CME Securities Clearing details execution-broker roles in default plan

CME Securities Clearing has proposed more detailed arrangements for managing a participant default, including the work of liquidation agents and execution brokers. The SEC’s 16 October notice concerns documentation of the risk-management framework, with comments due 12 November. It remains a proposal.[1][2]

A liquidation agent could assess exposures, hedge risk and close positions. Execution brokers would support those trades. CME Securities Clearing could use matching back-to-back trades in its principal brokerage account to keep it flat while meeting settlement obligations.[1]

The distinction matters because selling a defaulted portfolio and completing its outstanding deliveries are connected but separate tasks. The proposed documentation spells out how the parties would coordinate both, rather than treating an auction or a market sale as the whole default process.[1]

How default management affects client transfers

Existing Rule 405 already permits third-party agents and allows the clearing house to sell securities and apply proceeds during a default. If a clearing member fails, it will try to transfer non-defaulting users’ accounts to members in good standing, but retains discretion to liquidate open positions. A client’s own solvency therefore does not by itself determine whether its positions can remain open.[3]

The rulebook separately lets an authorising member take part in closing a defaulting user’s positions. A member must respond within the clearing house’s prescribed period; silence counts as declining. Participation does not remove the member’s obligation to discharge the associated losses and liabilities. Those provisions make response authority and operational readiness part of a clearing relationship.[3]

CME’s September launch announcement targeted 7 December, subject to the remaining regulatory approvals. The planned service covers Treasury cash and repo trades and supports execution with either the clearing member or a different counterparty. CME also proposes eligible margin offsets with its interest-rate futures clearing business.[4]

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