CME Group revised its Rule 536B.2 (click here to access) that currently authorizes a clearing member not to keep the electronic audit trail of its direct access clients that are other clearing members or equity member firms. Under the same rule, clearing members guaranteeing a client that has direct market access are ordinarily “responsible for maintaining or causing to be maintained the electronic audit trail” for such client. These audit trails must be kept for at least five years. Although the CME Group is retaining its rule provision that authorizes a clearing member “to notify [a] client Clearing Firm or Equity Member firm that it is their obligation to maintain the electronic audit trail” (emphasis added)—thus excusing the clearing member from maintaining the record—the exchange is amending its rule to make clear this ability does not relieve a clearing member “… from compliance with the applicable recordkeeping provisions of CFTC Regulations, including Regulation 1.31 or 1.35” (the CFTC’s recordkeeping provisions; click here to access CFTC Rule 1.31 and here for CFTC Rule 1.35). CME Group’s rule amendment is effective December 29, 2015.
My View: The artful wording of this new sentence seems to imply the CFTC may believe that clearing member FCMs have an obligation to retain electronic audit trails they otherwise are not required to keep under the applicable exchange rule—a trick even the great Harry Houdini likely could not master! A few weeks ago the CFTC published a comprehensive set of proposed rules governing algorithmic trading that, if adopted, would increase recordkeeping requirements on algorithmic traders and clearing member FCMs handling their accounts.