The Securities and Exchange Commission approved the application of CME Securities Clearing Inc., a subsidiary of CME Group, to register as a clearing agency on December 1, 2025. This order, published in the Federal Register on December 4, 2025, allows CMESC to operate as a central counterparty for U.S. Treasury securities transactions, including cash trades and repurchase agreements. The approval comes after CMESC submitted its application in December 2024, followed by public notice, comment periods, and proceedings to evaluate compliance with federal securities laws. This development is significant as it introduces a new entrant to the Treasury clearing landscape, potentially increasing competition and resilience in a market critical to U.S. financial stability.
Background and Application Process
CMESC filed its application under Section 17A of the Securities Exchange Act of 1934, seeking to provide central counterparty services for Treasury securities. The application included detailed rules, procedures, and exhibits outlining governance, risk management, and operational frameworks. Notice was published in January 2025, with the SEC instituting proceedings in April 2025 to assess whether to grant or deny registration. Extensions and public comments followed, with stakeholders expressing broad support for expanded clearing access while suggesting refinements to fees, risk management, and participation standards. CMESC responded to these comments, affirming its compliance with SEC rules.
The Treasury market, valued at trillions of dollars, has historically relied on a single primary clearing agency. Recent regulatory efforts, including the SEC's 2023 rules mandating broader central clearing for Treasury transactions, underscore the need for additional providers to mitigate systemic risks. CMESC's entry aligns with these goals, building on its affiliate's experience in derivatives clearing.
Key Players and Governance Structure
CMESC is wholly owned by CME Group Inc., a major player in financial markets. Its board comprises nine directors, with at least five independent members and reserved seats for representatives of members and users. Board committees, including risk management and regulatory oversight, ensure balanced governance. Participants include members, who clear proprietary trades and authorize users, and users, divided into independent and supported categories. Eligible entities range from broker-dealers and banks to investment companies, reflecting inclusive access standards.
Public comments highlighted concerns from industry groups like SIFMA and FIA, focusing on capital requirements, default management, and user obligations. CMESC addressed these by emphasizing its risk-based approach, including margin models and guaranty funds. The SEC reviewed these inputs, finding CMESC's structure compliant with fair representation and participation rules under Sections 17A(b)(3)(B) and (C) of the Exchange Act.
Legal Framework and Precedents
The approval rests on Section 17A of the Exchange Act, which requires clearing agencies to promote prompt settlement, safeguard funds, and avoid undue burdens on competition. Key precedents include the SEC's 2013 approval of the Fixed Income Clearing Corporation's expansion and the 2016 Covered Clearing Agency Standards, which emphasize risk management and governance. CMESC's rules align with these, incorporating stress-tested guaranty funds covering defaults of the two largest member families, as required by Rule 17Ad-22(e)(4).
The order notes that registration does not imply perfection in rules or operations, but predicts compliance based on CMESC's organization. This echoes the Seventh Circuit's 1989 ruling in Board of Trade of City of Chicago v. SEC, emphasizing forward-looking assessments of legal adherence.
Risk Management and Operational Analysis
CMESC's framework includes real-time trade processing, novation, netting, and default waterfalls. Margin is calculated via the proprietary SPAN 2 model, targeting 99% coverage over a two-day risk period. The guaranty fund, sized to cover extreme scenarios, draws first from defaulter resources, then CMESC's $50 million contribution, followed by non-defaulters' shares. Commenters debated the corporate contribution's size, but the SEC found it flexible and consistent with rules allowing discretion in default management.
Operations leverage cloud-based systems with geographic redundancy for continuity. Perspectives vary: proponents see enhanced market liquidity, while critics worry about concentrated risks in a competitive landscape. Short-term implications include smoother Treasury settlements; long-term, it could reduce bilateral risks but requires ongoing SEC oversight.
Potential Implications and Perspectives
Approval may foster competition, lowering costs and improving efficiency, but it raises questions about interoperability with existing clearers. Different stakeholders view this positively for innovation or cautiously regarding systemic risks. Without endorsing views, the order balances these by mandating compliance monitoring.
In summary, the SEC's decision advances a national clearance system by registering CMESC, with safeguards to protect investors. Future challenges include adapting to market volumes and potential rule changes, ensuring sustained stability.
