CFTC Staff Extends No-Action Relief to FCMs for SOFR-Linked Investments

The CFTC Market Participants Division ("MPD") extended temporary no-action relief to permit futures commission merchants ("FCMs") to invest customer funds in securities that include an adjustable interest rate benchmarked to the Secured Overnight Financing Rate ("SOFR"). The relief was set to expire on December 31, 2022, but will now expire on the earlier of (i) December 31, 2024 and (ii) the effective date of a final action addressing the addition of SOFR as a permitted benchmark for investments.

As previously covered, the MPD said it will not recommend enforcement against an FCM investing customer funds in permitted investments (including both direct investment and repurchase transactions) that contain a SOFR-benchmarked adjustable rate of interest. The relief remains contingent upon an FCM complying with all other "relevant terms and conditions" under CFTC Rule 1.25 ("Investment of customer funds"). The relief does not relieve FCMs from compliance with CFTC 1.17(c)(5)(v) ("Minimum financial requirements for futures commission merchants and introducing Brokers") or Rule 1.29 ("Gains and losses resulting from investment of customer funds").

CFTC Commissioner Kristin N. Johnson supported the measure, but added that "it may be important, in appropriate contexts, for the [CFTC] to offer definitive solutions," and that "[p]ractical actions that are overwhelmingly consistent with [CFTC] priorities are readily amenable to codification." CFTC Commissioner Summer K. Mersinger expressed concern that this action is another instance of "successive extensions of staff no-action relief on issues that the Commission has failed to address permanently."