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AMENDED AND RESTATED
CROSS-
MARGINING
AGREEMENT
This Amended and Restated Cross-Margining Agreement (this “Agreement”) is
entered into as of this 22nd day of January, 2024 by Fixed Income Clearing Corporation
(“FICC”), a New York corporation, and Chicago Mercantile Exchange Inc. (“CME”), a
Delaware corporation (FICC and CME, each a “Party” and together, the “Parties”).
RECITALS
A.
FICC is registered as a clearing agency with the U.S. Securities and Exchange
Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and acts as a clearing organization for transactions involving U.S.
Government securities, securities of U.S. federal Agencies and U.S. Government-sponsored
enterprises, financing products and certain mortgage-backed securities.
B.
CME is registered as a derivatives clearing organization with the Commodity
Futures Trading Commission (the “CFTC”) under the Commodity Exchange Act, as
amended (the “CEA”), and acts as a clearing organization for futures contracts and options
on futures contracts, including U.S. dollar-denominated interest rate and fixed income
futures contracts and options on such contracts, and swaps.
C.
FICC and CME have established a cross-margining arrangement whereby
(i) an entity that is a Clearing Member (defined below) of both FICC and CME (a “Joint
Clearing Member”) and (ii) a Clearing Member of one such Clearing Organization that has
an Affiliate (defined below) that is a Clearing Member of the other such Clearing
Organization (a “Cross-Margining Affiliate”) may elect to have positions in Eligible
Products (defined below) at CME and positions in Eligible Products at FICC carried in a
Cross-Margining Account (defined below) and margined based upon the combined risk
presented by positions in Eligible Products.
D.
In order to facilitate such cross-margining arrangement, FICC and CME
entered into that certain Cross-Margining Agreement, dated as of January 2, 2004 as
amended (the “Original Agreement”), whereby CME guarantees certain obligations of
Cross-Margining Participants to FICC, and FICC guarantees certain obligations of Cross-
Margining Participants to CME, with reimbursement of amounts paid under such guarantees
being collateralized by the positions and Margin of such Cross-Margining Participants held
by the Guarantor.
E.
FICC and CME now desire to amend and restate the Original Agreement to,
among other things, enhance the efficiency of the current arrangement between the Parties,
and to amend and restate the Original Agreement in its entirety on the terms set forth herein.
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AGREEMENTS
In consideration of the mutual covenants contained herein, the Parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere in this Agreement, certain other
terms used in this Agreement shall be defined as follows:
(a) “Affiliate” means, when used in respect of a Clearing Member of one Clearing
Organization, a Clearing Member of the other Clearing Organization that directly or indirectly
controls, is controlled by, or is under common control with such particular Clearing Member.
Ownership of 50% or more of the equity interests of the relevant entity will conclusively be
deemed to be in control of that entity for purposes of this definition.
(b) “Allocated Net Gain” has the meaning set forth in Section 7(c)(i).
(c) “Allocated Net Loss” has the meaning set forth in Section 7(c)(i).
(d) “Bankruptcy Code” shall mean 11 U.S.C. §§ 101 et seq.
(e) “Beneficiary” has the meaning set forth in Section 7(i).
(f) “Business Day” means each day on which trading in Eligible Products is conducted
and on which FICC and CME both conduct money settlements.
(g) “CEA” has the meaning set forth in the recitals.
(h) “CFTC” has the meaning set forth in the recitals.
(i) “Claims and Losses” has the meaning set forth in Section 12(b).
(j) “Clearing Member” means, with respect to FICC, any member of the netting system
of the Government Securities Division of FICC deemed eligible for cross-margining by FICC, and
with respect to CME, any clearing member of CME deemed eligible for cross-margining by CME.
(k) “Clearing Member Agreement” means the agreement set forth as Appendix A or
B, as applicable, between the Clearing Organizations and a Clearing Member and, if applicable,
its Cross-Margining Affiliate that elects to participate in the cross-margining arrangement
established pursuant to this Agreement and the Rules.
(l) “Clearing Organization” means either FICC, acting through its Government
Securities Division or CME and “Clearing Organizations” means both FICC and CME.
(m) “CME” has the meaning set forth in the preamble.
(n) “CME Eligible Products” means certain contracts cleared by CME as listed on
Exhibit A, and as modified from time to time upon mutual agreement of the Parties, as set forth in
Section 6(a).
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(o) “CME Guaranty Fund” means the Base Guaranty Fund established pursuant to
CME Rules.
(p) “CME’s Debtor” has the meaning set forth in Section 8(a).
(q) “Collateral on Hand” means the Margin held by a Clearing Organization with
respect to the Cross-Margining Account of a Defaulting Member immediately prior to the time at
which the Default Event occurred.
(r) “Combined Portfolio” has the meaning set forth in Section 4(a).
(s) “Confidential Information” has the meaning set forth in Section 10(a).
(t) “Cross-Margining Account” means, with respect to a Clearing Member of FICC,
the transactions, positions and margin maintained in the Account (as defined in the GSD Rules) at
FICC that are identified in FICC’s books and records as being subject to this Agreement, and, with
respect to a Clearing Member of CME, means a cross-margining account that is carried on the
books of CME for such Clearing Member that is limited to the transactions, positions and Margin
of the Proprietary Accounts of such Clearing Member that are subject to this Agreement.
(u) “Cross-Margin Positions” means, with respect to a Defaulting Member of FICC,
the securities that have been identified by FICC at the time of default to be subject to the Cross-
Margin Agreement.
(v) “Cross-Margin Requirement” means, with respect to a Cross-Margining
Participant, the joint amount of Margin required by the Clearing Organizations with respect to the
Cross-Margining Participant’s Combined Portfolio for its separate Cross-Margining Accounts at
each Clearing Organization as provided in Section 4(a).
(w) “Cross-Margin VM Gain” or “Cross-Margin VM Loss” means, with respect to the
Cross-Margining Account of a Defaulting Member, the amounts owed to or by the Defaulting
Member, as applicable, by or to a Clearing Organization due to the mark-to-market movement
arising from or related to the positions in the Defaulting Member’s Cross-Margining Account at
CME or the Defaulting Member’s Cross-Margin Positions at FICC.
(x) “Cross-Margining Affiliate” has the meaning set forth in the recitals.
(y) “Cross-Margining Participant” me
ans a Joint Clearing Member that has become, or
a Clearing Member that is part of a pair of affiliated Clearing Members each of which has become,
a participant in the cross-margining arrangement between FICC and CME established pursuant to
this Agreement. In the latter case, the term “Cross-Margining Participant” shall, where the context
requires, refer collectively to the pair of Cross-Margining Affiliates.
(z) “Default Event” has the meaning set forth in Section 7(a).
(aa) “Defaulting Member” has the meaning set forth in Section 7(a).
(bb) “Effective Date” has the meaning set forth in Section 18(j).
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(cc) “Eligible Positions” means positions in CME Eligible Products or positions in
FICC Eligible Products in a Cross-Margining Account.
(dd) “Eligible Products” means the products listed on Exhibit A for CME and Exhibit B
for FICC in each case attached hereto, and any other products mutually agreed to in the future
between the Parties by amendment to Exhibit A and Exhibit B, respectively.
(ee) “Exchange Act” has the meaning set forth in the recitals.
(ff) “FICC” has the meaning set forth in the preamble.
(gg) “FICC Clearing Fund” means the clearing fund established pursuant to GSD Rules.
(hh) “FICC Eligible Products” means certain Government securities cleared by FICC as
listed on Exhibit B, and as modified from time to time upon mutual agreement of the Parties, as
set forth in Section 6(a).
(ii) “FICC’s Debtor” has the meaning set forth in Section 9(a).
(jj) “GSD” means FICC’s Government Securities Division.
(kk) “GSD Account” means, with respect to a Clearing Member of FICC, the Accounts
(as defined under the GSD Rules) of the Clearing Member at FICC which includes positions that
are cross-margined pursuant to this Agreement and positions that are not cross-margined pursuant
to this Agreement.
(ll) “Guarantor” has the meaning set forth in Section 7(i).
(mm) “Guaranty” means the obligation of FICC to CME, or of CME to FICC, as in effect
at a particular time with respect to a particular Cross-Margining Participant as set forth in Sections
8 and 9 of this Agreement. The term “Guaranties” refers to both the Guaranty of CME to FICC
and the Guaranty of FICC to CME, including, without limitation, the obligation to make the
Payment Obligation.
(nn) “Indebtedness to CME” has the meaning set forth in Section 8(a).
(oo) “Indebtedness to FICC” has the meaning set forth in Section 9(a)
(pp) “Indemnified Party” has the meaning set forth in Section 12(a)
(qq) “I
ndemnitor” has the meaning set forth in Section 12(a).
(rr)
“Joint Clearing Member” has the meaning set forth in the recitals.
(ss) “Liquidation Cost” means, with respect to a Cross-Margining Account of a
Defaulting Member at a Clearing Organization, the amount of any net gain or net loss, realized in
the liquidation, transfer or management of Eligible Positions held by the Clearing Organization in
the Cross-Margining Account of the Defaulting Member, including, without limitation, (i) any
Variation Margin owed to the Defaulting Member by the Clearing Organization and unpaid (which
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shall constitute gains); (ii) any Variation Margin owed by the Defaulting Member to the Clearing
Organization and unpaid (which shall constitute losses); and (iii) any reasonable costs, fees and
expenses incurred by the Clearing Organization in connection therewith.
(tt) “Margin” means, with respect to a Cross-Margining Participant, any type of
performance bond or initial margin, including deposits or pledges of CME original margin, FICC
Actual Deposits (as defined under the GSD Rules) and option premiums held in or for the Cross-
Margining Account of such Cross-Margining Participant at a Clearing Organization, and other
margin collateral, whether in the form of cash, securities, letters of credit or other assets of such
Cross-Margining Participant, required or held by or for the account of a Clearing Organization to
secure the obligations of such Cross-Margining Participant with respect to the Cross-Margining
Account carried at the Clearing Organization, to a Clearing Organization under this Agreement,
the Clearing Member Agreement and the Rules, and all proceeds of the foregoing.
(uu) “Margin Reduction” means, the amount by which a Cross-Margining Participant’s
Margin requirement for its Cross-Margining Account at a Clearing Organization is reduced by
such Clearing Organization pursuant to Section 4(a) of this Agreement.
(vv) “Net Gain” or “Net Loss” means, with respect to the Cross-Margining Account of
a Defaulting Member held at a Clearing Organization, the sum of the (i) Collateral on Hand; and
(ii) Liquidation Cost. If such amount is a positive number, a Clearing Organization shall be deemed
to have a “Net Gain” with respect to the relevant account. If such amount is a negative number, a
Clearing Organization shall be deemed to have a “Net Loss” with respect to the relevant account.
If the Liquidation Cost amounted to a gain, it shall be a positive number for this calculation. If the
Liquidation Cost amounted to a loss, it will be a negative amount for this calculation.
(ww) “Other VM Gain” or “Other VM Loss” means: (x) with respect to a Defaulting
Member of FICC, the amounts owed to or by the Defaulting Member, as applicable, by or to FICC
due to the Funds-Only Settlement payments (as defined in the GSD Rules) arising from or related
to the mark-to-market movement of the portion of the Defaulting Member’s GSD Accounts that
does not include the positions in the Cross-Margining Account at FICC; and (y) with respect to a
Defaulting Member of CME, the amounts owed to or by the Defaulting Member, as applicable, by
or to CME arising from or related to the mark-to-market movement of the positions (excluding
positions in IRS Contracts (as defined under CME’s Rules)) or positions that are commingled with
positions in IRS Contracts pursuant to CME Rule 8G831 in the Defaulting Member’s accounts
(but excluding its Cross-Margining Account) at CME.
(xx) “Original Agreement” has the meaning set forth in the recitals.
(yy) “Party” and “Parties” h
ave the meaning set forth in the preamble.
(zz) “Payment Obligation” means the amount, if any, determined in accordance with
Section 7, payable by one Clearing Organization to the other Clearing Organization.
(aaa) “Proprietary Account” has the meaning given that term in CFTC Regulation 1.3(y).
Unless otherwise expressly provided, the term “Proprietary Account” includes the Proprietary
Cross-Margining Account of a Cross-Margining Participant of CME.
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(bbb) “Reimbursement Obligation” has the meaning set forth in Section 7(i).
(ccc) “Rules” means, as applicable, the Rulebook of FICC’s Government Securities
Division (“GSD Rules”) or the Rules of CME (“CME Rules”), as they may be in effect from time
to time.
(ddd) “SEC” has the meaning set forth in the recitals.
(eee) “Share of the Cross-Margining Requirement” means, in respect of a Clearing
Organization, the ratio calculated by dividing (i) the amount of Margin required for the Cross-
Margining Account at the Clearing Organization after taking into account the Margin Reduction
set forth in Section 4(a), by (ii) the Cross-Margining Requirement.
(fff) “Stand-Alone Margin Requirement” means, as to each Clearing Organization, the
Margin requirement that such Clearing Organization would calculate with respect to a Cross-
Margining Account it carries as if calculated by such Clearing Organization without regard to this
Agreement or another cross-margining agreement.
(ggg) “Variation Margin” means, with respect to the Cross-Margining Account of a
Defaulting Member, the amounts owed to or by the Defaulting Member, as applicable, by or to a
Clearing Organization due to the mark-to-market movement arising from or related to the
positions in the Defaulting Member’s Cross-Margining Account at CME or the Defaulting
Member’s Cross-Margin Positions at FICC from the time immediately prior to a Default Event
until the time the liquidation of a Defaulting Member is complete for both CME and FICC.
2. Participation.
(a) FICC and CME shall each determine which of its Clearing Members is eligible to
become a Cross-Margining Participant; provided that in order to become a Cross- Margining
Participant, a Clearing Member must be a Joint Clearing Member or be an Affiliate of a Clearing
Member of the other Clearing Organization that both Clearing Organizations have determined to
be eligible to be a Cross-Margining Participant. FICC shall notify CME, and CME shall notify
FICC, upon acceptance of a Clearing Member as a Cross-Margining Participant, and the Clearing
Organizations shall mutually agree on a start date for the Cross-Margining Participant.
(b) A Joint Clearing Member shall become a Cross-Margining Participant upon the
acceptance by FICC and CME of a Clearing Member Cross-Margining Agreement (Joint Clearing
Member) in the form of Appendix A hereto.
(c) A Clearing Member of FICC or CME and its Affiliate that is a Clearing Member at
the other Clearing Organization shall become Cross-Margining Participants and Cross-Margining
Affiliates of one another upon the acceptance by FICC and CME of a Clearing Member Cross-
Margining Agreement (Affiliated Clearing Members) in the form of Appendix B hereto.
(d) Either FICC or CME may require a Cross-Margining Participant to provide an
opinion of counsel as to the enforceability of the provisions of this Agreement and the Rules of
the applicable Clearing Organization with respect to such Cross-Margining Participant and, if
applicable, its Cross-Margining Affiliate.
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(e) In addition to the rights of each Clearing Organization under Section 7 of the
Agreement, either FICC or CME may terminate the participation of a particular Cross-Margining
Participant (including, if applicable, a Cross-Margining Affiliate at such Clearing Organization)
upon two Business Days’ prior written notice to the other Clearing Organization provided,
however, that no such termination shall be effective with respect to any Reimbursement Obligation
or Guaranty with respect to that Cross-Margining Participant or its Cross-Margining Affiliate that
is incurred prior to the effectiveness of any such termination.
3. Establishment of Cross-Margining Accounts. Each Cross-Margining Account, and all
Eligible Positions and Margin contained therein or deposited in respect thereof, shall be subject to
this Agreement, the Clearing Member Agreement and the Rules. If CME determines at any time
that any Eligible Position held in a Cross-Margining Participant’s Cross-Margining Account at
CME are non-risk reducing, CME may either restrict the addition of Eligible Positions to the Cross-
Margining Account at CME or require the Cross-Margining Participant to move or liquidate such
Eligible Positions at CME.
4.
Calculation of Cross-Margin Requirements.
(a) On each Business Day, the Cross-Margin Requirement for the Combined Portfolio,
and the corresponding reduction in the Margin required (if any) for each Cross-Margining Account
shall be determined as follows. Each Clearing Organization will calculate the difference between
(x) the sum of the Stand-Alone Margin Requirements for the CME Eligible Products and FICC
Eligible Products in the relevant Cross-Margining Accounts and (y) the Margin it would require if
the combined portfolio of the CME Eligible Products and FICC Eligible Products were held in a
single account (the “Combined Portfolio”) and determine the percentage of margin savings that
would be derived for such accounts by margining the CME Eligible Products and FICC Eligible
Products as a Combined Portfolio. The Clearing Organizations will then compare their respective
margin savings percentages, and, if the lesser of such margin savings percentage exceeds the
threshold agreed by the Clearing Organizations from time to time, each Clearing Organization will
then reduce the Margin required to be deposited by a Clearing Member at such Clearing
Organization with respect to the CME Eligible Products or the FICC Eligible Products, as
applicable, by the lower of such margin savings percentages. If the respective margin savings
percentages are less than the threshold agreed by the Clearing Organizations from time to time, no
Margin Reduction will be applied. The Cross-Margin Requirement with respect to a Cross-
Margining Participant may not be changed without the consent of both Clearing Organizations.
(b) Neither CME nor FICC shall permit positions in CME Eligible Products or in FICC
Eligible Products, respectively, that are carried in a Cross-Margining Account A pursuant to this
Agreement to be subject to any other cross-margin arrangement.
(c) Either Clearing Organization may in its sole discretion and at any time require a
Cross-Margining Participant to deposit an amount of Margin which exceeds such Cross-Margining
Participant’s Stand-Alone Margin Requirement at such Clearing Organization.
(d) Absent gross negligence or willful misconduct, neither Clearing Organization shall
have liability to the other Clearing Organization or to any other person based solely upon the fact
that information given or calculated by such Clearing Organization pursuant to this Section 4 was
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inaccurate or inadequate. The liability of CME and FICC to any Cross-Margining Participant,
Cross-Margining Affiliate or third party shall be as further provided in CME Rules and GSD Rules.
(e) Although it is contemplated that the Cross-Margin Requirement may be less than
the sum of the Stand-Alone Margin Requirements, nothing in this Agreement shall be construed
as requiring such result. Any calculation of a Cross-Margin Requirement shall not result in any
guarantee to a Cross-Margining Participant that such calculation will yield the lowest possible
Cross-Margin Requirement.
5.
[Reserved]
6.
Daily Procedures for Exchange of Portfolio Cross-Margining Data.
(a)
FICC and CME shall establish a separate service level agreement (“SLA”) ,
including time frames, to exchange on each Business Day such information as may reasonably
be required in order to value the positions in the Cross-Margining Account and to calculate
the Cross-Margin Requirement for each Cross-Margining Participant. The SLA will also
include: (i) operational processes consistent with the default management provisions set forth
in Section 7 of this Agreement; and (ii) the process and criteria under which FICC or CME
may make a request to the other Clearing Organization to modify its list of CME Eligible
Products or FICC Eligible Products, as applicable. Such process will include that only
products that do not require a change to FICC or CME’s margin model
are be permitted to be
subject to this process, and any modification
requires the mutual written consent of both Parties.
Each Clearing Organization shall furnish such additional information as the other Clearing
Organization may reasonably request in relation to this Agreement.
(b)
FICC and CME agree that each will notify the other Clearing Organization
promptly if an event occurs that reflects, in the sole discretion of the notifying Clearing
Organization, a material problem with respect to a Cross-Margining Participant. Examples of
such an event shall include, but shall not be limited to, the events requiring notice pursuant to
Section 16 of this Agreement.
7. Suspension and Liquidation of Cross-Margining Participant.
(a) Either FICC or CME may at any time exercise any rights under its Rules to
terminate, suspend or otherwise cease to act for or limit the activities of a Cross-Margining
Participant (a “Defaulting Member”). When the Clearing Member against which FICC or CME
exercises such rights is part of a pair of Cross-Margining Affiliates, the term “Defaulting Member”
covers the Cross Margining Affiliates together or individually as the context requires. Upon such
event (the “Default Event”), the Clearing Organization that has taken the foregoing actions (the
“Liquidating CO”) shall immediately by telephone or in person, and thereafter in writing, notify
the other Clearing Organization of the actions it has taken. The other Clearing Organization shall
then immediately notify the Liquidating CO whether it will take similar action under its Rules. If
the other Clearing Organization notifies the Liquidating CO that it will take such similar action,
then both Clearing Organizations shall promptly take the steps set forth in subparagraph (b) below.
If the other Clearing Organization notifies the Liquidating CO that it will not take such similar
action, then the other Clearing Organization (the “Non-Liquidating CO”) shall immediately
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require the Defaulting Member to pay the Non-Liquidating CO in immediately available funds the
sum of (x) its Margin Reduction at the Liquidating CO, and (y) its Margin Reduction at the Non-
Liquidating CO, within one hour of demand. If the Non-Liquidating CO receives this payment in
full from the Defaulting Member or otherwise, within such timeframe, it shall, within one hour of
such receipt, pay the Liquidating CO in immediately available funds the Defaulting Member’s
Margin Reduction at the Liquidating CO. After the Non-Liquidating CO makes such payment in
full, then, notwithstanding anything herein to the contrary, it shall have no further obligations to
the Liquidating CO under this Agreement with respect to the Default Event. If the Non-
Liquidating CO does not receive this payment in full from the Defaulting Member or otherwise,
within one hour of such receipt or other agreed upon timeframe, then it will cease to act for the
Defaulting Member, and it, along with the Liquidating CO shall promptly take the steps set forth
in subparagraph (b) below.
(b) The Clearing Organizations shall take the following steps:
(i) First, the Clearing Organizations shall attempt in good faith to jointly
transfer, liquidate or close out the Eligible Positions in the Cross-Margining
Accounts carried for the Defaulting Member (the “Relevant Positions”). To
the extent the Default Event is resolved under this Section 7(b)(i) and not
under Section 7(b)(iii), the loss sharing provisions set forth in Section 7(c)
shall apply and the loss sharing provisions set forth in Sections 7(d), 7(e)
and 7(f) shall not apply.
(ii) Second, in the event a Clearing Organization determines that jointly
transferring, liquidating or closing out the Relevant Positions is not feasible
or advisable, any Clearing Organization (“X”) may, upon written notice to
the other Clearing Organization (“Y”), offer to buy-out the Relevant
Positions at the last settlement price for such positions immediately prior to
the time such offer is made and any remaining collateral relating thereto
from Y (which Y may accept or reject in its sole discretion). If such a buy-
out occurs, then, notwithstanding anything herein to the contrary, Y shall
have no further obligations to X under this Agreement with respect to the
Default Event. For the avoidance of doubt, the loss sharing provisions set
forth in Sections 7(c), 7(d), 7(e) and 7(f) shall not apply if the Default Event
is resolved under this Section 7(b)(ii).
(iii) If a Clearing Organization determines that it is not advisable or feasible to
resolve the Default Event pursuant to Paragraphs (b)(i) or (b)(ii) above, it
shall so notify the other Clearing Organization. In such event, each Clearing
Organization shall promptly transfer, liquidate or otherwise close out the
Eligible Positions in the Cross-Margining Account carried for the
Defaulting Member at that Clearing Organization. The loss sharing
provisions set forth in Sections 7(d), 7(e) and 7(f) shall apply to the extent
the Default Event is resolved under this Section 7(b)(iii).
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(c) To the extent a joint liquidation occurs as described in Section 7(b)(i), the following
provisions shall apply:
(i) Each Clearing Organization shall calculate its individual Net Gain or
individual Net Loss, if any, taking into account solely its individual
Collateral on Hand and its individual Liquidation Cost.
(ii) Using the individual Net Gains or individual Net Losses calculated in 7(c)(i)
above, the Clearing Organizations shall jointly calculate the sum of the
combined Net Gains and Net Losses, if any, of the Clearing Organizations
with respect to the Cross-Margining Accounts of the Defaulting Member.
Any resulting combined Net Gain or combined Net Loss shall be allocated
pro rata between the Clearing Organizations based on each Clearing
Organization’s Share of the Cross-Margining Requirement (its “Allocated
Net Gain” or “Allocated Net Loss”, as applicable).
(iii) If a Clearing Organization has an individual Net Gain that is less than its
Allocated Net Gain, an individual Net Loss that is greater than its Allocated
Net Loss or an individual Net Loss when the joint liquidation resulted in a
combined Net Gain (solely for purposes of this Paragraph (c)(iii), the
“worse-off party”) then the other Clearing Organization shall be required to
pay to the worse-off party an amount equal to the difference between the
worse-off party’s individual Net Gain or Net Loss and its Allocated Net
Gain and Allocated Net Loss.
(iv) For the purposes of determining any Net Gain or Net Loss under Section
7(c)(i)-(iii), neither Clearing Organization shall include any amount paid
or received under Section 7(c)(v) and (vi) in the calculation of Net Gain and
Net Loss.
(v)
T
he following shall apply:
(1) If, on any Business Day during the liquidation of a Defaulting
Member, a Clearing Organization (“VM Payor”) has a Cross-
Margin VM Gain and an Other VM Gain with respect to a
Defaulting Member, and the other Clearing Organization (“VM
Receiver”) has a Cross-Margin VM Loss with respect to a
Defaulting Member, the VM Payor shall make a payment to the VM
Receiver in the amount of the VM Receiver’s Cross-Margin VM
Loss, but not to exceed the VM Payor’s Cross-Margin VM Gain;
provided that the VM Payor shall not be required to make such
payment to the extent it reasonably determines that the liquidation
of the Defaulting Member will result in an individual Net Loss to it
or that the VM Receiver will be limited by statute, court order or
other applicable law from making the payment described in Section
7(c)(vi) below.
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(2) If, on any Business Day during the liquidation of a Defaulting
Member, a Clearing Organization (“VM Payor”) has a Cross-
Margin VM Gain and an Other VM Loss and the sum of these
amounts (hereinafter “Aggregate VM Gain”) is positive, and the
other Clearing Organization (“VM Receiver”) has a Cross-Margin
VM Loss with respect to a Defaulting Member, the VM Payor shall
make a payment to the VM Receiver in the amount of the VM
Receiver’s Cross-Margin VM Loss, but not to exceed the VM
Payor’s Aggregate VM Gain unless the Parties otherwise agree that
the VM Payor shall pay a higher amount; provided that the VM
Payor shall not be required to make such payment to the extent it
reasonably determines that the liquidation of the Defaulting Member
will result in an individual Net Loss to it or that the VM Receiver
will be limited by statute, court order or other applicable law from
making the payment described in Section 7(c)(vi) below.
(3) If, on any Business Day during the liquidation of a Defaulting
Member, a Clearing Organization (“VM Payor”) has a Cross-
Margin VM Gain and an Other VM Loss with respect to a
Defaulting Member and the sum of these two amounts is negative,
and the other Clearing Organization (“VM Receiver”) has a Cross-
Margin VM Loss with respect to the Defaulting Member, the VM
Payor shall not be required to make a payment to the VM Receiver
unless otherwise agreed to by the Parties.
(vi) The deadline for any payments pursuant to the foregoing paragraphs shall
be jointly determined by the Clearing Organizations. After the completion
of the liquidation of a Defaulting Member, any VM Receiver shall be
obligated to pay to the VM Payor any amounts received by the VM Receiver
pursuant to Section 7(c)(v) in connection with the liquidation, provided,
however, that notwithstanding anything to the contrary in this Agreement,
a VM Receiver shall only be required to pay such amount to the VM Payor
if it is not prohibited by statute, court order or other applicable law from
making such payment. The obligation of the VM Receiver to pay any such
amounts shall be netted and offset against any payment obligation of the
VM Payor pursuant to Section 7
(d)
If, with respect to the Cross-Margining Account of the Defaulting Member,
both
Clearing Organizations have a Net Gain or a Net Loss, no payment will be due to either
Clearing Organization in respect of the Guaranties between FICC and CME referred to in Sections
8 and 9 below.
(e) If
, with respect to the Cross-Margining Account of the Defaulting Member,
either Clearing Organization has a Net Loss (solely for purposes of this Paragraph (e), the “worse-
off party”) and the other has a Net Gain (solely for purposes of this Paragraph (e), the “better-off
party”) that is equal to or exceeds the absolute value of the worse-off party’s Net Loss, then the
better-off party shall be required to pay to the worse-off party an amount equal to the absolute
12
value of such Net Loss; provided, however, that notwithstanding anything to the contrary in this
Agreement, the better-off party shall only be required to pay the amount of such Net Loss to the
worse-off party if it is not prohibited by statute, court order or other applicable law from making
such payment.
(f) If either Clearing Organization has a Net Loss (solely for the purposes of this
Paragraph (f), the “worse-off party”) and the other Clearing Organization has a Net Gain (solely
for the purposes of this Paragraph (f), the “better-off party”) that is less than or equal to the absolute
value of the worse-off party’s Net Loss, then the better-off party shall be required to pay to the
worse-off party an amount equal to such Net Gain; provided, however, that notwithstanding
anything to the contrary in this Agreement, the better-off party shall only be required to pay the
amount of such Net Gain to the worse-off party if it is not prohibited by statute, court order or
other applicable law from making such payment.
(g)
FICC and CME shall each determine as soon as practicable the Net Gain or Net
Loss of that Clearing Organization. FICC shall notify CME, and CME shall notify FICC, of
the amount of its own Net Gain or Net Loss and, in such detail as may reasonably be requested,
the means by which such calculations were made. If FICC is obligated to make a payment of
the Payment Obligation to CME, or CME is obligated to make a payment of the Payment
Obligation to FICC, in respect of a Guaranty, the Clearing Organization obligated to make
such payment shall do so promptly and in no event later than the third Business Day following
the calculation by both Clearing Organizations of their Net Gain or Net Loss, as applicable.
All payments required to be made under this Paragraph (g) shall be made in immediately
available funds.
(h)
If at any time within 90 calendar days following the date on which a payment
is made under Paragraph (g), either Clearing Organization determines that any amount paid
to or received from the other Clearing Organization pursuant to this Section 7 in respect of a
Guaranty was incorrect either because of errors in calculation at the time or because new
information relevant to the determination of such amount was discovered after the
determination of such amount, the Clearing Organization that discovered the error or new
information shall notify the other Clearing Organization. In such event, the Clearing
Organizations shall: (i) cooperate with one another to recalculate the appropriate amount of
any Guaranty payments to be made promptly and in no event later than fifteen (15) calendar
days from the date on which the Clearing Organization that discovered the error or new
information notified the other Clearing Organization, and (ii) make any necessary payments
to one another to correct the error within three (3) Business Days following agreement on
such recalculation by both Clearing Organizations. Such payments shall be made in
immediately available funds.
(i)
In the event that either Clearing Organization (the “Guarantor”) becomes
obligated to make a Guaranty payment to the other Clearing Organization (the “Beneficiary”)
in respect of the obligation of a Defaulting Member (including, in the case of a pair of Cross-
Margining Affiliates, the obligation of a Cross-Margining Affiliate that is a Cross-Margining
Participant at the Beneficiary), to the Beneficiary, the Defaulting Member (including, in the
case of a pair of Cross-Margining Affiliates, both Cross-Margining Affiliates jointly and
severally) shall thereupon immediately be obligated, whether or not the Guarantor has then
13
made the Guaranty payment to the Beneficiary, to reimburse the Guarantor for the amount of
the Guaranty payment as determined by the Guarantor, and the Guarantor shall be subrogated
to all of the rights of the Beneficiary against the Defaulting Member (including both Cross-
Margining Affiliates, if applicable). The Guarantor shall notify the Defaulting Member
(including both Cross-Margining Affiliates, if applicable) of the amount of such obligation
(the “Reimbursement Obligation”), but such notification shall not be a condition to the rights
of the
Clearing Organizations hereunder, and the Reimbursement Obligation shall be due
immediately upon the determination of the amount thereof. In the event that the final amount of
the Guaranty payment is greater or less than the amount originally determined, the Reimbursement
Obligation shall be adjusted accordingly, and payment of the difference shall be made between the
Guarantor and the Defaulting Member (or the relevant Cross-Margining Affiliate, as appropriate).
It is understood and agreed that any payment or obligation to make a payment between the
Guarantor and the Beneficiary with respect to the Guaranty, and any payment or obligation to
make payment between the Defaulting Member (including a Cross-Margining Affiliate, as
applicable) and the Guarantor, is (i) a “margin payment” or “settlement payment” or an obligation
to make a “margin payment” or “settlement payment,” and (ii) a transfer in connection with a
“swap agreement,” “commodity contract,” “forward contract,” “securities contract” or “master
netting agreement,” as such terms are defined in the Bankruptcy Code, as the case may be.
(j) The Clearing Organizations will include in the SLA examples of the liquidation
scenarios and associated payment obligations described in this Section 7.
8. Guaranty of FICC to CME.
(a) FICC hereby unconditionally guarantees the prompt payment when due (whether
at maturity, by declaration, by demand or otherwise), and at any and all times thereafter, of all
indebtedness and other obligations of every kind and nature of each Cross-Margining Participant
or its Cross-Margining Affiliate (hereafter referred to, in either case, as “CME’s Debtor”) to CME,
direct or indirect, absolute or contingent, due or to become due, whether now or hereafter existing,
arising from or related to Eligible Positions or the liquidation, transfer or management thereof (all
such indebtedness and other obligations, the “Indebtedness to CME”), but limited to,
the amounts
determined in accordance with Section 7 of this Agreement. FICC further agrees to pay any
and all reasonable costs and expenses (including counsel fees and expenses) incurred by CME
in enforcing its rights against FICC under this Section 8.
(b)
The creation or existence from time to time of Indebtedness to CME (whether
or not such Indebtedness may be in excess of the amounts determined in accordance with
Section 7 of this Agreement to which the right of recovery under this Guaranty is limited) is
hereby authorized without notice to FICC and shall in no way affect or impair this Guaranty.
(c)
The liability of FICC under this Guaranty shall be unconditional and
irrespective of (i) any lack of enforceability of any Indebtedness to CME or any guaranty
thereof, (ii) any change of the time, manner or place of payment, or any other term, of any
Indebtedness to CME or any guaranty thereof, (iii) any taking, exchange, subordination,
release or non-perfection of any collateral securing payment of any Indebtedness to CME;
(iv) the acceptance of additional parties or the release of anyone primarily or secondarily
liable on the Indebtedness to CME; (v) any law, rule, regulation or order of any jurisdiction
14
or any governmental, regulatory or administrative authority of any kind, whether now or
hereafter in effect, affecting any term of any Indebtedness to CME or any guaranty or security
therefor or CME’s rights with respect thereto; and (vi) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, CME’s Debtor or a guarantor.
FICC waives promptness, diligence, and notices with respect to any Indebtedness to CME and
this Guaranty and any requirement that CME exhaust any right or take any action against
CME’s Debtor or any other person or entity or with respect to any guaranty or collateral
security therefor and any duty on CME’s part to disclose to FICC any matter, fact or thing
related to the business, operations or conditions (financial or otherwise) of CME’s Debtor or
its affiliates or its property, whether now or hereafter known by CME. FICC acknowledges
that this Guaranty is a guaranty of payment, not collection, and that FICC has made and will
continue to make its own investigations with respect to all matters regarding CME’s Debtor.
(d)
In the event that FICC makes any payment to CME under this Guaranty, and to
the extent such payment is not reimbursed to FICC in whole or in part pursuant to Section 7(i)
of this Agreement, FICC shall be subrogated to the rights of CME against the Cross-
Margining Participant or its Cross-Margining Affiliate in respect of whose Indebtedness to
CME such payment was made and to the rights of CME against any other guarantor or other
third party with respect to such Indebtedness to CME.
(e)
All of CME’s rights and remedies provided for herein or otherwise available to
CME at law or otherwise shall be cumulative to the extent permitted by law.
9.
Guaranty of CME to FICC.
(a)
CME hereby unconditionally guarantees the prompt payment when due
(whether at maturity, by declaration, by demand or otherwise), and at any and all times
thereafter, of all indebtedness and other obligations of every kind and nature of each Cross-
Margining Participant or its Cross-Margining Affiliate (hereafter referred to, in either case, as
“FICC’s Debtor”) to FICC, direct or indirect, absolute or contingent, due or to become due,
whether now or hereafter existing, arising from or related to Eligible Positions or the
liquidation, transfer or management thereof (all such indebtedness and other obligations, the
“Indebtedness to FICC”), but limited to the amounts determined in accordance with Section
7 of this Agreement. CME further agrees to pay any and all reasonable costs and expenses
(including counsel fees and expenses) incurred by FICC in enforcing its rights against CME
under this Section 9.
(b)
The creation or existence from time to time of Indebtedness to FICC (whether
or not such Indebtedness may be in excess of the amounts determined in accordance with
Section 7 of this Agreement to which the right of recovery under this Guaranty is limited) is
hereby authorized without notice to CME and shall in no way affect or impair this Guaranty.
(c)
The liability of CME under this Guaranty shall be unconditional and
irrespective of (i) any lack of enforceability of any Indebtedness to FICC or any guaranty
thereof, (ii) any change of the time, manner or place of payment, or any other term, of any
Indebtedness to FICC or any guaranty thereof, (iii) any taking, exchange, subordination,
release or non-perfection of any collateral securing payment of any Indebtedness to FICC;
15
(iv) the acceptance of additional parties or the release of anyone primarily or secondarily liable
on the Indebtedness to FICC; (v) any law, rule, regulation or order of any jurisdiction or any
governmental, regulatory or administrative authority of any kind, whether now or hereafter in
effect, affecting any term of any Indebtedness to FICC or any guaranty or security therefor or
FICC’s rights with respect thereto; and (vi) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, FICC’s Debtor or a guarantor. CME waives
promptness, diligence, and notices with respect to any Indebtedness to FICC and this
Guaranty and any requirement that FICC exhaust any right or take any action against FICC’s
Debtor or any other person or entity or with respect to any guaranty or collateral security
therefor and any duty on FICC’s part to disclose to CME any matter, fact or thing related to
the business, operations or conditions (financial or otherwise) of FICC’s Debtor or its
affiliates or its property, whether now or hereafter known by CME. CME acknowledges that
this Guaranty is a guaranty of payment, not collection, and that CME has made and will
continue to make its own investigations with respect to all matters regarding FICC’s Debtor.
(d)
In the event that CME makes any payment to FICC under this Guaranty, and to
the extent such payment is not reimbursed to CME in whole or in part pursuant to Section 7(i)
of this Agreement, CME shall be subrogated to the rights of FICC against the Cross-
Margining Participant or its Cross-Margining Affiliate in respect of whose Indebtedness to
FICC such payment was made and to the rights of FICC against any other guarantor or other
third party with respect to such Indebtedness to FICC.
(e)
All of FICC’s rights and remedies provided for herein or otherwise available to
FICC at law or otherwise shall be cumulative to the extent permitted by law.
10.
Confidentiality.
(a)
Except as expressly authorized in this Agreement, each Clearing Organization
shall maintain in confidence, and shall not disclose to any third party, any and all information
obtained by it in connection with this Agreement, the transactions or activities contemplated
herein with respect to the other Clearing Organization, and the positions, transactions and
financial condition of any Clearing Member of such other Clearing Organization
(“Confidential Information”). The foregoing shall not apply to the disclosure of information
(i) which is or becomes generally known to the public other than through an action or failure
to act by such Clearing Organization in violation of this Section 10; (ii) to a third party to
whom such information was previously known; (iii) to the CFTC, the SEC or any other
regulator or supervisory authority with oversight authority over a Clearing Organization or
any of its Clearing Members; (iv) to a “registered entity” within the meaning of the CEA or
to a “self-regulatory organization” within the meaning of CFTC regulations or the Exchange
Act, in either case pursuant to a surveillance agreement or similar arrangement to which such
Clearing Organization is a party; or (v) as may be required by the CEA, the Exchange Act, or
CFTC or SEC regulations. Each Clearing Organization may disclose Confidential Information
to a Representative of such Clearing Organization who has a need to know the Confidential
Information and who has been instructed to maintain the confidentiality of such Confidential
Information and who has agreed to do so. The term “Representative” shall mean, with respect
to a Clearing Organization, such Clearing Organization and/or its directors, offices,
employees, agents, and professional consultants and advisors.
16
(b)
In the event that either Clearing Organization is legally required by subpoena
by other valid legal process, or by law or regulation, to disclose any Confidential Information
in the possession of such Clearing Organization, it is agreed that the Clearing Organization
which is subject to such requirement shall provide the other Clearing Organization with
prompt written notice of such requirement so that the other Clearing Organization may seek
an appropriate protective order and/or waive compliance with the provisions of this Section
10 with respect to such required disclosure. In the event that the other Clearing Organization
determines to seek a protective order, the Clearing Organization subject to the requirement
shall cooperate to the extent reasonably requested by the other Clearing Organization. It is
further agreed that if in the absence of a protective order or the receipt of a waiver hereunder,
the Clearing Organization subject to the requirement is nonetheless, in the opinion of its
counsel, compelled to disclose such Confidential Information to any tribunal or regulatory
agency or else stand liable for contempt or suffer other censure or penalty, such Clearing
Organization may produce such Confidential Information without liability under this Section
10.
(c)
The provisions of this Section 10 shall survive three (3) years after the
termination of this Agreement.
(d)
Each Clearing Organization acknowledges and agrees that the violation of its
obligations under this Section 10 would cause irreparable harm to the other Clearing
Organization, which harm may not be compensable solely by monetary damages, and that,
therefore, in the event of an actual or threatened breach by a Clearing Organization of this
Section 10, the other Clearing Organization shall be entitled to immediate injunctive and other
equitable relief, without the necessity of proving monetary damages or posting bond or other
security. Any such equitable relief granted shall be without prejudice to any other rights and
remedies a Clearing Organization may have under this Agreement.
11.
FDICIA. This Agreement, together with GSD Rules, CME Rules, the Clearing
Member Agreement and any other agreements between FICC, CME and a Cross-Margining
Participant or any Affiliate thereof is, for purposes of Title IV, Subtitle A of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. §§ 4401-4407), a
“netting contract” and all payments made or to be made hereunder, including payments made
in accordance with this Agreement in connection with the liquidation of a Cross-Margining
Participant are “covered contractual payment obligations” or “covered contractual payment
entitlements,” as the case may be, as well as “covered clearing obligations;” and for purposes
of the Bankruptcy Code and the Federal Deposit Insurance Act is a “master netting
agreement” with respect to some or all of “swap agreements,” “commodity contracts,”
“forward contracts,” and “securities contracts.”
12.
Indemnification.
(a) Each of FICC and CME (the "Indemnitor") shall indemnify, defend and hold
harmless the other, its directors, officers, employees, agents and each person, if any, who controls
the indemnified Clearing Organization (each an "Indemnified Party") against any Claims and
Losses (as defined below) incurred by an Indemnified Party as the result, or arising from
allegations, of any act or failure to act by the Indemnitor in connection with this Agreement or the
17
cross-margining procedures contemplated under this Agreement if such act or failure to act
constitutes either (i) gross negligence or willful misconduct on the part of the Indemnitor; or (ii) a
material breach of this Agreement, or any obligation undertaken in connection with this
Agreement, any Rule of the Indemnitor (except to the extent that such Rule is inconsistent with
the provisions of this Agreement), or any law or governmental regulation applicable to the
Indemnitor.
(b) As used in this Section 12, the term "Claims and Losses" means any and all losses,
damages and expenses whatsoever arising from claims of third parties including, without
limitation, liabilities, judgments, damages, costs of investigation, reasonable attorneys’ fees and
other expenses and amounts paid in settlement ( with the consent of the Indemnitor, which consent
shall not be unreasonably withheld) in connection with any action, suit, litigation, claim or
proceeding to which an Indemnified Party is made a party defendant, or is threatened to be made
such a party.
(c) Promptly after receipt by an Indemnified Party of notice of the commencement of
any action or the assertion of any claim against such Indemnified Party, such Indemnified Party
shall, if an indemnification claim in respect thereof is to be made against the Indemnitor, notify
the Indemnitor in writing of the commencement of such action or assertion of such claims, but the
omission so to notify the Indemnitor will not relieve the Indemnitor from any liability which it
may have to any Indemnified Party except to the extent that the Indemnitor has been materially
and adversely affected by the lack of prompt notice and shall in any event not relieve the
Indemnitor of any liability which it may have to an Indemnified Party otherwise than under this
Section 12. The Indemnitor will be entitled to participate in the defense of the action or claim. For
the avoidance of doubt, the Indemnified Party shall control its own defense of the action or claim.
13. Rules of the Clearing Organizations.
(a) FICC and CME each shall propose and use all reasonable efforts to obtain any
regulatory approvals necessary to adopt and maintain in effect such provisions in its Rules as are
reasonably necessary to implement the provisions of this Agreement. Without limiting the
generality of the foregoing, such Rules shall provide that Cross-Margining Participants of the
Clearing Organization shall be bound by the provisions of this Agreement and that the Clearing
Organization may use its clearing fund, including any rights of assessments against its Clearing
Members, to make payment under any Guaranty given by such Clearing Organization pursuant to
Section 8 and Section 9 of this Agreement.
(b) FICC and CME shall, to the extent permitted by law, give each other reasonable
prior notice of the intended effectiveness of any Rule or Rule amendment (other than an emergency
Rule or Rule amendment, as to which notice shall be given promptly) adopted by such Clearing
Organization if such Rule or Rule amendment relates in any way to such Clearing Organization’s
Margin requirements, the CME Guaranty Fund or FICC Clearing Fund (as applicable), rights of
assessment against its Clearing Members, or similar matters.
18
14.
Representations and Warranties. Each Clearing Organization represents and warrants
to the other as of the date hereof and as of the Effective Date as follows:
(a)
Good Standing. It is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, has the power and authority to own its assets
and to transact the business in which it is now engaged or proposed to be engaged and is duly
qualified and authorized to do business as a foreign corporation or company and is in good
standing under the laws of each jurisdiction in which failure to so qualify could have a material
adverse effect on its financial condition, business or operations.
(b)
Corporate Power and Authority. It has all requisite corporate power and
authority to enter into this Agreement and the agreements referenced herein, as applicable,
and full power and authority to take all actions required of it pursuant to such agreements.
This Agreement and the applicable agreements referenced in this Agreement will constitute,
when executed and delivered, valid and binding obligations of such Clearing Organization,
and the execution, delivery and performance of all of its obligations under this Agreement and
the applicable agreements referenced in this Agreement have been duly authorized by all
necessary corporate action on the part of such Clearing Organization.
(c)
No Violation. Except for provisions as to which waivers have been obtained,
the execution and delivery of this Agreement and the applicable agreements referenced in this
Agreement by the Clearing Organization and the performance of its obligations under this
Agreement and the applicable agreements referenced in this Agreement: (i) do not result in a
violation or breach of, do not conflict with or constitute a default under, and will not accelerate
or permit the acceleration of performance required by any of the terms and provisions of its
organizational documents, rules or other governing documents, any note, debt instrument, or
any other agreement to which it is a party or to which any of its assets or properties is subject,
and will not be an event which after notice or lapse of time or both will result in any such
violation, breach, conflict, default or acceleration; and (ii) do not result in a violation or breach
of any law, judgment, decree, order, rule or regulation of any governmental authority or court,
whether federal, state or local, at law or in equity, applicable to it or any of its assets or
properties.
(d) Operational Capability. It has adequate personnel, physical facilities, systems, and
internal procedures to enable it to satisfactorily communicate with the other Clearing Organization
and fulfill all anticipated obligations arising under this Agreement with the necessary promptness
and accuracy.
(e)
Authorizations and Consents. All authorizations, permits, approvals or consents
required to be obtained from, and all notifications and filings required to be made with, all
governmental authorities and regulatory bodies and third parties to permit such Clearing
Organization to place into effect this Agreement and the applicable agreements referenced in
this Agreement and to perform its obligations under this Agreement and under the applicable
agreements referenced in this Agreement have been obtained.
(f) These representations and warranties shall be deemed to be repeated each day
during the term of the Agreement.
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15.
Termination.
(a) FICC may terminate this Agreement without cause by delivering written notice of
termination to CME specifying a termination date not less than 30 days following the date on
which such notice is sent.
(b) CME may terminate this Agreement without cause by delivering written notice of
termination to FICC specifying a termination date not less than 30 days following the date on
which such notice is sent.
(c) In the event that either FICC or CME fails to perform any material obligation under
this Agreement and such failure is not promptly cured after written notice thereof is sent to such
Clearing Organization, the non-defaulting Clearing Organization may terminate this Agreement
by delivering written notice of such termination to the other party.
(d)
CME may terminate this Agreement immediately upon notice to FICC in the
event that FICC fails to maintain in effect its registration with the SEC as a securities clearing
agency. FICC may terminate this Agreement immediately upon notice to CME in the event
CME fails to maintain in effect its registration with the CFTC as a derivatives clearing
organization.
(e)
At any time during the term of this Agreement, either Party may terminate this
Agreement immediately upon written notice to the other Party if: (i) the other Party (A)
voluntarily commences any proceeding or files any petition under the bankruptcy laws of the
United States, (B) becomes subject to any involuntary bankruptcy or insolvency proceedings
under the laws of the United States, which proceedings are not dismissed within thirty (30)
days, (C) makes an assignment of all or substantially all of its assets for the benefit of its
creditors, or (D) appoints a receiver, trustee, custodian or liquidator for a substantial portion
of its property, assets or business; or (ii) the other Party passes a resolution for its winding up
or dissolution or a court of competent jurisdiction makes an order for such other Party’s
winding up or dissolution.
(f) In the event that a termination date is established under paragraphs (a), (b) or (c)
above, each Clearing Organization shall promptly notify all of its Cross-Margining Participants.
Each Clearing Organization shall cooperate fully in exchanging all necessary data, records,
computer files and other information, and in executing documents and taking other action
necessary or appropriate to effect transfers, releases, etc. in order to effect termination of the
Cross-Margining Arrangement as to the terminating parties. In the event that a liquidation of a
Cross-Margining Participant is pending on, or was completed prior to, the termination date, the
provisions of this Agreement pertaining to such liquidation shall survive the termination until such
liquidation has been completed and any payment due under the Guaranty due from one Clearing
Organization to the other in respect of such liquidation has been paid.
(g)
Survival of Obligations. The obligations of the Clearing Organizations arising
under Sections 8, 9 and 10, 12 and 17 of this Agreement shall survive the termination of this
Agreement.
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16.
Information Sharing.
(a)
The Clearing Organizations hereby agree to provide one another with the
following information regarding their respective Cross-Margining Participants:
(i)
If either Clearing Organization applies any special surveillance
procedures to a Cross-Margining Participant or places such Cross-
Margin Participant on remedial actions status or higher, as provided in
such Clearing Organization’s Rules, such Clearing Organization shall
promptly notify the other Clearing Organization of that fact.
(ii)
If either Clearing Organization requires more frequent reporting of
financial information by a Cross-Margining Participant, that Clearing
Organization shall notify the other Clearing Organization of that fact
and the period of reporting.
(iii)
If either Clearing Organization increases the capital requirement for any
Cross-Margining Participant, that Clearing Organization shall notify the
other Clearing Organization of that fact, the amount of the additional
capital required and the deadline for meeting the requirement.
(iv)
If either Clearing Organization imposes additional margin requirements
with respect to a particular Cross-Margining Participant, or issues a
special intra-day call for Margin in respect of any account of a Cross-
Margining Participant, that Clearing Organization shall notify the other
Clearing Organization of that fact and the amount of the additional
margin required.
(v)
Each Clearing Organization shall, upon request by the other Clearing
Organization, furnish to such other Clearing Organization the following
information with respect to each account carried by the Cross-Margining
Participant with the Clearing Organization from whom the information
is requested: (A) Margin required and on deposit in respect of such
account, and (B) the dollar amount of any current settlement obligations
owed to or by the Cross-Margining Participant that have been
determined for such account in respect of Variation Margin, premiums,
option exercises and any other settlements.
(vi)
Each Clearing Organization shall notify the other Clearing Organization
of any disciplinary action (other than an appeal from an administrative
fine) taken by its governing board, or committee or subcommittee
thereof, against a Cross-Margining Participant involving non-
compliance with financial or financial reporting requirements, or
violation of the
Rules.
(vii) Each Clearing Organization shall notify the other Clearing Organization in
the event that the notifying Clearing Organization learns of any major
21
processing difficulties (including, but not limited to, back-office computer
problems) or operational errors of a Cross-Margining Participant.
(viii) Each Clearing Organization shall notify the other Clearing Organization in
the event that a Cross-Margining Participant defaults in any settlement
obligation.
In the case of any notice given pursuant to Clauses (i), (ii), (iii), (iv), (vii), or (viii) above,
the Clearing Organization giving such notice shall also notify the other Clearing Organization
when the condition giving rise to such notice is terminated. The Clearing Organizations hereby
agree to inform one another, upon request, of the total size of, and aggregate amount of required
contributions to, such Clearing Organization’s Clearing Fund or Guaranty Fund, as applicable.
(b)
Any notice required to be given pursuant to this Section 16 shall be given by
telephone or electronic mail promptly upon the occurrence of the event giving rise to the
requirement of notification, and any such notice given by telephone shall be promptly
confirmed in writing. Each such notice shall be directed as follows:
to FICC:
Fixed Income Clearing Corporation
570 Washington Blvd.
Jersey City, New Jersey 07310
Attention: Group Chief Risk Officer
Telephone: 212-855-3450
E-mail: [email protected]
and to:
Fixed Income Clearing Corporation
570 Washington Blvd.
Jersey City, New Jersey 07310
Attention: General Counsel, General Counsel’s Office
E-mail: [email protected]
to CME:
Chicago Mercantile Exchange Inc.
20 S. Wacker Drive Chicago, IL 60606
Attention: President, CME Clearing
Chief Risk Officer, CME Clearing
Telephone: 312-648-3888
Fax No.: 312-930-3187
E-mail: [email protected]
22
and to:
Chicago Mercantile Exchange Inc.
20 S. Wacker Drive Chicago, IL 60606
Attention: General Counsel, Legal Department
E-mail: [email protected]
In case of the absence or unavailability of any officer named above, telephone calls shall
be directed to another individual who has been designated in writing by the Clearing Organizations
as authorized to receive such telephone calls. Prior to the Effective Date of this Agreement, each
Clearing Organization shall provide the other with the name and telephone number of any other
individual designated by such Clearing Organization pursuant to the preceding sentence.
(c) In the event that notice is given by either Clearing Organization pursuant to this
Section 16, such Clearing Organization shall furnish to the other Clearing Organization upon
request such additional information or documents relating to the circumstances leading to the
notice as may reasonably be requested by the Clearing Organization receiving the notice.
17. Liability.
(a)
TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW,
EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH (b), NEITHER PARTY
HERETO SHALL BE LIABLE TO ANY OTHER HEREUNDER FOR ANY INDIRECT,
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR SPECIAL
DAMAGES, OR FOR LOSS OF PROFITS, GOODWILL OR CONTRACTS, OR FOR THE
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER ARISING
FROM NEGLIGENCE, BREACH OF CONTRACT OR OTHERWISE, AND WHETHER
OR NOT ANY PARTY HERETO SHALL HAVE BEEN ADVISED OF OR OTHERWISE
MIGHT HAVE ANTICIPATED THE POSSIBILITY OF SUCH DAMAGES.
(b)
Notwithstanding the foregoing, the limitations set forth in this Section 17 will not
apply to a Clearing Organization’s breach of its obligations under Section 10.
18. General Provisions.
(a) Further Assurances. Each Party agrees, without additional consideration, to execute
and deliver such instruments and take such other actions as shall be reasonably required or as shall
be reasonably requested by the other party in order to carry out the transactions, agreements and
covenants contemplated by this Agreement.
(b) Amendment, Modification and Waiver. Except as expressly provided for herein,
this Agreement, including the main body of this Agreement and all exhibits hereto, may be
modified, supplemented or otherwise amended only by an instrument in writing signed on behalf
of a duly authorized representative of each Party and in compliance with all applicable laws. A
Party may temporarily waive or modify any condition intended to be for its benefit provided such
waiver shall be in writing signed by the Party to be charged. The failure of a Party to exercise or
enforce any right conferred upon it by this Agreement shall not be deemed to be a waiver of any
such right or operate so as to bar the exercise or enforcement thereof at any time or times thereafter.
23
No waiver by either Party hereunder shall be effective unless agreed to pursuant to a writing signed
by an authorized representative of each Party.
(c) Governing Law. The validity and effectiveness of this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the State of New York,
without giving effect to the provisions, policies or principles of any state law relating to choice or
conflict of laws. Subject to Paragraph (n), any legal action or proceeding with respect to this
Agreement may be brought exclusively in the federal or state courts located in New York, New
York, including the United States District Court for the Southern District of New York, and the
Parties hereby (i) irrevocably submit to the exclusive jurisdiction of such courts, and (ii)
irrevocably waive, and agree not to assert by way of motion, defense or otherwise, in any such
action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the action is brought in an
inconvenient forum, that the venue of the action is improper, or that this Agreement or the
transactions contemplated by this Agreement may not be enforced in or by
any of the above-
named courts. Service of process shall be in any manner allowed by applicable law.
(d)
Notices. Unless otherwise expressly provided herein, all notices and other
communications pertaining to the Agreement: (i) will be in writing; (ii) shall be delivered by
certified or registered mail via the United States Postal Service, postage prepaid, by hand, by
any nationally recognized private courier (e.g., Federal Express, UPS, DHL) or via electronic
mail; (iii) shall be effective (A) if mailed via certified or registered mail, on the date five (5)
calendar days after the date of mailing, or (B) if sent via electronic mail, hand delivered or
delivered by private courier, on the date of delivery; and (iv) shall be addressed as follows:
If to FICC:
Fixed Income Clearing Corporation
570 Washington Blvd.
Jersey City, New Jersey 07310
Attention: Group Chief Risk Officer
Telephone: 212-855-3450
E-mail: [email protected]
With a copy (which shall not constitute notice) to:
Fixed Income Clearing Corporation
570 Washington Blvd.
Jersey City, New Jersey 07310
Attention: General Counsel, General Counsel’s Office
E-mail: [email protected]
24
If to CME:
Chicago Mercantile Exchange Inc.
20 S. Wacker Drive Chicago, IL 60606
Attention: President, CME Clearing
Chief Risk Officer, CME Clearing
Telephone: 312-648-3888
Fax No.: 312-930-3187
E-mail: [email protected]
With a copy (which shall not constitute notice) to:
Chicago Mercantile Exchange Inc.
20 S. Wacker Drive Chicago, IL 60606
Attention: General Counsel, Legal Department
E-mail: [email protected]
or to such other address or addresses as may hereafter be specified by written notice given by
one Party to the other.
(e)
Assignment. Except as otherwise expressly provided herein, neither Party shall
assign or otherwise transfer this Agreement, or any of its rights or obligations under this
Agreement, without the prior written approval of the other Party, which approval shall not be
unreasonably withheld, delayed or conditioned. Any purported assignment or transfer in
violation of this Paragraph (e) shall be void.
(f)
Counterparts. This Agreement may be executed in one or more counterparts,
each of which when so executed and delivered shall be deemed an original, and all of which
together shall constitute one and the same instrument. A complete set of counterparts shall be
lodged with each Party.
(g)
Headings. References to sections, paragraphs and exhibits are to sections,
paragraphs and exhibits of and to this Agreement, unless otherwise indicated. Section
headings are inserted for convenience of reference only and shall not affect the construction
of this Agreement. The singular number shall include the plural, and vice versa. Any use of
the word “including” will be interpreted to mean “including, but not limited to,” unless
otherwise indicated. References to any Person (including the Parties and any other entities
referred to) shall be construed to mean such Person and its successors in interest and permitted
assigns, as applicable.
(h)
Entire Agreement. This Agreement, together with all exhibits hereto,
constitutes the entire understanding between the Parties with respect to the subject matter
hereof and supersedes all prior representations, agreements, negotiations and discussions
between the Parties with respect to the subject matter hereof. This Agreement may be accepted
in electronic form (e.g., by an electronic or digital signature).
25
(i)
Invalid Provision. Each provision of this Agreement shall be considered
separable; and if, for any reason, any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid, unlawful, or unenforceable, such determination shall not
affect the enforceability of the remainder of this Agreement or the validity, lawfulness, or
enforceability of such provision in any other jurisdiction.
(j)
Effective Date. This Agreement shall become effective on the later of (i) the
date agreed by the parties and (ii) the date on which all necessary regulatory approvals of this
Agreement have been received by FICC and CME (the “Effective Date”).
(k)
Force Majeure. If the performance of this Agreement by either Party (other than
the payment of any amounts due hereunder) is prevented, hindered, delayed or otherwise made
impracticable by reason of any cause beyond a Party’s reasonable control, including any flood,
epidemic, pandemic, riot, fire, judicial or governmental action, labor dispute, failure or
degradation of any third party system or service, or act of war or terrorism (each, a “Force
Majeure Event”), that party shall be excused from such performance to the extent, including
for the duration of time, that it is prevented, hindered or delayed by such Force Majeure Event.
In the event a Party becomes aware of a Force Majeure Event that will affect its performance
under this Agreement, it shall so notify the other Party as soon as reasonably practicable. The
Parties shall thereafter work together to take reasonable steps to mitigate the effects of any
inability to perform or any delay in performance, if practicable.
(l)
Remedies Not Exclusive. No remedy conferred by any provision of this
Agreement is intended to be exclusive of any other remedy, except as expressly provided in
this Agreement, and each and every remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing in law or in equity or by
statute or otherwise.
(m)
No Third-Party Beneficiaries. This Agreement is binding upon, and shall inure
to the benefit of, the Parties and their respective administrators, legal representatives,
successors, and permitted assigns. The Parties agree that no provision of this Agreement is
intended, expressly or by implication, to purport to confer a benefit or right of action upon a
third party (whether or not in existence, and whether or not named, as of the date hereof),
other than Persons entitled to indemnification pursuant to Section 12, who are third party
beneficiaries of Section 12 (and no other provisions) of this Agreement.
(n)
Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
[Remainder of page intentionally left blank. Signature page follows.]
27
EXHIBIT A
CME ELIGIBLE PRODUCTS
CBT 26 2-year T-Note Futures
CBT 3YR 3-year T-Note Futures
CBT 25 5-Year T-Note Futures
CBT 21 10-Year T-Note Futures
CBT 17 U.S. Treasury Bond Futures
CBT TN Ultra Ten-Year T-Note Futures
CBT UBE Ultra U.S. Treasury Bond Futures
CBT TWE 20-Year U.S. Treasury Bond Futures
CBT 41 30-Day Federal Funds Futures
CME ED Eurodollar Futures
CME EM 1-Month Eurodollar Futures
CME SR1 One-Month SOFR Futures
CME SR3 Three-Month SOFR Futures
28
EXHIBIT B
FICC ELIGIBLE PRODUCTS
“U.S. Treasury securities” which for purposes of this Exhibit B refers to Treasury notes
and bonds.
29
APPENDIX A
FIXED INCOME CLEARING CORPORATION / CHICAGO MERCANTILE
EXCHANGE INC. CROSS-MARGINING PARTICIPANT AGREEMENT
(COMMON MEMBER) (referred to as the “agreement”)
The undersigned ("Member") is a Government Securities Division (“GSD”) Netting
Member of Fixed Income Clearing Corporation ("FICC") and a clearing member of Chicago
Mercantile Exchange Inc. ("CME"). The term “Clearing Organization” means either FICC or
CME. Member hereby elects to become a Cross-Margining Participant for purposes of the Cross-
Margining Arrangement between FICC and CME and the Rules. Capitalized terms used in this
agreement that are undefined shall have the meanings given to them in the Cross-Margining
Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Member agrees to be bound by the GSD Rules and the CME Rules applicable to
Netting Members, Clearing Members and Cross-Margining Participants and by the provisions of
the Cross-Margining Agreement between FICC and CME (the "Cross-Margining Agreement"), as
any of the foregoing may be in effect from time to time.
Without limiting the generality of the foregoing, Member unconditionally promises
immediate payment of any payment or reimbursement obligations (including the Reimbursement
Obligation) to a Clearing Organization arising under the Cross-Margining Agreement or the Rules
in respect of the Cross-Margining Accounts. Member further agrees that, if a Clearing
Organization has declared a Default Event with respect to Member, then the other Clearing
Organization may exercise any rights under its Rules to terminate, suspend or otherwise cease to
act for or limit the activities of Member (such actions also shall be considered a “Default Event”).
Member hereby pledges, as security for its present and future payment and reimbursement
obligations to FICC and CME arising from Member’s Cross-Margining Accounts (including,
without limitation, the Reimbursement Obligations), and grants to each Clearing Organization a
first priority continuing security interest in, lien on and right of set-off against all of its positions,
margin deposits or other property held by or subject to the control of either Clearing Organization
including any and all Net Gains (and, in the case of FICC, all Actual Deposits) in respect of the
Member’s Cross-Margining Accounts and the proceeds in respect thereof (such positions, margin
deposits, property and proceeds, the “Collateral”). Without limiting the generality of the foregoing,
Member agrees that (i) the rights of each Clearing Organization set forth in the preceding sentence
are in addition to any other rights arising out of the New York Uniform Commercial Code or other
statute, common law, or governmental regulation, or under their respective Rules, (ii) Member
will execute, deliver, file and record any financing statement, specific assignment or other
document and take any other action necessary or desirable and reasonably requested by FICC or
CME to create, preserve, perfect or validate the security interest or lien granted in this paragraph,
to enable such Clearing Organization to exercise or enforce its rights under this agreement, and
(iii) Member will promptly give notice to the Clearing Organizations of, and defend against, any
suit, action, proceeding or lien that involves or could adversely affect the security interest and lien
granted by Member in this agreement.
30
Member agrees that Clearing Data (as hereinafter defined) regarding Member may be
disclosed by FICC to CME and by CME to FICC. “Clearing Data” means transactions and other
data that is received by FICC or CME in its clearance and/or settlement processes, and such data,
reports or summaries thereof which may be produced as a result of processing such data, including
data regarding Member's positions, margin requirements and deposits.
Neither FICC nor CME guarantees to Member that the calculation of the Margin Reduction
pursuant to the Cross-Margining Agreement will yield any, or the highest possible, Margin
Reduction.
Member represents and warrants to and for the benefit of the Clearing Organizations that:
(i) it has full power and authority to execute and deliver this agreement and to perform its
obligations hereunder; (ii) its execution and delivery of this agreement and the performance of its
obligations hereunder have been duly authorized by all requisite action; (iii) all authorizations of
and exemptions, actions, approvals and consents by, and all notices to or filings with, any
governmental or other authority or other persons that are necessary to enable it to execute and
deliver this agreement and to perform its obligations hereunder have been obtained or made and
are in full force and effect, and it has complied with all of the conditions thereof; (iv) this agreement
has been duly executed and delivered by it; (v) this agreement is a legal, valid, and binding
obligation on its part, enforceable against it in accordance with its terms; (vi) its execution, delivery
and performance of this agreement do not violate or conflict with any law, regulation, rule of self-
regulatory organization or judicial or governmental order or decree to which it is subject, any
provision of its constitutional or governing documents, or any term of any agreement or instrument
to which it is a party, or by which its property or assets is bound or affected; (vii) it has the power
to grant, and has granted, to each Clearing Organization a first priority continuing security interest
in and lien on the Collateral and has taken all necessary actions to authorize the granting of such
security interest and lien; (viii) it is the sole owner of or otherwise has the right to transfer all
Collateral transferred to each Clearing Organization pursuant to this agreement, the Cross-
Margining Agreement and the Rules, free and clear of any security interest, lien, encumbrance or
other restrictions (other than any security interest or lien granted or created pursuant to this
agreement or any other agreement entered into in connection with the Cross-Margining Agreement
and the Rules); and (ix) all transactions and positions in Member’s Cross-Margining Accounts will
be solely for Member’s own account and/or for the account of Non-Customers. The term “Non-
Customer” means any person that is an officer, director, partner or other related person of the
Member (x) that is not a “customer” within the meaning of Rules 8c-1 or 15c2-1 promulgated by
the SEC under the Exchange Act and (y) whose account on the records of the Member is a
“proprietary account” within the meaning of Rule 1.3 promulgated by the CFTC under the CEA.
The representations and warranties in this paragraph shall be effective as of the date of this
agreement and the date of each transaction or transfer relating to this agreement or the Cross-
Margining Agreement.
Without limiting any provision of the GSD Rules, the CME Rules or any other agreement
between Member and FICC or CME, any transfer by the Member of any rights it may have in the
Net Gain (or any component thereof) shall be null and void and, in any event, subject to the prior
payment in full of all payment and reimbursement obligations (including the Reimbursement
Obligation) under the Cross-Margining Agreement.
31
This agreement shall be effective, when accepted by both FICC and CME. Member shall
be bound by the current terms of this agreement as well as any amended terms of which it has
received notice. This agreement may be terminated by the Member upon two Business Days’
written notice to FICC and CME and such termination shall be effective upon written
acknowledgement by both FICC and CME; provided, however, notwithstanding any such
termination, this agreement shall remain effective unless and until Member satisfies its Stand-
alone Margin Requirement at each Clearing Organization. Either FICC or CME may amend or
terminate this agreement immediately upon notice to the Member. Notwithstanding the previous
two sentences, the Member’s obligations under this agreement and the Cross-Margining
Agreement shall survive the termination of this agreement.
This agreement may be executed in counterparts, each of which shall be deemed to be an
original, and all which taken together shall be deemed one and the same agreement. This agreement
shall be governed by and construed in accordance with the laws of the State of New York.
Member
Name of Member:
By:
Print Name:
Title:
32
Accepted By:
Fixed Income Clearing Corporation
By:
Print Name:
Title: _____________________________________
Date:
Chicago Mercantile Exchange Inc.
By:
Print Name:
Title:
Date:
This agreement is dated as of .
[To be filled in upon acceptance of CME and FICC]
33
APPENDIX B
FIXED INCOME CLEARING CORPORATION / CHICAGO MERCANTILE
EXCHANGE INC. CROSS-MARGINING PARTICIPANT AGREEMENT
(AFFILIATED MEMBERS) (referred to as the “agreement”)
The undersigned “FICC Member” is a Government Securities Division (“GSD”) Netting
Member of Fixed Income Clearing Corporation (“FICC”). The undersigned “CME Member” is a
clearing member of Chicago Mercantile Exchange Inc. (“CME”). The FICC Member and CME
Member are each referred to herein as a “Member” and together as the “Members.” The term
“Clearing Organization” means either FICC or CME. FICC Member hereby elects to become a
Cross-Margining Participant of FICC, and CME Member hereby elects to become a Cross-
Margining Participant of CME, for purposes of the Cross-Margining Arrangement between FICC
and CME and the Rules. Capitalized terms used in this agreement that are undefined shall have
the meanings given to them in the Cross-Margining Agreement.
For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, FICC Member agrees to be bound by the GSD Rules applicable to Netting
Members, Clearing Members and Cross-Margining Participants; CME Member agrees to be bound
by the CME Rules applicable to Clearing Members and Cross-Margining Participants; and FICC
Member and CME Member both agree to be bound by the provisions of the Cross-Margining
Agreement between FICC and CME (the "Cross-Margining Agreement"), as any of the foregoing
may be in effect from time to time.
Without limiting the generality of the foregoing, each Member unconditionally promises
immediate payment of any of its and its Affiliate’s payment or reimbursement obligations
(including the Reimbursement Obligation) to a Clearing Organization arising under the Cross-
Margining Agreement or the Rules in respect of the Cross-Margining Accounts. Each Member
further agrees to be jointly and severally liable to the Clearing Organizations for any margin,
settlement or other obligation arising from transactions or positions in the Members’ Cross-
Margining Accounts. The Members further agree that, if a Clearing Organization has declared a
Default Event with respect to one Member, then the other Clearing Organization may exercise any
rights under its Rules to terminate, suspend or otherwise cease to act for or limit the activities of
the other Member (such actions also shall be considered a “Default Event”).
FICC Member hereby pledges, on behalf of itself and its Affiliate, as security for the
present and future payment and reimbursement obligations of either Member to FICC and CME
arising from the Members’ Cross-Margining Accounts (including, without limitation, the
Reimbursement Obligation), and grants to FICC a first priority continuing security interest in, lien
on and right of set-off against all of its positions, margin deposits or other property held by or
subject to the control of FICC including any and all Net Gains and all Actual Deposits in respect
of the Members’ Cross-Margining Accounts and the proceeds in respect thereof (such positions,
margin deposits, property and proceeds, the “Collateral”). CME Member hereby pledges, on behalf
of itself and its Affiliate, as security for the present and future payment and reimbursement
obligations of either Member to CME and FICC arising from the Members’ Cross-Margining
Accounts (including, without limitation, the Reimbursement Obligation), and grants to CME a first
priority continuing security interest in, lien on and right of set-off against all of its positions, margin
34
deposits or other property held by or subject to the control of CME including any and all Net Gains
in respect of the Members’ Cross-Margining Accounts and the proceeds in respect thereof (such
positions, margin deposits, property and proceeds, also referred to as the “Collateral”). Without
limiting the generality of the foregoing, each Member agrees that (i) the rights of each Clearing
Organization set forth in the preceding sentences are in addition to any other rights arising out of
the New York Uniform Commercial Code or other statute, common law, or governmental
regulation, or under their respective Rules, (ii) Member will execute, deliver, file and record any
financing statement, specific assignment or other document and take any other action necessary or
desirable and reasonably requested by FICC or CME to create, preserve, perfect or validate the
security interest or lien granted in this paragraph, to enable such Clearing Organization to exercise
or enforce its rights under this agreement, and (iii) Member will promptly give notice to the
Clearing Organizations of, and defend against, any suit, action, proceeding or lien that involves or
could adversely affect the security interest and lien granted by Member in this agreement.
FICC Member and CME Member agree that Clearing Data (as hereinafter defined)
regarding Member may be disclosed by FICC to CME and by CME to FICC. “Clearing Data”
means transactions and other data that is received by FICC or CME in its clearance and/or
settlement processes, and such data, reports or summaries thereof, which may be produced as a
result of processing such data, including data regarding a Member's positions, margin requirements
and deposits.
Neither FICC nor CME guarantees to FICC Member or CME Member that the calculation
of the methodology used to determine the Margin Reduction pursuant to the Cross-Margining
Agreement will yield any, or the highest possible, Margin Reduction for either FICC Member or
CME Member.
Each of FICC Member and CME Member represents and warrants to and for the benefit of
the Clearing Organizations that: (i) it has full power and authority to execute and deliver this
agreement and to perform its obligations hereunder; (ii) its execution and delivery of this
agreement and the performance of its obligations hereunder have been duly authorized by all
requisite action; (iii) all authorizations of and exemptions, actions, approvals and consents by, and
all notices to or filings with, any governmental or other authority or other persons that are
necessary to enable it to execute and deliver this agreement and to perform its obligations
hereunder have been obtained or made and are in full force and effect, and it has complied with all
of the conditions thereof; (iv) this agreement has been duly executed and delivered by it; (v) this
agreement is a legal, valid, and binding obligation on its part, enforceable against it in accordance
with its terms; (vi) its execution, delivery and performance of this agreement do not violate or
conflict with any law, regulation, rule of self-regulatory organization or judicial or governmental
order or decree to which it is subject, any provision of its constitutional or governing documents,
or any term of any agreement or instrument to which it is a party, or by which its property or assets
is bound or affected; (vii) it has the power to grant, and has granted, to the Clearing Organization
of which it is a Clearing Member a first priority continuing security interest in and lien on the
Collateral and has taken all necessary actions to authorize the granting of such security interest
and lien; (viii) it is the sole owner of or otherwise has the right to transfer all Collateral transferred
to the Clearing Organization of which it is a Clearing Member pursuant to this agreement, the
Cross-Margining Agreement and the Rules, free and clear of any security interest, lien,
encumbrance or other restrictions (other than any security interest or lien granted or created
35
pursuant to this agreement or any other agreement entered into in connection with the Cross-
Margining Agreement and the Rules); and (ix) all transactions and positions in the Member’s
Cross-Margining Account at the Clearing Organization of which it is a member will be solely for
its own account, the account of its Affiliate or the account of a Non-Customer. The term “Non-
Customer” means any person that is (x) an officer, director, partner or other related person of the
FICC Member that is not a “customer” of the FICC Member within the meaning of Rules 8c-1 or
15c2-1 promulgated by the SEC under the Exchange Act and (y) an officer, director, partner or
other related person of the CME Member whose account on the records of the CME Member is a
“proprietary account” within the meaning of Rule 1.3 promulgated by the CFTC under the CEA.
The representations and warranties in this paragraph shall be effective as of the date of this
agreement and the date of each transaction or transfer relating to this agreement or the Cross-
Margining Agreement.
Each of FICC Member and CME Member further represents and warrants to FICC and
CME that they are Affiliates of one another as defined in the Cross-Margining Agreement. FICC
Member and CME Member acknowledge and agree that they will be treated as Cross-Margining
Affiliates for purposes of the Cross-Margining Arrangement and that, as a result, a default by FICC
Member to FICC may result in a loss to CME Member, and a default by CME Member to CME
may result in a loss to FICC Member.
Without limiting any provision of GSD’s Rules, the CME Rules or any other agreement
between FICC Member and/or CME Member and FICC or CME, any transfer by the FICC
Member or the CME Member of any rights it may have in the Net Gain (or any component thereof)
shall be null and void and, in any event, subject to the prior payment in full of all payment and
reimbursement obligations (including the Reimbursement Obligation) under the Cross-Margining
Agreement.
This agreement shall be effective, when accepted by both FICC and CME. Each Member
shall be bound by the current terms of this agreement as well as any amended terms of which it
has received notice. This agreement may be terminated by FICC Member or CME Member upon
two Business Days’ written notice to FICC and CME and such termination shall be effective upon
written acknowledgement by both FICC and CME; provided, however, notwithstanding any such
termination, this agreement shall remain effective unless and until Member satisfies its Stand-
alone Margin Requirement at each Clearing Organization. Either FICC or CME may amend or
terminate this agreement immediately upon notice to FICC Member and CME Member.
Notwithstanding the previous two sentences, the FICC Member’s and the CME Member’s
obligations under this agreement and the Cross-Margining Agreement shall survive the termination
of this agreement.
This agreement may be executed in counterparts, each of which shall be deemed to be an
original, and all of which taken together shall be deemed one and the same agreement. This
agreement shall be governed by and construed in accordance with the laws of the State of New
York.
36
FICC Member CME Member
Name of Member: Name of Member:
By: By:
Print Name: Print Name:
Title: Title:
Accepted By:
Fixed Income Clearing Corporation Chicago Mercantile Exchange Inc.
By: By:
Print Name: Print Name:
Title: Title:
Date: Date:
This agreement is dated as of .
[To be filled in upon acceptance of CME and FICC]
