CFTC agrees to proposed rule about brokers’ customer accounts and their margin risk

Rick Steves

The proposed rule intends to mitigate the risk of initial margin shortfall.

The Commodity Futures Trading Commission has unanimously approved a proposed rule to codify the no-action position regarding the treatment of separate accounts of a single customer by futures commission merchants (FCMs) that are clearing members of derivatives clearing organizations (DCOs).

A derivatives clearing organization (DCO) may permit an FCM clearing member to treat the separate accounts of a customer as accounts of separate entities for purposes of CFTC Regulation, where the clearing member’s internal controls and procedures require it to, and it in fact does comply with certain conditions.

This regulation requires DCOs to ensure their clearing members do not allow customers to withdraw funds from their accounts if such withdrawal would create or exacerbate an initial margin shortfall, and the no-action conditions are designed to allow DCOs and their clearing members to continue to be able to effectively mitigate such risk.

The proposed rule would codify the no-action position regarding that regulation by adding new CFTC Regulation 39.13: a rule that would modify certain of the no-action conditions, including by adding

  • reporting requirements for clearing members that are required to cease separate account treatment;
  • an explicit process for clearing members to resume separate account treatment; and
  • provisions designed to further clarify the no-action condition that separate accounts be on a one-business day margin call.

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