On Jan. 22, 2025, CFTC published final rule to require FCM to ensure customer does not withdraw funds if balance would be insufficient to meet initial margin obligations.
Rule also permits an FCM, subject to certain requirements, to treat separate accounts of a single customer as accounts of separate entities for purposes of CFTC regulations.
The final rule is effective on Mar. 24, 2025, compliance date for FCMs that are clearing members of a DCO as of the date of publication in the federal register is Jul. 21, 2025.
Additionally, the compliance date for all other FCMs will be Jan. 22, 2026.
In Mar. 2025, CFTC extended no action re Reg. 39.13(g)(8)(iii) to Jul. 21, #217057.
CFTC proposed regulations to address margin adequacy and to account for treatment of separate accounts by a single customer, by future commission merchants (FCMs).
To require an FCM to ensure a customer does not withdraw funds from its account if balance after withdrawal would be insufficient to meet their initial margin requirement.
Would permit an FCM, in certain circumstances, to treat customer’s separate accounts as accounts of separate entities for purposes of the Margin adequacy requirement.
Withdrew 2023 proposal to codify no-action position in Staff Letter 19-17 on separate account treatment for derivatives clearing organizations (DCO), FCMs, see #166491.
Commissioners Kristin Johnson and Caroline Pham issued statements on the proposals.
Proposals Background
Withdrew first proposal in light of comments received supporting direct application of separate account treatment requirements to FCMs in part 1 of CFTC's regulations,.
Now, issued second proposal to require FCM to ensure customer does not withdraw funds from its account if resulting balance insufficient to meet margin requirements.
Relatedly, to permit an FCM, in certain circumstances and subject to certain conditions, to treat separate accounts of a single customer as accounts of separate entities.
Establish conditions under which FCM may engage in such separate account treatment.
Made a number of changes to existing provisions in 17 CFR 1, 17 CFR 22, 17 CFR 30, and 17 CFR 37 to facilitate implementation of separate account treatment.
Margin Adequacy Proposal
Current proposal would add new Regulation 1.44 (17 CFR 1.44), which would apply directly to all FCMs, with respect to their customers, a margin adequacy requirement.
Permit FCMs, clearing or non-clearing, to treat separate accounts of a single customer as accounts of separate entities for purposes of new margin adequacy requirement.
Set risk-mitigating obligations based on no-action, similar rules in Apr. 2023 proposal.
Noted under first proposal, requirements for separate account treatment would have been applicable only to clearing FCMs, indirectly, through the operation of DCO rules.
Regulation 1.44 would be comprised of eight subsections; section (a) define key terms.
(b) would incorporate for all FCMs, and for all accounts, margin adequacy requirement that 17 CFR 39.13(g)(8)(iii) currently requires DCOs to apply to their clearing FCMs.
Ordinary Course of Business
(c) permits FCM engage in separate account treatment in ordinary course of business.
Generally events that would indicate distress at FCM/its separate account customers.
1.44(d) allow FCM to elect separate account treatment for one or more customers.
(e) sets forth events that would be inconsistent with the ordinary course of business.
Also, false requirements for FCMs at cessation of separate account treatment upon occurrence of such events, resumption of separate account treatment upon event cure.
Margin Payments
(f), (g), and (h) requirements for FCMs that maintain separate accounts related to timing of margin payments; capital, risk management, segregation calculation rules.
With which FCMs would be required to comply with respect to accounts for which FCM has elected separate treatment; and information, disclosures such FCMs must provide.
Under the proposal, An FCM that engages in separate account treatment would be required to observe a one business day margin call standard for separate accounts.
Generally required margin call for separate account be made. met on same-day basis.
Additional provisions designed to address margin paid in foreign currencies that may be unable to be received on same-day basis, delays due to foreign banking holidays.
Has limited exception for failure to pay margin timely due to unusual administrative error or operational constraint with respect to a specific separate account.
Recordkeeping, Notifications
Additional rules on capital calculations, risk management, segregation, recordkeeping.
Required one-time notification of election to allow separate account treatment.
Also, notification regarding occurrence of any enumerated events inconsistent with the ordinary course of business, thus requiring cessation of separate account treatment.
Must comply with requirements for collecting information from customers, investment managers on value of assets dedicated to separate accounts, identity of parent entity.
Collect contact data for customer representatives; provision of disclosures under 17 CFR 190 bankruptcy regulations, on treatment of separate account in FCM bankruptcy.
Notifications on potential for losses related to separate account customers to affect segregated funds of FCM’s customers generally, if losses exceed FCM’s ability to cover.
Consultation
Comments must be received on or before Apr. 22, 2024.
Mar. 2024 Federal Register Publication
On Mar. 1, 2024, CFTC published proposal on margin adequacy in the federal register.
Dec. 2024 CFTC Final Rule
On Dec. 20, 2024, CFTC published final rule and fact sheet on requirements for futures commission merchants re margin adequacy and treatment of separate accounts.
The final rule made some modifications in light of the comments received.
Final rule made changes to proposed requirements for treatment of separate accounts for purposes of certain capital treatment requirements; changes to certain definitions.
Also revised requirement for consistent application of separate account treatment.
As well as requirements for separate account meeting the one business day margin call standard, concerning meeting margin calls during foreign banking holidays, untimely payment of margin due to certain administrative errors or operational constraints.
FCMs that are DCO members must comply 180 days from federal register publication.
Compliance date for all other FCMs is 365 days after such date of publication.
CFTC Chair and commissioner Pham issued statements in support of the final rule.
Jan. 2025 CFTC Final Rule
On Jan. 22, 2025, CFTC published final rule to require FCM to ensure customer does not withdraw funds if balance would be insufficient to meet initial margin obligations.
Rule also permits an FCM, subject to certain requirements, to treat separate accounts of a single customer as accounts of separate entities for purposes of CFTC regulations.
The final rule is effective on Mar. 24, 2025, compliance date for FCMs that are clearing members of a DCO as of the date of publication in the federal register is Jul. 21, 2025.
Additionally, the compliance date for all other FCMs will be Jan. 22, 2026.
In Mar. 2025, CFTC extended no action re Reg. 39.13(g)(8)(iii) to Jul. 21, #217057.
