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When investing in a Managed Futures
financial product, customers need to be assured that
sophisticated risk management, financial surveillance
techniques and other Financial Safeguards are in
place to protect Exchange members and customers from
default on futures and options on futures contracts.
Because of the Financial Safeguard System, the funds
placed in your investment account have vital safeguards
in place to protect you.
The following is an excerpt from
the Chicago Mercantile Exchanges' website, detailing
the Financial Safeguard System that is in place at
the CME. In addition, all U.S. commodity exchanges
have similar safeguard systems for your protection.
"I. OVERVIEW OF THE SYSTEM
Risk management and financial surveillance are the
two primary functions of CME's financial safeguard
system. The system is designed to provide the highest
level of safety and the early detection of unsound
financial practices on the part of any clearing member.
Its purpose is to protect all clearing members and
their customers from the consequences of a default
by a participant in the clearing process. The system
is constantly being updated to reflect the most advanced
risk management and financial surveillance techniques.
The financial safeguard system is operated by a Risk
Management Team, which is directed by senior management
from the Audit, Clearing, Finance, Legal, Market
Regulation, Risk Management and Executive areas of
CME.
II. FINANCIAL INTEGRITY OF THE CME MARKETPLACE
The accounts of individual members, clearing firms
and non-member customers doing business through CME
must be carried and guaranteed to the Clearing House
by a clearing member. In every matched transaction
executed through the Exchange's facilities, the Clearing
House is substituted as the buyer to the seller and
the seller to the buyer, with a clearing member assuming
the opposite side of each transaction. The Clearing
House is an operating division of the Exchange,
and all rights, obligations and/or liabilities of
the Clearing House are rights, obligations and/or
liabilities of CME. Clearing members assume full financial
and performance responsibility for all transactions
executed through them and all positions they carry.
The Clearing House, dealing exclusively with clearing
members, holds each clearing member accountable for
every position it carries regardless of whether the
position is being carried for the account of an individual
member, for the account of a non-member customer, or
for the clearing member's own account. Conversely,
as the contra-side to every position, the Clearing
House is held accountable to the clearing members for
the net settlement from all transactions on which it
has been substituted as provided in the Rules.
The Clearing House does not look to non-member customers for performance or attempt
to evaluate their creditworthiness or market qualifications. The Clearing House
does monitor clearing members for the adequacy of credit monitoring and risk
management of their customers. In addition, although the Exchange has established
character and financial standards for its individual members, the Clearing House
looks solely to the clearing member carrying and guaranteeing the account to
secure all payments and performance bond obligations. Further, when an individual
member executes orders for a clearing member, his or her guarantor clearing member
is held accountable as principal for the brokered transaction until the transaction
has been matched and recorded by the Clearing House as a transaction of the clearing
member for whom the individual member had acted.
III. THE SAFEGUARDS
The risk management and financial surveillance techniques employed by CME are
comprehensive and specifically designed to:
Prevent the accumulation of losses
Ensure that sufficient resources are available to cover future obligations
Result in the prompt detection of financial and operational weaknesses
Allow swift and appropriate action to be taken to rectify any financial problems
and protect the clearing system
These techniques are consistent with risk management recommendations by the Group
of Thirty and other authoritative organizations. "
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