The CFTC Division of Clearing and Risk (the "Division") granted exemptive relief to a derivatives clearing organization ("DCO") from certain written acknowledgment requirements in relation to deposits made for the purpose of accessing its liquidity facility.
In accordance with its status as a systemically important DCO, CME Clearing is required to hold liquid financial resources sufficient to meet obligations to perform settlements in the event of extreme market stress. To ensure its ability to meet such obligations, CME Clearing maintains a multibillion-dollar liquidity facility from which to draw. Under CFTC rules, DCOs must obtain an executed written acknowledgment agreement from each depository with which the DCO has a futures customer funds account, and from each money market mutual fund account that holds futures customer funds. DCOs may fulfill this obligation by using the form letters provided in Appendix B to Rules 1.20 and 1.26. CFTC Rule 22.5(a) extends the written acknowledgment requirement to include accounts holding cleared swaps customer funds.
CME Clearing represented that the nature of the liquidity facility dictates that customer property is occasionally used, on a temporary basis, to pledge assets to the liquidity facility. At no point in the process are customer funds encumbered, but the use of customer property on a temporary basis means that CME Clearing is unable to use the language in the form acknowledgment letters requiring a depository to agree that the assets cannot be used "to secure or guarantee any obligations" that CME Clearing might owe to the depository, "to secure or obtain credit" from the depository, or "be subject to any right of offset or lien for or on account of any indebtedness, obligations, or liabilities [CME Clearing] may now or in the future have owing to" the depository.
In response, the Division acknowledged that its form acknowledgment letters do not contemplate the scenario involved here and agreed to allow CME Clearing to fulfill its written acknowledgment requirements through the use of modified forms that more accurately represent the nature of the accounts.
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