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click here | | | | | Customer Safeguards | | | When investing in a Managed Futures financial product, customers need to be assured that sophisticated risk management, financial surveillance techniques and other Financial Safeguards are in place to protect Exchange members and customers from default on futures and options on futures contracts. Because of the Financial Safeguard System, the funds placed in your investment account have vital safeguards in place to protect you. The following is an excerpt from the Chicago Mercantile Exchanges' website, detailing the Financial Safeguard System that is in place at the CME. In addition, all U.S. commodity exchanges have similar safeguard systems for your protection. | Excerpts from the CME's Financial Safeguard System document OVERVIEW OF THE SYSTEM Risk management and financial surveillance are the two primary functions of CME’s financial safeguard system. The system is designed to provide the highest level of safety and the early detection of unsound financial practices on the part of any clearing member. Its purpose is to protect all clearing members and their customers from the consequences of a default by a participant in the clearing process. The system is constantly being updated to reflect the most advanced risk management and financial surveillance techniques. The financial safeguard system is operated by a “Risk Management Team,” which is directed by senior management from the Audit, Clearing, Finance, Legal, Market Regulation, Risk Management and Executive areas of CME.
II. FINANCIAL INTEGRITY OF THE CME MARKETPLACE
The accounts of individual members, clearing firms and non-member customers doing business through CME must be carried and guaranteed to the Clearing House by a clearing member. In every matched transaction executed through the Exchange’s facilities, the Clearing House is substituted as the buyer to the seller and the seller to the buyer, with a clearing member assuming the opposite side of each transaction. The Clearing House is an operating division of the Exchange, and all rights, obligations and/or liabilities of the Clearing House are rights, obligations and/or liabilities of CME. Clearing members assume full financial and performance responsibility for all transactions executed through them and all positions they carry. The Clearing House, dealing exclusively with clearing members, holds each clearing member accountable for every position it carries regardless of whether the position is being carried for the account of an individual member, for the account of a non-member customer, or for the clearing member’s own account. Conversely, as the contra-side to every position, the Clearing House is held accountable to the clearing members for the net settlement from all transactions on which it has been substituted as provided in the Rules.
The Clearing House does not look to non-member customers for performance or attempt to evaluate their creditworthiness or market qualifications. The Clearing House does monitor clearing members for the adequacy of credit monitoring and risk management of their customers. In addition, although the Exchange has established character and financial standards for its individual members, the Clearing House looks solely to the clearing member carrying and guaranteeing the account to secure all payments and performance bond obligations. Further, when an individual member executes orders for a clearing member, his or her guarantor clearing member is held accountable as principal for the brokered transaction until the transaction has been matched and recorded by the Clearing House as a transaction of the clearing member for whom the individual member had acted.
III. THE SAFEGUARDS
The risk management and financial surveillance techniques employed by CME are
comprehensive and specifically designed to:
• Prevent the accumulation of losses
• Ensure that sufficient resources are available to cover future obligations
• Result in the prompt detection of financial and operational weaknesses
• Allow swift and appropriate action to be taken to rectify any financial problems and protect the clearing system
These techniques are consistent with risk management recommendations by the Group of Thirty and other authoritative organizations.
View the link for the complete detailed overview of CME's safeguard system | | | |
