Application under section 147 of the Securities Act (Ontario) (OSA) to exempt on an interim basis CME Clearing Europe Limited from recognition as a clearing agency under subsection 21.2(0.1) of the OSA.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 21.2(0.1), 147.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
CME CLEARING EUROPE LIMITED
(Section 147 of the Act)
WHEREAS CME Clearing Europe Limited (CMECE) has filed an application dated April 15, 2011 (Application) with the Ontario Securities Commission (Commission) pursuant to section 147 of the Act requesting an interim order exempting CMECE from the requirement to be recognized as a clearing agency under section 21.2(0.1) of the Act (Order).
AND WHEREAS CMECE has represented to the Commission that:
1. CME Clearing Europe (CMECE) is a private limited company incorporated under the laws of England and Wales.
2. CMECE is a Recognised Clearing House (RCH) in the United Kingdom (UK) under the Financial Services and Markets Act 2000 (FSMA). CMECE's initial authorisation is for the clearing of OTC commodity derivatives.
3. CMECE's ultimate parent is CME Group Inc. CMECE's immediate parent (100% ownership) is Chicago Mercantile Exchange Luxembourg S.à r.l ; it is in turn a wholly-owned subsidiary of Chicago Mercantile Exchange Luxembourg Holdings S.à r.l, which is wholly-owned subsidiary of CME Group Inc.
4. CME Group Inc. is the holding company for four futures exchanges: the Chicago Mercantile Exchange Inc ("CME"), the Board of Trade of the City of Chicago Inc ("CBOT"), the New York Mercantile Exchange Inc ("NYMEX") and the Commodity Exchange Inc ("COMEX"). CME Group Inc. is a listed corporation whose shares are traded on the NASDAQ stock exchange. CME Clearing is a division of CME and offers central counterparty clearing and settlement services for all CME Group exchanges and over-the-counter derivatives transactions.
5. CMECE has been established as part of a globalization strategy by CME Group. The associated business goal is to offer clearing services from the UK for a broad range of OTC derivatives. The first and as yet only definite provision of clearing services by CMECE centres on the clearing of OTC commodity derivatives, and in the first phase just over 150 derivative contract types. The announced date for the commencement of clearing is May 6, 2011.
6. Initial Clearing Members of CMECE will be banks and brokers. A maximum of 14 Clearing Members will be active from May 6, 2011.
7. An applicant must enter into a Clearing Membership Agreement with CMECE before it can become a member of CMECE. The membership requirements of CMECE for OTC commodity derivative clearing are objective, publicly disclosed and permit fair and open access.
8. CMECE does not have any office or maintain other physical installations in Ontario or any other Canadian province or territory. Nor does it have any plans to open such an office or to establish any such physical installations in Ontario or elsewhere in Canada. CMECE has, however, received an application for clearing membership from the London branch of an Ontario-headquartered bank. CMECE has completed the necessary processes and due diligence and is ready to accept the bank as a Clearing Member.
9. Section 21.2 of the Act prohibits clearing agencies from carrying on business in Ontario unless they are recognized by the Commission as a clearing agency.
10. CMECE will file a full application to the Commission for a subsequent order recognizing CMECE as a clearing agency under subsection 21.2(0.1) of the Act or exempting it from the requirement to be recognized as clearing agency under section 147 of the Act (Subsequent Order).
AND WHEREAS based on the Application and the representations CMECE has made to the Commission, the Commission has determined that the granting of the Order would not be prejudicial to the public interest;
IT IS HEREBY ORDERED by the Commission that, pursuant to section 147 of the Act, CMECE is exempt on an interim basis from recognition as a clearing agency under section 21.2(0.1);
1. This Order shall terminate on the earlier of (i) November 3, 2011 and (ii) the effective date of the Subsequent Order;
2. CMECE shall:
(a) continue to be a RCH under the FSMA; and
(b) promptly notify staff of the Commission of:
i. any material change or proposed material change in the regulatory oversight by the FSA;
ii. any material problems with the clearance and settlement of transactions in its system that could materially affect the financial viability of CMECE;
iii. any new service or product cleared by CMECE that would be offered to Ontario based Clearing Members; and
iv. the admission of any new Ontario based entity as a clearing member of CMECE.
DATED May 3, 2011