CFTC Issues No-Action Relief and Interpretations Regarding Holding of Customer Funds (CFTC Letter 14-138)

The CFTC Division of Swap Dealer and Intermediary Oversight issued a no-action letter providing relief to futures commission merchants ("FCMs") regarding the holding of customer funds deposited to margin foreign futures and foreign options transactions under CFTC Rule 30.7 ("Treatment of Foreign Futures or Foreign Options Secured Amount").

Specifically, the CFTC staff stated that it will not seek enforcement action against an FCM for excluding customer funds deposited with foreign banks or trust companies in calculating the 120 percent of total margin requirements that may be held by the FCM in depositories' accounts maintained outside of the U.S. In order to qualify for the relief:

• the relevant foreign bank or trust company must maintain a minimum of $1 billion of regulatory capital; and
• the FCM must obtain a written acknowledgment letter from the foreign bank or trust company in the form required by Appendix E to Part 30 of the CFTC's regulations prior to, or contemporaneously with, the opening of the account.

Additionally, the letter provided two interpretations of CFTC Rule 30.7. The first provides that an FCM, under certain prescribed circumstances, may agree with a foreign depository to net offsetting transfers of customer funds between the FCM and the foreign depository instead of executing multiple transfers of funds between the FCM and the foreign depository. The second interpretation provides that an FCM, under the circumstances set forth in that interpretation, may substitute U.S. dollars for foreign currency in 30.7 customer accounts and consider such transaction to be for the benefit of the FCM's customers.

See: CFTC Letter 14-138.