SEC Proceedings on CME Securities Clearing, Inc.
On April 18, 2025, the Securities and Exchange Commission (SEC) announced the initiation of proceedings regarding CME Securities Clearing, Inc. (CMESC) following its application to become a registered clearing agency. This application was filed on December 13, 2024, as CMESC seeks to provide central counterparty clearing services for transactions involving U.S. Treasury securities and repurchase agreements.
Public Feedback and Amendments
The SEC published a notice on January 22, 2025, inviting public feedback on CMESC’s application, which resulted in multiple supportive comments advocating for expanding access to treasury transaction clearings through new clearing agencies. These comments encouraged CMESC to make certain amendments to its application, particularly to address regulatory capital issues for banking organization participants, enhance margining practices, clarify procedures for users engaging directly with CMESC, and improve risk management strategies.
Regulatory Framework and Application Evaluation
Under Section 19(a)(1) of the Securities Exchange Act of 1934, the SEC is obligated to process registration applications within 90 days, though they may extend this period with the applicant’s consent. The current proceedings evaluate whether to approve or deny CMESC’s application and outline potential issues that could lead to a denial.
CMESC plans to function as a subsidiary of CME Group, Inc., operating under a governance structure that includes independent directors and various board committees to oversee multiple aspects of its operations, including risk management. CMESC identifies two participant categories: Members and Users, where Members have a more significant operational role, including the responsibility for financial performance guarantees.
Legal Requirements and Risk Management
The SEC proceedings specifically seek additional commentary on whether CMESC meets the legal requirements set out in the Exchange Act regarding:
– Organizational capacity
– Membership standards
– Fair representation
– Reasonable fee structures
– Participant discipline
– Competitive practices
They aim to determine if CMESC’s proposed rules adequately promote swift and accurate securities transactions while protecting investor interests. The application’s implications extend to risk management practices that CMESC proposes to implement, including rigorous margin requirements and systems for monitoring and mitigating risks associated with participant defaults. The SEC emphasizes that public comments are essential to assess the sufficiency of these frameworks.
Public Engagement Process
Interested parties are encouraged to submit their views and supporting data regarding the application. The SEC will collect comments via its online platform or by mailing submissions, setting a deadline of 21 days from the publication date to facilitate this public engagement process. The details provided will contribute to the Commission’s ongoing evaluation of CMESC’s application for registration as a clearing agency under the Securities Exchange Act.
