Notice2026-21482
Self-Regulatory Organizations; CME Securities Clearing Inc.; Notice of Filing of Proposed Rule Change To Amend the CMESC Risk Management Framework (“RMF”) Related to CMESC's Default Management Practices
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 21, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 202 (Wednesday, October 21, 2026)</title>
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[Federal Register Volume 91, Number 202 (Wednesday, October 21, 2026)]
[Notices]
[Pages 66587-66590]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21482]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106681; File No. SR-CMESC-2026-011]
Self-Regulatory Organizations; CME Securities Clearing Inc.;
Notice of Filing of Proposed Rule Change To Amend the CMESC Risk
Management Framework (``RMF'') Related to CMESC's Default Management
Practices
October 16, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 9, 2026, CME Securities Clearing Inc. (``CMESC'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change described in Items I, II, and III below, which
Items have been substantially prepared by CMESC. CMESC filed the
proposed rule change pursuant to Section 19(b)(2) of the Act.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(2).
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I. CMESC's Statement of the Terms and Substance of the Proposed Rule
Change
(a) The proposed rule change of CME Securities Clearing Inc.
(``CMESC'') is provided in Exhibit 5. The proposed rule change includes
amendments to the CMESC Risk Management Framework (``RMF'') related to
CMESC's default management practices, which provides for necessary
transparency to and clarity for CMESC staff in managing a default.\4\
Each modification is described in more detail below.
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\4\ Capitalized terms used herein and not defined have the
meanings assigned to such terms in the CMESC Rulebook (the
``Rules''), as applicable, available at <a href="https://www.cmegroup.com/rulebook/CMESC/CMESC%20Rulebook.pdf">https://www.cmegroup.com/rulebook/CMESC/CMESC%20Rulebook.pdf</a>.
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II. CMESC's Statement of the Purpose of, and Statutory Basis for the
Proposed Rule Change
In its filing with the Commission, CMESC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. CMESC has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. CMESC's Statement of the Purpose of, and Statutory Basis for the
Proposed Rule Change
1. Purpose
Background
CMESC's default management procedures cover the management of a
default of either a Member or User (collectively, ``Participants'') and
are designed to ensure the continuity of CMESC's clearance and
settlement functions and particularly, the ongoing maintenance of the
services provided to non-defaulting Participants, while supporting
market integrity and minimizing market disruptions. The primary purpose
of the proposed rule change is to enhance the default management
process by further codifying the documentation of the default
management procedures in the RMF. In particular, the proposed rule
change would amend the RMF to (i) provide additional detail around
arrangements involving a third-party liquidation agent for managing a
Participant default, and (ii) make certain clarifying and
administrative changes, where appropriate, in the RMF; and (iii) to
clarify the role of CMESC's Risk Management Committee (``CSRMC'') in
designing the default management procedures.
Liquidation Agent and Execution Brokers
Section 14.1.1 (``Participant Default Management Process'') of the
RMF would be amended to specify that the close-out process of a
defaulted Participant's portfolio may include the use of a liquidation
agent and one or more execution brokers.\5\ Broadly, the amended RMF
would provide that, in managing a default, CMESC and any liquidation
agent will collaborate to assess the exposures of the defaulted
Participant's portfolio, including associated settlement obligations as
they come due, and formulate a close-out strategy under the prevailing
market conditions to minimize potential losses and market disruptions
and to support market integrity. More specifically, the amended RMF
would describe the expectations for a third-party liquidation agent, if
used, to assist CMESC with designing and executing the close-out
strategy for the defaulted Participant's portfolio. In accordance with
the amended RMF, the liquidation agent will be expected to coordinate
with CMESC to reconcile positions of the defaulted Participant and
assess the outstanding exposure of the defaulted Participant over the
course of managing the default.
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\5\ For context, Rule 405 (``Default Management Process'')
provides that the ``Corporation's default management process may
involve the Corporation's consultation with third parties and may
involve these third parties acting as agents on the Corporation's
behalf to manage the Member Default or User Default.'' See Rule 405
of the Rules, supra note 1.
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The amended RMF also would provide that the liquidation agent may
use various methods to execute close-out trades, including, but not
limited to, executing open market transactions; enter into hedging
transactions to mitigate the risk of the defaulted Participant's
portfolio; and perform other related tasks appropriate to assist CMESC
in managing the risk from the Participant's default. In addition,
Section 14.1.1 of the RMF would recognize that CMESC may engage one or
more execution brokers to coordinate with the liquidation agent and
CMESC to provide certain operational services related to the close-out
trades arranged or executed by the liquidation agent in managing a
default. The amended RMF would include new language to specify that,
where appropriate, CMESC would maintain an account with the execution
broker where it would be the principal, and the execution broker may
submit back-to-back trades that mirror the liquidation agent's close-
out trades. CMESC would further specify in the RMF that the submission
of back-to-back trades is expected to ensure that CMESC's account at
the execution broker maintains a net flat position and facilitate
CMESC's ability to meet the settlement obligations of the defaulted
Participant as they come due.
Clarifying and Administrative Changes
The proposed rule change would also include certain clarifying and
administrative changes.
Member Default: For example, Section 14 (``Default Management'') of
the RMF would be amended to clarify that CMESC analyzes Users' risk
profile on an ex ante basis. The associated monitoring and analysis
serves to improve the likelihood that non-defaulted Users' positions
can be transferred to a Member in good standing where their authorizing
Member has defaulted. Additionally, the RMF would be amended to clarify
that, while CMESC makes its best efforts to transfer non-defaulting
Users' positions
[[Page 66588]]
(i.e., of a defaulted Member) to non-defaulting Members, CMESC
continues to monitor Users' positions and the sufficiency of the
associated collateral throughout the default management process and
based on the prevailing facts and circumstances may close-out (e.g.,
liquidate) the positions of some or all Users of a defaulted Member.
User Default: Section 14.1 (``Participant Default Event'') of the
RMF would be updated to specify that an authorizing Member of a
defaulted User must respond to CMESC within a period of time prescribed
by the Corporation if it wishes to manage the User's default and, if it
elects to do so, CMESC will undertake several operational steps
relating to the User's positions and collateral to facilitate the
Member's management of the User's default in accordance with the CMESC
Rules.\6\ Section 14.1 of the RMF would also be amended to include
``close-out'' in addition to bidding on or purchasing a defaulted
Participant's portfolio when gauging Participants' interest prior to
declaring another Participant in default.
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\6\ See, e.g., Rule 405(c)(ii) of the Rules, supra note 1.
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Additionally, Section 14.1 of the RMF would be amended to clarify
that, for Users with multiple authorizing Members, where CMESC manages
the User's default, the default management costs will be allocated on a
pro rata basis based on the margin requirement for the User's positions
authorized by each such Member. Moreover, Section 14.1 would be amended
to add that the trades of the Users that are expected to settle on the
next day after the day of the Member's default may settle prior to the
transfer of any other positions.
Participant Default, Generally: The amended RMF also clarifies
certain operational steps CMESC would take if it were to manage a
default of a Participant itself. Section 14.1.1 of the amended RMF
would provide that CMESC will take appropriate operational steps, as
soon as practicable, to contain risk and prevent any unauthorized
movement of the default Participant's cash or securities. These
operational steps may include appropriate coordination with defaulted
Participant's designated Bank(s) and Securities Settlement Bank(s),
including enabling CMESC to assume control over outstanding positions
and collateral of the defaulter. CMESC will also assess the risk of the
defaulted Participant's portfolio, including the maturity of positions
and timing for when associated obligations come due. Based on this
assessment, CMESC would determine the best strategy for managing the
Participant default in order to meet the obligations of the defaulted
Participant's portfolio as they arise, including the process for
closing out the portfolio and, where necessary, purchasing or selling
securities and/or facilitating an auction (or multiple auctions) to
meet the settlement obligations of the defaulted Participant.
The proposed changes would also relocate language related to
hedging a defaulted Participant's portfolio using futures from
14.1.1.2, which relates generally to CMESC's ability to enter into
securities transactions to address a defaulted Participant's settlement
obligations, to Section 14.1.1, which describes the Participant default
management process generally. In connection with this change, the term
``Hedging'' is being deleted from the header for Section 14.1.1.2.
Additionally, the proposed changes would amend Section 14.1.1.2 to
clarify that CMESC would only use its acceleration rights for
applicable transactions with remaining maturities of greater than two
business days such that non-defaulting Participants' delivery
obligations become due on dates earlier than the original maturity
dates of such transactions, as is consistent with the terms of existing
Rule 1507(f).\7\ Finally, Section 14 would be amended to clarify that
CMESC notification of a User default is governed by CMESC's Rules.\8\
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\7\ See Rule 1507(f) of the Rules, supra note 1 (establishing
CMESC's acceleration rights with respect to non-Defaulting Members
and non-Defaulting Users such that their delivery obligations under
outstanding Repo Transactions become due on dates earlier than the
original maturity dates of such Repo Transactions).
\8\ See, e.g., Rules 405(c) and 1507(b) of the Rules, supra note
1.
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CSRMC Role in Designing the Default Management Procedures
Section 14 of the amended RMF specifies that CMESC's Risk
Management Committee (``CSRMC'') shall provide guidance to CMESC on the
design of its default management procedures, as necessary (i.e.,
through its ongoing oversight of the RMF).\9\ The current RMF
establishes the CSRMC's role in managing a default as discretionary and
thus inherently advisory. The proposed amendments clarify the CSRMC's
responsibilities prior to and during a default, while preserving its
existing power to convene in the latter circumstances.
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\9\ For the avoidance of doubt and as described in the existing
RMF, the Chairperson of the CSRMC may convene the CSRMC in the event
of a Participant default.
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2. Statutory Basis
For the reasons set forth below, CMESC believes the proposed rule
change is consistent with Section 17A of the Securities Exchange Act of
1934 (``Act'') \10\ and SEC Rules 17Ad-22(e)(2)(v),\11\ 17Ad-
22(e)(3),\12\ 17Ad-22(e)(13),\13\ and 17Ad-22(e)(18)(iv)(C) \14\
thereunder.
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\10\ 15 U.S.C. 78q-1.
\11\ 17 CFR 240.17Ad-22(e)(2).
\12\ 17 CFR 240.17Ad-22(e)(3).
\13\ 17 CFR 17Ad-22(e)(13).
\14\ 17 CFR 17Ad-22(e)(18)(iv)(C).
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Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions, to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, and, in
general, to protect investors and the public interest.\15\ Robust
documentation of default management practices in the RMF, a core
component of CMESC's risk management framework, provides the necessary
transparency to and clarity for CMESC staff to help facilitate the
orderly management of a Participant default. This, in turn, will ensure
CMESC continues to clear and settle securities transactions on a prompt
and accurate basis and protect the securities and funds of non-
defaulting Members despite a Participant default. For these reasons,
CMESC believes the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act.
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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Consistency With SEC Rule 17Ad-22(e)(2)(v)
SEC Rule 17Ad-22(e)(2)(v) requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that specify clear and direct lines of responsibility.\16\ The proposed
amendments to Section 14 of the RMF are designed to clarify CSRMC's
responsibility in guiding the design of CMESC's default management
procedures. As such, CMESC believes that the proposed rule change would
further specify the clear and direct lines of responsibility of CSRMC,
consistent with SEC Rule 17Ad-22(e)(2)(v).
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\16\ 17 CFR 240.17Ad-22(e)(2)(v).
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[[Page 66589]]
Consistency With SEC Rule 17Ad-22(e)(3)
SEC Rule 17Ad-22(e)(3) requires, in part, that a covered clearing
agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to maintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency, which
includes risk management policies, procedures, and systems designed to
identify, measure, monitor, and manage the range of risks that arise in
or are borne by the covered clearing agency, that are subject to review
on a specified periodic basis and approved by the board of directors
annually.\17\ The existing RMF is specifically designed to comply with
SEC Rule 17Ad-22(e)(3), and the proposed amendments are designed to
provide further enhancements and clarity to the manner in which CMESC
manages Participant defaults, including potentially through the use of
a liquidation agent and execution brokers and the clarifying changes
describing CMESC's potential actions during a Participant default,
generally, and Member or User defaults, specifically. As such, CMESC
believes that the proposed rule change would support a sound,
comprehensive framework designed to identify, measure, monitor, and
manage the range of risks that arise in or are borne by CMESC,
consistent with SEC Rule 17Ad-22(e)(3).
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\17\ 17 CFR 240.17Ad-22(e)(3)(i).
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Consistency With SEC Rule 17Ad-22(e)(13)
SEC Rule 17Ad-22(e)(13) requires, in part, that a covered clearing
agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to ensure the covered clearing agency
has the authority and operational capacity to take timely action to
contain losses and liquidity demands and continue to meet its
obligations.\18\ The proposed amendments to the RMF are designed to
enhance CMESC's default management process by further documenting
CMESC's default management procedures. Having well documented
procedures, in turn, will bolster CMESC's rule-based authority and
provide further clarity regarding operational steps to contain losses
and liquidity demands and continue to meet its obligations, despite a
Participant default. Furthermore, the proposed amendments to the RMF
would document arrangements with a potential third-party liquidation
agent and clarify the default management process involving such a
third-party, which if used, could facilitate CMESC's ability to take
timely action to close out a defaulting Participant's positions.
Therefore, CMESC believes that the proposed rule change is consistent
with SEC Rule 17Ad-22(e)(13).
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\18\ 17 CFR 240.17Ad-22(e)(13).
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Consistency With Rule 17Ad-22(e)(18)(iv)(C)
SEC Rule 17Ad-22(e)(18)(iv)(C) requires, in part, that a covered
clearing agency establish, implement, maintain, and enforce written
policies and procedures reasonably designed to establish objective,
risk-based, and publicly disclosed criteria for participation, which,
when the covered clearing agency provides central counterparty services
for transactions in U.S. Treasury securities, ensure that it has
appropriate means to facilitate access to the clearance and settlement
services of all eligible secondary market transactions in U.S. Treasury
securities, including those of indirect participants.\19\ The
clarifying changes to the procedures for a Member default are designed
to document CMESC's planned efforts, both ex ante and ex post, to
increase the probability that a User continues to maintain access to
CMESC's services, despite its authorizing Member's default. Therefore,
CMESC believes the proposed rule change is consistent with these
requirements in SEC Rule 17Ad-22(e)(18)(iv)(C) regarding facilitating
access to the clearance and settlement services of all eligible
secondary market transactions, including by indirect participants.
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\19\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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B. CMESC's Statement on Burden on Competition
CMESC does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The proposed rule change is designed to
improve the Rules' accuracy and clarity for Members and Users, to
enhance the default management process, and to be consistent with the
Act. These proposed changes would not affect CMESC's operations that
are already provided in the existing Rules or create additional rights
and obligations of Members and Users. As such, CMESC does not believe
the proposed rule change would have any impact on burden on competition
that does not already exist under the existing Rules or is not
necessary or appropriate in furtherance of the purposes of the Act.
C. CMESC's Statement on Comments on the Proposed Rule Change Received
From Members, Participants, or Others
CMESC currently does not have any Members or Users and has not
received nor solicited any written comments from others related to this
proposal. CMESC has not received any unsolicited written comments from
any interested parties. If any written comments are received, they will
be publicly filed as an Exhibit 2 to this filing, as required by Form
19b-4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="https://www.sec.gov/regulatory-actions/how-to-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</a>. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<a href="/cdn-cgi/l/email-protection#ff8b8d9e9b9691989e919b929e8d949a8b8cbf8c9a9cd1989089"><span class="__cf_email__" data-cfemail="7b0f091a1f12151c1a151f161a09101e0f083b081e18551c140d">[email protected]</span></a> or 202-551-5777. CMESC reserves the right to
not respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 66590]]
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form <a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>;
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#abd9dec7ce86c8c4c6c6cec5dfd8ebd8cec885ccc4dd"><span class="__cf_email__" data-cfemail="e597908980c8868a8888808b9196a5968086cb828a93">[email protected]</span></a>. Please include
File Number SR-CMESC-2026-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities and
Exchange Commission, Station Place, 100 F Street NE, Washington, DC
20549.
All submissions should refer to File Number SR-CMESC-2026-011. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>). Copies of the
filing also will be available for inspection and copying at the
principal office of CMESC and on CMESC's website (<a href="https://www.cmegroup.com/market-regulation/rule-filings.html">https://www.cmegroup.com/market-regulation/rule-filings.html</a>).
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-CMESC-2026-011 and
should be submitted on or before November 12, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-21482 Filed 10-20-26; 8:45 am]
BILLING CODE 8011-01-P
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