CFTC Issues a Time-Limited No-Action Letter Regarding FCM Holding Foreign Futures Secured Amount Outside the U.S. (CFTC Letter 14-08)

The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a no-action letter stating that it will not take enforcement action against a registered futures commission merchant ("FCM") that holds certain Regulation 30.7 customer accounts in London and Hong Kong.

According to the letter, the FCM's London and Hong Kong 30.7 accounts have "bank exemptions" from client money rules; however, under the new amendments to CFTC Rule 30.7(c) ("Treatment of Foreign Futures or Foreign Options Secured Amount"), an FCM may not waive any protections afforded customer funds under the laws of the foreign jurisdictions. The DSIO confirmed that it will not recommend that the CFTC take enforcement action against the FCM if at all times, the FCM holds properly-designated 30.7 accounts in the U.S.

The CFTC granted no-action relief to the FCM, stating it may continue to hold its cross-border 30.7 customer accounts after January 14, 2014 (the effective date of the CFTC amendments to Rule 30.7), provided that the U.S. accounts are properly designated pursuant to Rule 30.7. The relief will expire on September 10, 2014.

According to the letter, the no-action relief is intended to provide the FCM with sufficient time to complete an assessment of whether the Client Money Rules provide a higher degree of protection relative to the "bank exemption" provisions under UK and Hong Kong laws. The CFTC stated that the FCM must report the result of its assessment to the DSIO by May 12, 2014.

See: CFTC No-Action Letter 14-08.