81236 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

1 17 CFR 145.9. Commission Regulations referred 

to herein are found at 17 CFR Chapter I, and are 

accessible on the Commission’s website: https://

www.cftc.gov/LawRegulation/Commodity

ExchangeAct/index.htm. 2 7 U.S.C. 1 et seq. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 22, and 30 

RIN 3038–AF24 

Investment of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing to amend its 

regulations governing the types of 

investments that futures commission 

merchants (‘‘FCMs’’) and derivatives 

clearing organizations may make with 

funds held for the benefit of customers 

trading futures, foreign futures, and 

cleared swap transactions. The 

Commission is also specifying market 

risk capital charges that an FCM would 

be required to take on the revised 

permitted investments in computing the 

firm’s adjusted net capital. The 

proposed amendments would also 

amend regulations that require each 

FCM to report to the Commission and to 

the firm’s designated self-regulatory 

organization the name, location, and 

amount of customer funds held by each 

depository, including any investments 

of customer funds held by the 

depository. Lastly, the Commission is 

proposing to revise its regulations to 

eliminate the requirement that a 

depository holding customer funds must 

provide the Commission with read-only 

electronic access to such accounts for 

the FCM to treat the funds held in the 

accounts as customer segregated fund 

accounts. 

DATES: Comments must be received on 

or before January 17, 2024. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AF24, by any of 

the following methods: 

• CFTC Comments Portal: https://

comments.cftc.gov. Select the ‘‘Submit 

Comments’’ link for this rulemaking and 

follow the instructions on the Public 

Comment Form. 

• Mail: Send to Christopher 

Kirkpatrick, Secretary of the 

Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Center, 1155 21st Street NW, 

Washington, DC 20581. 

• Hand Delivery/Courier: Follow the 

same instructions as for Mail, above. 

Please submit your comments using 

only one of these methods. Submissions 

through the CFTC Comments Portal are 

encouraged. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to https://

comments.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act (‘‘FOIA’’), a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from https://comments.cftc.gov that it 

may deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the FOIA. 

FOR FURTHER INFORMATION CONTACT: 

Amanda L. Olear, Director, (202) 418– 

5213, aolear@cftc.gov; Thomas J. Smith, 

Deputy Director, 202–418–5495, 

tsmith@cftc.gov; Warren Gorlick, 

Associate Director, 202–418–5195, 

wgorlick@cftc.gov; Liliya Bozhanova, 

Special Counsel, 202–418–6232, 

lbozhanova@cftc.gov; Joo Hong, Risk 

Analyst, (202) 418–6221, jhong@

cftc.gov, Market Participants Division, 

or Lihong McPhail, Research Economist, 

(202) 418–5722, lmcphail@cftc.gov, 

Office of the Chief Economist, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581; Scott Sloan, Special Counsel, 

312–596–0708, ssloan@cftc.gov, 

Division of Clearing and Risk, 

Commodity Futures Trading 

Commission, 77 West Jackson 

Boulevard, Suite 800, Chicago, Illinois 

60604. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. Background and Statutory Authority 

1. Segregation of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

2. Authority for Futures Commission 

Merchants and Derivatives Clearing 

Organizations To Invest Customer Funds 

II. Requests for Amendments to the List of 

Permitted Investments 

III. Proposal 

A. Investment of Customer Funds 

1. Interests in Money Market Funds 

2. Foreign Sovereign Debt 

3. Interests in U.S. Treasury ExchangeTraded Funds 

4. Investments in Commercial Paper and 

Corporate Notes or Bonds 

5. Investments in Permitted Investments 

With Adjustable Rates of Interest 

6. Investments in Certificates of Deposit 

Issued by Banks 

B. Asset-Based and Issuer-Based 

Concentration Limits for Permitted 

Investments 

C. Futures Commission Merchant Capital 

Charges on Permitted Investments 

D. Segregation Investment Detail Report 

E. Read-Only Electronic Access to 

Customer Funds Accounts Maintained 

by Futures Commission Merchants 

F. Proposed Conforming Amendments 

IV. Section 4(c) of the Act 

V. Administrative Compliance 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

a. Foreign Sovereign Debt, Interests in 

Exchange-Traded Funds, and Associated 

Capital Charges 

b. Government Money Market Funds, 

Commercial Paper and Corporate Notes 

or Bonds, and Certificates of Deposit 

Issued by Banks 

c. SOFR as a Permitted Benchmark 

d. Revision of the Read-Only Access 

Provisions 

D. Antitrust Laws 

I. Introduction 

A. Background and Statutory Authority 

1. Segregation of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

A primary objective of the Commodity 

Exchange Act (‘‘Act’’) 2 and Commission 

regulations is the establishment of a 

framework to safeguard funds of 

customers engaging in CFTC-regulated 

derivative transactions. A core 

component of the framework is the 

requirement for a futures commission 

merchant (‘‘FCM’’) or a derivatives 

clearing organization (‘‘DCO’’) to treat 

customer funds as belonging to the 

customers and not as the property of the 

FCM or DCO, and for the FCM or DCO 

to segregate customer funds from its 

own funds by holding the funds in 

specially designated customer accounts 

maintained at banks, trust companies, 

FCMs, or DCOs, as applicable. The 

segregation of customer funds from an 

FCM’s or DCO’s own funds is intended 

to ensure that customer funds are used 


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Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 81237 

3See generally, 17 CFR 1.20 (segregation 

framework for futures customer funds); 17 CFR 22.2 

and 22.3 (segregation framework for Cleared Swaps 

Customer Collateral); and 17 CFR 30.7 (segregation 

framework for 30.7 customer funds). 

4The term ‘‘futures customer’’ is defined by 

Regulation 1.3 to mean, in relevant part, any person 

who uses an FCM as an agent in connection with 

trading in any contract for the purchase or sale of 

a commodity for future delivery or any option on 

such contract. 17 CFR 1.3. 

5 7 U.S.C. 6d(a)(2). 

6 Id. 

7 7 U.S.C. 6d(b). 

8 Id. 

9 17 CFR 1.20 through 17 CFR 1.30, 17 CFR 1.32, 

and 17 CFR 1.49. 

10 17 CFR 22.1. 

11The term ‘‘Cleared Swaps Customer’’ is defined 

by Regulation 22.1 to mean, in relevant part, any 

customer entering into a Cleared Swap. The term 

‘‘Cleared Swap’’ is defined to mean any swap that 

is, directly or indirectly, submitted to and cleared 

by a DCO registered with the Commission. See 7 

U.S.C. 1a(7) and 17 CFR 22.1. 

12 7 U.S.C. 6d(f)(2)(A). 

13 7 U.S.C. 6d(f)(2)(B). 

14 7 U.S.C. 6d(f)(3)(A)(i). 

15 7 U.S.C. 6d(f)(6). 

16 17 CFR 22.2 through 17 CFR 22.13, 17 CFR 

22.15 through 17 CFR 22.17. 

17The term ‘‘30.7 customer’’ is defined by 

Regulation 30.1 to mean any person located in the 

U.S., its territories or possessions, as well as any 

foreign-domiciled person, who trades in foreign 

futures or foreign options. 17 CFR 30.1. 

18 17 CFR 30.1. 

19 7 U.S.C. 6(b)(2)(A). 

20 17 CFR 30.7. 

21 17 CFR 30.7(b) and 17 CFR 30.7(e)(2). 

22 7 U.S.C. 6d(a)(2). 

23See Title 17—Commodity and Securities 

Exchanges, 33 FR 14454 (Sept. 26, 1968), amending 

Regulation 1.25 and providing that FCMs and 

clearing organizations may invest customer funds in 

obligations of the U.S., in general obligations of any 

State or of any political subdivision of any State, 

or in obligations fully guaranteed as to principal 

and interest by the U.S. 

24See Rules Relating to Intermediaries of 

Commodity Interest Transactions, 65 FR 77993 

(Dec. 13, 2000) (publishing final rules); and 

Investment of Customer Funds, 65 FR 82270 (Dec. 

28, 2000) (making technical corrections and 

accelerating the effective date of the final rules from 

Continued 

only to support customer trading and 

transactions, and to facilitate the return 

of the funds to customers in the event 

of the insolvency of the FCM or DCO. 

Customer funds are classified into one 

of three distinct regulatory frameworks 

that are based on the derivatives 

markets on which the customers are 

transacting. Specifically, customer 

funds are classified as either: (i) ‘‘futures 

customer funds;’’ (ii) ‘‘Cleared Swaps 

Customer Collateral;’’ or (iii) ‘‘30.7 

customer funds.’’ 3 The term ‘‘futures 

customer funds’’ is defined by 

Regulation 1.3 to mean, in relevant part, 

all money, securities, and property 

received by an FCM or a DCO from, for, 

or on behalf of ‘‘futures customers’’ 4 to 

margin, guarantee, or secure futures and 

options on futures transactions traded 

on a CFTC-designated contract market, 

and all money accruing to futures 

customers as a result of trading futures 

and options on futures. Section 4d(a)(2) 

of the Act requires an FCM to treat and 

deal with futures customer funds 

received to margin, guarantee, or secure 

trades or contracts of any futures 

customer, or accruing to a futures 

customer as the result of such trades or 

contracts, as belonging to the futures 

customer.5 Section 4d(a)(2) further 

provides that an FCM may not 

commingle futures customer funds of a 

futures customer with the FCM’s own 

funds, provided, however, that the FCM 

may commingle the futures customer 

funds of two or more futures customers 

and deposit the funds with any bank, 

trust company, DCO, or other FCM.6

Section 4d(b) of the Act addresses the 

duties imposed on DCOs and other 

depositories receiving futures customer 

funds from FCMs pursuant to Section 

4d(a)(2) of the Act.7 Section 4d(b) 

provides that it is unlawful for any 

person, including a DCO, that has 

received futures customer funds to hold, 

dispose of, or use the funds as belonging 

to the depositing FCM or any person 

other than the futures customers of the 

FCM.8 The Commission adopted 

Regulations 1.20 through 1.30, and 

Regulations 1.32 and 1.49, to implement 

the segregation requirements for futures 

customer funds mandated by Sections 

4d(a)(2) and 4d(b) of the Act.9

The term ‘‘Cleared Swaps Customer 

Collateral’’ is defined by Regulations 1.3 

and 22.1 10 to mean, in relevant part, all 

money, securities, or other property 

received by an FCM or a DCO from, for, 

or on behalf of, a ‘‘Cleared Swaps 

Customer’’ to margin, guarantee, or 

secure ‘‘Cleared Swap’’ positions.11

Section 4d(f)(2)(A) of the Act requires 

an FCM to treat Cleared Swaps 

Customer Collateral received from a 

Cleared Swaps Customer, or accruing to 

a Cleared Swaps Customer as a result of 

Cleared Swap positions, as belonging to 

the Cleared Swaps Customer.12 Section 

4d(f)(2)(B) of the Act provides that an 

FCM may not commingle Cleared Swaps 

Customer Collateral of a Cleared Swaps 

Customer with the FCM’s own funds,13

provided, however, that the FCM may 

commingle Cleared Swaps Customer 

Collateral of two or more Cleared Swap 

Customers and deposit the funds in any 

bank, trust company, DCO, or other 

FCM.14 Section 4d(f)(6) of the Act 

provides that it is unlawful for any 

person, including a DCO and any 

depository institution, that has received 

Cleared Swaps Customer Collateral to 

hold, dispose of, or use the Cleared 

Swaps Customer Collateral as belonging 

to the depositing FCM or any person 

other than the Cleared Swaps Customer 

of the FCM.15 The Commission adopted 

Regulations 22.2 through 22.13, and 

Regulations 22.15 through 22.17, to 

implement the segregation requirements 

for Cleared Swaps Customer Collateral 

mandated by Section 4d(f) of the Act.16

The term ‘‘30.7 customer funds’’ is 

defined by Regulation 30.1 to mean any 

money, securities, or other property 

received by an FCM from, for, or on 

behalf of a U.S. person or foreigndomiciled person (a ‘‘30.7 customer’’) 17

to margin, guarantee, or secure futures 

or options on futures positions executed 

on foreign boards of trade (‘‘foreign 

futures’’).18 Section 4(b)(2)(A) of the Act 

authorizes the Commission to adopt 

regulations imposing requirements on 

FCMs regarding the safeguarding of 30.7 

customer funds deposited by 30.7 

customers for trading on foreign boards 

of trade.19 The Commission adopted 

Regulation 30.7 pursuant to Section 

4(b)(2)(A) of the Act.20 Regulation 

30.7(e)(2) requires an FCM to segregate 

30.7 customer funds from the FCM’s 

own funds, and Regulation 30.7(b) 

provides that an FCM may hold 30.7 

customer funds with designated 

depositories, including banks, trust 

companies, DCOs, foreign brokers, and 

clearing organizations of foreign boards 

of trade.21

Throughout this release, the terms 

‘‘futures customer funds,’’ ‘‘Cleared 

Swaps Customer Collateral,’’ and ‘‘30.7 

customer funds’’ are collectively 

referred to as ‘‘Customer Funds,’’ unless 

otherwise stated. 

2. Authority for Futures Commission 

Merchants and Derivatives Clearing 

Organizations To Invest Customer 

Funds 

Section 4d(a)(2) of the Act authorizes 

FCMs to invest futures customer funds 

in: (i) obligations of the U.S.; (ii) 

obligations fully guaranteed as to 

principal and interest by the U.S.; and 

(iii) general obligations of any State or 

of any political subdivision of a State.22

Regulation 1.25 was initially adopted to 

implement Section 4d(a)(2), and 

authorized FCMs and DCOs to invest 

futures customer funds in the 

instruments set forth in Section 4d(a)(2) 

of the Act (the ‘‘Permitted 

Investments’’).23

The Commission, in 2000, expanded 

the Permitted Investments beyond the 

investments specifically stated in 

Section 4d(a)(2) of the Act to include 

certificates of deposit, commercial 

paper, corporate notes, foreign sovereign 

debt, and interests in money market 

funds.24 In addition, the Commission 


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81238 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

February 12, 2001 to December 28, 2000) 

(collectively, the ‘‘2000 Permitted Investments 

Amendment’’). 

25 Id. Reverse repurchase agreements and 

repurchase agreements are collectively referred to 

as ‘‘Repurchase Transactions’’ in the Proposal. 

26 17 CFR 1.25(b). 

27 Id. 

28Section 4(c)(1) of the Act empowers the 

Commission to ‘‘promote responsible economic or 

financial innovation and fair competition’’ by 

exempting any transaction or class of transactions 

(including any person or class of persons offering, 

entering into, rendering advice or rendering other 

services with respect to, the agreement, contract, or 

transaction), from any of the provisions of the Act, 

subject to certain exceptions. The Commission may 

grant such an exemption by rule, regulation, or 

order, after notice and opportunity for hearing, and 

may do so on application of any person or on its 

own initiative. See 7 U.S.C. 6(c). A further 

discussion of Section 4(c)(1) of the Act is set forth 

in Section IV of this Federal Register release. 

29See 2000 Permitted Investments Amendment at 

78007. 

30See Investment of Customer Funds and Record 

of Investments, 70 FR 28190 (May 17, 2005) (‘‘2005 

Permitted Investments Amendment’’), and 

Investment of Customer Funds and Funds Held in 

an Account for Foreign Futures and Foreign 

Options Transactions, 76 FR 78776 (Dec. 19, 2011) 

(‘‘2011 Permitted Investments Amendment’’). 

31 17 CFR 1.25(a)(1). 

32 17 CFR 1.25(a)(2). 

33 7 U.S.C. 6(b)(2)(A). 

34 2011 Permitted Investments Amendment at 

78777, providing that because Congress did not 

expressly apply the investment limitations set forth 

in Section 4d of the Act to 30.7 customer funds, the 

Commission historically has not subjected such 

funds to the investment limitations applicable to 

futures customer funds. 

35See 17 CFR 30.7. The Commission stated that 

it was appropriate to align the investment standards 

of Regulation 30.7 with those of Regulation 1.25 as 

many of the same prudential concerns arise with 

respect to both futures customer funds and 30.7 

customer funds. See 2011 Permitted Investment 

Amendment at 78791. 

36See 17 CFR 22.2(e)(1) and 17 CFR 22.3(d). 

37 7 U.S.C. 6d(f). 

38See Protection of Cleared Swaps Customer 

Contracts and Collateral; Conforming Amendments 

to the Commodity Amendments to the Commodity 

Broker Bankruptcy Provisions, 77 FR 6336 (Feb. 7, 

2012). 

39See 7 U.S.C. 6d(f)(4). 

40 17 CFR 1.25(b)(3)(i). 

41 17 CFR 1.25(b)(3)(ii). 

42Regulation 1.29 provides that FCMs or DCOs, 

as applicable, shall bear sole responsibility for any 

losses resulting from the investment of futures 

customer funds, and further provides that no 

investment losses shall be borne or otherwise 

allocated to FCM customers or to FCMs clearing 

customer accounts at DCOs. 17 CFR 1.29(b). 

Regulation 22.2(e)(1) provides that an FCM shall 

bear sole responsibility for any losses resulting from 

the investment of Cleared Swaps Customer 

Collateral and may not allocate investment losses to 

Cleared Swaps Customers of the FCM. 17 CFR 

22(e)(1). 

Regulation 30.7(i) provides that an FCM shall 

bear sole financial responsibility for any losses 

resulting from the investment of 30.7 customer 

funds, and further provides that no investment 

losses may be allocated to the 30.7 customers of the 

FCM. 17 CFR 30.7(i). 

In addition, Regulation 22.3(d) provides that 

DCOs may invest Cleared Swaps Customer 

authorized an FCM or a DCO to buy the 

Permitted Investments under 

agreements to resell the securities 

(‘‘reverse repurchase agreements’’) and 

to sell the Permitted Investments under 

agreements to repurchase the securities 

(‘‘repurchase agreements’’).25 To 

minimize credit risk, market risk, and 

liquidity risk, the Commission also 

imposed conditions that Permitted 

Investments were required to meet, 

including a restriction on the dollarweighted average of the time-to-maturity 

of securities held in the segregated 

portfolio, asset-based and issuer-based 

concentration limits, and prohibitions 

on certain investments containing 

embedded derivatives.26 More 

generally, Regulation 1.25 requires all 

Permitted Investments to be ‘‘consistent 

with the objectives of preserving 

principal and maintaining liquidity.’’ 27

The 2000 Permitted Investments 

Amendment was adopted under the 

authority of Section 4(c) of the Act.28 In 

adopting the amendment, the 

Commission stated that the expanded 

list of Permitted Investments would 

enhance the yield available to FCMs, 

DCOs, and their customers without 

compromising the safety of futures 

customer funds.29

Following the 2000 Permitted 

Investments Amendment, the list of 

Permitted Investments has undergone 

several revisions.30 In its current form, 

Regulation 1.25 lists seven categories of 

investments that qualify as Permitted 

Investments: (i) obligations of the U.S. 

and obligations fully guaranteed as to 

principal and interest by the U.S. (‘‘U.S. 

government securities’’); (ii) general 

obligations of any State or political 

subdivision of a State (‘‘municipal 

securities’’); (iii) obligations of any U.S. 

government corporation or enterprise 

sponsored by the U.S. (‘‘U.S. agency 

obligations’’); (iv) certificates of deposit 

issued by a bank; (v) commercial paper 

fully guaranteed by the U.S. under the 

Temporary Liquidity Guarantee Program 

(‘‘TLGP’’) as administered by the 

Federal Deposit Insurance Corporation 

(‘‘FDIC’’) (‘‘commercial paper’’); (vi) 

corporate notes and bonds fully 

guaranteed as to principal and interest 

by the U.S. under the TLGP (‘‘corporate 

notes and bonds’’); and (vii) interests in 

money market mutual funds.31 In 

addition, Regulation 1.25(a)(2) permits 

FCMs and DCOs to buy and sell the 

Permitted Investments under 

Repurchase Transactions.32

Section 4(b)(2)(A) of the Act grants 

the Commission the plenary authority to 

adopt rules and regulations regarding an 

FCM’s safeguarding of 30.7 customer 

funds.33 Prior to 2011, an FCM was not 

subject to restrictions on the 

investments that it could enter into with 

30.7 customer funds.34 In 2011, the 

Commission extended the requirements 

of Regulation 1.25 to an FCM’s 

investment of 30.7 customer funds for 

trading foreign futures positions. 

Specifically, the Commission amended 

Regulation 30.7 to provide that to the 

extent an FCM invested 30.7 customer 

funds, it must invest such funds subject 

to, and in compliance with, the terms 

and conditions of Regulation 1.25.35

The Commission exercised its plenary 

authority under Section 4(b) of the Act 

to adopt Regulation 30.7. 

The Commission also extended the 

requirements of Regulation 1.25 to 

FCMs and DCOs investing Cleared 

Swaps Customer Collateral.36

Regulations 22.2 and 22.3 were adopted 

in 2012 under the authority of Section 

4d(f)(4) of the Act,37 which provides 

that Cleared Swaps Customer Collateral 

may be invested by an FCM or a DCO 

in: (i) obligations of the U.S.; (ii) general 

obligations of any State or of any 

political subdivision of a State; (iii) 

obligations fully guaranteed as to 

principal and interest by the U.S.; and, 

(iv) any other investment that the 

Commission may by rule or regulation 

prescribe.38 Section 4d(f)(4) of the Act 

further provides that the investments 

must be made in accordance with the 

rules and regulations, and subject to any 

conditions, as the Commission 

prescribes.39

In addition to setting forth the 

Permitted Investments that FCMs and 

DCOs may enter into with Customer 

Funds, Regulation 1.25 also includes 

several conditions on the investment of 

Customer Funds. Regulation 1.25(b)(3) 

contains both asset-based and issuerbased concentration limits applicable to 

Permitted Investments. The asset-based 

concentration limit restricts the total 

amount of Customer Funds that an FCM 

or a DCO may invest in a particular 

Permitted Investment to a defined 

percentage of the total funds held in 

segregation by the FCM or DCO.40 The 

issuer-based concentration limit caps 

the total amount of Customer Funds that 

may be invested in instruments offered 

by, or managed by, a particular issuer to 

a defined percentage of the total funds 

held in segregation by the FCM or 

DCO.41

Consistent with the objective of 

limiting customer risk, Commission 

regulations also provide that FCMs and 

DCOs are financially responsible for any 

losses resulting from Permitted 

Investments, and are explicitly 

prohibited from allocating investment 

losses to customers or clearing FCMs, 

respectively.42


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Collateral in Permitted Investments set forth in 

Regulation 1.25. The regulation, however, does not 

provide that a DCO is responsible for investment 

losses. The Commission is proposing to amend 

Regulation 22.3(d) to explicitly provide that a DCO 

shall bear sole responsibility for any losses resulting 

from the investment of Cleared Swaps Customer 

Collateral, and may not allocate such losses to 

Cleared Swaps Customers. See Section III.C. below. 

17 CFR 22.3(d). 

43 2011 Permitted Investments Amendment at 

78777. 

44See Enhancing Protections Afforded Customers 

and Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506 (Nov. 14, 2013) (‘‘2013 Protections of 

Customer Funds’’) at 68556. 

45Petition for Order under Section 4(c) of the 

Commodity Exchange Act, dated May 24, 2023 (the 

‘‘Joint Petition’’). On September 22, 2023, the 

Petitioners submitted updated data in support of 

the Joint Petition and corrected an inadvertent 

transposition of data items in the Joint Petition. 

Supplement to Petition for Order under Section 4(c) 

of the Commodity Exchange Act (‘‘Supplement to 

Joint Petition’’). The Joint Petition and the 

Supplement to Joint Petition are available on the 

Commission’s website, https://www.cftc.gov/media/ 

9531/FIA_CMEPetition_Regulation125_052423/ 

download and https://www.cftc.gov/media/9536/ 

FIALetterSupplementing_Regulation125_092223/ 

download. 

46 Joint Petition at p. 4. 

47 Joint Petition at p. 5. 

48Order Granting Exemption from Certain 

Provisions of the Commodity Exchange Act 

Regarding Investment of Customer Funds and from 

Certain Related Commission Regulations, 83 FR 

35241 (Jul. 25, 2018) (‘‘2018 Order’’). The 2018 

Order provides an exemption only to DCOs. FCMs 

are not subject to the 2018 Order, and currently may 

not invest Customer Funds in any foreign sovereign 

debt. 

49Conditions (3)(a), 3(c), and 3(d) of the 2018 

Order at 35245. 

50Condition (3)(b) of the 2018 Order at 35245. 

51As noted above, Regulation 1.25(d)(2) provides 

that an FCM or a DCO may enter into Repurchase 

Transactions only with the following 

counterparties: (i) a bank as defined in Section 

3(a)(6) of the Securities Exchange Act of 1934; (ii) 

a domestic branch of a foreign bank insured by the 

FDIC; (iii) an SEC-registered securities broker or 

dealer; or (iv) an SEC-registered government 

securities broker or dealer. Section 3(a)(6) of the 

Securities Exchange Act of 1934 defines the term 

‘‘bank’’ to mean: (i) a banking institution organized 

under the laws of the U.S. or a Federal savings 

association; (ii) a member bank of the Federal 

Reserve System; (iii) any other banking institution 

or savings association doing business under the 

laws of any State or the U.S., a substantial portion 

of the business of which consists of receiving 

deposits or exercising fiduciary powers similar to 

those permitted to national banks under the 

authority of the Comptroller of the Currency, and 

which is supervised and examined by a State or 

Federal authority having supervision over banks or 

savings associations; and (iv) a receiver, 

Continued 

The Commission has previously noted 

the importance of conducting periodic 

reassessments of Regulation 1.25 ‘‘and, 

as necessary, revising regulatory 

policies to strengthen safeguards 

designed to minimize risk while 

retaining an appropriate degree of 

investment flexibility and opportunities 

for capital efficiency for DCOs and 

FCMs investing customer segregated 

funds.’’ 43 In furtherance of these 

objectives and in consideration of the 

requests for amendments to Regulation 

1.25 discussed in Section II below, the 

Commission is proposing to amend the 

list of Permitted Investments in 

Regulation 1.25 to: (i) add two new asset 

classes (i.e., specified foreign sovereign 

debt instruments and certain exchangetraded funds (‘‘ETFs’’)), subject to 

certain conditions, (ii) limit the scope of 

money market funds (‘‘MMFs’’) whose 

interests qualify as Permitted 

Investments, and (iii) remove corporate 

notes, corporate bonds, and commercial 

paper. In connection with the proposed 

amendments to the list of Permitted 

Investments, the Commission is further 

proposing changes to the counterparty 

and depository requirements of 

Regulation 1.25(d)(2) and (7) and 

revisions to the concentration limits for 

Permitted Investments set forth in 

Regulation 1.25(b)(3), and is specifying 

the capital charges that would apply to 

the proposed new categories of 

Permitted Investments. Additionally, 

the Commission is proposing an 

amendment to Regulation 22.3(d) to 

clarify that DCOs are financially 

responsible for any losses resulting from 

investments of Cleared Swap Customer 

Collateral in Permitted Investments, 

consistent with Regulation 1.29, which 

addresses financial responsibility for 

losses resulting from investment of 

futures customer funds. The proposed 

amendment reflects the Commission’s 

original intent to permit investments of 

Cleared Swaps Customer Collateral 

within the parameters applicable to 

investments of futures customer 

funds.44 The Commission is also 

proposing to replace the London 

Interbank Offered Rate (‘‘LIBOR’’) with 

the Secured Overnight Financing Rate 

(‘‘SOFR’’) as a permitted benchmark for 

variable and floating interest rates for 

securities that qualify as Permitted 

Investments. Each of the proposed 

amendments is discussed below. 

II. Requests for Amendments to the List 

of Permitted Investments 

The Futures Industry Association 

(‘‘FIA) and CME Group Inc. (‘‘CME’’) 

(collectively, the ‘‘Petitioners’’) 

submitted a joint petition requesting the 

Commission to issue an order under 

Section 4(c) of the Act, or to take such 

other action as the Commission deems 

appropriate, to expand investments that 

FCMs and DCOs may enter into with 

Customer Funds.45 The Petitioners 

request that the Commission take action 

to permit FCMs and DCOs to invest 

Customer Funds in the foreign sovereign 

debt of Canada, France, Germany, Japan, 

and the United Kingdom (‘‘Specified 

Foreign Sovereign Debt’’), subject to the 

condition that the investment in the 

foreign sovereign debt is limited to 

balances owed by FCMs and DCOs to 

customers and FCM clearing firms, 

respectively, denominated in the 

applicable currency of Canada, France, 

Germany, Japan, or the United 

Kingdom.46 The Petitioners further 

request that the Commission exempt 

FCMs and DCOs from the provisions of 

Regulation 1.25(d)(2) to authorize FCMs 

and DCOs to enter into Repurchase 

Transactions involving Specified 

Foreign Sovereign Debt with foreign 

banks and foreign securities brokers or 

dealers and to hold Specified Foreign 

Sovereign Debt in safekeeping accounts 

at foreign banks.47

In support of the request, the 

Petitioners note that the Commission 

issued an order in 2018 pursuant to 

Section 4(c) of the Act providing a 

limited exemption to Section 4d of the 

Act and Regulation 1.25 to permit DCOs 

to invest futures customer funds and 

Cleared Swaps Customer Collateral in 

the foreign sovereign debt of France and 

Germany.48 The exemption for DCOs to 

invest in French and German sovereign 

debt is subject to conditions, including 

that: (i) investment in French or German 

sovereign debt is limited to investments 

made with euro-denominated balances 

owed to the futures customers and 

Cleared Swaps Customers of FCM 

clearing members; (ii) the dollarweighted average of the remaining timeto-maturity of a DCO’s portfolio of 

investments in each of French and 

German sovereign debt may not exceed 

60 days; and (iii) a DCO may not make 

a direct investment in any sovereign 

debt instrument of France or Germany 

that has a remaining time-to-maturity in 

excess of 180 calendar days.49 The 2018 

Order also provides that if the two-year 

credit default spread of the French or 

German sovereign debt exceeds 45 basis 

points (‘‘BPS’’), the DCO may not make 

any new direct investments in the 

relevant sovereign debt using futures 

customer funds or Cleared Swaps 

Customer Collateral, and must 

discontinue investing futures customer 

funds and Cleared Swaps Customer 

Collateral in the relevant debt through 

Repurchase Transactions as soon as 

practicable under the circumstances.50

The 2018 Order also grants an 

exemption from Regulation 1.25(d)(2) to 

permit DCOs to enter into Repurchase 

Transactions involving French or 

German sovereign debt with foreign 

banks and foreign securities brokers or 

dealers as counterparties.51 A DCO may 


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conservator, or other liquidating agent of any 

institution or firm included in clauses (i), (ii), or 

(iii) above (‘‘Section 3(a)(6) bank’’). 15 U.S.C. 78 et 

seq. Foreign-domiciled banks and foreign securities 

brokers or dealers are not authorized counterparties 

for Repurchase Transactions under Regulation 

1.25(d)(2). 

52Regulation 1.49(d)(3) provides that a foreign 

depository must be a bank or trust company that 

has in excess of $1 billion in regulatory capital, a 

registered FCM, or a DCO in order to be a qualified 

counterparty to Repurchase Transactions. 

53Specifically, Regulation 1.25(d)(7) provides 

that securities transferred to an FCM or a DCO 

under a reverse repurchase agreement must be held 

in a safekeeping account only with the following 

depositories: (i) a Section 3(a)(6) bank; (ii) a 

domestic branch of a foreign bank insured by the 

FDIC; (iii) a Federal Reserve Bank; (iv) a DCO; or 

(v) the Depository Trust Company. A foreigndomiciled bank is currently not an authorized 

depository for securities transferred to an FCM or 

a DCO under Regulation 1.25(d)(7). 

54 Joint Petition at pp. 8–9. 

55 Id. 

56Letter from Anna Paglia, Chief Executive 

Officer, Invesco Capital Management LLC, dated 

September 28, 2023 (‘‘Invesco Petition’’). See 

https://www.cftc.gov/media/9541/Invesco_

CFTCPetition_Regulation125_092823/download. 

Invesco is a registered with the Commission as a 

commodity pool operator and commodity trading 

advisor, and is registered with the Securities and 

Exchange Commission (‘‘SEC’’) as an investment 

adviser. 

57 Invesco Petition at p. 1. 

58 Id. 

59See Invesco Petition at p. 2. 

60CFTC Staff Letter 21–02—CFTC Regulation 

1.25—Investment of Customer Funds—TimeLimited No-Action Position for Investments in 

Securities with an Adjustable Rate of Interest 

Benchmarked to the Secured Overnight Financing 

Rate, issued January 4, 2021 (‘‘Staff Letter 21–02’’); 

CFTC Staff Letter 22–21—CFTC Regulation 1.25— 

Investment of Customer Funds in Securities with an 

Adjustable Rate of Interest Benchmarked to the 

Secured Overnight Financing Rate—Extension of 

Time-Limited No-Action Position Concerning 

Investments by Futures Commission Merchants and 

No-Action Position Concerning Investments by 

Derivatives Clearing Organizations, issued 

December 23, 2022 (‘‘Staff Letter 22–21’’). 

61See Joint Petition at p. 4. 

62 17 CFR 1.25(a)(vii). 

63 15 U.S.C. 80a–1—80a–64. 

64 17 CFR 270.2a–7. 

65For a definition of Section 3(a)(6) bank, see 

supra note 51. 

66 15 U.S.C. 80b–1—80b–21. 

67 17 CFR 1.25(c). 

enter into Repurchase Transactions with 

a foreign bank or foreign securities 

broker or dealer provided that the such 

firm qualifies as a permitted depository 

under Regulation 1.49(d)(3) and is 

located in a money center country or in 

another jurisdiction that has adopted 

the euro as its currency.52 The 2018 

Order further grants an exemption from 

the requirement in Regulation 1.25(d)(7) 

that securities transferred to an FCM or 

a DCO under reverse repurchase 

agreements must be held in safekeeping 

accounts with certain U.S.-domiciled 

banks, a Federal Reserve Bank, a DCO, 

or the Depository Trust Company,53 to 

permit DCOs to hold French or German 

sovereign debt received under reverse 

repurchase agreements in a safekeeping 

account with foreign banks that qualify 

as depositories for Customer Funds 

under Regulation 1.49(d)(3). 

The Petitioners further request that 

FCMs and DCOs be permitted to invest 

Customer Funds in certain ETFs that 

invest primarily in short-term U.S. 

Treasury securities (‘‘U.S. Treasury 

ETFs’’).54 In support of their request, the 

Petitioners state that U.S. Treasury ETFs 

have characteristics that may be 

consistent with those of other Permitted 

Investments and may provide FCMs and 

DCOs with an opportunity to diversify 

further their investments of customer 

funds.55

The Commission also received a 

petition from Invesco Capital 

Management LLC (‘‘Invesco’’), which 

serves as a sponsor of various ETFs, 

advocating for the addition of U.S. 

Treasury ETF securities to the list of 

Permitted Investments.56 Invesco states 

that U.S. Treasury ETFs will provide 

FCMs and DCOs with additional 

investment choices for customer funds, 

promote operational efficiencies and 

offer potentially better investment 

returns for FCMs, DCOs, and their 

customers, and facilitate financial 

market innovation.57 Invesco further 

states that permitting investments of 

U.S. Treasury ETFs would be consistent 

with, and promote, the public interest 

goals enumerated in the Act.58 Invesco 

further notes that U.S. Treasury ETFs 

invest in a sub-set of the same highquality liquid instruments that are 

Permitted Investments under Regulation 

1.25 (i.e., U.S. government securities), 

and as such, the ETFs offer an indirect, 

possibly simpler, and more costefficient way for FCMs and DCOs to 

invest Customer Funds in U.S. Treasury 

securities and obligations fully 

guaranteed as to principal and interest 

by the U.S. as the ETFs eliminate the 

need for FCMs and DCOs to administer 

investments in individual U.S. 

government securities.59

Finally, the Petitioners also request 

that the Commission amend its 

regulations consistent with CFTC Staff 

Letter 21–02 and CFTC Staff Letter 22– 

21,60 to permit FCMs and DCOs to 

invest Customer Funds in qualifying 

Permitted Investments that have 

adjustable rates of interest that correlate 

closely to SOFR.61

III. Proposal 

As part of its periodic assessment of 

Regulation 1.25 and in consideration of 

the information set forth in the Joint 

Petition and the Invesco Petition, the 

Commission is proposing to amend the 

list of Permitted Investments, subject to 

certain terms and conditions, as 

discussed in detail below. In connection 

with the proposed amendments to the 

list of Permitted Investments, the 

Commission is further proposing 

changes to the counterparty and 

depository requirements of Regulation 

1.25(d)(2) and (7), and revisions to the 

concentration limits for Permitted 

Investments set forth in Regulation 

1.25(b)(3). Separately, the Commission 

is specifying capital charges that FCMs 

would apply to the revised list of 

Permitted Investments as proposed, and 

is proposing a clarifying amendment to 

Regulation 22.3(d) to specify that DCOs 

bear the financial responsibility for 

losses resulting from Permitted 

Investments. The Commission is also 

proposing to replace LIBOR with SOFR 

as a permitted benchmark for the 

interest rate of adjustable rate securities 

that qualify as Permitted Investments. 

Lastly, the Commission is proposing to 

revise its regulations to eliminate the 

requirement that a depository holding 

customer funds must provide the 

Commission with read-only electronic 

access to such accounts for the FCM to 

treat the accounts as customer 

segregated fund accounts. Collectively, 

the proposed revisions and amendments 

are referred to as the ‘‘Proposal.’’ 

A. Investment of Customer Funds 

1. Interests in Money Market Funds 

Regulation 1.25(a)(1)(vii) currently 

provides that FCMs and DCOs may 

invest Customer Funds in interests in 

MMFs, subject to specified terms and 

conditions.62 To qualify as a Permitted 

Investment, a MMF must: (i) be an 

investment company that is registered 

with the SEC under the Investment 

Company Act of 1940 63 and hold itself 

out to investors as a MMF in accordance 

with SEC Rule 2a–7; 64 (ii) be sponsored 

by a federally-regulated financial 

institution, a Section 3(a)(6) bank,65 an 

investment adviser registered under the 

Investment Advisers Act of 1940,66 or a 

domestic branch of a foreign bank 

insured by the FDIC; and (iii) compute 

the net asset value (‘‘NAV’’) of the fund 

by 9 a.m. of the business day following 

each business day and make the NAV 

available to MMF shareholders by that 

time.67

The Commission is proposing to 

amend Regulation 1.25(a)(1)(vii) to limit 

the scope of MMFs whose interests 

qualify as Permitted Investments to 

‘‘government money market funds,’’ as 

defined in SEC Rule 2a–7, in response 

to two sets of amendments that the SEC 

adopted to its rules governing MMFs 


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68SEC Rule 2a–7 addresses MMFs that primarily 

invest in securities issued or guaranteed by the U.S. 

government (‘‘government money market funds’’ or 

‘‘Government MMFs’’), MMFs that primarily invest 

in short-term corporate debt securities (‘‘Prime 

MMFs’’), and other types of MMFs that are not 

relevant to this Proposal, such as tax-exempt funds. 

17 CFR 270.2a–7. 

69 17 CFR 270.2a–7(a)(14). 

70 15 U.S.C. 80a–2(a)(16). 

71Regulation 1.25(a)(1)(i) and (iii) defines ‘‘U.S. 

government securities’’ as obligations of the U.S. 

and obligations fully guaranteed as to principal and 

interest by the U.S. and ‘‘U.S. agency obligations’’ 

as obligations of any U.S. government corporation 

or enterprise sponsored by the U.S. government, 

respectively. 

72 Money Market Fund Reform; Amendments to 

Form PF, 79 FR 47736 (Aug. 14, 2014) (‘‘2014 SEC 

MMF Final Rule’’). See 17 CFR 270.2a–7(c)(2). 

73 2014 SEC MMF Final Rule at 47747. 

74The term ‘‘weekly liquid assets’’ is generally 

defined as: (i) cash; (ii) direct obligations of the U.S. 

Government; (iii) U.S. Agency securities that are 

issued at a discount to the principal amount to be 

repaid at maturity and have a remaining time to 

maturity of 60 days or less; (iv) securities that 

mature, or are subject to a demand feature that is 

exercisable and payable, within 5 business days; or 

(v) amounts receivable and due unconditionally 

within 5 business days on pending sales of portfolio 

securities. 17 CFR 270–2a–7(c)(a)(28). 

75 17 CFR 270.2a–7(c)(2)(i). 

76 17 CFR 270.2a–7(c)(2)(ii). (The liquidity fees 

and suspension of redemptions provisions of SEC 

Rule 2a–7(c)(2) are referred to as the ‘‘SEC 

Redemption Provisions’’ in this document.) 

77 17 CFR 270.2a–7(c)(2)(iii). 

78CFTC Letter No. 16–68, No-Action Relief with 

Respect to CFTC Regulation 1.25 Regarding Money 

Market Funds (Aug. 8, 2016) (‘‘Staff Letter 16–68’’). 

CFTC Staff Letters are available at the Commission’s 

website, www.cftc.gov. 

As noted above, Staff Letter 16–68 was issued by 

DSIO, which was subsequently renamed MPD. For 

purposes of clarity, the Commission notes that the 

formal division name change is not reflected in the 

proposed amendments to existing Commission 

regulations and appendices discussed in this 

Proposal, as the Commission plans to address the 

name change in a separate Commission rulemaking. 

The new division name, however, appears in the 

newly introduced proposed appendices H and I to 

Part 1 and Appendix G to Part 30, as these 

appendices do not currently exist in Commission’s 

regulations and would not be addressed in the 

above-referenced separate rulemaking. 

79CFTC Letter No. 16–69, Staff Interpretation 

Regarding CFTC Part 39 In Light Of Revised SEC 

Rule 2a–7 (Aug. 8, 2016) (‘‘Staff Letter 16–69’’). 

80See also CFTC Staff Advisory No. 16–75, 

Practical Application of No-Action Letter No. 16–68 

Regarding the Investments in Money Market Mutual 

Funds (Oct. 18, 2016) (‘‘Staff Letter 16–75’’) 

(discussing the practical applicability and effect of 

Staff Letter 16–68). 

81 17 CFR 1.25(b)(1) (providing that investments 

of customer funds must be highly liquid such that 

the investments must have the ability to be 

liquidated and converted into cash within one 

business day without material discount in value). 

82 17 CFR 1.25(c)(5)(i) (providing that to qualify 

as a Permitted Investment an MMF must be legally 

obligated to pay a fund investor (including an FCM) 

by the close of business on the day following a 

redemption request). 

83Staff Letter 16–68 at p. 2. 

84 17 CFR 39.15(c) and (e). 

85 Money Market Fund Reforms; Form PF 

Reporting Requirements for Large Liquidity Fund 

Advisers, Technical Amendments to Form N–CSR 

and Form N–1A, 88 FR 51404 (Aug. 3, 2023) (‘‘SEC 

MMF Reforms’’). The SEC MMF Reforms have an 

effective date of October 2, 2023. 

discussed below.68 A Government MMF 

is defined in SEC Rule 2a–7 as a fund 

that invests 99.5 percent or more of its 

total assets in cash, ‘‘government 

securities,’’ and/or Repurchase 

Transactions that are collateralized fully 

by cash or ‘‘government securities.’’ 69 A 

‘‘government security’’ is defined as 

‘‘any security issued or guaranteed as to 

principal or interest by the United 

States, or by a person controlled or 

supervised by and acting as 

instrumentality of the Government of 

the United States pursuant to authority 

granted by the Congress of the United 

States; or any certificate of deposit of 

any of the foregoing.’’ 70 Therefore, a 

‘‘government security’’ encompasses 

‘‘U.S. government securities’’ and ‘‘U.S. 

agency obligations’’ as defined under 

Regulation 1.25(a)(1)(i) and (iii), 

respectively.71

As noted above, the Commission is 

proposing to amend Regulation 1.25 to 

limit the scope of MMFs that qualify as 

Permitted Investments in response to 

SEC revisions to its MMF rules. In that 

regard, in 2014, the SEC amended Rule 

2a–7 to permit an MMF to impose 

liquidity fees on participant 

redemptions or to temporarily suspend 

participant redemptions if the MMF’s 

investment portfolio triggered certain 

liquidity thresholds.72 The 2014 SEC 

MMF Final Rule was adopted to 

mitigate the adverse effects on fund 

liquidity resulting from increased 

participant redemptions during times of 

financial stress.73

The 2014 SEC MMF Final Rule 

provides that a MMF that invests less 

than 30 percent of its total assets in 

instruments defined as ‘‘weekly liquid 

assets’’ 74 may impose a liquidity fee of 

up to two percent of the value of any 

shares redeemed, or may temporarily 

suspend participants’ redemptions for 

up to 10 business days in a 90-day 

period, if the MMF’s board of directors 

determines that imposing the liquidity 

fee or suspending redemptions is in the 

best interest of the MMF.75 In addition, 

if a MMF invests less than 10 percent of 

its total assets in weekly liquid assets, 

the MMF must impose a liquidity fee of 

at least one percent, and not more than 

two percent, on the value of any shares 

redeemed, unless the MMF’s board of 

directors determines that the fee is not 

in the best interest of the MMF.76 The 

SEC Redemption Provisions are directly 

applicable to Prime MMFs, and 

Government MMFs may voluntarily 

elect to impose such provisions 

(‘‘Electing Government MMFs’’).77

Commission staff subsequently 

received inquiries from market 

participants concerning the 

permissibility of investing Customer 

Funds in MMF interests under 

Regulation 1.25 in light of the SEC 

Redemption Provisions. The 

Commission’s Division of Swap Dealer 

and Intermediary Oversight (‘‘DSIO’’), 

currently known as the Market 

Participants Division (‘‘MPD’’) issued 

CFTC Staff Letter 16–68 78 and the 

Commission’s Division of Clearing and 

Risk (‘‘DCR’’) issued CFTC Staff Letter 

16–69 79 addressing the SEC 

Redemption Provisions and the 

investment of Customer Funds in MMFs 

by FCMs and DCOs, respectively. Staff 

Letter 16–68 80 expressed DSIO staff’s 

view that the SEC Redemption 

Provisions conflict with paragraphs 

(b)(1) 81 and (c)(5)(i) 82 of Regulation 

1.25, as the Redemption Provisions have 

the effect of potentially reducing the 

liquidity of Prime MMFs and Electing 

Government MMFs. Therefore, in 

connection with the no-action position 

taken in the staff letter, DSIO indicated 

that FCMs may no longer invest 

Customer Funds in such MMFs.83

Staff Letter 16–69 set forth DCR staff’s 

interpretation that Regulations 39.15(c) 

and (e) 84 prohibit a DCO from holding 

funds belonging to clearing members or 

their customers in Prime MMFs or 

Electing Government MMFs. DCR staff 

stated that the SEC Redemption 

Provisions were not consistent with 

Regulation 39.15(c), which requires a 

DCO to hold funds and assets belonging 

to clearing members and their customers 

in a manner that minimizes the risk of 

loss or of delay in the access by the DCO 

to such funds and assets. DCR staff 

further stated that the SEC Redemption 

Provisions were inconsistent with 

Regulation 39.15(e), which limits a DCO 

to investing funds and assets belonging 

to clearing members and their customer 

in instruments with minimal credit, 

market, and liquidity risk. Therefore, 

FCMs and DCOs have not invested 

customer funds in Prime MMFs or 

Electing Government MMFs since the 

issuance of the aforementioned Staff 

Letters in 2016. 

The SEC has recently adopted 

additional amendments to its MMF 

rules, including amendments revising 

the SEC Redemption Provisions 

discussed above.85 The SEC MMF 

Reforms are intended to address issues 

observed by the SEC with MMFs in 

connection with the economic shock 

from the onset of the COVID–19 

pandemic. Specifically, the SEC stated 

in March 2020, that concerns about the 

impact of COVID–19 pandemic led 


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86As noted in the SEC MMF Reforms’ adopting 

release, to support the short-term funding markets, 

on March 18, 2020, the Federal Reserve, with the 

approval of the Department of the Treasury, 

established the Money Market Mutual Fund 

Liquidity Facility. The facility provided loans to 

financial institutions on advantageous terms to 

purchase securities from MMFs that were raising 

liquidity. See SEC MMF Reforms at 51408. 

87SEC MMF Reforms at 51407. 

88 Id. at 51409. 

89 Id. 

90 Id. at 51408. 

91 17 CFR 270.2a–7(c)(2)(i) and (ii) (as amended 

by the SEC MMF Reforms). In describing the 

different types of MMFs, the SEC distinguishes 

between Prime MMFs, Government MMFs, and taxexempt (or municipal) MMFs. See SEC MMF 

Reforms at 51406. Tax-exempt MMFs primarily 

hold obligations of state and local governments and 

their instrumentalities, and pay interest that is 

generally exempt from Federal income tax for 

individual taxpayers. Within the category of Prime 

and tax-exempt MMFs, the SEC also treats retail 

and institutional funds separately. The new 

mandatory liquidity fee framework will apply to 

institutional Prime and institutional tax-exempt 

MMFs. Tax-exempt MMFs are not specifically 

discussed in this Proposal, though the Commission 

notes that these funds would be subject to the same 

restrictions as those proposed with respect to Prime 

MMFs. Retail MMFs are held only by natural 

persons, and as such, are not discussed in this 

Proposal either. 

92 17 CFR 270.2a–7(c)(2)(i)(B) (as amended by the 

SEC MMF Reforms). 

93 17 CFR 270.2a–7(c)(2)(i) (as amended by the 

SEC MMF Reforms). 

94See proposed paragraph (a)(1)(iv) of Regulation 

1.25. As discussed in Section III.A, the Commission 

is proposing to renumber paragraph (a)(1) of 

Regulation 1.25 to reflect proposed revisions to the 

list of Permitted Investments. The proposed 

revisions would result in the renumbering of 

current paragraph (a)(1)(vii) to paragraph (a)(1)(v) of 

Regulation 1.25. 

95 17 CFR 1.23(a)(1), 22.2(e)(3)(i), and 30.7(g)(1). 

96 Id. 

investors to reallocate their assets into 

cash and short-term government 

securities. Certain Prime MMFs, in 

particular, experienced significant 

outflows, contributing to stress on shortterm funding markets that resulted in 

government intervention to enhance the 

liquidity of such markets.86 The events 

of March 2020 led the SEC to reevaluate certain aspects of the 

regulatory framework applicable to 

MMFs. In considering the potential 

factors that caused the increased 

redemption activity in March 2020, the 

SEC noted that, among other concerns, 

fears about the potential imposition of 

redemption gates and liquidity fees 

based on observed declines in some 

funds’ weekly liquid assets appear to 

have incentivized investors to redeem 

from certain MMFs.87 Further, 

according to the SEC, the presence of a 

liquidity threshold for consideration of 

fees and gates appears to have affected 

fund managers’ behavior, encouraging 

the sale of long-term portfolio assets to 

maintain weekly liquid assets above the 

30 percent threshold. The SEC also cited 

to evidence suggesting that investors are 

particularly sensitive to the potential 

imposition of redemption gates, which 

fully inhibit the redeemability of MMF 

shares for the duration of the gate.88 In 

the SEC’s view, generally supported by 

commenters’ feedback, the gates and 

liquidity fees associated with 

predictable weekly liquid asset triggers 

proved counterproductive in stemming 

heavy redemptions from certain 

MMFs.89 As such, the SEC concluded 

that MMFs needed better functioning 

tools for managing through stress while 

mitigating harm to shareholders.90

Accordingly, in an effort to improve 

the resilience of MMFs and address the 

issue of preemptive investor redemption 

behavior, particularly in times of stress, 

the SEC adopted changes to the fee and 

gate provisions in SEC Rule 2a–7. The 

SEC MMF Reforms, among other things, 

amend the SEC Redemption Provisions 

by removing a Prime MMF’s ability to 

temporarily suspend participant 

redemptions and by removing an 

Electing Government MMF’s ability to 

voluntarily retain authority to suspend 

participant redemptions. The SEC MMF 

Reforms will also require Prime MMFs 

to impose a liquidity fee when the fund 

experiences net redemptions that 

exceed 5 percent of the fund’s net 

assets, and will permit Prime MMFs to 

impose a discretionary liquidity fee if 

the fund’s board of directors determines 

that a fee is in the best interest of the 

fund.91 Government MMFs will not be 

required to implement the mandatory 

liquidity fee but, consistent with the 

current SEC Redemption Provisions, 

may choose to rely on the ability to 

impose discretionary liquidity fees.92

Such fees, however, are no longer tied 

to the weekly liquid asset threshold.93

The SEC’s liquidity fee mechanism is 

designated to address shareholder 

dilution and the potential for firstmover advantage by allocating liquidity 

costs to redeeming investors. Although 

the mechanism may contribute to 

decreasing outflows from certain MMFs, 

the Commission preliminarily believes 

that the potential imposition of a fee 

will nonetheless have the effect of 

reducing the liquidity of such funds and 

will reduce the principal of an FCM’s or 

DCO’s investment in MMF shares. 

Therefore, consistent with the positions 

taken in Staff Letter 16–68 and Staff 

Letter 16–69, the Commission is 

preliminarily of the view that FCMs and 

DCOs should be allowed to invest 

Customer Funds only in MMFs that will 

not be subject to a liquidity fee (i.e., 

Government MMFs that do not elect to 

apply a discretionary liquidity fee). 

Thus, the proposed amendments would 

remove Prime MMFs and Electing 

Government MMFs, as participants in 

such funds may be subject to liquidity 

fees in certain circumstances. Therefore, 

the Commission is proposing 

amendments to Regulation 

1.25(a)(1)(vii) that would limit the scope 

of MMFs whose interests qualify as 

Permitted Investments to Government 

MMFs that are not Electing Government 

MMFs (‘‘Permitted Government 

MMFs’’).94 To qualify as a Permitted 

Government MMF, at least 99.5 percent 

of the fund’s investment portfolio must 

be comprised of cash, government 

securities (i.e., U.S. Treasury securities, 

securities fully-guaranteed as to 

principal and interest by the U.S. 

Government, and U.S. agency 

obligations), and/or Repurchase 

Transactions that are fully collateralized 

by government securities as set forth in 

SEC Rule 2a–7. The Commission 

preliminarily believes that the proposed 

amendment would ensure that FCMs 

and DCOs invest Customer Funds in 

instruments that are consistent with the 

objectives of Regulation 1.25 of 

preserving principal and maintaining 

liquidity of the investments. 

The Commission also notes that the 

proposed amendments to remove from 

the scope of Permitted Investments the 

interests in MMFs whose redemptions 

may be subject to a liquidity fee would 

prohibit an FCM from depositing 

proprietary interests in such MMFs into 

Customer Funds accounts. Regulations 

1.23(a)(1), 22.2(e)(3)(i), and 30.7(g)(1) 

permit FCMs to deposit proprietary cash 

and unencumbered securities into the 

accounts of futures customers, Cleared 

Swaps Customers, and 30.7 customers, 

respectively, to help ensure that at all 

times the accounts maintain sufficient 

funds to cover the amounts due to all 

customers and prevent the accounts 

from becoming undersegregated.95 The 

securities deposited by FCMs, however, 

must be Permitted Investments as set 

forth in Regulation 1.25.96 Therefore, 

with respect to MMFs, FCMs would 

only be permitted to deposit proprietary 

interest in Permitted Government MMFs 

in the accounts of futures customers, 

Cleared Swaps Customers, and 30.7 

customers under the Proposal. 

To eliminate MMFs whose 

redemptions may be subject to a 

liquidity fee from the scope of Permitted 

Investments under Regulation 1.25, the 

Commission proposes to revise 

Regulation 1.25(a)(1)(vii), which would 

be redesignated Regulation 1.25(a)(1)(v) 

to accommodate other amendments to 

Regulation 1.25(a) discussed in this 

Proposal, by replacing the term ‘‘money 


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97Regulation 1.25(a)(1) (2005). 

98 2011 Permitted Investments Amendment at 

78781. 

99 Id. at 78782. 

100 Id. 

101 2018 Order at 35244–35245. The 2018 Order 

does not address 30.7 customer funds. 

102Condition 3(e) of the 2018 Order at 35245. 

103Condition 3(f) of the 2018 Order at 35245. 

104Condition 3(c) of the 2018 Order at 35245. 

105Condition 3(d) of the 2018 Order at 35245. 

106See 2011 Permitted Investments Amendment 

at 78782 (stating that the Commission would 

consider permitting foreign sovereign debt 

investments to the extent that: (i) the petitioner has 

balances in segregated accounts owed to customers 

or clearing member FCMs in that country’s 

currency; and (ii) the sovereign debt serves to 

preserve principal and maintain liquidity of 

customer funds as required for all other investments 

of customer funds under Regulation 1.25). 

107 17 CFR 1.25(b). 

108Proposed Regulation 1.25(a)(1)(vi). 

market mutual fund’’ with the term 

‘‘government money market funds as 

defined in § 270.2a–7 of this title, 

provided that the funds do not elect to 

be subject to liquidity fees in 

accordance with § 270.2a–7 of this title 

(government money market fund).’’ The 

Commission also proposes to make 

further conforming changes throughout 

Regulation 1.25 and the Appendix to 

Regulation 1.25 by replacing all 

references to ‘‘money market mutual 

fund’’ with ‘‘government money market 

fund.’’ In addition, the Appendix to 

Regulation 1.25 would be redesignated 

as Appendix E to Part 1 to address a 

change in the rules of the Office of the 

Federal Register regarding the structure 

of regulatory text to be codified in the 

Code of Federal Regulations. 

Request for comment: The 

Commission seeks comment on all 

aspects of the Proposal to limit the 

scope of MMFs whose interests qualify 

as Permitted Investments to certain 

Government MMFs to address changes 

to SEC rules governing MMFs as 

described above, including: 

1. Other than concentration limits that 

are discussed further below, should any 

other safeguards be considered for 

Government MMFs whose interests 

qualify as Permitted Investments under 

the Proposal to ensure that the credit, 

liquidity, and market risk of those 

investments is maintained at an 

acceptable level, particularly in light of 

the history of runs in the Prime MMF 

markets and the potential for contagion? 

2. Regulation 1.25(b)(5)(ii) currently 

provides that an FCM or a DCO may 

invest Customer Funds in a fund 

affiliated with that FCM or DCO. Should 

the Commission revise Regulation 

1.25(b)(5)(ii) to prohibit an FCM or a 

DCO from investing Customer Funds in 

affiliated funds? Are there other 

Commission or SEC rules that mitigate 

any potential conflicts of interest that 

may arise from an FCM or a DCO 

investing Customer Funds in affiliated 

funds? 

2. Foreign Sovereign Debt 

Regulation 1.25(a)(1) currently 

permits FCMs and DCOs to invest in the 

sovereign debt of the U.S. only. 

Regulation 1.25 previously permitted 

FCMs and DCOs to invest Customer 

Funds in the foreign sovereign debt of 

any country, provided that the 

investments were limited to balances 

owed by FCMs or DCOs to customers 

denominated in the currency of the 

applicable foreign sovereign debt.97 The 

Commission subsequently eliminated 

all foreign sovereign debt as a Permitted 

Investment in 2011, citing an interest in 

both simplifying the regulation and 

safeguarding Customer Funds in light of 

economic crises experienced by a 

number of foreign sovereigns.98 The 

Commission, however, also stated that it 

recognized that the safety of sovereign 

debt issuances of one country may vary 

greatly from the sovereign debt 

issuances of another country, and that 

investment in certain sovereign debt 

may be consistent with Regulation 

1.25’s objective of preserving principal 

and maintaining liquidity of 

investments.99 The Commission further 

stated that it was amenable to 

considering requests for Section 4(c) 

exemptions to permit FCMs and DCOs 

to invest Customer Funds in foreign 

sovereign debt. Specifically, the 

Commission stated that it would 

consider permitting Customer Funds to 

be invested in the foreign sovereign debt 

of a country to the extent that: (i) FCMs 

or DCOs held balances in segregated 

accounts owed to customers 

denominated in that country’s currency; 

and (ii) the foreign sovereign debt serves 

to preserve principal and maintain 

liquidity of Customer Funds as required 

for all other investments of Customer 

Funds under Regulation 1.25.100

As discussed in Section II above, the 

Commission subsequently issued the 

2018 Order pursuant to Section 4(c) of 

the Act granting DCOs a limited 

exemption from the provisions of 

Regulation 1.25(a) to authorize the 

investment of euro-denominated futures 

customer funds and Cleared Swaps 

Customer Collateral in eurodenominated sovereign debt issued by 

France or Germany subject to specified 

terms and conditions.101 The 2018 

Order also provides an exemption from 

Regulation 1.25(d) to permit DCOs to 

enter into Repurchase Transactions 

involving French or German sovereign 

debt with: (i) the European Central 

Bank; (ii) the Deutsche Bundesbank; (iii) 

the Banque de France; (iv) a foreign 

bank located in a country that has 

adopted the euro as its currency and 

maintains in excess of $1 billion in 

regulatory capital; and (v) a foreign 

dealer located in a country that has 

adopted the euro as its currency and is 

subject to regulation by a national 

financial regulator.102 The 2018 Order 

also permits DCOs to hold German or 

French foreign sovereign debt 

purchased under reverse repurchase 

agreements with depositories located in 

a country that has adopted the euro as 

its currency and that maintain in excess 

of $1 billion in regulatory capital, 

provided that the DCOs separately 

account for the securities purchased as 

futures customer funds or Cleared 

Swaps Customer Collateral, as 

applicable.103

The 2018 Order also contains certain 

conditions regarding the investment of 

futures customer funds or Cleared 

Swaps Customer Collateral in French or 

German sovereign debt. Specifically, the 

2018 Order provides that the dollarweighted average time-to-maturity of a 

DCO’s portfolio of investments in either 

French or German sovereign debt may 

not exceed 60 days.104 In addition, the 

2018 Order provides that a DCO may 

not make a direct investment in any 

French or German debt instrument with 

a remaining time-to-maturity of greater 

than 180 calendar days.105

For the reasons stated below, the 

Commission is proposing to amend 

Regulation 1.25 to add Specified 

Foreign Sovereign Debt to the list of 

Permitted Investments. The proposed 

addition of Specified Foreign Sovereign 

Debt would be subject to certain 

conditions that are consistent with the 

criteria specified in the 2011 Permitted 

Investments Amendment 106 and the 

conditions specified in the 2018 Order 

discussed above. The proposed 

conditions are also consistent with the 

general objectives set forth in Regulation 

1.25 of preserving principal and 

maintaining liquidity of Permitted 

Investments.107

The proposed amendments would 

expand the exemptive relief provided in 

the 2018 Order by adding the debt of 

Canada, Japan, and the United 

Kingdom, in addition to that of France 

and Germany, to the list of Permitted 

Investments under Regulation 1.25, and 

by allowing FCMs, in addition to DCOs, 

to invest in the foreign sovereign 

debt.108 FCMs collectively held an 

aggregate of a U.S. dollar equivalent of 

$51 billion of Customer Funds 

denominated in Canadian dollars 


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109The $490 billion represents the U.S. dollar 

equivalent of the total value of margin assets held 

by FCMs for futures customers, Cleared Swaps 

Customers, and 30.7 customers as reported to CME 

as of August 15, 2023. The breakdown by currency 

was as follows: CAD 14 billion; EUR 18 billion; GBP 

3 billion; and JPY 16 billion. Some of these funds 

may have been posted by the FCMs to DCOs as 

margin collateral. 

110See Joint Petition at pp. 6–7. 

111See Appendix A to Joint Petition and 

Supplement to Joint Petition at p. 1 (indicating that 

the outstanding debt in instruments with time-tomaturity of two years or less issued by Canada, 

France, Germany, Japan, and the United Kingdom, 

based on information available on Bloomberg as of 

July 11, 2023, was equal to the USD equivalence of 

$447 billion, $594 billion, $557 billion, $2.6 

trillion, and $534 billion, respectively). See also 

Bank of International Settlements’ Debt Securities 

Statistics (including data as of the end of 2021), 

available here: https://www.bis.org/statistics/ 

secstats.htm?m=2615 and 2021 Survey on Liquidity 

in Government Bond Secondary Markets, 

Organization for Economic Co-operation and 

Development, available here: https://www.oecdilibrary.org/sites/b2d85ea7-en/1/4/2/ 

index.html?itemId=/content/publication/b2d85ea7- 

en&_csp_=e3b7b0a57d02c41c

597306342c85c8b6&itemIGO=oecd&item

ContentType=book (confirming that Specified 

Foreign Sovereign Debt instruments presented good 

liquidity characteristics in 2021). 

112The Commission reviewed yield data available 

through Bloomberg, a proprietary financial data 

provider, for 1-year sovereign debt instruments 

issued by Canada, France, Germany, Japan, the 

United Kingdom, and the U.S. 

113The Commission discussed the preferability 

from a risk management perspective of investing 

foreign currency in high quality foreign sovereign 

debt relative to the credit risk posed by unsecured 

demand deposit accounts at commercial banks in 

issuing the 2018 Order permitting DCOs to invest 

futures customer funds and Cleared Swaps 

Customer Collateral in French and German 

sovereign debt. See 2018 Order at 35245–35246. 

114To reach this conclusion, the Commission 

considered, among other factors, the daily volatility 

of exchange rates of the relevant currency pairs. 

Specifically, based on data from the Federal Reserve 

Bank of St. Louis’ FRED database, the Commission 

notes that for the period from September 2018 to 

September 2023, the standard deviation of the daily 

percentage change of exchange rate between the 

relevant currency pairs was 0.45 percent for the 

CAD/USD pair, 0.46 percent for the EUR/USD pair, 

0.61 percent for the GBP/USD pair, and 0.55 

percent for the JPY/USD pair, indicating a currency 

fluctuation that is an additional risk factor with 

respect to the return on investment of customer 

foreign currency deposits in U.S. dollardenominated assets. The Commission also 

recognized foreign currency fluctuation risk in the 

2000 Permitted Investments Amendment, which 

added foreign sovereign debt to the list of Permitted 

Investments for the first time. See 2000 Permitted 

Investments Amendment at 78003. 

115Proposed Regulation 1.25(a)(1)(vii). 

116See Statistical Appendix to the World 

Economic Outlook, April 2023, International 

Monetary Fund, available here: https://

www.imf.org/en/Publications/WEO/Issues/2023/04/ 

11/world-economic-outlook-april-2023. 

117 17 CFR 1.49(a). In the absence of customer 

instructions to the contrary, Regulation 1.49(c) 

limits permissible locations of depositories of 

Customer Funds to the U.S., the country of origin 

of the currency, and a ‘‘money center country.’’ The 

concept of ‘‘money center country’’ is defined to 

mean Canada, France, Italy, Germany, Japan, and 

the United Kingdom, and is intended to correspond, 

together with the U.S., to the list of G7 countries. 

See Denomination of Customer Funds and Location 

of Depositories, 68 FR 5551 (Feb. 4, 2003) at 5546. 

118Based on data contained in the Segregation 

Investment Detail Reports filed by FCMs with the 

Commission as of August 15, 2023. The reports 

contain detailed listings of the Permitted 

Investments held by each FCM. See 17 CFR 1.32(f), 

17 CFR 22.2(g)(5), and 17 CFR 30.7(l)(5). 

119Proposed Regulation 1.25(a)(1)(vii)(A) and (B). 

(‘‘CAD’’), euros (‘‘EUR’’), Japanese yen 

(‘‘JPY’’), and Great British pounds 

(‘‘GBP’’) on August 15, 2023. The $51 

billion represented approximately 10 

percent of the total $490 billion of 

Customer Funds held by FCMs in 

segregated accounts on August 15, 

2023.109

Having considered the Joint Petition 

and analyzing the instruments’ 

characteristics, the Commission believes 

that including Specified Foreign 

Sovereign Debt as a Permitted 

Investment would be consistent with 

the overall objectives set forth in 

Regulation 1.25 of preserving principal 

and maintaining liquidity of Customer 

Funds. The Joint Petition states that the 

Specified Foreign Sovereign Debt has 

credit and liquidity characteristics that 

are comparable to the credit and 

liquidity characteristics of U.S. Treasury 

securities. Specifically, the Joint 

Petition states that the credit default 

swaps of Canada, France, Germany, 

Japan, and the United Kingdom have 

relatively narrow spreads similar to the 

credit default spread of the United 

States.110 With respect to liquidity, the 

Joint Petition states that there were 

substantial amounts of outstanding 

marketable Canadian, French, German, 

Japanese, and United Kingdom debt and 

provided data on the amount of 

outstanding debt in instruments with 

time-to-maturity of two years or less 

issued by each relevant jurisdiction.111

The Commission also analyzed the 

volatility of the Specified Foreign 

Sovereign Debt and observed, based on 

the available data, that the price risk of 

the relevant foreign sovereign debt is 

comparable to that of U.S. Treasury 

securities. Specifically, using one-year 

sovereign debt instruments yield data 

for the period September 21, 2018 to 

September 20, 2023, the Commission 

notes that the standard deviation of 

daily yield change for one-year U.S. 

Treasury bills was 9 BPS, whereas the 

same measure for Canadian, French, 

German, Japanese, and United Kingdom 

one-year debt instruments ranged from 

1 to 7 BPS.112 The Commission also 

notes that holding high-quality foreign 

sovereign debt may pose less risk to 

Customer Funds than the credit risk of 

commercial banks through unsecured 

bank demand deposit accounts.113

Furthermore, the Commission 

believes that the proposed amendments 

would provide FCMs and DCOs with an 

investment option to manage the 

potential foreign exchange risk that may 

arise in their administration and 

investment of Customer Funds. 

Specifically, the Commission notes that 

absent the ability to invest Customer 

Funds in identically-denominated 

sovereign debt securities, an FCM or a 

DCO seeking to invest customer foreign 

currency deposits would need to 

convert the currencies to a U.S. dollardenominated asset, which would 

introduce potential foreign currency 

fluctuation risk to the FCMs and 

DCOs.114

Based on these considerations, the 

Commission proposes to expand the list 

of Permitted Investments to include 

Specified Foreign Sovereign Debt. To 

ensure that investments in Specified 

Foreign Sovereign Debt remain 

consistent with Regulation 1.25’s 

general objectives of preserving 

principal and maintaining liquidity, and 

with the criteria specified in the 2011 

Permitted Investments Amendment for 

adding foreign sovereign debt as a 

Permitted Investment, the Commission 

is proposing to permit the investment of 

Customer Funds in such debt subject to 

specified conditions, which are 

discussed below. 

First, under the Proposal, an FCM or 

a DCO would be permitted to invest in 

the foreign sovereign debt of only 

Canada, France, Germany, Japan, and 

the United Kingdom.115 The five 

jurisdictions are among the seven largest 

economies in the International 

Monetary Fund’s classification of 

advanced economies.116 Each country is 

also a member of the Group of 7 (‘‘G7’’), 

which represents the world’s largest 

industrial democracies, and qualifies as 

a ‘‘money center country’’ as the term is 

defined in Regulation 1.49(a)(1).117

Additionally, the currencies of the five 

jurisdictions represent a material 

portion of the total amount of non-U.S. 

dollar-denominated obligations that 

FCMs owe to customers, and amount to 

approximately 10 percent of the total 

Customer Funds held by FCMs and 

DCOs.118

Second, an FCM or a DCO would be 

permitted to invest in the Specified 

Foreign Sovereign Debt of a country 

only to the extent that the FCM or a 

DCO has balances in accounts owed to 

customers denominated in the country’s 

currency.119 Prior to the 2011 Permitted 

Investments Amendment, when 

Regulation 1.25 permitted the 

investment of Customer Funds in 

foreign sovereign debt, the regulation 


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120See 2000 Permitted Investments Amendment 

at 65 FR 78010, which provided in paragraph 

(a)(1)(vii) of Regulation 1.25 that an FCM or a DCO 

could invest in debt of a foreign sovereign subject 

to certain conditions, including that the FCM or 

DCO had balances owed to customers denominated 

in that country’s currency. 

121 Id. at 78003. 

122As discussed supra, prior to 2011, the 

Commission permitted an FCM or a DCO to invest 

Customer Funds in foreign sovereign debt subject 

to the condition that the FCM or DCO held balances 

owed to customers denominated in the currency of 

the foreign country. In the wake of the 2008 

financial crisis, the Commission eliminated foreign 

sovereign debt from the list of permitted 

investments noting at the time that ‘‘in many cases, 

the potential volatility of foreign sovereign debt in 

the current economic environment and the varying 

degrees of financial stability of different issuers 

make foreign sovereign debt inappropriate for 

hedging foreign currency risk.’’ 2011 Permitted 

Investments Amendment at 78781. Yet it 

recognized that ‘‘the safety of sovereign debt 

issuances of one country may vary greatly from 

those of another, and that investment in certain 

sovereign debt might be consistent with the 

objectives of preserving principal and maintaining 

liquidity, as required by Regulation 1.25.’’ Id. at 

78782. For the reasons discussed above, the 

Commission is proposing to reinstate certain foreign 

sovereign debt consistent with the Commission’s 

expressed statement in the 2011 Permitted 

Investments Amendment that it would consider 

permitting such investments provided that the 

investments: (i) are limited to balances owed to 

customers denominated in the currency of the 

applicable foreign sovereign, and (ii) serve to 

preserve the principal and maintain the liquidity of 

Customer Funds. See id. at 78782. The Proposal is 

also consistent with the Commission’s approach in 

the 2018 Order of permitting DCOs to invest in the 

sovereign debt of France and Germany to the extent 

such foreign sovereign debt satisfies specific criteria 

demonstrating consistency with the credit, 

liquidity, and volatility of short-term U.S. Treasury 

securities. 

123Proposed Regulation 1.25(f)(3). 

124Condition 3(b) of the 2018 Order at 35245. 

125See 2018 Order at 35243. 

126 In 2018, the Commission reviewed the daily 

U.S. Spread from July 3, 2009 to July 3, 2017. Over 

that time period, the U.S. Spread had a mean of 

approximately 26.5 BPS and a standard deviation 

of approximately 9.72 BPS. Forty-five BPS were 

approximately two standard deviations above the 

26.5 mean. 

127See 2018 Order at 35243. 

128Based on an assessment conducted by CFTC 

staff on September 20, 2023. 

129Using the daily U.S. Spread data from July 3, 

2009 to July 3, 2017 and assuming the two-year 

credit default spread follows a normal distribution, 

the Commission estimated that there was less than 

2.5 percent likelihood that the U.S. credit default 

spread would exceed 45 BPS over a two-year 

period. In addition, the Commission’s estimate, 

based on the daily U.S. Spread data from September 

21, 2018 to September 20, 2023, indicates that there 

is less than 1 percent likelihood, under both normal 

and empirical distributions, that the two-year credit 

default swap spread of the sovereigns issuing 

Specified Foreign Sovereign Debt would exceed 45 

BPS. Therefore, the Commission preliminarily 

believes that 45 BPS represents an appropriate 

threshold for countries whose debt may qualify as 

a Permitted Investment under Regulation 1.25. 

130Proposed Regulation 1.25(f)(3)(i). 

131Proposed Regulation 1.25(f)(3)(ii). 

132 17 CFR 270.2a–7. 

133Proposed Regulation 1.25(f)(1). Under the 

Proposal, the dollar-weighted average of the timeto-maturity would be computed pursuant to SEC 

Rule 2a–7 (17 CFR 270.2a–7), consistent with the 

general time-to-maturity provision in Regulation 

1.25(b)(4)(i). 

134 2018 Order at 35244. 

included a similar restriction.120 As 

noted above, the Commission explained 

that an FCM or a DCO seeking to invest 

deposits of foreign currencies, absent 

the ability to invest in identicallydenominated sovereign debt securities, 

would need to convert the foreign 

currencies to a U.S. dollar-denominated 

asset, which would increase the FCM’s 

or DCO’s exposure to foreign currency 

fluctuation risk.121 The Commission 

believes the restriction is appropriate as 

it balances the need to ensure the safety 

of Customer Funds with the 

Commission’s desire to provide a degree 

of investment flexibility to FCMs and 

DCOs.122

Third, the Commission is proposing 

to permit FCMs and DCOs to invest in 

Specified Foreign Sovereign Debt 

provided that the two-year credit default 

spread of the issuing sovereign is 45 

BPS or less.123 This condition is 

consistent with the 45 BPS two-year 

credit default spread limit specified by 

the Commission in the 2018 Order 

permitting DCOs to invest futures 

customer funds and Cleared Swaps 

Customer Collateral in French and 

German sovereign debt.124 The 

Commission set the cap of 45 BPS in the 

2018 Order based on a historical 

analysis of the two-year credit default 

spread of the U.S. (‘‘U.S. Spread’’).125

Forty-five BPS was, at the time, 

approximately two standard deviations 

above the mean U.S. Spread over the 

preceding eight years.126

The Commission observed that over 

that eight-year period of July 3, 2009 to 

July 3, 2017, the U.S. Spread was 45 

BPS or less approximately 95 percent of 

the time and exceeded 45 BPS 

approximately 5 percent of the time. 

During the same period, the two-year 

German spread exceeded 45 BPS 

approximately 6 percent of the time and 

the two-year French spread exceeded 45 

BPS approximately 25 percent of the 

time, with all exceedances occurring 

between July 2009 and September 2012, 

in the aftermath of the 2008 financial 

crisis and the European sovereign debt 

crisis.127

During the more recent period of 

September 21, 2018 to September 20, 

2023, the U.S. Spread had a mean of 

approximately 16.4 BPS,128 which was 

lower than the mean spread of 26.5 BPS 

for the July 3, 2009 to July 3, 2017 

period. In that same time period, the 

two-year credit default swap spread of 

the sovereigns issuing the Specified 

Foreign Sovereign Debt did not exceed 

45 BPS. Based on these more recent U.S. 

Spread and Foreign Sovereign Debt 

data, the Commission preliminarily 

believes that the cap of 45 BPS 

established in the 2018 Order continues 

to be set at an appropriate level.129

Under the Proposal, if the credit 

default spread of a subject country were 

to exceed the 45 BPS cap, FCMs and 

DCOs would not be permitted to make 

new investments in the country’s 

Specified Foreign Sovereign Debt.130 In 

addition, if the credit default spread 

exceeded the 45 BPS cap, FCMs and 

DCOs would be required to discontinue 

investing Customer Funds in that 

sovereign’s debt through Repurchase 

Transactions as soon as practicable 

under the circumstances.131 The FCMs 

or DCOs would not, however, be 

required to immediately divest their 

current investments in Specified 

Foreign Sovereign Debt, given the risks 

associated with selling assets into a 

potentially volatile market or having to 

immediately locate depositories for 

funds that had been invested in a 

Repurchase Transaction with limited 

notice. The prohibition on new 

investments would reduce the exposure 

to Customer Funds by avoiding the risk 

of default on the Specified Foreign 

Sovereign Debt. In situations where the 

45 BPS cap is exceeded, the 

Commission preliminarily believes that 

it would be more appropriate for FCMs 

and DCOs to hold Customer Funds 

denominated in foreign currency in cash 

or invest the foreign currency in U.S. 

dollar-denominated Permitted 

Investments instead of Specified 

Foreign Sovereign Debt. In addition, the 

length to maturity condition discussed 

immediately below would mitigate price 

risks to the Customer Funds that might 

arise from a country’s two-year credit 

default spread exceeding the 45 BPS 

limit. 

Fourth, the Commission is proposing 

to limit the time-to-maturity of 

investments in Specified Foreign 

Sovereign Debt. Specifically, under the 

Proposal, an FCM or a DCO would be 

required to ensure that the dollarweighted average time-to-maturity of its 

portfolio of investments in the Specified 

Foreign Sovereign Debt, as the average 

is computed under Rule 2a–7 under the 

Investment Company Act of 1940 (‘‘SEC 

Rule 2a–7’’) 132 on a country-by-country 

basis, does not exceed 60 calendar 

days.133 Consistent with the position 

taken in the 2018 Order,134 if the 

portfolio includes Specified Foreign 

Sovereign Debt instruments that have 

been acquired under a reverse 

repurchase agreement, the FCM or DCO 

would be permitted to use the maturity 


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135Consistent with SEC Rule 2a–7(i)(6), the 

reverse repurchase agreement would be deemed to 

have a maturity equal to the period remaining until 

the date on which the resale of the underlying 

instruments is scheduled to occur, or, where the 

agreement is subject to demand, the notice period 

applicable to a demand for the resale of the 

instruments. See proposed Regulation 1.25(f)(1). 

136 17 CFR 1.25(d)(6). 

137Proposed Regulation 1.25(f)(1). 

138Proposed Regulation 1.25(f)(2). 

139 Joint Petition at pp. 5–6 (asserting that the new 

issuance supply of the Specified Foreign Sovereign 

Debt meeting the restrictions is limited and would 

be thinly traded/quoted). 

140 Data made available by the Bank of Canada, 

l’Agence France Tre ́sor (the French Finance 

Agency), the Bundesrepublik Deutschland 

Finanzagentur (the German Finance Agency), the 

Japan Ministry of Finance, and the United Kingdom 

Debt Management Office indicate that the five 

jurisdictions issue a sizable amount of debt 

securities with time-to-maturity of less than 180 

days on a frequent basis. Specifically, in July 2023, 

Canada auctioned approximately USD 22 billion, 

France auctioned approximately USD 18 billion, 

Germany auctioned approximately USD 10 billion, 

Japan auctioned approximately USD 15 billion, and 

the United Kingdom auctioned approximately USD 

34 billion in debt instruments with time-to-maturity 

of six months or less (see Canadian Treasury bills 

auction results at https://www.bankofcanada.ca/ 

markets/government-securities-auctions/calls-fortenders-and-results/regular-treasury-bills/; French 

BTF auction history at https://www.aft.gouv.fr/en/ 

dernieres-adjudications); German Bubills issuance 

results at https://www.deutsche-finanzagentur.de/ 

en/federal-securities/issuances/issuance-results 

(refer to reopening of 12-month Bubills with 

residual maturities between three and six months); 

Japanese T-bills auction results at https://

www.mof.go.jp/english/policy/jgbs/auction/past_

auction_results/index.html; and United Kingdom 

Treasury Bill tender results at https://

www.dmo.gov.uk/data/treasury-bills/tender-results/ 

). 

141Proposed revised Regulation 1.25(b)(4)(i). 

142For a definition of Section 3(a)(6) bank, see 

supra note 51. 

143Public Law 99–571, 100 Stat. 3208 (Oct. 28, 

1986). 

144Proposed Regulation 1.25(d)(2). 

of the reverse repurchase agreement to 

compute the dollar-weighted average 

time-to-maturity of the portfolio.135 This 

approach takes into account the 

expected resale of the instruments, 

which would be scheduled to occur 

within one business day or on demand 

as required by Regulation 1.25(d)(6).136

Conversely, if the FCM or DCO sells 

Specified Foreign Sovereign Debt 

instruments under a repurchase 

agreement, the FCM or DCO would be 

required to include the instruments in 

the calculation of the dollar-weighted 

average based on the remaining time-tomaturity of each instrument sold, to 

account for the expected repurchase of 

such instruments.137 In addition, an 

FCM or a DCO would not be permitted 

to make direct investments in any 

Specified Foreign Sovereign Debt 

instrument that had a remaining 

maturity greater than 180 calendar 

days.138

Arguing that these restrictions, which 

are analogous to the restrictions in the 

2018 Order, would be too limiting, the 

Petitioners requested that the 

Commission revise the regulations to 

provide a six-month dollar-weighted 

average time-to-maturity for the 

portfolio of foreign sovereign debt, and 

a maximum two-year remaining time-tomaturity for each foreign sovereign debt 

instrument.139 The Commission, 

however, notes that the proposed 

restrictions are intended to ensure that 

an FCM’s or DCO’s portfolio of 

Specified Foreign Sovereign Debt is 

comprised of sovereign debt 

instruments that mature within a 

relatively short period of time. The short 

time-to-maturity requirement is 

expected to assist FCMs and DCOs in 

managing and mitigating potential 

market and/or credit risk by providing 

FCMs and DCOs with the option of 

holding the debt instruments to 

maturity during periods of market stress 

and price volatility rather than selling 

the debt instruments at potentially 

significant discounts. This option may 

be particularly valuable in periods of 

significant interest rate movements, 

which could exacerbate market risk in 

sovereign debt markets. In that regard, 

the Commission preliminarily views the 

relatively short time-to-maturity as an 

essential risk-managing feature in the 

context of investments in Specified 

Foreign Sovereign Debt and 

preliminarily believes that the 60-day 

dollar-weighted average time-tomaturity restriction and the 180-day 

remaining maturity restriction are more 

appropriate than the six months and 

two years respective limits requested in 

the Joint Petition. 

The Commission also believes that the 

proposed time-to-maturity requirements 

would not be as limiting as asserted in 

the Joint Petition given that the new 

issuance supply of the Specified Foreign 

Sovereign Debt meeting the proposed 

restrictions appears adequate to satisfy 

the demand for the investment of 

Customer Funds in the relevant 

instruments.140 In addition, the use of 

the maturity of reverse repurchase 

agreements in the calculation of the 

dollar-weighted average of the portfolio 

of investments in Specified Foreign 

Sovereign Debt would reduce the 

average time-to-maturity of the portfolio 

as a whole. As noted in the request for 

comment below, the Commission is 

explicitly seeking comment on its 

preliminary analysis. 

The Commission is also proposing to 

amend Regulation 1.25(b)(4)(i), which 

provides that except for investments in 

MMFs, the dollar-weighted average 

time-to-maturity of an FCM’s or a DCO’s 

portfolio of Permitted Investments, as 

computed under SEC Rule 2a–7, may 

not exceed 24 months. The proposed 

amendment would revise Regulation 

1.25(b)(4)(i) to exclude Specified 

Foreign Sovereign Debt from the 

calculation of the dollar-weighted 

average time-to-maturity of the 

portfolio.141 The Commission is 

proposing this amendment as Specified 

Foreign Sovereign Debt would be 

subject to its own dollar-weighted 

average time-to-maturity limit of 60 

calendar days, which is substantially 

shorter than the two-year dollarweighted average time-to-maturity 

requirement for the overall portfolio 

required by Regulation 1.25(b)(4)(i). 

To allow Regulation 1.25(a)(2) to 

effectively incorporate Specified 

Foreign Sovereign Debt as a Permitted 

Investment that FCMs and DCOs would 

be able to buy or sell pursuant to 

Repurchase Transactions, the 

Commission also proposes to expand 

the permissible counterparties and 

depositories under Regulation 1.25(d)(2) 

and (7) to include certain foreign 

entities. Regulation 1.25(d)(2) limits 

counterparties with which an FCM or a 

DCO may enter into a Repurchase 

Transaction to a Section 3(a)(6) 142 bank, 

a domestic branch of a foreign bank 

insured by the FDIC, a securities broker 

or dealer, or a government securities 

dealer registered with the SEC or which 

has filed a notice pursuant to Section 

15C(a) of the Government Securities Act 

of 1986.143 Regulation 1.25(d)(7) further 

requires an FCM and a DCO to hold the 

securities transferred to the FCM or 

DCO under a reverse repurchase 

agreement, in a safekeeping account 

held with a bank as referred to in 

Regulation 1.25(d)(2), a Federal Reserve 

Bank, a DCO, or the Depository Trust 

Company. 

As a practical matter, absent 

amendment to these counterparty and 

depository provisions, an FCMs’ and 

DCOs’ ability to buy and sell Specified 

Foreign Sovereign Debt pursuant to 

Repurchase Transactions would be 

restricted given that participants in the 

foreign sovereign debt Repurchase 

Transactions market are predominantly 

non-U.S. entities. The Commission 

therefore proposes to add foreign banks 

and foreign brokers or dealers meeting 

certain requirements, as well as the 

European Central Bank and the central 

banks of Canada, France, Germany, 

Japan, and the United Kingdom, to the 

list of permitted counterparties.144 To be 

deemed a permitted counterparty, a 

foreign bank would have to qualify as a 

depository under Regulation 1.49(d)(3) 


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145See 2018 Order, Condition (e) at 35245. 

146Proposed Regulation 1.25(d)(7). 

147See 2018 Order, Condition (f) at 35245. 

148 Invesco Petition at p. 5. See also, ExchangeTraded Funds, 84 FR 57162 (Oct. 24, 2019) (‘‘SEC 

ETFs Release’’) at 57164. 

149 17 CFR 270.6c–11 (‘‘SEC Rule 6c–11’’). 

150See generally SEC ETFs Release. 

151 Invesco Petition at p. 5. See also, SEC ETFs 

Release at 57164. 

152 Id. 

153See ‘‘Exchange-Traded Funds,’’ publication by 

FINRA, available at: https://www.finra.org/ 

investors/learn-to-invest/types-investments/ 

investment-funds/exchange-traded-fund. 

154 Id. 

155Some ETFs may also be structured as unitinvestment trusts. See e.g., SPDR® S&P 500® ETF 

Trust and SPDR® Dow Jones Industrial Average ETF 

Trust. The regulatory framework set forth by SEC 

Rule 6c–11, however, applies only to ETFs that are 

organized as open-end management investment 

companies. See 17 CFR 270.6c–11. 

156A ‘‘mutual fund’’ is a type of open-end 

management company, meaning that investors can 

purchase and redeem shares in the fund on a daily 

basis based on the NAV of their shares. Mutual 

funds pool the money of many investors to 

purchase a range of securities to meet specified 

investment objectives. 

157See 17 CFR 270.6c–11 (defining ‘‘exchangetraded fund’’). 

158 Invesco Petition at p. 5. 

by holding regulatory capital in excess 

of $1 billion, and would also have to be 

located in a money center country as 

defined in Regulation 1.49(a)(1) (i.e., 

Canada, France, Italy, Germany, Japan, 

and the United Kingdom) or in another 

jurisdiction that has adopted the 

currency of the permitted foreign 

sovereign debt. Similarly, a foreign 

broker or dealer would have to be 

located in a money center country and 

be regulated by a foreign financial 

regulator. The proposed provisions are 

designed to ensure that the 

counterparties would be regulated 

entities comparable to those 

counterparties already permitted under 

Regulation 1.25(d)(2), and are consistent 

with the counterparty conditions set 

forth in the 2018 Order.145

With respect to permitted 

depositories, the Commission proposes 

to permit Specified Foreign Sovereign 

Debt instruments transferred to an FCM 

or a DCO under a reverse repurchase 

agreement to be held with a foreign 

bank that qualifies as a permitted 

depository under Regulation 1.49.146

The proposed provision is designed to 

ensure that any additional depositories 

would be comparable to those already 

permitted under Regulation 1.25(d)(7), 

and subject to the conditions for 

depositories in the 2018 Order.147 The 

Commission notes that mandating the 

safekeeping of foreign securities 

purchased through reverse repurchase 

agreements with a U.S. custodian as 

required under the current regulation 

may be inefficient or impractical. 

Request for Comment. The 

Commission seeks comment on all 

aspects of the Proposal relating to the 

expansion of the list of Permitted 

Investments to include Specified 

Foreign Sovereign Debt, including: 

3. Under the Proposal, the list of 

Permitted Investments set forth in 

Regulation 1.25(a) would be expanded 

to include sovereign debt issued by 

Canada, France, Germany, Japan, and 

the United Kingdom, subject to 

specified conditions. Although these 

Specified Foreign Sovereign Debt 

instruments present credit and liquidity 

characteristics that are similar to those 

of currently Permitted Investments, 

such debt may also be less liquid than 

U.S. government securities. Do 

investments in Specified Foreign 

Sovereign Debt raise any liquidity issues 

or concerns? If so, please explain your 

responses and provide data if possible. 

4. The Proposal would prohibit 

investments of Customer Funds in 

Specified Foreign Sovereign Debt if the 

two-year credit default swap spread of 

the issuing sovereign exceeds 45 BPS. 

Should the Commission consider a 

higher or lower credit default spread 

limit? If so, please specify the 

appropriate credit default spread and 

explain why it is necessary and 

appropriate. Should the investment 

prohibition be contingent on the breach 

of the 45 BPS threshold occurring a 

certain number of times within a 

specified time period or for a particular 

duration within a specified time period? 

Should there be a ‘‘cooling-off’’ period 

before the Specified Foreign Sovereign 

Debt may be used again as a Permitted 

Investment under Regulation 1.25? For 

instance, should the Specified Foreign 

Sovereign Debt be subject to a 

requirement that the CDS spread be 

below 45 BPS for a minimum period of 

time (e.g., 3 months) before it could be 

reinstated as an eligible Permitted 

Investment? 

5. The Proposal would limit the timeto-maturity of investments in Specified 

Foreign Sovereign Debt to a 60-day 

maximum dollar-weighted average timeto-maturity of the portfolio of 

investments and a 180-day maximum 

remaining time-to-maturity of 

individual direct investments. The 

Petitioners requested that the limits be 

set at six months and two years, 

respectively. Should the Commission 

consider extending the time-to-maturity 

limits as requested? If yes, please 

provide analysis and appropriate market 

data supporting the extension. 

3. Interests in U.S. Treasury ExchangeTraded Funds 

ETFs are collective investment 

vehicles that issue redeemable securities 

that are also traded at the market price 

on national securities exchanges.148 The 

Commission proposes to add interests in 

ETFs to the list of Permitted 

Investments under Regulation 1.25, 

subject to specified proposed conditions 

discussed below. 

The SEC adopted Rule 6c–11 149

under the Investment Company Act of 

1940 in 2019, creating a regulatory 

framework that allows ETFs meeting 

certain requirements to operate as 

investment companies under the 

Investment Company Act of 1940 

without having to obtain an exemptive 

order from the SEC as previously 

required.150 Like other investment 

companies, an ETF pools the assets of 

multiple investors and invests those 

assets according to a set investment 

objective and principal investment 

strategies.151 Each share of an ETF 

represents an undivided fractional 

interest in the underlying assets of the 

ETF.152 Similar to indexed mutual 

funds, many ETFs are designed to 

passively track a particular market 

index, investing in all or a 

representative sample of the 

instruments included in the index and 

aiming to achieve the same return as the 

tracked index.153 Other ETFs are 

actively managed, with portfolio 

managers buying and selling stocks in 

accordance with an investment strategy 

rather than passively tracking an 

index.154

As an open-end management 

company,155 similar to a mutual 

fund,156 an ETF continuously offers its 

shares for sale. Unlike mutual funds, 

however, ETFs do not sell shares to, or 

redeem shares from, investors directly. 

Instead, ETFs issue (and redeem) shares 

to (and from) ‘‘authorized 

participants’’—market intermediaries 

that have a contractual arrangement 

with the ETF (or its distributor) and are 

members or participants of a clearing 

agency registered with the SEC—in 

blocks called ‘‘creation units.’’ 157

Authorized participants play a key role 

for ETF shares as they are the only 

investors that are allowed to transact 

directly with the ETF.158 Authorized 

participants must: (i) be an SEC– 

registered broker or dealer or other 

securities market participant (such as a 

bank or other financial institution that 

is not required to register as a broker or 

dealer to engage in securities 

transactions); (ii) be a full participating 

member of the National Securities 

Clearing Corporation and the Depository 

Trust Company; and (iii) have entered 


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159 Id. 

160See SEC ETFs Release at 57164; see also David 

Abner, The ETF Handbook: How to Value and 

Trade Exchange-Traded Funds, 2nd ed. (2016). 

161See Joint Petition at pp. 8–9. 

162 Invesco Petition at p. 2. 

163 Id. at pp. 6–7. Financial requirements include: 

(i) annual shareholder report, including audited 

financial statements (17 CFR 270.30e–1); (ii) semiannual shareholder report, including unaudited 

financial statements (17 CFR 270.30e–1); (iii) 

monthly portfolio statistics and holdings filed 

quarterly (17 CFR 270.30b1–9); (iv) annual census 

report containing financial-related information (17 

CFR 270.30a–1); and (v) periodic reports with 

respect to portfolio liquidity and derivatives use (17 

CFR 270.30b1–10). With respect to liquidity risk 

management, SEC regulations require open-ended 

management investment companies, including 

ETFs, to adopt and implement a liquidity risk 

management program that is reasonably designed to 

assess and manage liquidity risk, which is defined 

to mean the risk that the fund could not meet 

redemption requests to redeem shares issued by the 

fund without significant dilution of remaining 

investors’ interests in the fund (17 CFR 270.22e–4). 

164 Invesco Petition at p. 2. 

165The Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (Pub. L. 111–203, 

H.R. 4173). 

166See Regulation 1.29(b) (providing that an FCM 

or a DCO, as applicable, shall bear sole 

responsibility for any losses resulting from the 

investment of futures customer funds in Permitted 

Investments) and Regulations 22.2(e)(1) and 30.7(i) 

(providing that an FCM shall bear sole 

responsibility for any losses resulting from the 

investment of Cleared Swaps Customer Collateral 

and 30.7 funds, respectively, in Permitted 

Investments). As further discussed in Section III.C. 

below, the Commission is also proposing an 

amendment to Regulation 22.3(d) to clarify that 

DCOs are financially responsible for investments of 

Cleared Swaps Customer Collateral in Permitted 

Investments. 

167They generally refer to short-term U.S. 

Treasury ETFs that invest at least 80 percent of their 

assets in U.S. Treasury securities with a remaining 

term to final maturity of 12 months or less. 

168See Joint Petition at pp. 8–9 and Invesco 

Petition at pp. 9–10. 

into an authorized participant 

agreement with the ETF (and potentially 

other parties, such as the ETF’s sponsor, 

distributor or transfer agent).159

An authorized participant may act as 

a principal for its own account or as an 

agent for others when purchasing or 

redeeming creation units.160 Purchases 

and redemptions of ETF shares by an 

authorized participant are referred to as 

‘‘primary market transactions’’ and 

occur at the next-calculated NAV. As 

noted above, ETF shares can also be 

purchased and sold in the secondary 

market at market prices that may reflect 

a discount or premium to the ETF’s 

NAV. 

As part of its periodic reassessment of 

the list of Permitted Investments of 

Customer Funds and in consideration of 

industry input provided by the Joint 

Petition and the Invesco Petition, the 

Commission is proposing to include 

shares in U.S. Treasury ETFs to the list 

of Permitted Investments under 

Regulation 1.25. More specifically, in 

assessing the potential expansion of the 

list of Permitted Investments, the 

Commission has considered statements 

emphasizing the liquidity of U.S. 

Treasury ETF shares and the 

diversification opportunity that such 

ETFs provide for Customer Funds. In 

particular, as discussed in other parts of 

the Proposal, the Petitioners note that 

U.S. Treasury ETFs have characteristics 

that may be consistent with those of 

Permitted Investments and may provide 

FCMs and DCOs with an opportunity to 

further diversify their investments of 

Customer Funds.161 Similarly, the 

Invesco Petition focused on the fact that 

U.S. Treasury ETFs invest in a sub-set 

of the same high-quality liquid 

instruments that are Permitted 

Investments under Regulation 1.25 (i.e., 

U.S. government securities).162 The 

Invesco Petition also notes that ETFs, as 

registered investment companies whose 

shares are registered under the 

Securities Act and Exchange Act, must 

comply with a number of SEC financial 

reporting requirements and liquidity 

risk management program 

requirements.163 Finally, the Invesco 

Petition asserts that the design and 

characteristics such as price and 

investment transparency, and intra-day 

trading and liquidity, are additional 

features that help make interests in U.S. 

Treasury ETFs a safe and efficient 

vehicle for investment of Customer 

Funds.164

Further, the Commission has taken 

into consideration the limited range of 

investments that meet the requirements 

of Regulation 1.25. In that regard, the 

Commission notes that as a result of 

various regulatory reforms, discussed in 

this Federal Register release, several 

asset classes included in Regulation 

1.25 no longer qualify as Permitted 

Investments. In particular, as discussed 

in Section III.A.2. above, the range of 

MMFs whose securities qualify as 

Permitted Investments has contracted, 

as only interests in Permitted 

Government MMFs currently meet the 

eligibility criteria of Regulation 1.25. In 

addition, as discussed in Section III.A.4. 

below, commercial paper and corporate 

notes and bonds no longer qualify as 

Permitted Investments with the 

expiration of the TLGP. 

Also, due to certain regulatory 

reforms, there has been an increased 

demand for high quality collateral, 

including for assets that currently 

qualify as Permitted Investments under 

Regulation 1.25. For example, in the 

aftermath of the 2008 financial crisis, 

Congress enacted the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act,165 which set forth a regulatory 

framework for swaps, requiring, among 

other things, the clearing of certain 

swaps or the margining of certain 

uncleared swaps. As a result, market 

participants dealing in swaps may be 

required to post to clearinghouses, or 

post and collect with swap 

counterparties, specified forms of liquid 

collateral, driving increased demand for 

assets that currently qualify as 

Permitted Investments. 

The Commission believes expanding 

the range of available Permitted 

Investments to include interests in ETFs 

that meet specified conditions, as 

discussed below, would provide FCMs 

and DCOs with greater flexibility and 

opportunities for capital efficiency in 

the investment of Customer Funds, 

without unacceptably increasing risk to 

customers. Consistent with the existing 

regulations limiting customer risk 

associated with the investment of 

Customer Funds by FCMs and DCOs, 

under the terms of the Proposal, FCMs 

and DCOs would be financially 

responsible for bearing any loss on an 

investment of Customer Funds in an 

ETF in the same manner as FCMs and 

DCOs are financially responsible for 

losses incurred from the investment of 

Customer Funds in Permitted 

Investments.166

The Commission also believes that the 

proposed addition of interests in ETFs 

as Permitted Investments under 

Regulation 1.25(a) would foster 

innovation and promote competition in 

the ETF market and the financial 

services industry more generally, as the 

Proposal would permit the flow of 

Customer Funds into a new type of 

financial instrument that previously had 

been prohibited and, as discussed 

below, would offer the possibility for 

market participants to purchase a type 

of collateral that is already a Permitted 

Investment without having to purchase 

the securities directly or through a 

MMF. 

As noted above, industry 

representatives and other market 

participants have also expressed interest 

in U.S. Treasury ETFs as Permitted 

Investments.167 Both the Petitioners and 

Invesco highlight the similarity in 

characteristics between U.S. Treasury 

ETF securities and other instruments 

that qualify as Permitted Investments 

under Regulation 1.25.168 Invesco 

further notes that ETFs investing in U.S. 

Treasury securities offer an indirect, yet 

simpler and more cost-efficient way, for 

FCMs to invest Customer Funds in such 

instruments, eliminating the need to 

identify, invest in, and administer 


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169 Invesco Petition at p. 11. Invesco states that an 

ETF would allow FCMs and DCOs to gain exposure 

to short-term U.S. Treasury securities without 

buying and selling Treasury securities on a periodic 

basis, such as each quarter, eliminating the costs 

associated with trading Treasury securities. 

170CME Advisory Notice, Modifications to 

Schedule of Acceptable Performance Bond— 

Addition of Short-Term U.S. Treasury ETFs (Aug. 

2, 2022) (‘‘2022 CME Advisory Notice’’), available 

at https://www.cmegroup.com/notices/clearing/ 

2022/08/Chadv22-293.pdf (providing that 

acceptable ETFs must track a U.S. Treasury index 

and must have a minimum 80 percent investment 

in U.S. Treasury securities with a time to maturity 

of 1 year or less). 

171The Commission notes that SEC Rule 2a–7, 

which applies to MMFs, restricts the types of 

investments in which MMFs can invest their assets, 

limits the terms of the investments, and imposes 

liquidity requirements with respect to the 

investments, among other things. See 17 CFR 

270.2a–7(d)(2) (providing that MMFs must limit 

their portfolio investments to U.S. dollar-dominated 

securities that at the time of acquisition are eligible 

securities), 17 CFR 270.2a–7(d)(1) (limiting the 

terms of maturity of MMFs’ investments), and 17 

CFR 270.2a–7(d)(4) (providing that MMFs must 

hold securities that are sufficiently liquid to meet 

reasonably foreseeable shareholder redemptions 

and setting forth other liquidity requirements). 

Although SEC Rule 2a–7 does not apply to ETFs, 

as described below, this Proposal would admit as 

a Permitted Investment only ETFs providing 

investors with substantial protections that are 

comparable, though not identical, to those afforded 

to MMF investors. 

172Proposed Regulation 1.25(c)(1). 

173For a definition of Section 3(a)(6) bank, see 

supra note 51. 

174Proposed Regulation 1.25(c)(2), as applying to 

Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Regulation 1.25. 

175Proposed revised Regulation 1.25(a)(1)(vi). 

176 Id. 

177SEC Rule 35d–1 under the Investment 

Company Act of 1940 (indicating that a fund name 

suggesting that the fund focuses its investments in 

a particular type of investments or in investments 

in a particular industry would be a materially 

deceptive and misleading name unless the fund has 

adopted a policy to invest, under normal 

circumstances, at least 80 percent of the value of 

its assets in the particular type of investments or in 

investments in the particular industry suggested by 

the fund’s name). 17 CFR 270.35d–1. 

178Proposed Regulation 1.25(c)(8)(ii). 

179The Commission considered proposing to 

require that Qualified ETFs invest at least 99.5 

percent of their assets in eligible U.S. Treasury 

securities to reflect an analogous condition in SEC 

Rule 2a–7 requiring that government MMFs invest 

at least 99.5 percent of their assets in government 

securities. The Commission, however, preliminarily 

believes that such threshold would be more 

restrictive in the context of Qualified ETFs, given 

that an eligible U.S. Treasury security would be 

defined as a bond, note, or bill with a remaining 

maturity of 12 months or less, issued or 

unconditionally guaranteed by the U.S. Department 

of the Treasury, whereas a government security is 

broadly defined in SEC Rule 2a–7 (by reference to 

15 U.S.C. 80a–2(a)(16)) to include U.S. government 

securities and U.S. agency obligations. 

investments in individual U.S. Treasury 

securities.169

The Commission also notes that CME 

accepts shares of short-term U.S. 

Treasury ETFs as performance bond 

from clearing members to margin 

customer and house trades.170 The 

Commission believes that this 

represents an important consideration 

in determining whether to add interests 

of U.S. Treasury ETFs to the list of 

Permitted Investments given that 

interests in U.S. Treasury ETFs that 

qualify as a Permitted Investment under 

the Proposal could ultimately be 

accepted by DCOs, such as CME, as 

performance bond, and pledged by 

FCMs as margin collateral. 

To ensure consistency with the 

requirements applicable to other 

Permitted Investments and the general 

objectives of Regulation 1.25 of 

preserving principal and maintaining 

liquidity of Permitted Investments, the 

Commission is proposing to impose the 

conditions discussed below on ETFs for 

their interests to qualify as a Permitted 

Investment. The Commission 

preliminarily believes that to the extent 

ETFs meet the proposed conditions, the 

ETFs would be comparable to Permitted 

Government MMFs whose interests 

currently qualify as Permitted 

Investments under Regulation 

1.25(a).171 The Commission also notes 

that by allowing FCMs and DCOs to 

invest Customer Funds in ETFs that 

meet the specified proposed conditions, 

it would provide FCMs and DCOs with 

a means for investing indirectly in 

Permitted Investments—U.S. Treasury 

securities, while allowing FCMs and 

DCOs to dispense with the expense and 

resources required to manage individual 

investments in such instruments. 

One rationale for adding ETFs 

investing primarily in short-term U.S. 

Treasury securities to the list of 

Permitted Investments is the similarity 

of the ETFs to MMFs whose interests 

qualify as Permitted Investments under 

Regulation 1.25(a). As such, the 

Commission preliminarily believes that 

it is appropriate to propose to impose all 

pertinent requirements applicable to 

MMFs under Regulation 1.25 to such 

ETFs, subject to certain modification to 

address the unique characteristics of the 

ETFs. Therefore, under the terms of the 

Proposal, an ETF would be required to 

satisfy specified requirements, as 

discussed below, to be a qualified ETF 

(‘‘Qualified ETF’’) whose interests 

qualify as a Permitted Investment. 

Consistent with Regulation 1.25(c), 

which sets forth provisions for MMFs 

whose interests qualify as Permitted 

Investments, a Qualified ETF would be 

required to be an investment company 

that is registered under the Investment 

Company Act of 1940 with the SEC and 

that holds itself out to investors as an 

ETF under SEC Rule 6c–11.172 The ETF 

would also be required to be sponsored 

by a federally regulated financial 

institution, a Section 3(a)(6) bank,173 an 

investment adviser registered under the 

Investment Advisers Act of 1940, or a 

domestic branch of a foreign bank 

insured by the FDIC.174

In addition, the Commission is 

proposing to limit Qualified ETFs to 

funds that are passively managed and 

seek to replicate the performance of a 

published short-term U.S. Treasury 

security index.175 For purposes of the 

Proposal, short-term U.S. Treasury 

securities are bonds, notes, and bills 

with a remaining maturity of 12 months 

or less, issued by, or unconditionally 

guaranteed as to the timely payment of 

principal and interest by, the U.S. 

Department of the Treasury.176

Consistent with this condition, the 

Commission is further proposing to 

require that the eligible U.S. Treasury 

securities represent at least 95 percent 

of the ETF’s investment portfolio. In 

that regard, the Commission notes that 

pursuant to SEC requirements,177

certain registered investment 

companies, including ETFs, must adopt 

a policy to invest at least 80 percent of 

the value of their assets in accordance 

with the investment focus suggested by 

the fund’s name.178

The Commission, however, 

preliminarily believes that a stricter 

standard is necessary to help ensure that 

FCMs and DCOs invest Customer Funds 

in accordance with Regulation 1.25’s 

general objectives of preserving 

principal and maintaining liquidity. The 

Commission’s preliminary analysis 

indicates that short-term U.S. Treasury 

ETFs generally invest at least 95 percent 

of their assets in securities comprising 

the U.S. Treasury securities index 

whose performance the funds seek to 

replicate. As such, the Commission 

preliminarily believes that mandating 

that a Qualified ETF invest a minimum 

of 95 percent of its assets in eligible U.S. 

Treasury securities would not be overly 

restrictive. 179 To ensure compliance 

with the proposed condition, FCMs and 

DCOs would be required to monitor the 

Qualified ETF’s portfolio. If the portion 

of the ETF’s assets invested in eligible 

U.S. Treasury securities falls below 95 

percent of the fund’s total assets, the 

FCM or DCO would not be permitted to 

make additional investments of 

Customer Funds in the ETF. The FCM 

or DCO would also be expected to take 

reasonable actions to divest interests in 

the fund, while managing Customer 

Funds in a manner consistent with 

Regulation 1.25’s general objectives of 

preserving principal and maintaining 

liquidity. Depending on the market 

conditions, such actions may include 

taking steps to progressively reduce the 


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180The Commission notes that a preliminary 

analysis of ETFs investing primarily in short-term 

U.S. Treasury securities indicates that the funds 

have a risk profile and volatility characteristics that 

are comparable to that of the underlying U.S. 

Treasury security investments. Specifically, using 

data available on Bloomberg, the Commission notes 

that for the period June 2020–September 2023, the 

Invesco Collateral Treasury ETF, as well as four 

other short-term U.S. Treasury ETFs that CME 

accepts as performance bond—SPDR® Bloomberg 

1–3 Month T-Bill ETF, Goldman Sachs Access 

Treasury 0–1 Year ETF, iShares 0–3 Month 

Treasury Bond ETF, and iShares Short Treasury 

Bond ETF—had a standard deviation for a two-day 

period of risk of approximately 6 BPS, whereas the 

one-year U.S. Treasury securities had a standard 

deviation of 8 BPS for the same period. 

181Paragraph (c)(6) of Regulation 1.25 as applying 

to Qualified ETFs per proposed revised 

introductory text of paragraph (c) of Regulation 

1.25. 

182Paragraph (c)(3) of Regulation 1.25 as applying 

to Qualified ETFs per proposed revised 

introductory text of paragraph (c) of Regulation 

1.25. 

183Paragraph (c)(4) of Regulation 1.25 as applying 

to Qualified ETFs per proposed revised 

introductory text of paragraph (c) of Regulation 

1.25. 

184 2000 Permitted Investments Amendment at 

78003. 

185Paragraph (c)(5)(i) of Regulation 1.25 as 

applying to Qualified ETFs per proposed revised 

introductory text of paragraph (c) of Regulation 

1.25. 

186 Id. 

187 15 U.S.C. 80a–22(e). 

188 17 CFR 270.22e–3. 

189Regulation 1.25(c)(5)(ii) was originally 

adopted in 2005. See 2005 Permitted Investments 

Amendment at 28196. It codified a 2001 letter 

issued by the Commission’s Division of Trading and 

Markets in response to an industry inquiry, stating 

that the division would raise no issue in connection 

with MMFs that provide for certain exceptions to 

the next-day redemption requirement. Id. As 

specified in the 2001 letter, the circumstances in 

which the next-day redemption could be excused 

overlapped to a certain extent with those contained 

in Section 22(e) of the Investment Company Act of 

1940. See CFTC Staff Letter No. 01–31, [2000–2002 

Transfer Binder] Comm. Fut. L. Rep. (CCH)] 28,521 

(Apr. 2, 2001). In 2011, the Commission revised 

Regulation 1.25(c)(5)(ii) to more closely align the 

language of that regulation with Section 22(e) and 

to expressly incorporate SEC Rule 22e–3. See 2011 

Permitted Investments Amendment at 78789. 

190See 17 CFR 1.25(c)(5) (providing that MMFs 

must be legally obligated to redeem their interests 

and to make payment in satisfaction of the interests 

by the business day following a redemption request) 

and 17 CFR 1.25(b)(1) (providing that Permitted 

Investments must be ‘‘highly liquid’’ such that the 

investments have the ability to be converted into 

cash within one business day without material 

discount in value). 

amount of Customer Funds invested in 

ETFs instead of immediately divesting 

the investments in a potentially volatile 

market. 

The Commission preliminarily 

believes that limiting the investments of 

Qualified ETFs as proposed would 

increase the safety and resilience of the 

ETFs 180 and allow the funds to more 

closely match the risk profile of 

Permitted Investments, including 

Permitted Government MMFs. Also, 

Qualified ETFs that maintain portfolios 

primarily comprised of high-quality and 

liquid investments are better able to 

redeem interests without placing 

excessive downward pressure on the 

NAVs. 

In addition, the agreement pursuant to 

which an FCM or a DCO acquires and 

holds its interest in the Qualified ETF 

would be prohibited from containing 

provisions that would prevent the 

pledging of the Qualified ETF’s 

shares.181 FCMs and DCOs would be 

required to maintain confirmations 

relating to their purchase of interests in 

a Qualified ETF in their records in 

accordance with Regulation 1.31 and 

note the ownership of the interests (by 

book-entry or otherwise) in the FCMs’ 

and DCOs’ custody account in 

accordance with Regulation 1.26.182

FCMs and DCOs would be required to 

obtain the acknowledgment letter 

required by Regulation 1.26 from an 

entity that has substantial control over 

the ETF interests purchased with 

Customer Funds and that has the 

knowledge and authority to facilitate 

redemption and payment or transfer of 

the Customer Funds. Such entity may be 

the sponsor of the Qualified ETF or a 

depository acting as custodian for the 

ETF interests. 

Also, the NAV for the Qualified ETF 

would be required to be computed by 9 

a.m. of the business day following each 

business day and made available to 

FCMs or DCOs, as applicable, by that 

time.183 The Commission notes that this 

proposed requirement is intended to 

allow for the valuation of the Qualified 

ETF’s investment portfolio to be 

available by 9 a.m. the business day 

following an investment in the ETF, so 

that the valuation is available in time for 

FCMs to perform their daily segregation 

calculations, which are required to be 

completed by noon each business day, 

reflecting balances as of the close of 

business on the previous business 

day.184

Further, the Qualified ETF would be 

required to be legally obligated to 

redeem its interests and make payment 

in satisfaction of the interests by the 

business day following a redemption 

request.185 FCMs or DCOs, as 

applicable, would be required to retain 

documentation demonstrating 

compliance with this requirement.186

Regulation 1.25(c)(5)(ii) currently 

provides an exception to the next-day 

redemption obligation for MMFs for 

defined extraordinary circumstances, 

such as the non-routine closures of the 

Fedwire or applicable Federal Reserve 

Banks, and any period during which the 

SEC by order restricts redemptions for 

the protection of security holders in the 

fund. Regulation 1.25(c)(5)(ii) was 

adopted by the Commission to be 

consistent with Section 22(e) of the 

Investment Company Act of 1940 187

and SEC Rule 22e–3,188 which provides 

exceptions to MMFs for next-day 

redemptions.189 The Commission is not 

proposing to adopt next-day redemption 

exceptions for Qualified ETFs as no 

comparable provisions are provided 

under the rules of the SEC, and in 

recognition that the redemption process 

for ETFs involves the exchange of ETF 

share for cash by authorized 

participants. As noted below, the 

Commission is seeking comment on the 

potential existence of extraordinary 

circumstances that may warrant an 

exception to the proposed next-day 

redemption requirement. 

The Commission preliminarily 

believes that limiting, as discussed 

above, Qualified ETFs to funds that 

track the performance of a published 

short-term U.S. Treasury security index 

would contribute to facilitating 

redemptions of Qualified ETFs’ shares 

to be completed within one business 

day consistent with Regulations 

1.25(c)(5)(i) and 1.25(b)(1).190

As previously discussed, ETFs issue 

and redeem their shares with authorized 

participants in primary market 

transactions in blocks of shares or 

‘‘creation units’’ at the NAV per share. 

Redemptions may be in cash or in kind. 

Authorized participants and the general 

public can also purchase and sell ETF 

shares in the secondary market at the 

market price per share. The Commission 

preliminarily believes that FCMs and 

DCOs are likely to purchase and redeem 

the shares of a Qualified ETF through 

primary market transactions 

intermediated by authorized 

participants rather than purchasing and 

selling the ETF shares in the secondary 

market, because the price of the shares 

in the secondary market may differ from 

the NAV, and the sale of the shares in 

the secondary market may delay the 

liquidation of the instruments. 

The Commission notes that an FCM’s 

or a DCO’s purchase or redemption of 

Qualified ETF shares through 

intermediated transactions with 

authorized participants raises two 

concerns. First, if an FCM or a DCO 

invests Customer Funds in shares of a 

Qualified ETF by purchasing the shares 

through an authorized participant, the 

FCM or DCO would need to take 

Customer Funds out of the segregated 

account maintained in compliance with 

Section 4d of the Act and/or Part 30 of 

the Commission’s regulations to 


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191See 7 U.S.C. 6d (setting forth segregation 

requirements for FCMs’ futures customer funds); 

see also 17 CFR 1.20(a) (providing that FCMs must 

separately account for futures customer funds and 

segregate such funds as belonging to their futures 

customers) and 17 CFR 1.20(g) (providing that 

DCOs must separately account for and segregate 

futures customer funds as belonging to futures 

customers); 17 CFR 22.2 (providing that FCMs must 

segregate Cleared Customer Collateral) and 17 CFR 

22.3 (requiring that DCOs segregate Cleared 

Customer Collateral); and 17 CFR 30.7(b) (providing 

that FCMs must deposit 30.7 funds under an 

account name that clearly identifies the funds as 

belonging to 30.7 customers). 

192 17 CFR 1.20(a), 17 CFR 22.2(f), and 17 CFR 

30.7(a). 

193 17 CFR 1.20(b), 17 CFR 22.2(b) and 17 CFR 

30.7(b). With respect to 30.7 customer funds, 

Regulation 30.7(b) also permits funds to be 

deposited with the clearing organization of any 

foreign board of trade, a member of any foreign 

board of trade, or such member’s or clearing 

organization’s designated depositories. 17 CFR 

30.7(b). 

194Proposed paragraph (c)(8) of Regulation 1.25. 

195Proposed Regulation 1.25(c)(8)(i). 

196 2022 CME Advisory Notice at 1. 197Proposed Regulation 1.25(c)(8)(iii). 

purchase the ETF shares.191 As a result, 

customer segregated accounts may not 

be fully funded, thus potentially 

violating Commission regulations that 

require FCMs to maintain, at all times, 

in the segregated account, money, 

securities and property in an amount 

that is at least sufficient in the aggregate 

to cover their total obligations to all 

customers.192 Also, the transfer of 

Customer Funds to the authorized 

participant may be in contravention of 

Commission regulations that provide 

that Customer Funds may only be 

deposited with a bank or trust company, 

a DCO, or another FCM.193 Second, if an 

FCM or a DCO uses an unaffiliated 

authorized participant to redeem its 

Qualified ETF shares, the redemption of 

the ETF shares may be protracted, 

preventing the redemption and 

liquidation of the shares to occur within 

one business day, as required by 

Regulation 1.25. 

To address these two concerns, the 

Commission proposes to require an 

FCM or a DCO that invests Customer 

Funds in the shares of a Qualified ETF 

to be an authorized participant of the 

ETF.194 The Commission believes that 

this approach would permit Customer 

Funds to be maintained in a segregated 

account in accordance with Section 4d 

or Part 30, as applicable, with a 

permitted depository (i.e., a bank, trust 

company, DCO, or another FCM), given 

that the Customer Funds would not 

need to be transferred to an authorized 

participant unaffiliated with the FCM or 

DCO. In addition, because an FCM or a 

DCO acting as an authorized participant 

would be able to redeem the shares 

without relying on a separate authorized 

participant, the Commission believes 

that the FCM or DCO would be able to 

better manage completing the 

redemption and liquidation of the 

Qualified ETFs shares within one 

business day, as required by Regulation 

1.25. 

The Commission, however, 

understands that FCMs and DCOs may 

have access to other means of 

purchasing or liquidating interest in 

ETFs. For instance, an FCM or a DCO 

may be able to acquire interests in an 

ETF on a delivery-versus-payment basis 

through a securities broker or dealer at 

price equal to the next calculated NAV 

amount per share or another agreedupon price that approximates the last 

calculated NAV. Similarly, an FCM or a 

DCO may be able to sell Qualified ETF 

shares to a broker or dealer willing to 

buy them at a price corresponding to the 

NAV amount per share and later redeem 

them from the fund. To be able to assess 

the feasibility of such arrangements and 

the potential associated risks, the 

Commission requests additional 

information on the availability and 

functioning of alternative mechanisms 

of purchasing and liquidating Qualified 

ETF interests in a manner compliant 

with Regulation 1.25 and compliant 

with the segregation requirements for 

Customer Funds. 

The Commission is also proposing 

that Qualified ETFs be required to 

redeem their shares in cash.195 The 

Commission understands that ETFs 

typically redeem interests in kind, 

although they may also redeem in cash 

or both in kind and in cash. The 

Commission also notes that CME, in 

announcing its acceptance of short-term 

U.S. Treasury ETFs as performance 

bond, stated that it would accept shortterm U.S. Treasury ETFs that redeem 

their shares in cash or in kind.196 As 

discussed above, the Commission is 

requiring that Qualified ETFs redeem 

their shares within one business day 

following the submission of the 

redemption request, consistent with the 

time limit for redemptions applicable to 

MMFs under Regulation 1.25(c)(5). In 

addition, under Regulation 1.25(c)(1), 

the shares of Qualified ETFs, as a 

Permitted Investment, would be 

required to be convertible into cash 

within one business day without 

material discount in value. As such, 

given these time limits for the 

redemption and liquidation of Qualified 

ETF shares, the Commission is 

proposing to require Qualified ETFs to 

redeem their shares in cash because incash redemptions may allow for a more 

expeditious liquidation of the shares 

than in-kind redemptions. 

In this regard, the Commission notes 

that in-kind redemptions may introduce 

a time lag between the redemption of 

the ETF shares and the ultimate 

liquidation of the shares, as the assets 

received in in-kind redemptions would 

need to be sold or otherwise converted 

into cash to complete the liquidation of 

the ETF shares, hindering the ability to 

liquidate the ETF shares within one 

business day, as required by Regulation 

1.25(b)(1). As such, the Commission is 

proposing to require that Qualified ETFs 

redeem their shares only in cash. The 

Commission, however, is requesting 

information on the availability and 

functioning of potential mechanisms or 

arrangements that may allow FCMs and 

DCOs to liquidate a Qualified ETF’s 

shares in a manner compliant with 

Regulation 1.25 and the segregation 

requirements if the fund’s interests were 

redeemed in kind. 

The Commission is also proposing to 

require, as a condition for qualification 

as a Permitted Investment, that 

Qualified ETFs be acceptable by a DCO 

as performance bond from clearing 

members to margin customer trades.197

Although qualification as acceptable 

collateral by a DCO is not determinative 

of qualification as a Permitted 

Investment, the Commission 

preliminarily believes that limiting 

Qualified ETFs to funds that have met 

a DCO’s criteria of eligibility as 

performance bond represents an 

additional safeguard. In addition, as 

noted above, the possibility that ETF 

shares could be pledged by an FCM as 

margin collateral is an important 

consideration for the Commission in 

determining whether to add the 

interests of ETFs to the list of Permitted 

Investments. 

In order to add the interests of 

Qualified ETFs to the list of Permitted 

Investments under Regulation 1.25, the 

Commission is proposing to add 

paragraph (vi) to Regulation 1.25(a)(1), 

as redesignated to accommodate other 

amendments to the list of Permitted 

Investments pursuant to this Proposal. 

Paragraph (vi) would identify interests 

in U.S. Treasury exchange-traded funds 

as a Permitted Investment. The 

Commission also proposes further 

conforming changes throughout 

Regulation 1.25. Section III.A.2. above 

provides for the replacement of ‘‘money 

market mutual fund’’ or ‘‘money market 

mutual funds’’ with ‘‘government 

money market fund’’ or ‘‘government 

money market funds’’ throughout 

Regulation 1.25. The Commission 

proposes, unless otherwise discussed 

below, to insert next to the term 


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198Proposed revised Regulation 1.25(b)(4)(i). 

‘‘government money market fund’’ or 

‘‘government money market funds,’’ the 

term ‘‘U.S. Treasury exchange-traded 

fund’’ or ‘‘U.S. Treasury exchangetraded funds,’’ as appropriate, preceded 

by an appropriate conjunction (i.e., ‘‘or’’ 

or ‘‘and’’), as necessary. 

To incorporate the condition that a 

Qualified ETF must be an investment 

company that is registered under the 

Investment Company Act of 1940 with 

the SEC and holds itself out to investors 

as an ETF under SEC Rule 6c–11, the 

Commission proposes to revise 

Regulation 1.25(c)(1) to provide that, 

‘‘The fund must be an investment 

company that is registered under the 

Investment Company Act of 1940 with 

the Securities and Exchange 

Commission and that holds itself out to 

investors as a government money 

market fund, in accordance with 

270.2a–7 of this title, or an exchangetraded fund, in accordance with 270.6c– 

11 of this title.’’ 

Moreover, to incorporate the 

requirement that an FCM or a DCO 

investing in a Qualified ETF must be an 

authorized participant, the Commission 

proposes to revise Regulation 1.25(c) to 

add paragraph (8), which would 

provide, ‘‘Interests in U.S. Treasury 

exchange-traded funds will qualify as a 

Permitted Investment under Regulation 

1.25(a) if the interests are redeemable in 

cash by a futures commission merchant 

or derivatives clearing organization in 

its capacity as an authorized participant 

pursuant to an authorized participant 

agreement, as defined in § 270.6c–11, at 

a price based on the net asset value in 

accordance with the Investment 

Company Act of 1940 and regulations 

thereunder, and on a delivery versus 

payment basis.’’ 

To account for the possibility that, as 

part of their investment strategy and 

within the limits of applicable SEC 

rules, Qualified ETFs may engage in 

derivatives transactions, the 

Commission is also proposing to amend 

Regulation 1.25(b)(2)(i) to indicate that 

the prohibition of investments 

containing embedded derivatives would 

not apply to Qualified ETFs. 

Finally, the Commission is proposing 

to amend Regulation 1.25(b)(4)(i), which 

provides that except for investments in 

MMFs, the dollar-weighted average 

time-to-maturity of an FCM’s or a DCO’s 

portfolio of Permitted Investments, as 

computed under SEC Rule 2a–7, may 

not exceed 24 months. The proposed 

amendment would revise Regulation 

1.25(b)(4)(i) to exclude Qualified ETFs 

from the calculation of the dollarweighted average time-to-maturity of the 

portfolio of Permitted Investments.198

The Commission is proposing this 

amendment as interests in Qualified 

ETFs do not have maturity dates, as the 

Qualified ETF manages the rolling of 

maturing U.S. Treasury securities into 

new investments. 

Request for Comment: The 

Commission seeks comment on all 

aspects of the Proposal relating to the 

expansion of the list of Permitted 

Investments to include interests in ETFs 

subject to the specified conditions 

discussed above, including: 

6. For the interests of ETFs to be 

deemed a Permitted Investment, the 

ETFs would have to satisfy 

requirements similar to the 

requirements that apply to Government 

MMFs whose interests qualify as 

Permitted Investments. Is it appropriate 

to apply the regulatory framework that 

applies to Government MMFs to ETFs 

for determining whether an ETF would 

be deemed a Qualified ETF and interests 

in the ETF be deemed a Permitted 

Investment? To the extent some aspects 

of the regulatory framework applicable 

to MMFs is not appropriate for ETFs, 

please specify and explain why. 

7. The Proposal to add interests in 

Qualified ETFs to the list of Permitted 

Investments provides that only the 

interests of ETFs that are passively 

managed and seek to replicate the 

performance of a published short-term 

U.S. Treasury security index by 

investing in a limited set of instruments 

would qualify as Permitted Investments. 

The Commission notes that the types of 

investments in which Qualified ETFs 

and Permitted Government MMFs 

would be permitted to invest under the 

Proposal would differ in that Qualified 

ETFs’ investments would be determined 

by its investment strategy seeking to 

replicate the performance of a public 

short-term U.S. Treasury index and a 

requirement that the Qualified ETFs 

invest 95 percent or more of their assets 

in U.S. Treasury securities that are 

components of the index, whereas 

government MMFs would be required to 

invest 99.5 percent or more of their 

assets in cash, government securities 

(defined in 15 U.S.C. 80a–2(a)(16) to 

broadly include U.S. Treasury securities 

and U.S. agency securities), and/or 

Repurchase Transactions that must be 

collateralized fully, consistent with the 

definition of government money market 

funds under SEC Rule 2a–7. Should the 

Commission further limit the types of 

underlying instruments in which a 

Qualified ETF would be permitted to 

invest? If so, what criteria should be 

applied to determine the appropriate 

limitations? Should the Commission 

permit Qualified ETFs to invest a lower 

or higher percentage of their assets in 

short-term U.S. Treasury securities that 

are components of the index than the 

proposed 95 percent? If so, what 

percentage should the Commission 

consider and why? Also, should the 

Commission reconcile the types of 

investments in which Qualified ETFs 

and Permitted Government MMFs 

would be permitted to invest by 

allowing Qualified ETFs to invest in the 

same investments as Permitted 

Government MMFs? 

8. Under the Proposal, Qualified ETFs 

would not be precluded from 

undertaking Repurchase Transactions. 

Does an ETF engaging in Repurchase 

Transactions with fund assets have the 

potential to adversely impact an 

authorized participant’s ability to 

redeem interest in the fund in exchange 

for cash? Does an ETF engaging in 

Repurchase Transactions present other 

issues that would delay the ability of an 

authorized participant to redeem 

interest in the fund in cash? Could the 

potential delay prevent completing 

redemptions and liquidation of the ETF 

shares within one business day, as 

required by Regulation 1.25? Should 

Qualified ETFs be prohibited from 

undertaking Repurchase Transactions 

given the possible risk of delay in 

redemptions? 

9. The Proposal would require that 

FCMs or DCOs that invest Customer 

Funds in interests of Qualified ETFs be 

authorized participants in order to 

address concerns that during purchase 

or redemption of ETF shares, Customer 

Funds might be moved to an account 

not held by an appropriate depository of 

customer segregated funds (i.e., a bank, 

trust company, DCO or FCM) without a 

contemporaneous deposit of ETF shares 

or cash in customer segregated accounts, 

resulting in the FCM or DCO being 

undersegregated. Are there alternative 

approaches other than requiring FCMs 

or DCOs to be authorized participants 

that could address or mitigate the 

Commission’s concerns? Can DCOs be 

authorized participants of Qualified 

ETFs? If not, are there alternatives that 

would permit DCOs to invest Customer 

Funds in Qualified ETFs consistent with 

the requirements of Regulation 1.25 and 

the Commission’s segregation 

requirements? 

10. The Commission understands that 

interests in short-term U.S. Treasury 

ETFs may be redeemed in cash or in 

kind. The Commission is proposing to 

require that the shares of a Qualified 

ETF be redeemable only in cash given 

the concern that in-kind redemptions 

may not permit the liquidation of the 


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199See 2000 Permitted Investments Amendment 

at 78010. 

200See 2005 Permitted Investments Amendment 

at 28200. 

201 2011 Permitted Investments Amendment at 

78776. 

202 Id. at 78779. 

203Temporary Liquidity Guarantee Program, 

available at https://www.fdic.gov/Regulations/ 

resources/tlgp/index.html (‘‘Under the [Debt 

Guarantee Program], the FDIC guaranteed in full, 

through maturity or June 30, 2012, whichever came 

first, the senior unsecured debt issued by a 

participating entity between October 14, 2008, and 

June 30, 2009. In 2009, the issuance period was 

extended through October 31, 2009. The FDIC’s 

guarantee on each debt instrument was also 

extended in 2009 to the earlier of the stated 

maturity date of the debt or December 31, 2012.’’). 

204 17 CFR 1.25(b)(2)(iv)(A)(1). 

205For simplicity, subsequent references to ‘‘onemonth or three-month LIBOR rate’’ will be referred 

to as LIBOR unless otherwise required by the 

context of the discussion. 

206 17 CFR 1.25(b)(2)(iv)(A)(2). 

207Staff Statement on LIBOR Transition, SEC 

Division of Corporation Finance, Division of 

Investment Management, Division of Trading and 

Markets, and Office of the Chief Accountant (July 

12, 2019), available at https://www.sec.gov/news/ 

public-statement/libor-transition. 

208See CFTC Staff Letter No. 21–26, Revised NoAction Positions to Facilitate an Orderly Transition 

of Swaps from Inter-Bank Offered Rates to 

Alternative Benchmarks (Dec. 20, 2021) (‘‘Staff 

Letter 21–26’’), (More specifically, the U.K. 

Financial Conduct Authority, which regulates ICE 

Benchmark Administration Limited, the 

administrator of ICE LIBOR, confirmed that LIBOR 

Continued 

ETF shares within one business day, as 

required by Regulation 1.25(b)(1). If the 

Commission were to allow shares of 

Qualified ETFs to be redeemable in 

kind, would the Qualified ETF’s 

interests have the ability to be 

liquidated within one business day as 

required by Regulation 1.25(b)(1)? What 

mechanisms or arrangements exist that 

may allow FCMs and DCOs to convert 

Qualified ETF shares into cash within 

one business day without material 

discount in value if redemptions occur 

in kind? Are there any potential risks 

associated with such mechanisms and 

arrangements that the Commission 

should consider? Is there an alternative 

approach to address the Commission’s 

concerns that would permit the use of 

in-kind redemptions and also provide 

FCMs and DCOs with access to cash for 

the redemptions within one business 

day? Does the proposed requirement 

that the Qualified ETF invest 95 percent 

or more of its total assets in short-term 

U.S. Treasury securities help ensure that 

FCMs and DCOs will be able to 

liquidate securities received from an inkind redemption within one business 

day? Does the proposed requirement 

that an FCM or a DCO must be an 

authorized participant help ensure that 

the FCM or DCO has the internal 

operational capability and resources to 

liquidate in-kind redemptions in a 

manner and time-frame compliant with 

Regulation 1.25 requirements? 

11. As noted, the Commission is 

proposing to require that interests in 

Qualified ETFs be redeemable in cash 

within one business day. Are there any 

extraordinary circumstances, similar to 

the events listed in Regulation 

1.25(c)(5)(ii) with respect to MMFs, that 

may justify an exception to the 

proposed next-day redemption 

requirement? If so, please specify what 

redemption exceptions are necessary, 

and explain why the exceptions are 

necessary. Also address potential 

impacts to customers if Qualified ETFs 

do not redeem within one business if 

exceptions were provided. 

12. Does the Proposal to add Qualified 

ETFs to the list of Permitted 

Investments under Regulation 1.25, 

along with the continued inclusion of 

MMFs, have the potential to reduce the 

availability of funds from the banking 

system in a manner that would raise any 

financial stability concerns? Could the 

use of Repurchase Transactions by 

MMFs and ETFs exacerbate any 

financial stability issues that may exist? 

13. The Proposal would require that a 

Qualified ETF must be a passively 

managed fund that seeks to replicate the 

performance of a published short-term 

U.S. Treasury security index composed 

of bonds, notes, and bills with a 

remaining maturity of 12 months or less, 

issued by, or unconditionally 

guaranteed as to the timely payment of 

principal and interest by, the U.S. 

Department of the Treasury. Should the 

Commission impose conditions or 

requirements that a publisher of an ETF 

index must meet or satisfy in order for 

the ETF to be a Qualified ETF? If so, 

what conditions or requirements should 

the Commission impose, and why? 

14. Regulation 1.25(b)(5)(ii) currently 

provides that an FCM or a DCO may 

invest Customer Funds in a fund 

affiliated with that FCM or DCO. Should 

the Commission revise Regulation 

1.25(b)(5)(ii) to prohibit an FCM or a 

DCO from investing Customer Funds in 

affiliated funds? Are there other 

Commission or SEC rules that mitigate 

any potential conflicts of interest that 

may arise from an FCM or a DCO 

investing Customer Funds in affiliated 

funds? 

4. Investments in Commercial Paper and 

Corporate Notes or Bonds 

The Commission originally approved 

commercial paper and corporate notes 

as Permitted Investments for FCMs and 

DCOs in 2000.199 The Commission 

subsequently revised the list of 

Permitted Investments in 2005 to 

include corporate bonds.200

In 2007, the Commission’s Division of 

Clearing and Intermediary Oversight 

conducted a review of the use of 

Permitted Investments by FCMs and 

DCOs.201 The review indicated that 

commercial paper and corporate notes 

and bonds were not widely used by 

FCMs and DCOs. In 2011, in an effort to 

simplify Regulation 1.25 by eliminating 

rarely-used instruments and in 

consideration of the Commission’s 

concerns that corporate debt securities 

posed credit, liquidity and market risks, 

the Commission revised Regulation 1.25 

to provide that an FCM or a DCO may 

invest Customer Funds in commercial 

paper and corporate notes and corporate 

bonds only if the debt instruments were 

guaranteed by the TLGP.202

The TLGP expired in 2012, and, 

therefore, commercial paper, corporate 

notes, and corporate bonds are no longer 

Permitted Investments under the terms 

of Regulation 1.25.203 Accordingly, the 

Commission is proposing to remove 

commercial paper, corporate notes, and 

corporate bonds from the list of 

Permitted Investments. 

5. Investments in Permitted Investments 

With Adjustable Rates of Interest 

Regulation 1.25(b)(2)(iv)(A) provides 

that Permitted Investments may contain 

variable or floating rates of interest 

provided, among other things, that: (i) 

the interest payments on variable rate 

securities correlate closely, and on an 

unleveraged basis, to a benchmark of 

either the Federal Funds target or 

effective rate, the prime rate, the threemonth Treasury Bill rate, the one-month 

or three-month LIBOR, or the interest 

rate of any fixed rate instrument that is 

a listed Permitted Investment under 

Regulation 1.25(a); 204 and (ii) the 

interest rate, in any period, on floating 

rate securities is determined solely by 

reference, on an unleveraged basis, to a 

benchmark of either the Federal Funds 

target or effective rate, the prime rate, 

the three-month Treasury Bill rate, the 

one-month or three-month LIBOR,205 or 

the interest rate of any fixed rate 

instrument that is a listed Permitted 

Investment under Regulation 1.25(a).206

LIBOR has been used extensively as a 

reference rate in various commercial 

and financial contracts, including 

corporate and municipal bonds, 

commercial loans, floating rate 

mortgages, asset-backed securities, 

consumer loans, and interest rate swaps 

and other derivatives.207 The U.K. 

Financial Conduct Authority, however, 

announced on March 5, 2021 that 

LIBOR would cease to be published and 

would effectively be discontinued.208


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would either cease to be provided by any 

administrator or would no longer be representative 

for the 1-week and 2-month USD LIBOR settings, 

immediately after December 31, 2021, and for all 

other USD LIBOR settings immediately after June 

30, 2023). As noted supra, CFTC Staff Letters are 

available at the Commission’s website, 

www.cftc.gov. 

209See e.g., In re Barclays PLC, CFTC Docket No. 

12–25 (June 27 2012); In re UBS AG, CFTC Docket 

No. 13–09 (Dec. 19, 2012). 

210Staff Letter 21–26 at p. 3. 

211ARRC, ‘‘The ARRC Selects a Broad Repo Rate 

as its Preferred Alternative Reference Rate,’’ June 

22, 2017, available at https://www.newyorkfed.org/ 

medialibrary/microsites/arrc/files/2017/ARRCpress-release-Jun-22-2017.pdf. 

212See Secured Overnight Financing Rate Data, 

published by the Federal Reserve Bank of New York 

(‘‘FRBNY’’) and available at https://

apps.newyorkfed.org/markets/autorates/sof. 

213 Id. 

214See Additional Information about the Treasury 

Repo Reference Rates, published by the FRBNY and 

available at https://www.newyorkfed.org/markets/ 

treasury-repo-reference-rates-information. 

215See supra note 60. 

216See id. 

217See 2005 Permitted Investments Amendment 

at 28192, where the Commission stated that it is 

appropriate to afford latitude in establishing 

benchmarks for Permitted Investments to enable 

FCMs and DCOs to more readily respond to changes 

in the market. 

218Regulation 1.25(b)(2)(v); 17 CFR 1.25(b)(2)(v). 

219Regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5) 

require each FCM to submit a SIDR Report to the 

Commission and the FCM’s designated selfregulatory organization (‘‘DSRO’’) listing the names 

of all banks, trust companies, FCMs, DCOs, and any 

other depositories or custodians holding futures 

customer funds, Cleared Swaps Customer 

Collateral, or 30.7 customer funds, respectively. 

FCMs are required to submit the SIDR Report as of 

the 15th day of each month (or the next business 

day if the 15th day of the month is not a business 

day) and the last business day of the month. 17 CFR 

1.32(f), 17 CFR 22.2(g)(5), and 17 CFR 30.7(l)(5). 

Proposed amendments to the SIDR Report to reflect 

the proposed revisions to the list of Permitted 

Investments discussed in this Proposal are 

discussed in Section III.D. below. 

With respect to an FCM, a DSRO is the selfregulatory organization that has been delegated the 

responsibility under a formal plan approved by the 

Commission pursuant to Regulation 1.52 to monitor 

and examine the FCM for compliance with 

Commission and self-regulatory organization 

minimum financial and related financial reporting 

requirements. 17 CFR 1.52. 

This announcement had been 

anticipated given the loss of confidence 

in LIBOR as a reliable benchmark 

following a number of enforcement 

actions concerning attempts to 

manipulate the benchmark.209

The Federal Reserve Bank of New 

York convened the Alternative 

Reference Rate Committee (‘‘ARRC’’) in 

2014 to identify best practices for U.S. 

alternative reference rates and best 

practices for contract robustness, to 

develop an adoption plan, and to create 

an implementation plan with metrics of 

success and a timeline.210 In June 2017, 

the ARRC identified SOFR, a broad 

Treasury repurchase agreements 

financing rate, as the preferred 

alternative benchmark to USD LIBOR 

for certain new USD derivatives and 

financial contracts.211 SOFR is a broad 

measure of the cost of borrowing cash 

overnight collateralized by U.S. 

Treasury securities in the Repurchase 

Transaction market used by financial 

institutions, governments, and 

corporations.212 SOFR is calculated as a 

volume-weighted median of transactionlevel triparty repo data collected from 

the Bank of New York Mellon as well as 

data on bilateral U.S. Treasury 

Repurchase Transactions cleared 

through the Fixed Income Clearing 

Corporation.213 The Federal Reserve 

Bank of New York, in cooperation with 

the U.S. Office of Financial Research, 

publishes SOFR by 8:00 a.m. each 

business day.214

In response to the anticipated 

termination of the publication of LIBOR 

and the increasing acceptance and use 

of SOFR as a benchmark interest rate, 

MPD issued Staff Letter 21–02 on 

January 4, 2021.215 Staff Letter 21–02 

provides that MPD would not 

recommend enforcement action to the 

Commission if an FCM invested 

Customer Funds in Permitted 

Investments that contain adjustable 

rates of interest benchmarked to SOFR. 

Staff Letter 21–02 was a time-limited 

no-action position that was to expire on 

December 31, 2022. MPD and DCR, 

however, subsequently issued a joint 

letter, Staff Letter 22–21, extending the 

effective date of the no-action position 

to December 31, 2024, and expanding 

the scope of the no-action position to 

include Permitted Investments made by 

DCOs.216

Given the discontinuation of the 

publishing of LIBOR and the increasing 

use of SOFR, the Commission is 

proposing to amend Regulation 

1.25(b)(2)(iv)(A) by replacing LIBOR 

with SOFR as a permitted benchmark 

for Permitted Investments that contain 

an adjustable rate of interest. To give 

effect to this revision, paragraphs 

(b)(2)(iv)(A)(1) and (2) of Regulation 

1.25 would be amended to replace the 

phrase ‘‘one-month or three-month 

LIBOR rate’’ with the phrase ‘‘SOFR 

rate.’’ These proposed amendments 

would be consistent with the 

Commission’s intent of providing FCMs 

and DCOs with a certain degree of 

flexibility in selecting Permitted 

Investments with adjustable rates of 

interest, while also recognizing changes 

in the market.217 The Commission 

preliminarily believes that the 

replacement of LIBOR with SOFR 

advances the objective of Regulation 

1.25 of preserving principal and 

maintaining liquidity by requiring the 

use of reliable benchmarks in the 

qualification as Permitted Investments. 

Request for Comment: The 

Commission seeks comment on all 

aspects of the Proposal to eliminate 

LIBOR as a permitted benchmark, 

including: 

15. The ARRC has identified SOFR as 

a preferred alternative reference interest 

rate to LIBOR. Should the Commission 

consider other additional interest rates 

beyond SOFR as permitted benchmarks 

for adjustable rate securities under 

Regulation 1.25? If so, please explain 

why such interest rates would be 

appropriate benchmarks. 

16. The Commission is proposing to 

amend Regulation 1.25(b)(2)(iv) to 

permit SOFR as a benchmark for interest 

payments on variable rate securities or 

floating rate securities that are otherwise 

Permitted Investments under Regulation 

1.25. Should the Commission reference 

a particular SOFR rate to provide greater 

certainty and clarity as to the acceptable 

benchmark? For instance, should the 

reference be to the overnight SOFR rate 

published by the Federal Reserve Bank 

of New York, to a CME Term SOFR 

Rate, or to another published SOFR 

rate? Please explain your answer. 

6. Investments in Certificates of Deposit 

Issued by Banks 

Regulation 1.25(a)(1)(iv) permits 

FCMs and DCOs to invest Customer 

Funds in certificates of deposit (‘‘CDs’’) 

issued by a Section 3(a)(6) bank or a 

domestic branch of a foreign bank that 

carries deposits insured by the FDIC 

(‘‘bank CDs’’). To qualify as a Permitted 

Investment under Regulation 1.25, a 

bank CD must be redeemable at the 

issuing bank within one business day, 

with any penalty for early withdrawal 

limited to accrued interest earned 

according to the written terms of the CD 

agreement.218

The Commission’s experience has 

been, however, that FCMs and DCOs do 

not select bank CDs as an investment 

option. In addition to the Commission’s 

general experience in overseeing DCOs 

and FCMs, Commission staff also 

reviewed Segregation Investment Detail 

Reports (‘‘SIDR Reports’’) filed by FCMs 

for the period September 15, 2022 

through February 15, 2023 and noted no 

FCMs reporting investment of Customer 

Funds in bank CDs.219

The Commission believes that bank 

CDs are consistent with the overall 

objective of Regulation 1.25 that all 

Permitted Investments must preserve 

principal and maintain liquidity of the 

Customer Funds. In this regard, and as 

noted above, Regulation 1.25(b)(2)(v) 

provides that in order to qualify as a 


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220 17 CFR 1.25(b)(2)(v). 

221 17 CFR 1.25(b)(3). 

222The asset-based and issuer-based 

concentration limits for futures customer funds are 

set forth in Regulation 1.25(b)(3). 17 CFR 1.25(b)(3). 

With respect to 30.7 customer funds, Regulation 

30.7(h)(1) provides that an FCM may invest 30.7 

customer funds subject to, and in compliance with 

the terms and conditions of Regulation 1.25, which 

includes the asset-based and issuer-based 

concentration limits. 17 CFR 30.7(h)(1). With 

respect to Cleared Swaps Customer Collateral, 

Regulations 22.2(e)(1) and 22.3(d) provide that an 

FCM or a DCO, respectively, may invest Cleared 

Swaps Customer Collateral in accordance with 

Regulation 1.25, which includes the asset-based and 

issuer-based concentration limits. 17 CFR 22.2(e)(1) 

and 17 CFR 22.3(d). 

223See 2011 Permitted Investments Amendment 

at 78787, where the Commission stated that 

concentration limits are to be calculated on a fundby-fund basis (i.e., based on separate segregation 

classifications). 

224Regulation 1.25(b)(3)(i)(A)–(D); 17 CFR 

1.25(b)(3)(i)(A)–(D). U.S. government securities 

refers to general obligations of the U.S. and 

obligations fully guaranteed as to principal and 

interest by the U.S. See 17 CFR 1.25(a)(1)(i). 225 17 CFR 1.25(b)(3)(i)(E). 226 17 CFR 1.25(b)(3)(i)(G). 227 17 CFR 1.25(b)(3)(i)(F) and (G). 228See 17 CFR 1.25(b)(3)(ii), which excludes U.S. 

government securities from the issuer-based 

concentration limits. See also, 2011 Permitted 

Investments Amendment at 78788. 

Permitted Investment, a CD must be 

redeemable at the issuing bank within 

one business day, with any penalty for 

early withdrawal limited to any accrued 

interest earned according to its written 

terms.220

Request for Comment: 

Notwithstanding that bank CDs 

currently qualify as Permitted 

Investments, the Commission is seeking 

comment on whether Regulation 1.25 

should be amended to remove bank CDs 

from the list of Permitted Investments. 

As noted above, the Commission’s 

experience and the staff’s review of the 

SIDR reports indicate that FCMs and 

DCOs generally have not invested 

Customer Funds in bank CDs. 

Specifically, the Commission seeks 

comment on the following issues: 

17. Notwithstanding the 

Commission’s experience and staff’s 

review of the SIDR Reports discussed 

above, do FCMs and/or DCOs invest 

Customer Funds in bank CDs? If so, 

would the elimination of bank CDs as a 

Permitted Investment have a material 

adverse impact on FCMs’ and DCOs’ 

ability to invest Customer Funds 

pursuant to the proposed revisions to 

Regulation 1.25? 

18. Are there provisions contained in 

current Regulation 1.25 or other 

regulations of the Commission that 

hinder or prevent FCMs or DCOs from 

investing Customer Funds in bank CDs? 

If so, please identify which provisions 

of Regulation 1.25 are at issue and 

explain why. 

19. Are there legal or operational 

issues associated with bank CDs that 

hinder or prevent FCMs or DCOs from 

investing Customer Funds in such 

instruments? If so, please identify the 

legal or operational issues, and explain 

how such issues hinder or prevent the 

investment in bank CDs. 

20. Would FCMs or DCOs elect to 

invest Customer Funds in bank CDs 

with the current rising interest rate 

environment? Are there other factors 

that may lead FCMs or DCOs to increase 

their use of bank CDs as Permitted 

Investments? 

21. What factors should the 

Commission consider before removing 

bank CDs from the list of Permitted 

Investments? 

Based on comments received and the 

Commission’s further consideration of 

this issue, the Commission may 

determine to revise the Permitted 

Investments by removing bank CDs in 

the final rulemaking. If the Commission 

were to remove bank CDs from the list 

of Permitted Investments, the 

Commission would delete paragraph 

(a)(1)(iv) of Regulation 1.25 and 

redesignate the paragraphs of Regulation 

1.25(a)(1) as appropriate to reflect the 

revised list of Permitted Investments. In 

addition, the Commission would delete 

paragraph (b)(2)(v) of Regulation 1.25, 

which sets forth restrictions on the 

features of permitted bank CDs, and 

revise and/or delete, as appropriate in 

light of other amendments, paragraphs 

(b)(3)(i)(C) and (b)(3)(ii)(B) of Regulation 

1.25, which set forth asset-based and 

issuer-based concentration limits for 

certain instruments currently included 

in the list of Permitted Investments, to 

reflect the elimination of bank CDs from 

that list. The Commission would also 

make conforming amendments to 

Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5), which define the content of 

the SIDR Reports described in Section 

III.D. below, to reflect the removal of 

bank CDs from the list of Permitted 

Investments in Regulation 1.25. 

Specifically, the Commission would 

delete the requirement for an FCM to 

report the balances invested in bank 

CDs in the SIDR Report. 

B. Asset-Based and Issuer-Based 

Concentration Limits for Permitted 

Investments 

Regulation 1.25 establishes assetbased and issuer-based concentration 

limits for an FCM’s and a DCO’s 

investment of Customer Funds in 

Permitted Investments.221 The assetbased and issuer-based concentration 

limits are set at the same levels for 

investments of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds.222 An FCM or a 

DCO is also required to calculate the 

asset-based and issuer-based 

concentration limits separately for 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds based on the total amount of 

funds held by the FCM or DCO in each 

respective segregation classification.223

An FCM or a DCO is currently 

permitted to directly invest futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds in each of the Permitted 

Investments up to the following assetbased limits: (i) U.S. government 

securities—100 percent; (ii) U.S. agency 

obligations—50 percent; (iii) for each 

investment asset class of bank CDs, 

commercial paper, and corporate notes 

and bonds—25 percent; and (iv) 

municipal securities—10 percent.224

With respect to MMFs, an FCM or a 

DCO may invest up to 100 percent of the 

total futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds that it holds in MMFs 

that invest only in U.S. government 

securities, provided that the size of the 

funds’ portfolio is at least $1 billion and 

the funds’ management company has at 

least $25 billion of assets under 

management.225 If a fund has less than 

$1 billion of assets under management, 

or if the manager of the fund has less 

than $25 billion of assets under 

management, the FCM or DCO may 

invest up to 10 percent of its total 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds in the fund.226 For Prime MMFs, 

an FCM or a DCO may invest up to 50 

percent of the total futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds in 

such MMFs; however, the asset-based 

concentration is limited to 10 percent if 

a fund has less than $1 billion in assets 

under management or if the fund’s 

manager has less than $25 billion of 

assets under management.227

With respect to issuer-based 

concentration limits, an FCM or a DCO 

is permitted to invest up to 100 percent 

of the total futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds that it holds in U.S. 

government securities.228 An FCM or a 

DCO also may invest futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds 

directly in qualifying Permitted 

Investments, other than U.S. 

government securities, subject to the 

following issuer-based concentration 

limits: (i) obligations of any single issuer 

of U.S. agency obligations—25 percent; 


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229 17 CFR 1.25(b)(3)(ii)(A) and (B). 

230See 17 CFR 1.25(b)(3)(ii) which excludes 

MMFs that invest only in U.S. government 

securities from the issuer-based concentration 

limits. 

231 17 CFR 1.25(b)(3)(ii)(C) and (D). 

232See supra notes 120 and 121. 

233Proposed revised Regulation 1.25(c)(3)(i)(E). 

234 17 CFR 1.25(b)(3)(i)(B). 

235Proposed Regulation 1.25(c)(3)(i)(F). 

236Proposed Regulations 1.25(c)(3)(ii)(C) and (D), 

respectively. 

237 2011 Permitted Investments Amendment at 

78787. 

238The cyber-attack against ION Cleared 

Derivatives, a third-party provider of cleared 

derivatives order management, order execution, 

trading, and trade processing, demonstrated that an 

incident affecting a single entity may disrupt the 

operations of other market participants and have 

ripple effects across the industry. The incident 

impacted certain FCMs’ operations, including by 

preventing such FCMs from submitting timely and 

accurate positions data to the CFTC. See CFTC 

Statement on ION and the Impact on the Derivatives 

Markets, available here: https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/ 

cftcstatement020223. 

(ii) obligations of any single issuer of 

municipal securities, bank CDs, 

commercial paper, or corporate notes or 

bonds—5 percent.229

With respect to MMFs, an FCM or a 

DCO may invest up to 100 percent of the 

total futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds in a single MMF that 

invests only in U.S. government 

securities.230 With respect to MMFs that 

maintain investment portfolios that hold 

instruments other than U.S. government 

securities, an FCM or a DCO is subject 

to the following issuer-based 

concentration limits: (i) interest in any 

single MMF family may not exceed 25 

percent of customer funds held; and (ii) 

interest in any individual MMF may not 

exceed 10 percent of customer funds 

held.231

The Commission is proposing to 

amend the asset-based and issuer-based 

concentration limits in Regulation 

1.25(b)(3) to reflect the proposed 

revisions to the list of Permitted 

Investments discussed in this Proposal 

and to adjust the limits based on the 

Commission’s experience administering 

Regulation 1.25. In that regard, as 

discussed in Section III.A.2. above, the 

Commission is proposing to limit the 

scope of MMFs whose interests qualify 

as Permitted Investments to Permitted 

Government MMFs. A Permitted 

Government MMF would be defined by 

reference to SEC Rule 2a–7 as an MMF 

that invests at least 99.5 percent or more 

of its total assets in cash, government 

securities, and/or Repurchase 

Transactions that are collateralized 

fully.232 The Commission notes that the 

scope of underlying instruments in 

which a Permitted Government MMF 

would be allowed to invest is broader 

than that of the MMFs currently 

excluded from the concentration limits 

of Regulation 1.25(c) (i.e., MMFs 

investing solely in U.S. government 

securities). To account for the potential 

increase in risk associated with such 

broader scope and in the interest of 

imposing a simple and consistent 

approach to concentration limits, the 

Commission is proposing to establish a 

single concentration limit of 50 percent 

for all Permitted Government MMFs of 

a certain size, without distinguishing 

between funds investing solely in U.S. 

government securities and those whose 

portfolio may also include U.S. agencies 

securities and/or other instruments 

within the limits of SEC Rule 2a–7. 

More precisely, under the Proposal, 

an FCM’s or a DCO’s investment of 

Customer Funds in interests in 

Permitted Government MMFs with at 

least $1 billion in assets and whose 

management company manages at least 

$25 billion in assets would be limited to 

no more than 50 percent of the total 

Customer Funds computed separately 

for each of the segregated funds 

classifications of futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds.233

The proposed asset-based concentration 

limits are consistent with the 

concentration limits applicable to U.S. 

agency obligations, which along with 

U.S. Treasury securities, are a permitted 

underlying instrument for Permitted 

Government MMFs.234

More generally, the Commission is 

proposing these asset-based 

concentration limits for Permitted 

Government MMFs to ensure that 

Customer Funds are invested in a 

manner that limits risks arising from a 

high concentration in any particular 

Permitted Investment asset class. In 

particular, based on its experience 

administering the CFTC’s customer 

protection rules, the Commission 

preliminarily believes that it is not 

prudent to allow FCMs and DCOs to 

invest up to 100 percent of segregated 

Customer Funds in any category of 

MMFs. For the reasons discussed below 

in connection with the proposed issuerbased concentration limits, the 

Commission is of the view that holding 

U.S. government securities through an 

MMF gives rise to risks that are different 

from those associated with holding U.S. 

government securities directly, 

including operational and cybersecurity 

risks. As such, the Commission 

preliminarily believes that even large 

MMFs that invest solely in U.S. 

government securities should be subject 

to a concentration limit. The 

Commission is also proposing to 

maintain the current 10 percent assetbased concentration limit on 

investments in MMFs that hold less 

than $1 billion in assets or have a 

management company with less than 

$25 billion in assets under 

management.235 For purposes of clarity, 

the Commission is proposing to delete 

the conjunction ‘‘and’’ in that provision 

to indicate that the fund size threshold 

and the management company size 

threshold are to be construed as 

alternative prongs triggering the 10 

percent limit. 

In addition, to mitigate the potential 

risks arising from concentration in any 

particular fund or family of funds, the 

Commission is proposing issuer-based 

concentration limits for investments in 

Permitted Government MMFs. 

Specifically, the Commission is 

proposing to limit investments of 

Customer Funds in any single family of 

Permitted Government MMFs to 25 

percent and investments of Customer 

Funds in any single issuer of Permitted 

Government MMFs to 5 percent of the 

total assets held in each of the 

segregated classifications of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds.236

In adopting the 2011 Permitted 

Investment Amendment, the 

Commission decided not to introduce 

concentration limits for MMFs of a 

certain size investing solely in U.S. 

government securities. This 

determination was made in 

consideration of comments received 

from the public, including in particular 

a comment asserting that if FCMs and 

DCOs are permitted to invest all 

customer segregated funds in U.S. 

government securities directly, an FCM 

or a DCO should be able to make the 

same investment indirectly via an 

MMF.237 Based on its experience 

administrating CFTC’s customer 

protection rules and in consideration of 

certain recent marketplace events, 

however, the Commission preliminarily 

believes that introducing concentration 

limits for Permitted Government MMFs 

is warranted. In particular, the 

Commission is concerned that MMFs, 

like any institution relying on electronic 

communications, are susceptible to 

cyber-attacks and operational incidents 

that may adversely impact their normal 

operating capabilities, including 

delaying or otherwise preventing them 

from processing redemption requests of 

FCMs and DCOs in a timely manner.238

FCMs and DCOs may need to redeem 


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239For instance, as discussed in the 2011 

Permitted Investments Amendment, the Reserve 

Primary Fund’s ‘‘breaking the buck,’’ in September 

2008, called attention to the risk to principal and 

potential lack of sufficient liquidity of Prime MMF 

investments. See 2011 Permitted Investments 

Amendment at 78785. In connection with the 

events affecting the Reserve Primary Fund, staff of 

the CFTC’s Division of Clearing and Intermediary 

Oversight, intervened and issued guidance 

indicating that FCMs holding shares of the fund, 

either as a proprietary investment or as an 

investment of customer segregated funds, could 

include these investments in the calculations 

required for purposes of compliance with capital, 

segregation, and secured amount reporting 

requirements (with the condition that the NAV be 

reduced appropriately) even though the fund had 

suspended redemptions. See CFTC Staff Letter No. 

08–17, available here: https://www.cftc.gov/csl/08- 

17/download. 

240As of August 17, 2023, there are 183 

government MMFs registered with the SEC (of 

which 49 are ‘‘Treasury-only’’ MMFs). See U.S. 

Securities and Exchange Commission, Money 

Market Funds Statistics, available here: https://

www.sec.gov/divisions/investment/mmf-statistics. 

The government MMFs currently registered with 

the SEC generally do not elect to apply liquidity 

fees and/or redemption gates. 

241See discussion in Section III.A.2 above. 

242Proposed Regulation 1.25(a)(1)(vi). 

243See Section III.A.3. above. 

244Proposed Regulation 1.25(a)(1)(vi). 

245Proposed Regulation 1.25(b)(3)(i)(E). 

246Proposed Regulations 1.25(b)(3)(ii)(C) and (D). 

247See 2022 CME Advisory Notice, supra note 

170 (announcing that CME has added five ShortTerm U.S. Treasury ETFs to the list of accepted 

margin collateral). The five ETFs would meet the 

proposed condition of being accepted as 

performance bond by a DCO. For purposes of 

clarity, the Commission notes, however, that should 

the Commission proceed with adding Qualified 

ETFs to the list of Permitted Investments, FCMs and 

DCOs would need to assess ETFs’ eligibility in light 

of all applicable conditions. 

248See proposed Regulation 1.25(b)(3)(i)(C) 

removing commercial paper and corporate notes 

and bonds from the 25 percent asset-based 

concentration limit and proposed Regulation 

1.25(b)(3)(ii)(B) removing commercial paper and 

corporate notes and bonds from the 5 percent 

issuer-based concentration limit. 

their interest in Permitted Government 

MMFs to provide customers with cash 

that is needed to meet, for example, 

margin calls at other FCMs or DCOs, or 

variation or initial margin requirements 

for uncleared swap transactions, or to 

cover cash market losses or purchases. 

More generally, the concentration of 

Customer Funds in any single MMF 

creates vulnerabilities that may affect 

FCMs’ and DCOs’ ability to meet their 

regulatory obligations, including 

providing customers with prompt access 

to their funds.239

Although cyber-attacks and other 

operational incidents may impact 

transactions in any Permitted 

Investment, including U.S. government 

securities, the Commission believes that 

the potential risk of Customer Funds 

becoming unavailable is elevated when 

access to such funds depends on the 

operations of a third party such as an 

MMF. For instance, to the extent a fund 

experiences an operational issue, such 

incident may result in a redemption 

suspension for all participants in the 

fund. Thus, by imposing issuer-based 

concentration limits, the Commission 

intends to facilitate the preservation of 

principal and maintenance of liquidity 

of Customer Funds through sound 

diversification standards and to mitigate 

the potential risk of access to a large 

portion of Customer Funds becoming 

unavailable due to cybersecurity or 

operational incidents, among other 

events. Given the large number of SECregistered Government MMFs available 

on the market and likely to meet the 

Permitted Investments’ eligibility 

criteria, the Commission preliminarily 

believes that diversifying an FCM’s or 

DCO’s portfolio of MMF investments 

would not be burdensome.240

In addition, as part of the proposed 

amendments to the concentration limits 

in Regulation 1.25,241 the Commission 

is proposing to revise the asset-based 

and issuer-based concentration limits 

set forth in paragraphs (b)(3)(i)(F) and 

(b)(3)(ii)(C) and (D), respectively, to 

reflect the removal of Prime MMFs from 

the list of Permitted Investments. 

As discussed in Section III.A.3 above, 

the Commission is also proposing to 

permit FCMs and DCOs to invest 

Customer Funds in Qualified ETFs.242

The Commission is proposing to impose 

conditions on Qualified ETFs that are 

similar to the conditions that are 

imposed on Permitted Government 

MMFs whose interests qualify as 

Permitted Investments.243 Among other 

things, similar to Government MMFs, 

which can invest in a limited set of 

instruments, including government 

securities and cash, Qualified ETFs 

would be required to limit their 

investments to instruments that are 

consistent with their investment 

strategy of seeking to replicate the 

performance of a public short-term U.S. 

Treasury security index.244 For 

purposes of the Proposal, short-term 

U.S. Treasury securities are bonds, 

notes, and bills with a remaining 

maturity of 12 months or less, issued by, 

or unconditionally guaranteed as to the 

timely payment of principal and interest 

by, the U.S. Department of the Treasury. 

Consistent with this condition, the 

Commission is also proposing to require 

that the eligible U.S. Treasury securities 

represent at least 95 percent of the ETF’s 

investment portfolio. Given the 

similarity of the terms that would apply 

to Permitted Government MMFs and 

Qualified ETFs under the Proposal, and 

the comparable credit, market, and 

liquidity risk associated with these 

types of funds comprising instruments 

generally recognized as safe and highly 

liquid, the Commission preliminarily 

believes that it is appropriate for 

Qualified ETFs to have the same assetbased and issuer-based concentration 

limits as those proposed for Permitted 

Government MMFs. Specifically, under 

the Proposal, an FCM’s or a DCO’s 

investment of Customer Funds in 

Qualified ETFs with at least $1 billion 

in assets and whose management 

company manages at least $25 billion in 

assets would be limited to an assetbased concentration limit of 50 percent 

of total funds held in each of the 

segregated classifications of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds.245 The current 10 percent assetbased concentration limit for 

investments in MMFs that hold less 

than $1 billion in assets or whose 

management company manages less 

than $25 billion in assets under 

management would also be extended to 

Qualified ETFs. In addition, for the 

reasons described supra in connection 

with Permitted Government MMFs, the 

Commission is proposing to limit 

investments of Customer Funds in any 

single family of Qualified ETFs to 25 

percent and investments of Customer 

Funds in any single issuer of Qualified 

ETFs to 5 percent of the total assets held 

in each of the segregated classifications 

of futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds.246 Given that there may 

be at least five U.S. Treasury ETFs that 

could potentially qualify as Permitted 

Investments, the Commission 

preliminarily believes that the proposed 

issuer-based concentration limits would 

not be overly restrictive.247

The Commission is also proposing 

revisions to the asset-based and issuerbased concentration limits to remove 

commercial paper, and corporate notes 

and bonds from the limits.248 As noted 

in Section III.A.4. above, the 

Commission is proposing to remove 

commercial paper and corporate notes 

and bonds from the list of Permitted 

Investments due to the termination of 

the TLGP by the FDIC in 2012, which 

resulted in such investments no longer 

qualifying as Permitted Investments. In 

addition, as discussed in Section III.A.6. 

above, the Commission is requesting 

public comment on the elimination of 

bank CDs as a Permitted Investment due 

to the apparent lack of interest by FCMs 

and DCOs in such instruments. 

Therefore, if bank CDs are removed from 

the list of Permitted Investments in a 

final rulemaking after considering 


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249See Statistical Appendix to the World 

Economic Outlook, April 2023, International 

Monetary Fund, available here: https://

www.imf.org/en/Publications/WEO/Issues/2023/04/ 

11/world-economic-outlook-april-2023. 

250Proposed Regulation 1.25(a)(1)(vii). 

251Proposed Regulation 1.25(f)(3). 252 17 CFR 1.11. 

comments, specifying asset-based and 

issuer-based concentration limits on 

investments in commercial paper, 

corporate notes and bonds, and bank 

CDs would no longer be necessary and 

would be removed from Regulation 

1.25. 

Finally, as noted in Section III.A.1., 

the Commission is proposing to expand 

the types of investments that would 

qualify as Permitted Investments to 

include Specified Foreign Sovereign 

Debt. The Commission, however, is not 

proposing to impose asset-based or 

issuer-based concentration limits on 

FCM or DCO investments in Specified 

Foreign Sovereign Debt. 

Not imposing concentration limits on 

the Specified Foreign Sovereign Debt 

would be consistent with the current 

exclusion of U.S. government securities 

from the asset-based and issuer-based 

concentration limits. As discussed in 

Section III.A.1. above, the relative 

strength of the economies and limited 

default risk of Canada, France, 

Germany, Japan, and the United 

Kingdom are demonstrated by such 

countries being ranked among the seven 

largest economies in the International 

Monetary Fund’s classification of 

advanced economies,249 and by the 

countries being members of the G7, 

which represents the world’s largest 

industrial democracies. In addition, as 

discussed in Section III.A.1. above, the 

Commission has preliminarily 

determined that the two-year debt 

instruments that would qualify as 

Specified Foreign Sovereign Debt have 

credit, liquidity, and volatility 

characteristics that are consistent with 

two-year U.S. Treasury securities. 

Furthermore, the proposed condition in 

Regulation 1.25(a)(1)(vii) that permits an 

FCM or a DCO to invest Customer 

Funds in Specified Foreign Sovereign 

Debt only to the extent that the DCO or 

FCM has balances owed to customers 

denominated in the currency of the 

applicable country is expected to 

effectively limit the amount of Customer 

Funds that an FCM or a DCO may invest 

in the Specified Foreign Sovereign 

debt.250 The proposed condition that an 

FCM or a DCO must stop making direct 

investments, or engaging in reverse 

repurchase agreements, involving the 

Specified Foreign Sovereign Debt of a 

country whose credit default spread on 

two-year debt instruments exceeds 45 

BPS would be expected to further 

preserve the principal of customers’ 

foreign currency deposits held by FCMs 

and DCOs.251 Lastly, not imposing assetbased or issuer-based concentration 

limits on an FCM’s or a DCO’s 

investments in Specified Foreign 

Sovereign Debt is consistent with the 

Commission’s 2018 Order, which did 

not impose concentration limits on a 

DCO’s investment of futures customer 

funds or Cleared Swaps Customer 

Collateral in the sovereign debt of 

France or Germany. Accordingly, based 

on the above, the Commission 

preliminarily believes that asset-based 

and issuer-based concentration limits 

are not necessary for investments in 

Specified Foreign Sovereign Debt. 

The Commission also notes that the 

concentration limits in Regulation 1.25 

are minimum requirements. Pursuant to 

Regulation 1.11, an FCM is required to 

monitor and manage market, credit, 

liquidity, foreign currency, legal, 

operational, settlement, segregation, 

capital, and any other applicable risks 

associated with its activity, as part of 

the FCM’s risk management program.252

If, based on its independent risk 

assessment, an FCM determines that 

stricter concentration limits with 

respect to Permitted Investments of 

Customer Funds are appropriate, the 

FCM is required to implement such 

stricter limits, in accordance with 

Regulation 1.11. Similarly, Regulation 

39.13(g)(10) requires a DCO to limit the 

assets it accepts as initial margin to 

those that have minimal credit, market, 

and liquidity risks, while Regulation 

39.13(g)(13) requires the DCO to apply 

appropriate limitations or charges on 

the concentration of assets posted as 

initial margin, as necessary, in order to 

ensure its ability to liquidate such assets 

quickly with minimal adverse price 

effects. 

In addition, if as a result of market 

events or extraneous circumstances, 

such as a change in an MMF’s size, the 

FCM or DCO inadvertently breaches the 

concentration thresholds, the FCM or 

DCO would be expected to undertake 

prompt actions to restore compliance 

with the concentration limits, while 

managing the investments of Customer 

Funds in a manner consistent with the 

general objectives of preserving 

principal and maintaining liquidity. 

Depending on the market conditions, 

such actions may include taking steps to 

progressively reduce the amount of 

Customer Funds invested in a particular 

asset class instead of immediately 

divesting the investments in a 

potentially volatile market. 


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253 17 CFR 1.29(b). 

254 17 CFR 22(e)(1). 

255 17 CFR 30.7(i). 

256See supra note 42. 

257 17 CFR 1.17(c)(5). Although capital charges do 

not apply to DCOs, a DCO is required under 

Regulation 39.11(a)(2) to maintain financial 

resources sufficient to enable it to cover its 

Continued 

The foregoing discussion of 

concentration limits can be summarized 

as follows: 

Instrument Size 

Current concentration limits Proposed concentration limits 

Asset-based Issuer-based Asset-based Issuer-based 

U.S. government securities ............. N/A .................................................. No limit .......... No limit ........................................... No limit .......... No limit. 

Municipal Securities ........................ N/A .................................................. 10% ............... 5% .................................................. 10% ............... 5%. 

U.S. agency obligations .................. N/A .................................................. 50% ............... 25% ................................................ 50% ............... 25%. 

Bank CDs ........................................ N/A .................................................. 25% ............... 5% .................................................. 25% ............... 5%. 

Government MMFs investing solely 

in U.S. government securities 

(i.e., securities issued or fully 

guaranteed by the U.S. government).

>$1B assets and/or management 

company with >25B in assets.

<$1B assets and/or management 

company with <$25B in assets.

No limit ..........

10% ...............

No limit ...........................................

10% (de facto limit based on assetbased limit).

50% ...............

10% 

25% per family 

5% per fund. 

Government MMFs as defined in 

SEC Rule 2a–7 (including MMFs 

whose portfolio includes U.S. 

agency obligations and other instruments).

>$1B assets and/or management 

company with >25B in assets.

<$1B assets and/or management 

company with <$25B in assets.

50% ...............

10% 

25% per family 10% per fund ........ 50% 

10% 

Qualified ETFs ................................ >$1B assets and/or management 

company with >25B in assets.

N/A ................ N/A .................................................. 50% ............... 25% per family 

5% per fund. 

<$1B assets and/or management 

company with <$25B in assets.

N/A ................ N/A .................................................. 10% 

Request for Comment: The 

Commission requests comment on all 

aspects of its Proposal relating to 

concentration limits, including the 

proposed asset-based and issuer-based 

concentration limits for Permitted 

Government MMFs and Qualified ETFs. 

The Commission requests specific 

comment with respect to the following: 

22. Should the Commission adopt 

different asset-based and issuer-based 

concentration limits for Permitted 

Government MMFs and/or Qualified 

ETFs than the limits proposed? Are the 

proposed limits sufficiently 

conservative to ensure that Customer 

Funds are adequately protected and 

liquid? 

23. Should the Commission revise any 

of the asset-based concentration limits 

that are not proposed to be revised as 

part of this Proposal? For instance, 

FCMs and DCOs are permitted to invest 

up to 50 percent of their Customer 

Funds in U.S. agency obligations and up 

to 10 percent in municipal securities. 

Should the Commission consider 

revising these or other asset-based 

concentration limits? If so, how should 

the asset-based concentration limits be 

revised? Please explain, and provide 

data if possible. 

24. Should the Commission revise any 

of the issuer-based concentration limits 

that are not proposed to be revised as 

part of this Proposal? For instance, 

FCMs and DCOs are permitted in invest 

up to 25 percent of their Customer 

Funds in obligations of a single issuer 

of U.S. agency obligations and up to 5 

percent in obligations of any single 

issuer of municipal securities. Should 

the Commission consider revising these 

or other issuer-based concentration 

limits? If so, how should the issuerbased concentration limits be revised? 

Please explain, and provide data to 

support your comment, if possible. 

25. Should the Commission impose 

asset-based and/or issuer-based 

concentration limits on Specified 

Foreign Sovereign Debt? If so, please 

explain why such concentration limits 

are necessary. Please provide data to 

support your comment, if possible. 

26. Given the similarities between 

Permitted Government MMFs and 

Qualified ETFs discussed above, the 

Commission is proposing to apply the 

same asset-based and issuer-based 

concentration limits to both asset 

classes. Is there any reason to 

distinguish between Permitted 

Government MMFs and Qualified ETFs 

with respect to the application of 

concentration limits? If so, please 

explain. 

C. Futures Commission Merchant 

Capital Charges on Permitted 

Investments 

Although FCMs and DCOs may invest 

Customer Funds in Permitted 

Investments, as discussed supra, 

Commission regulations provide that 

FCMs and DCOs are also financially 

responsible for any losses resulting from 

such investments, and are explicitly 

prohibited from allocating investment 

losses to customers or clearing FCMs, 

respectively. Specifically, Regulation 

1.29 provides that FCMs or DCOs, as 

applicable, shall bear sole responsibility 

for any losses resulting from the 

investment of futures customer funds, 

and further provides that no investment 

losses shall be borne or otherwise 

allocated to FCM customers or to FCMs 

clearing customer accounts at DCOs.253

In addition, Regulation 22.2(e)(1) 254

provides that an FCM shall bear sole 

responsibility for any losses resulting 

from the investment of Cleared Swaps 

Customer Collateral and may not 

allocate investment losses to Cleared 

Swaps Customers of the FCM and 

Regulation 30.7(i) provides that an FCM 

shall bear sole financial responsibility 

for any losses resulting from the 

investment of 30.7 customer funds, and 

further provides that no investment 

losses may be allocated to the 30.7 

customers of the FCM.255 Additionally, 

the Commission is proposing an 

amendment to Regulation 22.3(d) to 

clarify that DCOs are financially 

responsible for any losses resulting from 

investments of Cleared Swap Customer 

Collateral in Permitted Investments, 

consistent with Regulation 1.29, which 

addresses financial responsibility for 

losses resulting from investment of 

futures customer funds, and the 

Commission’s original intent to permit 

investments of Cleared Swaps Customer 

Collateral within the parameters 

applicable to investments of futures 

customer funds.256

To reserve liquidity for potential 

losses resulting from investments of 

Customer Funds, Regulation 

1.17(c)(5)(v) requires an FCM to take 

capital charges in computing the firm’s 

regulatory capital.257 The capital 


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operating costs for a period of at least one year, 

calculated on a rolling basis. Investment losses 

would be included in the DCO’s operating costs. 

258 17 CFR 240.15c3–1. 

259 17 CFR 240.15c3–1a. 

260SEC Rule 15c3–1(c)(2)(vi)(C) provides that the 

capital charges on the sovereign debt of Canada is 

the same as the capital charges set forth in SEC Rule 

15c3–1(c)(2)(vi)(A) for debt obligations of the U.S., 

debt obligations fully guaranteed as to principal and 

interest by the U.S., or debt obligations of U.S. 

agencies. SEC Rule 15c3–1(c)(2)(vi)(A) provides that 

a broker or dealer must take a 0.5 percent capital 

charge on U.S. Treasury and U.S. agency debt 

instruments that have a remaining time to maturity 

of between 3 months and 6 months, and no capital 

charge on U.S. Treasury and U.S. agency debt 

instruments having a remaining time to maturity of 

less than 3 months. 

261SEC Rule 15c3–1(c)(2)(F)(1) specifies the 

capital charges for nonconvertible debt securities 

with a fixed interest rate, fixed maturity date, and 

minimal credit risk, which includes the sovereign 

debt of France, Germany, Japan, and the United 

Kingdom. The capital charge for the sovereign debt 

of these countries that have a remaining time-tomaturity of no more than one year is 2 percent of 

the market value of debt instrument. 

262See Letter titled Net Capital Treatment of 

Certain U.S. Treasury Exchange-Traded Funds, 

issued by the Division of Trading and Markets to 

Ms. Kris Dailey, Vice President, Risk Oversight & 

Operational Regulations, Financial Industry 

Regulatory Authority, June 2, 2022 (‘‘SEC ETF 

Letter’’). The SEC ETF Letter is available at the 

SEC’s website: https://www.sec.gov/divisions/ 

marketreg/mr-noaction/2022/finra-060222-15c3- 

1.pdf. 263 17 CFR 240.15c6–1. 

charges are designed to reflect potential 

market risk associated with the FCM’s 

holding of Permitted Investments, and 

to ensure that the firm has sufficient 

liquid financial resources to cover 

potential investment losses. Regulation 

1.17(c)(5)(v) further provides that an 

FCM must apply the capital charges set 

forth in Rule 15c3–1 under the 

Securities Exchange Act (‘‘SEC Rule 

15c3–1’’) 258 and Appendix A to SEC 

Rule 15c3–1 259 to the Permitted 

Investments. 

As discussed in Section III.A.1. above, 

the Commission is proposing to revise 

the Permitted Investments to include 

Specified Foreign Sovereign Debt (i.e., 

the sovereign debt of Canada, France, 

Germany, Japan, and the United 

Kingdom). Under the Proposal, each 

Specified Foreign Sovereign Debt 

instrument must have a remaining timeto-maturity of 180 calendar days or less. 

Given the proposed remaining time-tomaturity limit of 180 calendar days for 

each Specified Foreign Sovereign Debt 

instrument, an FCM investing Customer 

Funds in qualifying sovereign debt of 

Canada would have no capital charge 

for instruments with a remaining time to 

maturity of less than 3 months and a 

capital charge of 0.5 percent of the 

market value for instruments with a 

remaining time to maturity of 3 to 6 

months under SEC Rule 15c3–1.260 The 

capital charge for the sovereign debt of 

France, Germany, Japan, and the United 

Kingdom, is determined under SEC 

rules by reference to nonconvertible 

debt securities with a fixed interest rate, 

fixed maturity date, and minimal credit 

risk. Such nonconvertible debt 

securities that have a remaining time to 

maturity of one year or less are subject 

to a capital charge of 2 percent of the 

market value of the security under SEC 

Rule 15c3–1(c)(2)(F)(1).261

With respect to Qualified ETFs, 

neither SEC Rule 15c3–1 nor Appendix 

A to SEC Rule 15c3–1 explicitly 

addresses capital charges for ETFs 

primarily comprised of U.S. Treasury 

securities. SEC Rule 15c3– 

1(c)(2)(vi)(D)(1) does specify a 2 percent 

capital charge for a broker-dealer’s net 

position in redeemable securities of a 

Prime MMF or a Permitted Government 

MMF. 

SEC staff, however, has provided 

guidance to registered securities brokers 

or dealers stating that staff would not 

recommend an enforcement action to its 

Commission if a broker or dealer 

applied a capital charge of 2 percent of 

the market value of ETFs shares held in 

the size of a creation units.262 The SEC 

staff’s guidance was applicable to a U.S. 

Treasury ETF that: (i) is an open-ended 

management company registered with 

the SEC under the Investment Company 

Act of 1940 that issues securities 

redeemable at the net asset value; and 

(ii) invests solely in cash and 

government securities that are eligible 

securities under paragraph (a)(11) of 

Rule 2a–7, limited to U.S. Treasury 

floating and fixed rate bills, notes, and 

bonds with a remaining term to final 

maturity of 12 months or less, 

government money market funds as 

defined in Rule 2a–7, and/or 

Repurchase Transactions with a 

remaining term to final maturity of 12 

months or less collateralized by U.S. 

Treasury securities or other government 

securities with a remaining term to final 

maturity of 12 months or less. The SEC 

staff position was subject to the 

following conditions: (i) the broker or 

dealer is not aware of any substantial 

operational problem that the U.S. 

Treasury ETF may be experiencing; (ii) 

the U.S. Treasury ETF shares can be 

redeemed by a broker or dealer through 

an authorized participant, the 

redemption of the U.S. Treasury ETF’s 

shares can be settled in exchange for a 

basket of the ETF’s underlying securities 

and/or cash by T+1, and the U.S. 

Treasury ETF has committed in its 

registration statement to permit 

shareholders, except in extraordinary 

circumstances, to settle transactions 

within that timeframe; and (iii) the U.S. 

Treasury ETF’s shares are listed for 

trading on a national securities 

exchange and trades of such shares are 

settled in accordance with the standard 

cycle prescribed by SEC Rule 15c6–1 263

under the Securities Exchange Act of 

1934. 

Based on the SEC’s guidance 

regarding the capital charges for U.S. 

Treasury ETFs, the Commission is 

specifying that FCMs would be required 

to apply a capital charge equal to 2 

percent of the fair market value of the 

shares of a Qualified ETF that invests in 

the instruments specified in the SEC 

ETF Letter. 

Request for Comment: 

27. The Commission requests 

comment on the proposed capital 

charges for Specified Foreign Sovereign 

Debt and Qualified ETFs. 

28. The Proposal would apply a 2 

percent capital charge on the value of 

Qualified ETF shares that invests solely 

in cash and government securities that 

are eligible securities under paragraph 

(a)(11) of SEC Rule 2a–7, limited to U.S. 

Treasury floating and fixed rate bills, 

notes, and bonds with a remaining term 

to final maturity of 12 months or less, 

government money market funds as 

defined in SEC Rule 2a–7, and/or 

Repurchase Transactions with a 

remaining term to final maturity of 12 

months or less collateralized by U.S. 

Treasury securities or other government 

securities with a remaining term to final 

maturity of 12 months or less. Does the 

limitation on the investments that the 

Qualified ETF may hold in order to 

apply the 2 percent capital charge raise 

any issues for FCMs investing in 

Qualified ETFs? Would Qualified ETFs 

hold investments not covered by the 

SEC ETF Letter? If so, what different 

investments could a Qualified ETF 

hold? How would such additional 

investments impact the capital charge 

that should be applied to Qualified 

ETFs? 

D. Segregation Investment Detail Report 

Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5) require each FCM to submit a 

SIDR Report to the Commission and the 

FCM’s DSRO listing the names of all 

banks, trust companies, FCMs, DCOs, 

and other depositories or custodians 

holding futures customer funds, Cleared 

Swaps Customer Collateral, or 30.7 

customer funds. The FCM is further 

required to identify in the SIDR Report 

the amount of futures customer funds, 

Cleared Swaps Customer Collateral, or 

30.7 customer funds invested in each of 

the following categories of Permitted 

Investments: (i) U.S. Treasury securities; 


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264As discussed in Section III.A.6. above, the 

Commission notes that no FCMs or DCOs currently 

invest Customer Funds in bank CDs and has 

requested public comment regarding the 

elimination of bank CDs from the list of Permitted 

Investments. If the Commission were to eliminate 

bank CDs in the final rulemaking, the Commission 

would also amend Regulations 1.32(f), 22.2(g)(5), 

and 30.7(l)(5) to remove references to bank CDs. 

265See generally 2013 Protections of Customer 

Funds Release. 

266 Id. at 68509. 

267 Id. at 68510. 

268Regulations 1.32 (for futures customer funds), 

22.2(g) (for Cleared Swaps Customer Collateral) and 

30.7(l) (for 30.7 customer funds) require an FCM to 

prepare, among other records, a daily record as of 

the close of each business detailing the total amount 

of funds on deposit in customer segregated accounts 

and the total amount of funds owed to customers. 

The purpose of the daily record is for the FCM to 

demonstrate compliance with its obligation to hold 

a sufficient amount of funds in segregated accounts 

to pay the full account balance of each customer. 

269See 2013 Protections of Customer Funds 

Release at 68537 and 68580. 

270These appendices are intended to be used by 

depositories that accept Customer Funds from 

FCMs to acknowledge that the funds belong to the 

FCM customer and cannot be used to offset 

obligations of the FCM. 

271 17 CFR Appendix A to 1.20, 17 CFR Appendix 

E to Part 30. 

272 17 CFR Appendix A to 1.26, 17 CFR Appendix 

F to Part 30. 

273 2013 Protections of Customer Funds Release at 

68537 and 68592 (noting in footnote 662 that the 

Commission generally expected that it would seek 

to obtain account information from the CME and 

NFA automated daily segregation confirmation 

system and/or from depositories directly prior to 

requesting a depository to activate electronic 

access). 

274 Id., at 68512. CME Rule 971.C. provides that 

in order for an FCM clearing member’s account held 

at a depository to qualify as a segregated account 

for Customer Funds, the FCM clearing member 

must provide CME with access to account 

information, in a form and manner prescribed by 

CME, and the depository must allow the FCM 

clearing member to provide CME with access to the 

account information, in a form and manner 

prescribed by CME. NFA Financial Requirements 

Section 4, paragraph (b), provides that each member 

FCM must instruct each depository, as required by 

Continued 

(ii) municipal securities; (iii) 

government sponsored enterprise 

securities (i.e., U.S. agency obligations); 

(iv) bank CDs; (v) commercial paper; (vi) 

corporate notes or bonds; and (vii) 

interests in MMFs. The SIDR Report is 

required to be filed twice each month 

with the Commission and the firm’s 

DSRO, with balances reported as of the 

fifteenth day of each month, or the first 

business day thereafter if the fifteenth 

day of the month is not a business day, 

and as of the last business day of each 

month. 

The Commission is proposing to 

amend Regulations 1.32(f), 22.2(g)(5), 

and 30.7(l)(5), which define the content 

of the SIDR Report, by deleting the 

requirement for an FCM to report the 

balances invested in commercial paper 

and corporate notes and bonds as such 

investments would no longer be 

Permitted Investments under the 

Proposal, for the reasons articulated 

supra.264

The Commission is also proposing to 

amend Regulations 1.32(f), 22.2(g)(5), 

and 30.7(l)(5) to require each FCM to 

report the total amount of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds invested in Specified Foreign 

Sovereign Debt of each country that is 

included within the Specified Foreign 

Sovereign Debt (i.e., individual 

reporting for Canada, France, Germany, 

Japan, and the United Kingdom). The 

Commission is also proposing to amend 

Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5) to require an FCM to include 

in the SIDR Report the total amount of 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds invested in Qualified ETFs as 

such investments would be Permitted 

Investments under the Proposal. In 

addition, the Commission is proposing 

to amend the above regulations by 

revising the requirement to report 

balances invested in interests in MMFs 

to reflect that such investments are 

limited to interests in Government 

MMFs consistent with the Proposal. 

Request for Comment: 

29. The Commission requests 

comment on the proposed amendments 

to Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5) and the proposed revisions to 

the SIDR Reports, including whether 

additional revisions would be 

necessary. 

E. Read-Only Electronic Access to 

Customer Funds Accounts Maintained 

by Futures Commission Merchants 

Commission regulations require 

depositories holding Customer Funds 

for FCMs to provide the Commission 

with direct, read-only electronic access 

to the Customer Fund accounts (‘‘Readonly Access Provisions’’). The Readonly Access Provisions are set forth in 

Regulation 1.20, Appendix A to 

Regulation 1.20, and Appendix A to 

Regulation 1.26, for futures customer 

funds; Regulation 22.5 for Cleared 

Swaps Customer Collateral; and, 

Regulation 30.7 and appendices E and F 

to Part 30 of the Commission’s 

regulations for 30.7 customer funds. 

The Commission adopted the Readonly Access Provisions in 2013 as part 

of a regulatory reform seeking to 

enhance the CFTC’s customer protection 

regime.265 In particular, the Commission 

sought to strengthen the customer fund 

protections in response to the failure of 

two FCMs that violated customer fund 

segregation laws, which resulted in 

shortfalls in Customer Funds 

balances.266 The Commission noted that 

the FCM failures raised questions 

concerning the adequate functioning 

and capacity of the oversight system to 

monitor FCM activities, verify Customer 

Funds balances, and detect fraud.267

By adopting the Read-only Access 

Provisions, the Commission sought to 

establish, among other measures, a 

mechanism that would enable 

Commission staff to review and identify 

discrepancies between an FCM’s daily 

segregation reports 268 and customer 

fund balances on deposit at various 

depositories.269 To that effect, the 

Commission amended Regulations 1.20 

and 30.7 to include provisions requiring 

FCMs to deposit Customer Funds only 

with depositories that agree to provide 

the Commission with direct, read-only 

electronic access to allow Commission 

staff to review account balance 

information and transactions. 

The Commission also adopted 

template acknowledgment letters set 

forth in Appendix A to Regulation 1.20 

and Appendix E to Part 30 of the 

Commission’s regulations to require, 

among other things,270 that the 

depository acknowledge and agree, 

pursuant to authorization granted by the 

FCM, to provide the appropriate 

Commission staff with ‘‘the 

technological connectivity, which may 

include provision of hardware, software, 

and related technology and protocol 

support, to facilitate direct, read-only 

electronic access to transaction and 

account balance information.’’ 271 The 

template acknowledgment letters set 

forth in Appendix A to Regulation 1.26 

and Appendix F to Part 30 contain 

similar provisions with respect to MMF 

accounts in which FCMs hold customer 

segregated funds.272

In adopting the Read-only Access 

Provisions, the Commission noted that 

it did not anticipate that staff would 

access FCM accounts on a regular basis 

to monitor account activity, but, rather, 

that staff would make use of the Readonly Access Provision only when 

necessary to obtain account balances 

and other information that staff could 

not obtain via the CME and NFA 

automated daily segregation 

confirmation system or otherwise 

directly from the depositories.273

Specifically, the Commission explained 

that CME and NFA had adopted rules 

requiring FCMs to instruct each 

depository holding Customer Funds to 

report balances on a daily basis to CME 

or NFA, respectively.274


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NFA, holding segregated Customer Funds to report 

balances in the FCM’s customer segregated accounts 

to NFA or a third party designated by NFA in the 

form and manner prescribed by NFA. CME and 

NFA Rules are available at the following websites: 

https://www.CMEGroup.com, and https://

www.NFA.Futures.Org. 275At the time the Commission issued the 2013 

Protections of Customer Funds Release, CME and 

NFA had just recently launched the programs. See 

2013 Protections of Customer Funds Release at 

68512. The verification programs have been further 

developed in the years that followed. FCMs report 

on the daily segregation records total funds held in 

segregation with banks, clearing organizations, and 

net equities with other FCMs in addition to other 

balances. 

276See 2013 Protections of Customer Funds 

Release at 68537 (noting that the Commission 

anticipated that the combination of receipt of daily 

account balances reported by depositories to CME 

and NFA, and the Commission’s ability to confirm 

account balances and transactions directly with 

depositories via direct communications would 

diminish the need to rely upon direct electronic 

access to account information at depositories). 

277See Regulations 1.20(d)(5) and (6), 1.26(b), 

22.5(a) and (b), and 30.7(d)(5) and (6). 17 CFR 

1.20(d), 1.26(b), 22.5, and 30.7(d). For example, 

Regulation 1.20(d)(5) provides that an FCM must 

deposit futures customer funds only with a 

depository that agrees that accounts may be 

examined at any reasonable time by specified 

Commission or DSRO staff. Regulation 1.20(d)(6) 

provides that an FCM must deposit futures 

customer funds only with a depository that agrees 

to reply promptly and directly to any request from 

specified Commission staff or DSRO staff for 

confirmation of account balances or provision of 

any other information regarding or related to the 

FCM’s account. Regulation 1.20(d)(5) and (6) further 

provide that the written acknowledgment required 

from the depository must contain the FCM’s 

authorization to the depository to reply promptly 

and directly to the Commission or DSRO without 

further notice to or consent from the FCM. 

Regulation 22.5 provides that an FCM must obtain 

a written acknowledgment letter in accordance with 

Regulation 1.20 and Regulation 1.26 from each 

depository holding Cleared Swaps Customer 

Collateral, except an acknowledgment letter is not 

required of a DCO that has adopted rules providing 

for the segregation of Cleared Swaps Customer 

Collateral. 

278Based on information provided by CME, as of 

March 7, 2023, FCM registrants maintained over 

3,600 active accounts with approximately 200 

banks, other registered FCMs, foreign brokerdealers, foreign exchanges, and DCOs. 

279 In this regard, depositories often require 

Commission staff to revise user-ids and passwords 

on a regular basis otherwise the access is 

interrupted and must be reset by the depositories. 

Some depositories also require the use of additional 

security devices beyond user-IDs and passwords, 

including key fobs or other forms of multi-factor 

authentication. 

280Commission staff has not had a regulatory 

need to attempt to use read-only access for any 

FCM’s depository accounts in the approximately 10 

years since the Regulation was implemented. 

281 If adopted, the proposed amendments would 

extend to Regulation 22.5, which requires FCMs to 

obtain an acknowledgment letter from depositories 

before depositing Cleared Swaps Customer 

Collateral with a depository, in accordance with 

Regulations 1.20 and 1.26. 17 CFR 22.5(a). 

Regulation 22.5(b) further requires FCMs to adhere 

to all requirements specified in Regulation 1.20 and 

1.26 regarding retaining, permitting access to filing, 

or amending the written acknowledgment letters. 17 

CFR 22.5. 

Separately, the Commission is proposing to 

redesignate appendices A and B to Regulation 1.20 

as appendices C and D to Part 1, and appendices 

A and B to Regulation 1.26 as appendices F and G 

to Part 1, to address a change in the rules of the 

Office of the Federal Register regarding the 

structure of regulatory text to be codified in the 

Code of Federal Regulations. 

In practice, CME and NFA receive 

account information from all 

depositories holding Customer Funds 

on a daily basis pursuant to CME Rule 

971.C. and NFA Financial Requirements 

Section 4, respectively. Furthermore, 

CME and NFA have developed 

programs that compare the daily 

balances reported by each of the 

depositories with balances reported by 

the FCMs in their daily segregation 

reports that are filed with CME and/or 

NFA.275 Under these programs, an alert 

is generated for discrepancies that 

exceed defined thresholds. In the event 

of such alerts, CME/NFA staff conduct 

appropriate analysis and follow-up 

actions, which may involve 

communications with an FCM to clarify 

or remedy the situation, and document 

the outcome. 

The Commission’s experience with 

overseeing the administration of the 

CME and NFA daily segregation 

confirmation and verification processes 

for several years has afforded sufficient 

assurances that the system provides 

adequate access to relevant information 

and is capable of detecting 

discrepancies in account balances in a 

timely manner. Moreover, the 

establishment of an efficient method for 

obtaining and verifying FCM balances of 

Customer Funds at each depository 

supports the Commission’s initial 

expectation that the direct, read-only 

electronic access would not be the 

Commission’s principal tool for 

obtaining account information at 

depositories.276 The Commission also is 

retaining the current requirement that 

FCMs deposit Customer Funds only 

with depositories that agree that 

accounts may be examined by 

Commission or DRSO staff at any 

reasonable time, and that further agree 

to reply promptly and directly to any 

request from Commission or DSRO staff 

for confirmation of account balances or 

provision of any other information 

regarding or related to an account, in 

order to ensure that staff have timely 

access information concerning Customer 

Funds from depositories.277

In addition, in implementing the 

Read-only Access Provisions, the 

Commission has encountered various 

practical challenges. Specifically, given 

the number of depositories with which 

FCMs establish relationships and the 

total number of accounts that FCMs 

maintain with various depository 

institutions, the Commission must 

obtain and keep a current log of 

credentials to access the depository 

accounts, and in some instances, must 

obtain and store physical devices 

required as part of a multi-factor 

authentication process, for thousands of 

different depository accounts.278

Frequently, Commission staff must be 

trained to navigate the various account 

access systems and work regularly with 

depositories’ technology staff to ensure 

that the systems’ security features do 

not prevent the Commission’s access to 

the accounts.279 Furthermore, due to 

lack of appropriate infrastructure, some 

foreign depository institutions are 

unable to provide direct electronic 

access to the customer segregated 

accounts, offering instead to send endof-day accounts statements by email. 

These operational challenges put an 

undue burden on the Commission’s 

resources, particularly considering that 

the Commission contemplated that the 

use of real-time access would be 

limited, and prevent Commission staff 

from using the Read-only Access 

Provisions as intended.280

Thus, in light of the practical 

challenges of maintaining direct readonly access to depository accounts and 

the availability of efficient alternative 

methods for verifying customer 

segregated account balances, the 

Commission is proposing to eliminate 

the Read-only Access Provisions in 

Regulations 1.20 and 30.7, and 

Appendix A to Regulation 1.20, 

Appendix A to Regulation 1.26, and 

appendices E and F to Part 30 of the 

Commission’s regulations.281

The Commission notes that under the 

Proposal, FCMs would not need to 

obtain new acknowledgment letters for 

existing accounts at depositories 

holding Customer Funds. Should the 

Commission proceed with the proposed 

amendments after notice and comment, 

the revised acknowledgment letters 

would have to be obtained for accounts 

opened following the effective date of 

the revisions or in the event the FCM is 

required to obtain a new 

acknowledgment letter for reasons 

unrelated to the elimination of the Readonly Access Provisions. For the 

avoidance of doubt, the Commission 

confirms that even if an FCM had not 

obtained revised acknowledgment 

letters for accounts existing prior to the 

effective date of the proposed revisions, 

but keeps instead such letters in the 

currently applicable template form, the 

depositories would not be required to 

provide direct, read-only access to 

accounts holding Customer Funds. 

Request for Comment: The 

Commission seeks comment on all 


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282For purposes of clarification, an FCM or a 

DCO that holds shares of an MMF in a custodial 

account at a depository (not directly with the MMF 

or its affiliate) is required to execute the template 

acknowledgement letter set forth in Appendix A or 

B of Regulation 1.20 (to be redesignated Appendix 

C and Appendix D to Part 1), as applicable. 17 CFR 

1.20. 

283Regulation 1.26 currently refers to ‘‘appendix 

A or B to this section.’’ As noted supra, Appendix 

A and Appendix B to Regulation 1.26 would be 

redesignated Appendix F and Appendix G to Part 

1 to address a change in the rules of the Office of 

the Federal Register regarding the structure of 

regulatory text to be codified in the Code of Federal 

Regulations. 

284 7 U.S.C. 6(c). 

285 7 U.S.C. 6(c)(1). 

aspects of the Proposal relating to the 

elimination of the Read-only Access 

Provisions, including: 

30. The existing Read-only Access 

Provisions currently afford the 

Commission with direct access to 

depository accounts holding Customer 

Funds. Given the challenges 

depositories and Commission staff are 

encountering in implementing and 

administrating the provisions and the 

availability of alternative means of 

obtaining transaction and account 

balance information, what practical 

implications should the Commission 

consider prior to deciding whether to 

eliminate the requirement for 

depositories to provide Commission’s 

staff with direct, read-only electronic 

access? 

F. Proposed Conforming Amendments 

Regulation 1.26 requires each FCM or 

DCO that invests futures customer funds 

in financial instruments that are 

Permitted Investments, including 

qualifying MMFs, to separately account 

for such instruments and to segregate 

the instruments from its own funds. The 

FCM or DCO also must obtain and retain 

in its files a written acknowledgment 

from the depository holding the 

instruments stating that the depository 

was informed that the instruments 

belong to futures customers and are 

being held in accordance with the 

provisions of the Act and Commission 

regulations. Regulation 1.26 also 

specifies how direct investments in 

MMFs must be held and sets forth the 

template acknowledgement letter to be 

used with respect to direct investments 

in MMFs.282

To account for the proposed change in 

the scope of MMFs that qualify as 

Permitted Investments and the proposed 

addition of Qualified ETFs to the list of 

Permitted Investments, the Commission 

proposes revisions to paragraphs (a) and 

(b) of Regulation 1.26 to replace the 

term ‘‘money market mutual fund’’ with 

‘‘government money market fund and 

U.S. Treasury exchange-traded fund’’ or 

‘‘government money market fund or 

U.S. Treasury exchange-traded fund,’’ as 

appropriate. To address the adoption of 

appendices H and I, as discussed below, 

paragraph (b) of Regulation 1.26 would 

be further revised to replace the 

reference to ‘‘appendix A or B to this 

section’’ with ‘‘appendix F, G, H or I to 

this part.’’ 283

The Commission also proposes to 

amend Appendices A and B to 

Regulation 1.26 (to be redesignated 

appendices F and G to Part 1) to replace 

the term ‘‘Money Market Mutual Fund’’ 

with ‘‘Government Money Market 

Fund.’’ 

To account for the proposed addition 

of Qualified ETFs to the list of Permitted 

investments, the Commission also 

proposes to adopt new appendices H 

and I to Part 1. The appendices would 

set forth template acknowledgment 

letters for Qualified ETFs and would be 

modeled on appendices A and B to 

Regulation 1.26 (to be redesignated 

appendices F and G to Part 1), which 

currently address money market mutual 

funds. Appendices H and I to Part 1 

would mostly replicate appendices A 

and B to Regulation 1.26, except that the 

term ‘‘money market mutual fund’’ 

would be replaced with ‘‘U.S. Treasury 

exchange-traded fund;’’ condition (1) 

will read ‘‘To qualify as a Permitted 

Investment, interests in U.S. Treasury 

exchange-traded funds must be 

redeemable in cash by a futures 

commission merchant or derivatives 

clearing organization in its capacity as 

an authorized participant pursuant to an 

authorized participant agreement, as 

defined in § 270.6c–11 of this title, at a 

price based on the net asset value in 

accordance with the Investment 

Company Act of 1940 and regulations 

thereunder, and on a delivery versus 

payment basis;’’ and references relating 

to money market mutual funds would 

be eliminated. 

In addition, Regulation 30.7(d) 

requires that FCMs obtain written 

acknowledgment letters from each 

depository with which they maintain 

30.7 customer funds. Appendices E and 

F to Part 30 of the Commission’s 

regulations set forth the template 

acknowledgment letters. The 

Commission is proposing conforming 

changes to Regulation 30.7(d)(2) to 

replace the term ‘‘money market mutual 

fund’’ with ‘‘government money market 

fund and U.S. Treasury exchange-traded 

fund’’ or ‘‘government money market 

fund or U.S. Treasury exchange-traded 

fund,’’ as appropriate. The Commission 

is also proposing changes to Appendix 

F to Part 30, to replace the term ‘‘money 

market mutual fund’’ with ‘‘government 

money market fund.’’ In addition, the 

Commission is also proposing to revise 

Regulation 30.7(d)(2) to add ‘‘or 

Appendix G to this part, respectively’’ 

after ‘‘Appendix F to this part’’ to 

address the adoption of new Appendix 

G to Part 30, which would set forth a 

template acknowledgment letter 

modeled on proposed Appendix C to 

Regulation 1.26 but addressing 30.7 

customer funds. 

Request for Comment: The 

Commission seeks comment on all 

aspects of the Proposal relating to the 

conforming amendments. The 

Commission also invites comments on 

any other aspect of the Proposal. The 

Commission also specifically requests 

comment on the following question: 

31. Are there any risks associated 

with the Proposal that the Commission 

has not considered? What measures 

could the Commission take to mitigate 

such risks? 

IV. Section 4(c) of the Act 

With respect to investment of futures 

customer funds, the proposed 

amendments to Regulation 1.25 would 

be promulgated under Section 4d(a)(2) 

of the Act.284 Section 4d(a)(2) provides 

that customer money may be invested in 

U.S. government securities and 

municipal securities. It further provides 

that such investments must be made in 

accordance with such rules and 

regulations and subject to such 

conditions as the Commission may 

prescribe. 

Pursuant to its authority under 

Section 4(c) of the Act, the Commission 

proposes to expand the range of 

instruments in which FCMs and DCOs 

may invest futures customer funds 

beyond those listed in Section 4d(a)(2) 

of the Act to enhance the yield available 

to FCMs, DCOs and their customers, 

without compromising the safety of 

futures customer funds. 

Section 4(c)(1) of the Act empowers 

the Commission to ‘‘promote 

responsible economic or financial 

innovation and fair competition’’ by 

exempting any transaction or class of 

transactions (including any person or 

class of persons offering, entering into, 

rendering advice or rendering other 

services with respect to, the agreement, 

contract, or transaction), from any of the 

provisions of the Act, subject to certain 

exceptions.285 The Commission’s 

authority under Section 4(c) extends to 

transactions covered by Section 4d(a)(2) 

and to FCMs and DCOs that offer, enter 

into, render advice, or render other 

services with respect to such 


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286House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

287The analysis does not include a discussion of 

Section 4(c)(2)(B)’s conditions because the 

exemption in this instance does not implicate or 

affect a futures agreement, contract, or transaction. 

288Public Law 102–546, 106 Stat. 3590 (1992). 

289H.R. Conf. Rep. No. 102–978 (1992). The 

Conference Report also states that the reference in 

Section 4(c) to the ‘‘purposes of the Act’’ is 

intended to ‘‘underscore [the Conferees’] 

expectation that the Commission will assess the 

impact of a proposed exemption on the 

maintenance of the integrity and soundness of 

markets and market participants.’’ Id. 

290 7 U.S.C. 6d(f)(4) (providing that Cleared 

Swaps Customer Collateral may be invested in 

certain specified investments and ‘‘in any other 

investment that the Commission may by rule or 

Regulation prescribe, and such investments shall be 

made in accordance with such rules and 

Regulations and subject to such conditions as the 

Commission may prescribe.’’) 

291 7 U.S.C. 6(b)(2)(A) (providing that the 

Commission may adopt rules and Regulations 

requiring, among other things, the safeguarding of 

customer’s funds, by any person located in the U.S. 

who engages in foreign futures trading). 

transactions. In enacting Section 4(c), 

Congress noted that its goal ‘‘is to give 

the Commission a means of providing 

certainty and stability to existing and 

emerging markets so that financial 

innovation and market development can 

proceed in an effective and competitive 

manner.’’ 286 The Commission may grant 

such an exemption by rule, regulation, 

or order, after notice and opportunity 

for hearing, and may do so on 

application of any person or on its own 

initiative. 

Section 4(c)(2) of the Act provides 

that the Commission may grant 

exemptions under Section 4(c)(1) only 

when it determines that the 

requirements for which an exemption is 

being provided should not be applied to 

the agreements, contracts, or 

transactions at issue; that the exemption 

is consistent with the public interest 

and the purposes of the Act; that the 

agreements, contracts, or transactions 

will be entered into solely between 

appropriate persons; and that the 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory responsibilities under the 

Act. The Proposal would provide FCMs 

and DCOs with a limited exemption 

from the restrictions in Section 4d(a) 

and (b) of the CEA pertaining to the 

safeguarding and investment of 

Customer Funds. As such, the 

Commission’s preliminary analysis 

below focuses on how the proposed 

expansion of the list of Permitted 

Investments meets the conditions in 

Section 4(c)(2)(A) as they apply to an 

exemption with respect to an FCM or a 

DCO. More specifically, the discussion 

below describes how the proposed 

expansion is, in the Commission’s view, 

consistent with the public interest and 

the purposes of the CEA.287 In that 

regard, the Commission notes that when 

Section 4(c) was enacted, the 

Conference Report accompanying the 

Futures Trading Practices Act of 

1992 288 stated that the ‘‘public interest’’ 

in this context would ‘‘include the 

national public interests noted in the 

Act, the prevention of fraud and the 

preservation of the financial integrity of 

the markets, as well as the promotion of 

responsible economic or financial 

innovation and fair competition.’’ 289

To qualify as Permitted Investments, 

the instruments subject to this Proposal 

would need to meet strict conditions to 

ensure that investments of futures 

customer funds in these instruments are 

consistent with the objective of 

preserving principal and maintaining 

liquidity, as provided by Regulation 

1.25. The Commission’s preliminary 

analysis, presented above, indicates that 

the instruments proposed herein to be 

included as Permitted Investments 

meeting the specified proposed 

conditions present credit and volatility 

characteristics that are comparable to 

instruments that already qualify as 

Permitted Investments. As such, the 

Commission is of the view that the 

proposed expansion of the list of 

Permitted Investments would provide 

FCMs and DCOs with an opportunity to 

diversify their investments of Customer 

Funds, mitigating the risks that can arise 

from concentrating Customer Funds in a 

smaller set of Permitted Investments, 

without compromising the safety of 

such investments. 

The expanded selection of Permitted 

Investments is expected to also permit 

FCMs and DCOs to remain competitive 

globally and domestically and maintain 

safeguards against systemic risk. A 

wider range of alternatives to invest 

futures customer funds may provide 

more profitable investment options, 

allowing FCMs and DCOs to generate 

more income for themselves and their 

customers. This, in turn, may motivate 

FCMs and DCOs to increase their 

presence in the futures market and other 

relevant markets, thus increasing 

competition. Increased revenue to FCMs 

and DCOs from the investment of 

Customer Funds also may benefit 

customers in the form of lower 

commission charges or direct interest 

payments on funds on deposit with the 

FCM or DCO, which may lead to greater 

market participation by customers and 

increased market liquidity. In light of 

the foregoing, the Commission believes 

that the adoption of the proposed 

amendments would promote 

responsible economic and financial 

innovation and fair competition, and 

would be consistent with the objective 

of Regulation 1.25 and with the ‘‘public 

interest,’’ as that term is used in Section 

4(c) of the Act. Specifically, permitting 

FCMs and DCOs to invest Customer 

Funds in Specified Foreign Sovereign 

Debt to the extent they hold balances 

owed to customers denominated in the 

applicable currency reduces potential 

currency risk to DCOs, FCMs, and 

customers that would result from 

investing such foreign currencies in 

U.S.-dollar denominated assets. In 

addition, permitting investments in 

Qualified ETFs, subject to the proposed 

conditions, including that the ETF is 

passively managed with the investment 

objective of replicating the performance 

of a published short-term U.S. Treasury 

security index composed of U.S. 

Treasury bonds, notes, and bills with a 

remaining maturity of 12 months or less, 

provides an opportunity for greater 

diversification of the types of 

investment options that FCMs and DCO 

may use to manage the risk of holding 

Customer Funds. Proposed Qualified 

ETFs also provide potential benefits to 

FCMs, particularly smaller FCMs, that 

don’t have the internal operations and 

resources to effectively manage direct 

investments in other Permitted 

Investments, such as U.S. government 

securities, U.S. agency obligations, and 

municipal securities. Both Specified 

Foreign Sovereign Debt and Qualified 

ETFs have the potential to reduce costs 

to FCMs, DCOs, and customers while 

remaining consistent with the 

requirement in Regulation 1.25 for the 

preservation of principal and liquidity 

of Permitted Investments. The 

Commission solicits public comment on 

whether the Proposal satisfies the 

requirements for exemption under 

Section 4(c) of the Act. 

The Commission notes that with 

respect to investments of Cleared Swaps 

Customer Collateral and 30.7 customer 

funds, the Commission would be acting 

pursuant to its plenary authority under 

Sections 4d(f) 290 and 4(b) 291 of the Act, 

respectively, and would not need to 

apply Section 4(c) to effectuate the 

proposed amendments. 

V. Administrative Compliance 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires Federal agencies to 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 


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292 5 U.S.C. 601 et seq. 

293 5 U.S.C. 553. The Administrative Procedure 

Act is found at 5 U.S.C. 500 et seq. 

294See 5 U.S.C. 601(2), 603, 604, and 605. 

295See 47 FR 18618, 18619 (Apr. 30, 1982) and 

66 FR 45604, 45609 (Aug. 29, 2001). 

296 44 U.S.C. 3501 et seq. 

297See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3). 

298See 44 U.S.C. 3501. 

299See 44 U.S.C. 3502(3). 

300For the previously approved PRA estimates 

under OMB Control No. 3038–0024, see ICR 

Reference No. 202101–3038–001, at https://

www.reginfo.gov/public/do/PRAViewICR?ref_

nbr=202207-3038-001. For previously approved 

PRA estimated under OMB Control No. 3038–0091, 

see ICR Reference No. 202009–3038–007, at https:// 

www.reginfo.gov/public/do/PRAViewICR?ref_

nbr=202009-3038-007. 

301The Commission has previously estimated that 

compliance with the requirements under 

Regulations 1.32(f) and 1.32(g) to file SIDR reports 

requires 59 covered FCMs to expend 2,832 burden 

hours annually. The Commission has estimated that 

each FCM will file 24 reports per year requiring 

approximately 48 burden hours per respondent. 

This yields a total of 2,832 burden hours annually 

(59 FCM respondents × 48 burden hours annually 

= 2,832 hours). 

302The Commission notes that an amendment to 

Regulation 22.5 would not be necessary as this 

regulation cross-references Regulation 1.26. 

impact.292 Whenever an agency 

publishes a general notice of proposed 

rulemaking for any rule, pursuant to the 

notice-and-comment provisions of the 

Administrative Procedure Act,293 a 

regulatory flexibility analysis or 

certification typically is required.294

The Commission has previously 

determined that registered FCMs and 

DCOs are not small entities for purposes 

of the RFA.295 Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the Proposal will not have a 

significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 296 imposes certain 

requirements on Federal agencies in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. 

Under the PRA, an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number from the 

Office of Management and Budget 

(‘‘OMB’’).297 The PRA is intended, in 

part, to minimize the paperwork burden 

created for individuals, businesses, and 

other persons as a result of the 

collection of information by federal 

agencies, and to ensure the greatest 

possible benefit and utility of 

information created, collected, 

maintained, used, shared, and 

disseminated by or for the Federal 

Government.298 The PRA applies to all 

information, regardless of form or 

format, whenever the Federal 

Government is obtaining, causing to be 

obtained, or soliciting information, and 

includes required disclosure to third 

parties or the public, of facts or 

opinions, when the information 

collection calls for answers to identical 

questions posed to, or identical 

reporting or recordkeeping requirements 

imposed on, ten or more persons.299

The regulation to be amended under 

this proposal contains a collection of 

information for which the Commission 

has previously received control 

numbers from OMB. The titles for this 

collection of information are OMB 

Control No. 3038–0024, Regulations and 

Forms Pertaining to Financial Integrity 

of the Market Place; Margin 

Requirements for SDs/MSPs and OMB 

Control No. 3038–0091, Disclosure and 

Retention of Certain Information 

Relating to Cleared Swaps Customer 

Collateral.300

As discussed in Section III.D. above, 

among other reporting items, FCMs are 

required to report in the SIDR Reports 

the amount of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds invested in each of 

the current categories of Permitted 

Investments. The Commission is 

proposing to amend Regulations 1.32(f), 

22.2(g)(5), and 30.7(l)(5), which define 

the content of the SIDR Report, by 

deleting the requirement for an FCM to 

report the balances invested in 

commercial paper and corporate notes 

and bonds as such investments would 

no longer be Permitted Investments 

under the Proposal; to require each FCM 

to report the total amount of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds invested in Specified Foreign 

Sovereign Debt of each country that is 

included within the Specified Foreign 

Sovereign Debt; and to require an FCM 

to include in the SIDR Report the total 

amount of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds invested in 

Qualified ETFs as such investments 

would be Permitted Investments under 

the Proposal. As such, the proposed 

changes to the content of the SIDR 

Reports would reflect the proposed 

revisions to the list of Permitted 

Investments discussed in Section III.A. 

of the Proposal. The Commission does 

not expect these proposed changes to 

result in an increase in the number of 

burden hours required for the 

completion of the reports. Accordingly, 

the Commission is retaining its existing 

burden estimates associated with this 

collection of information.301

In addition, the Commission is 

proposing to revise Regulation 1.26, 

which requires each FCM or DCO 

investing futures customer funds in 

MMFs that are Permitted Investments to 

obtain and retain in its files a written 

acknowledgment from the depository 

holding the funds stating that the 

depository was informed that the funds 

belong to customers and are being held 

in accordance with the provisions of the 

Act and Commission regulations. 

Regulation 1.26 also specifies the form 

of the written acknowledgment letter 

that each FCM or DCO must obtain from 

an MMF, in the event futures customer 

funds are held directly with the MMF. 

Regulations 22.5 and 30.7(d) set forth 

similar requirements with respect to 

Cleared Swaps Customer Collateral and 

30.7 customer funds. The proposed 

amendments to Regulation 1.26 would 

require FCMs and DCOs segregating 

Customer Funds in a Permitted 

Government MMF or Qualified ETF 

account to obtain and maintain in their 

files an acknowledgment letter from the 

fund in which Customer Funds are held 

and to file such acknowledgment letter 

electronically with the Commission. 

The Commission is proposing an 

analogous amendment to Regulation 

30.7(d)(2) with respect to investments of 

30.7 customer funds by FCMs.302 The 

Commission notes that the proposed 

revisions to Regulations 1.26 and 

30.7(d) would reduce the scope of 

MMFs from which FCMs and DCOs, as 

applicable, would be required to obtain 

an acknowledgment letter by limiting 

the requirement to Permitted 

Government MMFs, a smaller set of 

MMFs. The proposed revisions to 

Regulations 1.26 and 30.7(d) would also 

impose a new requirement on FCMs and 

DCOs, as applicable, to obtain an 

acknowledgment letter from Qualified 

ETFs. The requirement would also 

apply under Regulation 22.5, which 

cross-references Regulation 1.26. To the 

extent that the new collection 

requirement would apply only to FCMs 

and DCOs that are APs and invest in 

Qualified ETFs in such capacity, the 

Commission estimates that the proposed 

requirement would affect no more than 

15 registrants (i.e., approximately 10 

FCMs and five DCOs). Using the 

Commission’s prior estimates of the 

number of burden hours necessary to 

comply with the requirement to obtain 

an acknowledgment letter pursuant to 

Regulations 1.26 and 30.7(d) (i.e., 0.75 

burden hours per response), the 

Commission estimates that the new 

requirement would result in 0.75 annual 

burden hours per registrant per category 


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303The Commission has previously estimated that 

an FCM or a DCO, as applicable, spends 0.75 hours 

per acknowledgement letter required under 

Regulation 1.26 or Regulation 30.7(d). See ICR 

Reference No. 202101–3038–001, at https://

www.reginfo.gov/public/do/PRAViewICR?ref_

nbr=202207-3038-001. The Commission therefore 

estimates that to obtain an acknowledgement letter 

from Qualified ETFs, 15 registrants would have to 

extend 30 burden hours annually. Specifically, the 

Commission estimates that FCMs would have to 

spend a total of 22.5 hours (10 FCMs × 1 report × 

0.75 burden hours × 3 categories of Customer Funds 

= 22.5 hours) and DCOs would have to spend a total 

of 7.5 hours (5 DCOs × 1 report × 0.75 burden hours 

× 2 categories of Customer Funds = 7.5 hours). The 

Commission notes that investments by DCOs are 

only relevant with respect to futures customer 

funds and Cleared Swaps Customer Collateral. 

304The Commission has estimated that 36 

covered FCMs incur an estimated 216 burden hours 

annually to file required acknowledgment letters 

pursuant to Regulation 1.20(d). The Commission 

has estimated that each respondent will file 3 

reports per year requiring an estimated 2 burden 

hours per report, for a total of 6 burden hours per 

respondent. This yields a total of 216 burden hours 

annually (36 respondents × 6 burden hours 

annually = 216 burden hours). Under Regulation 

1.26, the Commission has estimated that 74 covered 

respondents incur an estimated 111 burden hours 

annually to obtain and maintain required 

acknowledgement forms (74 respondents × 1.5 

hours annually = 111 burden hours). Under 

Regulation 30.7, the Commission has estimated that 

42 covered respondents incur an estimated 252 

burden hours annually (42 respondents × 6 burden 

hours annually = 252 burden hours) and under 

Regulation 22.5, the Commission has estimated that 

78 covered respondents incur an estimated 390 

burden hours annually (78 respondents × 5 burden 

hours annually = 390 burden hours) to obtain and 

maintain the required acknowledgment letters. 305 7 U.S.C. 19(a). 306 7 U.S.C. 2(i). 

of Customer Funds, as applicable, 

assuming that a registrant would obtain 

one acknowledgement letter per year 

from a Qualified ETF with which it 

holds Customer Funds.303

The Commission also notes that, in 

connection with the proposed revisions 

related to the elimination of the Readonly Access Provisions, an FCM would 

need to obtain the revised 

acknowledgment letter only for 

accounts opened following the effective 

date of the proposed revisions or if the 

FCM is required to obtain a new 

acknowledgment letter for reasons 

unrelated to the elimination of the Readonly Access Provisions. The opening of 

a new depository account triggers a 

requirement to obtain an 

acknowledgment letter in all 

circumstances, regardless of the 

proposed revisions related to the 

elimination of the Read-only Access 

Provisions. For these reasons, the 

Commission is retaining its existing 

estimate of the burden that covered 

FCMs and DCOs incur to obtain, 

maintain, and electronically file the 

acknowledgment letters with the 

Commission, as currently provided in 

the approved collection of 

information.304

The Commission welcomes public 

comment on all aspects of its analysis of 

the PRA requirements. In particular, the 

Commission invites comment on its 

estimates of additional burden hours in 

connection with the proposed 

requirement for FCMs and DCOs that 

invest Customer Funds in Qualified 

ETFs to obtain an acknowledgment 

letter from such ETFs. 

C. Cost-Benefit Considerations 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

Act.305 Section 15(a) further specifies 

that the costs and benefits shall be 

evaluated in light of the following five 

broad areas of market and public 

concern: (1) protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

Section 15(a) considerations, and seeks 

comments from interested persons 

regarding the nature and extent of such 

costs and benefits. 

As described in more detail above, the 

Commission is proposing to revise the 

list of Permitted Investments in 

Regulation 1.25(a) to: (i) add the foreign 

sovereign debt of certain jurisdictions 

and interests in certain ETFs that invest 

primarily in short-term U.S. Treasury 

securities; (ii) limit the scope of MMFs 

whose interests qualify as Permitted 

Investments to certain Government 

MMFs; and (iii) eliminate commercial 

paper, corporate notes or bonds. The 

Commission is further specifying the 

capital charges that FCMs would be 

required to take on investments of 

Customer Funds in foreign sovereign 

debt and ETFs. The Commission is also 

proposing to replace LIBOR with SOFR 

as a permitted benchmark under 

Regulation 1.25(b)(2)(iv)(A)(1) and (2), 

as well as to adopt certain conforming 

changes consistent with the proposed 

amendments, and is requesting public 

comment on the possible removal of 

bank CDs from the list of Permitted 

Investments. Finally, the Commission is 

proposing to revise relevant provisions 

in Parts 1 and 30 of the Commission’s 

regulations to eliminate the requirement 

for depositories to provide read-only 

electronic access to accounts 

maintained by FCMs that hold Customer 

Funds. 

The baseline for consideration of the 

benefits and costs associated with the 

Proposal are the benefits and costs that 

FCMs, DCOs, and the public would 

realize if the Commission does not 

proceed with the proposed 

amendments, or in other words, the 

status quo. 

The Commission notes that the 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

leading industry members typically 

conducting operations both within and 

outside the United States; and with 

industry members commonly following 

substantially similar business practices 

wherever located. Where the 

Commission does not specifically refer 

to matters of location, the below 

discussion of costs and benefits refers to 

the effects of these proposed 

amendments on all activity subject to 

the proposed amended regulations, 

whether by virtue of the activity’s 

physical location in the United States or 

by virtue of the activity’s connection 

with activities in, or effect on, U.S. 

commerce under Section 2(i) of the 

Act.306

The Commission recognizes that the 

Proposal may result in some additional, 

incremental costs for FCMs and DCOs. 

However, the Commission lacks the data 

necessary to reasonably quantify all of 

the costs and benefits considered below. 

Additionally, any initial and recurring 

compliance costs for any particular FCM 

or DCO will depend on its size, existing 

infrastructure, practices, and cost 

structures. The Commission welcomes 

comments on any such incremental 

costs, especially by DCOs and FCMs, 

who may be better able to provide 

quantitative costs data or estimates, 

based on their respective experiences 

relating to Commission’s regulations 

governing the investment of Customer 

Funds and related requirements. 

The Commission is also including a 

number of questions for the purpose of 

eliciting cost and benefit estimates from 

public commenters wherever possible. 

Quantifying other costs and benefits, 

such as the effects of potential changes 

in the behavior of FCMs and DCOs 

resulting from the proposed 

amendments are inherently harder to 

measure. Thus, the Commission is 

similarly requesting comment through 

questions to help it better quantify these 

impacts. Due to these quantification 


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307 Joint Petition at p. 3 (citing, as an example of 

regulatory requirements, Article 45 of the regulatory 

technical standards on requirements for central 

counterparties (Commission Delegated Regulation 

(EU) No. 153/2013) (‘‘CCP RTS’’), which 

supplements provisions in the EU Market 

Infrastructure Regulation (Regulation (EU) No 648/ 

2012) (‘‘EMIR’’) governing the investment policies 

of EU central counterparties. Per Article 45(2) of the 

CCP RTS, not less than 95 percent of cash deposited 

other than with a central bank and maintained 

overnight must be deposited through arrangements 

that ensure its collateralization with highly liquid 

financial instruments). 

308The terms ‘‘futures account,’’ ‘‘Cleared Swap 

Customer Account,’’ and ‘‘30.7 account’’ are 

defined in Regulations 1.3, 22.1, and 30.1, 

respectively. 17 CFR 1.3, 17 CFR 22.1, and 17 CFR 

30.1. 

difficulties, for this NPRM, the 

Commission offers the following 

qualitative discussion of its costs and 

benefits. 

a. Foreign Sovereign Debt, Interests in 

Exchange-Traded Funds, and 

Associated Capital Charges 

The Proposal would expand the list of 

Permitted Investments to add two new 

categories of instruments. Specifically, 

the Proposal would add: (i) the 

sovereign debt of Canada, France, 

Germany, Japan, and the United 

Kingdom, and (ii) interests in certain 

ETFs that invest in primarily short-term 

U.S. Treasury securities, to the list of 

Permitted Investments in which FCMs 

and DCOs may invest customer 

segregated funds pursuant to Regulation 

1.25. The Proposal would also require 

an FCM to apply capital charges on any 

investments of Customer Funds in the 

Specified Foreign Sovereign Debt and 

Qualified ETFs to account for potential 

market risk associated with such 

investments. The Proposal would 

further expand the universe of 

permitted counterparties and 

depositories that can be used to buy and 

sell permitted foreign sovereign debt 

pursuant to Repurchase Transactions to 

include certain non-U.S. entities. 

1. Benefits 

The Commission preliminarily 

believes that expanding the list of 

Permitted Investments to include 

Specified Foreign Sovereign Debt and 

interests in Qualified ETFs would 

provide FCMs and DCOs with a wider 

range of alternatives to invest Customer 

Funds, and as a result, FCMs and DCOs 

might have more investment options, 

some of which might be more profitable 

than the existing Permitted Investments, 

such that FCMs and DCOs may be able 

to generate more income for themselves 

and their customers. This may motivate 

FCMs or DCOs to increase their 

presence in the futures market and other 

relevant markets, thereby increasing 

competition, which might lead to a 

reduction in charges to customers and 

an increase trading activity and 

liquidity. 

Also, the ability to use Specified 

Foreign Sovereign Debt as a Permitted 

Investment would facilitate FCMs’ and 

DCOs’ management of foreign 

currencies that customers deposit to 

margin their trades and enable FCMs 

and DCOs to avoid certain risks and 

practical challenges in the handling of 

foreign currencies. For example, 

providing FCMs and DCOs with the 

opportunity to invest customer foreign 

currencies in identically-denominated 

assets would help manage the foreign 

currency risk that FCMs and DCOs face 

if they seek to invest foreign currencies 

in the currently permitted, U.S. dollardenominated investments. In addition, 

in their Joint Petition, the Petitioners 

asserted that as a matter of risk 

management policy, or due to regulatory 

requirements, many clearing 

organizations located outside of the 

United States impose strict cut-off times 

for cash withdrawal by clearing 

members, while allowing later cut-off 

times for withdrawal of other types of 

collateral.307 Also, for reasons such as 

capital requirements and balance sheet 

management, banks may not accept 

foreign currencies at all or may place 

limits on the accepted amount. Banks 

may also charge higher rates for holding 

foreign currencies. As such, FCM 

customers depositing foreign currencies 

might potentially absorb those costs. 

The Petitioners also argued that it may 

be preferable to hold foreign currencies 

in the form of high-quality sovereign 

debt than keeping the funds in 

unsecured bank demand deposit 

accounts that might expose the funds to 

the credit risk of commercial banks. 

Similarly, for reasons related to 

balance sheet management, custodian 

institutions may impose higher fees for 

accepting cash deposits denominated in 

USD or limit the amounts of USD cash 

that they are willing to safeguard. 

Expanding the list of Permitted 

Investments to instruments that meet 

the overall required standards of 

preserving principal and maintaining 

liquidity, while also providing the 

potential for greater diversification or 

higher returns for FCMs, DCOs and 

customers, would give FCMs and DCOs 

more flexibility in the management of 

Customer Funds. This might be 

particularly important given the 

narrower range of assets that currently 

qualify as Permitted Investments under 

Regulation 1.25. 

In addition, Qualified ETFs, in 

particular, may offer an opportunity to 

invest in U.S. Treasury securities, which 

qualify as a Permitted Investment, 

without devoting the resources required 

to purchase, monitor, and roll over such 

securities when they mature. 

The Commission also preliminarily 

believes that requiring an FCM to apply 

capital charges on investments of 

Customer Funds in Specified Foreign 

Sovereign Debt and Qualified ETFs 

helps ensure that the FCM maintains a 

sufficient level of readily available 

liquid funds that would be available to 

transfer into the FCM’s futures accounts, 

Cleared Swaps Customer Accounts, 

and/or 30.7 accounts to cover decreases 

in value of the investments to help 

ensure continue compliance with 

Customer Funds segregation 

requirements.308 Requiring an FCM to 

maintain regulatory capital to cover 

potential decreases in the value of the 

Permitted Investments benefits the FCM 

by helping to ensure that such firms 

have sufficient, liquid financial 

resources to meet 100 percent of their 

obligations to futures customers, 

Cleared Swaps Customers, and 30.7 

customers at all times as required by 

Regulations 1.20, 22.2, and 30.7. Capital 

charges on Permitted Investments also 

benefit FCM customers as the charges 

help ensure an FCM maintains capital 

in an amount sufficient to cover 

investment losses and to prevent such 

losses from being passed on to 

customers in violation of Regulations 

1.29(b), 22.2(e)(1), and 30.7(i). 

In addition, the Commission also 

notes that the proposed amendment to 

Regulation 22.3(d), seeking to clarify 

that DCOs are responsible for losses 

resulting from their investments of 

Customer Funds, would provide legal 

certainty with respect to the 

Commission’s customer protection 

regulations. 

2. Costs 

Although the Proposal would increase 

the range of permissible investments in 

which DCOs and FCMs may invest 

customers funds, facilitating their 

management of investments and capital, 

the Proposal may result in customer 

segregated funds being invested in 

instruments that may be less liquid and 

have increased exposure to credit and 

market risks than those currently 

permitted under Regulation 1.25. Such 

risks could result in an increased 

exposure for FCMs and DCOs, who 

pursuant to Regulations 1.29(b), 

22.2(e)(1), 22.3(d), and 30.7(i), as 

applicable, are responsible for losses 

resulting from investments of Customer 

Funds. A heightened risk exposure may 

also indirectly impact customers if the 


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309See supra note 42. 

310See supra note 77 (using one-year sovereign 

debt instruments yield data to demonstrate that the 

price risk of the Specified Foreign Sovereign Debt 

instruments is comparable to that of U.S. 

government securities), Section III.A.1 and note 94 

(using credit default swap data to demonstrate that 

the Specified Foreign Sovereign Debt instruments 

have a risk profile comparable to that of U.S. 

government securities) and note 180 (using yield 

data to demonstrate that five ETFs currently 

available on the market, which invest in short-term 

U.S. Treasury securities, are at least as stable as 

one-year U.S. Treasury securities). 

losses compromise the FCM’s or DCO’s 

ability to return Customer Funds. 

To account for these potential risks 

and ensure that the proposed Permitted 

Investments are consistent with the 

general objectives of Regulation 1.25 of 

preserving principal and maintaining 

liquidity, the Commission is proposing 

several conditions for foreign sovereign 

debt and interests in U.S. Treasury ETFs 

to qualify as Permitted Investments. 

Specifically, for the Specified Foreign 

Sovereign Debt, the proposed conditions 

include a cap of 45 BPS on the two-year 

credit default spread of the issuing 

sovereign, a 60-day limit on the dollarweighted average of the time to maturity 

of the FCM’s or DCO’s portfolio of 

investments in each type of Specified 

Foreign Sovereign Debt, and a 180-day 

limit on the time-to-maturity of any 

individual Specified Foreign Sovereign 

Debt instrument. For interests in 

Qualified ETFs to be deemed Permitted 

Investments, the Commission proposes 

to require, among other conditions, that 

the ETF is passively managed and seeks 

to replicate the performance of a 

published short-term U.S. Treasury 

security index. For purposes of the 

Proposal, short-term U.S. Treasury 

securities are bonds, notes, and bills 

with a remaining maturity of 12 months 

or less, issued by, or unconditionally 

guaranteed as to the timely payment of 

principal and interest by, the U.S. 

Department of the Treasury. Under the 

Proposal, the eligible U.S. Treasury 

securities must represent at least 95 

percent of the Qualified ETF’s 

investment portfolio. In addition, to be 

able invest in a Qualified ETF, an FCM 

or a DCO would have to qualify as an 

authorized participant such that it 

would be able to redeem interests in the 

ETF directly from the fund. Moreover, 

as discussed above, the Proposal would 

require FCMs to take capital charges 

based on the current market value of the 

Specified Foreign Sovereign Debt and 

Qualified ETFs to address potential 

market risk of such investments. The 

capital charges are intended to ensure 

that an FCM has sufficient financial 

resources in the form of cash and other 

readily marketable collateral to 

adequately cover potential market risk 

of the investments, consistent with the 

FCM’s obligation to bear any losses 

resulting from such investments. 

Requiring an FCM to apply capital 

charges in connection with the 

proposed new categories of Permitted 

Investments would result in costs 

associated with reserving capital. The 

FCM may not be able to use the amounts 

reserved as capital to maximize the 

profit of its business operations, thus 

potentially reducing its income. The 

Commission notes, however, that capital 

requirements are an essential riskmanagement feature of the FCM’s 

regulatory regime and the amounts 

reserved as capital would be necessary 

and expected costs associated with 

operating a business as an FCM. 

In addition, the Commission 

preliminarily believes that the proposed 

clarifying amendment to Regulation 

22.3(d) would not result in increased 

costs for DCOs. The proposed 

amendment seeks to expressly state a 

regulatory obligation that is consistent 

with the Commission’s original intent to 

permit DCOs to invest Cleared Swaps 

Customer Collateral within the 

parameters applicable to investments of 

futures customer funds.309 As such, the 

Commission preliminarily believes that 

DCOs already reserve financial 

resources to account for their 

responsibility for such investments. 

Finally, as discussed above, the 

Commission has slightly adjusted its 

existing burden estimates associated 

with the approved collection of 

information. As such, the Commission 

preliminarily believes that FCMs and 

DCOs would not incur material costs 

relating to the collection of information 

as a result of this Proposal. 

3. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Proposal pursuant to the 

five considerations identified in Section 

15(a) of the Act as follows: 

(a) Protection of Market Participants and 

the Public 

The Proposal would expand the list of 

permitted instruments set forth in 

Regulation 1.25(a) to include 

instruments that may be less liquid and 

may be more exposed to credit and 

market risks than some of the currently 

Permitted Investments under Regulation 

1.25, resulting in Customer Funds being 

invested in potentially illiquid and risky 

instruments. To address these potential 

risks with respect to Specified Foreign 

Sovereign Debt and Qualified ETFs, the 

Proposal would include strict 

conditions for the relevant instruments 

to qualify as Permitted Investments, and 

would require FCMs to reserve 

regulatory capital to cover potential 

decreases in the market value of the 

Specified Foreign Sovereign Debt and 

Qualified ETFs and not pass such losses 

on to customers. The Commission’s 

preliminary analysis indicates that 

instruments meeting the specified 

conditions present credit and volatility 

characteristics that are comparable to 

those of instruments that already qualify 

as Permitted Investments.310 As such, 

the Commission believes that the 

current level of protection provided to 

Customer Funds would be maintained 

under the terms of the proposal. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

Having a greater selection of 

Permitted Investments may provide 

FCMs or DCOs with the ability to 

generate more income from their 

investment of Customer Funds. This 

may motivate FCMs or DCOs to increase 

their presence in the futures and other 

relevant markets increasing 

competition, which might lead to lower 

charges for customers. The increase in 

revenue may also increase earnings to 

customers as DCOs and FCMs often pay 

a return on customer deposited funds, 

and FCMs may otherwise share some or 

all of the income to customers. 

The increased range of Permitted 

Investments is expected to provide 

investment flexibility to FCMs and 

DCOs and an opportunity to realize cost 

savings. More specifically, by being able 

to invest in Specified Foreign Sovereign 

Debt, FCMs and DCOs may be able to 

avoid practical challenges, such as 

having to meet clearing organizations’ 

strict cut-off times for cash withdrawal, 

or the additional fees for holding foreign 

currencies, imposed by some 

institutions. In addition, investing in 

Specified Foreign Sovereign Debt could 

be a safer alternative than holding cash 

at a commercial bank. It may also help 

avoid the foreign currency risk to which 

FCMs and DCOs may be exposed absent 

the ability to invest customer foreign 

currencies in identically-denominated 

assets. 

In addition, Qualified ETFs may 

provide a simpler and cost-efficient way 

of investing in U.S. Treasury securities, 

saving the resources that would 

otherwise be required to roll over such 

securities at their maturity. 

(c) Price Discovery 

The Proposal would increase the 

selection of Permitted Investments and 

may lead FCMs and DCO to generate 

more income from their investments of 


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Customer Funds. This might lead to a 

reduction in charges for customers, or 

provide customers with additional 

revenue, and potentially motivate 

customers to increase their trading in 

the futures market and other relevant 

markets, which might increase liquidity 

in those markets and enhance price 

discovery. 

(d) Sound Risk Management 

Increasing the range of Permitted 

Investments would provide FCMs and 

DCOs with a broader selection of 

investment options to invest Customer 

Funds, enabling FCMs and DCOs to 

have more diversified portfolios and 

reduce the potential concentration in a 

few instruments. Providing safe 

alternative investment options may be 

particularly beneficial for FCMs and 

DCOs in light of the limited range of 

instruments that meet the eligibility 

criteria of Regulation 1.25 and the 

competing demand for high quality 

forms of collateral driven by the 

regulatory reforms implementing the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010. 

By making available Specified Foreign 

Sovereign Debt as a Permitted 

Investment, the Commission would 

provide FCMs and DCOs with an 

opportunity to better manage risks 

associated with holding foreign 

currencies deposited by customers. As 

noted above, the Commission recognizes 

that investing customer segregated 

funds in Specified Foreign Sovereign 

Debt provides an alternative to taking on 

the exposure of holding cash at a 

commercial bank. The Commission 

notes also that absent the ability to 

invest Customer Funds in identicallydenominated sovereign debt securities, 

an FCM or a DCO seeking to invest 

customer foreign currency deposits 

would need to convert the currencies to 

a U.S. dollar-denominated asset, which 

would increase the potential foreign 

currency risk. In addition, by limiting 

the investment of foreign currency to 

foreign sovereign debt that meets certain 

requirements, the Proposal is expected 

to further promote sound risk 

management. Lastly, requiring an FCM 

to reserve capital to cover potential 

decreases in the value of the Specified 

Foreign Sovereign Debt and Qualified 

ETFs would help ensure that an FCM 

has the financial resources to meet its 

regulatory obligations of bearing 100 

percent of the losses on the investment 

of Customer Funds. 

(e) Other Public Interest Considerations 

Although the four factors mentioned 

above are considered to be the primary 

cost-benefit considerations, other public 

interest considerations may also be 

relevant. For instance, in addition to the 

potential benefits that may accrue to 

FCMs, DCOs, and customers, benefits 

associated with the addition of 

Qualified ETFs to the list of Permitted 

Investments may also accrue to the 

general public, as allowing FCMs and 

DCOs to invest Customer Funds in such 

instruments may contribute to a more 

vibrant and robust market for ETFs. In 

addition, the expansion of Permitted 

Investments to include Specified 

Foreign Sovereign Debt may ease access 

to futures and cleared swaps markets for 

entities domiciled in non-U.S. 

jurisdictions that can now more easily 

transaction in foreign currency with 

potentially lower costs and risk. This 

may provide additional hedging 

opportunities for entities and enhance 

market liquidity. 

b. Government Money Market Funds, 

Commercial Paper and Corporate Notes 

or Bonds, and Certificates of Deposit 

Issued by Banks 

The Proposal would limit the scope of 

MMFs whose interests qualify as 

Permitted Investments to certain 

Government MMFs as defined by SEC 

Rule 2a-7, revise the asset-based 

concentration limits applicable to such 

funds, and add issuer-based 

concentration limits. The Proposal 

would also remove from the list of 

Permitted Investments commercial 

paper and corporate notes or bonds 

guaranteed as to principal and interest 

by the United States under the TLGP. 

The Proposal would also request public 

comment as to whether bank CDs 

should be removed from the list of 

Permitted Investments due to a lack of 

use by FCMs and DCOs. 

1. Benefits 

The Proposal would remove interests 

in certain MMFs, including Prime 

MMFs and Electing Government MMFs, 

from the list of Permitted Investments 

set forth in Regulation 1.25, limiting the 

scope of MMFs whose interests qualify 

as Permitted Investments to Permitted 

Government MMFs, as further discussed 

above. The Commission believes that 

interests in Prime MMFs and Electing 

Government MMFs are unsuitable as 

Permitted Investments under Regulation 

1.25 because such MMFs are subject to 

the SEC MMF Reforms pursuant to 

which liquidity fees to stem 

redemptions may be imposed, which 

could hinder the liquidity of the MMFs 

and adversely impact customers’ access 

to their funds, which may be needed to 

meet margin calls on open positions or 

cash market transaction. The Proposal 

would therefore prevent investments of 

Customer Funds in MMFs that might 

pose unacceptable levels of liquidity 

risk. 

The Proposal would impose assetbased concentration limits according to 

the size of the Permitted Government 

MMFs and their management 

companies. A 50 percent concentration 

limits would apply to Government 

MMFs with at least $1 billion in assets 

and with management companies with 

more than $25 billion in assets under 

management. The current 10 percent 

concentration limit for MMFs with less 

than $1 billion in assets and/or which 

have a management company managing 

less than $25 billion in assets would be 

maintained. These concentration limits 

recognize that larger Government MMFs 

may be a safer investment alternative 

given that they may be better positioned 

to withstand times of significant 

financial stress and to manage high 

levels of redemptions. As such, the 

concentration limits, as proposed, 

ensure that FCMs’ and DCOs’ 

investments in Permitted Government 

MMFs account for the level of liquidity, 

market, and credit risk posed by a fund 

in light of its capital base, portfolio of 

holdings, and capacity to handle market 

stress. 

The proposed concentration limits 

would promote investments of 

Customer Funds in Permitted 

Government MMFs of different sizes 

subject to different concentration limits, 

leading to diversification in FCMs’ and 

DCO’s portfolios, while encouraging 

investments in safer larger Government 

MMFs. The proposed concentration 

limits might also reduce the potential 

concentration in certain Permitted 

Government MMFs, fostering 

competition across the funds, which 

might lead to better terms and reduced 

costs for FCMs and DCOs. In addition, 

the Commission is proposing issuerbased limits with the goal of mitigating 

potential risks associated with 

concentrating investments of Customer 

Funds in any single fund or family of 

Government MMFs such as the risk that 

access to Customer Funds may become 

restricted due to a cybersecurity or an 

operational incident affecting the fund. 

Specifically, the Commission is 

proposing to limit investments of 

Customer Funds in any single family of 

Government MMFs to 25 percent and 

investments of Customer Funds in any 

single issuer of Government MMFs to 5 

percent of the total assets held in each 

of the segregated classifications of 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds. In establishing these 

concentration limits, the Commission 

acknowledges that there are no precise 


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311 Investment of Customer Funds and Funds 

Held in an Account for Foreign Futures and Foreign 

Options Transactions, 75 FR 67642, 67644 (Nov. 3, 

2010). 

312 In addition to the Commission’s general 

experience in overseeing DCOs and FCMs, 

Commission staff also reviewed how FCMs invested 

customer funds as reported in the SIDR Report for 

the period September 15, 2022 to February 15, 2023 

and noted that no FCMs reported investing 

customer funds in bank CDs. 313See 17 CFR 1.25(b)(1). 

314See SEC MMF Reforms at 51417 (noting that 

investors typically view government MMFs, in 

contrast to Prime MMFs, as a relatively safe 

investment during times of market turmoil). See 

also Money Market Fund Reforms, 87 FR 7248 (Feb. 

8, 2022) (‘‘SEC MMF Reforms Proposing Release’’) 

at 7250 (recounting that during the 2008 financial 

crisis there was a run primarily on institutional 

Prime MMFs after an MMF ‘‘broke the buck’’ and 

suspended redemptions, which motivated many 

fund sponsors to step in and provide financial 

support to their funds. The events led to general 

turbulence in the financial markets and contributed 

to severe dislocations in short-term credit markets. 

limits that can guarantee absolute 

protection against market volatility. The 

Commission’s preliminary assessment 

indicates, however, that these proposed 

limits represent a practical approach 

that effectively balances the need to 

support the viability of FCMs’ and 

DCOs’ business model while 

safeguarding the principal and liquidity 

of the Customer Funds. 

The Proposal would also eliminate 

commercial paper and corporate notes 

or bonds guaranteed under the TLGP as 

Permitted Investments given that the 

TLGP expired in 2012. This proposed 

rule amendment will streamline the 

CFTC rules, facilitating their 

implementation and administration, and 

is consistent with the Commission’s 

earlier determination that commercial 

paper and corporate notes or bonds are 

rarely used and pose unacceptable 

levels of credit, liquidity, and market 

risk.311 The Proposal is also requesting 

public comment on whether to remove 

bank CDs from the list of Permitted 

Investments, in light of the 

Commission’s experience that FCMs 

and DCOs do not invest Customer 

Funds in these instruments.312

2. Costs 

As the Proposal would limit the scope 

of MMFs whose interests qualify as 

Permitted Investments to Permitted 

Government MMFs, the Proposal may 

lead to less diversification in the 

investment of Customer Funds by FCMs 

and DCOs. FCMs’ and DCOs’ portfolios 

may be concentrated in the Permitted 

Government MMFs, increasing exposure 

to risks associated with the funds, 

which might heighten the risk of loss of 

Customer Funds. Also, given that fewer 

MMFs would be available as Permitted 

Investments, FCMs and DCOs would 

have less flexibility in investing 

Customer Funds. FCMs and DCOs might 

thus generate less income and may pass 

on additional operational costs to 

customers by increasing their fees. 

The Commission notes, however, that 

the potential risk of concentration of 

investments in Permitted Government 

MMFs would be mitigated by the 

proposed asset-based and issuer-based 

concentration limits, which are 

designed to promote diversification 

among different categories of Permitted 

Investments and among different 

individual Permitted Government 

MMFs. 

To meet the proposed concentration 

limits, FCMs and DCOs may be required 

to liquidate Government MMFs held in 

their portfolios and might incur losses. 

The Commission notes that the risk of 

loss is likely to be mitigated given that 

the Government MMFs in which FCMs 

and DCOs have been permitted to invest 

Customer Funds since the issuance of 

Staff Letter 16–68 and Staff Letter 16– 

69 are presumably highly liquid.313

In the Commission’s view, the 

elimination of commercial paper and 

corporate notes or bonds guaranteed 

under the TLGP would not result in any 

costs as the instruments have not been 

available as Permitted Investments since 

the 2012 when the TLGP expired. 

Similarly, the Commission believes that 

were it to remove banks CDs at a later 

time, there would be no immediate 

potential cost because in the 

Commission’s experience FCMs and 

DCOs do not currently invest Customer 

Funds in this type of instrument. 

Eliminating this investment option, 

however, may lead to potential longterm costs if this option becomes 

valuable. 

3. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Proposal pursuant to the 

five considerations identified in Section 

15(a) of the Act as follows: 

(a) Protection of Market Participants and 

the Public 

The Proposal would remove from the 

list of Permitted Investments interests in 

MMFs whose redemptions may be 

subject to liquidity fees, including 

Prime MMFs and Electing Government 

MMFs. In the Commission’s view, the 

imposition of a liquidity fee is in 

conflict with provisions in Regulation 

1.25 that are designed to reduce 

Customer Funds’ exposure to liquidity 

risk and to preserve the principal of 

investments purchased with Customer 

Funds. As a result, by preventing 

investments in instruments that pose 

unacceptable levels of liquidity risk, the 

Proposal would provide greater 

protection to customer segregated funds 

and promote the efficient and safe 

investment of Customer Funds by FCMs 

and DCOs. 

The Proposal would limit the scope of 

MMFs whose interests qualify as 

Permitted Investments to Government 

MMFs as defined by SEC Rule 2a–7. The 

Commission notes that these types of 

funds are less susceptible to runs and 

have seen inflows during periods of 

market instability.314 As such, the 

Proposal, by limiting the scope of 

eligible MMFs to Government MMFs, 

would reduce the potential that funds in 

which Customer Funds are invested 

may be impacted by run risk and other 

associated risks. However, given that 

there would be fewer MMFs available as 

Permitted Investments, FCMs’ and 

DCOs’ investments may be concentrated 

in fewer MMFs and the investments 

may be more susceptible to risk 

associated with the fewer available 

funds. 

The proposed asset-based 

concentration limits for Government 

MMFs would ascribe limits according to 

the size of the funds, with larger funds 

being subject to a 50 percent limit and 

smaller funds to a 10 percent limit. 

These limits recognize that larger funds 

have capital bases better capable of 

handling a high volume of redemptions 

in times of stress. Accordingly, the 

concentration limits would promote 

investments in larger funds, which 

represent a safer investment alternative, 

while providing for diversification by 

permitting investments in smaller 

Government MMFs subject to 

concentration limits to ensure the safety 

of Customer Funds. In addition, the 

proposed issuer-based concentration 

limits would promote diversification 

among different individual Government 

MMFs, thus mitigating the potential 

risks associated with concentrating 

investments of Customer Funds with a 

single fund or family of funds. 

The implementation of the proposed 

concentration limits may require FCMs 

and DCOs to liquidate their fund 

holdings, which could lead to losses. 

The Commission believe that the 

potential for losses would be mitigated 

because since the issuance in 2016 of 

Staff Letter 16–68 and Staff Letter 16– 

69, FCMs and DCOs have been allowed 

to invest only in Government MMFs 

meeting the liquidity standards of 

Regulation 1.25. 

By removing commercial paper and 

corporate notes or bonds guaranteed 

under the TLGP from the list of 


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315Staff Letter 21–26 at p. 1. 

316 17 CFR 1.25(b)(2)(iv)(A). 

317See Staff Letter 21–26 at p. 3. 

318The replacement of LIBOR as a benchmark for 

Permitted Investments represents another step in 

the Commission’s efforts to facilitate the transition 

away from LIBOR, as illustrated by a recent 

amendment to the clearing requirements. See 

Clearing Requirement Determination Under Section 

2(h) of the Commodity Exchange Act for Interest 

Rate Swaps to Account for the Transition from 

LIBOR and Other IBORs to Alternative Reference 

Rates, 87 FR 52182 (Aug. 24, 2022) (replacing the 

requirement to clear interest rate swaps referencing 

LIBOR and certain other interbank offered rates 

with the requirement to clear interest rate swaps 

referencing overnight, nearly risk-free reference 

rates). 

Permitted Investments under Regulation 

1.25, the Proposal would eliminate 

instruments that are no longer available 

given the expiration of the TLGP in 

2012. This would streamline the CFTC 

rules and facilitate their 

implementation, removing a potential 

source of confusion and allowing FCMs 

and DCOs to focus their efforts on more 

immediate regulatory concerns. If the 

Commission were to proceed with the 

removal of bank CDs, a type of 

instruments that is not used by FCMs 

and DCOs as an investment of Customer 

Funds, the elimination would similarly 

contribute to the effort of streamlining 

Commission’s regulations. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By eliminating interests in Prime 

MMFs and Electing Government MMFs 

from the list of Permitted Investments, 

the Proposal would prevent investments 

of Customer Funds in instruments that 

might be less liquid in light of the SEC 

MMF Reforms, thus advancing the 

objectives of Regulation 1.25 of 

preserving principal and maintaining 

liquidity. 

As discussed earlier, the elimination 

of commercial paper and corporate 

notes or bonds guaranteed under the 

TLGP would remove instruments that 

are either no longer available given the 

expiration of the program or not used as 

an investment of Customer Funds, 

allowing FCMs and DCOs to more 

efficiently allocate their resources and 

address more immediate regulatory 

concerns. 

(c) Price Discovery 

The Proposal, by reducing the 

selection of Permitted Investments, 

would lead to fewer investment options 

available to FCMs and DCOs. As such, 

FCMs and DCOs might generate less 

income from their investment of 

Customer Funds and might pass onto 

customers the costs of operations by 

increasing fees. Facing increased costs, 

customers might cut back on their 

trading, reducing liquidity, which might 

hinder price discovery. 

(d) Sound Risk Management 

By eliminating from the list of 

Permitted Investments interests in 

Prime MMFs and Electing Government 

MMFs, the Proposal would prevent 

investments of customers funds in 

certain MMFs, which might be 

susceptible to increased liquidity risk in 

light the SEC MMF Reforms, thus 

promoting sound risk management. 

Also, the concentration limits that 

would apply to the Permitted 

Government MMFs would foster 

adequate diversification in FCMs’ and 

DCOs’ portfolios by encouraging 

investments of Customer Funds in larger 

funds expected to have the capacity to 

withstand significant market stress and 

increasing redemptions, while making 

available smaller funds subject to 

specified concentration limits. 

(e) Other Public Interest Considerations 

The Commission believes that the 

relevant cost-benefit considerations are 

captured in the four factors above. 

c. SOFR as a Permitted Benchmark 

In March 2021, the U.K. Financial 

Conduct Authority announced that 

LIBOR would be effectively 

discontinued.315 The Commission is 

therefore proposing to replace LIBOR 

with SOFR as a permitted benchmark 

for variable and floating rate securities 

that qualify as Permitted Investments 

under Regulation 1.25. 

1. Benefits 

Under Regulation 1.25(b)(2)(iv)(A), 

variable and floating securities qualify 

as Permitted Investments if, among 

other things, the interest payments on 

the securities correlate to specified 

benchmarks, including LIBOR.316 As 

discussed in more detail above, a 

number of enforcement actions 

concerning attempts to manipulate the 

LIBOR benchmark led to a loss of 

confidence in the reliability and 

robustness of LIBOR and to the 

benchmark’s discontinuation. The 

Commission therefore proposes to 

remove LIBOR as a permitted 

benchmark and replace it with SOFR. 

The Commission believes that the 

unreliability of LIBOR could undermine 

the value of variable and floating rate 

securities that reference the benchmark. 

Accordingly, the replacement of LIBOR 

with SOFR, which has been identified 

as a preferred benchmark alternative by 

the ARRC,317 would ensure that 

Customer Funds are invested in 

securities that reference a reliable and 

robust benchmark providing greater 

protection to Customer Funds. 

2. Costs 

The Commission notes that given the 

widespread use of LIBOR as a 

benchmark, FCMs and DCOs that invest 

Customer Funds in variable and fixed 

rate securities might incur costs as a 

result of the transition to SOFR. To the 

extent that FCMs and DCOs already 

invest in variable and fixed rate 

securities benchmarked to LIBOR, they 

would need to amend the terms of their 

agreements to incorporate the new 

benchmark. FCMs and DCOs may also 

need to adjust their systems and 

processes to implement and recognize 

SOFR as a benchmark. However, the 

Commission believes that transitioning 

to a more reliable benchmark offsets 

these associated costs by enhancing 

security for Customer Funds and 

removing a potential source of risk to 

the financial system overall. 

3. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Proposal pursuant to the 

five considerations identified in Section 

15(a) of the Act as follows: 

(a) Protection of Market Participants and 

the Public 

As previously discussed, LIBOR is no 

longer deemed a reliable and robust 

benchmark. As such, it could negatively 

impact the value of variable and floating 

rate securities that reference the 

benchmark. By eliminating LIBOR as a 

permitted benchmark, the Proposal 

would prevent investments of Customer 

Funds in securities referencing an 

unreliable benchmark and would 

promote the use of a safer benchmark 

alternative. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By formalizing the use of SOFR as a 

permitted benchmark for Permitted 

Investments in which Customer Funds 

may be invested, the Proposal would 

promote the transition to SOFR and 

facilitate the phasing out of LIBOR, a 

widely used benchmark that is now 

deemed to be unreliable, removing a 

potential source of risk to the financial 

system.318

In addition, SOFR is an essential 

benchmark that helps ensure the 

stability and integrity of financial 

markets. As such, formalizing the use of 

SOFR as a permitted benchmark for 

permitted investments may enhance the 

financial integrity of markets. 


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81272 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

319More specifically, the relevant provisions 

appear in Regulation 1.20, Appendix A to 

Regulation 1.20, Appendix A to Regulation 1.26, 

Regulation 30.7 and appendices E and F to Part 30 

of CFTC’s Regulations. If adopted, the proposed 

amendments would extend to Regulation 22.5, 

which requires FCMs and DCOs, before depositing 

Cleared Swaps Customer Collateral with a 

depository, to obtain an acknowledgment letter 

from each depository in accordance with 

Regulations 1.20 and 1.26. 17 CFR 22.5(a). 

Regulation 22.5 further requires FCMs and DCOs to 

adhere to all requirements specified in Regulation 

1.20 and 1.26 regarding retaining, permitting access 

to filing, or amending the written acknowledgment 

letters. 17 CFR 22.5(a). 

(c) Price Discovery 

The proposed amendment to replace 

LIBOR with SOFR as a permitted 

benchmark would have no negative 

impact on price discovery. Permitting 

SOFR as a benchmark for Customer 

Funds investments would benefit FCMs 

and DCOs and their customers. This 

might increase liquidity in the futures 

markets and enhance the process of 

price discovery. 

(d) Sound Risk Management 

By eliminating LIBOR as a permitted 

benchmark and replacing it with SOFR, 

the Proposal would ensure that to the 

extent FCMs and DCOs select variable 

and floating rate securities as Permitted 

Investments to invest Customer Funds, 

these instruments would reference 

benchmarks that are, in the 

Commission’s view, sound and reliable, 

thus fostering sound risk management. 

(e) Other Public Interest Considerations 

The Commission believes that the 

relevant cost-benefit considerations are 

captured in the four factors above. 

d. Revision of the Read-Only Access 

Provisions 

The Proposal would eliminate the 

Read-only Access Provisions in parts 1 

and 30 of the Commission’s 

regulations,319 which require 

depositories to provide the Commission 

with direct, read-only electronic access 

to accounts maintained by FCMs that 

hold Customer Funds. 

1. Benefits 

Eliminating the Read-only Access 

Provisions would streamline the CFTC 

rules, facilitating their implementation 

and administration, and is consistent 

with the Commission’s anticipation that 

the existence of alternative methods for 

obtaining and verifying account balance 

information would diminish the need to 

rely on the direct read-only access to 

accounts. More specifically, by relying 

on the CME’s and NFA’s daily 

segregation confirmation and 

verification process, the Commission 

would be able to allocate resources to 

focus on more immediate regulatory 

concerns within its jurisdictional 

purview. In that regard, the Commission 

notes, as discussed above, that it has 

encountered numerous practical 

challenges in the administration of 

direct access to depository accounts, 

which unduly burden the Commission’s 

resources, particularly considering that 

the Commission contemplated that the 

use of real-time access would be 

limited, and prevent Commission staff 

from using the Read-only Access 

Provisions as intended. 

In addition, eliminating the 

requirement to provide the Commission 

with direct, read-only access to accounts 

maintained by FCMs, would reduce 

costs for depositories, which may 

motivate these institutions to more 

readily take FCM Customer Funds on 

deposit. The Proposal may thus foster 

competition in the futures market and 

ultimately reduce costs for FCMs and 

their customers. 

Furthermore, the deletion of the Readonly Access Provisions would eliminate 

the need for the Commission to keep a 

log of access credentials and physical 

authentication devices, thereby 

reducing the potential cybersecurity risk 

associated with the maintenance of such 

credentials and devices. 

2. Costs 

Withdrawing the requirement that 

depositories provide the Commission 

with direct, read-only electronic access 

to depository accounts holding 

Customer Funds would deprive the 

Commission from ongoing, 

instantaneous access to the accounts for 

purposes of identifying potential 

discrepancies between the account 

balance information reported by the 

FCMs and the account balance 

information available directly from the 

depositories. The Commission believes, however, 

that more efficient means for identifying 

discrepancies in the account balance 

information exist, namely by obtaining 

account balance and transaction 

information through the CME’s and 

NFA’s automated daily segregation 

confirmation system or by requesting 

the information directly from the 

depositories. 

3. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Proposal pursuant to the 

five considerations identified in Section 

15(a) of the Act as follows: 

(a) Protection of Market Participants and 

the Public 

As previously noted, if the 

Commission is no longer required to 

administer the direct, read-only access 

to depository accounts, the Commission 

would eliminate the potential 

cybersecurity risk associated with the 

maintenance of access credentials and 

authentication devices, thus limiting 

risk for market participants and the 

public. 

The Commission further notes that 

the CME’s and NFA’s automated daily 

segregation confirmation system 

provides an efficient and effective 

method for verifying customer accounts 

balances, which, in conjunction with 

the Commission’s right to request 

information from the depositories, 

would ensure an adequate degree of 

protection for market participants and 

the public. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By eliminating the Read-only Access 

Provisions, the Commission would 

dispense with a method for verifying 

account balance information that 

imposes technological challenges in its 

implementation and administration, 

allowing for Commission staff to direct 

its efforts to more effective alternative 

means for verifying the information. 

In addition, as noted, the elimination 

of the requirement to provide the 

Commission with direct, read-only 

access to accounts maintained by FCMs 

would reduce costs for depositories, 

which may motivate them to more 

readily take FCM Customer Funds on 

deposit, potentially fostering 

competition in the futures market and 

ultimately reducing costs for FCMs. 

(c) Price Discovery 

The Proposal, by eliminating the 

requirement for depositories to provide 

the Commission with read-only access 

to accounts maintained by FCMs, may 

reduce operational costs for 

depositories, which may ultimately lead 

to cost reductions that benefit both 

depositories and FCMs. The FCMs may, 

in turn, pass those benefits to customers 

via reduced charges. 

(d) Sound Risk Management 

As previously noted, CME and NFA 

have developed a sophisticated 

system—the automated daily 

segregation confirmation system— 

which provides DSROs and the 

Commission with an efficient tool for 

detection of potential discrepancies 

between FCMs’ reports and the balances 

on deposit at various depositories. If the 

Commission proceeds with the 

proposed amendment to delete the 

Read-only Access Provisions, the 

Commission would continue to rely on 

CME’s and NFA’s automated system for 


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320 7 U.S.C. 19(b). 

321 In this regard, the Commission has considered 

whether the proposed concentration limits might 

have an anti-competitive effect. The Commission is 

preliminarily of the view that, on balance, issuerbased concentration limits enhance competition by 

preventing any one MMF or ETF from having too 

great market power, and thereby fostering 

competition. Although the asset-based 

concentration limits might theoretically have an 

anti-competitive impact, the limits are set at a 

relatively high level and therefore the Commission 

preliminarily believes that they are unlikely to have 

a significant market impact. The Commission 

invites comments on this analysis. 

oversight purposes. As such, the 

Commission believes that the proposed 

amendment would not be detrimental to 

sound risk management practices. 

Furthermore, as noted above, the 

deletion of the Read-only Access 

Provisions would eliminate a potential 

cybersecurity risk associated with the 

maintenance by the Commission of 

periodically updated access credentials 

and physical authentication devices, 

thus promoting sound risk management. 

(e) Other Public Interest Considerations 

The Commission believes that the 

relevant cost-benefit considerations are 

captured in the four factors above. 

Request for Comments on Cost-Benefit 

Considerations 

The Commission invites public 

comment on its cost-benefit 

considerations, including the Section 

15(a) factors described above. 

Commenters are also invited to submit 

any data or other information they may 

have quantifying or qualifying the costs 

and benefits of the proposed 

amendments. In particular, the 

Commission seeks specific comment on 

the following: 

1. Has the Commission accurately 

identified all the benefits of this 

Proposal? Are there other benefits to the 

Commission, market participants, and/ 

or the public that may result from the 

adoption of this Proposal that the 

Commission should consider? Please 

provide specific examples and 

explanations of any such benefits. 

2. Has the Commission accurately 

identified all the costs of this Proposal? 

Are there additional costs to the 

Commission, market participants and/or 

the public that may result from the 

adoption of this Proposal that the 

Commission should consider? Please 

provide specific examples and 

explanations of any such costs. 

3. Are the regulatory safeguards that 

are included in the Proposal adequate to 

address the potential risks that may 

arise from the Proposal? Are there other 

regulatory safeguards that the 

Commission should consider? 

4. Does this Proposal impact the 

Section 15(a) factors in any way that is 

not described above? Please provide 

specific examples and explanations of 

any such impact. 

D. Antitrust Laws 

Section 15(b) of the Act requires the 

Commission to ‘‘take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of this Act, in 

issuing any order or adopting any 

Commission rule or regulation 

(including any exemption under Section 

4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule or regulation 

of a contract market or registered futures 

association established pursuant to 

Section 17 of this Act.’’ 320

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission requests 

comment on whether the Proposal 

implicates any other specific public 

interest to be protected by the antitrust 

laws. 

The Commission has considered the 

Proposal to determine whether it is 

anticompetitive, and has preliminarily 

identified no anticompetitive effects. 

The Commission requests comment on 

whether the Proposal is anticompetitive 

and, if it is, what the anticompetitive 

effects are. 

Because the Commission has 

preliminarily determined that the 

Proposal is not anticompetitive and has 

no anticompetitive effects,321 the 

Commission has not identified any less 

competitive means of achieving the 

purposes of the Act. The Commission 

requests comment on whether there are 

less anticompetitive means of achieving 

the relevant purposes of the Act that 

would otherwise be served by adopting 

the proposed amendments. 

List of Subjects 

17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

17 CFR Part 22 

Brokers, Clearing, Consumer 

protection, Reporting and 

recordkeeping, Swaps. 

17 CFR Part 30 

Consumer protection. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR chapter I as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for Part 1 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23 and 

24 (2012). 

§ 1.20 [Amended] 

■ 2. Amend § 1.20 by: 

■ a. Revising in paragraph (d)(2), the 

cross-reference to ‘‘appendix A to this 

part’’ to read ‘‘Appendix C to this part’’; 

■ b. Removing and reserving paragraph 

(d)(3); 

■ c. Revising in paragraph (g)(4)(ii), the 

cross-reference to ‘‘appendix B to this 

part’’ to read ‘‘Appendix D to this part’’; 

■ d. Redesignating Appendix A to § 1.20 

as Appendix C to Part 1; and 

■ e. Redesignating Appendix B to § 1.20 

as Appendix D to Part 1. 

■ 3. Amend § 1.25 by: 

■ a. Republishing paragraph (a) heading 

and the introductory text of paragraph 

(a)(1); 

■ b. Removing paragraphs (a)(1)(v) and 

(vi); 

■ c. Redesignating paragraph (a)(1)(vii) 

as paragraph (a)(1)(v); 

■ d. Revising newly redesignated 

paragraph (a)(1)(v); 

■ e. Adding new paragraphs (a)(1)(vi) 

and (a)(1)(vii); 

■ f. Republishing the introductory text 

of paragraph (b) and the paragraph (b)(2) 

heading; 

■ g. Revising paragraph (b)(2)(i) 

introductory text; 

■ h. Republishing paragraph 

(b)(2)(iv)(A); 

■ i. Revising paragraphs (b)(2)(iv)(A)(1) 

and (2); 

■ j. Removing paragraph (b)(2)(vi); 

■ k. Republishing paragraph (b)(3) 

heading; 

■ l. Revising paragraphs (b)(3)(i)(C) and 

(E); 

■ m. Removing paragraph (b)(3)(i)(F); 

■ n. Redesignating paragraph (b)(3)(i)(G) 

as (b)(3)(i)(F); 

■ o. Revising newly redesignated 

paragraph (b)(3)(i)(F), paragraphs 

(b)(3)(ii)(B) through (E) and (b)(4)(i), 

paragraph (c) introductory text, 

paragraph (c)(1), and paragraph (c)(5)(ii) 

introductory text; 

■ p. Revising in paragraph (c)(7), the 

cross-reference to ‘‘The appendix to this 

section’’ to read ‘‘Appendix E to this 

part’’; 

■ q. Adding paragraph (c)(8); 

■ r. Republishing the introductory text 

of paragraph (d); 

■ s. Revising paragraphs (d)(2) and 

(d)(7); 


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■ t. Adding paragraph (f); and 

■ u. Redesignating the Appendix to 

§ 1.25 as Appendix E to Part 1. 

The republications, revisions, and 

additions read as follows: 

§ 1.25 Investment of customer funds. 

(a) Permitted investments. (1) Subject 

to the terms and conditions set forth in 

this section, a futures commission 

merchant or a derivatives clearing 

organization may invest customer 

money in the following instruments 

(permitted investments): 

* * * * * 

(v) Interests in government money 

market funds as defined in § 270.2a–7 of 

this title, provided that the government 

money market funds do not choose to 

rely on the ability to impose 

discretionary liquidity fees consistent 

with the requirements of § 270.2a– 

7(c)(2)(i) of this title (government money 

market fund); 

(vi) Interests in exchange-traded 

funds, as defined in § 270.6c–11 of this 

title, which seek to replicate the 

performance of a published short-term 

U.S. Treasury security index composed 

of bonds, notes, and bills with a 

remaining maturity of 12 months or less, 

issued by, or unconditionally 

guaranteed as to the timely payment of 

principal and interest by, the U.S. 

Department of the Treasury (U.S. 

Treasury exchange-traded fund); and 

(vii) General obligations of Canada, 

France, Germany, Japan, and the United 

Kingdom (permitted foreign sovereign 

debt), subject to the following: 

(A) A futures commission merchant 

may invest in the permitted foreign 

sovereign debt of a country to the extent 

it has balances in segregated accounts 

owed to its customers denominated in 

that country’s currency; and 

(B) A derivatives clearing organization 

may invest in the permitted foreign 

sovereign debt of a country to the extent 

it has balances in segregated accounts 

owed to its clearing members that are 

futures commission merchants 

denominated in that country’s currency. 

* * * * * 

(b) General terms and conditions. A 

futures commission merchant or a 

derivatives clearing organization is 

required to manage the permitted 

investments consistent with the 

objectives of preserving principal and 

maintaining liquidity and according to 

the following specific requirements: 

* * * * * 

(2) Restrictions on instrument 

features. (i) With the exception of 

government money market funds and 

U.S. Treasury exchange-traded funds, 

no permitted investment may contain an 

embedded derivative of any kind, 

except as follows: 

* * * * * 

(iv)(A) Adjustable rate securities are 

permitted, subject to the following 

requirements: 

(1) The interest payments on variable 

rate securities must correlate closely 

and on an unleveraged basis to a 

benchmark of either the Federal Funds 

target or effective rate, the prime rate, 

the three-month Treasury Bill rate, the 

Secured Overnight Financing Rate, or 

the interest rate of any fixed rate 

instrument that is a permitted 

investment listed in paragraph (a)(1) of 

this section; 

(2) The interest payment, in any 

period, on floating rate securities must 

be determined solely by reference, on an 

unleveraged basis, to a benchmark of 

either the Federal Funds target or 

effective rate, the prime rate, the threemonth Treasury Bill rate, the Secured 

Overnight Financing Rate, or the 

interest rate of any fixed rate instrument 

that is a permitted investment listed in 

paragraph (a)(1) of this section; 

* * * * * 

(3) Concentration— 

(i) * * * 

(C) Investments in certificates of 

deposit may not exceed 25 percent of 

the total assets held in segregation by 

the futures commission merchant or 

derivatives clearing organization. 

* * * * * 

(E) Investments in government money 

market funds or U.S. Treasury 

exchange-traded funds with $1 billion 

or more in assets and whose 

management company manages $25 

billion or more in assets may not exceed 

50 percent of the total assets held in 

segregation by the futures commission 

merchant or derivatives clearing 

organization. 

(F) Investments in government money 

market funds or U.S. Treasury 

exchange-traded funds with less than $1 

billion in assets or which have a 

management company managing less 

than $25 billion in assets, may not 

exceed 10 percent of the total assets 

held in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(ii) * * * 

(B) Securities of any single issuer of 

municipal securities or certificates of 

deposit held by a futures commission 

merchant or derivatives clearing 

organization may not exceed 5 percent 

of the total assets held in segregation by 

the futures commission merchant or 

derivatives clearing organization. 

(C) Interests in any single family of 

government money market funds or U.S. 

Treasury exchange-traded funds may 

not exceed 25 percent of the total assets 

held in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(D) Interests in any individual 

government money market fund or U.S. 

Treasury exchange-traded fund may not 

exceed 5 percent of the total assets held 

in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(E) For purposes of determining 

compliance with the issuer-based 

concentration limits set forth in this 

section, securities issued by entities that 

are affiliated, as defined in paragraph 

(b)(5) of this section, shall be aggregated 

and deemed the securities of a single 

issuer. An interest in a permitted 

government money market fund or U.S. 

Treasury exchange-traded fund is not 

deemed to be a security issued by its 

sponsoring entity. 

* * * * * 

(4) Time-to-maturity. (i) Except for 

investments in government money 

market funds, U.S. Treasury exchangetraded funds, and permitted foreign 

sovereign debt subject to the 

requirements of paragraph (f) of this 

section, the dollar-weighted average of 

the time-to-maturity of the portfolio, as 

that average is computed pursuant to 

§ 270.2a–7 of this title, may not exceed 

24 months. 

* * * * * 

(c) Government money market funds 

and U.S. Treasury exchange-traded 

funds. The following provisions will 

apply to the investment of customer 

funds in government money market 

funds or U.S. Treasury exchange-traded 

funds (the fund). 

(1) The fund must be an investment 

company that is registered under the 

Investment Company Act of 1940 with 

the Securities and Exchange 

Commission and that holds itself out to 

investors as a government money 

market fund, in accordance with 

§ 270.2a–7 of this title, or an exchangetraded fund, in accordance with 

§ 270.6c–11 of this title. 

* * * * * 

(5) * * * 

(ii) Exception. A government money 

market fund may provide for the 

postponement of redemption and 

payment due to any of the following 

circumstances: 

* * * * * 

(8) Interests in U.S. Treasury 

exchange-traded funds will qualify as 

permitted investments under paragraph 

(a) of this section if: 

(i) The interests are redeemable in 

cash by a futures commission merchant 


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or a derivatives clearing organization in 

its capacity of an authorized participant 

pursuant to an authorized participant 

agreement, as defined in § 270.6c–11 of 

this title, at a price based on the net 

asset value in accordance with the 

Investment Company Act of 1940 and 

regulations thereunder, and on a 

delivery versus payment basis; 

(ii) The U.S. Treasury exchangetraded fund invests at least 95 percent 

of its assets in securities comprising the 

short-term U.S. Treasury index whose 

performance the fund seeks to replicate; 

and 

(iii) The interests are acceptable as 

performance bond by a derivatives 

clearing organization. 

(d) Repurchase and reverse 

repurchase agreements. A futures 

commission merchant or derivatives 

clearing organization may buy and sell 

the permitted investments listed in 

paragraphs (a)(1)(i) through (vii) of this 

section pursuant to agreements for 

resale or repurchase of the securities 

(agreements for repurchase or resell), 

provided the agreements to repurchase 

or resell conform to the following 

requirements: 

* * * * * 

(2) Permitted counterparties are 

limited to a bank as defined in section 

3(a)(6) of the Securities Exchange Act of 

1934, a domestic branch of a foreign 

bank insured by the Federal Deposit 

Insurance Corporation, a securities 

broker or dealer, a government 

securities dealer registered with the 

Securities and Exchange Commission or 

which has filed notice pursuant to 

section 15C(a) of the Government 

Securities Act of 1986. In addition, with 

respect to agreements to repurchase or 

resell permitted foreign sovereign debt, 

the following entities are also permitted 

counterparties: a foreign bank that 

qualifies as a depository under 

§ 1.49(d)(3) and that is located in a 

money center country as the term is 

defined in § 1.49(a)(1) or in another 

jurisdiction that has adopted the 

currency in which the permitted foreign 

sovereign debt is denominated as its 

currency; a securities broker or dealer 

located in a money center country as the 

term is defined in § 1.49(a)(1) and that 

is regulated by a national financial 

regulator; and the Bank of Canada, the 

Bank of England, the Banque de France, 

the Central Bank of Japan, the Deutsche 

Bundesbank, or the European Central 

Bank. 

* * * * * 

(7) Securities transferred to the 

futures commission merchant or 

derivatives clearing organization under 

the agreement are held in a safekeeping 

account with a bank as referred to in 

paragraph (d)(2) of this section, a 

Federal Reserve Bank, a derivatives 

clearing organization, or the Depository 

Trust Company in an account that 

complies with the requirements of 

§ 1.26. Securities transferred to the 

futures commission merchant or 

derivatives clearing organization under 

an agreement related to permitted 

foreign sovereign debt may also be held 

in a safekeeping account that complies 

with the requirements of § 1.26 at a 

foreign bank that meets the location and 

qualification requirements in § 1.49(c) 

and (d). 

* * * * * 

(f) Permitted foreign sovereign debt. 

The following provisions will apply to 

investments of customer funds in 

permitted foreign sovereign debt. 

(1) The dollar-weighted average of the 

remaining time-to-maturity of the 

portfolio of investments in permitted 

foreign sovereign debt, as that average is 

computed pursuant to § 270.2a–7 of this 

title on a country-by-country basis, may 

not exceed 60 calendar days. Permitted 

foreign sovereign debt instruments 

acquired under an agreement to resell 

shall be deemed to have a maturity 

equal to the period remaining until the 

date on which the resale of the 

underlying instruments is scheduled to 

occur, or, where the agreement is 

subject to demand, the notice period 

applicable to a demand for the resale of 

the securities. Permitted foreign 

sovereign debt instruments sold under 

an agreement to repurchase shall be 

included in the calculation of the dollarweighted average based on the 

remaining time-to-maturity of each 

instrument sold. 

(2) A futures commission merchant or 

a derivatives clearing organization may 

not invest customer funds in any 

permitted foreign sovereign debt that 

has a remaining maturity greater than 

180 calendar days. 

(3) If the two-year credit default 

spread of an issuing sovereign of 

permitted foreign sovereign debt is 

greater than 45 basis points: 

(i) The futures commission merchant 

or derivatives clearing organization 

shall not make any new investments in 

that sovereign’s debt using customer 

funds. 

(ii) The futures commission merchant 

or derivatives clearing organization 

must discontinue investing customer 

funds in that sovereign’s debt through 

agreements to resell as soon as 

practicable under the circumstances. 

§ 1.26 [Amended] 

■ 4. Amend § 1.26 by: 

■ a. Redesignating Appendix A to § 1.26 

as Appendix F to Part 1 and Appendix 

B to § 1.26 as Appendix G to Part 1; and 

■ b. In the table below, for each 

paragraph indicated in the left column, 

removing the words indicated in the 

middle column from wherever they 

appear in the paragraph, and adding the 

words indicated in the right column: 

Paragraph Remove Add 

(a) ............................. ‘‘money market mutual funds’’ .............. ‘‘government money market funds and U.S. Treasury exchange-traded funds.’’ 

(b) ............................. ‘‘the money market mutual fund’’ .......... ‘‘the government money market fund or U.S. Treasury exchange-traded fund.’’ 

(b) ............................. ‘‘appendix A or B to this section’’ ......... ‘‘Appendix F, G, H or I to this part.’’ 

(b) ............................. ‘‘appendix A or B to § 1.20’’ .................. ‘‘appendix C or D to this part.’’ 

■ 5. Revise newly redesignated 

Appendix C to part 1 to read as follows: 

Appendix C to Part 1—Futures 

Commission Merchant 

Acknowledgment Letter for CFTC 

Regulation 1.20 Customer Segregated 

Account 

[Date] 

[Name and Address of Bank, Trust Company, 

Derivatives Clearing Organization or Futures 

Commission Merchant] 

We refer to the Segregated Account(s) 

which [Name of Futures Commission 

Merchant] (‘‘we’’ or ‘‘our’’) have opened or 

will open with [Name of Bank, Trust 

Company, Derivatives Clearing Organization 

or Futures Commission Merchant] (‘‘you’’ or 

‘‘your’’) entitled: 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 1.20 Customer 

Segregated Account under Sections 4d(a) and 

4d(b) of the Commodity Exchange Act [and, 

if applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we have opened or 

will open the above-referenced Account(s) 

for the purpose of depositing, as applicable, 

money, securities and other property 


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(collectively the ‘‘Funds’’) of customers who 

trade commodities, options, swaps, and other 

products, as required by Commodity Futures 

Trading Commission (‘‘CFTC’’) Regulations, 

including Regulation § 1.20, as amended; that 

the Funds held by you, hereafter deposited 

in the Account(s) or accruing to the credit of 

the Account(s), will be separately accounted 

for and segregated on your books from our 

own funds and from any other funds or 

accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, 

as amended (the ‘‘Act’’), and part 1 of the 

CFTC’s regulations, as amended; and that the 

Funds must otherwise be treated in 

accordance with the provisions of Section 4d 

of the Act and CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Funds may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Funds in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. This prohibition does not 

affect your right to recover funds advanced 

in the form of cash transfers, lines of credit, 

repurchase agreements or other similar 

liquidity arrangements you make in lieu of 

liquidating non-cash assets held in the 

Account(s) or in lieu of converting cash held 

in the Account(s) to cash in a different 

currency. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the director of the Division of Swap Dealer 

and Intermediary Oversight of the CFTC or 

the director of the Division of Clearing and 

Risk of the CFTC, or any successor divisions, 

or such directors’ designees, or an 

appropriate officer, agent or employee of our 

designated self-regulatory organization 

(‘‘DSRO’’), [Name of DSRO], and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to permit any 

such examination to take place without 

further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the director of the Division 

of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). We will not hold 

you responsible for acting pursuant to any 

information request from the director of the 

Division of Swap Dealer and Intermediary 

Oversight of the CFTC or the director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event that we become subject to 

either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Funds held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Funds maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason, and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Bank, Trust Company, Derivatives 

Clearing Organization or Futures 

Commission Merchant] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 6. Revise the heading of newly 

redesignated Appendix E to part 1 to 

read as follows: 

Appendix E to Part 1—Government 

Money Market Fund Prospectus 

Provisions Acceptable for Compliance 

With § 1.25(c)(5) 

* * * * * 

■ 7. Revise newly redesignated 

Appendix F to part 1 to read as follows: 

Appendix F to Part 1—Futures 

Commission Merchant 

Acknowledgment Letter for CFTC 

Regulation § 1.26 Customer Segregated 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

of Futures Commission Merchant] (‘‘we’’ or 


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‘‘our’’) on behalf of our customers in shares 

of [Name of Government Money Market 

Fund] (‘‘you’’ or ‘‘your’’) under account(s) 

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 1.26 Customer 

Segregated Government Money Market Fund 

Account under Sections 4d(a) and 4d(b) of 

the Commodity Exchange Act [and, if 

applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade commodities, options, 

swaps and other products (‘‘Commodity 

Customers’’), as required by Commodity 

Futures Trading Commission (‘‘CFTC’’) 

Regulation § 1.26, as amended; that the 

Shares held by you, hereafter deposited in 

the Account(s) or accruing to the credit of the 

Account(s), will be separately accounted for 

and segregated on your books from our own 

funds and from any other funds or accounts 

held by us in accordance with the provisions 

of the Commodity Exchange Act, as amended 

(the ‘‘Act’’), and part 1 of the CFTC’s 

regulations, as amended; and that the Shares 

must otherwise be treated in accordance with 

the provisions of Section 4d of the Act and 

CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the director of the Division of Swap Dealer 

and Intermediary Oversight of the CFTC or 

the director of the Division of Clearing and 

Risk of the CFTC, or any successor divisions, 

or such directors’ designees, or an 

appropriate officer, agent or employee of our 

designated self-regulatory organization 

(‘‘DSRO’’), [Name of DSRO], and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to permit any 

such examination to take place without 

further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other account 

information regarding or related to the 

Account(s) from the director of the Division 

of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

director of the Division of Swap Dealer and 

Intermediary Oversight of the CFTC or the 

director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

upon which you have relied after having 

taken measures in accordance with your 

applicable policies and procedures to assure 

that such request was provided to you by an 

individual authorized to make such a 

request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to 

any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That 

rule sets forth the following conditions, 

among others, with respect to any investment 

in a government money market fund: 

(1) The net asset value of the fund must be 

computed by 9:00 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

§ 1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns, and for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO, in accordance with CFTC Regulation 

§ 1.20. We hereby authorize and direct you to 

provide such copies without further notice to 

or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 


lotter on DSK11XQN23PROD with PROPOSALS2
81278 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

Date: 

■ 8. Revise newly redesignated 

Appendix G to part 1 to read as follows: 

Appendix G to Part 1—Derivatives 

Clearing Organization 

Acknowledgment Letter for CFTC 

Regulation § 1.26 Customer Segregated 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

of Derivatives Clearing Organization] (‘‘we’’ 

or ‘‘our’’) on behalf of customers in shares of 

[Name of Government Money Market Fund] 

(‘‘you’’ or ‘‘your’’) under account(s) entitled 

(or shares issued to): 

[Name of Derivatives Clearing 

Organization] Futures Customer Omnibus 

Account, CFTC Regulation § 1.26 Customer 

Segregated Government Money Market Fund 

Account under Sections 4d(a) and 4d(b) of 

the Commodity Exchange Act [and, if 

applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade commodities, options, 

swaps and other products, as required by 

Commodity Futures Trading Commission 

(‘‘CFTC’’) Regulation § 1.26, as amended; that 

the Shares held by you, hereafter deposited 

in the Account(s) or accruing to the credit of 

the Account(s), will be separately accounted 

for and segregated on your books from our 

own funds and from any other funds or 

accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, 

as amended (the ‘‘Act’’), and part 1 of the 

CFTC’s regulations, as amended; and that the 

Shares must otherwise be treated in 

accordance with the provisions of Section 4d 

of the Act and CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the director of the Division 

of Clearing and Risk of the CFTC or the 

director of the Division of Swap Dealer and 

Intermediary Oversight of the CFTC, or any 

successor divisions, or such directors’ 

designees, and this letter constitutes the 

authorization and direction of the 

undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

requests will be made in accordance with, 

and subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

director of the Division of Clearing and Risk 

of the CFTC or the director of the Division 

of Swap Dealer and Intermediary Oversight 

of the CFTC, or any successor divisions, or 

such directors’ designees, upon which you 

have relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event that we become subject to 

either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason, and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That 

rule sets forth the following conditions, 

among others, with respect to any investment 

in a government money market fund: 

(1) The net asset value of the fund must be 

computed by 9:00 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

§ 1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) in 

accordance with CFTC Regulation § 1.20. We 

hereby authorize and direct you to provide 

such copy without further notice to or 

consent from us, no later than three business 

days after opening the Account(s) or revising 

this letter agreement, as applicable. 

[Name of Derivatives Clearing Organization] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 

Print Name: 


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 81279 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 9. Add Appendix H to part 1 to read 

as follows: 

Appendix H to Part 1—Futures 

Commission Merchant 

Acknowledgment Letter for CFTC 

Regulation § 1.26 Customer Segregated 

U.S. Treasury Exchange-Traded Fund 

Account 

[Date] 

[Name and Address of U.S. Treasury 

Exchange-Traded Fund] 

We propose to invest funds held by [Name 

of Futures Commission Merchant] (‘‘we’’ or 

‘‘our’’) on behalf of our customers in shares 

of [Name of U.S. Treasury Exchange-Traded 

Fund] (‘‘you’’ or ‘‘your’’) under account(s) 

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 1.26 Customer 

Segregated U.S. Treasury Exchange-Traded 

Fund Account under Sections 4d(a) and 

4d(b) of the Commodity Exchange Act [and, 

if applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade commodities, options, 

swaps and other products (‘‘Commodity 

Customers’’), as required by Commodity 

Futures Trading Commission (‘‘CFTC’’) 

Regulation § 1.26, as amended; that the 

Shares held by you, hereafter deposited in 

the Account(s) or accruing to the credit of the 

Account(s), will be separately accounted for 

and segregated on your books from our own 

funds and from any other funds or accounts 

held by us in accordance with the provisions 

of the Commodity Exchange Act, as amended 

(the ‘‘Act’’), and part 1 of the CFTC’s 

regulations, as amended; and that the Shares 

must otherwise be treated in accordance with 

the provisions of Section 4d of the Act and 

CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

organization (‘‘DSRO’’), [Name of DSRO], and 

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other account 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Market Participants Division 

of the CFTC or the Director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such Directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to 

any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in U.S. Treasury exchange-traded 

funds pursuant to CFTC Regulation § 1.25. 

That rule sets forth the following conditions, 

among others, with respect to any investment 

in a U.S. Treasury exchange-traded fund: 

(1) To qualify as a permitted investment, 

interests in U.S. Treasury exchange-traded 

must be redeemable in cash by a futures 

commission merchant or derivatives clearing 

organization in its capacity as an authorized 

participant pursuant to an authorized 

participant agreement, as defined in 

§ 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset 

value in accordance with the Investment 

Company Act of 1940 and regulations 

thereunder, and on a delivery versus 

payment basis; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request; and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns, and for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 


lotter on DSK11XQN23PROD with PROPOSALS2
81280 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO, in accordance with CFTC Regulation 

§ 1.20. We hereby authorize and direct you to 

provide such copies without further notice to 

or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of U.S. Treasury Exchange-Traded 

Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

Date: 

■ 10. Add Appendix I to part 1 to read 

as follows: 

Appendix I to Part 1—Derivatives 

Clearing Organization 

Acknowledgment Letter for CFTC 

Regulation § 1.26 Customer Segregated 

U.S. Treasury Exchange-Traded Fund 

Account 

[Date] 

[Name and Address of U.S. Treasury 

Exchange-Traded Fund] 

We propose to invest funds held by [Name 

of Derivatives Clearing Organization] (‘‘we’’ 

or ‘‘our’’) on behalf of customers in shares of 

[Name of U.S. Treasury Exchange-Traded 

Fund] (‘‘you’’ or ‘‘your’’) under account(s) 

entitled (or shares issued to): 

[Name of Derivatives Clearing 

Organization] Futures Customer Omnibus 

Account, CFTC Regulation § 1.26 Customer 

Segregated U.S. Treasury Exchange-Traded 

Fund Account under Sections 4d(a) and 

4d(b) of the Commodity Exchange Act [and, 

if applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade commodities, options, 

swaps and other products, as required by 

Commodity Futures Trading Commission 

(‘‘CFTC’’) Regulation § 1.26, as amended; that 

the Shares held by you, hereafter deposited 

in the Account(s) or accruing to the credit of 

the Account(s), will be separately accounted 

for and segregated on your books from our 

own funds and from any other funds or 

accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, 

as amended (the ‘‘Act’’), and part 1 of the 

CFTC’s regulations, as amended; and that the 

Shares must otherwise be treated in 

accordance with the provisions of Section 4d 

of the Act and CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the Director of the Division 

of Clearing and Risk of the CFTC or the 

Director of the Market Participants Division 

of the CFTC, or any successor divisions, or 

such Directors’ designees, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

requests will be made in accordance with, 

and subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Division of Clearing and Risk 

of the CFTC or the Director of the Market 

Participants Division of the CFTC, or any 

successor divisions, or such Directors’ 

designees, upon which you have relied after 

having taken measures in accordance with 

your applicable policies and procedures to 

assure that such request was provided to you 

by an individual authorized to make such a 

request. 

In the event that we become subject to 

either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason, and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in U.S. Treasury exchange-traded 

funds pursuant to CFTC Regulation § 1.25. 

That rule sets forth the following conditions, 

among others, with respect to any investment 

in a U.S. Treasury exchange-traded fund: 

(1) To qualify as a permitted investment, 

interests in U.S. Treasury exchange-traded 

must be redeemable in cash by a futures 

commission merchant or derivatives clearing 

organization in its capacity as an authorized 

participant pursuant to an authorized 

participant agreement, as defined in 

§ 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset 

value in accordance with the Investment 

Company Act of 1940 and regulations 

thereunder, and on a delivery versus 

payment basis; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request; and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 


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event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) in 

accordance with CFTC Regulation § 1.20. We 

hereby authorize and direct you to provide 

such copy without further notice to or 

consent from us, no later than three business 

days after opening the Account(s) or revising 

this letter agreement, as applicable. 

[Name of Derivatives Clearing Organization] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of U.S. Treasury Exchange-Traded 

Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 11. In § 1.32, revise paragraphs 

(f)(3)(v), (vi), and (vii) to read as follows: 

§ 1.32 Reporting of segregated account 

computation and details regarding the 

holding of futures customer funds. 

* * * * * 

(f) * * * 

(3) * * * 

(v) Permitted foreign sovereign debt 

by country: 

(A) Canada; 

(B) France; 

(C) Germany; 

(D) Japan; 

(E) United Kingdom; 

(vi) Interests in U.S. Treasury 

exchange-traded funds; and 

(vii) Interests in government money 

market funds. 

* * * * * 

PART 22—CLEARED SWAPS 

■ 12. The authority citation for part 22 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 6d, 7a–1 as 

amended by Pub. L. 111–203, 124 Stat. 1376. 

■ 13. In § 22.2, revise paragraphs 

(g)(5)(iii)(E), (F), and (G) to read as 

follows: 

§ 22.2 Futures Commission Merchants: 

Treatment of Cleared Swaps and 

Associated Cleared Swaps Customer 

Collateral. 

* * * * * 

(g) * * * 

(5) * * * 

(iii) * * * 

(E) Permitted foreign sovereign debt 

by country: 

(1) Canada; 

(2) France; 

(3) Germany; 

(4) Japan; 

(5) United Kingdom; 

(F) Interests in U.S. Treasury 

exchange-traded funds; and 

(G) Interests in government money 

market funds. 

* * * * * 

■ 14. In § 22.3, revise paragraph (d) to 

read as follows: 

§ 22.3 Derivatives clearing organizations: 

Treatment of cleared swaps customer 

collateral. 

* * * * * 

(d) Exceptions; Permitted investments. 

Notwithstanding the foregoing and 

§ 22.15, a derivatives clearing 

organization may invest the money, 

securities, or other property constituting 

Cleared Swaps Customer Collateral in 

accordance with § 1.25 of this chapter. 

A derivative clearing organization shall 

bear sole responsibility for any losses 

resulting from the investment of Cleared 

Swaps Customer Collateral in 

instruments described in § 1.25 of this 

chapter. No investment losses shall be 

borne or otherwise allocated to a futures 

commission merchant. 

PART 30—FOREIGN FUTURES AND 

FOREIGN OPTIONS TRANSACTIONS 

■ 15. The authority citation for part 30 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, 

unless otherwise noted. 

■ 16. In § 30.7, revise paragraphs (d)(2) 

and (3) and (l)(5)(iii)(E) through (G) to 

read as follows: 

§ 30.7 Treatment of foreign futures or 

foreign options secured amount. 

* * * * * 

(d) * * * 

(2) The written acknowledgment must 

be in the form as set out in Appendix 

E to this part; Provided, however, that if 

the futures commission merchant 

invests funds set aside as the foreign 

futures or foreign options secured 

amount in government money market 

funds or U.S. Treasury exchange-traded 

funds as a permitted investment under 

paragraph (h) of this section and in 

accordance with the terms and 

conditions of § 1.25(c) of this chapter, 

the written acknowledgment with 

respect to such investment must be in 

the form as set out in Appendix F to this 

part or in Appendix G to this part, 

respectively. 

(3)(i) A futures commission merchant 

shall deposit 30.7 customer funds only 

with a depository that agrees to provide 

the director of the Division of Swap 

Dealer and Intermediary Oversight, or 

any successor division, or such 

director’s designees, with account 

balance information for 30.7 customer 

accounts. 

(ii) The written acknowledgment must 

contain the futures commission 

merchant’s authorization to the 

depository to provide account balance 

information to the director of the 

Division of Swap Dealer and 

Intermediary Oversight, or any 

successor division, or such director’s 

designees, without further notice to or 

consent from the futures commission 

merchant. 

* * * * * 

(l) * * * 

(5) * * * 

(iii) * * * 

(E) Permitted foreign sovereign debt 

by country: 

(1) Canada; 

(2) France; 

(3) Germany; 

(4) Japan; 

(5) United Kingdom; 

(F) Interests in U.S. Treasury 

exchange-traded funds; and 

(G) Interests in government money 

market funds. 

* * * * * 

■ 17. Revise Appendix E to part 30 to 

read as follows: 

Appendix E to Part 30— 

Acknowledgment Letter for CFTC 

Regulation § 30.7 Customer Secured 

Account 

[Date] 

[Name and Address of Depository] 

We refer to the Secured Amount 

Account(s) which [Name of Futures 

Commission Merchant] (‘‘we’’ or ‘‘our’’) have 

opened or will open with [Name of 

Depository] (‘‘you’’ or ‘‘your’’) entitled: 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 30.7 Customer 

Secured Account under Section 4(b) of the 

Commodity Exchange Act [and, if applicable, 

‘‘, Abbreviated as [short title reflected in the 

depository’s electronic system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we have opened or 

will open the above-referenced Account(s) 

for the purpose of depositing, as applicable, 

money, securities and other property 

(collectively ‘‘Funds’’) of customers who 


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trade foreign futures and/or foreign options 

(as such terms are defined in U.S. 

Commodity Futures Trading Commission 

(‘‘CFTC’’) Regulation § 30.1, as amended); 

that the Funds held by you, hereafter 

deposited in the Account(s) or accruing to 

the credit of the Account(s), will be kept 

separate and apart and separately accounted 

for on your books from our own funds and 

from any other funds or accounts held by us, 

in accordance with the provisions of the 

Commodity Exchange Act, as amended (the 

‘‘Act’’), and part 30 of the CFTC’s regulations, 

as amended; that the Funds may not be 

commingled with our own funds in any 

proprietary account we maintain with you; 

and that the Funds must otherwise be treated 

in accordance with the provisions of Section 

4(b) of the Act and CFTC Regulation § 30.7. 

Furthermore, you acknowledge and agree 

that such Funds may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Funds in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. This prohibition does not 

affect your right to recover funds advanced 

in the form of cash transfers, lines of credit, 

repurchase agreements or other similar 

liquidity arrangements you make in lieu of 

liquidating non-cash assets held in the 

Account(s) or in lieu of converting cash held 

in the Account(s) to cash in a different 

currency. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the director of the Division of Swap Dealer 

and Intermediary Oversight of the CFTC or 

the director of the Division of Clearing and 

Risk of the CFTC, or any successor divisions, 

or such directors’ designees, or an 

appropriate officer, agent or employee of our 

designated self-regulatory organization 

(‘‘DSRO’’), [Name of DSRO], and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to permit any 

such examination to take place without 

further notice or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the director of the Division 

of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

director of the Division of Swap Dealer and 

Intermediary Oversight of the CFTC or the 

director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

upon which you have relied after having 

taken measures in accordance with your 

applicable policies and procedures to assure 

that such request was provided to you by an 

individual authorized to make such a 

request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Funds held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not § 30.7 customer funds maintained in 

the Account(s), or to impose such charges 

against us or any proprietary account 

maintained by us with you. Further, it is 

understood that amounts represented by 

checks, drafts or other items shall not be 

considered to be part of the Account(s) until 

finally collected. Accordingly, checks, drafts 

and other items credited to the Account(s) 

and subsequently dishonored or otherwise 

returned to you or reversed, for any reason, 

and any claims relating thereto, including but 

not limited to claims of alteration or forgery, 

may be charged back to the Account(s), and 

we shall be responsible to you as a general 

endorser of all such items whether or not 

actually so endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or part 30 of the CFTC regulations that relates 

to the holding of customer funds; and you 

shall not in any manner not expressly agreed 

to herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 

4(b) of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Depository] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 18. Revise Appendix F to part 30 to 

read as follows: 

Appendix F to Part 30— 

Acknowledgment Letter for CFTC 

Regulation § 30.7 Customer Secured 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

of Futures Commission Merchant] (‘‘we’’ or 

‘‘our’’) on behalf of our customers in shares 

of [Name of Government Money Market 

Fund] (‘‘you’’ or ‘‘your’’) under account(s) 

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 30.7 Customer 

Secured Government Money Market Fund 

Account under Section 4(b) of the 

Commodity Exchange Act [and, if applicable, 


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‘‘, Abbreviated as [short title reflected in the 

depository’s electronic system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade foreign futures and/or 

foreign options (as such terms are defined in 

U.S. Commodity Futures Trading 

Commission (‘‘CFTC’’) Regulation § 30.1, as 

amended); that the Shares held by you, 

hereafter deposited in the Account(s) or 

accruing to the credit of the Account(s), will 

be kept separate and apart and separately 

accounted for on your books from our own 

funds and from any other funds or accounts 

held by us in accordance with the provisions 

of the Commodity Exchange Act, as amended 

(the ‘‘Act’’), and part 30 of the CFTC’s 

regulations, as amended; and that the Shares 

must otherwise be treated in accordance with 

the provisions of Section 4(b) of the Act and 

CFTC Regulations §§ 1.25 and 30.7. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the director of the Division of Swap Dealer 

and Intermediary Oversight of the CFTC or 

the director of the Division of Clearing and 

Risk of the CFTC, or any successor divisions, 

or such directors’ designees, or an 

appropriate officer, agent or employee of our 

designated self-regulatory organization 

(‘‘DSRO’’), [Name of DSRO], and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to permit any 

such examination to take place without 

further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the director of the Division 

of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information, without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such reasonable and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

director of the Division of Swap Dealer and 

Intermediary Oversight of the CFTC or the 

director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

upon which you have relied after having 

taken measures in accordance with your 

applicable policies and procedures to assure 

that such request was provided to you by an 

individual authorized to make such a 

request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or part 30 of the CFTC regulations that relates 

to the holding of customer funds; and you 

shall not in any manner not expressly agreed 

to herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That 

rule sets forth the following conditions, 

among others, with respect to any investment 

in a government money market fund: 

(1) The net asset value of the fund must be 

computed by 9:00 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

§ 1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 

4(b) of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 19. Add Appendix G to part 30 to read 

as follows: 


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81284 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

Appendix G to Part 30— 

Acknowledgment Letter for CFTC 

Regulation § 30.7 Customer Secured 

U.S. Treasury Exchange-Traded Fund 

Account 

[Date] 

[Name and Address of U.S. Treasury 

Exchange-Traded Fund] 

We propose to invest funds held by [Name 

of Futures Commission Merchant] (‘‘we’’ or 

‘‘our’’) on behalf of our customers in shares 

of [Name of U.S. Treasury Exchange-Traded 

Fund] (‘‘you’’ or ‘‘your’’) under account(s) 

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation § 30.7 Customer 

Secured U.S. Treasury Exchange-Traded 

Fund Account under Section 4(b) of the 

Commodity Exchange Act [and, if applicable, 

‘‘, Abbreviated as [short title reflected in the 

depository’s electronic system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

(collectively, the ‘‘Shares’’), for the benefit of 

customers who trade foreign futures and/or 

foreign options (as such terms are defined in 

U.S. Commodity Futures Trading 

Commission (‘‘CFTC’’) Regulation § 30.1, as 

amended); that the Shares held by you, 

hereafter deposited in the Account(s) or 

accruing to the credit of the Account(s), will 

be separately accounted for and segregated 

on your books from our own funds and from 

any other funds or accounts held by us in 

accordance with the provisions of the 

Commodity Exchange Act, as amended (the 

‘‘Act’’), and part 30 of the CFTC’s regulations, 

as amended; and that the Shares must 

otherwise be treated in accordance with the 

provisions of Section 4(b) of the Act and 

CFTC Regulations §§ 1.25 and 30.7. 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

organization (‘‘DSRO’’), [Name of DSRO], and 

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other account 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

requests will be made in accordance with, 

and subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Market Participants Division 

of the CFTC or the Director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such Directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

to release the Shares held in the Account(s), 

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

charged back to the Account(s), and we shall 

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any 

action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to 

any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in U.S. Treasury exchange-traded 

funds pursuant to CFTC Regulation § 1.25. 

That rule sets forth the following conditions, 

among others, with respect to any investment 

in a U.S. Treasury exchange-traded fund: 

(1) To qualify as a permitted investment, 

interests in U.S. Treasury exchange-traded 

must be redeemable in cash by a futures 

commission merchant or derivatives clearing 

organization in its capacity as an authorized 

participant pursuant to an authorized 

participant agreement, as defined in 

§ 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset 

value in accordance with the Investment 

Company Act of 1940 and regulations 

thereunder, and on a delivery versus 

payment basis; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request; and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns, and for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to Section 

4(b) of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 81285 

1 Investment of Customer Funds and Funds Held 

in an Account for Foreign Futures and Foreign 

Options Transactions Final Rule, 76 FR 78776, 

78782 (Dec. 19, 2011). 

2 Id. 

and manner determined by the CFTC) and to 

[Name of DSRO], acting in its capacity as our 

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of U.S. Treasury Exchange-Traded 

Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

Date: 

Issued in Washington, DC, on November 3, 

2023, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Investment of Customer 

Funds by Futures Commission 

Merchants and Derivatives Clearing 

Organizations—Commission Voting 

Summary, Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting Summary 

On this matter, Chairman Behnam and 

Commissioners Johnson, Goldsmith Romero, 

Mersinger, and Pham voted in the 

affirmative. No Commissioner voted in the 

negative. 

Appendix 2—Statement of Support of 

Chairman Rostin Behnam 

A fundamental tenet of the Commission’s 

customer protection framework is the 

safeguarding and investment of customer 

funds deposited by customers with futures 

commission merchants (‘‘FCMs’’) and 

derivatives clearing organizations (‘‘DCOs’’) 

to margin futures, foreign futures, and 

cleared swaps transactions. This proposal to 

revise the Commission’s regulations for the 

safeguarding and investment of customer 

funds by FCMs and DCOs in Commission 

regulations §§ 1.20, 1.25, 1.26, 1.32, 22.2, 

22.3, and 30.7 along with the relevant 

appendices does not change this 

foundational principle. This proposal 

embodies a prudent, periodic reassessment of 

these requirements to ensure that this 

framework remains appropriately calibrated 

to preserve principal and maintain liquidity. 

Therefore, I support the Commission issuing 

this proposal for public comment. 

Modernizing the List of Permitted 

Investments of Customer Funds 

Regulation § 1.25 currently permits FCMs 

and DCOs to invest customer funds in, 

among other things, U.S. government 

securities, municipal securities, and U.S. 

agency obligations. The Commission’s 

proposal would expand the list of permitted 

investments to add the foreign sovereign debt 

of Canada, France, Germany, Japan, and the 

United Kingdom, and add interests in certain 

short-term U.S. Treasury exchange-traded 

funds. These investments would be subject to 

various restrictions based on credit default 

spreads, time-to-maturity, concentration 

limits, and liquidity conditions that limit 

FCMs and DCOs to investing customer funds 

in safe investments. The Commission’s 

proposal to add these instruments follows a 

detailed staff analysis of these instruments’ 

liquidity, volatility, and credit 

characteristics. To the extent the proposal 

refines regulations in response to a decade of 

market developments including, but not 

limited to, the LIBOR transition to SOFR, 

changes to the broader U.S regulatory 

framework, and lessons learned from the 

implementation of the electronic access 

requirement, the amendments exemplify 

good government. 

FCM and DCO Permitted Investments Parity 

FCMs and DCOs operate in tandem as the 

backbone of our cleared markets. Given that 

the number of FCMs that offer customer 

clearing has significantly decreased in the 

past decade, alignment of the types of 

investments permitted for FCMs and DCOs is 

an essential component to maintaining 

market continuity and resiliency for 

customer clearing. The proposal would 

permit FCMs and DCOs to invest customer 

funds in the same narrowly-tailored set of 

foreign sovereign debt to the extent that 

FCMs and DCOs hold balances owed to 

customers in the currency of the issuing 

sovereign and subject to certain eligibility, 

credit, and time-to-maturity conditions. This 

addition to the list of permitted investments 

would not only minimize FCMs’ exposure to 

foreign currency risk fluctuations, but also 

incorporate the exact same conditions 

currently in place for CFTC registered DCOs 

to uneventfully invest customer funds in 

French and German sovereign debt— 

conditions that have been in place for the 

past five years. Simply put, a level playing 

field across agency registrants. 

Stay Strong 

The proposal would not undermine or 

weaken any of the safeguards that the 

Commission has had in place since 2011. In 

fact, the Commission recognized in the 2011 

final rule release ‘‘that the safety of sovereign 

debt issuances of one country may vary 

greatly from those of another, and that 

investment in certain sovereign debt may be 

consistent with the objectives of preserving 

principal and maintaining liquidity, as 

required by Regulation 1.25.’’ 1 The 

Commission not only anticipated, but 

‘‘invite[d] FCMs and DCOs that seek to invest 

customer funds in foreign sovereign debt to 

petition the Commission pursuant to Section 

4(c).’’ 2 This proposal incorporates the 

section 4(c) order and its conditions that the 

Commission provided to DCOs in 2018. 

Welcome Public Comment 

I look forward to hearing the public’s 

comments for further guidance on how to 

strengthen Regulation § 1.25 and the related 

regulations, while also making the 

derivatives markets more resilient and less 

concentrated. 

I want to thank Abigail Knauff, and staff in 

the Market Participants Division, Division of 

Clearing and Risk, Office of the General 

Counsel, and the Office of the Chief 

Economist for all of their work on the 

proposal. 

Appendix 3—Statement of Commissioner 

Kristin N. Johnson 

Preserving Trust and Preventing the Erosion 

of Customer Protection Regulation 

Introduction 

The Commodity Exchange Act (CEA) tasks 

the Commodity Futures Trading Commission 

(CFTC or Commission) with developing, 

adopting, and implementing rules that 

effectively protect customer funds or 

property held by market participants that 

serve as custodians. Preserving the value of 

customer funds and property held by a thirdparty is a central, critical, and foundational 

role of the CFTC. 

Retail participation in our markets is 

growing. The regulation advanced today is 

only part of our broader framework to 

preserve customer assets. 

As we examine the matter before us today, 

I strongly advocate for the Commission to 

carefully consider (among other issues 

outlined below) and implement: 

• appropriate parallel rules to protect retail 

customer assets, funds, and property across 

our markets; 

• a regulatory metric that acknowledges 

the challenges of relying on credit default 

swap (CDS) spreads calculated by an 

increasingly concentrated market to inform 

our understanding of the likelihood of 

foreign sovereign debt default risk; and 

• forthcoming rules governing the clearing 

of U.S. treasuries. 

Preserving Customer Assets Is Our Mission 

Successful preservation of customer assets 

directly impacts transaction costs and, in 

periods marked by significant losses of 

customer funds, may impact market integrity. 

For decades, the CFTC and other market 

and prudential regulators have introduced 

and enforced important rules governing the 

preservation of customer funds and property. 

Notwithstanding prudential and market 

regulators’ best efforts, markets and 

customers have experienced remarkable 

losses. We have witnessed customer losses in 

heavily regulated markets as well as markets 

where there are regulatory gaps and 

regulators may have limited visibility. 

FTX and Billions in Missing Customer Funds 

Last year, we witnessed a series of 

bankruptcies in the $1 trillion 

cryptocurrency markets. Several of the failed 

firms were among the largest global retail 

customer trading platforms in the digital 

asset marketplace. 

A year ago today, media accounts began 

reporting that FTX Trading or FTX.com 


lotter on DSK11XQN23PROD with PROPOSALS2
81286 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

1FTX Demonstrates Need for More Oversight: 

CFTC’s Johnson (Bloomberg TV Nov. 9, 2022), 

https://www.bloomberg.com/news/videos/2022-11- 

09/ftx-demonstrates-need-for-more-oversight-cftc-sjohnson. 

2 I thank the Division for carefully considering 

and agreeing to include a question in the Proposed 

Rule evaluating Regulation § 1.25(b)(5)(ii), which 

currently provides that an FCM or a DCO may 

invest customer funds in a fund affiliated with that 

FCM or DCO, and they have introduced several 

questions in the Proposed Rule. Additionally, at my 

request, the Commission is exploring whether we 

should provide greater certainty and clarity as to 

the acceptable benchmark in light of the various 

types of Secured Overnight Financing Rates (SOFR) 

that are available, the permissible investments that 

are likely to have a floating interest rate calculated 

on SOFR, and the recommendations of the 

Alternative Reference Rates Committee. 

3 7 U.S.C. 6(c). 

4H.R. Rep. No. 102–978, at 3213 (1992) (Conf. 

Rep.). 

5 7 U.S.C. 2(a). 

6H.R. Conf. Rep. No. 102–978, at 3213. 

7Exemption for Certain Swap Agreements, 58 FR 

5587 (Jan. 22, 1993). The 1993 Exemptive 

Regulation for swaps was a revision to the 

exemption the CFTC had previously issued in 1989 

in a Statement of Policy. 

8 Id. at 5589–5590. 

9 Id. 

(FTX) could not account for more than $10 

billion in customer funds.1 Yesterday, in a 

federal courtroom in the Southern District of 

New York, jurors found Sam Bankman-Fried, 

former chief executive officer (CEO) of FTX, 

guilty of misappropriating and embezzling 

billions of dollars in customer funds 

deposited with and held in the custody by 

FTX in connection with crypto-trading 

transactions at FTX. 

An ounce of prevention is worth a pound 

of cure. When customers entrust their 

resources and assets to registered participants 

in our markets, regulation offers the first-best 

method of preserving customers funds or 

property. Consequently, creating and 

enforcing effective, well-tailored rules 

governing the custody, investment, and 

preservation of customer funds must be 

among the Commission’s highest priorities. 

Without these rules and rigorous 

enforcement, our markets would lack the 

foundation of trust upon which every 

transaction is built. 

Commission Regulation § 1.25 

A recent report indicates that futures 

commission merchants (FCMs) may hold 

approximately $500 billion of customer 

funds in segregated accounts—a number that 

is the equivalent of the gross domestic 

product of certain medium-sized countries. 

Today, the Commission seeks to refine a 

foundational rule governing the investment 

of funds by FCMs and derivatives clearing 

organizations (DCOs) in our markets. FCMs 

and DCOs, alongside several other registered 

futures and swaps market participants, are 

entrusted with customer funds. 

I commend the Market Participants 

Division (Division) for its willingness to 

incorporate comments from my office in the 

Proposed Rule.2 I applaud the effort of the 

proposed amendments to Regulation § 1.25 

and related matters (Proposed Rule) 

advanced today, which seeks to introduce 

greater protections for customer funds, yet, 

regrettably I find that the Commission has 

missed an important opportunity. 

Over the term of my service as a 

Commissioner, I have continuously 

advocated for enhanced protection of 

customer funds. While I support the adoption 

of the Proposed Rule, I find that the 

Commission has missed an opportunity to 

effectively address gaps in a parallel market 

that has had exponential growth in recent 

years due, in part, to the introduction of 

cryptocurrency or digital assets. 

Understanding and Applying Our Regulatory 

Authority 

Before reaching the impact of the Proposed 

Rule, it is important to consider the scope of 

the Commission’s authority to act to refine 

existing rules governing the investment of 

customer funds as well as a broader 

intervention that addresses evolving market 

structures. 

The Commission is proposing to amend 

Regulation § 1.25 pursuant to its public 

interest exemptive authority under section 

4(c) of the CEA. The Commission may 

exercise this power to provide certain 

exemptions from the requirements of the 

CEA and regulations promulgated 

thereunder, if the Commission determines 

that such an exemption would be consistent 

with the public interest.3

The Commission may grant a public 

interest exemption by engaging in the 

rulemaking process for the Proposed Rule. In 

a formal rulemaking process, we benefit from 

careful review and development of the 

proposed rule text and the heightened 

discourse and public exchanges that are 

characteristic of the notice and comment 

period. As a financial market regulator, the 

Commission must continuously engage in 

careful and deliberative analyses to ensure 

the adoption and implementation of robust 

regulatory processes. Our efforts to achieve 

these goals ensure the continued stability and 

integrity of our derivatives markets. 

However, as noted in the legislative history 

of section 4(c) of the CEA, the Commission 

must be vigilant to ensure that the exercise 

of its exemptive power does not ‘‘prompt a 

wide-scale deregulation of markets falling 

within the ambit of the [CEA].’’ 4

Origins of the Commission’s 4(c) Authority 

Section 4(c) of the CEA was adopted in the 

context of the evolution of the derivatives 

market from traditional agricultural 

derivatives to financial derivatives. In the 

1980s, market participants developed a new 

OTC derivatives or swaps market featuring 

instruments that shared characteristics with 

existing futures contracts and had similar 

economic purposes. While some questioned 

the CFTC’s jurisdiction over the novel swap 

agreements, the Commission’s jurisdiction 

over futures contracts was clearly 

established. Congress has long concluded 

that the CFTC has jurisdiction over contracts 

that are ‘‘in the character of’’ futures 

contracts.5

In 1992, in response to regulatory 

uncertainty, Congress adopted section 4(c) of 

the CEA—codified in the Futures Trading 

Practices Act (1992 Act). Rather than 

resolving the appropriate classification for 

OTC swap agreements, Congress deferred to 

the Commission to exempt exchange-traded 

and OTC derivatives instruments from the 

CEA where such exemptions are consistent 

with the public interest. Congress granted the 

CFTC this exemptive authority to ensure 

‘‘certainty and stability’’ for ‘‘existing and 

emerging markets’’ and to enable ‘‘financial 

innovation and market development’’ and 

competition.6

Roughly a year later, consistent with the 

authority granted by Congress in the 1992 

Act, the CFTC adopted an exemptive 

regulation (1993 Exemptive Regulation).7

Relying on section 4(c)(3)(K) of the CEA, the 

Commission limited the market participants 

permitted to trade in these products to 

‘‘eligible swap participants,’’ a group that 

includes sophisticated individuals with 

assets over $10 million.8 To further enhance 

customer protection, the CFTC mandated that 

an eligible swap participant could only trade 

unregulated swaps on its own behalf or on 

behalf of another eligible swap participant.9

Seven years later as the swaps market grew 

exponentially, Congress enacted the 

Commodity Futures Modernization Act and 

addressed the product classification issue 

head-on. By law, Congress exempted 

financial OTC derivatives from the scope of 

the CEA, subject to certain conditions that 

generally excluded small businesses and 

individual investors from participating in the 

unregulated swaps market. 

The deregulation of the swaps market 

directly and markedly contributed to the 

global financial crisis, which caused 

significant stress and contagion in global 

financial markets. Certain of the proposed 

amendments will weaken many of the 

regulations adopted pursuant to the DoddFrank Act, and it is imperative that we not 

make the same mistake as the Commission 

amends its customer protection regime. 

Explanation of the Customer Protection 

Framework 

Pursuant to its authority under section 4(c) 

of the CEA, the Commission proposes to 

expand the range of instruments in which 

FCMs and DCOs may invest customer funds 

beyond those specifically enumerated in the 

CEA under section 4d. The stated benefit is 

to enhance the yield available to FCMs, DCOs 

and their customers, without compromising 

the safety of customer funds. 

The Commission has established a 

comprehensive customer protection regime, 

designed to ensure that customer funds are 

segregated from the proprietary funds of 

FCMs and DCOs, used only to support 

customer positions, and available for return 

to customers in the event of the insolvency 

of the FCM or DCO. Customer funds are 

classified into one of three account classes 

based on the specific type of customer 

position. The categories are futures customer 

funds, cleared swaps collateral, or 30.7 

customer funds in respect of domestic 

futures, cleared swaps, and foreign futures, 

respectively—all of which are referred to as 

customer funds. 


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 81287 

10 Kristin N. Johnson, Commissioner, CFTC, 

Statement on Extension of Staff No-Action Letter 

Regarding Investments in Securities with 

Adjustable Rate of Interest Benchmarked to SOFR 

(Dec. 23, 2022), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/johnsonstatement122322. 

11Section 4(b)(2)(A) of the CEA grants the 

Commission the plenary authority to adopt rules 

and regulations regarding an FCM’s safeguarding of 

30.7 customer funds. In 2011, the Commission 

extended the requirements of Regulation § 1.25 to 

an FCM’s investment of 30.7 customer funds for 

trading foreign futures positions. Section 4d(f)(4) of 

the CEA prescribes a list of instruments that cleared 

swaps customer collateral may be invested in and 

further provides that the investments must be made 

in accordance with the rules and regulations, and 

subject to any conditions, as the Commission 

prescribes. In 2012, the Commission extended the 

requirements of Regulation § 1.25 to an FCM’s 

investment of cleared swaps customer collateral. 

12Title 17—Commodity and Securities 

Exchanges, 33 FR 14454 (Sept. 26, 1968). 13 17 CFR 1.25(a)(1). 

14See Press Release No. 8230–20, CFTC Approves 

LedgerX, LLC to Clear Fully-Collateralized Futures 

and Options on Futures (Sept. 2, 2020), https://

www.cftc.gov/PressRoom/PressReleases/8230-20. 

15 Kristin N. Johnson, Commissioner, CFTC, 

Keynote Speech at the Salzburg Global Finance 

Forum (June 29, 2023), https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/opajohnson4; 

Kristin N. Johnson, Commissioner, CFTC, Keynote 

Address at the World Federation of Exchanges 

Annual Meeting (Sept. 21, 2023), https://

www.cftc.gov/PressRoom/SpeechesTestimony/ 

opajohnson5. 

The CEA and Commission Regulation 

§ 1.25 are foundational provisions that set the 

framework and scope for FCMs’ and DCOs’ 

investment of customer funds and are 

fundamentally interconnected with the 

requirements to segregate customer funds.10

Section 4d of the CEA permits FCMs to 

invest futures customer funds in a prescribed 

list of instruments—obligations of U.S. 

government, obligations fully guaranteed as 

to principal and interest by the U.S., and 

general obligations of any State or any 

political subdivision.11 The regulation 

permits FCMs and DCOs to invest customer 

funds in each account class in a limited set 

of permitted investments consistent with the 

prudential objectives of preserving customer 

funds and mitigating credit risk, market risk, 

and liquidity risk. The CEA and Regulation 

§ 1.25 reinforce the long-held view of the 

Commission that customer funds, entrusted 

to an FCM or a DCO, must be invested in a 

manner that preserves the availability to 

customers of FCMs and DCOs. 

However, the investment of customer 

funds may threaten the preservation of such 

funds, and I have diligently and consistently 

called for Commission regulation to protect 

the funds of retail clients that might not fall 

within the definition of ‘‘customer funds.’’ 

Some DCOs do not have an intermediated 

market structure. As a result, the protections 

that exist for customers of FCMs in the 

context of an intermediated DCO are not 

extended to direct clients of a DCO in the 

context of a non-intermediated market 

structure. 

Overview of the Proposed Amendments 

Since the Commission first authorized 

FCMs and DCOs to invest futures customer 

funds in these limited permitted instruments 

in 1968, the Commission has engaged in a 

series of critical expansions and subsequent 

restrictions of the provisions of Commission 

Regulation § 1.25.12 This evolution is largely 

in response to failures of large FCMs and 

major financial crises and economic stresses. 

In its current form, Commission Regulation 

§ 1.25 applies to all three account classes and 

lists seven categories of investments that 

qualify as permitted investments— 

obligations of the U.S. and obligations fully 

guaranteed as to principal and interest by the 

U.S.; general obligations of any State or 

political subdivision of a State; obligations of 

any U.S. government corporation or 

enterprise sponsored by the U.S.; certificates 

of deposit issued by a bank; commercial 

paper fully guaranteed by the U.S. under the 

Temporary Liquidity Guarantee Program 

(TLGP) as administered by the Federal 

Deposit Insurance Corporation; corporate 

notes and bonds fully guaranteed as to 

principal and interest by the U.S. under the 

TLGP; and interests in money market mutual 

funds (MMFs).13

The Commission’s authority to introduce 

and enforce regulations that ensure the 

preservation of customers’ assets, particularly 

in instances where FCMs and DCOs may 

experience liquidity crises, is foundational to 

protecting market participants from 

fraudulent and other abusive conduct and the 

misuse of customer assets. Effectively 

exercising this authority is equally central to 

the Commission’s role in supporting sound 

risk management practices and ensuring the 

stability of the broader financial system. 

In the Proposed Rule, the Commission 

proposes to take several significant actions: 

add specified foreign sovereign debt to the 

list of permitted investments; add short-term 

U.S. treasury exchange-traded funds (ETF) to 

the list of permitted investments; limit the 

scope of MMF whose interest qualify as 

permitted investments; eliminate commercial 

paper and corporate notes and bonds as 

permitted investments; request comment on 

the potential elimination of certificates of 

deposit issued by banks; replace the London 

Interbank Offered Rate (LIBOR) with SOFR as 

a permitted benchmark for adjustable rate 

securities; revise concentration limits for 

certain permitted investments; establish 

capital charges for specified foreign sovereign 

debt and qualified ETFs; propose to eliminate 

the read-only, access provisions; and clarify 

that DCOs are financially responsible for any 

losses resulting from investments of cleared 

swap customer collateral in permitted 

investments. 

I appreciate the importance of the 

Commission’s engagement in the continual 

reassessment of Regulation § 1.25 and related 

matters and revising regulatory requirements 

as and when appropriate. In this case, the 

proposed amendments are in response to 

specific petitions by market participants; but 

the Commission must ensure that its 

regulations are robust and responsive to our 

evolving market structure. 

Regulatory Gap for Non-Intermediated DCOs 

The Proposed Rule does not consider the 

prudential principles of Regulation § 1.25 in 

the context of a non-intermediated clearing 

model where the DCO offers direct client 

access to its clearing services, without the 

FCM as an intermediary. The derivatives 

market structure is significantly evolving, 

and it is imperative that the Commission’s 

regulations evolve in parallel. 

Formal Rules Governing Custody for Retail 

Investors Across Our Markets 

In 2022, the Commission received a request 

from LedgerX, which was withdrawn last 

year when LedgerX’s parent company, FTX, 

filed for bankruptcy protection. The request 

aimed to amend its order of registration as a 

non-intermediated DCO to clear margined 

products for retail participants. 

Five years earlier, LedgerX solicited and 

the Commission granted an order permitting 

the firm to offer fully-collateralized 

derivatives contracts as a DCO. The 

Commission’s order, amended in September 

2020, imposed a number of important 

conditions, including requiring LedgerX to 

‘‘at all times maintain funds of its clearing 

members separate and distinct from its own 

funds.’’ 14 The conditions were necessary and 

important for the preservation of customer 

property. 

Our current regulations do not reach the 

issues addressed by the conditions in the 

LedgerX order. The Commission should 

consider regulation that closes this gap and 

ensures parallel retail customer protection for 

trading through intermediaries and nonintermediated DCOs. 

LedgerX’s obligation to comply with the 

Commission’s conditions contributed to the 

preservation of customer property after FTX 

acquired LedgerX. When FTX, filed for 

bankruptcy, LedgerX remained solvent, a 

non-debtor. The LedgerX order serves as an 

important precedent for the framework the 

Commission should consider when adopting 

parallel protections for direct clients, 

particularly retail clients, in the nonintermediated context. 

It is imperative that the Commission 

consider an equivalent application of 

Regulation § 1.25 in the context of a nonintermediated DCO’s investment of the 

property of retail customers.15

Earlier Evidence of the Need To Enhance 

Customer Protections Rules 

Long before crypto markets, however, we 

witnessed significant FCM bankruptcies 

under then-existing rules that failed to 

prevent losses to customers. Refco collapsed 

in 2005; Sentinel Management Group 

shuttered its doors in 2007; MF Global failed 

in 2012; and Peregrine Financial Group filed 

for bankruptcy protection in 2012. The 

substantial amount of customer funds 

entrusted to FCMs and the long history of 

FCM failures underscore the critical 

relationships between FCMs and customers 

as well as the FCM’s role, responsibility, and 

accountability in serving as a custodian of 

customer funds. 

Elimination of Read-Only, Electronic Access 

to Customer Accounts 

As historic and current events 

demonstrate, the Commission’s customer 

protection framework, though exceptionally 


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16 Investing customer funds in foreign sovereign 

debt is distinguishable from the investments of MF 

Global made for its own account, and the issue with 

MF Global is that funds were transferred out of the 

segregated account and used for other purposes. But 

MF Global highlights the need for strong 

enforcement of segregation requirements in times of 

unusual market conditions, such as a run. See Rena 

S. Miller, Cong. Rsch. Serv., R42091, The MF Global 

Bankruptcy, Missing Customer Funds, and 

Proposals for Reform (2013), https://sgp.fas.org/crs/ 

misc/R42091.pdf. 

17 Kristin N. Johnson, Commissioner, CFTC, 

Keynote Address at Digital Assets @Duke 

Conference, Duke’s Pratt School of Engineering and 

Duke Financial Economics Center (Jan. 26, 2023), 

https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opajohnson2. 

18Enhancing Protections Afforded Customers and 

Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506 (Nov. 14, 2013). 

19U.S. Gov’t Accountability Off., GAO–13–180, 

Financial Regulatory Reform: Financial Crisis 

Losses and Potential Impacts of the Dodd-Frank Act 

(2013), https://www.gao.gov/assets/files.gao.gov/ 

assets/gao-13-180.pdf. 

20See Rules Relating to Intermediaries of 

Commodity Interest Transactions, 65 FR 77993 

(Dec. 13, 2000); Investment of Customer Funds, 65 

FR 82270 (Dec. 28, 2000) (making technical 

corrections and accelerating the effective date of the 

final rules from February 12, 2001 to December 28, 

2000). 

21 Investment of Customer Funds and Funds Held 

in an Account for Foreign Futures and Foreign 

Options Transactions, 76 FR 78776 (Dec. 19, 2011). 

consequential and significant, does not 

guarantee against losses of customer funds. 

Following several infamous bankruptcies, the 

Commission tightened existing regulations 

including to improve oversight of FCM 

activities and verify customer funds. The 

Commission is reevaluating certain aspects of 

those regulations, which is important. But we 

should be careful not to forget the 

unprecedented events that led to the 

implementation of more stringent oversight 

of FCMs and necessitate the extension of 

strict oversight to non-intermediated DCOs. 

The Failure of MF Global and Peregrine 

MF Global, a prominent FCM and brokerdealer, is an example of a firm that unraveled 

during the financial crisis. Jon Corzine, a 

former investment banking executive and 

former Governor and Senator of New Jersey, 

adopted a proprietary trading strategy 

involving the investment in the sovereign 

debt (bonds) of certain European nations 

through repurchase-to-maturity transactions. 

MF Global structured a portfolio of 

‘‘repurchase to maturity’’ bonds, bonds that 

paid large coupon rates. Later the bonds were 

posted as ‘‘collateral for short-term 

borrowing’’ and purportedly delayed any risk 

to the firm’s balance sheet until maturity. 

A steep decline in sovereign debt markets 

triggered demands for increased margin, and 

MF Global had insufficient liquidity to 

maintain positions. In an attempt to stave off 

a ‘‘run on the bank’’ by customer 

withdrawals, creditors’ demands, efforts to 

unwind repo counterparty positions, and 

attempts to liquidate proprietary positions at 

fire sale prices, MF Global made the 

unacceptable and catastrophic decision to 

misappropriate customer funds in violation 

of the Commission’s customer segregation 

requirements.16

The failure of futures trading firm 

Peregrine also created a need for stronger 

customer protection tools. Russell Wasendorf 

Sr. was the founder and former CEO of 

Peregrine, and he was sentenced to 50 years 

in prison because he siphoned off more than 

$215 million from customers of Peregrine. 

The National Futures Association (NFA), the 

self-regulatory organization (SRO) and 

Peregrine’s auditor, was heavily criticized for 

failing to catch the shortfall in customer 

funds. 

After the collapse of MF Global and 

Peregrine Financial Group, the Commission 

supplemented the protections embedded in 

Commission regulations to enhance customer 

protections and transparency at the FCM 

level.17

Dated Efforts To Enhance Customer 

Protection 

In November 2013, the Commission 

adopted a rule that afforded greater 

assurances to market participants that 

customer funds are protected.18 The 

Commission required depositories holding 

customer funds for FCMs to provide the 

Commission with direct, read-only electronic 

access to customer fund accounts while 

acknowledging that the Commission did not 

intend to access FCM accounts on a regular 

basis but would use that information when 

necessary to obtain account balance and 

other information that staff could not obtain 

via the designated auditors, either CME 

Group Inc. (CME) or NFA. 

The Division notes that the Commission 

and depositories are experiencing significant 

operational and resource-intensive 

challenges in implementing and 

administering the provision and the CME and 

NFA have provided alternative means of 

obtaining transaction and account balance 

information. 

Although the Commission is proposing to 

remove the ‘‘direct access’’ requirement, the 

Commission should be confident that the 

private sector auditing features that exist at 

the relevant designated self-regulatory 

organization (DSRO) are considered in the 

context of non-intermediated DCOs where 

there is an absence of an FCM. 

Whether it is a traditional market structure 

or new market structure, the Commission 

needs to be comfortable that liabilities to 

customers will be satisfied. I also expect that 

the Commission and relevant DSRO would 

impose on non-intermediated market 

infrastructures the same segregation 

investment reporting obligations imposed on 

traditional infrastructures. There is a 

continuous need to revisit whether measures 

to protect customer funds are adequate. 

Consideration of Other Important Factors 

Although I support the Proposed Rule, a 

few discrete aspects of the Proposed Rule 

merit additional discussion. 

• Inclusion of Foreign Sovereign Debt as 

Permitted Investments 

The Commission plans to use the CDS 

spread to determine whether certain 

permitted foreign sovereign debt should 

qualify as ‘‘permitted investments.’’ The 

Commission needs to carefully consider the 

conditions that apply to each permitted 

foreign sovereign debt by establishing strong 

guardrails so that history does not repeat 

itself. 

On August 15, 2023, FCMs held the U.S. 

dollar equivalent of $51 billion of customer 

funds denominated in Canadian, European, 

Japanese, and UK currencies. Given the 

significant non-U.S. dollar customer 

transactions intermediated by FCMs, the 

Commission’s proposal expands the list of 

permissible investments to add the debt of 

countries that represent the largest 

economies, are members of the Group of 7, 

and a money center country—Canada, 

France, Germany, Japan, and the UK. 

De-Regulatory Decisions and the Recent 

Financial Crisis 

The recent global financial crisis is a 

cautionary tale. A series of deregulatory 

decisions created significant vulnerabilities 

in financial markets. More specifically, an 

exemption from regulation for bespoke OTC 

swaps trading in bilateral markets obscured 

excessive risk-taking and undermined the 

integrity of global markets. According to the 

U.S. Government Accountability Office, the 

2007–2009 financial crisis, which threatened 

the stability of the U.S. financial system and 

the health of the U.S. economy, may have led 

to $10 trillion in losses, including large 

declines in employment and household 

wealth, reduced tax revenues from lower 

economic activity, and lost output (value of 

goods and services).19

Traditionally, customer funds have been 

invested in U.S. treasury securities. The 

Commission amended Regulation § 1.25 in 

2000 to expand the list of investments to 

include all foreign sovereign debt, subject to 

a ratings requirement.20 Following the 2007– 

2009 global financial crisis, in December 

2011, the Commission unanimously 

approved a final rule amending Regulation 

§ 1.25 to eliminate all foreign sovereign debt 

as permitted investments in light of the 

economic crisis but remained open to the 

possibility of reintroducing specific foreign 

debt.21 The Commission tightened the 

definition of permissible investments. 

History has demonstrated that certain 

sovereign debt instruments may be risky. The 

financial crisis was closely intertwined with 

the sovereign debt crisis, which is 

characterized by the economic collapse in— 

and a deterioration in the credit quality of— 

Iceland, Portugal, Italy, Ireland, Greece, and 

Spain. It is helpful that sovereign debt from 

those countries are not proposed to be 

permitted investments. 

The Commission should reintroduce 

foreign sovereign debt as a permitted 

investment with caution and sufficient 

guardrails. The Commission is using the CDS 

spread of the sovereign issuer as a proxy for 

default risk, such that the relevant sovereign 

is disqualified if the issuer’s two-year credit 

default spread exceeds 45 basis points. The 

CDS spread is the spread on protection 

pursuant to a CDS against the default of the 

issuer of a debt instrument, and an increase 

in the spread reflects a market perception 

that the creditworthiness of the issuer has 


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22 17 CFR 1.25(b). 

1See CFTC, Transcript of December 5, 2011 Open 

Commission Meeting, https://www.cftc.gov/sites/ 

default/files/idc/groups/public/@swaps/documents/ 

dfsubmission/dfsubmission12_120511-trans.pdf. 

2See United States Attorney Southern District of 

New York, Statement Of U.S. Attorney Damian 

Williams On The Conviction Of Samuel BankmanFried, https://www.justice.gov/usao-sdny/pr/ 

statement-us-attorney-damian-williams-convictionsamuel-bankman-fried (Nov. 2, 2023). 

3See 76 FR 78776 (Dec. 19, 2011) (‘‘In issuing 

these final rules, the Commission is narrowing the 

scope of investment choices in order to eliminate 

the potential use of portfolios of instruments that 

pose an unacceptable level of risk to customer 

funds.’’). 

4 In addition to Regulation § 1.25, the proposal 

also applies to Regulation § 30.7 that governs a 

broker’s treatment of customer funds associated 

with positions in foreign futures and options. 

Additionally, the proposal applies to customer 

swaps funds (cleared swaps customer collateral) 

held by brokers and clearinghouses. See generally 

17 CFR part 22 (implementing section 4d(f) of the 

Commodity Exchange Act). 

deteriorated, implying an increased risk of 

non-payment on the debt investment. 

We must not forget that the CDS market 

came under heavy scrutiny during the 

financial crisis. Warren Buffett infamously 

called CDS ‘‘financial weapons of mass 

destruction.’’ Since the adoption of the DoddFrank Act, there has been significant 

contraction in a number of important 

segments of the CDS market. 

Given the nature of this specific marketbased metric, I encourage market 

participants, in responding to the request for 

comment, to consider whether the use of the 

CDS spread, which is dependent on a 

functioning CDS market, is (and the 

circumstances under which it would be) an 

appropriate indicator of whether a foreign 

sovereign debt is ‘‘consistent with the 

objectives of preserving principal and 

maintaining liquidity and according to the 

following specific requirements.’’ 22

• Interaction With Proposed U.S. Treasury 

Clearing Requirement 

Financial markets are closely 

interconnected and correlated. Consequently, 

we need a comprehensive and holistic 

approach to U.S. treasury obligations. The 

Securities and Exchange Commission (SEC) 

has announced a proposed rule that seeks to 

address the clearing of certain repurchase or 

reverse repurchase agreements involving U.S. 

treasury securities. 

Our registrants, FCMs and DCOs, may buy 

and sell permitted investments, including 

U.S. treasury obligations, pursuant to 

repurchase and reverse repurchase 

transactions with permitted counterparties, 

subject to certain conditions. 

Upon the finalization of the SEC proposed 

rule, the Commission may need to revisit 

Regulation § 1.25 accordingly. 

Conclusion 

For the reasons above, I support the 

adoption of the Proposed Rule. I look forward 

to the thoughtful contributions of market 

participants. 

Appendix 4—Statement of Commissioner 

Christy Goldsmith Romero 

The CFTC’s Sacrosanct Responsibility To 

Safeguard Customer Funds To Protect 

Customers and Avoid Systemic Risk 

Proposed Changes to Regulations Governing 

the Investment of Customer Funds 

The CFTC has a sacrosanct responsibility 

to safeguard customer funds held by brokers 

and clearinghouses. For our markets to work 

well, customers must have confidence that 

their funds will be safe. Safe from a broker 

or clearinghouse who misuses customer 

money for their own purposes or decides on 

their own to use customer funds to make 

risky bets chasing their own profits. 

The Importance of Customer Confidence and 

Public Confidence for Markets to Work Well 

History has shown that a loss of customer 

confidence in the safety of their funds often 

has immediate negative consequences on 

markets. Vulnerability to runs, increased 

customer redemption requests, significant 

market volatility, and rapid and steep drop 

in prices, can signal a loss of confidence. 

And given how interconnected our markets 

are, this can happen very fast, and can cause 

contagion. We saw an example earlier this 

year with Silicon Valley Bank. 

Promoting public and customer confidence 

in our markets is one of the CFTC’s most 

important regulatory responsibilities. There 

is a disconnect between regular people and 

what goes on on Wall Street and in 

Washington. That’s a message from the late 

CFTC Commissioner Bart Chilton at the open 

meeting the last time the CFTC took up this 

same regulation in 2011.1 He was speaking 

with the backdrop of MF Global’s bankruptcy 

weeks before, where there were concerns of 

misuse of customer funds. Commissioner 

Chilton said that we cannot get disconnected, 

and sometimes it’s just a matter of explaining 

what we’re doing. He said that we have to do 

the best we can to explain to people what our 

job is, what our responsibilities are, and that 

the first responsibility is to protect customer 

funds. 

Well put, and I agree. Today we meet with 

the backdrop of the conviction on all counts 

of the founder of FTX, counts that included 

misuse of customer funds.2 It’s not the same 

as MF Global. Regular people may not realize 

that those missing FTX customer funds were 

in an entity not regulated by the CFTC. But 

we have to stay connected to regular people 

who might be concerned about the safety of 

their funds in our markets. We have to 

explain how we are part of the solution to 

safeguard customer funds. This is 

particularly important because we have seen 

a rise of retail customers in our markets 

associated with trading in cryptocurrency 

and event contracts—retail customers who 

may not have the same ability as an 

institutional customer to withstand losses or 

delays if a broker or clearinghouse goes 

bankrupt. 

We have to send a message and show 

through our actions that the CFTC is doing 

all that we can to protect customer funds. 

Protecting Customer Funds by Limiting What 

They Can Be Invested In 

One way the CFTC protects customer funds 

is by limiting what they can be invested in. 

In section 4(d) of the Commodity Exchange 

Act, Congress limited investments of 

customer funds to U.S. government and other 

municipal securities, and obligations fully 

guaranteed by the U.S. 

The CFTC can make an exemption to 

section 4(d) to allow other investment types 

if they meet certain carefully designed factors 

established by Congress in section 4(c). From 

2000 to 2005, the CFTC used this exemptive 

authority to considerably loosen Regulation 

§ 1.25 to allow brokers (FCMs) and 

clearinghouses (DCOs) to invest customer 

funds in all kinds of investments. 

Then there was the financial crisis, the 

Dodd Frank Act, and the MF Global scandal. 

In 2011, the CFTC under Chairman Gary 

Gensler, eliminated exemptions for certain 

investments that could pose an unacceptable 

level of risk to customer funds.3 One 

investment type eliminated in a 5–0 vote in 

2011 was foreign sovereign debt. That 

investment type is before us again today at 

the request of the same groups (CME and 

FIA) who opposed the CFTC’s elimination of 

foreign sovereign debt as a permitted 

investment in 2011. While the Commission 

subsequently made a limited exception for 

clearinghouses in the debt of France and 

Germany in 2018, at that time, it declined to 

apply that exception to brokers as requested 

by FIA. 

We need to be very cautious about 

revisiting post-crisis CFTC reforms, 

particularly reforms that only came after 

substantial public engagement and careful 

CFTC deliberation. In good economic times 

like we are in today, we have to keep the 

lessons learned from the past in mind, while 

we look to the future. One of those lessons 

learned is that things can change quickly 

when it comes to risk. 

We have to always keep sacrosanct our 

responsibility to protect customer funds and 

avoid systemic risk. Holding customer funds 

is not intended to be a way for brokers and 

clearinghouses to maximize profits through 

investments that could prove risky. Customer 

funds must only be invested in a way that 

minimizes exposure to credit, liquidity, and 

market risk, not just now, but in the future. 

This would preserve customer funds, and 

enable investments to be quickly converted 

to cash at a predictable value, which is 

necessary to avoid systemic risk. This has to 

be one of our top priorities. 

That’s why I support prohibiting 

investments of customer funds in: (1) 

commercial paper; (2) corporate notes and 

bonds; (3) bank certificates of deposit; (4) 

adjustable rate securities that reference 

LIBOR; and (5) money market funds that are 

not government money market funds or that 

charge a liquidity fee for customer 

redemptions. I also support the concentration 

limits on money market funds to protect 

customer funds from potential risk of loss 

from a cyber-attack. 

Proposed Expansion of How Brokers and 

Clearinghouses Can Invest Customer Funds 

The proposal before us would also make 

two exemptions under section 4(d),4 allowing 

investments of customer funds in: (1) ETFs 

that invest in primarily short-term U.S. 

Treasury securities; and (2) sovereign debt of 


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5 7 U.S.C. 5(b). 

five G7 countries (Canada, France, Germany, 

Japan, and the United Kingdom) and 

expanding the list of counterparties to foreign 

banks, brokers and dealers, and central 

banks. 

Section 4(c)(2) sets a high bar for 

exemptions. The CFTC is required to show: 

1. It is in the public interest; 

2. It is consistent with the purposes of the 

Act; 

3. The agreements, contracts or 

transactions have to be between appropriate 

persons; and 

4. The exemption cannot have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory responsibilities. 

I would have liked to see more 

independent CFTC analysis of these factors 

in this proposal. 

Public Interest Factor: I am concerned 

about the proposal’s discussion of the public 

interest factor: 

The expanded selection of Permitted 

Investments is expected to also permit FCMs 

and DCOs to remain competitive globally and 

domestically and maintain safeguards against 

systemic risk. A wider range of alternatives 

to invest futures customer funds may provide 

more profitable investment options, allowing 

FCMs and DCOs to generate more income for 

themselves and their customers. This, in 

turn, may motivate FCMS and DCOs to 

increase their presence in the futures markets 

and other relevant markets, thus increasing 

competition. Increased revenue to FCMs and 

DCOs from the investment of Customer 

Funds also may benefit customers in the form 

of lower commission charges of direct 

interest payments on funds on deposit with 

the FCM or DCO, which may lead to greater 

market participation by customers and 

increased market liquidity. In light of the 

foregoing, the Commission believes that the 

adoption of the proposed amendments would 

promote responsible economic and financial 

innovation and fair competition, and would 

be consistent with the objective of Regulation 

1.25 and with the ‘‘public interest.’’ 

We should be very careful about drawing 

the dangerous conclusion that increased 

profits is a sufficient justification to satisfy 

the public interest factor. This conclusion 

could justify granting every requested 

exemption, which is surely not what 

Congress had in mind or the message that we 

should send. It is important to remember that 

broker and clearinghouse profit is not the 

goal for the CFTC, the Commodity Exchange 

Act or the public. Chasing profits could lead 

to risky investments, potentially putting 

customer funds at risk. 

We should not draw an unsupported 

conclusion that if brokers and clearinghouses 

make more profit, that the benefits will flow 

to customers, as opposed to being kept for 

those companies or their shareholders. There 

was also no independent supportive analysis 

that additional profits would increase 

competition or innovation. I would also have 

liked to see analysis on the avoidance of 

systemic risk, not just a conclusory, 

unsupported statement that this change will 

permit brokers and clearinghouses to 

‘‘maintain safeguards against systemic risk.’’ 

An independent CFTC analysis of whether 

a Commission action is in the public interest 

is the important responsibility given to us by 

Congress. The proposal discusses without 

supporting data or analysis that the proposal 

could reduce foreign currency risk and result 

in diversification of investments. However, 

those were the same considerations that were 

not persuasive to the Commission in 2011. I 

encourage public interest groups and 

customers of brokers and clearinghouses to 

let the CFTC know if they think these 

exemptions are in the public interest. Should 

we go forward in the future with a final rule, 

I would expect to see an independent and 

supported CFTC analysis. 

I would encourage the CFTC to engage in 

more data analysis, as well as more 

roundtables and requests for comment, before 

proposing rules or exemptions that revise 

post-crisis reforms. We may also be able to 

use public interest analysis conducted by 

other federal agencies. I would also 

encourage greater engagement with public 

interest groups before proposing changes to 

rules, just as we engage with industry. 

Consistent with the Purposes of the Act: 

The purposes of the Act are to deter and 

prevent price manipulation or other 

disruptions to market integrity; to ensure the 

financial integrity of all transactions and the 

avoidance of systemic risk; to protect all 

market participants from fraudulent or other 

abusive sales practices and misuses of 

customer assets; and to promote responsible 

innovation and fair competition among 

boards of trade, other markets and market 

participants.5

The proposal contains a thorough and 

independent CFTC analysis of conditions 

necessary to protect against the misuse of 

customer assets. But the proposal’s 

discussion of fair competition, responsible 

innovation, and systemic risk is conclusory, 

without supporting analysis. I encourage 

commenters and the public to let us know if 

these exemptions are consistent with the 

purposes of the Act. 

Appropriate Persons Factor: I did not see 

discussion of this important factor. The 

proposal would expand counterparties for 

foreign sovereign debt, including foreign 

brokers and dealers, with certain conditions. 

I would have liked to see an analysis of how 

this factor is met. We should not assume that 

it is met, that no analysis is needed or that 

Commissioners do not have views on 

meeting this test. I look forward to 

commenters’ views on this. Should we go 

forward in the future with a final rule, I 

would expect to see an independent 

supported CFTC analysis of this factor. 

Discharge of Regulatory Responsibilities 

Factor: The CFTC’s regulatory responsibility 

in Regulation § 1.25 is to preserve principal 

and maintain liquidity. I commend the staff 

for the depth and comprehension of this 

analysis, and appreciate the thorough 

calibration of conditions to address future 

risk with sovereign debt. I agree that 

investments in certain sovereign debt might 

be consistent with preserving principal and 

maintaining liquidity. This analysis found 

that government ETFs and sovereign debt in 

these countries appear to be similar to 

existing permitted investments. Commenters 

will tell us whether we have conducted the 

correct analysis. 

While I am supporting putting this out for 

public comment, I also believe that we 

should be very cautious in overturning postcrisis reforms. In 2011, the CFTC considered 

all of the same concerns raised before us 

today, but decided unanimously to ban 

investments in sovereign debt. The 

Commission in 2011 said that although it 

appreciated the risk of foreign currency 

exposure, not all sovereign debt, in all 

situations, is sufficiently safe. The 

Commission said then that global and 

regional crises illustrated that circumstances 

may quickly change, leaving a broker or 

clearinghouse unable to timely liquidate the 

investment, and potentially only after a 

significant mark-down. 

At that time, the CFTC said it would 

consider exemption requests. The staff 

explained that when considering such a 

request, they would ask the petitioner why 

they need the exemption and to explain why 

it is in the public interest, and analyze 

liquidity. The record shows only one request 

in 12 years. In 2018, after notice and 

receiving only supporting comments, the 

Commission approved a limited exemption 

for clearinghouses to invest customer funds 

in the sovereign debt of France and Germany, 

finding comparable credit, liquidity and 

volatility characteristics to U.S. Government 

securities. 

In the proposal before us, the staff’s 

analysis reflects that the debt of these 

countries is similar to current permitted 

investments, but may be less liquid than U.S. 

government securities. The proposal asks 

whether these investments would raise any 

liquidity or other concerns. I am interested in 

commenters’ views on this and on whether 

the expansion of counterparties will expose 

customers to unacceptable levels of risk. 

Given that we know that circumstances can 

change very quickly, I often say that we 

should expect the unexpected. One 

alternative would be to leave in place the 

current process of considering any exemptive 

request, rather than change the rule, 

particularly if there are concerns over 

liquidity or counterparties. This should not 

be unduly burdensome given there was only 

one request in 12 years. The Commission 

could consider the conditions at that time, 

the reason for the request, the public interest, 

and liquidity. The flexibility to conduct this 

type of analysis at the specific time of the 

request, and after notice and comment, 

would be more targeted to avoid systemic 

risk. And should circumstances change 

quickly, an exemptive order could be much 

easier and faster to revisit than a rule. I look 

forward to commenters’ views on this 

alternative compared to rewriting the rule. 

Finally, I would urge CFTC staff to look for 

other safeguards for customer funds in other 

Commission rules. Additional safeguards 

would allow us to fulfill our sacrosanct 

responsibility to protect customer funds, and 

promote public confidence. 

Appendix 5—Statement of Support of 

Commissioner Caroline D. Pham 

I support the Notice of Proposed 

Rulemaking on Investment of Customer 


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1 Investment of Customer Funds and Funds Held 

in an Account for Foreign Futures and Foreign 

Options Transactions, 76 FR 78776 (Dec. 19, 2011). 

2See, 17 CFR 1.20 (segregation framework for 

futures customer funds); 17 CFR 22.2 and 22.3 

(segregation framework for cleared swaps customer 

collateral); and 17 CFR 30.7 (segregation framework 

for 30.7 customer funds). 

3 7 U.S.C. 6d(a)(2). 

4 7 U.S.C. 6d(b). 

5 17 CFR 1.20 through 17 CFR 1.30, 17 CFR 1.32, 

and 17 CFR 1.49. 

6 7 U.S.C. 6d(f)(2)(A). 

7 17 CFR 22.2 through 17 CFR 22.13, 17 CFR 

22.15 through 17 CFR 22.17. 

8 7 U.S.C. 6(b)(2)(A). 

9 17 CFR 30.7. 

10 7 U.S.C. 6d(a)(2). 

11See Title 17—Commodity and Securities 

Exchanges, 33 FR 14454 (Sept. 26, 1968). 

12 17 CFR 1.25(a)(1). 

13See 17 CFR 22.2(e)(1) and 17 CFR 22.3(d). 

14 17 CFR 1.25(b)(2)(iv)(A)(1). 

15 17 CFR 1.25(b)(2)(iv)(A)(2). 

16See CFTC Staff Letter No. 21–26, Revised NoAction Positions to Facilitate an Orderly Transition 

of Swaps from Inter-Bank Offered Rates to 

Alternative Benchmarks (Dec. 20, 2021). 

17ARRC, ‘‘The ARRC Selects a Broad Repo Rate 

as its Preferred Alternative Reference Rate,’’ June 

22, 2017, available at https://www.newyorkfed.org/ 

medialibrary/microsites/arrc/files/2017/ARRCpress-release-Jun-22-2017.pdf. 

18See CFTC Staff Letter No. 22–21, CFTC 

Regulation 1.25—Investment of Customer Funds in 

Securities with an Adjustable Rate of Interest 

Benchmarked to [SOFR]—Extension of TimeLimited No-Action Position Concerning 

Investments by [FCMs] and No-Action Position 

Concerning Investments by [DCOs], Dec. 23, 2022. 

19See id. 

Funds by Futures Commission Merchants 

and Derivatives Clearing Organizations 

(Proposed Amendments to Regulation § 1.25 

or NPRM) because, importantly, it provides 

regulatory clarity by codifying outstanding 

no-action relief, and promotes good 

government by providing a timely response 

to a petition from market participants. I 

would like to thank Tom Smith, Warren 

Gorlick, Liliya Bozhanova, and Jeff Burns for 

their work on the NPRM. 

Regulatory clarity has a number of key 

aspects: transparency, simplicity, and 

significantly, unambiguity. In turn, 

regulatory clarity promotes compliance, 

market integrity, and confidence. As 

regulators, in everything we do, we must 

remember that regulatory clarity enables 

businesses to effectively comply with our 

regulations, thereby reducing the likelihood 

of non-compliance issues. It’s why I have 

made regulatory clarity a guiding principle of 

my commissionership. 

Good government has a number of key 

aspects that overlap with those of regulatory 

clarity: transparency and simplicity, for 

instance. However, responsiveness is an 

aspect unique to good government. In serving 

the public, we must be mindful that we are 

here to be responsive to the concerns and 

needs of our constituents—in our case, 

market participants. Good government, in 

turn, promotes economic growth and 

progress. It’s why I have made good 

government something I am always striving 

to encourage as Commissioner. 

Background 

Regulation § 1.25 is the primary CFTC rule 

setting forth safeguards for the investment of 

customer funds held by futures commission 

merchants (FCMs) and derivatives clearing 

organizations (DCOs). As the Commission 

has said in the past, customer segregated 

funds must be invested in a manner that 

minimizes their exposure to credit, liquidity, 

and market risks, both to preserve their 

availability to customers and DCOs and to 

enable investments to be quickly converted 

to cash at a predictable value to avoid 

systemic risk.1 These safeguards are vital in 

maintaining confidence in our markets. 

The requirement for a FCM or DCO to treat 

customer funds as belonging to the 

customers, and for the FCM or DCO to 

segregate customer funds from its own funds, 

is a critical component of this framework. 

The Commodity Exchange Act (CEA) and 

CFTC regulations provide three regulatory 

frameworks based on the market in which 

customers are transacting: (i) futures 

customer funds; (ii) cleared swaps customer 

collateral; or (iii) 30.7 customer funds.2

CEA section 4d(a)(2) covers futures 

customer funds, setting forth the framework 

for requiring FCMs to treat futures customer 

funds as belonging to the futures customer.3

CEA section 4d(b) addresses the duties 

imposed on DCOs and other depositories 

receiving futures customer funds from FCMs 

pursuant to section 4d(a)(2).4 Regulations 

§§ 1.20 through 1.30, and Regulations §§ 1.32 

and 1.49 implement sections 4d(a)(2) and 

4d(b).5

CEA section 4d(f)(2)(A) covers cleared 

swaps customer collateral, setting forth a 

framework for requiring FCMs to treat 

cleared swaps customer collateral as 

belonging to the cleared swaps customer.6

Regulations §§ 22.2 through 22.13, and 

Regulations §§ 22.15 through 22.17, 

implement CEA section 4d(f).7 And CEA 

section 4(b)(2)(A) covers 30.7 customer 

funds, setting forth a framework for requiring 

FCMs to safeguard 30.7 customer funds 

deposited by 30.7 customers for trading on 

foreign boards of trade (FBOTs).8 Regulation 

§ 30.7 implements CEA section 4(b)(2)(A).9

A cornerstone of these frameworks is the 

ability of FCMs and DCOs to invest customer 

funds. CEA section 4d(a)(2) authorizes FCMs 

to invest futures customer funds in: (i) 

obligations of the U.S.; (ii) obligations fully 

guaranteed as to principal and interest by the 

U.S.; and (iii) general obligations of any State 

or of any political subdivision of a State.10

Regulation § 1.25 was initially adopted to 

implement section 4d(a)(2), and authorized 

FCMs and DCOs to invest futures customer 

funds in the instruments set forth in section 

4d(a)(2) of the Act (the Permitted 

Investments).11

Over time, the Commission has changed 

the Permitted Investments: in 2000, for 

instance, expanding the list to include 

certificates of deposit, commercial paper, 

corporate notes, foreign sovereign debt, and 

interests in money market funds. Currently, 

Regulation § 1.25 lists seven categories of 

investments that qualify as Permitted 

Investments.12 In addition, the Commission 

extended Regulation § 1.25 to apply to an 

FCM’s investment of 30.7 customer funds for 

trading foreign futures positions, and to 

FCMs and DCOs investing cleared swaps 

customer collateral.13

When looking at Regulation § 1.25, the 

Commission always has to balance the need 

to safeguard customer funds, against 

retaining an appropriate degree of flexibility 

for FCMs and DCOs to invest funds and 

attain capital efficiency. I believe the 

Proposed Amendments to Regulation § 1.25 

continue to strike the right balance, though 

I encourage commenters to comment on that 

facet. 

How the Commission Does, and Should 

Continue to, Promote Regulatory Clarity and 

Good Government 

I would like to highlight two aspects of the 

Proposed Amendments to Regulation § 1.25 

that provide examples of regulatory clarity 

and good government. 

The NPRM endeavors to promote 

regulatory clarity by codifying outstanding 

CFTC staff no-action relief, proposing to 

replace LIBOR with SOFR as a permitted 

benchmark for adjustable rate securities. 

Regulation § 1.25(b)(2)(iv)(A) provides that 

permitted investments may contain variable 

or floating rates of interest provided, among 

other things, that: (i) the interest payments on 

variable rate securities correlate closely, and 

on an unleveraged basis, to a benchmark of 

either the Federal Funds target or effective 

rate, the prime rate, the three-month Treasury 

Bill rate, the one-month or three-month 

LIBOR, or the interest rate of any fixed rate 

instrument that is a listed permitted 

investment under Regulation § 1.25(a); 14 and 

(ii) the interest rate, in any period, on floating 

rate securities is determined solely by 

reference, on an unleveraged basis, to a 

benchmark of either the Federal Funds target 

or effective rate, the prime rate, the threemonth Treasury Bill rate, the one-month or 

three-month LIBOR, or the interest rate of 

any fixed rate instrument that is a listed 

permitted investment under Regulation 

§ 1.25(a).15

As we all know, it was announced in 

March 2021 that LIBOR would cease to be 

published and would effectively be 

discontinued.16 In response to the 

Alternative Reference Rate Committee 

(ARRC) identifying SOFR as the preferred 

alternative benchmark to USD LIBOR for 

certain new USD derivatives and financial 

contracts,17 CFTC staff issued Staff Letter 21– 

02 in January 2021,18 permitting FCMs to 

invest customer funds in permitted 

investments that contain adjustable rates of 

interest benchmarked to SOFR. A later CFTC 

Staff letter 22–21 extended the effective date 

of the no-action position to December 31, 

2024, and expanded the scope of the noaction position to include permitted 

investments made by DCOs.19

Given the discontinuation of LIBOR and 

the increasing use of SOFR, the Commission 

is proposing to amend Regulation 

§ 1.25(b)(2)(iv)(A) by replacing LIBOR with 

SOFR as a permitted benchmark for 


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81292 Federal Register / Vol. 88, No. 223 / Tuesday, November 21, 2023 / Proposed Rules 

20See Statement of Commissioner Caroline D. 

Pham on Conditional Order of SEF Registration 

(July 20, 2022). 

21See e.g., Statement of Commissioner Caroline 

D. Pham on Staff Letter Regarding ADM Investor 

Services, Inc. (June 16, 2023). 

22Petition for Order under Section 4(c) of the 

Commodity Exchange Act, dated May 24, 2023 (the 

Joint Petition). The Joint Petition and a Supplement 

are available on the Commission’s website. 23 Joint Petition at p. 4. 24 Joint Petition at p. 5. 

25 Joint Petition at pp. 8–9. 

26 Id. 

permitted investments that contain an 

adjustable rate of interest. To give effect to 

this revision, paragraphs (b)(2)(iv)(A)(1) and 

(2) of Regulation § 1.25 would be amended to 

replace the phrase ‘‘one-month or threemonth LIBOR rate’’ with the phrase ‘‘SOFR 

rate.’’ 

This is important to me for three reasons. 

First, I have been vocal that the Commission 

must not get stuck in a never-loop of 

extending staff no-action relief.20 To be sure, 

no-action relief has its place in our regulatory 

framework.21 But the Commission should 

seek to find pragmatic solutions to fixing 

unworkable rules. 

Second, I appreciate the Commission is 

taking action in advance of the relief 

expiration date of December 2024. Firms 

expend considerable resources to come into 

compliance with our requirements. To the 

extent our requirements are changing (e.g., 

staff no-action relief is expiring), waiting on 

the part of the Commission only 

unnecessarily increases the risks and costs to 

firms for implementation. 

And third, I am pleased the NPRM does 

not propose to impose any additional 

conditions beyond the relief contained in 

CFTC staff letter 22–21. Conditions may have 

their place, but the Commission needs to 

avoid a ‘‘kitchen sink’’ approach when 

applying them. 

All of this comes together to provide an 

example of what regulatory clarity needs to 

entail. Extraneous changes, unworkable 

conditions, and waiting too long to act all 

inhibit regulatory clarity by introducing 

ambiguity, unnecessary burdens, and wasted 

time. 

The NPRM also endeavors to promote good 

government by providing a timely, thorough 

response to a petition submitted by market 

participants. 

The Futures Industry Association (FIA) 

and CME Group Inc. (CME) submitted a joint 

petition requesting the Commission to 

expand investments that FCMs and DCOs 

may enter into with Customer Funds.22 The 

Petitioners requested that the Commission 

permit FCMs and DCOs to invest Customer 

Funds in the foreign sovereign debt of 

Canada, France, Germany, Japan, and the 

United Kingdom, subject to the condition 

that the investment in the foreign sovereign 

debt is limited to balances owed by FCMs 

and DCOs to customers and FCM clearing 

firms, respectively, denominated in the 

applicable currency of Canada, France, 

Germany, Japan, or the United Kingdom.23

The Petitioners further request that the 

Commission exempt FCMs and DCOs from 

the provisions of Regulation § 1.25(d)(2) to 

authorize FCMs and DCOs to enter into 

Repurchase Transactions involving Specified 

Foreign Sovereign Debt with foreign banks 

and foreign securities brokers or dealers and 

to hold Specified Foreign Sovereign Debt in 

safekeeping accounts at foreign banks.24

The Petitioners further request that FCMs 

and DCOs be permitted to invest Customer 

Funds in certain ETFs that invest primarily 

in short-term U.S. Treasury securities (U.S. 

Treasury ETFs),25 because U.S. Treasury 

ETFs have characteristics that may be 

consistent with those of other Permitted 

Investments and may provide FCMs and 

DCOs with an opportunity to diversify 

further their investments of customer 

funds.26

This is important to me for two reasons. 

First, the Commission is providing a timely 

response to the petition. Not only does every 

market participant deserve a response to a 

request to the Commission, but they deserve 

a response in a reasonable amount of time. 

Second, the NPRM does not propose 

additional conditions beyond what was 

requested in the Joint Petition. Instead, and 

admirably, the Commission requests 

comment where it is unsure about 

conditions, after a careful and thorough 

analysis of its proposed actions. 

In conclusion, I am pleased to support the 

NPRM because multiple aspects set an 

example for how the Commission can 

promote regulatory clarity and good 

government in all areas of its regulation and 

oversight. Thank you again to the staff for 

their hard work, and I look forward to the 

comments on the Proposed Amendments to 

Regulation § 1.25. 

[FR Doc. 2023–24774 Filed 11–20–23; 8:45 am] 

BILLING CODE 6351–01–P 


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