CME Clearing Europe Limited – s. 144

Headnote

Application under section 144 of the Securities Act (Ontario) (OSA) to vary and restate the interim order of CME Clearing Europe (CMECE) to extend its interim exemption, which exempts CMECE under section 147 of the OSA on an interim basis 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, 144.

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)

AND

IN THE MATTER OF
CME CLEARING EUROPE LIMITED (CMECE)

VARIATION TO THE INTERIM ORDER
(Section 144 of the Act)

WHEREAS the Ontario Securities Commission (Commission) issued an interim order dated May 3, 2011 pursuant to section 147 of the Act exempting CMECE from the requirement to be recognized as a clearing agency under subsection 21.2(0.1) of the Act (Interim Order);

AND WHEREAS the Interim Order will terminate on November 3, 2011 unless extended by order of the Commission;

AND WHEREAS CMECE has filed an application received on October 3, 2011 (Application) with the Commission pursuant to section 144 of the Act requesting that the Commission vary and restate the Interim Order to extend CMECE's interim exemption from the requirement to be recognized as a clearing agency pursuant to subsection 21.2(0.1) of the Act;

AND WHEREAS the Commission has received certain representations from CMECE in connection with their Application to vary and restate the Interim Order;

AND WHEREAS the Commission has determined that it is not prejudicial to the public interest to issue this order that varies and restates the Interim Order to extend CMECE's interim exemption from the requirement to be recognized as a clearing agency pursuant to subsection 21.2(0.1) of the Act and to include information sharing requirements;

IT IS ORDERED, pursuant to section 144 of the Act, that the Interim Order be varied as follows:

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)

AND

IN THE MATTER OF
CME CLEARING EUROPE LIMITED

ORDER
(Section 147 of the Act)

WHEREAS CMECE filed an application dated April 15, 2011 (April 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 subsection 21.2(0.1) of the Act;

AND WHEREAS the Commission had granted such order dated May 3, 2011 (Interim Order);

AND WHEREAS CMECE has filed an application received on October 3, 2011 (October Application) with the Commission pursuant to section 144 of the Act requesting that the Commission vary the Interim Order to extend it for one year;

AND WHEREAS CMECE has represented to the Commission that:

a. CME Clearing Europe (CMECE) is a private limited company incorporated under the laws of England and Wales.

b. 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.

c. 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.

d. 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.

e. 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. CMECE currently clears over 150 OTC commodity derivative contract types. CMECE received its first trades on May 13, 2011.

f. CMECE currently has 16 Clearing Members that are comprised of banks and brokers.

g. 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.

h. 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. However, under the Interim Order, CMECE has accepted a Clearing Member that is the London branch of an Ontario-headquartered bank.

i. 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.

j. On August 3, 2011, CMECE submitted an application to the Commission for permanent relief subject to section 147 of the Act exempting CMECE from the requirement to be recognized as a clearing agency pursuant to subsection 21.2(0.1) of the Act and such application explains how CMECE meets the relevant criteria for recognition and exemption for clearing agencies (Subsequent Order).

k. Commission staff is currently reviewing CMECE's application for the Subsequent Order. CMECE understands that the standard process for review of the Subsequent Order cannot be completed by November 3, 2011.

AND WHEREAS based on the April Application and the October 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 subsection 21.2(0.1);

PROVIDED THAT:

1. This Order shall terminate on the earlier of (i) November 3, 2012 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.

3. CMECE shall provide such information as may be requested from time to time by, and otherwise cooperate with, the Commission or its staff.

4. CMECE shall share information and otherwise cooperate with other recognized and exempt clearing agencies, as appropriate.

DATED May 3, 2011 as varied on October 28, 2011.