Assessment of Chicago Mercantile Exchange Inc. Executive Summary

Purpose This report presents the Reserve Bank of Australia's Assessment of Chicago Mercantile Exchange Inc. (CME), which operates in Australia under an overseas clearing and settlement (CS) facility licence. CME is incorporated in the United States, and is primarily regulated by the Commodity Futures Trading Commission (CFTC) under US legislation. CME has been designated in the United States as a Systemically Important Derivatives Clearing Organization (SIDCO), and therefore is also subject to oversight by the Federal Reserve Board of Governors.

Given the nature and scope of CME's current activities in Australia, the Bank has not considered it necessary at this stage to conduct a detailed assessment of CME against all of the Financial Stability Standards for Central Counterparties (the CCP Standards). This report covers developments relating to the Bank's Assessment of CME for the 12 months ending 31 December 2018 (the assessment period).
Conclusion In the assessment period CME has broadly addressed the outstanding regulatory priorities outlined in the Bank's previous Assessment. The Bank also set new regulatory priorities related to the variation of CME's licence.
Progress towards regulatory priorities During the assessment period CME provided its updated recovery and wind-down plans, which the Bank has now reviewed. Further improvements to the plans and associated rule changes for CME's over-the-counter (OTC) Interest Rate Swap (IRS) clearing service are expected to be implemented during the next assessment period. The Bank also reviewed the independent validation of CME's Liquidity Risk Management Framework (LRMF), and engaged with CME to monitor enhancements to this framework.
Regulatory Developments During the assessment period, CME applied to vary its CS facility licence to permit clearing of commodity derivatives, energy derivatives and environmental derivatives traded on the market operated by FEX Global Pty Ltd (FEX). The licence was varied on 26 February 2019.
Priorities and supervisory focus In the coming year the Bank will continue to engage with CME on developments related to the implementation of its recovery and wind-down plans and the LRMF. The Bank will also monitor progress against new regulatory priorities set as part of the licence variation, if the FEX service is launched.

In addition, the Bank will consider the alignment of CME's practices with guidance from the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO), Resilience of central counterparties (CCPs): Further guidance on the PFMI and will continue to expect CME to consider any applicable implications of the CPMI–IOSCO Guidance on cyber resilience for financial market infrastructures for its operations.