On 20 December 2024, the United States Commodity Futures Trading Commission (US CFTC) published the Final Rule along with a fact sheet outlining requirements for futures commission merchants (FCMs) concerning margin adequacy and the treatment of separate accounts of customers. This aims to codify and expand the no-action position first detailed in US CFTC Letter 19-17, bringing greater clarity and structure to how FCMs manage customer accounts and associated risks.
The fact sheet accompanying the rule covers the regulatory journey that began in 2019, when the Division of Clearing and Risk and the Division of Swap Dealer and Intermediary Oversight (now Market Participants Division) issued Letter 19-17. That letter allowed clearing FCMs to treat separate accounts of a single customer as distinct entities under specific risk-mitigating conditions. This practice was further extended and clarified in subsequent letters, including 20-28, 21-29, 22-11, 23-13, and 24-07. In April 2023, the US CFTC initially proposed codifying these provisions under Part 39 regulations applicable to derivatives clearing organizations (DCOs) and their clearing FCMs. However, following public feedback, the proposal was revised and reissued in March 2024, focusing instead on Part 1 rules directly targeting FCMs.
The final rule introduces US CFTC Regulation 1.44, applicable to all FCMs, whether clearing or non-clearing. The regulation establishes a margin adequacy requirement similar to that under US CFTC Regulation 39.13(g)(8)(iii) for DCOs, to ensure that customer funds are not withdrawn if such actions would result in a shortfall in initial margin requirements.
US CFTC Regulation 1.44 allows FCMs to treat separate accounts of a single customer as distinct entities under specific circumstances. FCMs adopting this approach to mitigate risks, must adhere to a set of conditions rooted in the original no-action letters and feedback on proposed rules. These include maintaining rigorous internal controls, meeting same-day margin call standards, and ensuring compliance with additional capital and risk management calculations.
Amendments to existing US CFTC regulations such as 1.3, 1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 30.2, 30.7, and 39.13 accompany the new rule to address identified inconsistencies and facilitate smooth implementation of US CFTC Regulation 1.44. These amendments also clarify operational aspects, including segregation obligations, capital treatment, and foreign banking holiday considerations for margin calls.
The compliance timeline varies depending on the status of the FCM. FCMs that are members of a DCO as of the publication date in the Federal Register will have 180 days to comply with the new requirements. All other FCMs will have 365 days from the publication date to implement the necessary changes. The US CFTC’s final rule aims to address margin adequacy and separate account treatment comprehensively and provides clearer guidance to FCMs operating in increasingly complex financial markets.
(Source: https://www.cftc.gov/PressRoom/PressReleases/9027-24, https://www.cftc.gov/media/11691/Separate_Accounts_Final_Rule_FactsheetQA122024/download)
