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The Managed Futures
Monthly Newsletter contains
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the previous month, to learn
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CUSTOMER
ACCOUNT SAFEGUARDS FOR INVESTORS |
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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.
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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.
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