SEC Requests Comment on Proposed FICC-CME Cross-Margining Framework

The SEC requested comment on the Fixed Income Clearing Corporation ("FICC") and Chicago Mercantile Exchange Inc. ("CME") application for exemptive relief to cross-margin customer Treasury securities and related futures.

In the application, FICC and CME proposed extending their existing proprietary cross-margining arrangement to include customer positions held by joint members "registered as [both] broker-dealers and futures commission merchants." The requested exemption from SEA Section 15(c)(3) ("Registration and regulation of brokers and dealers") and Rule 15c3-3 ("Customer protection-reserves and custody of securities") would permit "Eligible Customers" to hold FICC-cleared Treasury securities and CME-cleared futures in a single futures account subject to CFTC regulations, rather than a securities account. FICC and CME stated that this framework would align initial margin requirements with the actual risk profile of the portfolio and lower trading costs, thereby incentivizing the central clearing of U.S. Treasury securities.

The applicants explained that under the "Proposed Customer XM Framework," participating customers must execute a non-conforming subordination agreement acknowledging that their cross-margined positions will not receive customer treatment under the Securities Investor Protection Act. In the event of an insolvency, these assets would be subject to the "commodity broker liquidation provisions" of the U.S. Bankruptcy Code. The proposal includes several conditions, such as requiring specific risk disclosures to customers and mandating that "initial margin requirements" be calculated on a "gross, [customer-by-customer] basis."

The SEC is soliciting public comment on the application, including the proposed conditions and potential competitive impacts, with comments due by March 5, 2026.