The staff of the SEC’s Division of Investment Management issued a series of no-action letters addressing a mutual fund maintaining cash and/or certain securities in the custody of the Chicago Mercantile Exchange (CME), a derivatives clearing organization or a clearing member. The cash and other assets are held for purposes of meeting margin requirements for the instruments. In the no-action letter, the staff encouraged mutual funds to weigh carefully the risks and benefits of maintaining assets to effect transactions in CDS with CME or a Clearing Member. In particular, we expect that each Clearing Member that holds assets for a Fund wishing to clear swap transactions on the CME will comply with the CFTC’s applicable regulations and guidance regarding the manner in which cleared swaps collateral of a customer must be treated prior to and after a bankruptcy of a futures commission merchant or a derivatives clearing organization. The SEC issued similar letters addressing custody issues at ICE Clear Credit LLC and LCH, Clearnet Limited.
Click http://www.sec.gov/divisions/investment/noaction/2012/cme092712-17f-2.htm and http://www.sec.gov/divisions/investment/noaction/2012/cme092712-17f.htm to access the Chicago Mercantile Exchange letters.
Click http://www.sec.gov/divisions/investment/noaction/2012/iceclearcredit092712-17f.htm to access the ICE Clear Credit LLC letter.
Click http://www.sec.gov/divisions/investment/noaction/2012/lchclearnet092712-17f.htm to access the LCH, Clearnet Limited no-action letter.