CFTC Clarifies Treatment of FCM Separate Accounts
The Directors of the Division of Clearing and Risk and the Division of Swap Dealer and Intermediary Oversight (the "Directors") responded to inquiries regarding the treatment of separate accounts of a single beneficial owner raised by previous Division guidance issued in CFTC Letter 19-17. In short, that letter provides that when a single beneficial owner has two more accounts at the same futures commission merchant ("FCM"), the collateral in both accounts must be available to the FCM in the event of a significant margin call on, or default by, the customer. (See prior description of the letter and corresponding compliance steps.)
In its new statement, the Directors say that FCMs must comply with relevant requirements by September 15, 2020, there will be no additional guidance on the treatment of separate accounts, and the deadline will not be extended.
The Directors also specifically responded to inquiries as to suggested inconsistencies between Letter 19-17 and Joint Audit Committee Alert 19-03. In particular, the Directors stated that an FCM can agree to a "protocol" to address circumstances where one account is undermargined, in which an FCM would follow specific steps before accessing funds in other accounts of the beneficial owner. The Directors also stated that they "expect" that an FCM will have discretion to determine when a shortfall is "extraordinary" and necessitates relying on the FCM's protocol for liquidation of additional accounts.
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