CFTC Permits Title Transfer for Foreign Margin Securities
The CFTC’s Market Participants Division ("MPD") confirmed that Futures Commission Merchants ("FCMs") may post customer-owned securities with foreign brokers and clearing organizations, even where foreign law requires the transfer of title or a "right of re-use" over those assets.
In an interpretative letter, the MPD addressed concerns regarding the competitive disadvantage that U.S. FCMs face in global markets. The MPD explained that many institutional customers prefer to meet margin requirements for foreign futures and options using U.S. Treasury securities or other sovereign debt. However, because many foreign jurisdictions and clearing organizations require intermediaries to obtain title to, or a right of re-use over, such collateral, FCMs have faced regulatory uncertainty. As a result, the MPD stated that many firms feel compelled to limit customers’ use of securities for collateral or are forced to fund offshore margin requirements using proprietary cash.
The MPD said that Commission Regulation 30.7 ("Treatment of foreign futures or foreign options secured amount") and Customer Funds Restrictions are designed to safeguard customer assets. The MPD acknowledged that these regulations were not intended to act as a barrier to accessing foreign markets where local laws differ regarding asset holding. The Division noted that previous staff guidance—specifically Letters 16-88 and 18-26—had created ambiguity by implying a blanket prohibition on title transfers. The Division found that strict prohibitions are impractical when foreign regimes mandate title transfer, and that the regulations should be interpreted to facilitate access to foreign markets while maintaining customer protections.
The interpretative relief is subject to specific operational and legal conditions, including: (i) the title transfer or right of re-use must be authorized or required by the applicable local regulatory regime or the rules of the foreign board of trade or clearing organization; and (ii) the "Customer Securities" must be transferred solely for the purpose of margining or securing "30.7 Customer" obligations arising from foreign futures and options positions.