RBA: Assessment of Chicago Mercantile Exchange Inc. against the Financial Stability Standards for Central Counterparties Standard 2: Governance

A central counterparty should have governance arrangements that are clear and transparent, promote the safety of the central counterparty, and support the stability of the broader financial system, other relevant public interest considerations and the objectives of relevant stakeholders.

2.1 A central counterparty should have objectives that place a high priority on the safety of the central counterparty and explicitly support the stability of the financial system and other relevant public interest considerations.

The CCP operations of CME are undertaken by CME Clearing Division (see CCP Standard 2.2). The purpose of CME Clearing Division is to offer clearing services while seeking to protect all clearing participants and their customers against the consequences of a default through the management, containment, mitigation and prevention of systemic risk.

CME Clearing Division is overseen by the CHRC, which is tasked with the primary oversight of risk management policy issues. The CHRC's duties include: the administration of CME's financial safeguards; advising CME Clearing Division staff on risk management issues relating to the financial condition of clearing participants; overseeing the default management process in the event of a participant default; and reviewing all rule changes that impact the CCP.

The CHRC is overseen by the CME Board (see CCP Standard 2.2). The CME Board oversees the management of risks at an enterprise level (see CCP Standard 2.3), and is tasked with preserving and protecting CME's enterprise value to achieve its financial, operational and strategic objectives. To manage and promote sound risk management practices to achieve its organisational objectives, CME Group has established an Enterprise Risk Management (ERM) program (see CCP Standard 2.6).

2.2 A central counterparty should have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements should be disclosed to owners, the Reserve Bank and other relevant authorities, participants and, at a more general level, the public.

Overview of CME

CME is a wholly owned subsidiary of CME Group (see CCP Standard 1.1). To harmonise operations, CME and CME Group share identical membership of their respective Boards; both shall be referred to as ‘the Board’. Broadly, the Board is responsible for managing the overall strategy of CME, while the CHRC oversees the general direction of CME's CCP operations (see CCP Standard 2.3).

The Board's procedural and governance arrangements are documented in CME bylaws, CME Group bylaws, and the terms of reference for Board committees. These documents set out the Board's mission, membership, conduct, composition and compensation arrangements. For more information on the composition of the Board, see CCP Standard 2.4.

The Board is aided in its management of CME by the Board-level Executive Committee (see CCP Standard 2.3). The Board also operates seven other Board-level committees to aid in the discharge of its duties: the Audit, Compensation, Finance, Governance, Market Regulation Oversight, Nominating and Strategic Steering committees.

At executive management level, CME has both a Chief Executive Officer (CEO) and an Executive Chairman and President (Chairman). The CEO and Chairman at CME Group level hold the same positions at CME. The CEO is responsible for the day-to-day operations of CME. As a both a director and an executive officer of the Board, the CEO is directly accountable to the Board.

CME Clearing Division

CME's CCP operations are run by CME Clearing Division, one of 14 operational divisions. The day-to-day operations of CME Clearing Division are overseen by the CME Clearing Division President (Clearing President). The Clearing President is appointed by the CEO, with the approval of the Board.

In addition to reporting to the CEO, the Clearing President regularly reports to the three CME Risk Committees and the Market Regulation Oversight Committee.[1] Each Risk Committee, all of which are non-Board level, is responsible for managing risk in a specific product category: OTC IRS; OTC CDS; and Base products. Each Risk Committee is chaired by at least one member from the Board. Each Risk Committee is required to report to the Board on an ongoing basis. For more information on the Risk Committees, see CCP Standard 2.6.

CME Clearing Division is divided into the following operating departments: the Financial and Regulatory Surveillance Department; the Risk Management Department; the Clearing Operations and Systems Department; the Clearing Solutions Department; and the Clearing House Financial Department.

The Financial and Regulatory Surveillance Department's responsibilities are twofold. First, one team monitors and assesses capital adequacy, internal controls, risk management policies and back-office operations. Second, the Department's other team is responsible for ensuring clearing participants charge their customers appropriate fees and assessing clearing participation applications before advising the relevant Risk Committee for approval. The Financial and Regulatory Surveillance Department is overseen by the Managing Director (Financial and Regulatory Surveillance), who reports to both the Clearing President and the Market Regulation Oversight Committee.

The Risk Management Department is responsible for monitoring and managing CCP-specific risks in accordance with the CME Clearing Division Risk Management Framework (Risk Management Framework). These responsibilities include: ensuring the adequacy of CME's financial safeguards; monitoring and assessing liquidity risks; and monitoring CME's banking arrangements. The Risk Management Department is overseen by the Chief Risk Officer (CRO), who reports to the Clearing President and the three Risk Committees.

The Clearing Operations and Systems Department manages post-trade operational planning, preparation and implementation of services impacting electronic trading, and the operations area. The Department: processes transfers, give-ups, and allocations and deliveries; produces material for clearing participant reports that detail margin requirements; and sets up other back-end processes related to clearing participant onboarding and product launches. The Department is also responsible for creating and modifying support models for new initiatives across the Department.

The Clearing Solutions Department is responsible, in part, for the overall business analysis of expanding CME Clearing Division services. Other responsibilities of the Department include customer relationship management and development of key product services.

The Clearing House Financial Department manages CME Clearing Division's collateral services, banking relationships, business architecture and compliance officer functions.

Outside of the operational departments, CME Clearing Division has a CCO, who ensures CME continues to meet its regulatory obligations. The CCO conducts annual regulatory self-assessments against: CFTC regulations and the DCO Core Principles; SEC regulations; Federal Reserve Board regulations; and the Principles. The CCO reports to the Market Regulation Oversight Committee, the Clearing President and the Group-level CCO.

Additional governance arrangements

CME Group publishes key corporate governance arrangements, standards, terms of reference and policies on its website. CME's bylaws and certificate of incorporation are included in the publicly available CME Rulebook. In addition to the formal lines of responsibility detailed above, CME Group's Corporate Governance Principles envisage complete and open access between the Board and senior management.

CME Group and, by extension, CME are accountable to shareholders through applicable disclosure requirements and directors' duties. CME Group has two classes of common stock, with its Class A common stock being publicly listed on NASDAQ and its Class B common stock held by members of CME. All CME exchange members, including all CME exchange clearing members, are required by CME to hold Class B stock. Both Class A and Class B common shareholders vote on all matters for which a vote of common shareholders is required by US companies law; each share carries one vote. Class B stock grants additional voting rights beyond Class A stock for matters concerning certain core rights of the members of CME (e.g. trading right protections, certain trading fee protections and participation requirements for exchange-listed products).

2.3 The roles and responsibilities of a central counterparty's board of directors (or equivalent) should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address and manage member conflicts of interest. The board should regularly review both its overall performance and the performance of its individual board members.

CME Group's Corporate Governance Principles define the Board's roles and responsibilities and set out the Board's mission statement. Broadly, the Board is responsible for:

  • reviewing, approving and monitoring CME Group's and CME's strategic, financial and business activities
  • reviewing, approving and monitoring CME Group's and CME's annual budget
  • assessing the major risks and opportunities CME Group and CME face, and reviewing options for addressing them
  • selecting the Chairman and CEO, and evaluating their performance
  • ensuring CME Group and CME comply with their regulatory responsibilities.

The procedures and rules for the Board's functioning are set out in CME Group and CME bylaws, which are publicly available on the CME Group website. In addition to provisions in the bylaws and articles of incorporation, CME Group has developed a policy to address potential conflicts of interest. This policy requires directors to disclose potential conflicts of interest and abstain from voting where a conflict could arise. The policy also sets out the procedures the Board would follow to determine if a conflict of interest did exist.

CME Group's and CME's general counsel administers and monitors compliance with its Conflict of Interest policy, which is disclosed on the CME Group website.

As noted in CCP Standard 2.2, the Board operates eight Board-level committees to aid in the discharge of its duties. These committees advise the Board on their relevant area and are governed by their respective charters, which are publicly available on the CME Group website. The Audit, Compensation, Governance and Nominating committees are solely composed of directors who meet CME Group's published independence standards (see CCP Standard 2.4).[2] In addition, the Market Regulation Oversight Committee is composed of directors who meet the CFTC's requirements for ‘public’ directors.

In general, CME schedules six regular Board meetings in a year. Special meetings of the Board may be called in accordance with the applicable bylaws. When the Board is not sitting, its authority may be exercised by the Executive Committee, except for matters where approval of the whole Board would be required. The Executive Committee currently has 10 members, including the Chairman and CEO, and the minimum of five CME directors chosen by the Board. The Executive Committee does not meet regularly; the Committee has not met in 2014 to date, while it met twice in 2013 and three times in 2012.

Items presented to the Executive Committee in the past have included approval of banking authorisations, designation of corporate officers and signing authority, and the evaluation of the performance of the CEO. During these meetings, the Executive Committee may also receive updates on certain activities, such as the status of legal proceedings.

The Board-level Governance Committee is responsible for overseeing the annual self-assessment of the Board's performance and recommends measures to improve performance based on the results of such evaluation. The Governance Committee consists solely of independent directors. Based on feedback from the most recent annual self-assessment, CME Group is working on developing a formalised emergency succession plan and recommended a reduction in its size to 24, from 29 (see CCP Standard 2.4).

2.4 The board should comprise suitable members with the appropriate skills and incentives to fulfil its multiple roles. This typically requires the inclusion of non-executive board member(s).

The Board currently has 24 directors, including the Chairman and CEO. The size of the Board was reduced by five from 29, following a proposal that was adopted at the CME Group 2014 annual meeting. The Governance Committee makes recommendations regarding the size of the Board.

The Board-level Nominating Committee recommends candidates for ‘equity’ directors. Six directors are elected by Class B shareholders, while the remaining equity directors are elected by the Class A and Class B shareholders voting together. At its 2014 annual meeting, CME Group sought shareholder approval to reduce the number of directors elected by Class B shareholders from six to three; however, the proposal did not receive the required support.

In evaluating candidates for the Board, the Nominating Committee – guided by CME Group's Corporate Governance Principles – review the qualifications and backgrounds of potential equity directors. Broadly, the Corporate Governance Principles require directors to have sufficient expertise, experience, ethics and values. The composition of the Board must also be representative across diverse professional backgrounds and a broad range of expertise. The six directors elected by the Class B shareholders are nominated by separate nominating committees elected by their particular class of Class B shares.

CME Group and CME include a number of independent and public directors on their Board (see below). Under CME Group's Corporate Governance Principles, a majority of the Board must be classified as ‘independent’. For a director to be classified as independent, the director must meet CME Group's published Independence Standards. These standards require that an independent director: holds no executive office, nor has any immediate family member holding executive office; holds no more than 5 per cent of either Class A or Class B stock, nor has any immediate family member who does; and not provide consulting, legal or financial advisory services to CME or CME's auditors. As a publicly listed company, CME Group's Independence Standards meet NASDAQ's requirements for independent directors. Currently, 75 per cent of CME Group and CME directors are classified as independent.

Public directors must meet requirements defined by the CFTC, which require a director to not have any significant relationship with the exchange. As a DCM, the CFTC requires CME to have public directors to minimise conflicts of interest. CME Group's Corporate Governance Principles consider a director to be a public director based on their lack of relationship with any of the CME Group exchanges and the industry. Currently, 33 per cent of CME Group and CME's directors meet the standard for public directors.

2.5 The roles and responsibilities of management should be clearly specified. A central counterparty's management should have the appropriate experience, mix of skills and integrity necessary to effectively discharge its responsibilities for the operation and risk management of the central counterparty. Compensation arrangements should be structured in such a way as to promote the soundness and effectiveness of risk management.

CME structure

CME Group's bylaws require the Board to appoint a Chairman, Vice Chairman, CEO, President (not to be confused with the Clearing President), Secretary and Treasurer. Any number of offices may be held by the same person. Beyond those roles, the bylaws grant the Board the flexibility to appoint any leadership structure.

At CME level, the bylaws state that the Board composition will at all times be comprised of the same directors as those of CME Group. The Corporate Governance Principles specify that the day-to-day operations of the company will be run by the Chairman and CEO.

Within CME, senior management are delegated their powers from, and are overseen by, the CEO. The Clearing President is responsible for the day-to-day operations of CME Clearing Division and oversees the operating departments. Other key senior management positions include: CRO; CCO; Managing Director (Clearing Operations and Systems); Managing Director (Clearing Solutions); and Managing Director (Financial and Regulatory Surveillance Department). If necessary, members of senior management can be removed, with or without cause, by a majority vote of the Board.

Members of the senior leadership team (i.e. individuals at the level of Senior Managing Director within CME Group) are recruited for their particular position based upon their skills and expertise. Certain members of the senior leadership team have also been designated by the Board as CME Group's executive officers. Their individual goals and performance are assessed annually by their direct manager as part of the performance management process.

Compensation arrangements

The Board undertakes an annual evaluation of the performance of the Chairman against a set of established goals. The Executive Committee similarly reviews the performance of the CEO and reports its findings to the Board. The Board approves annual strategic/performance goals for the Chairman and CEO. Additionally, the Compensation Committee sets certain performance goals for annual bonus awards and equity performance awards.

The Board has approved the employment contracts for the Chairman and the CEO including their compensation arrangements. Actual compensation determinations are made by the Compensation Committee. Members of the Compensation Committee must meet CME Group's Independence Standards. The Compensation Committee also reviews and approves all compensation arrangements for the executive officers and sets company-wide policies for all employees.

CME Group's compensation arrangements are designed to offer appropriate incentives for creating long-term shareholder value and delivering on financial and strategic goals while discouraging excessive risk-taking. The following are the key elements designed to address compensation risk:

  • A mix of fixed and variable compensation arrangements.
  • A portion of senior management compensation is composed of long-term equity incentives. Members of the senior leadership team are subject to company stock ownership guidelines based on their level of responsibility.
  • Employees at the Managing Director level and above receive a portion of their equity compensation in performance shares to encourage the achievement of long-term performance thresholds.
  • The annual cash bonus plan for senior employees and senior management is not paid out in the event that CME Group fails to achieve cash earnings at or above the threshold level of performance.
  • CME Group sets maximum guidelines for annual incentives and long-term incentive awards.
  • All compensation of senior management is subject to the approval of the Compensation Committee and/or the CEO, which includes the ability to decrease an award for failure to perform or inappropriate risk-taking.
  • The compensation arrangements and performance evaluation of staff in certain regulatory and compliance positions are reviewed by the applicable Board-level committee. Staff in these regulatory and compliance positions are subject to the same pay arrangements as staff in other departments.

2.6 The board should establish a clear, documented risk management framework that includes the central counterparty's risk tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision-making in crises and emergencies. Governance arrangements should ensure that the risk management and internal control functions have sufficient authority, independence, resources and access to the board, including through the maintenance of a separate and independent internal audit function.

CME's risk management framework consists of a high-level Risk Management Framework document, which: identifies the range of risks CME faces in its CCP operations; documents the policies and procedures implemented to address each risk; and assigns responsibility for monitoring and managing those risks. This framework has been approved by the Board and is subject to annual review by senior management; significant changes are provided to the CHRC and Board for review.

Risk Committees

A key part of CME's risk governance is collectively the three Risk Committees, which are delegated committees established by CME. The Risk Committees include Board members and have reporting obligations to the Board. Each Risk Committee is responsible for overseeing one of three product categories into which CME groups its products. The Risk Committees are: the CHRC for Base products; the Interest Rate Swaps Risk Committee (IRSRC) for OTC IRS; and the Credit Default Swaps Risk Committee (CDSRC) for OTC CDS. The Risk Committees operate distinctly, although they may share common members; as such, there are no reporting lines between the Risk Committees.

The Risk Committees review and approve changes to risk policies, subject to Board review. The Risk Committees are responsible for overseeing risks relating to CME's clearing operations as set forth in their respective charters. These Committees are aided in their obligation through reports from the Clearing President and CRO. The Risk Committees meet at least quarterly, or more frequently as necessary. The Board is informed of significant issues relating to clearing risk through regular reports of the chairs of the Risk Committees as well as information provided by the Clearing President as necessary and appropriate.

The CHRC is co-chaired by two directors from the Board, chosen by the Chairman. The CHRC is composed of at least seven members, at least five of which must be representatives of clearing participants. In addition, the CHRC must have a member who is not affiliated with CME or any participant.

The CHRC is responsible for:

  • guiding the general direction of CME Clearing Division
  • reviewing and approving clearing participation applications for Base products
  • monitoring the financial safeguards maintained by CME, in particular the Base Guaranty Fund
  • monitoring the financial condition of clearing participants and recommending action where necessary
  • reviewing, approving and recommending to the Board changes for Base products relating to operating rules, margin policies, Base Guaranty Fund contributions and accepted collateral
  • overseeing the liquidation of a defaulting participant's Base product portfolio.

The IRSRC is tasked with providing guidance and oversight on issues relevant to IRS products. The IRSRC is composed of between 8 and 16 members, with between two and nine clearing participant representatives. These representatives are drawn from both large and small IRS clearing participants. At least two of the IRSRC members must be independent, and the chair must be a director from the Board, nominated by the Chairman.

The IRSRC is responsible for:

  • reviewing and approving IRS participation applications
  • monitoring the financial safeguards maintained by CME for IRS products, in particular the IRS Guaranty Fund
  • monitoring the financial condition of IRS clearing participants, and recommending action where necessary
  • reviewing, approving and recommending to the Board changes to operating rules affecting IRS products, IRS margin policies, the IRS Guaranty Fund and collateral accepted for IRS products
  • overseeing the IRS Default Committee and, during a default, overseeing the Active Default Management Committee (Active DMC) liquidation of a defaulting IRS participant's IRS portfolio (see CCP Standard 12.1).

The CDSRC has identical responsibilities and powers with respect to CDS products that the IRSRC has for IRS products. The CDSRC is composed of between 11 and 16 members, of which between five and nine members must be representatives of CDS clearing participants. At least two CDSRC members must be independent members. The CDSRC is chaired by a director of the Board, nominated by the Chairman. This assessment does not cover CDS products, as CME is not applying for a CS facility licence for these products.

Risk Management Framework

The Board has a role in overseeing the management of risks, focusing on the top tier risks facing CME. CME Group has established an ERM program to promote and facilitate sound risk management practices.

The ERM program is led by CME's Global CCO who reports to the Senior Managing Director (General Counsel and Corporate Secretary). The Audit Committee is the primary committee with responsibility for overseeing the ERM program, with CME's other Board- and functional-level committees, including the Risk Committees, overseeing specific risks that relate to their core responsibilities. ERM and top tier risks is a regular Audit Committee agenda item, whereas broad risk topics and specific risks are discussed at the Board and other committees, as relevant.

In the context of the ERM program, enterprise risks, including risks relating to the operation of the CCP, are identified, assessed, measured, prioritised and updated regularly by management through the cross-functional Risk Management team. This team is made up of senior managers representing each Department and led by the Global CCO. The Audit Committee and the Board receive regular quarterly reports on significant enterprise risks. Additional reviews or reporting on enterprise risks are conducted as needed, or as requested by the Board or one of its committees.

The Risk Management Framework is part of CME's overall ERM program and is designed to address the top tier risks relating to its CCP operations. The Risk Management Department performs a number of functions under the Risk Management Framework, including ensuring CME's financial safeguards are adequate, monitoring and assessing liquidity risks, and monitoring CME's banking arrangements (see CCP Standard 2.3).

If the financial or operational condition of a participant threatens CME's viability, or may impact financial markets, the Risk Management Framework provides for the Clearing President to assemble a group of senior management and the chairs of the relevant Risk Committees to exercise emergency powers. These powers are designed to limit the risk a participant poses to CME and include measures such as position limitation, suspension of the participant and imposition of higher initial margin requirements.

Business Continuity Management

CME's Business Continuity Management plan outlines the various roles and responsibilities during a crisis. The IT Disaster Recovery portion of the plan and business units' (representatives from each Department and office location) ability to access Disaster Recovery systems are tested at least twice annually. Business units are encouraged, but not required, to participate. CME also tests the plan with a range of stakeholders – including clearing participants, partner exchanges and other CCPs – during annual, industry-wide business continuity testing run by the Futures Industry Association. Other aspects of the plan are tested multiple times each year, including via company-wide exercises. CME has its Business Continuity Management plan assessed by independent consultants to ensure it is sufficient (see CCP Standard 16.7).

Ongoing monitoring

Ongoing monitoring of Risk Management Department's policies and procedures are conducted by the Global Assurance Group, which, in turn, is overseen by the Audit Committee. The Global Assurance Group is a department within the Legal and Regulatory Division, which is separate from the operational departments of CME Clearing Division.

In addition, compliance personnel in several Group-level and CME Clearing Division-level Departments ensure compliance with, and the effectiveness of, the Risk Management Framework as part of CME's DCO regulatory responsibilities. The Market Regulation Oversight Committee provides independent oversight of the policies and programs of CME's regulatory functions relating to its operations of DCMs, DCO and its compliance officers. The CCO also reports directly to the Clearing President and, indirectly, to the CME Group CCO.

2.7 A central counterparty's operations, risk management processes, internal control mechanisms and accounts should be subject to internal audit and, where appropriate, periodic external independent expert review. Internal audits should be performed, at a minimum, on an annual basis. The outcome of internal audits and external reviews should be notified to the Reserve Bank and other relevant authorities.

Internal audits are conducted by CME's Global Assurance Group. The Global Assurance Group operates at an organisational level, and is functionally separate from operational areas. To ensure independence, the Managing Director (Global Assurance Group) reports directly to the Audit Committee of the Board; this Committee is composed solely of independent directors. The remit of the Audit Committee is set out in its charter and covers: receiving reports from the Global Assurance Group; overseeing and reviewing the Global Assurance Group's charter, planned audits, staffing and organisation; appointing CME Group's independent auditors; and reviewing CME's risk management policies, governance and outcomes. The Audit Committee meets at least quarterly, or as frequently as necessary.

Internal audits are conducted according to the annual audit plan. This plan specifies the objectives of each audit, the manager in charge of each audit and the timeline in which the audit will be completed. These audits include a number of yearly audits of risk management and control processes, as well as less frequent audits of specific areas. This plan is reviewed and approved annually by the Audit Committee.

In addition to internal audits, as a DCO, CME conducts an annual assessment of compliance with relevant regulations. This assessment is wideranging and examines compliance with: CFTC regulations, including the DCO Core Principles; SEC regulations; Federal Reserve Board regulations; and the Principles.

CME obtains external, independent reviews as necessary to supplement its internal audit process. The Global Assurance Group is also subject to independent review of its processes by the Institute of Internal Audit. This review occurs every five years; the last review was in 2011.

As a publicly listed company, CME Group's annual 10-K financial report is externally audited.

2.8 Governance arrangements should ensure that the central counterparty's design, rules, overall strategy and major decisions reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders. Governance arrangements should provide for consultation and stakeholder engagement through appropriate forums on operational arrangements, risk controls and default management rules and procedures. Major decisions should be clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public.

As per CME Group's bylaws, the Nominating Committee, in making its recommendations for Board members, is required to take into consideration applicable composition requirements (see CCP Standard 2.4). The Board and the CHRC each include participation from market participants, for example by the election of directors via Class B shareholders.

In addition to representation on the Risk Committees, all IRS and CDS direct clearing participants have two representatives on the Default Management Committees (DMCs) for the product categories (IRS and CDS) they clear; CME has not created a separate DMC for Base products. The DMCs provide advice to CME on actual or potential defaults and, during a participant default, a subset of the committee is responsible for liquidating the defaulting clearing participant's portfolio (see CCP Standard 12.1).

To provide for further stakeholder engagement, representatives from CME Clearing Division meet biweekly with industry participants through its OTC Clearing Firm Operations Forum to discuss developments and receive feedback. These forums are used to discuss operational details with participants, including the introduction of new products and services, and changes due to regulatory requirements. CME Clearing Division also holds separate meetings with key end clients that are interested in specific items.

CME Group is a publicly listed company and is subject to disclosure requirements, including quarterly filings (10-Q) and annual reports (10-K).

CME publishes all rule changes, product updates and operational changes via advisory notices to participants, available on the CME Group website. CME Clearing Division also provides a weekly notice, detailing changes to products, system changes and upcoming events.

2.9 A central counterparty that is part of a group of companies should ensure that measures are in place such that decisions taken in accordance with its obligations as a central counterparty cannot be compromised by the group structure or by board members also being members of the board of other entities in the same group. In particular, such a central counterparty should consider specific procedures for preventing and managing conflicts of interest, including with respect to intragroup outsourcing arrangements.

CME is a wholly owned subsidiary of CME Group, with the two corporations having identical executive management and Board composition. To address potential conflicts of interest, CME and CME Group have adopted a Conflict of Interest Policy, an Employee Code of Conduct and a Board of Directors Code of Ethics.

As discussed in CCP Standard 1, CME's exchange and clearing functions are part of the same legal entity. CME has separated its DCM and DCO operations into two functional areas and established a separate management position to manage CME's CCP responsibilities. CME has adopted policies and procedures to address conflicts of interest arising between the two functional areas, and regularly assesses these policies in compliance with relevant regulations. If potential conflicts of interest are identified involving members of the CHRC, those members may be excused from the discussion and determination of the particular matter.

In addition, the organisational structure of CME and its oversight by the CHRC, IRSRC and CDSRC is designed, in part, to mitigate potential conflicts between CME's operations. This is sought to be achieved by ensuring that decisions made by clearing staff that could impact the risk profile of the CCP are reviewed by risk experts with incentives to ensure the safety of CME Clearing Division.

CME ensures that no critical resources are provided to CME by other entities in the CME corporate group. However, CME provides certain technological and operational support to CME Clearing Europe (see CCP Standard 16.9).


The Market Regulation Oversight Committee is responsible for overseeing CME's regulatory responsibilities and reviewing conflict of interest matters brought to its attention by senior management. [1]

As CME Group is a publicly listed company, these directors must also meet the independence standards required by NASDAQ listing rules. [2]