October 23, 2012
CFTC Proposes New Regulations and to Amend Existing Regulations to Enhance Protections for Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations
Commission Seeks Public Comment on Proposals
Washington, DC – The Commodity Futures Trading Commission (CFTC) yesterday approved for public comment proposed new regulations, and amendments to existing regulations, to enhance protections for customers and to strengthen the safeguards surrounding the holding of money, securities and other property deposited by customers with futures commission merchants (FCMs) and derivatives clearing organizations (DCOs). The proposals are the result of the Commission’s efforts to coordinate and consult with the futures industry on enhancing customer protections, including two public roundtables that were hosted by Commission staff. The proposals also expand upon previous Commission actions to enhance customer protections, including rolling back certain exemptions from investment standards for customer funds under Regulation 1.25 and the adoption of the legal segregation with operational commingling (LSOC model) for cleared swap transactions.
The proposal would enhance the protection of customers and customer funds by:
• Amending Part 30 of the regulations to require FCMs to hold sufficient funds in secured accounts to meet their total obligations to both U.S.-domiciled and foreign-domiciled customers trading on foreign contract markets, computed under the net liquidating equity method;
• Prohibiting FCMs from holding any positions in a Part 30 secured account other than customers’ foreign futures and option positions and associated margin collateral;
• Requiring FCMs to hold sufficient proprietary funds in segregated accounts and Part 30 secured accounts to reasonably ensure that the firms are properly segregated and secured at all times, and to cover margin deficiencies in customers’ trading accounts;
• Requiring FCMs to maintain written policies and procedures governing the maintenance of excess funds in customer segregated and Part 30 secured accounts, and requiring FCMs to obtain the pre-approval of management prior to the withdrawal of 25 percent or more of the excess funds held in segregated or secured accounts if the withdrawals were not for the benefit of the FCMs’ customers;
• Requiring FCMs to provide the Commission and their respective designated self-regulatory organizations with daily reporting of the segregation and Part 30 secured amount computations, and semi-monthly reporting of the location of customer funds and how such funds are invested under Regulation 1.25;
• Requiring FCMs and DCOs to provide the Commission and designated self-regulatory organizations, as applicable, with read-only direct electronic access to bank and custodial accounts holding customer funds;
• Requiring FCMs to adopt policies and procedures on supervision and risk management of customer funds;
• Requiring FCMs to provide potential customers with additional disclosures addressing firm specific risks; and
• Enhancing the standards for the self-regulatory organizations’ examinations of member FCMs.
The proposals will be open for public comment for 60 days after publication in the Federal Register.
Last Updated: October 23, 2012