CME Group amended its recently amended rule that affirmatively requires all persons that enter orders electronically into Globex to ensure that all mandatory audit trail fields are input accurately in the first instance. As recently amended, clearing members that authorized such persons’ access to Globex would have been “responsible for the Globex terminal operator’s compliance with this rule” even when such operator was a third-party client. This potentially would have made clearing members responsible for the accurate input of all CME Group-required audit trail field information by all direct access clients, as opposed to some of the information as is currently the case. CME Group has modified this rule again to make clear that clearing members are only responsible for the accurate input by their direct access clients of the fields related to an operator’s user ID, CTI code, (e.g., customer type of trade; click to access CME Group Rule 536.D) automated or manual indicator and account number. However, CME Group made clear in its revised amendment that a clearing member must only take “appropriate action” for a direct access client’s input of each mandatory audit trail field “if it has actual or constructive knowledge that a non-member has failed to accurately input” mandatory audit trail fields. (Click here for background on CME Group’s originally proposed rule amendment in the article, “Innocuous Changes in CME Group Globex Rule Could Inadvertently Increase Potential FCM Liability Bigly” in the May 21, 2017 edition of Bridging the Week.)
My View: It never appeared to be the intent of CME Group to extend strict liability obligations to clearing members for the failure of such firms’ direct access clients to enter accurately all mandatory audit trail fields. There is no way, realistically, a clearing member could ordinarily know of such issues. Once CME Group realized that a prior amendment had inadvertently accomplished this unintended result, staff rapidly re-amended the relevant rule to restore the status quo. Moreover, CME Group made clear that the potential liability of a clearing member for a direct access client’s incorrect input of mandatory audit trail information would be conditioned solely if the member knew or should have known of such violation. This is consistent, generally, with existing standards under a separate CME Group rule (click here to access CME Group Rule 574 – last paragraph). Not a perfect outcome and perhaps some tinkering of language is still required, but it’s better than where it was.