, subject to
certain conditions of the Order. The Commission is therefore issuing an
order granting the exemption essentially as proposed. However, the
Commission is making minor technical corrections to the language of the
order.\107\ The Commission believes the exemption would promote
responsible economic and financial innovation and fair competition, and
is consistent with the ``public interest,'' as that term is used in
Section 4(c) of the CEA.
---------------------------------------------------------------------------

\107\ In particular, (A) corrected the definition of Segregated
Customer Margin to refer to FICC rules, which have been found by the
SEC to be consistent with the conditions in 17 CFR 240.15c-3a, Note
H (see 89 FR 94801), and (B) corrected a number of references to
Segregated Customer Margin to use the correct term.
---------------------------------------------------------------------------

VIII. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \108\ requires that
agencies consider whether the exemption will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact. The
Commission finds that the exemption will not have a significant
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

\108\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

The Order will directly impact three categories of entities: CME (a
DCO), FICC (a clearing agency registered with the SEC) and BD-FCM
members of both CME and FICC that are dually registered with the CFTC
and SEC. The Commission has previously established certain definitions
of ``small entities'' to be used by the Commission in evaluating the
impact of its actions on small entities in accordance with the
RFA.\109\ The Commission has previously determined that DCOs, are not
small entities for purposes of the RFA.\110\ Further, the Commission
has previously determined that registered FCMs are not small entities
for the purpose of the RFA,\111\ and BD-FCMs are, by definition, FCMs.
---------------------------------------------------------------------------

\109\ See 47 FR 18618, 18618-18621 (Apr. 30, 1982).
\110\ See 66 FR 45604, 45609 (Aug. 29, 2001).
\111\ See 47 FR 18618, 18619 (Apr. 30, 1982).
---------------------------------------------------------------------------

With respect to FICC, the SEC has established threshold definitions
in its regulations governing when clearing agencies registered with the
SEC qualify as small entities. Specifically, the SEC's regulations
provide that, when used with reference to a clearing agency, the terms
``small business'' or ``small organization'' shall include a clearing
agency that: (i) compared, cleared, and settled less than $500 million
in securities transactions during the preceding fiscal year; (ii) had
less than $200 million of funds and securities in its custody or
control at all times during the preceding fiscal year (or at any time
that it has been in business, if shorter); and (iii) is not affiliated
with any person (other than a natural person) that is not a small
business or small organization.\112\ The Commission notes that FICC
processed $11.8 trillion on a single day, June 30, 2025,\113\ and, as
of September 30, 2025, held in excess of $77 billion in post-haircut
clearing fund contributions from its participants.\114\
---------------------------------------------------------------------------

\112\ 17 CFR 240.0-10(d).
\113\ See <a href="https://www.dtcc.com/news/2025/july/02/ficc-successfully-processes">https://www.dtcc.com/news/2025/july/02/ficc-successfully-processes</a>.
\114\ See https://www.dtcc.com/-/media/Files/Downloads/legal/
policy-and-compliance/CPMI-IOSCO-Public-Quantitative-Disclosures_-
Q3-2025.pdf at 8.
---------------------------------------------------------------------------

The Commission also believes the exemption will not have a
substantial impact on a substantial number of small entity customers.
Participation in cross-margining is voluntary. Further, the exemptive
order granted by the Commission will lower costs for customers with
positions at both CME and FICC, reducing the cost of clearing to
reflect that of the total portfolio. As discussed above, the Commission
expects that under the cross-margining framework, participating cross-
margining customers' funds will still receive the level of protection
mandated by the CEA and Commission regulations. Finally, as discussed
above, non-participating customers will not be meaningfully impacted by
the other customers participating in cross-margining. The Commission
did not receive any comments on whether there is a significant impact
on a substantial number of small entities.
Accordingly, the Commission does not believe the exemption will
have a significant impact on a substantial number of small entities.
Therefore, the Chairman, on behalf of the Commission, hereby certifies,
pursuant to 5 U.S.C. 605(b), that the exemption will not have a
significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (``PRA'') \115\ imposes certain
requirements on federal agencies, including the Commission, in
connection with conducting or sponsoring any ``collection of
information,'' as defined by the PRA. Under the PRA, an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number from the Office of Management and budget (``OMB'').\116\ The PRA
is intended, in part, to minimize the paperwork burden to the private
sector, ensure that any collection of information by a government
agency is put to the greatest possible uses, and minimize duplicative
information collections across the government. The PRA applies to all
information, ``regardless of form or format,'' whenever the government
is ``obtaining, causing to be obtained [or] soliciting'' information,
and requires ``disclosure to third parties or the public, of facts or
opinions,'' when the information collection calls for ``answers to
identical questions posed to, or identical reporting or recordkeeping
requirements imposed on, ten or more persons.'' The PRA would not apply
in this case given that the exemption will not impose any new
recordkeeping or information collection

[[Page 20894]]

requirements, or other collections of information, on ten or more
persons that require approval of the OMB. Accordingly, the CFTC has not
prepared a PRA submission to OMB with respect to this order.
---------------------------------------------------------------------------

\115\ 44 U.S.C. 3501 et seq.
\116\ See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3).
---------------------------------------------------------------------------

C. Cost and Benefit Considerations

The Commission recognizes that the Order may impose costs. The
Commission has endeavored to assess the expected costs and benefits of
the Order in quantitative terms, where possible. In situations where
the Commission is unable to quantify the costs and benefits, the
Commission identifies and considers the costs and benefits of the
applicable amendments in qualitative terms. The Commission received two
comments on its cost benefit considerations or analysis.
1. Baseline
The Commission identifies and considers the benefits and costs of
the Order relative to a baseline standard of those generated by the
current statutory and regulatory framework applicable to futures
contracts, i.e., the status quo. This framework includes the provisions
in section 4d of the CEA and current Commission Regulations 1.20 and
1.49(d). The specific elements of the baseline that will be impacted by
the amendments are discussed in more detail below.
2. Costs
The exemption conditionally exempts CME and FICC from limited
aspects of sections 4d of the CEA and from the permitted depository
requirements in Commission Regulations 1.20 and 1.49. While complying
with the Commission's Order would entail compliance costs for CME,
FICC, and eligible BD-FCMs, the Order does not mandate participation in
cross-margining and the assumption of these costs. To the extent CME,
eligible BD-FCMs, and futures customers elect to participate in cross-
margining, they are electing to assume any associated costs. Moreover,
the conditions to the Order are consistent with the Petitioners' design
of the cross-margining program and are necessary to achieve the risk
mitigants and customer protections that are the basis of that program.
The cross-margining program permitted under the Order is an
instance of a portfolio margining system. Portfolio margining is widely
used throughout the futures industry, both within individual DCOs and
in cross-margining programs between clearing organizations (such as the
existing proprietary cross-margining program between the Petitioners).
Portfolio margining establishes margin levels by assessing the
market risk of a ``portfolio'' of positions in securities or
commodities. Under a portfolio margining system, the amount of required
margin is determined by analyzing the risk of each component position
in a customer account (e.g., a class of option with the same expiration
date) and by recognizing any risk offsets in an overall portfolio of
positions (e.g., across options and futures on the same underlying
instrument). So that margin that is commensurate with the relevant
risks is deposited to cover extraordinary market events, one or more
additional adjustments may be applied in calculating a customer's
required margin.\117\
---------------------------------------------------------------------------

\117\ Customer Margin Rules Relating to Security Futures, 67 FR
53146, 53148 (Aug. 14, 2002).
---------------------------------------------------------------------------

The calculation of the risk offsets that are recognized in a
portfolio margining system is based on a combination of statistical
analysis of the correlation between the components of the portfolio and
judgment, and is subject to rigorous risk management, including through
back-testing and stress testing.
Nonetheless, inherent in any portfolio margining system is the
possibility that, during a particular stressed market movement, the
losses experienced on the combined position will exceed the margin
requirement remaining after including those risk offsets, leading to a
margin deficiency that is greater than would have been the case had the
risk offset not been recognized.
If such an event were to occur within the context of the cross-
margining program that is the subject of the Order, and the margin
deficiency within the futures or securities customer accounts of a
participating BD-FCM were to exceed the capital and other resources
available to that BD-FCM, leading to bankruptcy, then customers might
suffer losses in the bankruptcy of that BD-FCM that would be larger
than if that cross-margining program were not enabled. This possibility
is a cost of granting the Order.
However, the Commission believes that the likelihood of such losses
is low if the risks are well managed as required in the customer cross-
margining framework. Given the highly regulated and resilient natures
of CME as a DCO and FICC as a securities clearing agency, the
experience the two clearing organizations have in implementing
portfolio margining and in particular cross-margining programs, the
risk management requirements described in section III.D, and the
protections included in the customer cross-margining framework, the
Commission estimates that the circumstances that may give rise to such
costs would be very remote. The costs associated with these risks are
difficult to quantify because they depend on unknown and unlikely
future events to materialize, but the Commission acknowledges some
residual risk remains that could impose costs on Petitioners, clearing
members, and customers.
The Commission received comments from AIMA and SIFMA/SIFMA AMG
pertaining to cost in support of the exemptive order.\118\ As discussed
below, AIMA agreed with the Commission that ``expanding cross-margining
arrangements to customers, pursuant to the Proposed Order, can increase
clearing efficiency, reduce the costs of clearing, bolster the broader
financial system and more.'' \119\ SIFMA/SIFMA AMG also agreed that
``cross-margining reduces clearing costs. These cost reductions will
help support and counterbalance potential clearing cost increases
Treasury market participants may experience with mandatory clearing of
certain U.S. Treasury transactions taking effect later this year and in
2027.'' \120\
---------------------------------------------------------------------------

\118\ AIMA Comment Letter at 2; SIFMA/SIFMA AMG Comment Letter
at 2.
\119\ AIMA Comment Letter at 2.
\120\ SIFMA/SIFMA AMG Comment Letter at 2.
---------------------------------------------------------------------------

3. Benefits
The exemption would benefit market participants by reducing the
costs of clearing Treasury securities transactions in a manner that
aligns the margin required for a portfolio of risk-related positions,
involving positions cleared at CME and positions cleared at FICC, with
the risk of the portfolio considered as a whole. ISDA agreed with the
Commission ``that the proposed exemption is instrumental in
facilitating the efficient implementation of the SEC's treasury
clearing rules'' and the ``resulting reduction in duplicative margin
will make clearing more efficient and offset some of the additional
financial resource requirements that the industry will face upon
implementation of the [SEC's] U.S. Treasury clearing mandate.'' \121\
Eligible customers participating in cross-margining will benefit from
the reduced margin costs for their overall portfolio.\122\ BD-FCMs will
also benefit from more efficient clearing, as they, and in turn FICC
and CME, will reduce their risk exposure to the cross-margining
customer.
---------------------------------------------------------------------------

\121\ ISDA Comment Letter at 2.
\122\ For a discussion of the mechanics of reduced margin costs,
see note 15 above and accompanying text.
---------------------------------------------------------------------------

The exemption will also benefit the broader financial system. By
making

[[Page 20895]]

Treasury security clearing less costly, the exemption is expected to
incentivize clearing of Treasury security transactions. As discussed
above, centralized clearing reduces the risk of default by imposing a
central counterparty between buyers and sellers, and can lower the
potential for a single market participant's failure to destabilize
other market participants or the financial system more broadly. The
Commission considers central clearing through a highly regulated
clearing organization to be highly supportive of financial stability.
Thus, the customer cross-margining framework benefits the public
interest because it will support the stability of the broader financial
system.

D. Section 15(a) Factors

Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its action before issuing an order under the
CEA.\123\ Section 15(a) requires the Commission to consider the costs
and benefits of its action in light of five broad areas of market and
public concern: (1) protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations. The Commission considers the
costs and benefits resulting from its discretionary determinations with
respect to the section 15(a) factors. The Commission may in its
discretion give greater weight to any one of the five enumerated areas
and could in its discretion determine that, notwithstanding its costs,
a particular order is necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to accomplish any of
the purposes of the CEA.
---------------------------------------------------------------------------

\123\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

1. Protection of Market Participants and the Public
The Commission believes the exemption will benefit the public and
market participants while not adversely affecting protections. The
exemption will serve the public by encouraging the clearing of Treasury
securities transactions, thus increasing financial stability, which
serves the public's interest generally. Market participants' individual
financial interests are also served by making clearing less expensive
and more efficient.
Although less margin will be collected through the cross-margin
program, the Commission does not believe that the exemption will
adversely impact the security of market participants' assets. As
discussed above, the conditions in the Order that will permit the
customer cross-margining framework also implement safeguards to protect
futures customer funds. The cross-margined funds will be segregated
from any proprietary funds and will still receive the protections found
in the CEA and Commission regulations. The futures customer funds will
be subject to the CEA's protections in a potential bankruptcy of a
participating BD-FCM (or CME) and will be protected under NYUCC Article
8 in a potential bankruptcy of FICC. In addition, the Commission
believes the risks to non-participating customers, such as clearing in
an account class in which other participants have margin set through
portfolio margining incorporating Treasury securities, are similar to
the risks posed by customers clearing in a class where others hold
futures positions and have their positions portfolio margined. Finally,
FICC, as a depository regulated as a covered clearing agency and a
SIFMU by the SEC, is comparable as a matter of safety to other
permitted depositories, so no material additional risk is anticipated
for market participants by the Commission permitting FICC as a
depository.
SIFMA/SIFMA AMG and ISDA agreed that the expansion of the cross-
margining agreement would support customer protection.\124\ SIFMA/SIFMA
AMG supported the exemptive order ``as an appropriately tailored
approach to achieving broader capital efficiency while maintaining the
customer and market resiliency protections of centralized clearing.''
\125\ Similarly, ISDA commented that the ``proposed treatment of
customer funds pursuant to well-established statutory and regulatory
frameworks is designed to deliver these efficiencies without
jeopardizing customer protections or legal certainty.'' \126\
---------------------------------------------------------------------------

\124\ SIFMA/SIFMA AMG Comment Letter at 2; ISDA Comment Letter
at 2.
\125\ SIFMA/SIFMA AMG Comment Letter at 2.
\126\ ISDA Comment Letter at 2.
---------------------------------------------------------------------------

2. Efficiency, Competitiveness, and Financial Integrity
The Commission believes that the exemption will benefit the
efficiency, competitiveness, and financial integrity of the derivatives
markets. The exemption will make clearing more efficient by permitting
cross-margining of Treasury futures with Treasury securities resulting
in the reduction of duplicative margin and offsetting some of the
additional financial resource requirements that the industry will face
upon implementation of the SEC's U.S. Treasury clearing mandate. Cross-
margining enables CME and FICC to lower margin requirements, however,
this more accurately reflects the risk of the aggregate portfolio
instead of the aggregate risk of the separate futures and securities
positions, increasing the competitiveness of their offering.
The exemption also benefits financial integrity. The exemption will
support the implementation of the Treasury Clearing Requirement, an SEC
mandate enacted, in part, to increase the financial integrity of the
Treasury securities market through expanded use of central clearing. A
more stable Treasury securities market also benefits the financial
integrity of the financial system (including the derivatives markets)
more broadly. ISDA agreed that ``[b]y enhancing the stability of the
Treasury market, these measures also contribute to the overall
robustness and reliability of both the derivatives markets and the
wider financial system.'' \127\
---------------------------------------------------------------------------

\127\ Id.
---------------------------------------------------------------------------

SIFMA/SIFMA AMG also noted the benefit of enhanced efficiency for
customers that will be eligible to participate in the cross-margining
agreement with the exemptive relief.\128\ ``As noted in the CFTC's
Global Markets Advisory Committee's [ ] February 2024 recommendation
entitled FICC-CME Customer Position Cross-Margining Structure
Recommendation, there is a history of regulated central clearing
counterparties successfully leveraging limited cross-margining to
optimize capital efficiency without undermining the market resiliency
afforded by centralized clearing and associated margin requirements.
For example, since 2004, CME and FICC have had a cross-margining
agreement that applies only to the proprietary futures and securities
positions of CME-FICC joint clearing members, enabling them to more
efficiently manage the risk associated with their proprietary positions
in U.S. Treasuries and Treasury futures as a single portfolio. The
Proposal would extend this cross-margining program to customer accounts
of eligible BD-FCMs (many of which are sophisticated institutional
customers), allowing participating customers to benefit from the same
level of capital efficiencies as BD-FCMs.'' \129\
---------------------------------------------------------------------------

\128\ SIFMA/SIFMA AMG Comment Letter at 2.
\129\ Id.

---------------------------------------------------------------------------

[[Page 20896]]

3. Price Discovery
The Commission does not anticipate the exemption to have an impact
on price discovery.
4. Sound Risk Management Practices
Although less margin is collected under the cross-margining
program, the Commission believes that the exemptive order, in light of
the conditions included, reflects sound risk management practices.
Encouraging central clearing supports sound risk management. As stated
above, centralized clearing through a highly regulated clearing agency
decreases the risk of default and risk of market destabilization.
Additionally, cross-margining reflects sound risk management because
margin costs will be properly calibrated to the risks for futures
customers' overall portfolios.
The Commission further notes that, notwithstanding the exemption
and as discussed above, cross-margining futures customers will receive
protections comparable to what they would have received absent the
exemption. Risks to customer funds will be managed and minimized
according to the standards set forth in the CEA.
5. Other Public Interest Considerations
The Commission believes the relevant public interest considerations
are already discussed in the foregoing.

IX. Order of Exemption

After considering the above factors, the Commission issues the
following:

Order

The Commission, pursuant to its authority under section 4(c) of the
CEA, 7 U.S.C. 6(c), and subject to the conditions below, hereby grants
(A) a limited exemption to Commission Regulations 1.20 and 1.49 to
permit dually-registered BD-FCMs that are clearing members at both CME
and FICC to deposit at FICC, and to permit FICC to hold, customer funds
and margin associated with customer cross-margining, and to permit CME
to treat FICC as a permissible location to hold the foregoing; and (B)
a limited exemption to section 4d(a)(2) of the CEA and Commission
regulations thereunder to permit eligible BD-FCMs to hold, in a futures
account, eligible securities positions and associated money,
securities, and property of eligible customers, together with the
futures positions and futures customer funds held by the eligible BD-
FCM.
The relief granted above is subject to FICC, CME, and the relevant
Eligible BD-FCMs complying with the requirements set forth below as
applicable to each:
(a) Definitions.
i. ``Customer'' has the meaning set forth in Commission Regulation
1.3.
ii. ``Eligible BD-FCM'' means an entity that is (1) a Netting
Member (as such term is defined in FICC Rule 1 of the FICC Government
Securities Division Rulebook); (2) a clearing member of CME; (3)
registered with the Commission as a futures commission merchant; and
(4) registered with the Securities and Exchange Commission as a broker-
dealer.
iii. ``Eligible Customer Positions'' means Eligible Futures
Positions and Eligible Securities Positions.
iv. ``Eligible Futures Positions'' means Customer positions in the
CME products listed as ``CME Eligible Products'' in Exhibit A to the
Amended and Restated Cross-Margining Agreement between FICC and CME
dated January 22, 2024, as that exhibit may be amended from time to
time.
v. ``Eligible Securities Positions'' means Customer positions in
U.S. Treasury Notes and Bonds held in a cross-margining account at
FICC.
vi. ``FRBNY'' means the Federal Reserve Bank of New York.
vii. ``NYUCC'' means the New York Uniform Commercial Code.
viii. ``Segregated Customer Margin'' means margin deposited by a
Netting Member of FICC and held by FICC in a manner consistent with
FICC rules that the Securities and Exchange Commission has determined
to meet the conditions of Note H of 17 CFR 240.15c3-3a in a notice that
has been published (and not subsequently withdrawn) pursuant to
paragraph (b)(3) of such Note H.
ix. ``XM Securities Customer Property'' means Eligible Securities
Positions and associated margin held in a cross-margining account at
FICC.
x. ``XM Customer Margin'' means customer property deposited to
margin, secure, or guarantee Eligible Customer Positions.
(b) BD-FCM Treatment of Customer Positions and Margin. All assets
received by an BD-FCM to margin, guarantee, or secure Eligible Customer
Positions, or accruing as a result of such trades or contracts, and
held subject to the terms of the Order shall be carried by the BD-FCM
in a futures account for or on behalf of the cross-margining customers
and shall be deemed to have been received by the Eligible BD-FCM and be
accounted for and treated and dealt with as belonging to the cross-
margining customers of the eligible BD-FCM consistent with section
4d(a)(2) of the Commodity Exchange Act and the Commission's regulations
thereunder.
(c) BD-FCM Cross-Margining Customer Agreements. Each Eligible BD-
FCM shall enter into a participation agreement with each cross-
margining customer prior to the cross-margining customer's
participation in cross-margining under the customer cross-margining
framework, pursuant to which the cross-margining customer shall
specifically agree and acknowledge that:
i. Its XM Securities Customer Property will not receive customer
treatment under the Securities Exchange Act of 1934 or SIPA or be
treated as ``customer property'' as defined in 11 U.S.C. 741 in a
liquidation of the Eligible BD-FCM;
ii. Its Eligible Securities Positions and associated margin held in
a cross-margining account at FICC (i.e., XM Securities Customer
Property) will be subject to any applicable protections under
subchapter IV of chapter 7 of Title 11 of the United States Code and
rules and regulations thereunder; and
iii. Claims to ``customer property'' as defined in SIPA or 11
U.S.C. 741 against the Eligible BD-FCM with respect to its Eligible
Securities Positions and associated FICC-held margin will be
subordinated to the claims of all other customers, as the term
``customer'' is defined in 11 U.S.C. 741 or SIPA.
(d) FICC Operations. FICC shall operate the cross-margining program
in accordance with the following:
i. FICC will record all of a BD-FCM's customers' Eligible
Securities Positions in an account on its books and records for
recording the BD-FCM's cross-margining customers' transactions.
ii. FICC will credit margin it collects to collateralize a BD-FCM's
customers' Eligible Securities Positions to an account as specified in
section (e) below.
(e) FICC and CME Rules. FICC shall, consistent with section 19(b)
of the Securities Exchange Act, 15 U.S.C. 78s(b), and CME shall,
consistent with section 5c(c) of the Commodity Exchange Act, 7 U.S.C.
7a-2(c) and Part 40 of the Commission's Regulations, 17 CFR part 40,
amend their rulebooks (and shall comply with the relevant portions of
such rulebooks), and the two organizations shall amend their
proprietary cross-margining agreement, as may be necessary to effect
the customer cross-margining framework as described in CME and FICC's
petition and the terms of this Order. This specifically includes
addressing the following:
i. Cross-margining is available to Eligible Customer Positions only
if both

[[Page 20897]]

the eligible customer and its Eligible BD-FCM agree to participate;
ii. Positions of an eligible customer shall be eligible for cross-
margining if and only if such positions are otherwise eligible
positions under the proprietary cross-margining arrangement;
iii. Each BD-FCM shall grant to CME a security interest in the
value of each cross-margining customer's Eligible Securities Positions
and associated margin held in a cross-margining account at FICC;
iv. FICC shall credit margin received in connection with Eligible
Securities Positions to a ``securities account'' and agree in its rules
to treat such margin as ``financial assets,'' as such terms are defined
under NYUCC Article 8;
v. FICC rules will provide that any collateral received from a BD-
FCM as XM Securities Customer Property and credited to a FICC cross-
margining customer margin account will be used exclusively to settle
and margin the Eligible Securities Positions of the BD-FCM and for no
other purpose;
vi. FICC rules will provide that FICC shall not grant a security
interest in either XM Securities Customer Property (subject in this
case to the proviso that the BD-FCM can grant CME and FICC a lien to
implement the cross-margining program) or Segregated Customer Margin;
vii. FICC rules will provide that it shall hold all XM Customer
Margin in an account of FICC at either a bank that is insured by the
Federal Deposit Insurance Corporation or at the FRBNY. Such account
shall be:
1. Segregated from any other account of FICC and shall be used
exclusively to hold XM Customer Margin, except that the account at the
FRBNY may also hold Segregated Customer Margin.
2. In the case of a bank other than the FRBNY, subject to a written
notice by the bank, provided to and retained by FICC, that the assets
in the account are being held by the bank pursuant to the order of the
Commission under section 4(c) of the Commodity Exchange Act and are
being kept separate from and not commingled with any other accounts
maintained by FICC or any other person at the bank.
3. In the case of FRBNY, subject to a written notice provided to
and retained by FICC that the assets in the account are being held by
the bank pursuant to SEC Rule 15c3-3 and the order of the Commission
under section 4(c) of the Commodity Exchange Act and are being kept
separate from and not commingled with any other accounts maintained by
FICC or any other person at the bank.
4. Each such account shall also be subject to a written contract
between FICC and the bank or FRBNY which provides that the assets in
the account are subject to no right, charge, security interest, lien,
or claim of any kind in favor of the bank or FRBNY or any person
claiming through the bank or FRBNY.
viii. FICC rules will provide that, consistent with the requirement
applied to registered derivatives clearing organizations under
Commission Regulation 190.07(a), FICC would not interfere with the
acceptance by a BD-FCM of transfers of XM Securities Customer Property
from a BD-FCM that is either required to transfer accounts pursuant to
17 CFR 1.17(a)(4) or from a BD-FCM that is a debtor as defined in 17
CFR 190.01 (in the latter case if the transfer has been approved by the
Commission pursuant to Commission Regulation 190.07(a)(3)), in either
case subject to FICC's contractual right to liquidate or transfer
positions and ability adequately to manage risk.
(f) Margin Requirements. Each of FICC and CME shall calculate
initial margin requirements for Eligible Customer Positions on a gross
(i.e., customer-by-customer) basis using a Commission reviewed
methodology (in the case of CME) or a methodology reviewed by the
Securities and Exchange Commission (in the case of FICC), and hold such
initial margin collected from the Eligible BD-FCMs in a manner
generally consistent with Commission Regulation 1.20(g),
notwithstanding that FICC is not a permitted depository under
Commission Regulations 1.20 and 1.49, provided that, with respect to
FICC, the requirements with respect to acknowledgement letters set out
in Commission Regulation 1.20(g)(4) shall be replaced with those set
forth in paragraph (e)(vii) above.
(g) BD-FCM Margin Collection. Each Eligible BD-FCM shall collect
from each of its cross-margining customers, at a minimum, the aggregate
amount of initial margin required by each of FICC and CME in respect of
the cross-margining customer's Eligible Customer Positions.
(h) FICC's Regulatory Status. FICC shall maintain its status as a
covered clearing agency registered with the Securities and Exchange
Commission.
(i) FICC Article 8 Securities Accounts.
1. FICC shall not establish any additional ``securities accounts''
(beyond those for Segregated Customer Margin and XM Customer Margin)
for purposes of the NYUCC without obtaining the consent of the
Commission and the Securities and Exchange Commission.
2. The Commission delegates its authority under paragraph i(1) of
this Order to the Director of the Division of Clearing and Risk in
consultation with the General Counsel.
(j) FICC Reporting of Financial Assets Held and Owed. FICC shall,
on every business day, report to the staff of the Division of Clearing
and Risk and to the Securities and Exchange Commission, the amount of
cash and, by CUSIP, securities that are:
1. Held in its accounts for Segregated Customer Margin or XM
Customer Margin at (i) FRBNY and (ii) any bank insured by the Federal
Deposit Insurance Corporation in which such margin is deposited or
custodied; and
2. Owed to BD-FCMs on behalf of their cross-margining customers or
securities customers.
(k) General Compliance. CME and each Eligible BD-FCM must continue
to comply with all other applicable requirements under the CEA and
Commission regulations.
This Order is based upon the analysis set forth above and the
information contained in the petition. Any material change in law or
circumstances pursuant to which this Order is granted might require the
Commission to reconsider its finding that the exemption contained
herein is appropriate and/or consistent with the public interest and
purposes of the CEA. Further, the Commission reserves the right, in its
discretion, to revisit any of the terms and conditions of the relief
provided herein, including but not limited to, making a determination
that certain entities described herein should be subject to the
Commission's full jurisdiction, and to condition, suspend, terminate,
or otherwise modify or restrict the exemption granted in this Order, as
appropriate, upon its own motion.

Issued in Washington, DC, on April 16, 2026, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.

Note: The following appendix will not appear in the Code of
Federal Regulations.

Order Providing Exemptive Relief To Facilitate Cross-Margining of
Customer Positions Cleared at Chicago Mercantile Exchange, Inc. and
Fixed Income Clearing Corporation--Commission Voting Summary

On this matter, Chairman Selig voted in the affirmative. No
Commissioner voted in the negative.

[FR Doc. 2026-07643 Filed 4-17-26; 8:45 am]
BILLING CODE 6351-01-P

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