CFTC Adopts Rule on Separate Account Treatment by FCMs

The CFTC adopted a final rule allowing FCMs, subject to conditions, to treat separate accounts of a single customer as if the accounts were owned by different entities for the purposes of determining the amount of margin posted in each separate account. The rule codifies and expands upon prior no-action relief.

Regulation 1.44 sets forth the requirements for separate account treatment, including:

• The customer must meet margin calls within one business day, with exceptions for delays caused by foreign holidays, currency-specific issues, or administrative errors.
• Separate account treatment applies only during normal business operations, not at times of financial or operational distress at the FCM or customer.

The rule requires FCMs to notify their SROs of the election for separate account treatment and to maintain records of all customers and accounts benefitting from this framework. Stress testing and credit assessments must account for both separate and combined accounts.

The rule requires separate accounts to be aggregated in the event of an FCM bankruptcy so that excess funds in one account can be used to offset deficits in another.

The final rule becomes effective 180 days after publication in the Federal Register for clearing member FCMs, and 365 days for other FCMs.

Statements

CFTC Chair Rostin Behnam said the final rule would "protect[] customer funds, promote[] effective DCO and FCM risk management, and balance[] risk management with practicability."

CFTC Commissioner Caroline D. Pham said the rule changes resolve ongoing issues with the prior no-action relief, as to (i) conflicts of law issues, (ii) operational difficulties and (iii) lack of regulatory clarity.