15312 Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 

1For purposes of completeness and explanation 

of the basis for this Second Proposal, the 

Commission restates its explanation of its customer 

funds protection regulations, as stated in the First 

Proposal. See Derivatives Clearing Organization 

Risk Management Regulations to Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants, 88 FR 22934, 22935–22936 

(Apr. 14, 2023) (First Proposal). 

2Section 3(b) of the CEA, 7 U.S.C. 5(b). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 22, 30, and 39 

RIN 3038–AF21 

Regulations To Address Margin 

Adequacy and To Account for the 

Treatment of Separate Accounts by 

Futures Commission Merchants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking; 

withdrawal. 

SUMMARY: On April 14, 2023, the 

Commodity Futures Trading 

Commission (Commission or CFTC) 

published a notice of proposed 

rulemaking (First Proposal) that 

proposed to amend the derivatives 

clearing organization (DCO) risk 

management regulations adopted under 

the Commodity Exchange Act (CEA) to 

permit futures commission merchants 

(FCMs) that are clearing members of 

DCOs (clearing FCMs), subject to 

specified requirements, to treat separate 

accounts of a single customer as 

accounts of separate legal entities for 

purposes of certain Commission 

regulations. In light of comments 

received supporting direct application 

of separate account treatment 

requirements to FCMs in the 

Commission’s regulations, the 

Commission has determined to 

withdraw the First Proposal. The 

Commission now proposes regulations 

to require an FCM to ensure that a 

customer does not withdraw funds from 

its account with the FCM if the balance 

in such account after such withdrawal 

would be insufficient to meet the 

customer’s initial margin requirements, 

and relatedly, to permit an FCM, in 

certain circumstances and subject to 

certain conditions, to treat the separate 

accounts of a single customer as 

accounts of separate entities for 

purposes of certain Commission 

regulations (Second Proposal). The 

proposed amendments would establish 

the conditions under which an FCM 

may engage in such separate account 

treatment. 

DATES: Comments must be received on 

or before April 22, 2024. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AF21, 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 

Centre, 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, 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. The 

Commission reserves the right, but shall 

have no obligation, to review, prescreen, 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 proposed 

determination and order 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: 

Robert B. Wasserman, Chief Counsel, 

202–418–5092, rwasserman@cftc.gov; 

Daniel O’Connell, Special Counsel, 202– 

418–5583, doconnell@cftc.gov, Division 

of Clearing and Risk; Thomas Smith, 

Deputy Director, 202–418–5495, 

tsmith@cftc.gov; Joshua Beale, Associate 

Director, 202–418–5446, jbeale@

cftc.gov; Jennifer Bauer, Special 

Counsel, 202–418–5472, jbauer@

cftc.gov, Market Participants Division, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. The Commission’s Customer Funds 

Protection Regulations 

B. The Divisions’ No-Action Position 

C. The Commission’s First Proposal and 

It’s Withdrawal 

D. The Commission’s Second Proposal 

II. Proposed Regulations 

A. Proposed Amendments to Regulation 

§ 1.3 

B. Proposed Amendments to Regulation 

§ 1.17 

C. Proposed Amendments to Regulations 

§§ 1.20, 1.32, 22.2, and 30.7 

D. Proposed Regulation § 1.44(a) 

E. Proposed Regulation § 1.44(b) 

F. Proposed Regulation § 1.44(c) 

G. Proposed Regulation § 1.44(d) 

H. Proposed Regulation § 1.44(e) 

I. Proposed Regulation § 1.44(f) 

J. Proposed Regulation § 1.44(g) 

K. Proposed Regulation § 1.44(h) 

L. Proposed Appendix A to Part 1 

M. Proposed Amendments to Regulation 

§ 1.58 

N. Proposed Amendments to Regulation 

§ 1.73 

O. Proposed Amendments to Regulation 

§ 30.2 

P. Proposed Amendments to Regulation 

§ 39.13(g)(8) 

III. Cost Benefit Considerations 

A. Introduction 

B. Consideration of the Costs and Benefits 

of the Commission’s Action 

C. Costs and Benefits of the Commission’s 

Action as Compared to Alternatives 

D. Section 15(a) Factors 

IV. Related Matters 

A. Antitrust Considerations 

B. Regulatory Flexibility Act 

C. Paperwork Reduction Act 

I. Background 

A. The Commission’s Customer Funds 

Protection Regulations 1

Two of the fundamental purposes of 

the CEA are the avoidance of systemic 

risk and the protection of market 

participants from misuses of customer 

assets.2 The Commission has 

promulgated a number of regulations in 

furtherance of those objectives, 

including regulations designed to 

ensure that FCMs appropriately margin 

customer accounts, and are not induced 

to cover one customer’s margin shortfall 

with another customer’s funds. In 

addition to protecting customer assets, 

the current regulations serve the 

purpose of avoidance of systemic risk by 

mitigating the risk that a customer 

default in its obligations to a clearing 

FCM results in the clearing FCM in turn 

defaulting on its obligations to a DCO, 

which could adversely affect the 

stability of the broader financial system. 

Section 4d(a)(2) of the CEA and 

Commission regulation § 1.20(a) require 

an FCM to separately account for and 

segregate from its own funds all money, 

securities, and property which it has 


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Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 15313 

3 7 U.S.C. 6d(a)(2); 17 CFR 1.20(a). 

4 7 U.S.C. 6d(a)(2); 17 CFR 1.22(a). 

5Prohibition of Guarantees Against Loss, 46 FR 

11668, 11669 (Feb. 10, 1981). 

6 7 U.S.C. 6d(a)(2); 17 CFR 1.20; 17 CFR 1.22; 

Prohibition of Guarantees Against Loss, 46 FR at 

11669. 

7 7 U.S.C. 7a–1(b). 

8 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Public Law 111–203, 124 Stat. 1376 

(2010). 

9Section 5b(c)(2)(D) of the CEA, 7 U.S.C. 7a– 

1(c)(2)(D); Derivatives Clearing Organization 

General Provisions and Core Principles, 76 FR 

69334, 69335 (Nov. 8, 2011). 

10 17 CFR 39.13(g)(8)(iii). 11For purposes of this proposed rulemaking, the 

Commission uses the term ‘‘Margin Adequacy 

Requirement’’ to refer to this requirement, which 

applies indirectly to clearing FCMs via the 

operation of DCO rules, and the analogous 

requirement set forth in proposed regulation 

§ 1.44(b) which would apply directly to all FCMs. 12Section 3(b) of the CEA, 7 U.S.C. 5(b). 13 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR at 69379. 14 JAC Margins Handbook, available at http://

www.jacfutures.com/jac/MarginHandBook

Word.aspx. 15 Joint Audit Committee, JAC Members, available 

at http://www.jacfutures.com/jac/Members.aspx. 

Self-regulatory organizations, such as commodity 

exchanges and registered futures associations (e.g., 

NFA), enforce minimum financial and reporting 

requirements, among other responsibilities, for their 

members. See Commission regulation § 1.3, 17 CFR 

1.3. Pursuant to Commission regulation § 1.52(d), 

when an FCM is a member of more than one selfregulatory organization, the self-regulatory 

organizations may decide among themselves which 

of them will assume primary responsibility for 

these regulatory duties and, upon approval of such 

a plan by the Commission, the self-regulatory 

organization assuming such primary responsibility 

will be appointed the designated self-regulatory 

organization for the FCM. 17 CFR 1.52(d). 

16 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR at 69379. 

17 Id. 

18The term ‘‘foreign futures’’ means any contract 

for the purchase or sale of any commodity for future 

delivery made, or to be made, on or subject to the 

rules of any foreign board of trade. 17 CFR 30.1(a). 

The term ‘‘foreign option’’ means any transaction or 

agreement which is or is held out to be of the 

character of, or is commonly known to the trade as, 

an ‘‘option’’, ‘‘privilege’’, ‘‘indemnity’’, ‘‘bid’’, 

‘‘offer’’, ‘‘put’’, ‘‘call’’, ‘‘advance guaranty’’ or 

‘‘decline guaranty’’, made or to be made on or 

subject to the rules of any foreign board of trade. 

17 CFR 30.1(b). 

19For purposes of completeness and explanation 

of the basis for this Second Proposal, the 

Commission restates its explanation of the noaction position contained in CFTC Letter No. 19– 

17, as stated in the First Proposal. See First 

Proposal, 88 FR 22936–22937. 

20CFTC Letter No. 19–17, July 10, 2019, available 

at https://www.cftc.gov/csl/19-17/download as 

extended by CFTC Letter No. 20–28, Sept. 15, 2020, 

available at https://www.cftc.gov/csl/20-28/ 

download; CFTC Letter No. 21–29, Dec. 21, 2021, 

available at https://www.cftc.gov/csl/21-29/ 

download; and CFTC Letter No. 22–11, Sept. 15, 

2022, available at https://www.cftc.gov/csl/22-11/ 

download; CFTC Letter No. 23–13, Sept. 11, 2023, 

available at https://www.cftc.gov/csl/23-13/ 

download. 

received to margin, guarantee, or secure 

the trades or contracts of its commodity 

customers.3 Additionally, section 

4d(a)(2) of the CEA and Commission 

regulation § 1.22(a) prohibit an FCM 

from using the money, securities, or 

property of one customer to margin or 

settle the trades or contracts of another 

customer.4 This requirement is designed 

to prevent disparate treatment of 

customers by an FCM and mitigate the 

risk that there will be insufficient funds 

in segregation to pay all customer 

claims if the FCM becomes insolvent.5

Section 4d(a)(2) of the CEA and 

regulations §§ 1.20 and 1.22 effectively 

require an FCM to add its own funds 

into segregation in an amount equal to 

the sum of all customer undermargined 

amounts, including customer account 

deficits, to prevent the FCM from being 

induced to use one customer’s funds to 

margin or carry another customer’s 

trades or contracts.6

Section 5b of the CEA,7 as amended 

by the Dodd-Frank Wall Street Reform 

and Consumer Protection Act of 2010,8

sets forth eighteen core principles with 

which DCOs must comply to register 

and maintain registration as DCOs with 

the Commission. In 2011, the 

Commission adopted regulations for 

DCOs to implement Core Principle D, 

which concerns risk management.9

These regulations include a number of 

provisions that require a DCO to in turn 

require that its clearing members take 

certain steps to support their own risk 

management in order to mitigate the risk 

that such clearing members pose to the 

DCO. 

Specifically, Commission regulation 

§ 39.13(g)(8)(iii) provides that a DCO 

shall require an FCM clearing member 

to ensure that a customer does not 

withdraw funds from its account with 

such clearing member unless the net 

liquidating value plus the margin 

deposits remaining in the customer’s 

account after the withdrawal would be 

sufficient to meet the customer initial 

margin requirements with respect to the 

products or portfolios in the customer’s 

account, which are cleared by the 

DCO.10 Regulation § 39.13(g)(8)(iii) thus 

establishes a ‘‘Margin Adequacy 

Requirement,’’ designed to mitigate the 

risk that an FCM clearing member fails 

to hold, from a customer, funds 

sufficient to cover the required initial 

margin for the customer’s cleared 

positions.11 In light of the use of 

omnibus margin accounts, where the 

funds of multiple customers are held 

together, this safeguard is necessary to 

‘‘avoid the misuse of customer funds’’ 12

by mitigating the likelihood that the 

clearing member will effectively cover 

one customer’s margin shortfall using 

another customer’s funds. 

In adopting the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii), the Commission 

stated 13 that the regulation was 

consistent with the definition of 

‘‘Margin Funds Available for 

Disbursement’’ in the Margins 

Handbook 14 prepared by the Joint Audit 

Committee (JAC), a representative 

committee of U.S. futures exchanges 

and the National Futures Association 

(NFA).15 The Commission noted that 

while designated self-regulatory 

organizations (DSROs) reviewed FCMs 

to determine whether they appropriately 

prohibited their customers from 

withdrawing funds from their futures 

accounts, it was unclear to what extent 

that requirement applied to cleared 

swap accounts when such swaps were 

executed on a designated contract 

market (DCM) that participated in the 

JAC.16 The Commission also noted that 

clearing members that cleared only 

swaps that were executed on a swap 

execution facility were not subject to the 

requirements of the JAC Margins 

Handbook or review by a DSRO.17

Thus, regulation § 39.13(g)(8)(iii) was 

also designed to apply these risk 

mitigation and customer protection 

standards to futures and swap positions 

carried in customer accounts by clearing 

FCMs. However, Commission 

regulations do not apply a Margin 

Adequacy Requirement to non-clearing 

FCMs, and regulation § 39.13(g)(8)(iii) 

does not require DCOs to apply that 

requirement to the positions carried by 

a clearing FCM that are not cleared at a 

registered DCO (e.g., most foreign 

futures and foreign option positions).18

B. The Divisions’ No-Action Position 19

On July 10, 2019, the Division of 

Swap Dealer and Intermediary 

Oversight (DSIO) (now Market 

Participants Division (MPD)) and the 

Division of Clearing and Risk (DCR) 

(collectively, the Divisions) published 

CFTC Letter No. 19–17, which, among 

other things, provides guidance with 

respect to the processing of margin 

withdrawals under regulation 

§ 39.13(g)(8)(iii) and announced a 

conditional and time-limited no-action 

position for certain such withdrawals.20

The advisory followed discussions with 

and written representations from the 

Asset Management Group of the 

Securities Industry and Financial 

Markets Association (SIFMA–AMG), the 

Chicago Mercantile Exchange (CME), 

the Futures Industry Association (FIA), 

the JAC, and several FCMs, regarding 

practices among FCMs and their 

customers related to the handling of 

separate accounts of the same 


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21SIFMA–AMG letter dated June 7, 2019 to Brian 

A. Bussey and Matthew B. Kulkin (SIFMA–AMG 

Letter); CME letter dated June 14, 2019 to Brian A. 

Bussey and Matthew B. Kulkin (CME Letter); and 

FIA letter dated June 26, 2019 to Brian A. Bussey 

and Matthew B. Kulkin (First FIA Letter). 22The Commission notes that while CME 

disagreed with certain aspects of FIA’s letter that 

fall beyond the scope of this rulemaking, CME’s 

letter noted that CME was ‘‘amenable to the 

Commission amending Rule 39.13(g)(8)(iii) to allow 

a DCO to permit a[n] FCM to release excess funds 

from a customer’s separate account notwithstanding 

an outstanding margin call in another account of 

the same customer provided that certain specified 

risk-mitigating conditions . . . are satisfied.’’ CME 

Letter. 

23 JAC, Regulatory Alert #19–02, May 14, 2019, 

available at http://www.jacfutures.com/jac/ 

jacupdates/2019/jac1902.pdf. 

24SIFMA–AMG Letter; First FIA Letter. 

25First FIA Letter. 

26See id. 27 Id. 28Cf. id. 29SIFMA–AMG Letter; First FIA Letter. 30SIFMA–AMG Letter; First FIA Letter. 

31SIFMA–AMG Letter; First FIA Letter; CME 

Letter. 

32SIFMA–AMG Letter. 

33 Id. 

34 Id. 

35 Id. 

36CME Letter. 

37 Id. 

38FIA specifically noted that such a no-action 

position could be conditioned on the FCM 

maintaining certain internal controls and 

procedures. 

39SIFMA–AMG Letter; First FIA Letter; see also 

CME Letter. 

40CFTC Letter No. 19–17. 

customer.21 CFTC Letter No. 19–17 used 

the term ‘‘beneficial owner’’ 

synonymously with the term 

‘‘customer,’’ as ‘‘beneficial owner’’ was, 

in this context, commonly used to refer 

to the customer that is financially 

responsible for an account. 

Additionally, as discussed further 

below, in the customer relationship 

context, FCMs often deal directly with 

a commodity trading advisor acting as 

an agent of the customer rather than the 

customer itself. For the avoidance of 

confusion (e.g., with regard to the terms 

‘‘owner’’ or ‘‘ownership,’’ as those terms 

are used in Forms 40 and 102, or parts 

17–20, or with regard to the term 

‘‘beneficial owner,’’ as that term may be 

used by other agencies), this proposed 

rulemaking uses only the term 

‘‘customer,’’ except where directly 

quoting or paraphrasing a source that 

uses ‘‘beneficial owner.’’ 

The written representations preceding 

the issuance of CFTC Letter No. 19–17 

included letters filed separately by 

SIFMA–AMG, CME, and FIA 

(collectively, the ‘‘Industry Letters’’).22

Citing regulation § 39.13(g)(8)(iii)’s 

requirements related to the withdrawal 

of customer initial margin, and JAC 

Regulatory Alert #19–02 reminding 

FCMs of those requirements,23 SIFMA– 

AMG and FIA explained that provisions 

in certain FCM customer agreements 

provide that certain accounts carried by 

the FCM that have the same customer 

are treated as accounts for different legal 

entities (i.e., ‘‘separate accounts’’).24

As FIA explained, there are a variety 

of reasons why a customer may want 

separate treatment for its accounts 

under such an agreement.25 For 

instance, an institutional customer, such 

as an investment or pension fund, may 

allocate assets to investment managers 

under investment management 

agreements that require each investment 

manager to invest a specified portion of 

the customer’s assets under 

management in accordance with an 

agreed trading strategy, independent of 

the trading that may be undertaken for 

the customer by the same or other 

investment managers acting on behalf of 

other accounts of the customer.26 In 

such a situation, an investment manager 

may, in order to implement its trading 

strategy effectively, want assurance that 

the portion of funds it has been 

allocated to manage is entirely available 

to the investment manager, and will not 

be affected by the activities of other 

investment managers who manage other 

portions of the customer’s assets and 

maintain separate accounts at the same 

FCM. Additionally, a commercial 

enterprise may establish separate 

agreements to leverage specific broker 

expertise on products or to diversify risk 

management strategies.27 In such cases, 

each separate account may be subject to 

a separate customer agreement, which 

the FCM negotiates directly with, in 

many cases, the customer’s agent, which 

often will be an investment manager.28

SIFMA–AMG and FIA asserted that, 

subject to appropriate FCM internal 

controls and procedures, separate 

accounts should be treated as separate 

legal entities for purposes of regulation 

§ 39.13(g)(8)(iii); i.e., separate accounts 

should not be combined when 

determining an account’s margin funds 

available for disbursement.29 SIFMA– 

AMG and FIA maintained that such 

separate account treatment should not 

be expected to expose an FCM to any 

greater regulatory or financial risk, and 

asserted that an FCM’s internal controls 

and procedures could be designed to 

assure that the FCM does not undertake 

any additional risk as to the separate 

account.30 The Industry Letters 

included a number of examples of such 

controls and procedures.31

In its letter, SIFMA–AMG suggested 

that it would be possible to allow for 

separate account treatment without 

undermining the risk mitigation and 

customer protection goals of regulation 

§ 39.13(g)(8)(iii).32 SIFMA–AMG 

recognized that there may be some 

instances, such as a customer default, in 

which separate account treatment 

would no longer be appropriate.33

SIFMA–AMG stated that an FCM could 

agree to first satisfy any amounts owed 

from agreed assets related to a separate 

account, and continue to release funds 

until the FCM provided the separate 

account with a notice of an event of 

default under the applicable clearing 

account agreement, and determined that 

it is no longer prudent to continue to 

separately margin the separate accounts, 

provided that such actions are 

consistent with the FCM’s written 

internal controls and procedures.34

SIFMA–AMG further stated that, in 

such instance, the FCM would retain the 

ability to ultimately look to funds in 

other accounts of the customer, 

including accounts under different 

control, and the right to call the 

customer for funds.35 CME similarly 

asserted that disbursements on a 

separate account basis should not be 

permitted in certain circumstances, 

such as financial distress, that fall 

outside the ‘‘ordinary course of 

business.’’ 36 While CME asserted that 

the plain language of regulation 

§ 39.13(g)(8)(iii) unambiguously forbids 

disbursements on a separate account 

basis, CME noted that it would be 

amenable to the Commission amending 

the regulation to permit such 

disbursements, subject to certain such 

risk-mitigating conditions.37

SIFMA–AMG and FIA requested that 

DCR confirm that it would not 

recommend that the Commission 

initiate an enforcement action against a 

DCO that permits its clearing FCMs to 

treat certain separate accounts of a 

customer as accounts of separate entities 

for purposes of regulation 

§ 39.13(g)(8)(iii),38 and confirm that a 

clearing FCM may release excess funds 

from a separate customer account 

notwithstanding an outstanding margin 

call in another account of the same 

customer.39

In CFTC Letter No. 19–17, DCR stated 

that, in the context of separate accounts, 

the risk management goals of regulation 

§ 39.13(g)(8)(iii) may effectively be 

addressed if a clearing FCM carrying a 

customer with separate accounts meets 

certain conditions, which were derived 

from the Industry Letters and specified 

in CFTC Letter No. 19–17.40 DCR stated 

that it would not recommend that the 

Commission take enforcement action 

against a DCO if the DCO permits its 

clearing FCMs to treat certain separate 

accounts as accounts of separate entities 


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41 Id. 

42 Id. 

43CFTC Letter No. 20–28. 

44 Id. 

45CFTC Letter No. 21–29. 

46CFTC Letter No. 22–11. 

47The Commission notes that this Second 

Proposal amends § 39.13(g) to refer to proposed 

regulation § 1.44. 

48First Proposal. 

49 Derivatives Clearing Organization Risk 

Management Regulations to Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants, 88 FR 39205 (June 15, 

2023). 

50American Council of Life Insurers (ACLI), CME, 

FIA, Intercontinental Exchange, Inc. (ICE), JAC, 

Managed Funds Association (MFA), NFA, SIFMA– 

AMG, Symphony Communications Services, LLC, 

and three individuals. 

51CME, FIA, ICE, JAC, NFA, and SIFMA–AMG. 

52CME Comment Letter. 

53 Id. (citing regulations §§ 1.17, 1.20 and 22.2). 

54 Id. 

55 Id. 

56 Id. 

for purposes of regulation 

§ 39.13(g)(8)(iii) subject to these 

conditions.41 The no-action position 

extended until June 30, 2021, in order 

to provide staff with time to 

recommend, and the Commission with 

time to determine whether to conduct 

and, if so, conduct, a rulemaking to 

implement a permanent solution.42

CFTC Letter No. 20–28, published on 

September 15, 2020, extended the noaction position until December 31, 2021 

due to challenges presented by the 

COVID–19 pandemic.43 CFTC Letter No. 

20–28 stated that if the process to 

consider codifying the no-action 

position provided for by CFTC Letter 

No. 19–17 was not completed by that 

date, DSIO and DCR would consider 

further extending the no-action 

position.44 The Divisions published 

CFTC Letter No. 21–29, further 

extending the no-action position until 

September 30, 2022.45 On September 

15, 2022, the Divisions published CFTC 

Letter No. 22–11, which further 

extended the no-action position until 

the earlier of September 30, 2023 or the 

effective date of any final Commission 

action relating to regulation § 39.13(g).46

As with CFTC Letter No. 21–29, this 

extension was issued in order to provide 

additional time for the Commission to 

consider a rulemaking. As discussed 

further below, while the Commission 

proposed a rulemaking to codify the noaction position in CFTC Letter No. 19– 

17, the Commission has determined to 

withdraw that proposed rulemaking in 

light of comments received and propose 

a new rulemaking in part 1 of its 

regulations to both impose a Margin 

Adequacy Requirement (as discussed 

herein) and simultaneously provide for 

separate account treatment. On 

September 11, 2023, the Divisions 

published CFTC Letter No. 23–13, 

extending the no-action position until 

the earlier of June 30, 2024 or the 

effective date of any final Commission 

action relating to regulation § 39.13(g),47

to provide further time for staff to 

develop and for the Commission to 

consider the Second Proposal, and to 

receive and consider comments thereon 

and consider and adopt a final rule. 

C. The Commission’s First Proposal and 

its Withdrawal 

On April 14, 2023, the Commission 

published in the Federal Register a 

notice of proposed rulemaking—the 

First Proposal—designed to codify the 

no-action position in CFTC Letter No. 

19–17.48 The First Proposal proposed to 

amend regulation § 39.13 to add new 

paragraph (j) allowing a DCO to permit 

a clearing FCM to treat the separate 

accounts of customers as accounts of 

separate entities for purposes of 

regulation § 39.13(g)(8)(iii), if such 

clearing member’s written internal 

controls and procedures permitted it to 

do so, and the DCO required its clearing 

members to comply with conditions 

specified in proposed regulation 

§ 39.13(j). 

The conditions for separate account 

treatment in proposed regulation 

§ 39.13(j) were substantially similar to 

the conditions specified in CFTC Letter 

No. 19–17. However, certain conditions 

in proposed regulation § 39.13(j) 

reflected modification of the conditions 

in CFTC Letter No. 19–17 on which they 

were based. Such modifications 

included adding further reporting 

requirements for clearing members 

required to cease separate account 

treatment, an explicit process for 

clearing members to resume separate 

account treatment, and provisions 

designed to further clarify the 

requirement that separate accounts be 

on a one business day margin call. 

The comment period for the First 

Proposal was extended once at the 

request of a commenter and closed on 

June 30, 2023.49 The Commission 

received comments from twelve 

commenters.50 While commenters 

generally supported codifying the noaction position in CFTC Letter No. 19– 

17, six commenters 51 contended that 

the Commission should codify the noaction position in its part 1 FCM 

regulations (where it would apply 

directly to all FCMs) rather than its part 

39 DCO regulations (where it applies 

only to clearing FCMs, through the 

instrumentality of DCOs). Other 

commenters did not opine on whether 

the proposed codification should be in 

part 1 versus part 39. 

The Commission originally proposed 

to codify the no-action position in CFTC 

Letter No. 19–17 in part 39 in order to 

hew closely to the operation of the noaction position: DCOs could choose to 

permit clearing FCMs to engage in 

separate account treatment, provided 

such clearing FCMs complied with 

certain conditions. 

In its comment responding to the First 

Proposal, CME recommended 

codification in part 1 to extend the 

benefits of separate account treatment to 

all FCMs equally, whether or not they 

are clearing members of one or more 

DCOs.52 CME asserted that codification 

in part 1 would eliminate the risk that 

a current or future DCO chooses not to 

permit separate account treatment, 

noting that CME’s own clearing 

members have invested significant time 

and effort in conforming their policies, 

systems, and practices to comply with 

the no-action conditions and related 

JAC advisory notices.53 As CME further 

contended, under the First Proposal, if 

one DCO chose not to permit separate 

account treatment, then an FCM would 

have to exclude contracts cleared 

through that DCO from its customers’ 

separate accounts.54 CME argued that 

this would likely make separate 

margining operationally infeasible, 

noting that the First Proposal 

acknowledged that an FCM’s futures 

account for a customer includes all 

futures products that the FCM clears for 

the customer, and the initial margin 

requirement for the account would be 

the total of the initial margin the FCM 

charges the customer for each contract 

in the account, in each case regardless 

of the DCO at which the contracts are 

cleared.55

CME also asserted that the First 

Proposal would effectively create two 

sets of reporting requirements 

applicable only to those FCM clearing 

members who choose to implement 

separate account margining at one or 

more DCOs, with new reporting 

requirements that conflict with 

regulations in part 1 that require 

calculation of deficits across all 

accounts of a single beneficial owner.56

CME further asserted that codification 

in part 39 would create new burdens for 

DCOs related to conducting 

examinations for compliance and the 

composition of DCO Chief Compliance 

Officer (CCO) reports, and would allow 


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57 Id. 

58 Id. 

59FIA Comment letter. As set forth in 

Commission regulations, the term ‘‘30.7 account’’ 

means any account maintained by an FCM for or 

on behalf of 30.7 customers to hold money, 

securities, or other property to margin, guarantee, 

or secure foreign futures or foreign option positions. 

17 CFR 30.1(g). The term ‘‘30.7 customer’’ means 

any person who trades foreign futures or foreign 

options through an FCM, except for the owner or 

holder of a proprietary account as defined in 

regulation § 1.3. 17 CFR 30.1(f). 

60 Id. 

61 Id. FIA noted that FCMs collect customer 

margin across DCOs and, if a DCO was to deny its 

clearing FCMs the right to provide separate account 

treatment, or establish different standards, such 

FCMs would effectively be denied the right to 

provide separate account treatment for their 

customers. Id. 

62 ICE Comment Letter. For instance, ICE 

contended that DCOs would not be well-placed to 

administer or enforce ensuring FCMs verify the 

identity of authorized representatives of clients, and 

recommended that if the Commission believes it 

necessary to establish steps clearing FCMs must 

take to identify such representatives, that it applies 

those requirements directly to such FCMs. Id. ICE 

also contended that a DSRO would be better placed 

than a DCO to readily assess whether an FCM is 

applying separate account treatment consistently. 

Id. 

63 Id. 

64 Id. 

65 Id. 

66 JAC Comment Letter. 

67 Id. 

68 Id. 

69 Id. 

70NFA Comment Letter. 

71SIFMA–AMG Comment Letter. 

72 Id. 

73As discussed further below, this requirement, 

which currently is effectively applied only to 

clearing FCMs, and predominately to part 1 (futures 

customer) and part 22 (Cleared Swaps Customer) 

accounts, would through codification in part 1 

effectively apply to all FCMs, including those that 

are not members of a DCO, and would apply to all 

FCMs’ 30.7 accounts. 

for disparate implementation by 

DCOs.57 CME additionally opined that 

certain proposed requirements in the 

First Proposal were outside the scope of 

DCOs’ risk management responsibilities 

and instead should be applied directly 

to FCMs.58

In its comment, FIA contended that 

rules that affect the obligations of FCMs 

should be set out in part 1, and, similar 

to CME, argued that, if the no-action 

position is codified in part 1, then nonclearing FCMs and FCMs that maintain 

30.7 accounts for 30.7 customers 

pursuant to part 30 of the Commission’s 

regulations would be able to provide 

consistent treatment to customers with 

the same enhanced risk management 

standards set forth in the no-action 

position.59 FIA also asserted that 

codification in part 1 would allow an 

FCM to control whether enhanced 

standards and separate account 

treatment are offered to a specific 

customer, rather than requiring each 

DCO to manage and control whether 

separate account treatment is 

permitted.60 FIA additionally contended 

that the terms and conditions under 

which separate account treatment 

should be permitted or prohibited is a 

decision that the Commission, rather 

than individual DCOs, should make.61

In its comment, ICE supported part 1 

codification on the basis that the noaction conditions are mainly relevant to 

the operation of an FCM and its 

relationship with its customers, rather 

than the operation of a DCO.62 ICE also 

argued that supervision of FCM 

compliance with requirements related to 

separate accounts would be more 

consistently applied if not done at the 

individual DCO level.63 ICE noted that 

functions of supervision, examination, 

and surveillance of the relationship 

between FCMs and customers are 

typically performed by an FCM’s DSRO 

under Commission regulation § 1.52, 

rather than by DCOs.64 ICE further 

contended that it would be more 

efficient for an FCM to address issues 

related to separate account treatment 

with a single DSRO rather than each 

DCO of which it is a member, and that 

imposing on DCOs additional burden 

and costs of supervising separate 

account treatment conditions may 

disincentivize DCOs from permitting 

FCMs to engage in separate account 

treatment.65

In its comment, the JAC opined that 

conditions for separate account 

treatment should be stringent enough to 

mitigate to the maximum extent 

possible the additional risks to other 

customers of an FCM that separate 

account treatment presents, but noted 

that, in any case, part 39 DCO 

regulations do not fall under the JAC’s 

self-regulatory organization surveillance 

authority.66 Similar to CME, the JAC 

also asserted that the First Proposal 

lacked clarity regarding whether it 

contemplated bifurcated reporting 

requirements, because the First Proposal 

provided that a clearing FCM would 

need to calculate certain separate 

account customer balances for capital 

and segregation differently than under 

parts 1, 22, or 30, but did not include 

amendments to those regulations.67

Thus, the JAC argued, it was unclear 

whether the JAC would continue to 

review and monitor an FCM’s financial 

statements prepared in accordance with 

those regulations, while a DCO would 

monitor the FCM’s different 

computations prepared in accordance 

with proposed regulation § 39.13(j).68

The JAC also noted that the First 

Proposal did not provide for separate 

account treatment for non-clearing 

FCMs and Commission regulation § 30.7 

customers.69

Like other commenters, NFA argued 

that codification in part 1 would 

provide a clear path for an FCM’s DSRO 

to examine it for compliance with 

separate account treatment 

requirements, and would provide 

greater clarity to non-clearing FCMs 

regarding whether they are permitted to 

engage in separate account treatment.70

SIFMA–AMG recommended 

incorporating the First Proposal’s 

conditions, with modifications, in 

Commission regulations §§ 1.11 and 

1.56, and argued that codification in 

part 1 would directly establish 

obligations for the FCM, rather than 

indirect obligations applied through the 

DCO, with respect to separate treatment 

of customer accounts within the CFTC’s 

regulatory framework.71 SIFMA–AMG 

also argued that codification in part 1 

would clarify that the regulatory 

obligations of the proposed regulation 

are the FCM’s, and not the DCO’s 

obligation to evaluate and determine if 

the FCM’s behavior was appropriate.72

In light of these comments, the 

Commission has determined to propose 

codification of the underlying Margin 

Adequacy Requirement (i.e., that an 

FCM should not permit a customer to 

withdraw margin funds from that 

customer’s accounts with the FCM if the 

net liquidating value plus the margin 

deposits remaining in such accounts 

after such withdrawal would be 

insufficient to meet the customer’s 

initial margin requirements) 73 along 

with the conditional modification of 

that requirement embodied in CFTC 

Letter No. 19–17, in part 1 of its 

regulations. The Commission believes 

codification in part 1 can be effectuated 

in a manner that provides appropriate 

flexibility for market participants, 

enhanced risk management and 

protection of customer funds along with 

appropriate flexibility for a larger 

number of FCMs, and more efficient 

supervision of compliance with the noaction conditions proposed to be 

codified, while maintaining the 

effectiveness of those conditions. 

Therefore, the Commission formally 

withdraws its First Proposal, and 

proposes this new rulemaking to 

provide for separate account treatment 

through part 1 of its regulations. 

Separate from the question of whether 

the proposed codification should be in 

part 1 versus part 39, commenters 

provided feedback related to the 

proposed codification of individual noaction conditions. These comments are 

discussed below. The Commission notes 


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74FIA Comment Letter. The Commission also 

received comments from two individuals generally 

supportive of the First Proposal. Additionally, the 

Commission received a comment from Symphony 

Communication Services, LLC, describing ways in 

which the commenter’s technological capabilities 

could facilitate compliance with certain 

components of the First Proposal. Lastly, the 

Commission received a comment from an 

individual requesting that the Commission provide 

a chart explaining to what extent and subject to 

what conditions portfolio-based margining is 

available across specific products and scenarios. 

The Commission considers this request outside the 

scope of this Second Proposal. 

75ACLI Comment Letter; MFA Comment Letter; 

SIFMA–AMG Comment Letter. 

76These are proposed changes to regulation § 1.3 

(to clarify that Saturday is not a business day), 

regulation § 1.17(b) (to reorganize the wording of 

the definition of the term ‘‘business day’’ for capital 

purposes to be consistent with the wording in the 

proposed amendments to regulation § 1.3, to clarify 

that the definition of the term ‘‘risk margin’’ 

includes both customer and noncustomer accounts, 

and to change the term ‘‘FCM’’ to read ‘‘futures 

commission merchant’’), regulations §§ 1.20(i), 

30.7(f)(2), and 22.2(f) to revise the regulatory 

description of the calculation of the total amount 

of funds that an FCM must hold in segregation for 

futures customers, Cleared Swaps Customers, and 

30.7 customers, respectively, to align such 

description with the Commission’s financial forms 

and the instructions to such forms, reorganizing 

regulations § 22.2(f)), § 1.58(a) and (b) (to clarify 

that gross margining requirements for omnibus 

accounts carried for one FCM at another FCM apply 

to cleared swaps as well as to futures and options 

and futures), and § 30.2(b) (to clarify, in the context 

of the exclusion for applying certain regulations to 

persons and transactions subject to the 

requirements of part 30, existing regulations 

§§ 1.41, 1.42, and 1.43 (which were added in the 

2021 part 190 bankruptcy rulemaking) are not 

excluded). These proposed changes are discussed in 

more detail in the relevant sections below. 

77Proposed regulation § 1.44(a) defines ‘‘account’’ 

to include futures accounts and Cleared Swaps 

Customer Accounts, both of which terms are 

defined in regulation § 1.3, and 30.7 accounts. A 

30.7 account means any account maintained by an 

FCM for or on behalf of 30.7 customers to hold 

money, securities, or other property to margin, 

guarantee, or secure foreign futures or foreign 

options. 17 CFR 30.1(g). 

78 JAC Comment Letter. 

that, with some exceptions that it 

believes are helpful to understanding 

differences between the First Proposal 

and this Second Proposal, certain 

comments that appear to be premised 

specifically on the First Proposal’s 

proposed codification in part 39 in 

contrast to part 1 are not discussed, as 

the Commission no longer proposes to 

codify the no-action position in part 39. 

In addition to the comments noted 

above, FIA supported amending 

regulation § 1.56 to add a new paragraph 

recognizing (i) the right of an FCM to 

allow a customer to withdraw excess 

funds from a separate account while 

there is an outstanding margin call in 

another separate account, and (ii) that 

an FCM may agree that, in the absence 

of certain conditions, it will not use 

excess funds from one account to meet 

an obligation in another account 

without the customer’s consent.74 ACLI, 

MFA, and SIFMA–AMG additionally 

supported codification of interpretation 

of regulation § 1.56.75

While appreciating those comments, 

the Commission seeks in this Second 

Proposal to engage in a narrower task: 

to directly apply the Margin Adequacy 

Requirement to all FCMs, while 

enacting a narrow codification (with 

respect to all FCMs) of the no-action 

position in CFTC Letter No. 19–17 with 

respect to the current Margin Adequacy 

Requirement embodied in regulation 

§ 39.13(g)(8)(iii). Amendments to 

regulation § 1.56 are outside the scope 

of the proposed rulemaking. 

As such, where an FCM elects to 

apply separate account treatment, such 

treatment shall apply only for purposes 

of proposed regulation § 1.44 (inclusive 

of the Margin Adequacy Requirement of 

proposed regulation § 1.44(b)), 

including requirements that flow 

through to, e.g., Commission regulations 

§§ 1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 30.7, 

the gross margining requirement of 

regulation § 39.13(g)(8)(i), and the 

Margin Adequacy Requirement of 

proposed regulation § 39.13(g)(8)(iii). 

Nothing in this rulemaking is intended 

to affect the requirements of regulation 

§ 1.56 or, unless otherwise expressly 

indicated, any other Commission 

regulation. 

D. The Commission’s Second Proposal 

For the reasons discussed above, the 

Commission proposes to codify the 

Margin Adequacy Requirement, along 

with the no-action position in CFTC 

Letter No. 19–17, in part 1. The bulk of 

the proposed regulation will be 

contained in new Commission 

regulation § 1.44, which is presently 

reserved. However, as explained below, 

the Commission also proposes 

supporting amendments in Commission 

regulations §§ 1.3, 1.17, 1.20, 1.32, 1.58, 

1.73, 22.2, 30.2, 30.7, and 39.13 to 

facilitate implementation of proposed 

regulation § 1.44. The Commission is 

also proposing a number of amendments 

to address inadvertent inconsistencies 

in existing regulations.76

The Commission’s Second Proposal 

represents in part a reorganization of the 

First Proposal. The First Proposal 

largely mirrored the organization of the 

no-action position in CFTC Letter No. 

19–17, first providing that a DCO could 

allow a clearing FCM to engage in 

separate account treatment (so long as 

such clearing FCM complied with 

certain conditions), then explaining 

specific circumstances that would 

disqualify a clearing FCM from engaging 

in separate account treatment, and 

finally providing the specific riskmitigating conditions with which the 

clearing FCM would be required to 

comply in order to provide separate 

account treatment. 

Proposed regulation § 1.44 is 

comprised of eight paragraphs. First, 

proposed regulation § 1.44(a) defines 

key terms solely for purposes of 

proposed regulation § 1.44. Second, 

proposed regulation § 1.44(b) 

incorporates for all FCMs, and for all 

accounts,77 the same Margin Adequacy 

Requirement that DCOs are obligated in 

regulation § 39.13(g)(8)(iii) to require 

their clearing FCMs to apply. Third, 

proposed regulation § 1.44(c) makes 

clear that an FCM can engage in 

separate account treatment only during 

the ‘‘ordinary course of business,’’ a 

term that is defined in proposed 

regulation § 1.44. Fourth, proposed 

regulation § 1.44(d) explains how FCMs 

may elect to engage in separate account 

treatment for one or more customers. 

Fifth, proposed regulation § 1.44(e) 

enumerates events inconsistent with the 

ordinary course of business and 

contains requirements for FCMs related 

to cessation of separate account 

treatment upon the occurrence of such 

events, and resumption of separate 

account treatment upon the cure of such 

events. Sixth, proposed regulation 

§ 1.44(f) contains the requirement that 

each separate account be on a ‘‘one 

business day margin call’’ and sets out 

regulations designed to explain the 

meaning of a one business day margin 

call for purposes of proposed regulation 

§ 1.44. Seventh, proposed regulation 

§ 1.44(g) sets forth capital, risk 

management, and segregation 

calculation requirements with which 

FCMs would be required to comply with 

respect to accounts for which the FCM 

has elected separate treatment. Eighth, 

proposed regulation § 1.44(h) sets out 

information and disclosure 

requirements for FCMs that engage in 

separate account treatment. 

In its comment responding to the First 

Proposal, the JAC recommended adding 

two additional conditions for separate 

account treatment. First, the JAC 

supported adding a condition requiring 

a clearing FCM’s risk-based capital 

requirement to be adjusted to capture 

the risk of accounts receiving separate 

treatment.78 As discussed below, the 

Commission is proposing to amend 

regulation § 1.17 to revise an FCM’s 

risk-based capital requirement to 

capture the risks of separate accounts. 

Second, the JAC supported adding a 

condition requiring accounts treated as 

separate accounts to be identified as 


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79 Id. 

80 7 U.S.C. 12a(5). 

81 7 U.S.C. 6d(a)(2) and (f)(2). 

82 7 U.S.C. 6(b)(2)(A). 

83 7 U.S.C. 6f(b). 

84 7 U.S.C. 5(b). 

85Section 3(b) of the CEA, 7 U.S.C. 5(b). 

86Section 3(b) of the CEA, 7 U.S.C. 5(b) (It is the 

purpose of this Act to ensure the financial integrity 

of all transactions subject to this Act and the 

avoidance of systemic risk and to protect all market 

participants from misuses of customer assets) 

87 In this proposal, references to a ‘‘customer’’ are 

to a direct customer of the FCM in question. Thus, 

where non-clearing FCM N clears through clearing 

FCM C, a customer (including a separate account 

customer) of N is not considered a customer of C. 

88For the avoidance of doubt, the Second 

Proposal permits an FCM to elect to engage in 

separate account treatment. It neither requires an 

FCM to engage in such treatment nor requires a 

customer of an FCM that elects to engage in 

separate account treatment to elect to have its 

accounts with such FCM treated as separate 

accounts of separate entities. Thus, separate 

account treatment requires an affirmative election 

of both the FCM and the customer. 

89As a result, proposed regulation § 1.44 would 

prohibit the application of portfolio margining or 

cross-margining treatment between separate 

accounts of the same customer, but would not 

prohibit the application of such treatments within 

a particular separate account of a customer. 

such in an FCM’s books and records, 

including on customer statements.79

The Commission’s proposed regulation 

§ 1.44(d)(1), as discussed below, would 

provide that an FCM must include each 

separate account customer on a list of 

separate account customers maintained 

in its books and records. While an FCM 

may elect to specifically identify 

separate accounts as such in customer 

statements, the Commission expects that 

FCMs will be able to readily identify all 

of their customer accounts receiving 

separate treatment. 

II. Proposed Regulations 

Section 8a(5) of the CEA80 authorizes 

the Commission ‘‘to make and 

promulgate such rules and regulation as, 

in the judgment of the Commission, are 

reasonably necessary to effectuate any of 

the provisions, or to accomplish any of 

the purposes, of’’ the CEA. The 

Commission is proposing these rules 

pursuant to section 8a(5) as reasonably 

necessary to effectuate sections 4d(a)(2) 

and 4d(f)(2),81 providing for the 

segregation and protection of, 

respectively, futures customer funds 

and Cleared Swaps Customer Collateral, 

and 4(b)(2)(A),82 providing for the 

safeguarding of customers’ funds in 

connection with foreign futures and 

foreign option transactions. As 

additional authority, the Commission is 

also proposing these rules as reasonably 

necessary to effectuate section 4f(b), 

which requires an FCM to meet 

minimum financial requirements 

prescribed by the Commission as 

necessary to ensure that the firm meets 

its obligations.83 Moreover, as further 

additional authority, the Commission is 

also proposing these rules as reasonably 

necessary to accomplish the purposes of 

the CEA as set forth in section 3(b); 84

specifically, ‘‘the avoidance of systemic 

risk’’ and ‘‘protect[ing] all market 

participants from . . . misuses of 

customer assets.’’ 

Accordingly, the Commission 

preliminarily believes that the 

amendments proposed herein relating to 

the Margin Adequacy Requirement, and 

the modification of this requirement to 

permit, subject to certain prescribed 

conditions, separate account treatment 

in connection with the withdrawal of 

customer initial margin, support the 

customer funds protection and risk 

management provisions and purposes of 

the CEA. As further described below, 

the Commission also preliminarily 

believes that preventing the undermargining of customer accounts and 

mitigating the risk of a clearing member 

default, or the default of a non-clearing 

FCM, and the potential for systemic risk 

in either scenario, is effectively 

addressed by the standards set forth in 

the proposed regulation. 

All FCMs are currently subject to a 

detailed set of requirements designed to 

provide effective protection for 

customer funds. These include, for 

futures accounts, regulations §§ 1.20 

(requiring segregation), 1.22 (requiring, 

inter alia, residual interest to cover 

undermargined amounts), and 1.23 

(requiring FCMs to maintain residual 

interest in segregated accounts up to a 

targeted amount that they determine 

based on specified considerations), as 

well as similar requirements with 

respect to Cleared Swaps Customer 

Accounts (respectively, regulations 

§§ 22.2(d) and (f), and 22.17), and 30.7 

accounts (regulation § 30.7). 

Regulation § 39.13(g)(8)(iii) provides 

an additional layer of protection, but 

only with respect to FCMs that are 

clearing members of DCOs. There is no 

analogous Margin Adequacy 

Requirement applicable to FCMs that 

are not clearing members of DCOs. As 

discussed above, regulation 

§ 39.13(g)(8)(iii) is designed to mitigate 

the risk that a clearing member fails to 

hold, from a customer, funds sufficient 

to cover the required initial margin for 

the customer’s cleared positions and, in 

light of the use of omnibus margin 

accounts, ‘‘avoid the misuse of customer 

funds’’ by mitigating the likelihood that 

the clearing member will effectively 

cover one customer’s margin shortfall 

using another customer’s funds.85

Regulation § 39.13(g)(8)(iii) provides a 

risk mitigation provision for DCOs, 

clearing FCMs, and customers. The 

effect of the staff no-action position is to 

allow DCOs to permit clearing FCMs to 

engage in separate account treatment for 

purposes of that provision, but subject 

to conditions designed to maintain the 

provision’s risk mitigating effects. 

Where it is now proposing to establish 

requirements for separate account 

treatment for all FCMs by adding a 

similar Margin Adequacy Requirement 

to part 1, the Commission seeks to 

replicate the same regulatory structure 

on an all-FCM basis, and furthers the 

customer fund protection and risk 

mitigation purposes of the CEA86 by 

implementing measures designed to 

further ensure that all FCMs, whether 

clearing or non-clearing, do not create or 

exacerbate an under-margining scenario. 

Similar to the First Proposal, the 

requirements for separate account 

treatment proposed herein are designed 

to ensure that FCMs carry out separate 

account treatment in a consistent and 

documented manner, monitor customer 

accounts on a separate and combined 

basis, identify and act upon instances of 

financial or operational distress that 

necessitate a cessation of separate 

account treatment, provide appropriate 

disclosures to customers 87 regarding 

separate account treatment, and apprise 

their DSROs when they apply separate 

account treatment or an event has 

occurred that would necessitate 

cessation of separate account 

treatment.88

The Second Proposal is designed to 

extend the customer protection and risk 

management benefits of regulation 

§ 39.13(g)(8)(iii) to all FCMs and all of 

their customer accounts, and to provide 

an alternative means of achieving those 

risk management goals if the FCM elects 

to permit customers to maintain 

separate accounts under the proposal.89

Additionally, as discussed further below 

in the cost benefit considerations, 

because a number of clearing FCMs 

have already implemented the 

conditions set forth in CFTC Letter No. 

19–17, a number of FCMs will have 

already implemented, in significant 

part, the requirements proposed herein. 

Request for Comment 

Question 1: The Commission requests 

comment regarding whether, in light of 

changes made in this Second Proposal 

relative to the First Proposal, it should 

consider any conditions additional to 

those contained in proposed regulation 

§ 1.44 below, or modify or remove any 

of the conditions proposed herein. 

Question 2: The Commission requests 

comment regarding whether the 


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90Under the First Proposal, the term ‘‘United 

States business day’’ referred to weekdays not 

including federal holidays as established by 5 

U.S.C. 6103. 

91 It is true that some markets are moving toward 

24/7 operation. The Commission will continue to 

monitor these developments, and consider further 

rulemaking in this area as appropriate. Nonetheless, 

a definition of business days that includes 

Saturday, but not Sunday, does not reflect present 

or plausible future reality. 

92For instance, Saturdays are treated as nonbusiness days for purposes of swaps reporting 

under parts 43 and 45 of the Commission’s 

regulations, 17 CFR 43.1; 17 CFR 45.2, execution of 

confirmations by swap dealers, 17 CFR 

23.501(c)(5)(ii), and under the Commission’s part 39 

DCO regulations, 17 CFR 39.2 (defining an intraday 

business day period). See also, e.g., CFTC, 

Guidebook for Part 17.00: Reports by Reporting 

Markets, Futures Commission Merchants, Clearing 

Members, and Foreign Brokers, at 18, May 30, 2023 

(noting that for purposes of part 17.00 reports, 

‘‘reporting entities may elect to not consider 

Saturdays to be a business day, as Saturday is not 

commonly known as such’’). 

93The term ‘‘noncustomer account’’ generally 

means the accounts of affiliates of an FCM or 

employees of an FCM. See 17 CFR 1.17(b)(4). 

94 17 CFR 240.15c3–1. 

95As noted in regulation § 39.13(g)(4), a DCO may 

allow reduction in initial margin requirements for 

related positions if the price risks with respect to 

such positions are significantly and reliably 

correlated. This includes cases where (A) The 

products on which the positions are based are 

complements of, or substitutes for, each other. An 

example might be long versus short positions in oil 

and natural gas, both of which may be used for 

generating energy. However, portfolio margining is 

applicable only to accounts for the same customer. 

See regulation § 39.13(g)(8)(i) (requiring collection 

of initial margin on a gross basis for each clearing 

member’s customer accounts). So, if a customer has, 

in a single account, both long oil positions and 

short natural gas positions, they may benefit from 

a reduction in initial margin requirements for the 

two risk-offsetting positions. However, if those 

positions are in different separate accounts of the 

customer under this proposal, the positions would 

not lead to an initial margin reduction as the 

positions would not be margined on a combined or 

portfolio basis. 

96As noted above, per regulation § 1.17(a)(1)(i), 

the adjusted net capital requirement for an FCM is 

the greatest of a number of calculations, one of 

which is eight percent of the total risk margin 

requirement as defined in regulation § 1.17(b)(8). 

Thus, a calculation that would increase, or leave the 

same, the risk margin requirement would 

correspondingly increase, or leave the same, the 

adjusted net capital requirement. 

interaction between proposed regulation 

§ 1.44(g) through (h) and other 

regulations under parts 1, 22, and 30 

affected by the proposed requirements 

therein (e.g., regulations §§ 1.17, 1.20, 

1.22, 1.23, 1.32, 1.55, 1.58, 1.73, 22.2, 

30.2, and 30.7) is sufficiently clear. 

A. Proposed Amendments to Regulation 

§ 1.3 

The definitions contained in 

Commission regulation § 1.3 are key to 

understanding and interpreting the 

Commission’s regulations, including 

part 1 FCM regulations. The 

Commission believes the provisions of 

proposed regulation § 1.44 necessitate 

an amendment to regulation § 1.3. 

The Commission proposes to amend 

the definition of ‘‘business day’’ in 

regulation § 1.3. Current regulation § 1.3 

provides, in relevant part, that 

‘‘business day’’ means any day other 

than a Sunday or holiday. The 

Commission proposes to expand this 

definition to confirm that the term 

encompasses any day other than a 

Saturday, Sunday, or holiday. This 

term, which is applicable to proposed 

regulation § 1.44(f), setting forth the 

requirement that separate accounts be 

on a one business day margin call, is 

similar to the proposed definition of 

‘‘United States business day,’’ which 

appeared in the First Proposal.90 As in 

the First Proposal, however, the term is 

intended to encompass days on which 

banks and custodians are open in the 

United States to facilitate payment of 

margin. Thus, for the avoidance of 

doubt, ‘‘holiday’’ in this context refers 

to holidays in the United States. 

The Commission notes that, 

notwithstanding the current definition 

of the term in regulation § 1.3, which is 

used in a variety of regulations, in 

actual practice, Saturdays are generally 

not treated as business days in the 

markets,91 by market participants, or for 

regulatory purposes.92 The Commission 

is thus proposing to change the 

definition of ‘‘business day’’ in 

regulation § 1.3 to conform to that 

reality. 

Request for Comment 

Question 3: The Commission requests 

comment regarding whether its proposal 

to revise the definition of ‘‘business 

day’’ in regulation § 1.3 would result in 

any adverse consequences for any 

market participants. 

B. Proposed Amendments to Regulation 

§ 1.17 

Regulation § 1.17 currently establishes 

minimum financial requirements for 

FCMs. In this regard, regulation 

§ 1.17(a)(1)(i) provides that each person 

registered as an FCM must maintain 

adjusted net capital equal to, or in 

excess of, the greatest of: (1) $1 million 

(or $20 million if the FCM is also 

registered as a swap dealer); (2) eight 

percent of the total ‘‘risk margin’’ 

required on the positions in customer 

and noncustomer accounts 93 carried by 

the FCM; (3) the amount of adjusted net 

capital required by NFA as a registered 

futures association; or (4) for an FCM 

registered as a securities broker or 

dealer with the Securities and Exchange 

Commission (SEC), the amount of net 

capital required by SEC rule § 15c3–1.94

For purposes of regulation 

§ 1.17(a)(1)(i), the term ‘‘risk margin’’ is 

defined by paragraph (b)(8) of regulation 

§ 1.17 to generally mean the level of 

maintenance margin or performance 

bond required for customer and 

noncustomer positions established by 

the applicable exchanges or clearing 

organizations. 

The Commission is proposing several 

amendments to regulation § 1.17 to 

reflect the regulatory capital treatment 

of separate accounts that would result 

from the implementation of proposed 

regulation § 1.44, including the 

conditions contained in proposed 

regulation § 1.44(g)(3) discussed below. 

These proposed amendments were not 

part of the First Proposal. As a general 

matter, the proposed amendments to 

regulation § 1.17 are designed to ensure 

that FCMs risk manage separate 

accounts consistently, and cannot revert 

to calculating minimum financial 

requirements on a combined account 

basis where such calculations would 

tend to reflect less risk and reduced 

financial requirements for a customer 

than if each of the customer’s separate 

accounts were treated as an account of 

a distinct customer without regard to 

the same customer’s other separate 

accounts. 

Consistent with the above intent, the 

Commission is proposing to expand the 

list of modifiers to the definition of the 

term ‘‘risk margin’’ for an account by 

adding proposed paragraph (b)(8)(v) to 

regulation § 1.17, providing that if an 

FCM carries separate accounts for 

separate account customers pursuant to 

proposed regulation § 1.44, then the 

FCM shall calculate the risk margin 

pursuant to regulation 

§ 1.17(a)(1)(i)(B)(1) as if each separate 

account is owned by a separate entity. 

The Commission notes that, under the 

proposed regulation, risk margin would 

be calculated on an individual basis for 

each separate account. Calculating risk 

margin separately for each separate 

account would eliminate the potential 

for portfolio margining offsets based on 

positions between separate accounts of 

the same separate account customer.95

Therefore, the proposal to treat separate 

accounts as accounts of separate entities 

would either increase, or leave 

unchanged, the total risk margin 

requirement, and thus the minimum 

adjusted net capital requirement, for an 

FCM providing separate account 

treatment.96 The proposed addition of 

paragraph (b)(8)(v) to regulation § 1.17 is 

intended to further clarify that, pursuant 

to the Commission’s FCM capital rule, 

an FCM that elects to permit separate 

account treatment must compute the 

risk margin amount for separate 


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97See, e.g., 17 CFR 1.17(h)(2)(vii) which generally 

provides, subject to certain conditions, that an FCM 

may not make a prepayment on an outstanding 

subordinated debt obligation if such payment 

would result in the FCM maintaining less than 120 

percent of its minimum adjusted net capital 

requirement. 

98See, e.g., 17 CFR 1.12(a), which requires an 

FCM to provide notice to the Commission and the 

firm’s DSRO if the FCM’s adjusted net capital at any 

time is less than the minimum required by 

regulation § 1.17. 

99CFTC Letter No. 19–17. CFTC Letter No. 19–17 

provides that an ‘‘FCM shall record each separate 

account independently in the FCM’s books and 

records, i.e., the FCM shall record separate accounts 

as a receivable (debit/deficit) or payable with no 

offsets between the other separate accounts of the 

same customer.’’ Id. (Condition 6.) CFTC Letter No. 

19–17 also provides that ‘‘the receivable from a 

separate account shall only be considered secured 

(a current/allowable asset) based on the assets of 

that separate account, not on the assets held in 

another separate account of the same customer.’’ Id. 

(Condition 7.) 

accounts as if each account is an 

account of a separate entity. 

The Commission further notes that 

the proposed amendment to the 

definition of the term ‘‘risk margin’’ in 

regulation § 1.17(b)(8) to reflect separate 

accounts, and the resulting potential 

increase in an FCM’s minimum adjusted 

net capital requirement under regulation 

§ 1.17(a)(1)(i), would also impact other 

regulations that impose obligations on 

FCMs based on their level of adjusted 

net capital. For example, regulation 

§ 1.17(h) conditions an FCM’s ability to 

repay or prepay subordinated debt 

obligations on the FCM maintaining an 

amount of adjusted net capital that, after 

taking into effect the amount of the 

subordinated debt payment and other 

subordinate debt payments maturing 

within a set time period, exceeds the 

FCM’s minimum adjusted net capital 

requirement by 120 percent to 125 

percent, as specified in the applicable 

provision of regulation § 1.17(h).97 The 

proposed amendments to the minimum 

capital requirements would also impact 

an FCM’s obligation to provide certain 

notices to the Commission and to the 

FCM’s DSRO under Commission 

regulation § 1.12.98

The Commission additionally notes 

that, as discussed further below, it is 

additionally proposing to amend 

regulation § 1.58 to provide that, where 

a clearing FCM carries an omnibus 

customer account for a non-clearing 

FCM, and the non-clearing FCM applies 

separate account treatment, then such 

non-clearing FCM must calculate initial 

and maintenance margin for purposes of 

regulation § 1.58(a) separately for each 

separate account. These proposed 

amendments to regulation § 1.58 are 

discussed further below. 

Second, the Commission proposes to 

amend regulation § 1.17(c)(2), which 

defines ‘‘current assets’’ that an FCM 

may recognize and include in 

computing its net capital. Regulation 

§ 1.17(c)(2) currently defines ‘‘current 

assets’’ to include cash and other assets 

or resources commonly identified as 

those that are reasonably expected to be 

realized in cash or sold during the next 

12 months. Regulation § 1.17(c)(2)(i), 

however, provides that an FCM must 

exclude from current assets any 

unsecured receivables resulting from 

futures, Cleared Swaps, or 30.7 accounts 

that liquidate to a deficit or contain a 

debit ledger balance only, provided, 

however, that the FCM may include a 

deficit or debit ledger balance in current 

assets until the close of business on the 

business day following the date on 

which the deficit or debit ledger balance 

originated (provided, in turn, that the 

account had timely satisfied the 

previous day’s deficits or debit ledger 

balances). 

The Commission is proposing to 

amend regulation § 1.17(c)(2)(i) to 

provide explicitly that if an FCM carries 

separate accounts for separate account 

customers pursuant to proposed 

regulation § 1.44, then the FCM must 

treat each separate account as an 

account of a separate entity. 

Accordingly, the FCM must exclude 

each unsecured separate account that 

liquidates to a deficit or contains a debit 

ledger balance only from current assets 

in its calculation of net capital, 

provided, however, that if the separate 

account is subject to a call for margin by 

the FCM it may be included in current 

assets until the close of business on the 

business day following the date on 

which the deficit or debit ledger balance 

originated, provided that the separate 

account timely satisfied previous day’s 

debit or deficits in its entirety. If the 

separate account does not satisfy a 

previous day’s deficit in its entirety, 

then the deficit for the separate account, 

and any other deficits of the separate 

account customer in other separate 

accounts carried by the FCM, shall not 

be included in current assets until all 

such calls are satisfied in their entirety. 

The proposed amendment to regulation 

§ 1.17(c)(2)(i) would provide the same 

capital treatment to separate accounts as 

is currently provided customer accounts 

that liquidate to deficits or contain debit 

ledger balances, and is consistent with 

corresponding conditions to the noaction position in CFTC Letter No. 19– 

17.99

Third, the Commission proposes to 

amend regulation § 1.17(c)(4), which 

defines the term ‘‘liabilities’’ for 

purposes of an FCM calculating its net 

capital. Regulation § 1.17(c)(4) generally 

defines the term ‘‘liabilities’’ to mean 

the total money liabilities of an FCM 

arising in connection with any 

transaction whatsoever, including 

economic obligations of an FCM that are 

recognized and measured in conformity 

with generally accepted accounting 

principles. Regulation § 1.17(c)(4) also 

provides that for purposes of computing 

net capital, an FCM may exclude from 

its liabilities funds held in segregation 

for futures customers, Cleared Swaps 

Customers, and 30.7 customers, 

provided that such segregated funds are 

also excluded from the FCM’s current 

assets in computing the firm’s net 

capital. The Commission is proposing to 

amend regulation § 1.17(c)(4)(ii) to 

explicitly provide that an FCM that 

carries the separate accounts of separate 

account customers pursuant to proposed 

regulation § 1.44 must compute the 

amount of money, securities, and 

property due to a separate account 

customer as if each separate account of 

the separate account customer is a 

distinct customer. The Commission is 

further proposing to amend regulation 

§ 1.17(c)(4)(ii) to provide that an FCM, 

in computing its net capital, may 

exclude funds held in segregation for 

separate account customers from the 

FCM’s liabilities, provided that funds 

held in segregation for separate account 

customers are also excluded from the 

FCM’s current assets. The purpose of 

the proposed amendment is to ensure 

that an FCM, in computing its net 

capital, reflects separate accounts in a 

consistent manner in determining its 

total current assets and liabilities. 

Fourth, the Commission proposes to 

amend regulation § 1.17(c)(5), which 

defines the term ‘‘adjusted net capital.’’ 

Regulation § 1.17(c)(5)(viii) provides, in 

relevant part, that adjusted net capital 

means net capital minus, among other 

items detailed in regulation § 1.17(c)(5), 

the amount of funds required in each 

customer account to meet maintenance 

margin requirements of the applicable 

board of trade or, if there are no such 

maintenance margin requirements, 

clearing organization margin 

requirements applicable to the account’s 

positions. FCMs are allowed to apply 

(that is, to reduce the amount of this 

deduction from capital by) ‘‘calls for 

margin or other required deposits which 

are outstanding no more than one 

business day.’’ However, once a 

customer fails to meet a margin call 

within one business day, the FCM loses 

the one business day ‘‘grace period’’ for 

receiving any of that customer’s future 

margin calls, until the point in time at 

which the customer is no longer 

undermargined. 


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100E.g., changes to punctuation and substitution 

of level of maintenance margin or performance 

bond required for the customer and noncustomer 

positions for level of maintenance margin or 

performance bond required for the customer or 

noncustomer positions with respect to the meaning 

of risk margin for an account. See, e.g., proposed 

regulation § 1.17(b)(8). The Commission is further 

proposing to replace the term ‘‘FCM’’ in regulation 

§ 1.17(b)(8) with ‘‘futures commission merchant.’’ 

The Commission is also proposing to reorganize 

paragraph § 1.17(c)(5)(viii) into sub-paragraphs (A), 

(B), (C), and (D) to enhance clarity. The Commission 

is additionally proposing to reorganize the wording 

of the definition of the term ‘‘business day’’ in 

regulation § 1.17(b)(6) to read any day other than a 

Saturday, Sunday, or holiday rather than any day 

other than a Sunday, Saturday, or holiday. This 

change would align the wording with the wording 

of the term ‘‘business day’’ in proposed regulation 

§ 1.3. 

101Section 3(b) of the CEA, 7 U.S.C. 5(b). 

102Each FCM that carries accounts for futures 

customers, Cleared Swaps Customers, and 30.7 

customers is required to prepare daily statements 

demonstrating compliance with the applicable 

segregation requirements. For futures customers, 

the FCM must prepare a daily Statement of 

Segregation Requirements and Funds in Segregation 

for Customers Trading on U.S. Commodity 

Exchanges (17 CFR 1.32(a)) (‘‘Futures Segregation 

Statement’’); for Cleared Swaps Customers, the FCM 

must prepare a daily Statement of Cleared Swaps 

Customer Segregation Requirements and Funds in 

Cleared Swaps Customer Accounts under section 

4d(f) of the CEA (17 CFR 22.2(g)(1) through (4)) 

(‘‘Cleared Swaps Segregation Statement’’); and for 

30.7 customers, the FCM must prepare a daily 

Statement of Secured Amounts and Funds Held in 

Separate Accounts for 30.7 Customers pursuant to 

Commission Regulation 30.7 (17 CFR 30.7(l)(1)). 

The statements listed above are part of the 

Commission’s Form 1–FR–FCM, which contains the 

financial reporting templates required to be filed by 

FCMs. 

103 I.e., if separate account customer S has 

separate accounts A and B, then readily marketable 

securities held for separate account A could not be 

used to offset a deficit in separate account B, and 

vice versa. 

Thus, if, due to activity on Monday, 

Customer A is undermargined by $150, 

and the FCM calls Customer A for that 

margin on Tuesday, the FCM does not 

need to deduct that $150 from its net 

capital in computing its adjusted net 

capital, so long as the margin call is met 

by the close of business on Wednesday. 

Moreover, if Customer A, due to activity 

on Tuesday, is undermargined by an 

additional $100, and the FCM calls for 

that additional $100 on Wednesday, the 

FCM does not need to deduct that 

additional $100 on Wednesday. If 

Customer A meets the $150 call by close 

of business Wednesday, and the $100 

call by close of business on Thursday, 

then no deduction need be taken for 

either the $150 or the $100 margin calls. 

However, if Customer A fails to meet 

Tuesday’s $150 call by close of business 

on Wednesday, then the FCM must 

deduct both the $150 from Tuesday and 

the $100 from Wednesday (thus a total 

of $250), as well as any future 

undermargined amounts until Customer 

A cures its entire undermargined 

amount. Again, once a customer fails to 

meet a margin call within one business 

day, the FCM loses the one business day 

‘‘grace period’’ for that customer 

meeting any of its future margin calls, 

until the point in time at which the 

customer is no longer undermargined. 

The Commission proposes to amend 

regulation § 1.17(c)(5)(viii) to provide 

that an FCM that carries separate 

accounts for a separate account 

customer pursuant to proposed 

regulation § 1.44 must compute the 

amount of funds required to meet 

maintenance margin requirements for 

each separate account as if the account 

was owned by a distinct customer. 

However, if a margin call for any 

separate account of a separate account 

customer is outstanding for more than 

one business day, then (consistent with 

the treatment of multiple margin calls 

for a single customer described in the 

previous paragraph), no margin call for 

that separate account customer will 

benefit from the one business day grace 

period until the point in time at which 

all margin calls for the separate 

accounts of that separate account 

customer have been met in full. 

As discussed further below in the 

context of proposed regulation § 1.44(f), 

the concepts of margin calls that are 

outstanding no more than one business 

day (for purposes of § 1.17(c)(5)(viii)), 

and meeting a one business day margin 

call (for purposes of § 1.44(f)) are 

separate and distinct—it is possible that 

a separate account customer may meet 

the test for the first, but not the second, 

or may meet the test for the second, but 

not the first. 

The Commission notes that its 

proposed amendments to regulation 

§ 1.17 also include a number of 

technical changes designed to improve 

clarity and promote consistency with 

other Commission regulations.100

C. Proposed Amendments to 

Regulations §§ 1.20, 1.32, 22.2, and 30.7 

As previously stated, a fundamental 

purpose of the CEA is to provide for the 

protection of market participants from 

misuses of customer assets.101

Regulations §§ 1.32, 22.2(g), and 30.7(l) 

are designed in part to further this 

purpose by requiring each FCM carrying 

accounts for futures customers, Cleared 

Swaps Customers, or 30.7 customers, 

respectively, to perform a daily 

computation of, and to prepare a daily 

record demonstrating compliance with, 

the FCM’s obligation to hold a sufficient 

amount of funds in designated customer 

segregated accounts to meet the 

aggregate credit balances of all of the 

FCM’s futures customers, Cleared 

Swaps Customers, and 30.7 

customers.102 An FCM is required to 

prepare the daily segregation 

calculations reflecting customer account 

balances as of the close of business each 

day, and to submit the applicable 

segregation statements electronically to 

the Commission and to the FCM’s DSRO 

by noon the next business day. 

The Commission is proposing to 

amend regulations §§ 1.32, 22.2, and 

30.7 to provide that an FCM that 

permits separate accounts pursuant to 

proposed regulation § 1.44 must perform 

its daily segregation calculations, and 

prepare its daily segregation statements, 

by treating the accounts of separate 

account customers as accounts of 

separate entities. The proposed 

amendments would add new paragraph 

(l) to regulation § 1.32, new paragraph 

(g)(11) to regulation § 22.2, and new 

paragraph (l)(11) to regulation § 30.7. 

The purpose of the proposed 

amendments is to establish the manner 

in which these existing segregation and 

reporting obligations apply to FCMs that 

permit separate accounts pursuant to 

proposed regulation § 1.44. Regulations 

§§ 1.32, 22.2, and 30.7 require an FCM 

to prepare one daily segregation 

computation, and submit one 

segregation schedule, for each of its 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds, respectively. The proposed 

amendments to regulations §§ 1.32, 

22.2(g), and 30.7(l) provide that an FCM 

that permits separate accounts, in 

preparing such computation and 

segregation schedule, would be required 

to record each separate account as if it 

was an account of a separate entity, and 

include all separate accounts with other 

futures accounts, Cleared Swaps 

Customer Accounts, and 30.7 accounts, 

as applicable, carried by the FCM that 

are not separate accounts. 

In addition, the proposed 

amendments would provide that an 

FCM, in computing its segregation 

obligations, may offset a net deficit in a 

particular separate account customer’s 

separate account against the current 

value of any readily marketable 

securities held by the FCM for the 

separate account customer, provided 

that the readily marketable securities are 

held as margin collateral for the specific 

separate account that is in deficit. 

Readily marketable securities held for 

other separate accounts of the separate 

account customer may not be used to 

offset the separate accounts that is in 

deficit.103 The proposed amendments to 

regulations §§ 1.32, 22.2(g), and 30.7(l) 

with respect to the offsetting of a net 

deficit in a customer’s account by the 

value of readily marketable securities 


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104See CFTC Letter No. 19–17 (providing, among 

other conditions for separate account treatment, 

that ‘‘[e]ach receivable from a separate account shall 

be ‘grossed up’ on the applicable segregation, 

secured or cleared swaps customer statement; thus, 

an FCM shall use its own funds to cover the debit/ 

deficit of each separate account.’’). 

105 17 CFR 22.2(f)(3). 

106 Id. 

107 In adopting the final regulation § 22.2(f), the 

Commission stated that proposed regulation 

§ 22.2(f) set forth an explicit calculation for the 

amount of Cleared Swaps Customer Collateral that 

an FCM must maintain in segregation that did not 

materially differ from the calculation of the amount 

of funds an FCM is required to hold in segregation 

under the Form 1–FR–FCM for futures customers. 

The Commission adopted final regulation § 22.2(f) 

as proposed. Protection of Cleared Swaps Customer 

Contracts and Collateral; Conforming Amendments 

to the Commodity Broker Bankruptcy Provisions; 

Final Rule, 77 FR 6336, at 6352–6353 (Feb. 7, 2012). 

108For example, if a Cleared Swaps Customer 

Account was comprised of cash of $300, securities 

of $200, and an unrealized loss on open Cleared 

Swaps of $600, the account would have a net equity 

debit balance of $100 under regulation § 22.2(f). 

There are no additional securities that the FCM may 

use to secure the $100 debit balance and, therefore, 

the FCM is required to increase its segregation 

requirement by $100 to ensure that there are 

sufficient funds in segregation to cover the FCM’s 

obligation to all Cleared Swaps Customers with a 

credit balance. 

109The Form 1–FR–FCM Instructions Manual 

provides that a customer account is in deficit when 

the combination of the account’s cash ledger 

balance, unrealized gain or loss on open futures 

contracts, and the value of open option contracts 

liquidates to an amount less than zero. The manual 

explicitly provides that ‘‘[a]ny securities used to 

margin the account are not included in determining 

a customer’s deficit.’’ 1–FR–FCM Instructions 

Manual, p. 10–2. Accordingly, an FCM would 

exclude the value of any readily marketable 

securities from the calculation of the customer’s 

account balance. The 1–FR–FCM Instructions 

Manual is available on the Commission’s website at: 

www.cftc.gov/sites/default/files/idc/groups/public/ 

@iointermediaries/documents/file/1frfcminstructions.pdf. 

110 17 CFR 1.32(b). Applying the calculation in 

regulation § 1.32 to Cleared Swaps, if a Cleared 

Swaps Customer Account was comprised of cash of 

$300, securities of $200, and an unrealized loss on 

open Cleared Swaps of $600, the account would 

have a net equity debit balance of $300, as the value 

of the securities is not included in the calculation 

($300 cash less $600 in unrealized losses, results in 

a $300 debit balance). The FCM may offset the $300 

debit balance by $170, which represents the value 

of the readily marketable securities held in the 

account as collateral ($200 fair market value of the 

securities, less a $30 haircut). The FCM is then 

required to include $130 in its segregation 

requirement, which represents the amount of the 

unsecured debit balance remaining in the 

customer’s account (i.e., $300 debit balance, less 

$170 value of the securities after haircuts). 

held in the customer’s account are 

consistent with how an FCM currently 

offsets a net deficit in a customer’s 

account that is margined by securities. 

In addition, the proposed amendments 

are consistent with the separate account 

conditions to the no-action position in 

CFTC Letter No. 19–17.104

The Commission is also proposing to 

amend regulation § 22.2(f) to revise the 

regulatory description of the stated 

calculation of the total amount of funds 

that an FCM is required to hold in 

segregation for Cleared Swaps 

Customers. The proposed amendment 

would (i) correct an error included in 

the drafting of the description of the 

calculation when the regulation was 

originally adopted in 2012; and (ii) align 

the regulatory text describing the 

segregation calculation set forth in 

regulation § 22.2(f) with the calculation 

performed on the Cleared Swaps 

Segregation Statement that is submitted 

to the Commission each day by FCMs 

with Cleared Swaps Customers pursuant 

to regulation § 22.2(g). The proposed 

amendment would be applicable across 

FCMs with Cleared Swaps Customers, 

whether or not such FCMs maintain 

separate accounts. 

The segregation calculation required 

by regulation § 22.2(f) is intended to 

ensure that an FCM holds, at all times, 

a sufficient amount of funds in 

segregation to cover its total financial 

obligation to all Cleared Swaps 

Customers. Compliance with the 

segregation requirements helps ensure 

that an FCM is not using the funds of 

one Cleared Swaps Customer to cover a 

deficit in the Cleared Swaps Customer 

Account of another Cleared Swaps 

Customer, and further helps ensure that 

an FCM holds sufficient funds in 

segregation to transfer the Cleared 

Swaps Customer Accounts, including 

the Cleared Swaps and the Cleared 

Swaps Customer Collateral, to a 

transferee FCM if the transferor FCM 

becomes insolvent. 

To achieve the regulatory objective 

noted above, regulation § 22.2(f)(2) 

currently requires an FCM to calculate 

its minimum segregation requirement as 

the sum of the net liquidating equities 

of each Cleared Swaps Customer 

Account with a positive account balance 

carried by the firm. The net liquidating 

equity of a Cleared Swaps Customer 

Account is explicitly calculated as the 

sum of the market value of any funds 

held in the Cleared Swaps Customer 

Account of a Cleared Swaps Customer 

(including readily marketable 

securities), as adjusted positively or 

negatively by, among other things, any 

unrealized gains or losses on open 

Cleared Swaps positions, the value of 

open long option positions and short 

option positions, fees charged to the 

account, and authorized withdrawals. 

To the extent that the calculation results 

in a net liquidating equity that is 

positive, the Cleared Swaps Customer 

Account has a credit balance.105 To the 

extent that the calculation results in a 

net liquidating equity that is negative, 

the Cleared Swaps Customer Account 

has a debit balance.106 Regulation 

§ 22.2(f)(4) provides that an FCM must

hold, at all times, a sufficient amount of

funds in segregation to meet the total

net liquidating equities of all Cleared

Swaps Customer Accounts with credit

balances, and further provides that the

FCM may not offset this total by any

Cleared Swaps Customer Accounts with

debit balances.

With respect to Cleared Swaps 

Customer Accounts with debit balances, 

regulation § 22.2(f)(5) further requires 

the FCM to include in the total funds 

required to be held in segregation all 

debit balances to the extent secured by 

readily marketable securities held for 

the particular Cleared Swaps Customers 

that have debit balances. The required 

addition of debit balance accounts in 

regulation § 22.2(f)(5) was intended to 

be consistent with the long-standing 

Futures Segregation Statement 

contained in the Form 1–FR–FCM and 

the Form 1–FR–FCM Instructions 

Manual.107 An error, however, was 

made in drafting the description of the 

details of the segregation calculation in 

regulation § 22.2(f)(5). Specifically, as 

noted above, regulation § 22.2(f)(5) 

requires an FCM to include in the total 

segregation requirement any Cleared 

Swaps Customer Accounts with debit 

balances that are secured by readily 

marketable securities. However, the full 

value of the readily marketable 

collateral is part of the calculation of the 

net liquidating equity of the account. 

Therefore, a Cleared Swaps Customer 

Account with a debit balance would 

never have additional readily 

marketable securities available to offset 

a debit balance.108

The segregation calculation required 

under regulation § 1.32 for futures 

accounts, and the Commission’s Form 

1–FR–FCM and related Form 1–FR– 

FCM Instructions Manual, differs from 

the description as currently written in 

regulation § 22.2(f)(4) and (5) with 

respect to the offsetting of debit 

balances by readily marketable 

securities. Specifically, an FCM is 

required to calculate the net equity of 

each futures customer excluding the 

value of any noncash collateral held in 

the account.109 If the calculation results 

in a debit balance, the FCM is permitted 

to offset the debit balance by the fair 

market value of any readily marketable 

securities (after application of 

applicable securities haircuts set forth 

in the regulation).110

As noted above, the proposed 

amendments to regulation § 22.2(f)(4) 

and (5) are intended to correct the 

description of the segregation 

calculation and to make it consistent 


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111Enhancing Protections Afforded Customers 

and Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506, 68543 (Nov. 14, 2013) (discussing the 

Commission’s intent to adopt regulation § 1.20(i) 

consistent with the corresponding requirements in 

regulation § 22.2(f)); id. at 68576 (discussing the 

Commission’s intent for the daily segregation 

calculation for 30.7 accounts to be consistent with 

the requirements for the daily segregation 

calculations for futures customer funds in 

regulation § 1.32). 112FIA Comment Letter. 

with how FCMs calculate their total 

Cleared Swaps segregation obligations 

under regulation § 22.2(g), with how 

FCMs report their total segregation 

requirements on the Cleared Swaps 

Segregation Statement, and with the 

segregation calculation requirements for 

futures accounts under regulation 

§ 1.32. Thus, the proposed amendments 

are not expected to have any effect on 

FCMs. 

In addition, the Commission is 

proposing to amend regulations 

§§ 1.20(i) and 30.7(f), which require an 

FCM carrying futures accounts and 30.7 

accounts, respectively, to calculate its 

total segregation requirements in a 

manner that is consistent with current 

regulation § 22.2(f). As with the 

proposed amendment to regulation 

§ 22.2(f), the proposed amendments to 

regulations §§ 1.20(i) and 30.7(f) apply 

across FCMs that maintain futures 

customer accounts or 30.7 customer 

accounts, respectively, whether or not 

such FCMs maintain separate accounts. 

The Commission adopted current 

regulations §§ 1.20(i) and 30.7(f) in 

2013. The final regulations, however, 

did not include the provision set forth 

in regulation § 22.2(f)(5) requiring an 

FCM to include any secured debit 

balances in its segregation requirement. 

This omission was unintentional, as the 

Commission expressed its intent to 

‘‘mirror’’ the requirements of regulation 

§ 22.2(f) in regulation § 1.20(i) (and 

effectively regulation § 30.7(f)).111

To address the omission, the 

Commission is proposing to amend 

regulations §§ 1.20(i) and 30.7(f) to 

reflect the requirement for an FCM to 

include in the calculation of its futures 

and foreign futures segregation 

requirement any unsecured customer 

debit balances, calculated consistent 

with the proposed amendments to 

regulation § 22.2(f)(4) and (5) that are 

discussed above. The proposed 

amendments to regulations §§ 1.20(i) 

and 30.7(f) would accurately describe 

and reflect the existing segregation 

calculations for futures, foreign futures, 

and Cleared Swaps as originally 

intended. The proposed amendments to 

regulations §§ 1.20(i) and 30.7(f) are not 

expected to have any impact on FCMs 

as the firms currently calculate their 

segregation requirements by including 

customer unsecured debit balances. 

D. Proposed Regulation § 1.44(a) 

Proposed regulation § 1.44 will 

represent a discrete set of regulations, 

first directly requiring FCMs to avoid 

returning margin to customers where 

doing so would create or exacerbate a 

margin deficiency in the customer’s 

account, but then allowing FCMs to 

provide for separate account treatment 

within the Commission’s broader 

regulatory framework for FCMs. As 

such, proposed regulation § 1.44 

contains a number of terms that are 

specific to proposed regulation § 1.44, 

but are not applicable, or are not 

applicable in the same manner, with 

respect to other of the Commission’s 

FCM regulations. The Commission 

therefore proposes to add new 

regulation § 1.44(a) to define certain 

terms ‘‘only for purposes of this 

section’’ (i.e., proposed regulation 

§ 1.44). 

The Commission proposes to define 

‘‘account’’ for purposes of proposed 

regulation § 1.44 as meaning a futures 

account, a Cleared Swaps Customer 

Account (both of which are defined in 

regulation § 1.3, which definitions apply 

broadly to all CFTC regulations) or a 

§ 30.7 account (as defined in regulation 

§ 30.1). This definition is intended to 

implement the proposed Margin 

Adequacy Requirement and 

requirements for separate account 

treatment subject to such Margin 

Adequacy Requirement, with respect to 

accounts of all three types. This 

definition was not included in the First 

Proposal. 

The Commission also proposes in 

proposed regulation § 1.44(a) to further 

define ‘‘business day,’’ as having the 

same meaning as set forth in regulation 

§ 1.3, but with the clarification that 

‘‘holiday’’ refers to Federal holidays as 

established by 5 U.S.C. 6103. As noted 

above, this definition is similar to the 

definition of ‘‘United States business 

day’’ included in the First Proposal. In 

its comment responding to the First 

Proposal, FIA noted that the term 

‘‘United States business day’’ accounts 

for days that banks are open, but may 

not encompass days when other 

markets, such as securities markets, are 

closed, which could make it difficult to 

meet margin calls by liquidating certain 

instruments.112 The Commission 

requests further comment on this term, 

below. 

Relatedly, the Commission proposes 

to define ‘‘one business day margin 

call’’ as a margin call that is issued and 

met in accordance with the 

requirements of proposed regulation 

§ 1.44(f). The First Proposal did not 

include this definition, although it 

contained provisions that, similar to 

proposed regulation § 1.44(f), further 

explained when an FCM would be 

considered in compliance with a one 

business day margin call. As noted 

above, this definition (along with all of 

the definitions in proposed regulation 

§ 1.44(a)) applies only for purposes of 

proposed regulation § 1.44, thus, this 

definition of ‘‘one business day margin 

call’’ is not intended to apply in any 

other context. 

Under proposed regulation § 1.44, an 

FCM may engage in separate account 

treatment only when it, and its 

customer, are operating within the 

‘‘ordinary course of business,’’ as that 

term is defined in the proposed 

regulation. The Commission proposes to 

define ‘‘ordinary course of business’’ as 

meaning the standard day-to-day 

operation of the FCM’s business 

relationship with its separate account 

customer, a condition where there are 

no unusual circumstances that might 

indicate a materially increased level of 

risk that the separate account customer 

may fail promptly to perform its 

financial obligations to the FCM, or 

decreased financial resilience on the 

part of the FCM. As noted in the 

proposed definition, proposed 

regulation § 1.44(e) sets out 

circumstances that are inconsistent with 

the ordinary course of business, and the 

occurrence of which would require a 

cessation of separate account treatment. 

This definition of ‘‘ordinary course of 

business’’ is unchanged from the First 

Proposal, except that it replaces the 

term ‘‘customer’’ with the term 

‘‘separate account customer.’’ 

Comments received regarding the 

definition of ‘‘ordinary course of 

business’’ are addressed in connection 

with proposed regulation § 1.44(e) 

below, which enumerates events that 

are inconsistent with the ordinary 

course of business. 

The Commission also proposes to 

define ‘‘separate account’’ as meaning 

any one of multiple accounts of the 

same separate account customer that are 

carried by the same FCM. The definition 

of this term is the same as in the First 

Proposal, except that it replaces 

‘‘customer’’ with ‘‘separate account 

customer’’ and excludes the criteria that 

the FCM be a clearing member of a DCO. 

The Commission did not receive 

comments on the definition of this term 

in the First Proposal. 

As noted above, the Commission 

proposes to define ‘‘separate account 

customer’’ as meaning a customer for 


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113The definition of ‘‘undermargined amount’’ in 

proposed regulation § 1.44(a) is different from, and 

simpler than, the definitions of ‘‘undermargined 

amount’’ for the purpose of residual interest 

calculations in regulations §§ 1.22(c)(1), 

22.2(f)(6)(i), and 30.7(f)(1)(ii). The calculations in 

the latter cases are required to take into account 

information at the close of business on day T–1 that 

will be used to calculate a residual interest 

requirement on day T, as well as payments that may 

be received on day T, and the elimination of double 

counting of debit balances. 

114The definition of ‘‘undermargined amount’’ in 

proposed regulation § 1.44(a) further provides that, 

with respect to positions for which maintenance 

margin is not specified, ‘‘margin requirements’’ 

shall refer to the initial margin required for such 

positions. 

115 ‘‘Performance bond’’ secures the performance 

by a customer to meet its variation margin payment 

obligations to its FCM (or the performance of 

variation margin payment obligations of an FCM to 

the clearinghouse, or to an intermediary upstream 

FCM). 

116See, e.g., regulations §§ 1.32(b) and 

22.2(f)(5)(iii). 

117See, e.g., CME Rule 930.C, ICE Futures U.S. 

Rule 5.03(j). 

118Consistent with the existing Margins 

Handbook, the Margin Adequacy Requirement is 

based on initial margin requirements rather than 

any lower maintenance margin requirement. See 

JAC Margins Handbook at p. 10–1 (‘‘Margin Funds 

Available for Disbursement = Net Liquidating Value 

+ Margin Deposits¥Initial Margin Requirement 

≥0’’); see also supra n. 14 and accompanying text. 

which the FCM has elected to engage in 

separate account treatment. This 

definition was not included in the First 

Proposal. 

Lastly, the Commission proposes to 

define ‘‘undermargined amount’’ for an 

account as meaning the amount, if any, 

by which the customer margin 

requirements with respect to all 

products held in that account, exceeds 

the net liquidating value plus the 

margin deposits currently remaining in 

that account.113 The definition notes 

that for purposes of this definition, 

‘‘margin requirements’’ shall mean the 

level of maintenance margin or 

performance bond (including, as 

appropriate, the equity component or 

premium for long or short option 

positions) required for the positions in 

the account by the applicable exchanges 

or clearing organizations.114 This 

clarification (which is drawn from the 

definition of risk margin in regulation 

§ 1.17(b)(8)) is in recognition of the 

difference between exchange (or 

clearing organization) requirements for 

‘‘initial margin’’ and ‘‘maintenance 

margin.’’ However, here, in distinction 

to risk margin, the equity component or 

premium for long or short option 

positions is included, since those are 

part of the total required level of margin. 

‘‘Initial margin’’ is the amount of margin 

(otherwise known as ‘‘performance 

bond’’ 115 in this context) required to 

establish a position. Some (though not 

all) contract markets and clearing 

houses establish ‘‘maintenance margin’’ 

requirements that are less than the 

corresponding initial margin 

requirement.’’ Where, due to adverse 

market movements, the amount of 

margin on deposit is less than the initial 

margin requirement, but greater than or 

equal to maintenance margin, the FCM 

is not required to (though it may) call 

additional margin from the customer. 

Once the amount of margin on deposit 

is less than the maintenance margin 

required, the FCM must call the 

customer for enough margin to meet the 

initial margin level. 

The Commission uses this term in 

connection with proposed regulation 

§ 1.44(f) in defining the requirements for 

making and meeting a one business day 

margin call, as well as in regulation 

§ 1.44(g) in setting LSOC compliance 

calculations for separate accounts. This 

definition was not included in the First 

Proposal. 

Request for Comment 

Question 4: How should the proposed 

definition of ‘‘business day’’ address 

days when securities and other markets 

are closed? For instance, should the 

Commission address in the definition 

days when such other markets are open, 

or create an exception for days when 

such markets are closed on a 

prescheduled basis? (E.g., a requirement 

rolls over to the next day that the market 

is open.) What liquidity challenges or 

other risks would result from such an 

exception? How do FCMs and 

customers currently address these 

cases? 

Question 5: In the proposed definition 

of ‘‘undermargined amount’’ in 

proposed regulation § 1.44(a), the term 

‘‘margin deposits currently remaining’’ 

does not include a deduction for 

‘‘haircuts’’ on non-cash collateral or 

collateral posted in alternate currencies. 

This is consistent with the approach 

taken with respect to calculating 

undermargined amounts for purposes of 

determining requirements for residual 

interest in regulations §§ 1.22(c)(1), 

22.2(f)(6)(i), and 30.7(f)(1)(ii). By 

contrast, in a number of cases, 

Commission regulations require FCMs, 

in determining the amount of customer 

debit/deficit balances secured by readily 

marketable securities, to apply 

securities haircuts set forth in SEC Rule 

15c3–1(c)(2).116 Similarly, some 

exchanges require members, in 

determining the amount of margin they 

are required to collect from their 

customers, to apply haircuts to 

securities collateral in amounts 

consistent with SEC Rule 240.15c3–1, 

and to apply haircuts to commodities in 

amounts consistent with the inventory 

haircuts specified in Commission 

regulation § 1.17(c)(5)(ii).117

Should the definition of 

‘‘undermargined amount’’ apply 

haircuts to the value of customer 

collateral held by the FCM? If so, should 

the amount of such haircuts be based on 

SEC rule 240.15c3–1 and Commission 

regulation § 1.17(c)(5)(ii), or some other 

basis? 

E. Proposed Regulation § 1.44(b) 

As discussed above, the Commission 

proposes regulation § 1.44(b) to apply 

directly to FCMs, whether clearing or 

non-clearing, the same Margin 

Adequacy Requirement that DCOs are 

required to apply to their clearing FCMs 

pursuant to regulation § 39.13(g)(8)(iii). 

Proposed regulation § 1.44(b) provides 

that an FCM shall ensure that a 

customer does not withdraw funds from 

its accounts with such FCM unless the 

net liquidating value plus the margin 

deposits remaining in the customer’s 

account after such withdrawal are 

sufficient to meet the customer initial 

margin requirements with respect to all 

products held in such customer’s 

account, except as provided in proposed 

regulation § 1.44(c), which allows for 

separate account treatment under 

ordinary course of business 

conditions.118

The Commission acknowledges that 

real-time calculation of margin 

adequacy with respect to a potential 

withdrawal may prove impracticable. 

Instead, the Commission seeks to 

articulate a standard for the time as of 

which such calculation shall be made 

that is consistent with the Commission’s 

requirements for calculation of 

undermargined amounts for purposes of 

an FCM’s residual interest calculations. 

Regulations §§ 1.22(c)(2), 22.2(f)(6)(ii), 

and 30.7(f)(ii)(B) require each FCM to 

compute such undermargined amounts 

based on the information available to 

the FCM as of the close of each business 

day for futures customer accounts, 

Cleared Swaps Customer Accounts, and 

30.7 accounts, respectively. To ensure 

such consistency, proposed regulation 

§ 1.44(b)(1) provides that the sufficiency 

of the amount in a customer’s account 

to meet customer initial margin 

requirements following a potential 

withdrawal shall be calculated as of 

close of business on the previous 

business day. 

In order to address circumstances in 

which the previous day is a holiday on 

which markets, but not banks, may be 

open, proposed regulation § 1.44(b)(2) 

further provides that, for purposes of 


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119Proposed regulation § 1.44(b)(2), and proposed 

regulation § 1.44(f)(7), discussed below, are 

consistent with JAC Regulatory Alert 22–02, which 

provides that an FCM must issue margin calls to 

customers on holidays where futures markets are 

open and U.S. banks are closed. The margin calls 

are calculated based on information as of the close 

of the previous business day (i.e., the business day 

prior to the holiday) and the FCM does not count 

the holiday for purposes of aging the margin call. 

JAC Regulatory Alert 22–01, Mar. 30, 2022, 

available at www.jacfutures.com. 

120Cf. CEA 4d(a)(2), 7 U.S.C. 6d(a)(2) (an FCM 

may not use the money or property of one customer 

‘‘to margin or guarantee the trades or contracts, or 

to secure or extend the credit, of any customer or 

person other than the one for whom the same are 

held.’’) 

121 7 U.S.C. 6d(a)(2), 6d(f)(2), and 6(b)(2)(A). 

122CEA 3(b), 7 U.S.C. 5(b). See, as discussed 

above, section 8a(5) of the CEA, 7 U.S.C. 12a(5), 

authorizing the Commission to make and 

promulgate such rules and regulation as in the 

Commission’s judgment are reasonably necessary to 

effectuate any of the provisions, or to accomplish 

any of the purposes, of the CEA. 

123As noted above, proposed regulation § 1.44(b) 

is intended to serve as an analog to regulation 

§ 39.13(g)(8)(iii) for FCMs. 

124See CEA 3(b), 8a(5). 

125See 17 CFR 1.12(n)(3). Once an FCM provides 

notice in the first instance that it will apply 

separate account treatment to one or more 

customers, it would not be required to provide the 

same notification each time it applies separate 

account treatment to a new or additional customer. 

proposed regulation § 1.44(b)(1)’s 

margin adequacy calculation 

requirements, where the previous day 

(excluding Saturdays and Sundays) is a 

holiday, as defined in proposed 

regulation § 1.44(a), where any DCM on 

which the FCM trades is open for 

trading, and where an account of any of 

the FCM’s customers includes positions 

traded on such a market, the margin 

adequacy calculation shall instead be 

made as of the close of business on such 

holiday.119

The Commission notes that proposed 

regulation § 1.44(b)’s requirements 

related to the timing of the margin 

adequacy calculation required by the 

same section are intended to represent 

a minimum standard, and are not 

intended to prevent an FCM from 

exercising its judgment in connection 

with good risk management practice to 

prevent the disbursement of customer 

funds based on intervening intraday 

market movements resulting in losses to 

a customer account between the 

calculation benchmark set forth in 

proposed regulation § 1.44(b) and the 

time at which a customer requests to 

withdraw funds. Ensuring that 

customers do not withdraw funds from 

their accounts at FCMs if such 

withdrawal would create or exacerbate 

an initial margin shortfall is reasonably 

necessary from a risk management 

perspective, in that it reduces the 

likelihood and extent of the risk that the 

FCM must cover losses due to a default 

by the customer on obligations that 

exceed the margin actually held by the 

FCM. Similarly, because customer funds 

are held by an FCM in omnibus 

accounts, this prohibition will reduce 

the likelihood and extent of the risk that 

the FCM will effectively use the margin 

of other customers to ‘‘margin or 

guarantee the trades or contracts, or to 

secure or extend the credit of’’ a 

customer that was permitted to 

withdraw margin in a manner that 

created or exacerbated an 

undermargined condition,120 whether 

the duty to prevent such withdrawals 

falls on DCOs acting on their member 

FCMs, or directly on FCMs. Because 

regulation § 39.13(g)(8)(iii) applies only 

to DCOs (which in turn can only apply 

regulation § 39.13(g)(8)(iii)’s Margin 

Adequacy Requirement to their clearing 

member FCMs), and given the strong 

trend of the comments in favor of 

addressing these issues in a manner 

uniform among all types of FCMs 

directly in part 1 rather than indirectly 

through part 39, the Commission now 

views it as reasonably necessary to 

extend to all FCMs the requirement to 

prevent such under-margining 

scenarios. 

Accordingly, the Commission 

preliminarily believes that proposed 

regulation § 1.44(b), which will apply a 

similar Margin Adequacy Requirement 

directly to FCMs, both clearing and nonclearing, would further serve to protect 

customer funds and mitigate systemic 

risk, thus effectuating CEA section 

4d(a)(2), 4d(f)(2), and 4(b)(2)(A) 121 and 

accomplishing the purposes of 

‘‘avoidance of systemic risk’’ and 

‘‘protecting all market participants from 

. . . misuses of customer assets.’’ 122

F. Proposed Regulation § 1.44(c) 

Proposed regulation § 1.44(c) sets 

forth the fundamental terms and 

conditions for separate account 

treatment. As a general matter, those 

terms and conditions are substantially 

the same as in CFTC Letter No. 19–17, 

and in the First Proposal, except that the 

FCM may choose to engage in separate 

account treatment without a DCO 

specifically authorizing such treatment. 

Proposed regulation § 1.44(c) provides 

that an FCM may, only during the 

ordinary course of business, as that term 

is defined in proposed regulation § 1.44, 

treat the separate accounts of a separate 

account customer as accounts of 

separate entities for purposes of 

proposed regulation § 1.44(b),123 if such 

FCM elects to do so as specified in 

proposed regulation § 1.44(d). Proposed 

regulation § 1.44(c) further provides that 

an FCM that has made such an election 

shall comply with the risk-mitigating 

conditions set forth further in proposed 

regulation § 1.44 and maintain written 

internal controls and procedures 

designed to ensure such compliance. 

The Commission preliminarily 

believes that permitting FCMs to treat 

the separate accounts of separate 

account customers as accounts of 

separate entities for purposes of 

proposed regulation § 1.44(b), subject to 

the risk-mitigating conditions set forth 

further in proposed regulation § 1.44, 

accomplishes the CEA’s purpose of 

promoting responsible innovation, 

while also maintaining continuity of 

robust customer fund protection and 

risk mitigation.124 Compliance with 

those conditions can best be achieved if 

the FCM maintains written internal 

controls and procedures designed to 

ensure such compliance. 

G. Proposed Regulation § 1.44(d) 

Proposed regulation § 1.44(d) 

provides that an FCM may elect to treat 

the separate accounts of a customer as 

accounts of separate entities for 

purposes of proposed regulation 

§ 1.44(b). In order to do so, an FCM shall 

include the customer on a list of 

separate account customers maintained 

in its books and records. Such list shall 

include the identity of each separate 

account customer, as well as the 

identity of each separate account of 

such customer. The FCM is required to 

keep such list current. Furthermore, the 

first time that an FCM chooses to 

include a customer on a list of separate 

account customers, the FCM is required 

to provide notification of the election to 

allow separate account treatment for 

customers in accordance with the 

process specified in regulation 

§ 1.12(n)(3).125 For the avoidance of 

doubt, the notification of such election 

would remain a one-time notification 

made the first time the FCM begins 

providing separate account notification 

for a customer. Successive notifications 

would not be required for each 

additional customer for which the FCM 

provides separate account treatment. 

Furthermore, the FCM would need only 

provide notification of the election, and 

would not be required to include the 

identity of the separate account 

customer. Proposed regulation § 1.44(d) 

is intended to ensure that DSROs are 

able effectively to monitor and regulate 

FCMs that engage in separate account 

treatment, and that FCMs have the 

records necessary to understand which 

accounts receive separate account 

treatment for purposes of monitoring 


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126 JAC Comment Letter. 

127CME Comment Letter. 

128For example, while the bankruptcy of an FCM 

or a separate account customer would have direct 

effects, the bankruptcy of an FCM or separate 

account customer’s parent company would also 

portend financial challenges for, respectively, the 

FCM or separate account customer (e.g., if the 

parent company decided to liquidate its 

subsidiaries in bankruptcy). Experience in the 

bankruptcies of, e.g., Refco and Lehman, 

demonstrates that when one member of an affiliate 

financial company structure files for bankruptcy, 

other affiliates soon follow. 

129 I.e., the one business day margin call 

requirement. 

130E.g., the SEC or a foreign regulator. 

131 In this context, the term ‘‘initiate an action’’ 

is intended to include the filing of a complaint or 

a petition to take action against an entity, or an 

analogous process. The initiation or conduct of an 

investigation would not be sufficient to constitute 

‘‘initiating an action’’ in this context. 

compliance with the proposed 

regulation. 

The First Proposal proposed to 

require a clearing FCM to (i) provide a 

one-time notification to its DSRO and 

any DCO of which it is a clearing 

member that it will apply such 

treatment; (ii) maintain and keep 

current a list of all separate accounts 

receiving such treatment; and (iii) 

conduct a review of such records of 

accounts receiving separate treatment 

no less than quarterly. 

With respect to the proposed one-time 

notice requirement for separate account 

treatment, the JAC in its comment 

contended that such notice (and other 

notices required under the First 

Proposal) should be made to any DCO 

permitting separate account treatment of 

which a clearing FCM is a member, but 

should not be required to be provided 

to the clearing FCM’s DSRO, as 

monitoring for compliance with 

separate account treatment requirements 

would not fall under the oversight of the 

DSRO.126 Because the Commission is no 

longer proposing to codify the no-action 

position in CFTC Letter No. 19–17 in 

part 39, it is no longer proposing to 

require that notifications made to 

DSROs additionally be made to every 

DCO of which the notifying FCM is a 

member. Furthermore, the Commission 

believes notice to the Commission, and 

to DSROs (who review FCMs’ 

compliance with the Commission’s part 

1 regulations) pursuant to proposed 

regulation § 1.44(d)(2) is proper. 

With respect to the proposed 

recordkeeping requirement, CME 

opined in its comment that clearing 

FCMs should be required to be able to 

produce, upon request of the relevant 

DCO or the Commission, a current list 

of accounts receiving separate 

treatment.127 The Commission believes 

such requirement is already provided 

for by the requirement in proposed 

regulation § 1.44(d) to maintain and 

keep current such a list, combined with 

Commission regulation § 1.31(d)’s 

requirement for records entities to 

produce regulatory records promptly 

upon request by Commission 

representatives. 

The Commission notes that, in 

proposing the recordkeeping 

requirement in this Second Proposal, it 

has determined not to include the First 

Proposal’s proposed requirement that an 

FCM review records of accounts 

receiving separate treatment no less 

than quarterly, as the Commission views 

the objective of such requirement—the 

keeping of accurate and current 

records—as being subsumed by this 

Second Proposal’s proposed 

requirement to maintain and keep 

current a list of accounts receiving 

separate treatment. 

H. Proposed Regulation § 1.44(e) 

Proposed regulation § 1.44(e) 

enumerates events that would be 

inconsistent with the ordinary course of 

business, as that term is defined in 

proposed regulation § 1.44(a), and sets 

forth requirements related to the 

cessation and resumption of permitting 

disbursements on a separate account 

basis upon, respectively, the occurrence 

and cure of certain non-ordinary course 

of business events. Each of these events 

would raise important concerns about 

the financial resiliency of the FCM or 

one or more of its separate account 

customers.128

These events are divided into two 

categories: (i) those that concern the 

separate accounts of a particular 

separate account customer, and the 

occurrence of any one of which would 

require the FCM to cease permitting 

disbursements on a separate account 

basis with respect to all accounts of that 

customer; and (ii) those that concern the 

financial status of the FCM itself, and 

the occurrence of any one of which 

would require the FCM to cease 

permitting disbursements on a separate 

account basis with respect to all of its 

separate account customers. 

It is important to note, however, that 

under this proposal, while a separate 

account customer is outside the 

ordinary course of business as defined 

in proposed regulation § 1.44(a), it is 

only the privilege of permitting 

disbursements on a separate account 

basis, pursuant to proposed regulation 

§ 1.44(c), with respect to that customer 

and that customer’s separate accounts, 

that is terminated (or suspended). So 

long as a customer remains a separate 

account customer, whether or not 

within the ordinary course of business, 

then the FCM is required to comply 

with the requirements in proposed 

regulation §§ 1.44(g) and (h), including 

with respect to the relevant provisions 

addressed in regulations §§ 1.17, 1.20, 

1.22, 1.23, 1.32, 1.55, 1.58, 1.73, 22.2, 

30.7, and 39.13(g)(8)(i) with respect to 

that customer and all of that customer’s 

separate accounts. Similarly, if it is the 

FCM that is outside the ordinary course 

of business, it is only the privilege of 

permitting disbursements on a separate 

account basis with respect to any of the 

FCM’s separate account customers and 

their separate accounts that is 

terminated (or suspended). The FCM 

continues to be required to comply with 

the requirements in regulation §§ 1.44(g) 

and (h), including with respect to the 

relevant provisions described above, 

with respect to all of its separate 

account customers and their separate 

accounts. 

The first category of events is as 

follows: 

• (1)(i) The separate account 

customer, including any separate 

account of such customer, fails to 

deposit initial margin or maintain 

maintenance margin or make payment 

of variation margin or option premium 

as specified in proposed regulation 

§ 1.44(f).129

• (ii) The occurrence and declaration 

by the FCM of an event of default as 

defined in the account documentation 

executed between the FCM and the 

separate account customer. 

• (iii) A good faith determination by 

the FCM’s CCO, one of its senior risk 

managers, or other senior manager, 

following such FCM’s own internal 

escalation procedures, that the separate 

account customer is in financial 

distress, or there is significant and bona 

fide risk that the separate account 

customer will be unable promptly to 

perform its financial obligations to the 

FCM, whether due to operational 

reasons or otherwise. 

• (iv) The insolvency or bankruptcy 

of the separate account customer or a 

parent company of such customer. 

• (v) The FCM receives notification 

that a board of trade, a DCO, a selfregulatory organization (SRO) as defined 

in regulation § 1.3 or section 3(a)(26) of 

the Securities Exchange Act of 1934, the 

Commission, or another regulator 130

with jurisdiction over the separate 

account customer, has initiated an 

action 131 with respect to such customer 

based on an allegation that the customer 

is in financial distress. 

• (vi) The FCM is directed to cease 

permitting disbursements on a separate 

account basis, with respect to the 


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132CME Letter. 

133 Id. 134CME Comment Letter. 

separate account customer, by a board of 

trade, a DCO, an SRO, the Commission, 

or another regulator with jurisdiction 

over the FCM, pursuant to, as 

applicable, board of trade, DCO, or SRO 

rules, government regulations, or law. 

The second set of events is as follows: 

• (2)(i) The FCM is notified by a 

board of trade, a DCO, an SRO, the 

Commission, or another regulator with 

jurisdiction over the FCM, that the 

board of trade, the DCO, the SRO, the 

Commission, or other regulator, as 

applicable, believes the FCM is in 

financial or other distress. 

• (ii) The FCM is under financial or 

other distress as determined in good 

faith by its CCO, senior risk managers, 

or other senior management. 

• (iii) The insolvency or bankruptcy 

of the FCM or a parent company of the 

FCM. 

Proposed regulation § 1.44(e)(3) 

provides that the FCM must provide 

notice to its DSRO and to the 

Commission of the occurrence of any of 

the events suspending or terminating 

separate account treatment for one or 

more separate account customers. The 

notice must be provided to the DSRO 

and the Commission in accordance with 

the process specified in regulation 

§ 1.12(n)(3). The notice also must 

identify the event and, if applicable, the 

customer. The FCM would be required 

to provide such notice promptly in 

writing no later than the next business 

day following the date on which the 

FCM identifies or has been informed 

that the relevant event has occurred. 

The notification required upon exiting 

the ordinary course of business is 

intended to ensure that the Commission 

and DSROs will be apprised of the 

occurrence of non-ordinary course of 

business events, and will actively 

communicate with and monitor an FCM 

with respect to the resolution of such 

events (i.e., where an FCM attempts to 

reenter ordinary course of business 

conditions). 

Proposed regulation § 1.44(e)(4) 

provides an avenue for an FCM that has 

experienced a non-ordinary course of 

business event with respect to itself or 

a customer to return to the ordinary 

course of business and resume separate 

account treatment for itself or its 

customers, as may be the case. Proposed 

regulation § 1.44(e)(4) provides that an 

FCM that has ceased permitting 

disbursements on a separate account 

basis to a separate account customer due 

to the occurrence of a non-ordinary 

course of business event, with respect to 

that specific separate account customer, 

or with respect to all such customers, 

may resume permitting disbursements 

to such customer(s) on a separate 

account basis if such FCM reasonably 

believes, based on new information, that 

those circumstances triggering the event 

have been cured, and such FCM 

documents in writing the factual basis 

and rationale for its conclusion. 

However, proposed regulation 

§ 1.44(e)(4) also provides that, if the 

circumstances triggering cessation of 

separate account treatment were an 

action or direction by a board of trade, 

a DCO, an SRO, the Commission, or 

another regulator with jurisdiction over 

the separate account customer or the 

FCM, then cure of those circumstances 

would require the withdrawal or other 

appropriate termination of such action 

or direction by that entity. 

That permitting disbursements on a 

separate account basis should be 

discontinued (or at least suspended) 

under certain circumstances is reflected 

in CME’s recommendation, preceding 

issuance of CFTC Letter No. 19–17, that 

separate account treatment be permitted 

only during the ordinary course of 

business. As CME explained, FCMs 

should maintain the flexibility to 

determine that either the customer or 

the FCM itself is in distress and ‘‘pause’’ 

disbursements until the customer’s 

other account can demonstrably meet 

the call to deposit funds.132 Similarly, 

as CME noted, an FCM should not be 

purposely releasing funds to a customer 

when the customer’s overall account is 

in deficit, as doing so may create a 

shortfall in segregated, secured, or 

Cleared Swaps Accounts in the event 

the FCM becomes insolvent.133

However, the Commission 

acknowledges that in some instances, an 

FCM or customer may exit a state of 

financial, operational, or other distress, 

such that resumption of separate 

account treatment would be 

appropriate. By explicitly providing 

FCMs with an avenue to resume 

separate account treatment consistent 

with the resumption of the ordinary 

course of business, the Commission 

seeks to incentivize transparency 

between FCMs and their DSROs and 

Commission staff with respect to 

conditions at the FCMs or customers 

that could indicate operational or 

financial distress and, more generally, 

the risk management program at the 

FCM. 

Proposed regulation § 1.44(e) is 

designed to ensure that disbursements 

are permitted on a separate account 

basis only during the routine operation 

of the FCM’s business relationship with 

its customer. Certain events signaling 

financial or operational distress of the 

FCM or customer are inconsistent with 

the normal operation of the business 

relationship between the FCM and its 

customer. The Commission believes 

that, when such events occur, and 

throughout the duration of their 

occurrence, suspending FCMs’ ability to 

provide for separate account treatment 

with respect to the Margin Adequacy 

Requirement is reasonably necessary to 

accomplish the goals of protecting 

customer funds and mitigating systemic 

risk. 

The list of non-ordinary course of 

business events proposed herein, as 

well as the criteria and process for an 

FCM to resume separate account 

treatment, remains the same as 

proposed in the First Proposal, except 

that the Commission has changed 

certain aspects of the proposed 

regulation to account for placement of 

the requirement in part 1 (and thus 

applicability to all FCMs, including 

non-clearing FCMs), and notification of 

non-ordinary course of business events 

to the Commission and to the FCM’s 

DSRO through the process specified by 

regulation § 1.12(n)(3) (i.e., deleting the 

First Proposal’s separate requirement for 

a clearing FCM to provide notice to any 

DCO of which it is a member that it has 

experienced a non-ordinary course of 

business event (in addition to its DSRO, 

as provided for in CFTC Letter No. 19– 

17), and deleting the requirement for a 

clearing FCM to provide separate notice 

to its DSRO and any DCO of which it 

is a member that it will resume separate 

account treatment). 

In its comment responding to the First 

Proposal, CME recommended that the 

Commission add certain additional 

events to the list of non-ordinary course 

of business events: (1) when an FCM is 

under-capitalized; (2) when an FCM is 

not in compliance with segregated, 

secured, or Cleared Swaps 

requirements; (3) when an FCM has 

filed notice of non-current books and 

records; and (4) when an FCM has filed 

notice of a material inadequacy in 

internal controls that impact its ability 

to remain in compliance with 

Commission regulations.134 The JAC 

similarly recommended adding as nonordinary course of business event (1) 

when an FCM does not maintain 

required CFTC capital, futures customer 

funds, 30.7 customer funds, Cleared 

Swaps Customer Collateral, residual 

interest compliance or LSOC 

compliance, or does not comply with 

the First Proposal’s financial 

computation requirements; and (2) 

when the FCM does not maintain 

current books and records or has a 


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135 JAC Comment Letter. 

136See, e.g., regulation § 1.12, which requires an 

FCM to provide written notice to the Commission 

and to the firm’s DSRO if the FCM is 

undercapitalized (regulation § 1.12(a)); maintains a 

level of adjusted net capital that is below 

established ‘‘early warning levels’’ (regulation 

§ 1.12(b)); fails to maintain current books and 

records (regulation § 1.12(c)); discovers or is 

notified by an independent public accountant of the 

existence of any material inadequacy in the firm’s 

accounting system, the internal accounting controls, 

or the procedures for safeguarding customer and 

firm assets (regulation § 1.12(d)); is undersegregated 

with respect to futures customer funds, Cleared 

Swaps Customer Collateral, or 30.7 customer funds 

(regulation § 1.12(h)); or does not hold sufficient 

funds in segregated accounts to meet targeted 

residual interest amounts or maintains an amount 

of residual interest that is less than the sum of the 

undermargined amounts in customer accounts 

(regulation § 1.12(j)). 

137CME Comment Letter. 

138E.g., proposed regulation § 1.44(e)(1)(iii) (A 

good faith determination by the FCM’s CCO, one of 

its senior risk managers, or other senior manager, 

following such FCM’s own internal escalation 

procedures, that the separate account customer is in 

financial distress, or there is significant and bona 

fide risk that the separate account customer will be 

unable promptly to perform its financial obligations 

to the FCM, whether due to operational reasons or 

otherwise.) could encompass a wide variety of 

conditions that could result in a cessation of 

separate account treatment. 

139FIA Comment Letter. 

140 Id. 

141 JAC Comment Letter. 

142SIFMA–AMG Comment Letter. With respect to 

continuous monitoring, there are six events 

(proposed regulation § 1.44(e)(1)(i) through (vi)) that 

are ‘‘inconsistent with the ordinary course of 

business with respect to the separate accounts of a 

particular separate account customer.’’ The first 

three of these include a payment default and 

determinations by the FCM or its employees, all of 

which should otherwise be monitored by an FCM 

as part of its normal risk management. The last two 

involve cases where the FCM either ‘‘receives 

notification’’ or ‘‘is directed,’’ neither of which 

requires monitoring by the FCM. By proposed 

regulation § 1.44(e)(1)(iv), the FCM is required to 

monitor whether a separate account customer has 

become ‘‘insolvent or bankrupt’’—conditions that 

SIFMA–AMG agrees are outside the ordinary course 

of business. Monitoring for the insolvency or 

bankruptcy of a client would also appear to be a 

basic part of an FCM’s credit risk management, 

regardless of separate account treatment. 

143 Id. 

material inadequacy in internal 

controls.135 The foregoing events are 

generally matters for which an FCM 

must already make a report to, inter alia, 

the Commission and the DSRO pursuant 

to regulation § 1.12.136

CME additionally opined that the 

Commission should make clear that any 

FCM undergoing an event that in the 

FCM’s opinion is inconsistent with the 

ordinary course of business should be 

considered outside the ordinary course 

of business until such event is resolved, 

and clarify that the list of non-ordinary 

course of business events is not 

exhaustive and is subject to the 

discretion of the FCM in accordance 

with its risk management practices.137

In this Second Proposal, the 

Commission has determined not to 

adjust the list of non-ordinary course of 

business events, or add additional 

conditions to exiting or resuming 

separate account treatment, because the 

Commission believes the list of nonordinary course of business events 

proposed herein is sufficiently flexible 

to capture CME and JAC’s 

recommended additional non-ordinary 

course of business events, and is 

therefore not exhaustive.138 In addition, 

the FCM’s DSRO will generally have 

received notification of the occurrence 

of these events consistent with the 

requirements of regulation § 1.12, and 

could, if it deems necessary, take action 

that would result in the suspension of 

separate account treatment pursuant to 

proposed regulation § 1.44(e)(1)(vi) or 

(e)(2)(i). 

FIA opposed the further definition of 

‘‘ordinary course of business’’ through 

enumerated events, arguing that as long 

as a customer timely meets margin 

requirements and is not subject to 

bankruptcy, an FCM should be 

permitted to allow separate account 

treatment.139 The Commission notes 

that, while there may be commercial 

and operational merits to FIA’s more 

flexible proposed approach, a number of 

non-ordinary course of business events 

are anticipatory—intended to result in 

cessation of separate account treatment 

when the customer is in distress, but 

before such customer reaches the point 

of bankruptcy or not being able to post 

margin. FIA’s comment also does not 

consider non-ordinary course of 

business events occurring at the FCM, 

rather than just at the customer. 

FIA additionally asserted that 

requirements in the First Proposal for 

DCOs permitting separate account 

treatment to require their clearing FCMs 

to communicate to their DSRO and any 

DCO of which they are a member (i) the 

occurrence of non-ordinary course of 

business events and (ii) the resumption 

of a state of ordinary course of business, 

would create a new filing requirement 

without any perceived benefit and 

incorrectly imply that separate accounts 

and their customers pose particular risk 

management challenges.140 The 

Commission notes that, as a condition of 

the staff no-action position provided in 

CFTC Letter No. 19–17, a DCO 

permitting separate account treatment 

needed to require a clearing FCM to 

report to its DSRO the occurrence of a 

non-ordinary course of business event. 

The First Proposal’s proposed 

requirement to include any DCO of 

which a clearing FCM is a member as an 

additional recipient for reports required 

of the FCM, would no longer apply 

under this proposal. 

The JAC in its comment argued that 

an FCM exiting or reentering the 

ordinary course of business (as well as 

starting separate account treatment) 

should not be required to notify its 

DSRO of that fact on grounds that 

monitoring for compliance with the 

proposed separate account treatment 

does not fall under the oversight 

responsibilities of an SRO, DSRO, or the 

JAC, and that it would not make sense 

for a DCO to implement rules that 

would require a clearing FCM to notify 

its DSRO of activity specifically 

governed by the DCO’s rules.141 Under 

this Second Proposal, however, separate 

account treatment will be governed by 

the Commission’s part 1 regulations, 

and thus would fall within oversight 

responsibilities of an SRO or DSRO, or 

the oversight program maintained by the 

JAC. 

The Commission further notes that, 

under this Second Proposal, the notice 

requirements for FCMs (to provide 

notice to the Commission and DSRO of 

the occurrence of a non-ordinary course 

of business event via the process set 

forth in regulation § 1.12(n)(3)) are 

substantially similar to their 

counterparts in CFTC Letter No. 19–17 

(requiring notice of a non-ordinary 

course of business event to a DSRO, 

although not expressly to the 

Commission), and that the Commission 

is not now proposing a separate 

requirement for notice to DCOs of exit 

from and reentry into separate account 

treatment (or of initiation of separate 

account treatment). 

In its comment, SIFMA–AMG 

asserted that the Commission’s 

proposed definition of ‘‘ordinary course 

of business’’ did not provide clarity on 

the meaning of ‘‘standard day-to-day 

operation,’’ noting that DCOs instead 

would be required to continuously 

monitor for a series of events.142

SIFMA–AMG also asserted that some 

non-ordinary course of business events 

do not appear to rise to the level of 

significance to suggest they are not 

ordinary course of business, such as the 

failure of a customer to make a 

maintenance margin payment, and that 

other events require discretion and 

subjective analysis.143 SIFMA–AMG 

recommended the Commission redefine 

the term ‘‘ordinary course of business’’ 

and clearly delineate events such as 

default or bankruptcy that are limited 

instances that would not be considered 

ordinary course of business. SIFMA– 

AMG did not propose an alternative 


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144An analysis by FIA indicated that, for the 

FCMs studied, on average more than 90% of margin 

deficits were collected by the close of business on 

the day following the market movements creating 

such deficits. For a majority of the FCMs studied, 

95% of margin deficits were collected by that time. 

See Letter from Barbara Wierzinski, General 

Counsel, FIA, to Melissa Jurgens, Secretary, CFTC, 

Costs of the Proposed Residual Interest 

Requirement Compared to the FIA Alternative, at 3, 

available at https://comments.cftc.gov/Public

Comments/ViewComment.aspx?id=59283&

SearchText=FIA. 

145The undermargined amount is based on 

maintenance margin, which may be lower than 

initial margin. However, if an account falls below 

the maintenance margin level, the amount of the 

margin call is generally required to be the amount 

necessary to bring the account back to the 

(potentially higher) initial margin level. 

146The Fedwire Funds Service is an electronic 

funds transfer service commonly used for 

settlement and clearing arrangements. The service 

currently closes at 7:00 p.m. ET. For purposes of the 

Fedwire Funds Service, Federal Reserve Banks 

observe as holidays all Saturdays, all Sundays, and 

the holidays listed on the Federal Reserve Banks’ 

Holiday Schedules. See The Federal Reserve, 

Fedwire® Funds Service and National Settlement 

Service Operating Hours and FedPayments®

Manager Hours of Availability, available at https:// 

www.frbservices.org/resources/financial-services/ 

wires/operating-hours.html. Because the Fedwire 

Funds Service hours of operations may be subject 

to change, the Commission has determined to tie 

the timeframe to fulfill the one business day margin 

call requirements of proposed regulation § 1.44(f) to 

the Fedwire Funds Service’s closing rather than an 

absolute time. 

147 In the First Proposal, the Commission 

requested comment on whether there are other 

currencies besides JPY where the relevant banking 

conventions render payment before the second U.S. 

business day after a margin call is issued 

impracticable; to specifically identify any such 

currencies; and to provide specifics about the 

operational issues involved with respect to each 

such currency. 

148CME Comment Letter. In addition, the 

Commission requested comment on whether, in 

anticipation of potential developments with respect 

Continued 

definition of ‘‘ordinary course of 

business.’’ 

As discussed above, the Commission 

notes that a number of non-ordinary 

course of business events are 

anticipatory, and thus are intended to 

result in cessation of separate account 

treatment before a customer or FCM 

reaches the point of default or 

bankruptcy. Proposed regulation 

§ 1.44(e) is intended to provide concrete 

criteria for when a customer or FCM is 

operating outside the Commission’s 

definition of ‘‘ordinary course of 

business’’ in proposed regulation 

§ 1.44(a) that are sufficiently flexible to 

account for the myriad ways in which 

a customer or FCM can enter a state of 

financial or operational distress, such 

that providing for separate account 

treatment would no longer be prudent 

from a risk management perspective. 

I. Proposed Regulation § 1.44(f) 

Proposed regulation § 1.44(f) requires 

that each separate account must be on 

a one business day margin call, subject 

to certain requirements designed to 

further define what constitutes a one 

business day margin call. Providing for 

a one business day margin call, as 

defined in this regulation § 1.44(f), 

ensures that margin shortfalls are timely 

corrected, and that a customer’s 

inability to meet a margin call is timely 

identified. However, in certain 

circumstances, it may be impracticable 

for payments to be received on a sameday basis due to the mechanics of 

international payment systems (e.g., 

time zones and schedules of 

correspondent banks). In proposing 

requirements to define timely payment 

of margin for purposes of the standard 

set forth in proposed regulation 

§ 1.44(f), the Commission’s goal is to 

establish requirements that reflect 

industry best practices among FCMs and 

customers.144

Specifically, the Commission 

understands that, while margin calls 

made in the morning in the U.S. Eastern 

Time Zone (ET) are typically capable of 

being met on a same-day basis when 

margin is paid in United States dollars 

(USD) and Canadian dollars (CAD), the 

operation of time zones and banking 

conventions in other jurisdictions may 

necessitate additional time when margin 

is paid in other currencies. For example, 

the Commission understands, based on 

discussions with market participants, 

that margin paid in Japanese yen (JPY) 

and certain other currencies is typically 

received two business days after a 

margin call is issued, and margin paid 

in British pounds (GBP), euros (EUR), 

and certain other non-USD/CAD/JPY 

currencies is typically received one 

business day after a margin call is 

issued. 

Proposed regulation § 1.44(f)(1) 

provides that, except as explicitly 

provided in proposed regulation 

§ 1.44(f), if, as a result of market 

movements or position changes on the 

previous business day, a separate 

account is undermargined (i.e., the 

undermargined amount for the account 

is greater than zero), the FCM shall issue 

a margin call for that separate account 

for at least the amount necessary for the 

separate account to meet the initial 

margin required by the applicable 

exchanges or clearing organizations 

(including, as appropriate, the equity 

component or premium for long or short 

option positions) for the positions in the 

separate account.145 Such call must be 

met by the applicable separate account 

customer no later than the close of the 

Fedwire Funds Service on the same 

business day, consistent with the 

industry standard for when 90–95% of 

margin deficits are cured.146

In light of challenges to same-day 

settlement posed by margining in 

certain currencies, as described above, 

and in recognition of the particular 

banking conventions around payments 

in other currencies, proposed regulation 

§ 1.44(f)(2) provides that payment of 

margin in certain currencies listed in 

proposed Appendix A to part 1 shall be 

considered in compliance with the 

requirements of proposed regulation 

§ 1.44(f) provided they are received by 

the applicable FCM no later than the 

end of the second business day after the 

day on which the margin call is issued. 

Furthermore, proposed regulation 

§ 1.44(f)(3) provides that payment of 

margin in fiat currencies other than 

USD, CAD, or currencies listed in 

proposed Appendix A to part 1 shall be 

considered in compliance with the 

requirements of proposed regulation 

§ 1.44(f) if received by the applicable 

FCM no later than the end of the 

business day after the business day on 

which the margin call was issued. 

In the First Proposal, the Commission 

proposed that: 

• Subject to certain exceptions, if the 

margin call is issued by 11:00 a.m. ET 

on a United States business day (as that 

term was proposed to be defined), it 

must be met by the applicable customer 

no later than the close of the Fedwire 

Funds Service on the same United 

States business day. In no case can a 

clearing member contractually agree to 

delay issuing such a margin call until 

after 11:00 a.m. ET on any given United 

States business day or to otherwise 

engage in practices that are intended to 

circumvent the one business day margin 

call standard by causing such delay. 

• Payment of margin in JPY shall be 

considered in compliance with the 

requirements of the one business day 

margin call standard if received by the 

applicable clearing member by 12:00 

p.m., ET, on the second United States 

business day after the business day on 

which the margin call is issued.147

• Payment of margin in fiat 

currencies other than USD, CAD, or JPY 

shall be considered in compliance with 

the requirements of the one business 

day margin call standard if received by 

the applicable clearing member by 12:00 

p.m., ET, on the United States business 

day after the business day on which the 

margin call is issued. 

With respect to the timing of margin 

payments, CME, in its comment in 

response to the First Proposal, opined 

that the Commission should encourage 

FCMs to collect margin in all currencies 

as quickly as feasible.148 While the 


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to the use of central bank digital currencies or other 

digital assets, the proposed regulation should 

explicitly address the timing of payment of margin 

in digital assets. CME, the only commenter to 

respond to this question, opined that this question 

should be addressed in a separate request for 

comment. Id. The Commission is not proposing to 

address the timing of margin payments in digital 

assets in the present proposal, other than to note 

that, under regulation § 1.44(f) as currently 

proposed, payments of margin in digital assets that 

are not fiat currencies (i.e., are not created by a 

government), and are not listed in proposed 

Appendix A to part 1, would be due on a same-day 

basis. To the extent that the future development and 

use of digital fiat currencies results in a situation 

where general practice is to settle payments in such 

currencies on a same-day basis, the Commission 

would address this in a subsequent rulemaking. 

149 Id. 

150FIA Comment Letter. SIFMA–AMG voiced 

similar concerns, arguing that the Commission’s 

proposal was overly prescriptive and did not 

consider legitimate reasons for why firms may have 

different margin call deadlines. 

151 Id. 

152 Id. 

153 Id. 

154 Id. 

155 Id. 

156 Id. 

157 Id. 

158Such requirement would not apply to margin 

calls made in light of intraday market movements. 

159 JAC Comment Letter. 

160 Id. 

Commission does encourage FCMs to 

collect margin in all currencies as 

quickly as feasible, the Commission 

understands that compliance challenges 

could arise with respect to FCMs 

attempting to determine whether they 

are meeting an ‘‘as quickly as feasible’’ 

standard, and chooses to maintain the 

more definite standard set forth in this 

proposed regulation, subject to certain 

revisions with respect to the specific 

margin payment timing requirements as 

discussed below. 

CME also opined that the Commission 

should treat all currencies equally 

where relevant banking conventions 

render payment impracticable before the 

second U.S. business day after a margin 

call is made (i.e., such provision should 

not pertain solely to JPY).149

In this Second Proposal, the 

Commission again requests comment 

regarding the inclusion of currencies 

with respect to proposed Appendix A to 

part 1 (i.e., currencies for which 

payment of margin may be 

impracticable before the second 

business day after a margin call is made) 

and proposes a process for the addition 

or removal of currencies with respect to 

proposed Appendix A to part 1 on a 

going-forward basis. 

FIA commented that the one business 

day margin call requirements in the 

First Proposal were at once too broad 

with exceptions that were too 

narrow.150 FIA asserted that while 

neither the CEA nor Commission 

regulations specify when an FCM must 

make a margin call, all customer 

accounts are subject to a one business 

day margin call under certain CME and 

ICE Futures U.S. rules as well as the JAC 

Margins Handbook.151 FIA further noted 

that while neither the CEA nor 

Commission regulations specify when a 

margin call must be met, the JAC 

Margins Handbook provides that margin 

calls must be met within a ‘‘reasonable 

time,’’ defined as ‘‘less than five 

business days for customers and less 

than four business days for 

noncustomers and omnibus accounts 

. . . counted from and includ[ing] the 

day the account became 

undermargined,’’ and CME rules 

provide that a clearing member may 

deem a ‘‘reasonable time’’ to mean one 

hour.152

FIA also asserted that Commission 

regulations (e.g., regulations §§ 1.22(c) 

and 1.17(c)(5)(viii)) already provide a 

strong incentive to ensure margin calls 

are met no later than the following (or, 

at the latest, second) business day after 

the event giving rise to the margin call, 

and that FCMs generally do make 

margin calls within one business day.153

Additionally, FIA argued that the 

proposed regulation would impose a 

new recordkeeping requirement because 

FCMs would have to record the precise 

time a margin call is issued and, likely, 

met.154 FIA recommended that instead 

the Commission should instead provide 

that FCM policies and procedures 

assure all margin calls are met on no 

more than a one business day margin 

call basis except as a result of 

administrative error or operational 

constraint.155

With respect to the timing of margin 

payments in JPY, FIA argued that the 

Commission’s proposal was too 

restrictive and that such requirement 

should focus on the date payment is 

irrevocably initiated rather than 

received.156 With respect to the timing 

of margin payments in CAD, JPY, and 

other non-USD currencies, FIA opined 

that the Commission’s proposal was 

arbitrary and unworkable.157

In the Commission’s view, a ‘‘one 

business day margin call’’ should be 

defined beyond the term itself. FIA did 

not propose any such definition, and the 

Commission believes market 

participants should have clarity with 

respect to the criteria for a one business 

day margin call, with clear lines with 

respect to what conduct is and is not 

compliant. Additionally, while FCMs 

may ensure that margin calls are 

generally met within one business day, 

for purposes of separate account 

treatment, the Commission wishes to 

ensure that such margin calls are 

(subject to specified exceptions) always 

met on a one business day basis. With 

respect to FIA’s comment that the 

definition of a one business day margin 

call should be based on when payment 

is irrevocably initiated, the Commission 

believes such suggestion may be 

impracticable, given the challenge to an 

FCM in having information that will 

reliably prove when a customer has 

initiated payment and information on 

whether and when such payments are 

‘‘irrevocable.’’ 

However, in the Second Proposal, the 

Commission has deleted its prior 

proposed specific timing requirements 

with respect to the making and meeting 

of margin calls on a one business day 

basis. Instead, if an account is 

undermargined as a result of the prior 

day’s market moves, a margin call must 

be made and met on a same-day basis, 

with the allowance of either one or two 

additional business days for margin 

payments in certain non-USD/CAD 

currencies.158 The Commission expects 

such alteration will also address FIA’s 

concerns regarding the recording of 

precise timestamps with respect to 

when margin calls have been made or 

met. 

In its comment, the JAC requested 

that the Commission clarify that its one 

business day margin call requirements 

do not impact existing regulations 

regarding the aging of margin calls or 

clearing FCMs’ financial reporting, 

regardless of the time of day the FCM 

issues the margin call or if the customer 

is outside the U.S.159 The Commission 

believes the proposed regulation 

accomplishes this by specifying that the 

definitions contained within proposed 

regulation § 1.44(a) apply only for 

purposes of proposed regulation § 1.44, 

and that the margin payment timing 

requirements of proposed regulation 

§ 1.44(f) apply solely for purposes of 

proposed regulation § 1.44. 

The JAC also requested that the 

Commission clarify that its proposed 

codification does not affect the balances 

recorded in customers’ accounts, or the 

undermargined amount which the FCM 

must include in its residual interest and 

LSOC compliance calculations.160 The 

Commission notes, with respect to the 

calculation of balances in customers’ 

accounts and the undermargined 

amount which the FCM must include in 

its residual interest and LSOC 

compliance calculations, such figures 


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161See, e.g., JAC, Regulatory Alert, #18–02, at 2, 

June 6, 2018 (discussing undermargined accounts), 

proposed regulation § 1.44(g)(5). 

162 Id. 

163 Id. 

164This procedure is intended to seek the aid of 

market participants in ‘‘evaluating when a 

particular foreign currency is eligible for one-day or 

two-day settlement,’’ and thus, on an ongoing basis, 

matching proposed Appendix A to part 1 to current 

industry conventions. Cf. FIA Comment Letter. 

165Cf. § 39.17(a)(1) (A DCO shall maintain 

adequate arrangements and resources for the 

effective monitoring and enforcement of 

compliance (by its clearing members) with the rules 

of the DCO.). 

166Compare, e.g., regulation § 1.17(a)(1) (setting 

adjusted net capital requirements with an absolute 

minimum of $1 million, with CME Rule 970.A.1 

(setting minimum capital requirements with an 

absolute minimum of $5 million). 

167MFA Comment Letter. 168SIFMA–AMG Comment Letter. 

would be calculated on a separate 

account basis, as discussed herein.161

The JAC further requested that the 

Commission clarify that, 

notwithstanding its proposed one 

business day margin call requirements, 

a margin call must be issued to the 

customer within one business day after 

the event giving rise to the margin 

deficiency, even if the call cannot be 

made until after 11:00 a.m. ET, and even 

if the business day is not a business day 

in the customer’s jurisdiction. The 

Commission believes proposed 

regulation § 1.44(f)(1) addresses this 

comment by removing the link to the 

specific time of 11:00 a.m. ET. Rather, 

if as a result of market moves or position 

changes on the prior business day, a 

separate account is undermargined, then 

the FCM is required to issue a margin 

call for the separate account for at least 

the amount necessary for the separate 

account to meet the initial margin 

required by the applicable exchanges or 

clearing organizations (including, as 

appropriate, the equity component or 

premium for long or short option 

positions), and that such call must be 

met by the applicable separate account 

customer no later than the close of the 

Fedwire Funds Service on the same 

business day regardless of what time the 

margin call was issued, subject to the 

proposed limited one or two businessday exception for margin payments 

posted by separate account customers in 

certain non-USD/CAD currencies, and 

other exceptions explicitly provided for 

in proposed regulation § 1.44(f). 

The JAC additionally contended that 

receipts and disbursements from 

separate accounts should occur on the 

same day.162 The Commission believes 

this standard will in the main be met 

where, under the proposed regulation, 

customers will be required to meet any 

margin call on the day it is issued, with 

the limited exceptions discussed in the 

previous paragraph of one or two 

business days for payments of margin in 

certain non-USD/CAD currencies. 

With respect to the timing of margin 

payments in non-USD/CAD currencies, 

the JAC argued that the Commission 

should adopt a mechanism to provide 

timely and efficient changes to payment 

timelines for meeting a one business day 

margin call, and that such authority 

should rest solely with the Commission, 

rather than with individual DCOs, in 

order to ensure consistency and avoid 

confusion where some separately 

margined accounts may contain 

positions with one or more DCO.163

The proposed procedure outlined 

herein to remove currencies from or add 

currencies to proposed Appendix A to 

part 1 as set forth in proposed regulation 

§ 1.44 is intended to address this 

comment.164

While ICE did not object to the 

Commission’s proposed margin 

payment timing framework in the First 

Proposal, ICE recommended that the 

Commission clarify that the proposed 

regulation would not affect stricter 

margin call timeframes established by 

DCOs for clearing members. 

While such clarification may not be 

required in light of the applicability of 

proposed regulation § 1.44 to all FCMs 

regardless of clearing membership and 

removal of the proposed codification 

from part 39, for the avoidance of doubt, 

the Commission states explicitly that 

the proposed regulation is not intended 

to affect or prohibit more stringent risk 

management requirements, including 

margin call timeframes, that may be 

established by DCOs with respect to 

their members. The Commission 

confirms that an FCM that is a member 

of a DCO is obligated to comply with 

such DCO’s margin call timeframes, 

applied in a manner consistent with 

DCO rules, including those that are 

more stringent than those addressed in 

proposed regulation § 1.44.165 This is 

consistent with the approach taken with 

respect to other risk management 

measures, such as capital 

requirements.166

In its comment, MFA argued that the 

proposed regulation failed to consider 

that legitimate reasons exist for firms to 

impose different margin call deadlines 

for different clients, and asserted that 

CFTC Letter No. 19–17 instead 

recognized such operational 

complexities by affording firms greater 

operational flexibility in prescribing 

margin cutoff times.167

As discussed above, in this Second 

Proposal, the Commission has 

eliminated time-of-day-specific 

requirements for when margin calls 

must be made and met in favor of a 

general same-day requirement. 

In its comment, SIFMA–AMG argued 

that the Commission should abandon its 

proposed currency-based three-tiered 

margin payment timing scheme, arguing 

that the allowance of grace periods 

permits for flexibility and serves to 

address issues posed by operational 

complexities.168 For example, SIFMA– 

AMG further argued that the 

Commission’s proposal did not consider 

what would happen if different 

managers for the same client chose 

different Eurozone countries to follow 

for purposes of banking holidays, and 

did not account for parties that may be 

located in different time zones. The 

Commission believes it is important 

from a risk mitigation perspective to 

preserve a one business day margin call 

standard, in accordance with industry 

best practice for prompt fulfillment of 

margining requirements, and further 

believes it important from a perspective 

of regulatory certainty that there be clear 

lines drawn around the meaning of a 

one business day margin call. In this 

Second Proposal, by eliminating 

prescriptive margin payment timing 

requirements in favor of a requirement 

that a margin call be made and met on 

a same-day basis, with limited 

extensions for payment of margin in 

certain currencies, the Commission 

seeks to implement a standard more 

flexible and capable of addressing 

operational complexities than the 

standard set forth in the First Proposal. 

With respect to the specific examples 

raised by SIFMA–AMG, different 

managers, of different separate accounts, 

for the same customer (client), would 

not be precluded from using different 

countries for purposes of banking 

holidays, as each such separate account 

would be separately margined. 

Nonetheless, if that were to create 

operational difficulties for the customer, 

then the customer could resolve those 

issues with the managers. Additionally, 

the Commission again invites comment 

on those currencies for which margin 

payments should be considered 

compliant if made by the second 

business day after a margin call is 

issued. 

The occurrence of a foreign holiday 

during which banks are closed may also 

create difficulties in payment of margin 

in a fiat currency other than USD. 

Therefore, the Commission proposes 

regulation § 1.44(f)(4), which states that 

the relevant deadline for payment of 

margin in fiat currencies other than USD 

may be extended by up to one 


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169With respect to margin payments in EUR, 

proposed regulation § 1.44(f)(4) is intended to 

prevent customers or investment managers from 

leveraging banking holidays in a multiplicity of 

jurisdictions, to circumvent requirements to pay 

margin timely. 

170This expectation is consistent with the 

statement of the directors of DCR and DSIO in 

issuing CFTC Letter No. 19–17. CFTC, Statement by 

the Directors of the Division of Clearing and Risk 

and the Division of Swap Dealer and Intermediary 

Oversight Concerning the Treatment of Separate 

Accounts of the Same Beneficial Owner, Sept. 13, 

2019, available at https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/dcrdsiodirectorstatement

091319 (‘‘We fully expect that DCOs and FCMs and 

their customers will agree that FCMs must retain, 

at all times, the discretion to determine that the 

facts and circumstances of a particular shortfall are 

extraordinary and therefore necessitate accelerating 

the timeline and relying on the FCM’s protocol for 

liquidation or for accessing funds in the other 

accounts of the beneficial owner held at the FCM.’’). 

See also CFTC Letter No. 20–28 (stating the same). 

171 JAC Comment Letter. 

172One would expect administrative errors at a 

well-run money manager to be unusual and 

unforeseen. For the avoidance of doubt, 

‘‘unforeseen’’ refers to the particular occurrence of 

a constraint or error; for example, the fact that some 

small percentage of errors may be foreseen does not 

mean that any particular error is foreseen (and 

‘‘unusual’’ means that such percentage should 

indeed be small). Moreover, an unusual and 

unforeseen administrative error or operational 

constraint that prevents payment might occur at one 

of a number of points in the payment chain beyond 

the money manager: Examples include an error or 

operational failure on the part of the bank that the 

money manager instructs to send a wire transfer to 

the FCM, an error or operational failure on the part 

of the bank (for cash) or custodian (for securities) 

designated to receive margin on behalf of the FCM, 

or an error or operational failure on the part of a 

bank in the middle of a chain between the sending 

bank and the FCM’s bank (particularly in the 

context of transfers of foreign currency). 

173The Commission is proposing to establish this 

reasonableness standard for an FCM’s 

determination that a failure to timely deposit, 

maintain, or pay margin or option premium on the 

basis of administrative error or operational 

constraints. The Commission believes the proposed 

standard confers significant discretion upon FCMs 

to assess the disposition of their customers while 

requiring that FCMs act reasonably and on the basis 

of current and relevant information, diligently 

gathered. 

174Consider an FCM with two dozen separate 

account customers, with an average of four separate 

accounts per customer, resulting in 96 separate 

accounts for that FCM. If each separate account has 

an exception only once per year, that would result 

in a total of 96 exceptions, or around two per week, 

for the FCM. While the Commission does not intend 

to set a prescriptive definition of ‘‘unusual’’ in this 

context, it may nonetheless be seen that once per 

year is unusual, while twice per week is not. 

175FIA Comment Letter. FIA observes that ‘‘An 

FCM should not be subject to administrative 

sanctions for matters over which the FCM has no 

control.’’ Id. The requirements of regulation § 1.44 

are consistent with that principle. 

The consequence of a separate account customer 

failing to meet a one-day margin call for reasons 

that fall outside the scope of an ‘‘unusual 

administrative error or operational constraints that 

a separate account customer or investment manager 

acting diligently and in good faith could not have 

reasonably foreseen’’ is that the customer is outside 

the ‘‘ordinary course of business,’’ and that thus the 

FCM must cease treating the separate accounts of 

the separate account customer as accounts of 

separate entities for purposes of margin distribution 

under regulation § 1.44(b). That action—which 

would be required to be taken by the FCM—is not 

an administrative sanction on the FCM, which 

likely would not have direct control over financial 

and operational conditions at its customer, but 

rather a measure, designed to protect the FCM and 

the markets more broadly, that has a negative effect 

on the customer (rather than the FCM). 

additional business day and still be 

considered in compliance with the 

requirements of proposed regulation 

§ 1.44(f) if payment is delayed due to a 

banking holiday in the jurisdiction of 

issue of the currency. For payments in 

EUR, either the separate account 

customer or the investment manager 

managing the separate account may 

designate one country within the 

Eurozone with which they have the 

most significant contacts for purposes of 

meeting margin calls in that separate 

account, and whose banking holidays 

shall be referred to for purposes of 

compliance with the regulation.169

Proposed regulation § 1.44(f)(4) is 

designed to provide FCMs with a level 

of discretion in how they manage risk 

by allowing an FCM to permit limited 

delays in margin payments due to nonU.S. banking conventions. Proposed 

regulation § 1.44(f)(4) would not, 

however, require an FCM to extend the 

deadline for payments of margin. Here, 

the Commission is seeking to allow 

FCMs to exercise risk management 

judgment in balancing, within limits, 

the risk management challenges caused 

by extending the time before a margin 

call is met with the burdens involved in 

requiring the client or investment 

manager to prefund potential margin 

calls in advance of the holiday or to 

arrange to pay margin more promptly in 

USD or another currency not affected by 

the holiday. The Commission expects 

that FCM risk management decisions, 

including the use of any extension 

permitted under proposed regulation 

§ 1.44(f)(4), will be made in 

consideration of relevant risk 

management factors; e.g., a client’s risk 

profile and market conditions, evaluated 

at the time the risk management 

decisions are made.170 The Commission 

included this proposed requirement in 

the First Proposal in substantively the 

same form. 

In its comment in response to the 

First Proposal, the JAC argued that this 

proposed requirement would create a 

new recordkeeping requirement for 

clearing FCMs, and recommended that 

the Commission clarify that it does not 

impact the requirements of any other 

CFTC regulations or SRO rules related 

to margin calls.171 As noted above, the 

Commission believes the proposed 

regulation addresses this comment in 

making clear that the requirements in 

proposed regulation § 1.44(f) for meeting 

a one business day margin call apply 

solely for purposes of proposed 

regulation § 1.44(f). 

In CFTC Letter No. 19–17, staff stated 

that a failure to deposit, maintain, or 

pay margin or option premium due to 

administrative errors or operational 

constraints would not constitute a 

failure to timely deposit or maintain 

initial or variation margin that would 

place a customer out of the ordinary 

course of business. This provision was 

intended to prevent a clearing FCM 

from being excluded from relying on the 

no-action position as a result of one-off 

exceptions, such as mis-entered data, a 

flawed software update, or an unusual 

and unexpected information technology 

outage (e.g., an unanticipated outage of 

the Fedwire Funds Service). 

Accordingly, the Commission 

proposes regulation § 1.44(f)(5), which 

provides that a failure with respect to a 

specific separate account to deposit, 

maintain, or pay margin or option 

premium that was called pursuant to 

proposed regulation § 1.44(f)(1), due to 

unusual administrative error or 

operational constraints that a separate 

account customer or investment 

manager acting diligently and in good 

faith could not have reasonably 

foreseen,172 does not constitute a failure 

to comply with the requirements of 

proposed regulation § 1.44(f). For such 

purposes, an FCM’s determination that 

the failure to deposit, maintain, or pay 

margin or option premium is due to 

such administrative error or operational 

constraints must be based on the FCM’s 

reasonable belief in light of information 

known to the FCM at the time the FCM 

learns of the relevant administrative 

error or operational constraint.173 The 

Commission included this proposed 

requirement in the First Proposal in 

substantially the same form, with one 

change. 

The current proposal adds the term 

‘‘with respect to a specific separate 

account’’ to make clear that ‘‘unusual’’ 

is based on a particular separate 

account, not the FCM’s business with 

respect to separate accounts as a 

whole.174

In its comment in response to the 

First Proposal, FIA argued that the 

Commission’s proposed standards for 

‘‘unusual’’ and ‘‘unforeseen’’ are too 

subjective and would unnecessarily 

expose FCMs to enforcement actions, 

noting that unusual or unforeseen 

events are often outside an FCM’s 

control.175 FIA did not, however, 

propose alternative standards. 


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176MFA Comment Letter. 

177For example, if an FCM and a customer 

contract for a grace or cure period that would 

operate to make margin due and payable later than 

the deadlines described herein, including a case 

where the FCM would not have the discretion to 

liquidate the customer’s positions and/or collateral 

where margin is not paid by such time, such an 

agreement would be inconsistent with the 

conditions under which such FCM may engage in 

separate account treatment. 

178CME Comment Letter. 179 JAC Comment Letter. 180Additional days due to other provisions of 

proposed regulation § 1.44(f) would also be 

applicable. 

Similarly, MFA in its comment 

argued that FCMs, asset managers, and 

customers benefit from agreed-upon 

grace periods for shortfalls resulting 

from administrative or operational 

issues unrelated to ability to pay, and 

argued that use of terms such as 

‘‘unusual,’’ ‘‘diligently and in good 

faith’’ are subjective.176 MFA argued 

that the Commission should remove the 

condition now encompassed by 

proposed regulation § 1.44(f)(5). 

In its comment, SIFMA–AMG argued 

that the Commission should remove or 

re-propose the standard that failure to 

meet margin obligations ‘‘due to 

unusual administrative error or 

operational constraints that a customer 

or investment manager acting diligently 

and in good faith could not have 

reasonably foreseen’’ does not constitute 

a failure to comply with the one 

business day margin call requirement, 

on the basis that this proposed 

provision is ambiguous. 

The Commission believes the further 

criteria for determining the existence of 

an administrative error or operational 

constraint provide a clearer definition of 

the meaning of these terms. The 

Commission additionally believes that, 

while FCMs engaged in separate 

account treatment should not enter 

agreements that obviate the riskmitigating purpose of requiring margin 

calls be met on a one business day basis, 

proposed regulation § 1.44(f)(5) strikes a 

reasonable balance in ensuring that 

FCMs and customers are not forced to 

cease separate account treatment as a 

result of unusual and unexpected, oneoff errors. 

It should also be noted that the 

provisions of paragraph (f) of proposed 

regulation § 1.44 are subject to the 

language that ‘‘the following provisions 

apply solely for the purposes of this 

paragraph (f).’’ This is separate from, 

e.g., requirements for margin aging 

under regulation § 1.17(c)(5)(viii), which 

requires payment by the end of the 

business day after the business day on 

which the margin call is made. 

For example, if a margin call for a 

separate account is made on Tuesday 

based on events on Monday, and the 

margin call is to be met in JPY, payment 

by close of business on Thursday would 

be timely for purposes of proposed 

regulation § 1.44(f), because JPY is a 

currency listed in proposed Appendix A 

to part 1, and that payment would be 

considered in compliance with the 

requirements of paragraph (f) of 

regulation § 1.44 ‘‘if received by the 

applicable futures commission 

merchant no later than the end of the 

second business day after the day on 

which the margin call is issued.’’ 

However, payment for that margin call 

would not be timely for purposes of 

regulation § 1.17(c)(5)(viii) unless 

received by close of business on 

Wednesday. 

On the other hand, if that margin call 

is to be made in USD or CAD, and it is 

not received until Wednesday, and there 

is no ‘‘unusual administrative error or 

operational constraints that a customer 

or investment manager acting diligently 

and in good faith could not have 

reasonably foreseen’’ (i.e., proposed 

regulation § 1.44(f)(5) does not apply), 

then, while payment by Wednesday is 

timely for purposes of regulation 

§ 1.17(c)(5)(viii), after the close of 

business on Tuesday, the separate 

account customer would be out of 

compliance with the one business day 

margin call called for by proposed 

regulation § 1.44(f). 

Proposed regulation § 1.44(f)(6) states 

that an FCM would not be in 

compliance with the requirements of 

proposed regulation § 1.44(f) if it 

contractually agrees to provide separate 

account customers with periods of time 

to meet margin calls that extend beyond 

the time periods specified in proposed 

regulation §§ 1.44(f)(1) through (5),177 or 

engages in practices that are designed to 

circumvent proposed regulation 

§ 1.44(f). The Commission proposes this 

provision, which was included in the 

First Proposal in substantively the same 

form, in order to make clear that it is 

establishing a maximum period of time 

in which a margin call must be met for 

purposes of this regulation, rather than 

establishing a minimum time that an 

FCM must allow. Proposed regulation 

§ 1.44(f) would not preclude an FCM 

from having customer agreements that 

provide for more stringent margining 

requirements, or applying more 

stringent margining requirements in 

appropriate circumstances. The 

statement that these ‘‘requirements 

apply solely for purposes of this 

paragraph (f)’’ means that such 

requirements are not intended to apply 

to any other provision; e.g., they are not 

intended to define when an account is 

undermargined for purposes of 

regulation § 1.17. Conversely, the 

Commission does not propose to 

prohibit contractual arrangements 

inconsistent with proposed regulation 

§ 1.44(f). However, the FCM would not 

be permitted to engage in separate 

account treatment under such 

arrangements. 

In its comment, CME argued that the 

proposed regulation could create 

confusion by incorrectly implying that 

customers not utilizing separate account 

treatment may be given contractual 

terms providing for a period of time 

longer than one business day to satisfy 

a margin call or may otherwise restrict 

the FCM’s discretion as to liquidation in 

contravention of CME Group Exchange 

rules.178

In its comment, the JAC similarly 

contended that the Commission 

incorrectly implied that an FCM may 

contractually agree to a grace or cure 

period for any customers that are not 

treated as separate accounts, and 

recommended that the Commission 

make clear that if an FCM and customer 

contract for margin calls to be met on a 

longer than one business day basis, then 

the FCM is not making a bona fide 

attempt to collect margin within one 

business day after the event giving rise 

to the margin deficiency.179

The Commission notes that it is not 

proposing this regulation to conform to 

the rules of a particular DCO, to the 

extent the DCO may prohibit such grace 

or cure periods, and further notes that 

this proposed regulation does not 

prevent a DCO from maintaining and 

enforcing rules that apply more 

stringent risk management standards to 

their clearing members than are set forth 

therein. 

Proposed regulation § 1.44(f)(7) is an 

exception to proposed regulation 

§ 1.44(f)(1), dealing with the special case 

of certain holidays (i.e., Columbus Day 

and Veterans day) on which some DCMs 

may be open for trading, but on which 

banks are closed (and, therefore, 

payment of margin may be difficult or 

impracticable). It only applies to an 

FCM if that FCM trades on such a DCM, 

and to a separate account if that separate 

account includes positions traded on 

such a DCM. 

Paragraph (i) deals with margin calls 

based on undermargined amounts in a 

separate account resulting from market 

movements on the business day before 

the holiday. Such calls may be made on 

the holiday, but would be due by the 

close of Fedwire on the next business 

day after the holiday.180

Paragraph (ii) deals with margin calls 

based on undermargined amounts 


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181 JAC Comment Letter. 182 Id. 

183Submitters may request confidential treatment 

for parts of its submission in accordance with 

Commission regulation § 145.9(d). 

resulting from market movements on the 

holiday. If, as a result of such market 

movements, a separate account is 

undermargined by an amount greater 

than the amount it was undermargined 

as a result of market movements or 

position changes on the business day 

before the holiday, the futures 

commission merchant shall issue a 

margin call for the separate account for 

at least the incremental undermargined 

amount. 

The following uses Veterans Day 

(November 11) as an example, and 

assumes that no relevant day falls on a 

weekend. If, as a result of market 

movements on November 10, a separate 

account is undermargined by $100, the 

FCM would issue a margin call of at 

least $100 and, payment of that $100 

would be due by the close of Fedwire 

on November 12. 

If that separate account were to be 

undermargined by a total of $160 as a 

result of market movements on 

November 11, the FCM would issue a 

margin call for at least the incremental 

amount ($160¥$100 = $60) on 

November 12, and that incremental $60 

would also be due by the close of 

Fedwire on November 12. If, instead, 

the separate account gained $60 on 

November 11, the original margin call 

for $100 (issued on November 11) 

would still need to be met by the close 

of Fedwire on November 12. 

By contrast, if the separate account 

were not undermargined as a result of 

market movements on November 10, but 

then became undermargined by $60 as 

a result of market movements on 

November 11, the FCM would issue a 

margin call in the amount of at least $60 

on November 12, and payment would be 

due by the close of Fedwire on 

November 12. 

In its comment letter, the JAC also 

opined that if the Commission addresses 

unscheduled banking holidays or U.S. 

securities market closures, the 

Commission should make clear that any 

such provisions apply only to 

determining if a margin call is 

considered one-day and do not govern 

how such holidays or closures are 

considered for any other purpose.181

The Commission believes the proposed 

regulation addresses this comment in 

making clear that the requirements in 

proposed regulation § 1.44(f) for meeting 

a one business day margin call apply 

solely for purposes of proposed 

regulation § 1.44(f). 

CME asserted that unscheduled 

closings of banks or securities markets 

should be handled on an industry-wide 

basis, based on facts and circumstances 

specific to each such situation, and not 

prescriptively, noting that CME, FIA, 

SIFMA, and many other exchanges and 

clearing organizations have worked to 

establish protocols for these 

scenarios.182 Such unscheduled closings 

(for, e.g., a national day of mourning) 

would fall under the rubric of an 

‘‘unusual . . . operational constraint[ ].’’ 

In its comment letter, SIFMA–AMG 

recommended the Commission preserve 

the flexibility of a limited discretionary 

grace period, stating that the proposed 

regulation would mean that a ‘‘single 

‘foot fault’ ’’ with respect to a single 

manager could cause an FCM to revert 

to margining on a gross basis. 

The Commission believes the 

requirement of a one business day 

margin call, as set forth in the no-action 

position and further expanded on in the 

Second Proposal, is a core component of 

mitigating the risk that separate account 

treatment will result in the undermargining of one or more separate 

accounts. The effect of a one business 

day margin call is to limit the time 

during which a customer account (or, 

here, a customer’s separate account) is 

undermargined, and thus to limit the 

risk to the FCM (and the FCM’s omnibus 

customer account for futures, Cleared 

Swaps, or foreign futures or foreign 

options). One business day is industry 

best practice. The Commission notes 

that a ‘‘single,’’ one-off error with 

respect to a single manager would also 

not under the proposed regulation result 

in a reversion to margining on a 

customer basis if such error meets the 

criteria for an unusual and unforeseen 

administrative error or operational 

constraint discussed above. 

Lastly, the Commission proposes 

regulation § 1.44(f)(8) to set forth a 

procedure to adjust the scope of 

currencies in proposed Appendix A to 

part 1. In proposing regulation 

§ 1.44(f)(8), the Commission seeks to 

ensure a more flexible process whereby 

members of the public, or the 

Commission itself, may initiate a 

process to expand or narrow proposed 

Appendix A to part 1 as may be 

required from time to time, subject to 

public notice and comment. Proposed 

regulation § 1.44(f)(8) provides that any 

person may submit to the Commission 

any currency that such person proposes 

to add to or remove from proposed 

Appendix A to part 1. The submission 

must include a statement that margin 

payments in the relevant currency 

cannot, in the case of a proposed 

addition, or can, in the case of a 

proposed removal, practicably be 

received by the futures commission 

merchant issuing a margin call no later 

than the end of the first business day 

after the day on which the margin call 

is issued. The submitter would need to 

support such assertion with 

documentation or other relevant 

supporting information, as well as any 

additional information that the 

Commission requests.183 The 

Commission would be required to 

review the submission and determine 

whether to propose to add the relevant 

currency to, or remove it from, proposed 

Appendix A to part 1. The Commission 

would also be required to issue such 

determination through notice-andcomment rulemaking, with a comment 

period of no less than thirty days. 

Proposed regulation § 1.44(f)(8) also 

provides that the Commission may 

propose to issue such a determination of 

its own accord, without prompting by a 

submission from a member of the 

public. As with a public submission, a 

Commission determination on its own 

accord would be subject to notice and 

comment rulemaking, with a public 

comment period of no less than thirty 

days. 

Request for Comment 

Question 6: The Commission requests 

comment regarding whether, in light of 

changes made in this Second Proposal 

relative to the First Proposal, the 

regulatory framework set forth in 

proposed regulation § 1.44(f) 

appropriately balances practicability 

and burden with risk management. If 

not, what alternative approach should 

be taken? How would such an 

alternative approach better balance 

those considerations? In particular, the 

Commission requests comment on 

whether the proposed standard of 

timeliness for a one business day margin 

call set forth in proposed regulation 

§ 1.44(f) presents practicability 

challenges and, if so, what those 

challenges are, and how the proposed 

standard of timeliness could be 

improved. 

Question 7: Proposed regulation 

§ 1.44(f)(4) provides that the relevant 

deadline for payment of margin in fiat 

currencies other than USD may be 

extended by up to one additional 

business day and still be considered in 

compliance with the requirements of 

proposed regulation § 1.44(f) if payment 

is delayed due to a banking holiday in 

the jurisdiction of issue of the currency. 

Proposed regulation § 1.44(f)(4) further 

provides that, for payments in EUR, 

either the separate account customer or 


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184First FIA Letter. 

185 Id. 

186 Id. 

the investment manager managing the 

separate account may designate one 

country within the Eurozone that they 

have the most significant contacts with 

for purposes of meeting margin calls in 

that separate account, whose banking 

holidays shall be referred to for such 

purpose. As noted above, this provision 

is intended to prevent customers or 

investment managers from leveraging 

banking holidays in a multiplicity of 

jurisdictions to circumvent 

requirements to pay margin promptly. 

Separately from Question 6 above, the 

Commission requests comment 

specifically in relation to proposed 

regulation § 1.44(f)(4), with respect to: 

(1) Whether commenters believe it 

will be impracticable to comply with 

proposed regulation § 1.44(f)(4), as that 

section pertains to payment of margin in 

EUR. For example, if a customer selects 

Eurozone Country A as the jurisdiction 

that is most significant to their 

operations for purposes of meeting 

margin calls in separate accounts, but 

also uses a bank in Eurozone Country B 

to meet margin payments in EUR, would 

a banking holiday in Country B (but not 

Country A) make it impracticable for the 

customer to pay margin in compliance 

with proposed regulation § 1.44(f)(3)? 

Commenters are requested to provide 

examples of operational or other 

challenges that would result in such 

impracticability. 

(2) To the extent commenters have 

such practicability concerns, how, in 

the alternative, should the Commission 

seek to achieve its goal, discussed 

above, of preventing evasion of the one 

business day margin call standard, in 

light of differing banking holidays 

within the national jurisdictions that 

comprise the Eurozone? 

J. Proposed Regulation § 1.44(g) 

Proposed regulation § 1.44(g) contains 

requirements related to calculations for 

capital, risk management, and 

segregation of customer funds. These 

provisions are substantially similar to 

the corresponding no-action conditions 

in CFTC Letter No. 19–17, and to 

corresponding conditions included in 

the First Proposal, except that they have 

been reorganized and subject to minor 

changes to account for their proposed 

inclusion in part 1 of the Commission’s 

regulations as well as the proposed 

introduction of new defined terms. 

Many of these provisions are intended 

to ensure that an FCM treats each 

separate account as a distinct account 

from all other accounts of a separate 

account customer for purposes of the 

FCM computing its regulatory capital 

and segregation of customer funds. The 

proposed provisions are also intended 

to ensure that an FCM treats separate 

accounts in a consistent manner for 

purposes of risk management. 

As FIA noted in its June 26, 2019 

letter, customer agreements that provide 

for separate account treatment generally 

require that a separate account be 

margined separately from any other 

account maintained for the customer 

with the FCM, and assets held in one 

separate account should not ordinarily 

be used to offset, or (absent default) 

meet, any obligations of another 

separate account, including obligations 

that it or another investment manager 

may have incurred on behalf of a 

different account of the same 

customer.184 In that letter, preceding 

issuance of CFTC Letter No. 19–17, FIA 

observed that these restrictions serve to 

assure the customer, or the asset 

manager responsible for a particular 

account, that the account will not be 

subject to unanticipated interference 

that may exacerbate stress on a 

customer’s aggregate exposure to the 

FCM.185 Additionally, FIA noted that 

where an FCM treats separate accounts 

as separate customers for risk 

management purposes, the FCM may 

manage risk more conservatively against 

the customer under the assumption that 

the customer has fewer assets than it 

may in fact have.186

Accordingly, proposed regulation 

§ 1.44(g) would, if adopted, apply to all 

FCMs certain conditions in CFTC Letter 

No. 19–17. These conditions are 

designed to provide for consistent 

treatment of separate accounts. 

Proposed regulation § 1.44(g) requires a 

separate account of a customer to be 

treated separately from other separate 

accounts of the same customer for 

purposes of certain existing 

computational and recordkeeping 

requirements, which would otherwise 

be met by treating accounts of the same 

customer on a combined basis. Because 

accounts subject to proposed regulation 

§ 1.44 would be risk-managed on a 

separate basis, the Commission believes 

it is appropriate for the proposed 

regulation to provide that FCMs apply 

these risk-mitigating computational and 

recordkeeping requirements on a 

separate account basis. The effect of the 

requirements in these paragraphs is to 

augment the FCM’s existing obligations 

under various provisions of regulation 

§ 1.17. 

Proposed regulation § 1.44(g)(1) 

provides that an FCM’s internal risk 

management policies and procedures 

shall provide for stress testing as set 

forth in regulation § 1.73, and credit 

limits for separate account customers. 

Proposed regulation § 1.44(g)(1) further 

provides that such stress testing must be 

performed, and the credit limits must be 

applied, both on an individual separate 

account and on a combined account 

basis. By conducting stress testing on 

both an individual separate account and 

on a combined account basis, an FCM 

can determine the potential for 

significant loss in the event of extreme 

market conditions, and the ability of 

traders and FCMs to absorb those losses, 

with respect to each individual account 

of a customer, as well as with respect to 

all of the customer’s accounts. 

Additionally, by applying credit limits 

on both an individual separate account 

basis (to address issues that may be 

specific to the particular strategy 

governing the separate account) and on 

a combined account basis (to address 

issues that may be applicable to the 

customer’s overall portfolio at the FCM), 

an FCM can be in a better position to 

manage the financial risks they incur as 

a result of carrying positions both for a 

customer’s separate account and for all 

of the customer’s accounts. By better 

managing the financial risks posed by 

customers and understanding the extent 

of customers’ risk exposures, FCMs can 

better mitigate the risk that customers 

do not maintain sufficient funds to meet 

applicable initial and maintenance 

margin requirements, and anticipate and 

mitigate the risk of the occurrence of 

certain of the events detailed in 

proposed regulation § 1.44(e). 

Proposed regulation § 1.44(g)(2) 

provides that an FCM shall calculate the 

margin requirement for each separate 

account of a separate account customer 

independently from such margin 

requirement for all other separate 

accounts of the same customer with no 

offsets or spreads recognized across the 

separate accounts. An FCM would be 

required to treat each separate account 

of a customer independently from all 

other separate accounts of the same 

customer for purposes of computing 

capital charges for undermargined 

customer accounts in determining its 

adjusted net capital under regulation 

§ 1.17. 

Proposed regulation § 1.44(g)(3) 

provides that an FCM shall, in 

computing its adjusted net capital for 

purposes of regulation § 1.17, record 

each separate account of a separate 

account customer in the books and 

records of the FCM as a distinct account 

of a customer, including recording each 

separate account with a net debit 

balance or a deficit as a receivable from 

the separate account customer, with no 

offsets between the other separate 


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187 17 CFR 1.20(a), 22.2(f)(2), and 30.7(a). 188 17 CFR 1.20(i)(4), 22.2(f)(4), and 30.7(f)(2)(iv) 

for futures customer accounts, Cleared Swaps 

Customer Accounts, and 30.7 accounts, 

respectively. 189See 17 CFR 1.32(d), 22.2(g)(3), and 30.7(l)(3). 

190CFTC Letter No. 19–17 provides that an ‘‘FCM 

shall use its own funds to cover the debit/deficit of 

each separate account.’’ CFTC Letter No. 19–17. 191 17 CFR 1.22(a), 22.2(d), and 30.7(f)(1)(i). 192An FCM is required to maintain a sufficient 

amount of its own funds in segregation to cover the 

FCM’s customers’ undermargined amounts by the 

residual interest deadline. The residual interest 

deadline for futures customers and 30.7 customers 

is 6:00 p.m. Eastern Time on the next business day. 

17 CFR 1.22(c) & 30.7(f). The residual interest 

deadline for Cleared Swaps Customers is the time 

of settlement on the next business day of the 

applicable swaps clearing organization. 17 CFR 

22.2(f)(6). 

193CFTC Letter No. 19–17 provides that an ‘‘FCM 

shall include the margin deficiency of each separate 

account, and cover with its own funds as 

applicable, for purposes of its [r]esidual [i]nterest 

and LSOC compliance calculations. CFTC Letter 

No. 19–17 (Condition 10). 

194 17 CFR 1.11. 

195 17 CFR 1.11(e)(3)(i)(D). 

196 17 CFR 1.23(c). 

197See, e.g., 17 CFR 1.22(c)(3); 17 CFR 

22.2(f)(6)(iii)(A). 

198See, e.g., 17 CFR 22.2(g). 

accounts of the same separate account 

customer, with respect to separate 

account customers, comply with certain 

additional requirements in computing 

its adjusted net capital for purposes of 

regulation § 1.17. 

Regulations §§ 1.20, 22.2, and 30.7 

currently require an FCM to maintain a 

sufficient amount of customer funds in 

segregated accounts to meet its total 

obligations to all futures customers, 

Cleared Swaps Customers, and 30.7 

customers, respectively.187 In order to 

ensure that the FCM holds sufficient 

funds in segregation to satisfy the 

aggregate account balances of all 

customers with positive net liquidating 

balances, the FCM is prohibited from 

netting the account balances of 

customers with deficit or debit ledger 

balances against the account balances of 

customers with credit balances.188 Each 

FCM is also required to prepare and 

submit to the Commission, and to 

FCM’s DSRO, a daily statement 

demonstrating compliance with its 

segregation obligations.189

Proposed regulation § 1.44(g)(4) 

provides that an FCM shall, in 

calculating the amount of its own funds 

it is required to maintain in segregated 

accounts to cover deficits or debit ledger 

balances pursuant to regulations 

§§ 1.20(i), 22.2(f), or 30.7(f)(2) in any 

futures customer accounts, Cleared 

Swaps Customer Accounts, or 30.7 

accounts, respectively, include any 

deficits or debit ledger balances of any 

separate account as if the accounts are 

accounts of separate entities. The 

purpose of proposed regulation 

§ 1.44(g)(4) is to ensure that an FCM that 

elects to permit separate account 

customers treats separate accounts as if 

the accounts are accounts of separate 

entities for purposes of computing the 

amount of funds the FCM is required to 

hold in segregation for futures 

customers, Cleared Swaps Customers, 

and 30.7 customers. Specifically, 

proposed regulation § 1.44(g) would 

provide that an FCM may not offset a 

deficit or debit ledger balance in the 

separate account of a separate account 

customer by any credit balance in any 

other separate accounts of the separate 

account customer carried by the FCM. 

Proposed regulation § 1.44(g) would 

impose the same obligations on separate 

accounts that are currently imposed by 

regulations §§ 1.20, 22.2, and 30.7 on 

customer accounts that are not separate 

accounts. Proposed regulation § 1.44(g) 

is also consistent with CFTC Letter No. 

19–17.190

Regulations §§ 1.22, 22.2, and 30.7 

currently prohibit an FCM from using, 

or permitting the use of, the funds of 

one futures customer, Cleared Swaps 

Customer, or 30.7 customer, 

respectively, to purchase, margin or 

settle the positions of, or to secure or 

extend the credit of, any person other 

than such customer.191 To ensure 

compliance with this prohibition, each 

FCM is required to compute, as of the 

close of the previous business day, the 

total undermargined amount of its 

customers’ accounts and to maintain a 

sufficient amount of the FCMs’ own 

funds (i.e., residual interest) in the 

applicable customer segregated accounts 

to cover the undermargined amounts.192

The Commission is proposing 

regulation § 1.44(g)(5) to provide that, 

for purposes of its residual interest and 

LSOC compliance calculations, as 

applicable under regulations §§ 1.22(c), 

22.2(f)(6), and 30.7(f)(1)(ii), the FCM 

shall treat the separate accounts of a 

separate account customer as if the 

accounts were accounts of separate 

entities and include the undermargined 

amount of each separate account, and 

cover such deficiency with its own 

funds. The proposed amendments 

would result in an FCM treating each 

separate account in a manner 

comparable with the treatment currently 

provided to customer accounts that are 

not separate accounts. The proposal is 

also consistent with CFTC Letter No. 

19–17.193

Commission regulation § 1.11 requires 

an FCM that accepts customer funds to 

margin futures, Cleared Swaps, or 

foreign futures and foreign options to 

implement a risk management program 

designed to monitor and manage the 

risks associated with the activities of the 

FCM.194 The risk management program 

is required to address, among other 

risks, segregation risk, and further 

requires an FCM to establish a targeted 

amount of its own funds, or residual 

interest, that the firm will hold in 

segregated accounts for futures 

customers, Cleared Swaps Customers, 

and 30.7 customers to reasonably ensure 

that the FCM remains in compliance 

with its obligation to hold, at all times, 

a sufficient level of funds in segregation 

to cover its full obligation to its 

customers.195 Regulation 1.23(c) further 

requires an FCM to establish a targeted 

residual interest amount that is held in 

segregation to reasonably ensure that the 

FCM remains in compliance, at all 

times, with its customer funds 

segregation requirements.196

The Commission is proposing to 

adopt regulation § 1.44(g)(6) to provide 

that, in determining its residual interest 

target for purposes of regulations 

§§ 1.11(e)(3)(i)(D) and 1.23(c), the FCM 

must treat separate accounts of separate 

account customers as accounts of 

separate entities. In this regard, an FCM 

is required to consider the potential 

impact to segregated funds and to the 

FCM’s targeted residual interest 

resulting from one or more separate 

accounts of a separate account customer 

that are undermargined, or that contain 

deficits or debit ledger balances, 

without taking into consideration the 

funds in excess of the margin 

requirements maintained in other 

separate accounts of the separate 

account customer. 

Currently, Commission regulations 

require an FCM to maintain its own 

capital, or residual interest, in customer 

segregated accounts in an amount equal 

to or greater than its customers’ 

aggregate undermargined accounts.197

Additionally, each day, an FCM is 

required to perform a segregated 

calculation to verify its compliance with 

segregation requirements. The FCM 

must file a daily electronic report 

showing its segregation calculation with 

its DSRO, and the DSRO must be 

provided with electronic access to the 

FCM’s bank accounts to verify that the 

funds are maintained. The FCM must 

also assure its DSRO that when it meets 

a margin call for customer positions, it 

never uses value provided by one 

customer to meet another customer’s 

obligation.198 These requirements are 

intended to prevent FCMs from being 

induced to cover one customer’s margin 

shortfall with another customer’s excess 

margin, and allow DSROs to verify that 

FCMs are not in fact doing so. Proposed 


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199CFTC Letter No. 19–17 provides that the 

‘‘FCM shall factor into its residual interest target 

customer receivables as computed on a separate 

account basis.’’ CFTC Letter No. 19–17 (Condition 

9). 

200FIA Comment Letter. 

201 Id. 

202The Commission understands that, in certain 

cases, such as when a customer is a fund, the 

customer may not have a parent company. In such 

cases, the requirement to obtain information 

sufficient to identify the direct or indirect parent 

company would not apply. 203FIA Comment Letter (citing 31 CFR 1010.230). 

regulation § 1.44(g)(6) is designed to 

ensure that margin deficiencies are 

calculated accurately for accounts 

receiving separate treatment, and that 

such deficiencies are covered consistent 

with existing Commission regulations. 

Proposed regulation § 1.44(g)(6) is also 

consistent with the conditions to the noaction position in CFTC Letter No. 19– 

17.199

With respect to the provisions in the 

First Proposal corresponding to the 

provisions in proposed regulation 

§ 1.44(g), the Commission received a 

comment from FIA. With respect to 

proposed regulation § 1.44(g)(1), FIA 

noted that FCMs are already required 

under regulation § 1.73 to provide for 

stress testing and credit limits for all 

customers, including separate account 

customers.200 FIA asserted that stress 

testing for separate accounts would 

provide no additional risk management 

benefits when they do not account for 

all of a customer’s underlying assets.201

Regulation § 1.73 does not presently 

provide for stress testing on a separate 

account basis, and does not apply to 

non-clearing FCMs. As discussed 

further below, the Commission believes 

that it is appropriate to apply these risk 

management requirements, including 

requirements for stress testing, to nonclearing FCMs with respect to the 

separate accounts of their separate 

account customers, and that doing so on 

such basis could allow FCMs to detect 

potential deficiencies, the correction of 

which would prevent the occurrence of 

conditions that would necessitate a 

cessation of separate account treatment. 

The separate requirement to 

additionally conduct stress testing on a 

combined account basis is intended to 

serve as a backstop so that an FCM can 

have a view of all of a customer’s actual 

holdings. If the customer does default, 

the FCM will have to liquidate all of the 

customer’s holdings. Understanding the 

extent to which the positions within 

separate accounts may be additive (and 

perhaps create more concentrated 

positions when considered together) is 

also important to an FCM’s ability to 

manage risk. 

K. Proposed Regulation § 1.44(h) 

Proposed regulation § 1.44(h) contains 

requirements related to information and 

disclosures. As with the provisions in 

proposed regulation § 1.44(g), these 

provisions are substantially similar to 

their corresponding no-action 

conditions in CFTC Letter No. 19–17, 

and to corresponding conditions 

included in the First Proposal, except 

that they have been reorganized and 

subject to minor changes to account for 

their proposed inclusion in part 1 as 

well as the proposed introduction of 

new defined terms. 

Proposed regulation § 1.44(h)(1) 

provides that an FCM shall obtain from 

each separate account customer or, as 

applicable, the manager of a separate 

account, information sufficient for the 

FCM to (i) assess the value of the assets 

dedicated to such separate account; and 

(ii) identify the direct or indirect parent 

company of the separate account 

customer, as applicable, if such 

customer has a direct or indirect parent 

company.202 Proposed regulation 

§ 1.44(h)(1) is intended to ensure that 

FCMs have visibility with respect to 

customers’ financial resources 

appropriate to ensure that a customer’s 

separate account is adequately 

margined, and to identify when a 

customer’s financial circumstances 

would necessitate the cessation of 

separate account treatment. Proposed 

regulation § 1.44(h)(1)(i) contemplates 

that, in certain instances, an investment 

manager may manage one or more 

accounts under power of attorney on a 

customer’s behalf; in such cases, an 

FCM may obtain the requisite financial 

information from the investment 

manager. Proposed regulation 

§ 1.44(h)(1)(ii) is intended to ensure that 

FCMs have sufficient information to 

identify the direct or indirect parent 

company of a customer so that they may 

identify when a parent company of a 

customer has become insolvent, for 

purposes of proposed regulation 

§ 1.44(e)(1)(iv). 

In its comment in response to the 

First Proposal, CME asserted that if the 

parent of an FCM has multiple 

relationships with a customer (e.g., 

prime brokerage or lending), it should 

be sufficient that the FCM’s parent has 

this information and can provide it to 

the Commission upon request. The 

Commission believes that if an asset 

manager is managing a specified set of 

assets, then it is relevant for the FCM to 

know the size of that set of assets. 

Additionally, the requirement to gather 

information sufficient to identify the 

direct or indirect parent of the customer 

is intended to ensure that the FCM 

understands who the parent is so that it 

can be aware if the parent becomes 

insolvent or otherwise experiences a 

non-ordinary course of business event. 

That an FCM’s parent may hold such 

information does not necessarily mean 

that the FCM has such information 

readily available—a goal this proposed 

provision is designed to accomplish. 

In its comment, FIA argued that this 

provision was unnecessary as the 

proposed requirement is already 

consistent with proper risk management 

or otherwise required by applicable 

law.203 FIA further argued that this 

provision may imply that an FCM has 

obligations with regard to separate 

account customers that do not exist for 

other customers. The Commission notes 

that to the extent 31 CFR 1010.230, 

which pertains to the identification of 

beneficial owners, does not contain 

specific requirements related to the 

identification of direct or indirect parent 

companies, or the value of assets 

dedicated to separate accounts, 

proposed regulation § 1.44(h)(1) is 

designed to capture such information; 

additionally, while proposed regulation 

§ 1.44 makes clear that its requirements 

are applicable to FCMs that provide 

separate account treatment for 

customers, it does not state that it is 

intended to supersede any other 

requirements related to ascertaining the 

identity of beneficial owners (i.e., 

customers). FIA additionally opposed 

any further amendment to this provision 

that would require an FCM to obtain 

any specific information or 

documentation, or prescribe the 

schedule by which an FCM must update 

such information; the Commission in 

this Second Proposal has determined 

not to propose such further 

requirements and expects that FCMs 

will obtain the requisite information in 

a time and manner consistent with the 

FCM’s existing risk management 

policies. 

In its comment, the JAC asserted that 

further clarity is needed on how 

clearing FCMs should determine the 

value of assets dedicated to separate 

accounts, and that such information 

should be updated at least annually and 

more often as facts and circumstances 

warrant. The Commission recognizes 

that there may exist significant diversity 

among separate account customers in 

the nature of customer positions, 

underlying assets, and frequency with 

which such assets change in terms of 

size and composition. The Commission 

does not wish to set a prescriptive, onesize-fits-all standard in the method and 

frequency of the valuation contemplated 

by proposed regulation § 1.44(h)(1), and 


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204Public Law 95–598, 92 Stat. 2549. 205Bankruptcy, 46 FR 57535, 57535–36 (Nov. 24, 

1981). 

206 17 CFR 190.08(b)(2)(i) and (xii) (Aggregate the 

credit and debit equity balances of all accounts of 

the same class held by a customer in the same 

capacity. Except as otherwise provided in this 

paragraph (b)(2), all accounts that are deemed to be 

held by a person in its individual capacity shall be 

deemed to be held in the same capacity. Except as 

otherwise provided in this section, an account 

maintained with a debtor by an agent or nominee 

for a principal or a beneficial owner shall be 

deemed to be an account held in the individual 

capacity of such principal or beneficial owner.). 

207Adoption of Customer Protection Rules, 43 FR 

31886, 31888 (July 24, 1978). 

believes an FCM should be able to value 

assets in a manner consistent with its 

otherwise appropriate risk management 

policies. 

Proposed regulation § 1.44(h)(2) 

provides that, where a separate account 

customer has appointed a third-party as 

the primary contact to the FCM, the 

FCM must obtain and maintain current 

contact information of an authorized 

representative at the customer, and take 

reasonable steps to verify that such 

contact information is and remains 

accurate, and that the person is in fact 

an authorized representative of the 

customer. In many cases, an investment 

manager acts under a power of attorney 

on behalf of a customer, and the FCM 

has little direct contact with the 

customer. Proposed regulation 

§ 1.44(h)(2) is designed to ensure that 

FCMs have a reliable means of 

contacting separate account customers 

directly if the investment manager fails 

to ensure prompt payment on behalf of 

the customer. Under the First Proposal, 

a DCO would have needed to require 

that a clearing FCM engaged in separate 

account treatment review and, if 

necessary, update the relevant contact 

information no less than annually. The 

Commission has determined to omit the 

requirement of an annual review from 

this Second Proposal for the avoidance 

of confusion with respect to the 

requirement to maintain current contact 

information for authorized 

representatives as, in the Commission’s 

view, reasonable steps to verify that 

contact information remains accurate 

may, depending on the circumstances, 

necessitate review and update of such 

information on a basis more or less 

frequent than annually. 

In its comment in response to the 

First Proposal, FIA opposed required 

annual updates of contact information 

for customer representatives, asserting 

that FCMs are in regular contact with 

investment managers and will have 

current contact information for them. 

While FCMs may communicate 

regularly with investment managers, 

and generally have current contact 

information for them, the Commission 

notes that its intent is to enable the FCM 

to have contact information for the 

customer, in addition to having contact 

information for the investment manager, 

in order to enable the FCM to contact 

the customer directly if the FCM has 

problems with the account manager. As 

noted above, in this Second Proposal, 

the Commission has omitted the annual 

update requirement, but will require 

that customer representative contact 

information be kept current. The 

Commission considers it prudent risk 

management practice that the FCM 

maintain a line of contact to the 

customer of a separate account, and this 

is consistent with a condition of the noaction position. 

In its comment, the JAC argued that 

the Commission should require a 

corporate resolution or similar 

document authorizing a representative 

at a customer to represent the customer 

if the customer is not an individual. The 

JAC opined that maintaining current 

contact information for authorized 

representatives of customers with 

associated corporate resolutions or 

similar documentation should already 

be part of a clearing FCM’s policies and 

procedures (noting that most such FCMs 

likely already review such information 

on at least an annual basis), and noted 

that the additional cost of adding such 

a requirement would likely be de 

minimis. The Commission notes that the 

proposed regulation already would 

require FCMs to take reasonable steps to 

verify that the authorized representative 

of a customer is in fact an authorized 

representative of the customer. While 

the proposed regulation would not 

preclude an FCM from requiring from a 

customer a corporate resolution 

authorizing a representative to represent 

a customer in order for the FCM to 

comply with this requirement, the 

Commission wishes to preserve a degree 

of flexibility in how FCMs may choose 

to verify the identity and authorization 

of customer representatives, and is not 

at this time prescribing specific means 

of verifying such information. 

Proposed regulation § 1.44 will not 

affect the Commission’s bankruptcy 

rules under part 190 of its regulations or 

any rights of a customer or FCM in 

bankruptcy thereunder. In the event that 

an FCM electing separate account 

treatment experiences a bankruptcy, the 

accounts of a customer in each account 

class will be consolidated, and accounts 

of the same customer treated separately 

for purposes of proposed regulation 

§ 1.44 will not be treated separately in 

bankruptcy. To make this limitation 

clear to customers and FCMs, the 

Commission proposes regulation 

§ 1.44(h)(3), which provides that an 

FCM must provide each separate 

account customer with a disclosure that, 

pursuant to part 190 of the 

Commission’s regulations, all separate 

accounts of the customer in each 

account class will be combined in the 

event of the FCM’s bankruptcy. The 

disclosure statement required by 

proposed regulation § 1.44(h)(3) must be 

delivered directly to the customer via 

electronic means, in writing or in such 

other manner as the FCM customarily 

delivers disclosures pursuant to 

applicable Commission regulations, and 

as permissible under the FCM’s 

customer documentation. Furthermore, 

the FCM must maintain documentation 

demonstrating that the disclosure 

statement required by proposed 

regulation § 1.44(h)(3) was delivered 

directly to the customer. Additionally, 

the FCM must include the disclosure 

statement required by proposed 

regulation § 1.44(h)(3) on its website or 

within its Disclosure Document 

required by Commission regulation 

§ 1.55(i). 

The Bankruptcy Reform Act of 

1978204 enacted subchapter IV of 

chapter 7 of the Bankruptcy Code, title 

11 of the U.S. Code, to add certain 

provisions designed to afford enhanced 

protections to commodity customer 

property and protect markets from the 

reversal of certain transfers of money or 

other property, in recognition of the 

complexity of the commodity 

business.205 The Commission enacted 

part 190 of its regulations, 17 CFR part 

190, to implement subchapter IV. Under 

part 190, all separate accounts of a 

customer in an account class will be 

combined in the event of an FCM’s 

bankruptcy.206 The Commission 

proposes to adopt proposed regulation 

§ 1.44(h)(3) so that customers receive 

full and fair disclosure as to the 

treatment of their accounts in an FCM 

bankruptcy. 

Proposed regulation § 1.44(h)(4) 

provides that an FCM that has made an 

election pursuant to proposed 

regulation § 1.44(d) shall disclose in the 

Disclosure Document required by 

regulation § 1.55(i) that it permits the 

separate treatment of accounts for the 

same customer under the terms and 

conditions of proposed regulation 

§ 1.44. A similar provision was included 

in the First Proposal as proposed 

regulation § 39.13(j)(13). Regulation 

§ 1.55 was adopted to advise new 

customers of the substantial risk of loss 

inherent in trading commodity 

futures.207 The Commission amended 

regulation § 1.55 in 2013 to, among 

other things, add new paragraph (i) 

requiring FCMs to disclose to customers 


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208 17 CFR 1.55(i). 209 17 CFR 1.55(k)(8), (11). 210Enhancing Protections Afforded Customers 

and Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506, 68564 (Nov. 14, 2013). 

211See 17 CFR 1.55(i). 212 JAC Comment Letter. 

all information about the FCM, 

including its business, operations, risk 

profile, and affiliates, that would be 

material to the customer’s decision to 

entrust funds to and otherwise do 

business with the FCM and that is 

otherwise necessary for full and fair 

disclosure.208 Such disclosures include 

material information regarding specific 

topics identified in regulation § 1.55(k), 

which include a basic overview of 

customer funds segregation, as well as 

current risk practices, controls, and 

procedures.209 These disclosures are 

designed to ‘‘enable customers to make 

informed judgments regarding the 

appropriateness of selecting an FCM’’ 

and enhance the diligence that a 

customer can conduct prior to opening 

an account and on an ongoing basis.210

The Commission believes that the 

application of separate account 

treatment for some customers of an 

FCM, is ‘‘material to the . . . decision 

to entrust . . . funds to and otherwise 

do business with the [FCM]’’ with 

respect to the customers of such FCM 

generally because, in the event that 

separate account treatment for some 

customers were to contribute to a loss 

that exceeds the FCM’s ability to cover, 

that loss might affect the segregated 

funds of all of the FCM’s customers in 

one or more account classes.211

Accordingly, the Commission proposes 

regulation § 1.44(h)(4) to ensure that 

customers are apprised of a matter that 

is relevant to the FCM’s risk 

management policies. 

In its comment in response to the 

First Proposal, the JAC contended that 

the Disclosure Document should be 

provided directly to the authorized 

representative of a customer to ensure 

the customer has a complete 

understanding of how its accounts will 

be combined in FCM bankruptcy. The 

JAC also requested that the Commission 

clarify what is meant by ‘‘delivered 

separately’’ to the underlying customer. 

The Commission notes that in this 

Second Proposal, ‘‘delivered separately’’ 

has been changed to ‘‘delivered 

directly,’’ to clarify that the Disclosure 

Document must be provided specifically 

to the customer. 

The JAC also contended that the 

regulation § 1.55(i) disclosure should be 

expanded ‘‘not only to indicate that the 

FCM permits separate account 

treatment, but also to include a 

thorough discussion of additional risks 

to other customers as highlighted by the 

Commission in the Preamble 

discussion.’’ 212 In the Commission’s 

view, the proposed conditions for 

separate account treatment are intended 

to achieve the same risk management 

objectives that would otherwise be 

achieved through application of the 

Margin Adequacy Requirement, and an 

FCM that complies with those 

conditions would not subject customers 

other than separate account customers 

to substantial additional or different 

risks. Nonetheless, while such risks may 

not be substantial, they cannot be said 

to be nonexistent, and so the 

Commission is adding in proposed 

regulation § 1.44(h)(4) to the disclosure 

proposed in the First Proposal the 

language that ‘‘in the event that separate 

account treatment for some customers 

were to contribute to a loss that exceeds 

the FCM’s ability to cover, that loss may 

affect the segregated funds of all of the 

FCM’s customers in one or more 

account classes.’’ 

Additionally, the JAC recommended 

that the Commission address how 

separate account treatment may impact 

a pro rata distribution in the event of a 

clearing FCM bankruptcy. For the 

avoidance of doubt, the Commission 

confirms that, if an FCM disburses 

funds to a customer receiving separate 

treatment which would not otherwise 

have been available if the accounts were 

treated on a gross basis, the FCM 

subsequently declares bankruptcy and, 

as a result of the separate account 

disbursement, the customer has a 

smaller amount of funds on deposit 

when its separate accounts are 

combined in bankruptcy, then the 

customer may share in any shortfall in 

customer funds at the FCM to a lesser 

extent than would a customer not 

subject to separate account treatment. 

This result is an inherent risk of 

separate account treatment, but is not 

unique; any customer that reduces their 

amount of margin on deposit at an FCM 

shortly before the FCM goes into 

bankruptcy (either by reducing excess 

margin, or reducing the risk of their 

positions and withdrawing the resulting 

margin excess) would similarly benefit. 

Additionally, proposed regulation 

§ 1.44(h)(4)(i) provides that an FCM that 

applies separate account treatment 

pursuant to proposed regulation § 1.44 

must apply such treatment in a 

consistent manner over time, and that if 

the election pursuant to proposed 

regulation § 1.44(d) for a separate 

account customer is revoked, such 

election may not be reinstated during 

the 30 days following such revocation. 

The Commission proposes this 30-day 

period to further ensure that FCMs will 

conduct a diligent and thorough review 

to confirm that the circumstances 

leading to cessation of separate account 

treatment have been cured, and to 

prevent the possibility that, as discussed 

below, an FCM could toggle its separate 

account treatment election for purposes 

other than serving customers’ bona fide 

commercial purposes. Proposed 

regulation § 1.44(h)(i) is intended to 

ensure that FCMs employ separate 

account treatment in a way that is 

consistent with the customer protection 

and FCM risk management provisions of 

the CEA and Commission regulations. 

The Commission recognizes that, while 

bona fide business or risk management 

purposes may at times warrant 

application or cessation of separate 

account treatment, FCMs should not 

apply or cease separate account 

treatment for reasons, or in a manner, 

that would contravene the customer 

protection and risk mitigation purposes 

of the CEA and Commission regulations. 

For instance, an FCM should not switch 

back and forth between separate and 

combined treatment for customer 

accounts in order to achieve more 

preferable margining outcomes or offset 

margin shortfalls in particular accounts. 

The period of 30 days was chosen to 

balance this goal with a recognition that, 

after a sufficient period of time, the 

relevant circumstances for a particular 

customer may change for reasons other 

than strategic switching. The 

Commission recognizes that there are a 

wide variety of circumstances that may 

indicate inconsistent application of 

separate account treatment. 

L. Proposed Appendix A to Part 1 

As discussed above, the Commission 

proposes Appendix A to part 1 to set 

forth those currencies for which 

payment of margin shall be considered 

in compliance with the one business 

day margin call requirements of 

proposed regulation § 1.44(f) if received 

no later than the end of the second 

business day after the day on which the 

margin call is issued. As discussed 

above, the procedures for adding 

currencies to or removing currencies 

from proposed Appendix A to part 1 

would be set forth in proposed 

regulation § 1.44(f)(8). 

In the First Proposal, the Commission 

proposed that margin paid in JPY would 

receive two-business day treatment and 

requested that commenters indicate 

which, if any, additional currencies 

would require similar treatment. In its 

comment, FIA stated, based on its 

members’ knowledge and experience, 

considering time zone limitations and 


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213FIA Comment Letter. 

214See § 39.13(g)(8)(i). 

215See Gross Margining of Omnibus Accounts, 46 

FR 62864 (Dec. 29, 1981). 

216See Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69334, 69375 

(Nov. 8, 2011). 

217See id., regulation § 39.13(g)(8)(i). 

218 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69375– 

69376. 

219 Id. at 69376 n. 133 (citing CPSS–IOSCO 

Consultative Report [on PFMI], Principle 14: 

Segregation and Portability, Explanatory Notes 

3.14.6 and 3.14.8, at 67–68). 

220By contrast, the Commission has imposed 

limits on holding the foreign futures or foreign 

options secured amount outside the United States. 

See regulation § 30.7(c) (limiting such amounts to 

120% of the total amount of funds necessary to 

meet margin and prefunding margin requirements 

established by rule, regulation or order of foreign 

boards of trade or foreign clearing organizations, or 

to meet margin calls issued by foreign brokers 

carrying the 30.7 customers’ foreign futures and 

foreign options positions.) Requiring an FCM to 

send a larger amount of 30.7 funds upstream to a 

foreign broker or foreign clearing organization 

would run counter to the regulation’s goal of 

limiting such amounts. Accordingly, the 

Commission is not proposing to require gross 

margining with respect to 30.7 accounts. 

221See proposed regulation § 1.44(g)(2). 

industry settlement conventions, that 

the following currencies may also 

require such treatment: Australian 

dollar (AUD), Chinese renminbi (CNY), 

Hong Kong dollar (HKD), Hungarian 

forint (HUF), Israeli new shekel (ILS), 

New Zealand dollar (NZD), Singapore 

dollar (SGD), South African rand (ZAR), 

and Turkish lira (TRY).213 The 

Commission is persuaded by this 

analysis, and understands that the list of 

currencies in proposed Appendix A to 

part 1 is consistent with current 

industry settlement conventions, based 

on the Commission staff’s informational 

discussions with industry professionals 

knowledgeable regarding such 

conventions. The Commission proposes 

that the initial currencies under 

proposed Appendix A to part 1 should 

be AUD, HKD, HUF, ILS, NZD, SGD, 

ZAR, TRY, and CNY. The Commission 

would welcome further comment 

indicating industry settlement 

conventions for other currencies. 

M. Proposed Amendments to Regulation 

§ 1.58 

Regulation § 1.58(a) currently 

provides that each FCM that carries a 

commodity futures or commodity 

option position for another FCM or a 

foreign broker on an omnibus basis must 

collect, and each FCM and foreign 

broker whose account is so carried, 

must deposit initial and maintenance 

margin on positions reportable under 

Commission regulation § 17.04 at a level 

of at least that established for customer 

accounts by the rules of the relevant 

contract market. Regulation § 1.58(a) is 

designed to ensure that where a clearing 

FCM (i.e., a carrying FCM) carries a 

customer omnibus account for a nonclearing FCM (i.e., a depositing FCM), 

the risk posed by the customers of the 

depositing FCM continues to be 

appropriately mitigated through 

margining of those positions (i.e., 

calculation of initial and maintenance 

margins) on a gross basis at the 

depositing FCM. This is analogous to 

the margining of positions of a clearing 

FCM on a gross basis at the DCO.214

In proposing regulation § 1.58(a), the 

‘‘Commission view[ed] with great 

concern the fact that [a significant] 

amount of customer funds [was] being 

held by firms [i.e., non-clearing FCMs] 

that, in comparison to clearing FCMs, 

generally have less capital and are less 

equipped to handle the volatility of the 

commodity markets, a concern which 

was highlighted by the . . . 

bankruptcies [of three FCMs] which 

occurred during the last half of 

1980.’’ 215 In light of the segregation 

requirements at the time—which did 

not yet apply to foreign futures and 

foreign options, and also did not apply 

to cleared swaps (a category that did not 

then exist), these requirements were 

designed only to apply to futures and 

options. The requirement was therefore 

tied to position reporting under 

regulation § 17.04, a reporting 

requirement that is limited to futures 

and options. 

By 2011, industry practice had 

developed such that ‘‘[u]nder current 

industry practice, omnibus accounts 

report gross positions to their clearing 

members and clearing members collect 

margins on a gross basis for positions 

held in omnibus accounts.’’ 216 The 

Commission thus required DCOs to 

require that clearing members post 

margin to DCOs on a gross basis for both 

domestic futures and cleared swaps.217

The Commission stated, as its rationale, 

that it 

continues to believe, as stated in the notice 

of proposed rulemaking, that gross margining 

of customer accounts will: (a) More 

appropriately address the risks posed to a 

DCO by its clearing members’ customers than 

net margining; (b) will increase the financial 

resources available to a DCO in the event of 

a customer default; and (c) with respect to 

cleared swaps, will support the requirement 

in § 39.13(g)(2)(iii) that a DCO must margin 

each swap portfolio at a minimum 99 percent 

confidence level.218

The Commission also noted that, 

‘‘under certain circumstances gross 

margining may also increase the 

portability of customer positions in an 

FCM insolvency. That is, a gross 

margining requirement would increase 

the likelihood that there will be 

sufficient collateral on deposit in 

support of a customer position to enable 

the DCO to transfer it to a solvent 

FCM.’’ 219

At the time, with its focus on 

implementing rules for DCOs, the 

Commission did not amend regulation 

§ 1.58 explicitly to require gross 

margining for omnibus accounts cleared 

by a non-clearing FCM through a 

clearing FCM. However, reviewing the 

matter presently, the Commission is of 

the view that the reasons for requiring 

clearing FCMs to post margin at a DCO 

on a gross basis apply, mutatis 

mutandis, to support requiring gross 

margining for omnibus customer 

accounts of non-clearing FCMs for 

Cleared Swaps in addition to domestic 

futures.220

Accordingly, the Commission is 

proposing to amend regulations § 1.58(a) 

and (b) to require, in the case of (a), 

addressing gross collection of margin 

generally, that each futures commission 

merchant which carries a futures, 

options, or Cleared Swaps position for 

another futures commission merchant or 

for a foreign broker on an omnibus basis 

must collect, and each futures 

commission merchant and foreign 

broker for which an omnibus account is 

being carried must deposit, initial and 

maintenance margin on each position so 

carried at a level no less than that 

established for customer accounts by the 

rules of the applicable contract market 

or other board of trade (or, if the board 

of trade does not specify any such 

margin level, the level specified by the 

relevant clearing organization), i.e., on a 

gross margin basis, and, in the case of 

(b), addressing entitlement to spread or 

hedge margin treatment, that where an 

FCM carries a futures, options, or 

Cleared Swaps position for another 

futures commission merchant or for a 

foreign broker on an omnibus basis 

allows a position to be margined as a 

spread position or as a hedged position 

in accordance with the rules of the 

applicable contract market, the carrying 

futures commission merchant must 

obtain and retain a written 

representation from the futures 

commission merchant or from the 

foreign broker for which the omnibus 

account is being carried that each such 

position is entitled to be so margined. 

Under this proposal, clearing FCM 

initial and maintenance margin 

requirements for separate accounts of 

the same customer are proposed to be 

calculated on a gross basis as the margin 

for accounts of distinct customers.221

The Commission preliminarily believes 


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222As a result, each customer with accounts 

subject to separate account treatment should be 

subject to the same or greater margin requirements 

as such customer would be subject to if its separate 

accounts were margined on a combined account 

basis. 223 If non-clearing FCM N has customers P and Q, 

and Q is a separate account customer with separate 

accounts R, S, and T, then N would calculate, on 

a gross basis, the margin requirements for accounts 

P, R, S, and T, consistent with proposed regulation 

§ 1.58(c). That gross margin requirement, across 

those four accounts, will be the amount that, 

consistent with regulation § 1.58(a), N must deposit 

and N’s clearing FCM, C, must collect. 

224CFTC Letter No. 19–17 (Condition 3). 

225For example, regulation § 30.2 excludes 

persons and foreign futures and foreign options 

transactions from the segregation requirements of 

§ 1.20, which applies only to futures customer 

funds and transactions. Commission regulation 

§ 30.7 addresses the segregation requirements of 

30.7 customer funds. 

226Regulation § 1.44 is currently reserved and, 

accordingly, does not impose any regulatory 

obligation on an FCM. When regulation § 30.2 was 

promulgated, regulation § 1.44 addressed records 

and reports of warehouses, depositories, and other 

similar entities; this regulation was subsequently 

deleted. 

227Foreign Futures and Foreign Options 

Transactions, 52 FR 28980 (Aug. 5, 1987). 

228 17 CFR 39.13(g)(3)(i)(A). 

it is important to continuity of risk 

management that the same approach 

also be applied in the case of a nonclearing (depositing) FCM whose 

accounts are carried by a clearing 

(carrying) FCM, with respect to the 

amount that depositing FCM is required 

to deposit, and that the carrying FCM is 

required to collect.222 The Commission 

is therefore proposing to amend 

regulation § 1.58 to add new paragraph 

(c) providing that, where an FCM has 

established an omnibus account that is 

carried by another FCM, and the 

depositing FCM has elected to treat the 

separate accounts of a customer as 

accounts of separate entities for 

purposes of proposed regulation § 1.44, 

then the depositing FCM must calculate 

initial and maintenance margin for 

purposes of regulation § 1.58(a) 

separately for each separate account.223

N. Proposed Amendments to Regulation 

§ 1.73 

The Commission proposes to amend 

regulation § 1.73 to add new paragraph 

(c) providing that an FCM that is not a 

clearing member of a DCO but that treats 

the separate accounts of a customer as 

accounts of separate entities for 

purposes of proposed regulation § 1.44 

shall comply with regulation § 1.73(a) 

and (b) with respect to accounts and 

separate accounts of separate account 

customers receiving separate treatment, 

as if the FCM were a clearing member 

of a DCO. Regulation § 1.73 currently 

sets forth risk management requirements 

only for FCMs that are clearing members 

of DCOs. The Commission proposes this 

amendment to ensure that, where nonclearing FCMs are engaging in separate 

account treatment, they are required to 

comply with the same baseline risk 

management requirements with respect 

to those separate accounts as their 

clearing counterparts do with respect to 

all accounts. In particular, this 

amendment will link with a nonclearing FCM’s compliance with 

proposed regulation § 1.44(g)(1)’s stress 

testing and credit limit requirements. 

Since 2019, clearing FCMs have 

successfully applied regulation 

§ 1.73(a), in conjunction with the noaction position’s stress testing and 

credit limit conditions,224 to manage the 

risk of accounts subject to separate 

treatment. In proposing to codify the noaction position in part 1 of the 

Commission’s regulations, the 

Commission believes it would be 

prudent from a customer funds 

protection perspective, and a systemic 

risk mitigation perspective, to ensure 

that any FCMs that provide for separate 

account treatment, whether clearing or 

non-clearing, do so subject to similarly 

heightened risk management 

requirements. The Commission expects 

that, by applying the heightened risk 

management requirements applicable to 

clearing FCMs to all of a non-clearing 

FCM’s accounts for a customer receiving 

separate treatment, a non-clearing FCM 

would be better able to detect and 

prevent the emergence of risks that 

could lead to operational or financial 

distress at such customer, reducing the 

potential risk of a default (or a failure 

to maintain adequate customer funds) 

by the non-clearing FCM. 

O. Proposed Amendments to Regulation 

§ 30.2 

Commission regulation § 30.2(b) 

currently excludes an FCM engaging in 

foreign futures and foreign option 

transactions for 30.7 customers from 

certain provision of the Commission’s 

regulations, including regulation § 1.44, 

in recognition that such transactions are 

entered into on contract markets that are 

subject to regulation by non-U.S. 

authorities.225 Regulation § 1.44 is 

currently reserved, and the Commission 

is proposing to amend regulation 

§ 30.2(b) to remove regulation § 1.44 

from the list of excluded regulations.226

The proposed amendment to 

regulation § 30.2(b) is consistent with 

the proposed imposition of the Margin 

Adequacy Requirement on 30.7 

accounts and the proposed definition of 

the term ‘‘account’’ in regulation 

§ 1.44(a), which would include 30.7 

accounts in addition to futures accounts 

and Cleared Swaps Customer Accounts. 

The Commission is also proposing to 

remove the exclusion of regulations 

§§ 1.41–1.43 from applicability to part 

30. When regulation § 30.2 was 

promulgated in 1987 as part of the 

establishment of part 30,227 it explicitly 

provided that certain of its existing 

regulations would not be applicable ‘‘to 

the persons and transactions that are 

subject to the requirements of’’ part 30. 

At that time, regulations §§ 1.41–1.43 

addressed, respectively, crop or market 

information letters, filing of contract 

market rules with the Commission, and 

warehouses, depositories, and other 

similar entities. Those regulations were 

subsequently deleted, and those 

sections were reserved. 

When the Commission revised its part 

190 bankruptcy rules in 2021, the 

Commission added, as regulations 

§§ 1.41–1.43, designation of hedging 

accounts, delivery accounts, and 

conditions on accepting letters of credit 

as collateral. Each of these regulations 

was intended to apply to foreign futures 

accounts. However, regulation § 30.2 

was not amended to conform with that 

intention. The Commission proposes to 

address that now. 

P. Proposed Amendments to Regulation 

§ 39.13(g)(8) 

Regulation § 39.13(g)(8)(i) requires 

DCOs to collect customer margin from 

their clearing members on a gross basis, 

that is, collect margin equal to the sum 

of initial margin amounts that would be 

required by the DCO for each individual 

customer within that account if each 

individual customer were a clearing 

member.228 The Commission proposes 

to add new regulation § 39.13(g)(8)(i)(E) 

to clarify that, for purposes of this 

regulation on gross margining, each 

separate account of a separate account 

customer shall be treated as an account 

of a separate individual customer. 

The Commission also proposes to 

amend regulation § 39.13(g)(8)(iii), to 

provide that such paragraph shall apply 

except as provided for in regulation 

§ 1.44. The Commission proposes this 

amendment to ensure that the carve-out 

(represented by proposed regulation 

§ 1.44(c) through (h)) to the Margin 

Adequacy Requirement (represented by 

proposed regulation § 1.44(b)) that 

would apply to all FCMs is also 

effectuated with respect to the Margin 

Adequacy Requirement applicable to 

clearing members through DCOs 

pursuant to regulation § 39.13(g)(8)(iii). 

Question 8: If the Commission 

includes the Margin Adequacy 

Requirement and requirements 

regarding separate account treatment in 


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15342 Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 

229 7 U.S.C. 19(a). 230See, e.g., 7 U.S.C. 2(i). 

231Proposed regulation § 1.44(a) provides 

definitions supporting the other paragraph of the 

regulation. 

Part 1 of its regulations as proposed, 

should the Commission remove 

regulation 39.13(g)(8)(iii)? 

III. Cost Benefit Considerations 

A. Introduction 

Section 15(a) of the CEA requires the 

Commission to ‘‘consider the costs and 

benefits’’ of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.229

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of five broad areas of market and 

public concern: (1) protection of market 

participants and the public; (2) 

efficiency; competitiveness, and 

financial integrity of markets; (3) price 

discovery; (4) sound risk management 

practices; and (5) other public interest 

considerations (collectively referred to 

herein as the Section 15(a) Factors). 

Accordingly, the Commission considers 

the costs and benefits associated with 

the proposed regulation in light of the 

Section 15(a) Factors. In conducting its 

analysis, the Commission may, in its 

discretion, give greater weight to any 

one of the five enumerated areas of 

concern. In the sections that follow, the 

Commission considers: (1) the costs and 

benefits of the proposed regulation; (2) 

the alternatives contemplated by the 

Commission and their costs and 

benefits; and (3) the impact of the 

proposed regulation on the Section 15(a) 

Factors. 

By its terms, section 15(a) does not 

require the Commission to quantify the 

costs and benefits of a new rule or to 

determine whether the benefits of the 

adopted rule outweigh its costs. 

Nonetheless, the Commission has 

endeavored to assess the expected costs 

and benefits of the proposed 

amendments in quantitative terms, 

including Paperwork Reduction Act 

(PRA)-related costs, where practicable. 

In situations where the Commission is 

unable to quantify the costs and 

benefits, the Commission identifies and 

considers the costs and benefits of the 

applicable proposed amendments in 

qualitative terms. However, the 

Commission lacks the data necessary to 

reasonably quantify all of the costs and 

benefits considered below. In some 

instances, it is not reasonably feasible to 

quantify the costs and benefits to FCMs 

with respect to certain factors, such as 

market integrity. Additionally, any 

initial and recurring compliance costs 

for any particular FCM will depend on 

its size, existing infrastructure, 

practices, and cost structures. The 

Commission welcomes comments on 

any such costs, especially by clearing 

FCMs, who may be better able to 

provide quantitative costs data or 

estimates, based on their respective 

experiences relating to the application 

of CFTC Letter No. 19–17. 

Notwithstanding these types of 

limitations, the Commission otherwise 

identifies and considers the costs and 

benefits of these proposed rule 

amendments in qualitative terms. 

In the following consideration of costs 

and benefits, the Commission first 

identifies and discusses the benefits and 

costs attributable to the proposed rule 

amendments. Next, the Commission 

identifies and discusses the benefits and 

costs attributable to the proposed rule 

amendments as compared to 

alternatives to the proposed rule 

amendments. The Commission, where 

applicable, then considers the costs and 

benefits of the proposed rule 

amendments in light of the Section 15(a) 

Factors. 

The Commission notes that this 

consideration of costs and benefits is 

based on, inter alia, its understanding 

that the derivatives markets regulated by 

the Commission function 

internationally, with (1) transactions 

that involve entities organized in the 

United States occurring across different 

international jurisdictions, (2) some 

entities organized outside of the United 

States that are prospective Commission 

registrants, and (3) some entities that 

typically operate both within and 

outside the United States, and that 

follow substantially similar business 

practices wherever located. Where the 

Commission does not specifically refer 

to matters of location, the discussion of 

costs and benefits below refers to the 

effects of the proposed regulations on all 

relevant derivatives activity, whether 

based on their actual occurrence in the 

United States or on their connection 

with, or effect on, U.S. commerce.230

The Commission generally requests 

comment on all aspects of its costbenefit considerations, including the 

identification and assessment of any 

costs or benefits not discussed herein; 

the potential costs and benefits of the 

alternatives that the Commission 

discussed in this release; data and any 

other information to assist or otherwise 

inform the Commission’s ability to 

quantify or qualitatively describe the 

costs and benefits of the proposed rule 

amendments; and substantiating data, 

statistics, and any other information to 

support positions posited by 

commenters with respect to the 

Commission’s discussion. Commenters 

may also suggest other alternatives to 

the proposed approach where the 

commenters believe that the alternatives 

would be appropriate under the CEA 

and would provide a more appropriate 

cost-benefit profile. 

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 resulting from 

the proposal 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 

difficulties, for this NPRM (Second 

Proposal), the Commission offers the 

following qualitative discussion of its 

costs and benefits. 

1. Proposed Regulation 

The Commission is proposing to 

promulgate new regulations in part 1 of 

its regulations designed to (1) further 

ensure that FCMs hold customer funds 

sufficient to cover the required initial 

margin for the customer’s positions, by 

prohibiting an FCM from permitting 

customers to withdraw funds from their 

accounts with such FCM unless the net 

liquidating value plus the margin 

deposits remaining in the customer’s 

account after the withdrawal would be 

sufficient to meet the customer initial 

margin requirements with respect to the 

products or portfolios in the customer’s 

account (i.e., the Margin Adequacy 

Requirement) (proposed regulation 

§ 1.44(b)) and (2) permit FCMs to treat 

the separate accounts of a single 

customer as accounts of separate entities 

for purposes of the Margin Adequacy 

Requirement, subject to conditions 

designed to ensure that such separate 

account treatment is carried out in a 

documented and consistent manner, 

and that FCMs, their DSROs, and the 

Commission are apprised of, and able to 

respond to, conditions that, for risk 

mitigation reasons, would necessitate 

the cessation of such separate account 

treatment (proposed regulation § 1.44(c) 

through (h)).231 The Commission is also 

proposing to revise regulations in parts 

1, 22, and 30 of its regulations related 

to definitions, FCM minimum financial 

requirements, reporting, collection of 

margin, and clearing FCM risk 

management (proposed amendments to 

regulations §§ 1.3, 1.17, 1.20, 1.58, and 

1.73, as well as §§ 22.2 and 30.7), and 

part 39 of its regulations related to DCO 

risk management (proposed 


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232While existing regulation § 39.13(g)(8)(iii) does 

not require DCOs to impose a Margin Adequacy 

Requirement on their clearing FCMs with respect to 

such FCMs’ foreign futures (part 30) accounts, it 

may well be the case that such FCMs’ existing 

systems and procedures already apply that 

requirement to those accounts, because it may be 

impracticable operationally to treat those accounts 

differently from futures and Cleared Swaps 

Accounts. If that assumption is correct, the 

proposed part 1 Margin Adequacy Requirement is 

unlikely to impose significant costs on, or cause 

significant benefits with respect to, clearing FCMs. 

The Commission seeks comment on the validity of 

that assumption. 

233Section 5b(c)(2)(D) of the CEA, 7 U.S.C. 7a– 

1(c)(2)(D). 

234Section 5b(c)(2)(D)(iv) of the CEA, 7 U.S.C. 7a– 

1(c)(2)(D)(iv). 

amendments to regulation § 39.13), to 

facilitate full implementation of the 

Margin Adequacy Requirement and 

conditions for separate account 

treatment. 

2. Baseline: Current Part 1 and 

Regulation 39.13(g)(8)(iii) 

The Commission identifies the costs 

and benefits of the proposed 

amendments relative to the baseline of 

the regulatory status quo. In particular, 

the baseline that the Commission 

considers for the costs and benefits of 

these proposed rule amendments is the 

Commission regulations now in effect; 

specifically, part 1 of the Commission’s 

regulations (where the operative part of 

the proposed regulation would be 

codified) and regulation § 39.13(g)(8)(iii) 

(which contains the Commission’s 

current Margin Adequacy Requirement). 

In considering the costs and benefits of 

the proposed regulation against this 

baseline, the Commission considers the 

costs and benefits for both clearing 

FCMs and non-clearing FCMs—the two 

categories of market participants that 

would be directly affected by the 

proposed regulation. To the extent that 

certain FCMs that are clearing members 

of DCOs have taken actions in reliance 

on CFTC Letter No. 19–17, the 

Commission recognizes the practical 

implications of those actions on the 

costs and benefits of the proposed 

regulation. 

a. Baseline With Respect to Clearing 

FCMs 

Regulation § 39.13(g)(8)(iii) currently 

provides that DCOs shall establish a 

Margin Adequacy Requirement for their 

clearing FCMs with respect to the 

products that the DCOs clear. Thus, 

under the status quo baseline, clearing 

FCMs are, albeit indirectly (through the 

operation of DCO rules designed to 

implement regulation § 39.13(g)(8)(iii)), 

subject to the Margin Adequacy 

Requirement for futures and Cleared 

Swaps. They are not, however, subject 

to the Margin Adequacy Requirement 

for foreign futures that are not cleared 

by a DCO.232 Under the baseline— 

which does not include the effect of 

CFTC Letter No. 19–17 and its 

superseding letters—clearing FCMs are 

not permitted to engage in separate 

account treatment with respect to the 

Margin Adequacy Requirement. 

b. Baseline With Respect to NonClearing FCMs 

Commission regulations do not, either 

directly or indirectly, impose a Margin 

Adequacy Requirement on non-clearing 

FCMs. Accordingly, they currently have 

no need to engage in separate account 

treatment with respect to such a 

requirement. 

The Commission’s current part 1 

regulations do not contain any 

requirements specifically related to the 

separate treatment of accounts. As noted 

above, under the baseline, clearing 

FCMs are not permitted to engage in 

separate account treatment with respect 

to regulation § 39.13(g)(8)(iii)’s Margin 

Adequacy Requirement, and nonclearing FCMs have no need to engage 

in separate account treatment with 

respect to the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii) (because DCO rules 

addressing that regulation do not apply 

to non-clearing FCMs). Additionally, a 

non-clearing FCM would not be 

permitted to treat the accounts of a 

single customer as accounts of separate 

entities for purposes of regulatory 

requirements imposed by the 

Commission (e.g., capital requirements 

under regulation § 1.17). 

B. Consideration of the Costs and 

Benefits of the Commission’s Action 

1. Benefits 

a. Margin Adequacy Requirement 

(Proposed Regulation § 1.44(b)) 

As discussed above, the Commission 

is proposing to (a) promulgate new 

regulations in part 1 of its regulations 

designed to (1) further ensure that FCMs 

hold customer funds sufficient to cover 

the required initial margin for the 

customer’s positions, and (2) permit 

FCMs to treat the separate accounts of 

a single customer as accounts of 

separate entities for purposes of such 

Margin Adequacy Requirement, subject 

to requirements designed to mitigate the 

risk that such separate account 

treatment could result in or worsen an 

under-margining scenario; and (b) make 

supporting amendments in parts 1, 22, 

30, and 39 to facilitate the Margin 

Adequacy Requirement and 

requirements for separate account 

treatment, namely through changes to 

definitions, amendment of certain 

margin calculation requirements, 

application of certain risk management 

requirements to non-clearing FCMs 

engaged in separate account treatment, 

and amendment of regulation 

§ 39.13(g)(8)(iii)’s Margin Adequacy 

Requirement to accommodate separate 

account treatment under the proposed 

regulation. 

Existing regulation § 39.13(g)(8)(iii) 

establishes a Margin Adequacy 

Requirement, designed to mitigate the 

risk that a clearing member fails to hold, 

from a customer, funds sufficient to 

cover the required initial margin for the 

customer’s cleared positions, and 

thereby designed to avoid the risk that 

a clearing FCM will, whether 

deliberately or inadvertently, misuse 

customer funds by using one customer’s 

funds to cover another customer’s 

margin shortfall. DCO Core Principle D, 

which concerns DCO risk management, 

imposes a number of duties upon DCOs 

related to their ability to manage the 

risks associated with discharging their 

responsibilities as DCOs, such as 

measuring credit exposures, limiting 

exposures to potential default-related 

losses, setting margin requirements, and 

establishing risk management models 

and parameters.233 Among other 

requirements, Core Principle D requires 

that the margin required from each 

member and participant of a DCO be 

sufficient to cover potential exposures 

in normal market conditions.234

Regulation § 39.13 implements Core 

Principle D, including through 

regulation § 39.13(g)(8)(iii)’s restrictions 

on withdrawal of customer initial 

margin. 

With respect to clearing FCMs, 

because regulation § 39.13(g)(8)(iii) 

already results in the application of a 

Margin Adequacy Requirement to 

clearing FCMs through DCO rules in the 

context of futures and Cleared Swaps, 

the benefits of a Margin Adequacy 

Requirement in part 1 that applies 

directly to FCMs will be more limited 

than the benefits with respect to nonclearing FCMs. However, the 

Commission preliminarily believes that, 

to the extent there are failures in 

compliance with respect to margin 

adequacy, proposed regulation § 1.44(b) 

will provide an additional avenue (i.e., 

through the Commission) for monitoring 

and enforcement of margin adequacy for 

clearing FCMs. Moreover, proposed 

regulation § 1.44(b) will expand the 

Margin Adequacy Requirement to apply 

to foreign futures transactions cleared 


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235To the extent that FCMs already follow the 

Margin Adequacy Requirement for foreign futures, 

e.g., for reasons of operational convenience (for 

example, if a clearing FCM applies the Margin 

Adequacy Requirement to its customer risk 

management for futures and Cleared Swaps, it may 

be easier to also apply it in the context of customer 

risk management for foreign futures than to have 

two different approaches) or as a matter of prudent 

risk management, the related costs and benefits 

would be reduced. 

236 7 U.S.C. 6d(a)(2); 17 CFR 1.20(a); 17 CFR 

1.22(a). 237See First FIA Letter. 

238See also the analogous requirements in CEA 

§§ 4d(f)(2) and 4(b), and regulations §§ 22.2 and 

30.7 (for, respectively, Cleared Swaps and foreign 

futures). 

239And, similarly, those of CEA section 4d(f)(2) 

and 4(b). 

through both clearing and non-clearing 

FCMs.235

With respect to non-clearing FCMs, 

the Margin Adequacy Requirement of 

proposed regulation § 1.44(b) will result 

in similar benefits to those currently 

experienced with respect to clearing 

FCMs under regulation § 39.13(g)(8)(iii). 

Regulation § 39.13(g)(8)(iii) provides 

that DCOs shall require clearing FCMs 

to ensure that their customers do not 

withdraw funds from their accounts 

unless sufficient funds remain to meet 

customer initial margin requirements 

with respect to all products and swap 

portfolios held in the customers’ 

accounts and cleared by the DCO. This 

requirement is designed to prevent the 

under-margining of customer accounts, 

and thus mitigate the risk of a clearing 

member default and the consequences 

that could accrue to the broader 

financial system. 

Section 4d(a)(2) of the CEA and 

regulation § 1.20(a) require an FCM to 

separately account for and segregate all 

money, securities, and property which it 

has received to margin, guarantee, or 

secure the trades or contracts of its 

commodity customers, and section 

4d(a)(2) of the CEA and regulation 

§ 1.22(a) prohibit an FCM from using the 

money, securities, or property of one 

customer to margin or settle the trades 

or contracts of another customer.236

The Commission preliminarily 

believes that proposed regulation 

§ 1.44(b), which will apply a Margin 

Adequacy Requirement directly to 

FCMs, both clearing and non-clearing, 

would further achieve the benefits of 

serving to protect customer funds, and 

mitigating systemic risk that could arise 

from misuse of customer funds, by 

applying the under-margining 

avoidance requirements of regulation 

§ 39.13(g)(8)(iii) directly to all FCMs. As 

noted above, this Margin Adequacy 

Requirement does not currently apply to 

non-clearing FCMs. The Commission 

further preliminarily believes that the 

application of such a Margin Adequacy 

Requirement to all FCMs (and to all 

three types of customer transactions, 

including (additionally) foreign futures 

transactions), through more broadly 

preventing under-margining situations, 

is reasonably necessary to better 

effectuate CEA section 4d(a)(2) and to 

better accomplish the purposes of the 

CEA (from section 3(b)) of ‘‘avoidance of 

systemic risk’’ and ‘‘protecting all 

market participants from . . . misuses 

of customer assets.’’ 

b. Requirements for Separate Account 

Treatment (Proposed Regulation 

§ 1.44(c) Through (h) and Supporting 

Amendments to Regulations §§ 1.3, 

1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 30.2, 

30.7, and 39.13(g)(8)) 

As discussed in section I.B above, 

there are a number of commercial 

reasons why an FCM or customer may 

wish to treat the separate accounts of a 

single customer as accounts of separate 

entities. Combination of all accounts of 

the same customer within the same 

regulatory account classification for 

purposes of margining and determining 

funds available for disbursement may 

make it challenging for certain 

customers and their investment 

managers to achieve certain commercial 

purposes.237 For example, where a 

customer has apportioned assets among 

multiple investment managers, neither 

the customer nor their investment 

managers may be able to obtain 

certainty that the individual portion of 

funds allocated to one investment 

manager will not be affected by the 

activities of other investment managers. 

Where FCMs are able to treat the 

separate accounts of a single customer 

as accounts of separate entities for 

purposes of the proposed Margin 

Adequacy Requirement, customers 

benefit from being better able to leverage 

the skills and expertise of investment 

managers, and realize the benefits of a 

balance of investment strategies in order 

to meet specific commercial goals. 

Moreover, as discussed further below, 

clearing FCMs and customers of clearing 

FCMs already relying on the no-action 

position would also obtain the benefit of 

continuing to leverage existing systems 

and procedures to provide for separate 

account treatment. 

The Commission believes that, where 

such separate account treatment is 

offered, it should be subject to 

safeguards that mitigate the risk that it 

will result in the under-margining of 

customer accounts. By applying 

regulatory safeguards designed to 

preserve the goals of the Margin 

Adequacy Requirement during such 

treatment, the proposal would achieve 

the benefit of permitting separate 

account treatment in a manner that 

would not contravene the customer 

funds protection and risk mitigation 

purposes of the CEA and Commission 

regulations. 

The Commission also believes that 

several years of successful separate 

account activity based on the no-action 

conditions of CFTC Letter No. 19–17 

and its superseding letters by DCOs, 

clearing FCMs, and customers 

demonstrate that separate account 

treatment can be successfully applied, 

subject to certain safeguards. 

As discussed above, section 4d(a)(2) 

of the CEA and Commission regulations 

§§ 1.20(a) and 1.22(a) require an FCM to 

account separately for and segregate 

futures customer funds and prohibit 

FCMs from using one customer’s funds 

to cover another customer’s margin 

shortfall 238—requirements which serve 

to further the CEA’s purposes (as set 

forth in section 3(b)) of protecting 

customer funds and avoiding systemic 

risk. 

Part 1 of the Commission’s regulations 

contain the principle regulations 

applicable to the operation of FCMs that 

support the above-described statutory 

purposes and requirements. Such 

regulations include requirements related 

to financial and other reporting, risk 

management, treatment of customer 

funds, and recordkeeping, among 

others. As noted above, the Commission 

believes that a Margin Adequacy 

Requirement, directly applied to all 

FCMs and combined with separate 

account treatment, can further CEA 

section 4d(a)(2)’s customer fund 

protection and risk avoidance 

requirements 239 while offering 

commercial utility for a variety of 

market participants. However, part 1 

does not currently contain any 

regulations imposing such a Margin 

Adequacy Requirement, or governing 

the manner in which separate account 

treatment may be conducted. 

The proposed regulation is designed 

to achieve the benefit of bridging this 

gap by 

(i) inserting a Margin Adequacy 

Requirement (proposed regulation 

§ 1.44(b)) into part 1 to ensure further 

that an FCM (whether a clearing or nonclearing FCM) does not permit margin 

withdrawals that would create or 

exacerbate an under-margining 

situation, 

(ii) allowing FCMs to treat the 

separate accounts of a single customer 

as accounts of separate entities for 

purposes of the Margin Adequacy 

Requirement, with the benefits 


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240For those clearing FCMs that currently choose 

not to engage in separate account treatment, and 

therefore, do not adhere to CFTC Letter No. 19–17, 

but choose to do so after this proposed regulation 

were to be adopted, the Commission submits that 

there will be significant costs; similar to those faced 

by non-clearing FCMs. This is discussed further 

below in the costs section. 

241See Second FIA Letter. For instance, FIA 

noted that clearing FCMs would again be required 

to review and amend customer agreements, noting 

that negotiations to amend such agreements would 

likely prove ‘‘extremely difficult’’ as ‘‘advisers 

would seek to assure that their ability to manage 

their clients’ assets entrusted to them would not be 

adversely affected by the actions (or inactions) of 

another adviser.’’ FIA letter dated May 11, 2022 to 

Robert Wasserman (Third FIA Letter). FIA further 

noted that ‘‘an adviser may be less likely to use 

exchange-traded derivatives to hedge its customers’ 

cash market positions if the adviser could not have 

confidence that it would be able to withdraw its 

customers’ excess margin as necessary to meet its 

obligations in other markets.’’ Id. 

242CFTC, Financial Data for FCMs, Sept. 20, 

2023, available at https://www.cftc.gov/Market

Reports/financialfcmdata/index.htm. 

243See CME Comment Letter (noting that 14 of 42 

clearing FCMs at CME had notified CME that they 

intended to avail themselves of the no-action 

position in CFTC Letter No. 19–17, but that a 

number of these firms did not ultimately implement 

separate account treatment). 

discussed above (proposed regulation 

§ 1.44(c)), 

(iii) establishing the manner in which 

FCMs may elect to engage in separate 

account treatment for a particular 

customer, with the benefit of identifying 

both for the FCM and its supervisory 

authorities (the Commission and SROs) 

whether it is engaging in separate 

account treatment, and, if so, for which 

customers, with the benefit of 

facilitating effective regulatory/selfregulatory supervision (proposed 

regulation § 1.44(d)), 

(iv) setting forth financial and 

operational conditions for customers 

and FCMs that would identify risk 

management issues that are sufficiently 

significant to disqualify a particular 

separate account customer (or an FCM 

with respect to all of its separate 

account customers) from separate 

account treatment, with the benefit of 

mitigating risk by suspending separate 

account treatment under such 

circumstances (proposed regulation 

§ 1.44(e)), 

(v) requiring that separate accounts be 

on a one business day margin call, while 

setting forth limited circumstances 

where failure to actually receive margin 

on a same-day basis may be excused, 

with the benefit of limiting the extent of 

potential under-margining, (proposed 

regulation § 1.44(f)), and 

(vi) establishing requirements 

designed to ensure that separate account 

treatment is carried out in a consistent 

and documented manner, and carrying 

that treatment through to related FCM 

capital, customer funds protection, and 

risk management requirements in part 1 

(proposed regulation § 1.44(g) through 

(h)), with the benefit of further ensuring 

that the risk management objectives of 

the Margin Adequacy Requirement 

continue to be met during separate 

account treatment. 

Proposed revisions to regulations 

§§ 1.3, 1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 

30.2, 30.7, and 39.13(g)(8)(i) are 

designed to define terms used in 

proposed regulation § 1.44 and facilitate 

implementation of provisions in 

proposed regulation § 1.44 that would 

affect compliance with financial 

requirements for FCMs, collection of 

margin, and FCM risk management. 

Additionally, a proposed revision to 

regulation § 39.13(g)(8)(iii) is intended 

to make clear that regulation 

§ 39.13(g)(8)(iii)’s Margin Adequacy 

Requirement, applicable directly to 

DCOs and indirectly to clearing FCMs, 

and similar in substance to the Margin 

Adequacy Requirement of proposed 

regulation § 1.44(b), does not require 

DCOs to preclude separate account 

treatment carried out subject to 

proposed regulation § 1.44. 

The Commission preliminarily 

believes that proposed regulation 

§ 1.44(c) through (h), and proposed 

supporting amendments to regulations 

§§ 1.3, 1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 

30.2, 30.7, and 39.13 would benefit both 

clearing FCMs and non-clearing FCMs, 

in addition to customers and other 

market participants, by providing a 

comprehensive framework that affirms 

the availability of separate account 

treatment, and sets forth the manner in 

which such treatment can be carried out 

consistent with the customer fund 

protection and risk avoidance objectives 

of regulation § 39.13(g)(8)(iii) (as 

applied via DCO rules, with respect to 

clearing FCMs) and proposed regulation 

§ 1.44(b)’s Margin Adequacy 

Requirement (with respect to both 

clearing FCMs and non-clearing FCMs). 

The Commission additionally notes 

that the allowance of, and requirements 

for separate account treatment in 

proposed regulation § 1.44(c) through 

(h) are substantially similar to the 

conditions to the staff no-action position 

in CFTC Letter No. 19–17. A number of 

clearing FCMs have adopted some 

practices based on this no-action 

position provided by Commission staff. 

As such, to the extent that some clearing 

FCMs have relied on the no-action 

position, the actual costs and benefits of 

the proposed rule amendments as 

realized in the market may not be as 

significant as a comparison of the rule 

to the regulatory baseline would 

suggest.240

Moreover, if the Commission were to 

allow the no-action position in CFTC 

Letter No. 19–17 to expire, and did not 

adopt the proposed regulation, then 

clearing FCMs that already engage in 

separate account treatment consistent 

with the terms of CFTC Letter No. 19– 

17 would be required to reverse those 

changes. This could entail significant 

expenditures of funds and resources in 

order to rework systems, procedures, 

and customer documentation for such 

FCMs.241 Hence, actual benefits to the 

regulation may accrue from the ability 

of many FCMs to avoid these costs. 

Request for Comment 

Question 9: What evidence can be 

provided that customers have been able 

to achieve better performance by virtue 

of allowing separate account treatment? 

Is there evidence of under margining 

due to separate account treatment since 

CFTC Letter No. 19–17 was issued? 

Question 10: Is there evidence of 

regulatory arbitrage between clearing 

FCMs and non-clearing FCMs on the 

grounds that the latter are not currently 

subject to the Margin Adequacy 

Requirement? 

2. Costs 

The proposed regulation would (i) 

amend part 1 of the Commission 

regulations to add a new requirement 

(proposed regulation § 1.44(b)) for FCMs 

to hold customer funds sufficient to 

cover the required initial margin for the 

customer’s positions (the Margin 

Adequacy Requirement); (ii) amend part 

1 to, in the same new section, (proposed 

regulation § 1.44(c–h)) permit FCMs, 

subject to certain conditions and for 

purposes of the Margin Adequacy 

Requirement, treat the accounts of a 

single customer as accounts of separate 

entities; and (iii) amend existing 

regulations in parts 1 and 39 to facilitate 

implementation of the proposed new 

regulation. The Commission herein 

discusses the costs related to each such 

set of amendments with respect to 

clearing and non-clearing FCMs. There 

are currently 60 registered FCMs, and of 

these, the Commission estimates that 

approximately 40 are clearing FCMs and 

approximately 20 are non-clearing 

FCMs.242 While the proposed regulation 

would require all FCMs to comply with 

the Margin Adequacy Requirement, it 

would not require FCMs to engage in 

separate account treatment, and the 

Commission does not expect that all 

FCMs will engage in separate account 

treatment.243 Accordingly, as noted in 

connection with the Commission’s 

discussion below related to the PRA, the 

Commission estimates that 30 FCMs 


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244There are two distinctions between clearing 

and non-clearing FCMs relevant to separate account 

compliance costs. 

The first would not create a difference in costs: 

Gross collection of margin without netting between 

separate accounts is required by proposed 

regulation § 1.44(g)(2) and existing regulation 

§ 39.13(g)(8)(i), as clarified by proposed regulation 

§ 39.13(g)(8)(i)(E) for clearing FCMs, and proposed 

regulation § 1.58(c) creates this requirement for 

non-clearing FCMs. 

The second would create some difference in 

additional costs: Under current regulation § 1.73, 

clearing FCMs are required to establish risk-based 

credit limits, screen orders for compliance with 

those limits, and monitor adherence to those limits, 

as well as conduct stress testing of positions that 

could pose material risk. Non-clearing FCMs are not 

currently required to do these things. Under 

proposed regulations §§ 1.44(g)(1) and 1.73(c), they 

would be required to do so for separate account 

customers and separate accounts, both on an 

individual separate account and aggregate basis. As 

such, there are additional incremental costs faced 

by non-clearing FCMs that choose separate account 

treatment. 

245FIA letter dated Apr. 1, 2022 to Clark 

Hutchison and Amanda Olear (Second FIA Letter). 

will choose to apply separate account 

treatment. 

a. Margin Adequacy Requirement 

(Proposed Regulation § 1.44(b)) 

The Margin Adequacy Requirement of 

proposed regulation § 1.44(b) would 

require FCMs to hold customer funds 

sufficient to cover the required initial 

margin for customer positions. With 

respect to clearing FCMs, the 

Commission estimates that the cost of 

compliance would be de minimis. As 

discussed above, existing regulation 

§ 39.13(g)(8)(iii) provides that a DCO 

shall require its clearing members to 

ensure that their customers do not 

withdraw funds from their accounts 

with such clearing members unless the 

net liquidating value plus the margin 

deposits remaining in a customer’s 

account after such withdrawal are 

sufficient to meet the customer initial 

margin requirements with respect to all 

products and swap portfolios held in 

such customer’s account which are 

cleared by the DCO. Thus, regulation 

§ 39.13(g)(8)(iii) applies a requirement 

that is substantively identical to the 

proposed requirement indirectly to 

clearing FCMs, through the rules of their 

DCOs. Because clearing FCMs are 

already functionally subject to the 

Margin Adequacy Requirements of 

proposed regulation § 1.44(b) as a result 

of regulation § 39.13(g)(8)(iii), the 

Commission does not expect any 

significant additional cost of 

compliance for clearing FCMs. 

Non-clearing FCMs are not currently 

subject to a Margin Adequacy 

Requirement promulgated by the 

Commission, and the Commission 

expects that the costs for a non-clearing 

FCM to comply could be significant. 

The Commission expects that 

compliance with the Margin Adequacy 

Requirement for a non-clearing FCM 

may entail many of the same types of 

costs noted below in connection with 

compliance with separate account 

treatment requirements. Such costs 

could include personnel, operational, 

and other costs related to updating 

internal policies and procedures, 

updating or renegotiating customer 

documentation, and implementing or 

configuring internal systems to identify 

and prevent margin withdrawals that 

would be inconsistent with the 

proposed Margin Adequacy 

Requirement. The Commission expects 

that the compliance costs for nonclearing FCMs could vary significantly 

depending on factors such as the FCM’s 

size, customer base, and existing 

compliance infrastructure and 

resources. The extent to which nonclearing FCMs need to develop new 

tools, policies, and procedures may 

however be reduced, to the extent that 

such FCMs already voluntarily take 

steps to avoid distributing funds back to 

their customers in a manner that would 

create or exacerbate an undermargined 

condition for a customer, as a means of 

managing risks to the FCM. 

Moreover, while promoting margin 

adequacy is a policy goal of many of the 

regulations in CEA, there are potential 

costs to individual investors of the 

Margin Adequacy Requirement. In 

general, tightening the rules concerning 

margins can reduce the return to 

investors, and some effects of this type 

could result from requiring margin 

adequacy at non-clearing FCMs. 

b. Requirements for Separate Account 

Treatment (Proposed Regulation 

§ 1.44(c) Through (h) and Supporting 

Amendments to Regulations §§ 1.3, 

1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 30.2, 

30.7, and 39.13(g)(8)) 

In addition to the Margin Adequacy 

Requirement of proposed regulation 

§ 1.44(b), the Commission is also 

proposing in proposed regulation 

§ 1.44(c) through (h) rules to allow 

FCMs to apply separate account 

treatment for purposes of the Margin 

Adequacy Requirement, and 

requirements for the application of such 

treatment. The proposed regulation 

would not require FCMs to apply 

separate account treatment, and FCMs 

that do not presently apply separate 

account treatment, and do not desire to 

do so in the future, would generally not 

incur any costs related to the 

application of such treatment. 

Furthermore, the Commission believes 

that an FCM electing to allow for 

separate account treatment will do so 

because such FCM believes the benefits 

of doing so will exceed the costs of 

doing so. 

With respect to FCMs that choose to 

engage in separate account treatment 

under the proposed regulation, the 

Commission expects that clearing FCMs 

and non-clearing FCMs will generally 

incur the same types of compliance 

costs, as there are no applicable 

requirements for separate account 

treatment under the baseline with 

respect to either clearing FCMs or nonclearing FCMs, and the requirements of 

the proposed regulation generally do not 

distinguish between clearing FCMs and 

non-clearing FCMs.244

The costs of the proposed regulation 

related to application of separate 

account treatment will likely vary across 

FCMs depending on the nature of their 

existing rule and compliance 

infrastructures, and as such would be 

difficult to quantify with precision. 

However, for those FCMs that choose to 

engage in separate account treatment in 

a manner consistent with the proposed 

regulation, the costs of compliance 

could be significant, and may vary 

based on factors such as the size and 

existing compliance resources of a 

particular FCM, as well as the extent to 

which the FCM’s existing risk 

management policies and procedures 

already incorporate risk management 

measures that overlap with those 

required under the proposed rule. FCMs 

that wish to allow for separate account 

treatment would likely incur costs in 

connection with updating their policies 

and procedures, internal systems, 

customer documentation and (re- 

)negotiation of customer agreements to 

allow for separate account treatment 

under the conditions codified in the 

proposed regulation. 

In a letter to the Commission staff 

dated April 1, 2022, FIA noted that, 

‘‘For many [clearing] FCMs and their 

customers, the terms and conditions of 

the no-action position . . . presented 

significant operational and systems 

challenges,’’ as clearing FCMs were 

required to ‘‘(i) adopt new practices for 

stress testing accounts; (ii) review and 

possibly change margin-timing 

expectations for non-US accounts; (iii) 

undertake legal analysis to clarify 

interpretive questions; and (iv) revise 

their segregation calculation and 

recordkeeping practices,’’ as well as 

engage in ‘‘time-consuming 

documentation changes and customer 

outreach.’’ 245

FIA further described these challenges 

in a letter to the Commission staff dated 

May 11, 2022, noting that in order to 

meet the conditions of the no-action 


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246Third FIA Letter. FIA noted that these changes 

were particularly challenging for FCMs that are part 

of a bank holding company structure, as 

‘‘[m]odifying integrated technology information 

systems across a bank holding company structure 

is complicated, expensive and time-consuming.’’ Id. 

247 Id. 

248 Id. 

249 Id. 

250As discussed below, the Commission staff 

estimates total annual costs of $1,700,010 across 30 

respondents with respect to reporting, disclosure, 

and recordkeeping requirements; however, as 

certain such costs are one-time costs, the 

Commission staff expects such figure would be 

reduced after the first year of application of separate 

account treatment. 

251This may be true to a somewhat lesser extent 

with respect to new entrants to the FCM business, 

in that those FCMs would incur the cost of 

implementing policies, procedures, and systems 

that comply with the conditions of the proposed 

regulation, but would not need to retrofit existing 

policies, procedures, and systems. 

252For those clearing FCMs that currently choose 

not to engage in separate account treatment, and 

therefore, do not adhere to CFTC Letter No. 19–17, 

but choose to do so after this proposed regulation 

were to be adopted, the Commission submits that 

there will be significant costs similar to nonclearing FCMs. 

253Communications from FIA indicate that 

significant resources have, in fact, been expended 

to meet the conditions of the NAL. See Second FIA 

Letter. 

position, clearing FCMs were required 

to review and in some cases amend 

customer agreements, and identify and 

implement information technology 

systems changes.246 FIA also asserted 

that clearing FCMs were likely required 

to revise internal controls and 

procedures.247 FIA stated that while the 

costs incurred by each clearing FCM 

varied depending on its customer base, 

among larger clearing FCMs with a 

significant institutional customer base, 

personnel costs would have included 

identifying and reviewing up to 3,000 

customer agreements to determine 

which agreements required 

modification, and then negotiating 

amendments with customers or their 

advisers.248 FIA further stated that 

because the relevant provisions of these 

agreements were not uniform, they 

generally required individual 

attention.249

The Commission anticipates that 

similar costs would arise for FCMs 

attempting to meet the requirements of 

the proposed separate accounts rule. 

Of the costs that FCMs would likely 

incur related to application of separate 

account treatment, some costs would be 

incurred on a one-time basis (e.g., 

updates to systems, procedures, 

disclosure documents, and 

recordkeeping practices, and 

renegotiation of customer agreements 

with separate account customers), and 

some would be recurring (e.g., 

monitoring compliance with the oneday margin call requirement and the 

other conditions for ordinary course of 

business). However, those costs could 

vary widely on an FCM-by-FCM basis, 

depending on factors such as the 

number of customers at a particular 

FCM who wish to have separate 

treatment applied to their accounts; 

thus, for some FCMs, ongoing costs of 

maintaining compliance may be less 

significant. 

While the Commission, in connection 

with its Paperwork Reduction Act 

assessment below,250 estimates that 

certain reporting, disclosure, and 

recordkeeping costs would not be 

significant on an entity level, as FIA 

noted, taken as a whole, compliance 

with the conditions that the proposed 

regulation would codify could result in 

significant operational and systems 

costs. In other words, the Commission 

anticipates that FCMs may incur 

significant costs related to designing 

and implementing new systems, or 

enhancing existing systems, to comply 

with the proposed regulation, as well as 

negotiation costs, even where direct 

recordkeeping costs may not be 

significant on an entity-by-entity 

basis.251

In terms of implementation costs 

relative to the baseline (that does not 

consider the effects of NAL 19–17), the 

Commission believes clearing FCMs and 

non-clearing FCMs will be subject to the 

same types of costs related to 

application of separate account 

treatment. 

As discussed above, a number of 

clearing FCMs have adopted some 

current practices based not only upon 

regulation § 39.13(g)(8)(iii)’s existing 

Margin Adequacy Requirement 

applicable to clearing FCMs through the 

rules of such clearing FCMs’ DCOs, but 

also on the no-action position provided 

by Commission staff in CFTC Letter No. 

19–17, and decisions by DCOs to 

provide relief from their rules adopting 

a Margin Adequacy Requirement in line 

with (and subject to the conditions 

specified in) that staff no-action 

position. As such, to the extent that 

clearing FCMs have relied on the noaction position, the actual costs and 

benefits of the proposed rule 

amendments as realized in the market 

may not be as significant as a 

comparison of the rule to the regulatory 

baseline would suggest.252 Specifically, 

to the extent clearing FCMs already rely 

on the effects of the no-action position, 

the tools (e.g., software) and policies 

and procedures necessary to comply 

with the proposed regulation on an 

ongoing basis will largely have already 

been built, and the costs associated with 

compliance will largely have already 

been incurred.253 (This would not apply 

to non-clearing FCMs, who have no 

current need to rely on the effects of the 

no-action position.) However, the 

Commission notes that because the 

provisions of the proposed regulation 

vary in some respects from the terms of 

the no-action position, at least some 

additional costs are likely to be incurred 

by clearing FCMs that already rely on 

the no-action position. 

In addition to compliance costs, one 

other type of costs should be noted: The 

Commission is of the view that the risk 

mitigants in proposed regulation 

§ 1.44(c) through (h) would achieve the 

benefits of the Margin Adequacy 

Requirement while permitting separate 

account treatment. However, there does 

exist a possibility that, despite these risk 

mitigants, an under-margin condition 

could exist, followed by a default by the 

customer to the FCM, and a consequent 

default by the FCM upstream (either to 

a DCO or to a clearing FCM), where the 

losses due to that default would be 

greater than they would have been 

absent separate account treatment. 

Question 11: Are the descriptions of 

the types of costs that would be 

incurred by FCMs to implement each of 

the Margin Adequacy Requirement and 

Separate Account Treatment under the 

proposed rules appropriately 

comprehensive? What data can be 

provided about the magnitude of these 

costs, either by type or in the aggregate? 

Question 12: The Commission 

requests comment on the extent to 

which FCMs that are not presently 

clearing members that rely on the noaction position in CFTC Letter No. 19– 

17 would, following implementation of 

the proposed regulation, seek to engage 

in separate account treatment. 

Commenters are requested to provide 

data where available. 

Question 13: The Commission 

requests comment regarding whether 

there are FCMs that chose not to rely on 

the no-action position provided by 

CFTC Letter No. 19–17 due to the 

conditions required to rely on that 

position. The Commission further 

requests comment on how the 

implementation of those conditions in 

the current rulemaking proposal could 

be modified to mitigate the burden of 

compliance while achieving the goals of 

mitigating systemic risk and protecting 

customer funds. 

C. Costs and Benefits of the 

Commission’s Action as Compared to 

Alternatives 

The Commission considered as an 

alternative to the proposed regulation 


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254 7 U.S.C. 7a–1(c)(2)(D)(iii) through (iv). 

255See First FIA Letter; SIFMA–AMG Letter; CME 

Letter. 

codifying the no-action position absent 

the conditions. This alternative would 

preserve the benefits of separate account 

treatment for FCMs and customers. 

However, as discussed further below, 

the conditions of the no-action 

position—proposed to be codified 

herein on an FCM-wide basis—are 

designed to permit separate account 

treatment only to the extent that such 

treatment would not contravene the risk 

mitigation goals of regulation § 39.13 

(and the Margin Adequacy Requirement 

of proposed regulation § 1.44(b)). The 

Commission preliminarily believes that 

codifying the staff no-action position 

without the conditions would intensify 

risks for DCOs, FCMs, and customers. 

For instance, without a requirement to 

cease separate account treatment in 

cases in which a customer is in financial 

distress, it is more likely that an undermargining scenario would be 

exacerbated, and a customer default to 

the clearing FCM—and potentially a 

default of the clearing FCM to the 

DCO—would be more likely. It would 

also forego applying the benefits of the 

Margin Adequacy Requirement and 

specific risk-mitigating requirements for 

separate account treatment to all FCMs. 

D. Section 15(a) Factors 

Section 15(a) of the CEA requires the 

Commission to consider the effects of its 

actions in light of the following five 

factors: 

1. Protection of Market Participants and 

the Public 

Section 15(a)(2)(A) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of considerations of 

protection of market participants and 

the public. The Commission 

preliminarily believes that the 

amendments proposed herein would 

strengthen the customer protection and 

risk mitigation provisions of part 1 

applicable to FCMs generally, and, with 

respect to clearing FCMs, maintain the 

efficacy of protections for customers and 

the broader financial system contained 

in Core Principle D and regulation 

§ 39.13. 

The Commission believes that the 

proposed regulation’s Margin Adequacy 

Requirement will have a salutary effect 

on the protection of market participants 

and the public. Section 4d(a)(2) of the 

CEA and the Commission’s 

implementing regulations under part 1 

require FCMs to segregate customer 

funds to margin trades and prohibit 

FCMs from using one customer’s funds 

to margin another customer’s trades. 

The proposed regulation is designed to 

effectuate and support these 

requirements by implementing 

requirements for FCMs to limit the 

potential for losses from defaults and 

maintain margin sufficient to cover 

potential exposures in normal market 

conditions 254 by requiring FCMs to 

ensure that their customers do not 

withdraw funds from their accounts if 

such withdrawal would create or 

exacerbate an initial margin shortfall, 

and to do so in a manner consistent 

with the Margin Adequacy Requirement 

in regulation § 39.13(g)(8)(iii) already 

applicable through DCO rules to 

clearing FCMs. This requirement 

protects not only market participants by 

requiring FCMs to ensure that adequate 

margin exists to cover customer 

positions; it also protects the public 

from disruption to the wider financial 

system by mitigating the risk that an 

FCM will default due to customer 

nonpayment of variation margin 

obligations combined with insufficient 

initial margin. 

The Commission also believes the 

requirements in the proposed regulation 

for carrying out separate account 

treatment will provide for separate 

account treatment in a manner that 

protects market participants and the 

public. While, with respect to clearing 

FCMs subject to the indirect effects of 

current § 39.13(g)(8)(iii), permitting 

separate account treatment unavoidably 

creates some additional risk of a margin 

deficiency, the conditions of the noaction position outlined in CFTC Letter 

No. 19–17, and proposed to be codified 

herein, as modified and applicable on 

an FCM-wide basis, are designed to 

effectuate these customer protection and 

risk mitigation goals notwithstanding an 

FCM’s application of separate account 

treatment (and the consequent 

additional risk). For example, separate 

account treatment is not permitted in 

certain circumstances outside the 

ordinary course of business (e.g., where 

an FCM learns a customer is in financial 

distress, and thus may be unable 

promptly to meet initial margin 

requirements, whether in one or more 

separate accounts or on a combined 

account basis). The proposed regulation 

would also put in place requirements 

for FCMs designed to ensure that they 

collect information sufficient to 

understand the value of assets dedicated 

to a separate account, apply separate 

account treatment consistently, and 

maintain reliable lines of contact for the 

ultimate customer of the account. 

Clearing FCMs have, for over four years, 

successfully relied on a no-action letter, 

as applied through their DCOs, 

establishing conditions substantially 

similar to the conditions in the 

proposed rule, and the Commission 

believes codification of these 

conditions, as proposed herein, 

supports protection of market 

participants and the public. 

2. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

Section 15(a)(2)(B) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of efficiency, 

competitiveness, and financial integrity 

of futures markets. The Commission 

preliminarily believes that the proposed 

regulation may carry potential 

implications for the financial integrity 

of markets, but not for the efficiency or 

competitiveness of markets, which the 

Commission preliminarily believes 

remain unchanged. 

As stated above, the purposes of the 

Commission’s customer funds 

protection and risk management 

regulations include not just protection 

of customer assets, but also mitigation of 

systemic risk: a customer in default to 

an FCM may in turn trigger the FCM to 

default, either to the DCO (if it is a 

clearing member) or to another FCM 

that is itself a clearing member, with 

cascading consequences for the clearing 

FCM (if applicable) or the DCO and the 

wider financial system. The proposed 

Margin Adequacy Requirement 

advances those purposes directly. The 

proposed amendments permitting 

separate account treatment reflect the 

Commission’s preliminary conclusion 

that the conditions of CFTC Letter No. 

19–17, as proposed to be codified 

herein, are sufficient and appropriate to 

guard against such risks for purposes of 

the proposed Margin Adequacy 

Requirement. 

In CFTC Letter No. 19–17, the 

Commission staff highlighted market 

participants’ concerns that the 

Commission should recognize ‘‘diverse 

practices among FCMs and their 

customers with respect to the handling 

of separate accounts of the same 

beneficial owner’’ as consistent with 

regulation § 39.13(g)(8)(iii). FIA, in 

particular, outlined several business 

cases in which a customer may want to 

apply separate account treatment, and 

each of SIFMA–AMG, FIA, and CME 

outlined controls that clearing FCMs 

could apply to ensure that, in instances 

in which separate account treatment is 

desired, such treatment can be applied 

in a manner that effectively prevents 

systemic risk.255 By proposing to codify 

in part 1 a Margin Adequacy 


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256See, e.g., First FIA Letter (describing use of 

separate account treatment for hedging purposes). 

257 7 U.S.C. 19(b). 

258 5 U.S.C. 601 et seq. 

259Bankruptcy Regulations, 86 FR 19324, 19416 

(Apr. 13, 2021) (citing Policy Statement and 

Establishment of Definitions of ‘‘Small Entities’’ for 

Purposes of the Regulatory Flexibility Act, 47 FR 

18618 (Apr. 30, 1982)). 

260See id. (citing New Regulatory Framework for 

Clearing Organizations, 66 FR 45604, 45609 (Aug. 

29, 2001); Customer Margin Rules Relating to 

Security Futures, 67 FR 53146, 53171 (Aug. 14, 

2002)). 

261 44 U.S.C. 3501 et seq. 

Requirement directly applicable to 

FCMs similar to the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii), and a modified version 

of the no-action position provided for by 

CFTC Letter No. 19–17 and its 

superseding letters, applicable to all 

FCMs, the Commission is proposing a 

framework for FCMs, whether clearing 

or non-clearing, to provide separate 

account treatment for customers subject 

to enhanced customer fund and risk 

mitigation protections, thereby ensuring 

FCMs can compete on services offered 

to customers to address their financial 

needs, in a manner consistent with the 

customer protection and risk mitigation 

goals of the CEA. 

3. Price Discovery 

Section 15(a)(2)(C) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of price discovery 

considerations. The Commission 

preliminarily believes that the proposed 

amendments will not have a significant 

impact on price discovery. 

4. Sound Risk Management Practices 

Section 15(a)(2)(D) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of sound risk 

management practices. As discussed 

above, the CEA sets forth requirements 

providing that an FCM may not use one 

customer’s funds to cover another 

customer’s margin shortfall. The 

proposed Margin Adequacy 

Requirement serves these purposes by 

further ensuring that FCMs do not allow 

customers to create or increase undermargining in their accounts through 

withdrawals of funds. While, as 

discussed above, clearing FCMs are 

already subject to this requirement as a 

result of DCO rules adopted under 

regulation § 39.13(g)(8)(iii), the 

proposed regulation will also apply this 

requirement to non-clearing FCMs, and 

will create another avenue to 

monitoring and enforcement of this 

requirement for clearing FCMs. 

Additionally, the Commission 

believes that the proposed regulation 

will ensure that application of the 

proposed regime for separate account 

treatment occurs in a manner that 

continues to be consistent with the 

CEA’s customer fund protection and 

risk mitigation objectives. As discussed 

above, the no-action position has been 

successfully used to allow clearing 

FCMs to engage in separate account 

treatment in a manner that is consistent 

with the protection of customer funds 

and the mitigation of systemic risk, 

including by requiring the application 

of separate account treatment in a 

consistent manner, and requiring 

regulatory notifications and the 

cessation of separate account treatment 

in certain instances of operational or 

financial distress. The Commission 

preliminarily believes codification of 

the no-action conditions, and the 

Margin Adequacy Requirement they 

address, applied directly to all FCMs, 

promotes sound FCM risk management 

practices.256

5. Other Public Interest Considerations 

Section 15(a)(2)(e) of the CEA requires 

the Commission to evaluate the costs 

and benefits of a proposed regulation in 

light of other public interest 

considerations. The Commission is 

identifying a public interest benefit in 

codifying the Divisions’ no-action 

position, where the efficacy of that 

position has been demonstrated. In such 

a situation, the Commission believes it 

serves the public interest and, in 

particular, the interests of market 

participants, to engage in notice-andcomment rulemaking, where it seeks 

and considers the views of the public in 

amending its regulations, rather than for 

market participants to continue to rely 

on a time-limited no-action position that 

can be easily withdrawn, provides less 

long-term certainty for market 

participants, and offers a more limited 

opportunity for public input. 

Request for Comment 

Question 14: The Commission 

requests comment, including any 

available quantifiable data and analysis, 

concerning its analysis of the Section 

15(a) factors. 

IV. Related Matters 

A. Antitrust Considerations 

Section 15(b) of the CEA 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 the CEA in 

issuing any order or adopting any 

Commission rule or regulation.257

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 proposed 

regulation implicates any other specific 

public interest to be protected by the 

antitrust laws. 

The Commission has considered the 

proposed regulation to determine 

whether it is anticompetitive and has 

preliminarily identified no 

anticompetitive effects. The 

Commission requests comment on 

whether the proposed regulation is 

anticompetitive and, if it is, what the 

anticompetitive effects are. 

Because the Commission has 

preliminarily determined that the 

proposed regulation is not 

anticompetitive and has no 

anticompetitive effects, the Commission 

has not identified any less 

anticompetitive means of achieving the 

purposes of the CEA. The Commission 

requests comment on whether there are 

less anticompetitive means of achieving 

the relevant purposes of the CEA that 

would otherwise be served by adopting 

the proposed regulation. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires 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 with respect to such 

impact.258 The rules proposed herein 

would require all FCMs to ensure that 

they do not permit their customers to 

withdraw funds from their accounts 

unless the net liquidating value plus the 

margin deposits remaining in the 

account are sufficient to meet the 

customer initial margin requirements for 

such accounts, but would also establish 

conditions under which FCMs could 

engage in separate account treatment. 

The Commission has previously 

established certain definitions of ‘‘small 

entities’’ to be used by the Commission 

in evaluating the impact of its 

regulations on small entities in 

accordance with the RFA.259 The 

Commission has previously determined 

that FCMs are not small entities for the 

purpose of the RFA.260 Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that these proposed rules will not 

have a significant economic impact on 

a substantial number of small entities. 

C. Paperwork Reduction Act 

The PRA 261 imposes certain 

requirements on Federal agencies in 


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262 7 U.S.C. 12(a)(1). 

263However, the Commission expects that FCMs 

that do not currently rely on the no-action position, 

but choose to apply separate account treatment after 

(and if) the proposed regulation is finalized, would 

incur new costs. This would include all nonclearing FCMs that choose to apply separate 

account treatment after (and if) the proposed 

regulation is finalized. 

264See CFTC, Selected FCM Financial Data as of 

August 31, 2023, available at https://www.cftc.gov/ 

sites/default/files/2023-10/01%20- 

%20FCM%20webpage%20Update%20- 

%20August%202023.xlsx. 

265This figure is rounded to the nearest dollar 

and based on the annual mean wage for U.S. Bureau 

of Labor Statistics (BLS) category 13–2061, 

‘‘Financial Examiners.’’ BLS, Occupational 

Employment and Wages, May 2022 [hereinafter 

‘‘BLS Data’’], available at https://www.bls.gov/oes/ 

current/oes_nat.htm. This category consists of 

professionals who ‘‘[e]nforce or ensure compliance 

with laws and regulations governing financial and 

securities institutions and financial and real estate 

transactions.’’ BLS, Occupational Employment and 

Wages, May 2022: 13–2061 Financial Examiners, 

available at https://www.bls.gov/oes/current/

oes132061.htm. According to BLS, the mean salary 

for this category in the context of Securities, 

Commodity Contracts, and Other Financial 

Investments and Related Activities is $117,270. 

This number is divided by 1,800 work hours in a 

year to account for sick leave and vacations and 

multiplied by 4 to account for retirement, health, 

and other benefits or compensation, as well as for 

office space, computer equipment support, and 

human resources support. This number is further 

multiplied by 1.0494 to account for the 4.94% 

change in the Consumer Price Index for Urban 

Wage-Earners and Clerical Workers between May 

2022 and September 2023 (288.022 to 302.257). 

BLS, CPI for Urban Wage Earners and Clerical 

Workers (CPI–W), U.S. City Average, All Items— 

CWUR0000SA0, available at https://www.bls.gov/ 

data/#prices. Together, these modifications yield an 

hourly rate of $273. The rounding and 

modifications applied with respect to the estimated 

average burden hour cost for this occupational 

category have been applied with respect to each 

occupational category discussed as part of this 

analysis. 

266The Commission staff applies the same 

assumption to notifications to DSROs and the 

Commission with respect to proposed regulation 

§ 1.44(d)(2) and proposed regulation § 1.44(e)(3). 

267Financial Examiners. 

268This estimate reflects the aggregate 

information collection burden estimate associated 

with the proposed reporting requirements for the 

first annual period following implementation of the 

proposed regulation. Because proposed regulation 

§ 1.44(d)(2) would result in a one-time reporting 

requirement, the Commission staff estimates that for 

each subsequent annual period, the number of 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. Any 

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. The Office of Management and 

Budget (OMB) has not yet assigned a 

control number to the new collection. 

This proposed rulemaking would 

result in a new collection of information 

within the meaning of the PRA, as 

discussed below. The Commission 

therefore is submitting this proposal to 

OMB for review, in accordance with 44 

U.S.C. 3507(d) and 5 CFR 1320.11. If 

adopted, responses to this collection of 

information would be required to obtain 

a benefit. Specifically, FCMs would be 

required to respond to the collection in 

order to obtain the benefit of engaging 

in separate account treatment for 

purposes of regulation § 1.44. 

The Commission will protect 

proprietary information it may receive 

according to the Freedom of Information 

Act and 17 CFR part 145, ‘‘Commission 

Records and Information.’’ In addition, 

section 8(a)(1) of the CEA strictly 

prohibits the Commission, unless 

specifically authorized by the CEA, from 

making public data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.262 The Commission also is 

required to protect certain information 

contained in a government system of 

records according to the Privacy Act of 

1974, 5 U.S.C. 552a. 

1. Information Provided by Reporting 

Entities/Persons 

The proposed regulation applies 

directly to FCMs. All FCMs that engage 

in separate account treatment, both 

those that are clearing members of DCOs 

and those that are not, would be subject 

to certain reporting, disclosure, and 

recordkeeping requirements to comply 

with the conditions specified in 

proposed regulation § 1.44. 

While the Commission staff estimates 

burden hours and costs using current 

part 1 and regulation § 39.13(g)(8)(iii) as 

a baseline, the Commission notes that 

FCMs that are clearing members of 

DCOs are already effectively subject to 

the Margin Adequacy Requirement, in 

order to comply with rules that their 

DCOs have established in order to in 

turn comply with the DCO’s obligations 

under regulation § 39.13(g)(8)(iii). Thus, 

the Commission notes that many 

clearing FCMs already are subject to the 

conditions of the no-action position, 

which are substantially similar to the 

proposed regulation. For these clearing 

FCMs, the Commission expects that any 

additional cost or administrative burden 

associated with complying with the 

proposed regulation would be 

reduced.263

a. Reporting Requirements 

The proposed regulation contains two 

reporting requirements that could result 

in a collection of information from ten 

or more persons over a 12-month 

period. 

There are currently approximately 61 

registered FCMs.264 The Commission 

staff estimates that slightly less than half 

of all FCMs would engage in separate 

account treatment under the proposed 

regulation, resulting in approximately 

30 respondents. 

First, proposed regulation § 1.44(d)(2) 

provides that, to the extent an FCM 

elects to treat the separate accounts of 

a customer as accounts of separate 

entities pursuant to the terms of 

proposed regulation § 1.44, the FCM 

must provide a one-time notification to 

its DSRO and to the Commission that it 

will apply such treatment. The 

Commission staff estimates this would 

result in a total of one response per 

respondent on a one-time basis, and that 

respondents could expend up to $273, 

based on an hourly rate of $273,265 to 

comply with the proposed regulation. 

This would result in an annual burden 

of 30 hours and an aggregated cost of 

$8,190 (30 respondents × $273). 

Second, proposed regulation 

§ 1.44(e)(3) requires an FCM engaging in 

separate account treatment to 

communicate promptly in writing to its 

DSRO and to the Commission the 

occurrence of certain enumerated ‘‘nonordinary course of business’’ events. 

The Commission staff estimates that 

each such FCM may experience two 

non-ordinary course of business events 

per year, either with respect to 

themselves, or a customer. For purposes 

of determining the number of responses, 

the Commission staff anticipates that 

additional notifications of substantially 

the same information, and at 

substantially the same time, by means of 

electronic communication to both the 

DSRO and the Commission would not 

materially increase the time and cost 

burden for such FCM. Therefore, for 

purposes of these estimates, the 

Commission staff treats a set of 

notifications sent to the DSRO and to 

the Commission as a single response.266

Accordingly, the Commission staff 

estimates a total of two responses per 

respondent on an annual basis. In 

addition, the Commission staff estimates 

that each response would take eight 

hours. This yields a total annual burden 

of 480 hours (2 responses * 8 hours/ 

response * 30 respondents). In addition, 

the Commission staff estimates that each 

respondent could expend up to $4,368 

annually, based on an hourly rate of 

$273, to comply with this 

requirement.267 This would result in an 

aggregated cost of $131,040 per annum 

(30 respondents × $4,368). 

The aggregate information collection 

burden estimate associated with the 

proposed reporting requirements is as 

follows: 268


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reports, burden hours, and burden cost would be 

reduced accordingly. 

269This figure is based on the annual mean wage 

of $67,070 for BLS category 43–6012, ‘‘Legal 

Secretaries & Administrative Assistants’’ in the New 

York City Metropolitan Area, one of the top paying 

metropolitan areas for this category. BLS Data. 

https://www.bls.gov/oes/current/oes436012.htm. 

270BLS 2022 Data for BLS Category 23–1011, 

‘‘Lawyers,’’ in Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities, https://data.bls.gov/oes/#/indOcc/

Multiple%20occupations%20for%20one

%20industry (mean annual salary of $248,830). 

271This figure is based on the annual mean wage 

for BLS category 15–1254, ‘‘Web Developers.’’ 

According to BLS, the mean salary for this category 

in the context of Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities is $125,760. 

272Lawyers. 

273For purposes of this analysis, the Commission 

staff calculates the aggregate information collection 

burden assuming that respondents choose to 

include the disclosure statement required by 

proposed regulation § 1.44(h)(3) on their websites 

and within their Disclosure Document required by 

proposed regulation § 1.55(i), in order to comply 

with proposed regulation § 1.44(h)(3)(iii). 

Additionally, this estimate reflects the aggregate 

information collection burden estimate associated 

with the proposed disclosure requirements for the 

first annual period following implementation of the 

proposed regulation. Because each of proposed 

regulation § 1.44(h)(3)(i), § 1.44(h)(3)(iii), and 

§ 1.44(h)(4) would result in a one-time disclosure 

requirement for PRA purposes, the Commission 

staff estimates that for each subsequent annual 

period the number of respondents, reports, burden 

hours, and burden cost would be reduced 

accordingly. 

274Financial Examiners. 

Estimated number of respondents: 30. 

Estimated number of reports: 90. 

Estimated annual hours burden: 510. 

Estimated annual cost: $139,230. 

b. Disclosure Requirements 

The proposed regulation contains 

three disclosure requirements that could 

affect ten or more persons in a 12-month 

period. 

First, proposed regulation 

§ 1.44(h)(3)(i) requires an FCM to 

provide each customer using separate 

accounts with a disclosure that, 

pursuant to part 190 of the 

Commission’s regulations, all separate 

accounts of the customer will be 

combined in the event of the FCM’s 

bankruptcy. The Commission staff 

estimates that this would result in a 

total of 125 responses per respondent on 

a one-time basis, and that respondents 

are likely to spend one hour to comply 

with this requirement for a total of 125 

annual burden hours and up to $19,500 

annually, based on an hourly rate of 

$156.269 This would result in an annual 

burden of 3,750 hours and an aggregated 

cost of $585,000 (30 respondents × 

$19,500). This estimate reflects an 

initial disclosure distributed to existing 

customers subject to separate account 

treatment. The Commission staff expects 

that, on a going forward basis, this 

disclosure would be included in 

standard disclosures for new customers, 

and would therefore not result in any 

additional costs. 

Second, proposed regulation 

§ 1.44(h)(3)(iii) requires that an FCM 

engaging in separate account treatment 

include the disclosure statement 

required by proposed regulation 

§ 1.44(h)(3) on its website or within its 

Disclosure Document required by 

regulation § 1.55(i). If the FCM opts to 

update its Disclosure Document, the 

Commission staff estimates that this 

proposed requirement would result in a 

total of one response on a one-time 

basis, and that each respondent could 

expend up to $580 annually, based on 

an hourly rate of $580,270 to comply 

with the proposed regulation. This 

would result in an estimated 30 burden 

hours annually and an aggregated cost 

of $17,400 (30 respondents × $580). This 

estimate reflects one updated disclosure 

distributed to existing customers. If the 

FCM opts to include the disclosure on 

its website, the Commission staff 

estimates that this proposed 

requirement would result in a total of 

one response on a one-time basis, and 

that each respondent could expend up 

to $293 annually, based on an hourly 

rate of $293, to comply with the 

proposed regulation.271 This would 

result in an estimated 30 burden hours 

annually and an aggregated cost of 

$8,790 (30 respondents × $293). The 

Commission staff expects that once the 

disclosure is included in the Disclosure 

Document required by regulation 

§ 1.55(i) or posted on the FCM’s website, 

the FCM would not incur any additional 

costs. 

Third, proposed regulation 

§ 1.44(h)(4) requires an FCM that has 

made an election pursuant to regulation 

§ 1.44(d) to disclose in the Disclosure 

Document required under regulation 

§ 1.55(i) that it permits the separate 

treatment of accounts for the same 

customer under the terms and 

conditions of regulation § 1.44. The 

Commission staff estimates that this 

would result in a total of one response 

per respondent on a one-time basis, and 

that respondents could expend up to 

$580 annually, based on an hourly rate 

of $580,272 to comply with the proposed 

regulation. This would result in an 

estimated 30 burden hours annually and 

an aggregated cost of $17,400 (30 

respondents × $580). This estimate 

reflects an initial updated disclosure 

distributed to existing customers. The 

Commission staff expects that once this 

disclosure is made, the disclosure 

would be included in the Disclosure 

Document required by regulation 

§ 1.55(i) going forward, and would not 

result in any additional costs. 

The aggregate information collection 

burden estimate associated with the 

proposed disclosure requirements is as 

follows: 273

Estimated number of respondents: 30. 

Estimated number of reports: 3,840. 

Estimated annual hours burden: 

3,840. 

Estimated annual cost: $628,590. 

c. Recordkeeping Requirements 

The proposed regulation contains four 

recordkeeping requirements that could 

affect ten or more persons in a 12-month 

period. 

First, proposed regulation § 1.44(d)(1) 

provides that, to elect to treat the 

separate accounts of a customer as 

accounts of separate entities, for 

purposes of the Margin Adequacy 

Requirement, the FCM shall include the 

customer on a list of separate account 

customers maintained in its books and 

records receiving such treatment. The 

Commission staff estimates that this 

would result in a total of 125 responses 

per respondent on a one-time basis, and 

that respondents could expend up to 

$8,531 annually, based on an hourly 

rate of $273,274 to comply with the 

proposed regulation. This would result 

in an estimated 938 burden hours 

annually and an aggregated cost of 

$255,930 per annum (30 respondents × 

$8,531). 

Second, proposed regulation 

§ 1.44(e)(4) provides that an FCM that 

has ceased permitting disbursements on 

a separate account basis to a separate 

account customer due to the occurrence 

of a non-ordinary course of business 

event may resume permitting 

disbursements on a separate account 

basis if the FCM reasonably believes, 

based on new information, that the 

circumstances leading to cessation of 

separate account treatment have been 

cured, and the FCM documents in 

writing the factual basis and rationale 

for its conclusion that such 

circumstances have been cured. Where 

the Commission staff have estimated 

above that an FCM may experience two 

non-ordinary course of business events 

per year, the Commission staff 

conservatively estimate that in each case 

the conditions leading to cessation of 

separate account treatment would be 

cured. Accordingly, the Commission 

staff estimates that documenting the 

cure of each non-ordinary course of 

business event would require two 

recordkeeping responses per respondent 

on an annual basis, and that 


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275Financial Examiners. 

276FIA stated that while the costs incurred by 

each FCM to comply with the conditions of CFTC 

Letter No. 19–17 varies depending on customer 

base, among larger FCMs with a significant 

institutional customer base, personnel costs would 

have included identifying and reviewing up to 

3,000 customer agreements to determine which 

agreements required modification, and then 

negotiating amendments with customers or their 

advisors. The Commission staff estimates, based on 

the 30 largest FCMs by customer assets in 

segregation as of the Commission’s FCM financial 

data report for May 31, 2022, that there are 3,750 

customers of FCMs whose accounts could be in 

scope for the proposed regulation, with an average 

of 125 customers per FCM. 

277This figure is based on the annual mean wage 

of $67,070 for BLS category 43–6012, ‘‘Legal 

Secretaries & Administrative Assistants’’ in the New 

York City Metropolitan Area, one of the top paying 

metropolitan areas for this category. BLS Data, 

available at https://www.bls.gov/oes/current/ 

oes436012.htm. 

278This estimate reflects the aggregate 

information collection burden estimates associated 

with the proposed disclosure requirements for the 

first annual period following implementation of the 

proposed regulation. Because, as noted above, 

proposed regulation § 1.44(h)(3)(i) would result in 

a one-time recordkeeping requirement as to each 

customer (i.e., once the disclosure is provided to 

existing customers, it would need to be provided 

only to new customers on a going forward basis), 

the Commission staff estimates that for each 

subsequent annual period the number of reports, 

burden hours, and burden cost would be reduced 

accordingly. 

respondents could expend up to $1,092 

annually, based on an hourly rate of 

$273,275 to comply with this 

requirement. This would result in an 

aggregated cost of $32,760 per annum 

(30 respondents × $1,092). 

Third, proposed regulation 

§ 1.44(h)(2) provides that where a 

separate accounts customer has 

appointed a third-party as the primary 

contact to the FCM, the FCM must 

obtain and maintain current contact 

information of an authorized 

representative(s) at the customer and 

take reasonable steps to verify that such 

contact information is and remains 

accurate and that such person is in fact 

an authorized representative of the 

customer. The Commission staff 

estimates this would result in a total of 

125 responses per respondent on an 

annual basis,276 and that respondents 

could expend up to $19,500 annually, 

based on an hourly rate of $156.277 This 

would result in an estimated 3,750 

burden hours annually and an 

aggregated cost of $585,000 per annum 

(30 respondents × $19,500). 

Fourth, proposed regulation 

§ 1.44(h)(3)(ii) requires that an FCM 

maintain documentation demonstrating 

that the part 190 disclosure statement 

required by proposed regulation 

§ 1.44(h)(3)(i) was delivered directly to 

the customer. The Commission staff 

estimates that this would result in a 

total of 125 responses per respondent on 

a one-time basis, and that respondents 

could expend up to $1,950 annually, 

based on an hourly rate of $156, to 

comply with the proposed regulation. 

This would result in an estimated 375 

burden hours annually and an 

aggregated cost of $58,500 (30 

respondents × $1,950). This estimate 

reflects initial recordkeeping of 

documentation that the disclosure was 

delivered to existing customers subject 

to separate account treatment. The 

Commission staff estimates that, once 

such recordkeeping is complete, the 

recordkeeping required by proposed 

regulation § 1.44(h)(3)(ii) would be 

required only with respect to new 

customers who receive disclosures 

pursuant to proposed regulation 

§ 1.44(h)(3)(ii), and the costs and burden 

hours associated with proposed 

regulation § 1.44(h)(3)(ii) would be 

reduced accordingly.278

The Commission notes that while 

certain other provisions of the proposed 

regulation may result in recordkeeping 

requirements, the Commission 

anticipates that any burden associated 

with these requirements is likely to be 

de minimis and therefore does not 

expect these provisions to increase the 

recordkeeping burden for FCMs. 

The aggregate information collection 

burden estimate associated with the 

proposed reporting requirements is as 

follows: 

Estimated number of respondents: 30. 

Estimated number of reports: 11,310. 

Estimated annual hours burden: 

5,183. 

Estimated annual cost: $932,190. 

2. Information Collection Comments 

The Commission invites the public 

and other Federal agencies to comment 

on any aspect of the proposed 

information collection requirements 

discussed above. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission will 

consider public comments on this 

proposed collection of information 

regarding: 

• Evaluating whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have a 

practical use; 

• Evaluating the accuracy of the 

estimated burden of the proposed 

collection of information, including the 

degree to which the methodology and 

the assumptions that the Commission 

employed were valid; 

• Enhancing the quality, utility, and 

clarity of the information proposed to be 

collected; and 

• Reducing the burden of the 

proposed information collection 

requirements on registered entities, 

including through the use of appropriate 

automated, electronic, mechanical, or 

other technological information 

collection techniques; e.g., permitting 

electronic submission of responses. 

Organizations and individuals 

desiring to submit comments on the 

proposed information collection 

requirements should send those 

comments to: 

• The Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 

New Executive Office Building, 

Washington, DC 20503, Attn: Desk 

Officer of the Commodity Futures 

Trading Commission; 

• (202) 395–6566 (fax); or 

• OIRAsubmissions@omb.eop.gov 

(email). 

Please provide the Commission with 

a copy of submitted comments so that, 

if the Commission determines to 

promulgate a final rule, all such 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the ADDRESSES section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this document in the 

Federal Register. Therefore, a comment 

is best assured of receiving full 

consideration if OMB receives it within 

30 days of publication of this notice of 

proposed rulemaking. Nothing in the 

foregoing affects the deadline 

enumerated above for public comment 

to the Commission on the proposed 

rules. 

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. 

17 CFR Part 39 

Clearing, Clearing organizations, 

Commodity futures, Consumer 

protection. 


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For the reasons set forth 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). 

■ 2. Amend § 1.3 by revising the 

definition of ‘‘business day’’ to read as 

follows: 

§ 1.3 Definitions. 

* * * * * 

Business day. This term means any 

day other than a Saturday, Sunday, or 

holiday. In all notices required by the 

Act or by the rules and regulations in 

this chapter to be given in terms of 

business days the rule for computing 

time shall be to exclude the day on 

which notice is given and include the 

day on which shall take place the act of 

which notice is given. 

* * * * * 

■ 3. Amend § 1.17 by: 

■ a. Republishing the paragraph heading 

of paragraph (b); 

■ b. Revising paragraph (b)(6); 

■ c. Revising introductory text of 

paragraph (b)(8); 

■ d. Adding new paragraph (b)(8)(v); 

■ e. Republishing the paragraph heading 

of paragraph (c); 

■ f. Republishing the paragraph heading 

of paragraph (c)(2); 

■ g. Revising paragraph (c)(2)(i); 

■ h. Republishing the paragraph 

heading of paragraph (c)(4); 

■ i. Revising paragraph (c)(4)(ii); 

■ j. Republishing the paragraph heading 

of (c)(5); and 

■ k. Revising paragraph (c)(5)(viii). 

The republications, revisions, and 

additions read as follows: 

§ 1.17 Minimum financial requirements for 

futures commission merchants and 

introducing brokers. 

* * * * * 

(b) For the purposes of this section: 

* * * * * 

(6) Business day means any day other 

than a Saturday, Sunday, or holiday. 

* * * * * 

(8) Risk margin for an account means 

the level of maintenance margin or 

performance bond required for the 

customer -and noncustomer positions 

by the applicable exchanges or clearing 

organizations, and, where margin or 

performance bond is required only for 

accounts at the clearing organization, for 

purposes of the futures commission 

merchant’s risk-based capital 

calculations applying the same margin 

or performance bond requirements to 

customer and noncustomer positions in 

accounts carried by the futures 

commission merchant, subject to the 

following. 

* * * * * 

(v) If a futures commission merchant 

carries separate accounts for separate 

account customers pursuant to § 1.44 of 

this part, the futures commission 

merchant shall calculate the risk margin 

pursuant to this section as if the 

separate accounts are owned by separate 

entities. 

* * * * * 

(c) Definitions: For the purposes of 

this section: 

* * * * * 

(2) The term current assets means 

cash and other assets or resources 

commonly identified as those which are 

reasonably expected to be realized in 

cash or sold during the next 12 months. 

‘‘Current assets’’ shall: 

(i) Exclude any unsecured commodity 

futures, options, cleared swaps, or other 

Commission regulated account 

containing a ledger balance and open 

trades, the combination of which 

liquidates to a deficit or containing a 

debit ledger balance only. For purposes 

of this paragraph (c)(2)(i), a futures 

commission merchant that carries 

separate accounts for separate account 

customers pursuant to § 1.44 of this part 

shall treat each separate account as if it 

is the account of a separate entity, apply 

only margin collateral held for the 

particular separate account in 

determining if the deficit or debit ledger 

balance is secured, and exclude from 

current assets a separate account that 

liquidates to a deficit or contains a debit 

ledger balance only. Provided, however, 

that any deficit or debit ledger balance 

in an account listed above, including a 

separate account, which is the subject of 

a call for margin or other required 

deposits may be included in current 

assets until the close of business on the 

business day following the date on 

which such deficit or debit ledger 

balance originated provided that the 

account had timely satisfied, through 

the deposit of new funds, the previous 

day’s deficit or debit ledger balance, if 

any, in its entirety. If a separate account 

does not meet a previous day’s margin 

call for a deficit or debit balance, the 

futures commission merchant shall 

exclude all separate accounts of that 

separate account customer carried by 

the futures commission merchant that 

have a deficit or debit ledger balance 

from current assets under this 

paragraph. 

* * * * * 

(4) The term liabilities means the total 

money liabilities of an applicant or 

registrant arising in connection with any 

transaction whatsoever, including 

economic obligations of an applicant or 

registrant that are recognized and 

measured in conformity with generally 

accepted accounting principles. 

‘‘Liabilities’’ also include certain 

deferred credits that are not obligations 

but that are recognized and measured in 

conformity with generally accepted 

accounting principles. For the purposes 

of computing ‘‘net capital,’’ the term 

‘‘liabilities’’: 

* * * * * 

(ii) Excludes, in the case of a futures 

commission merchant, the amount of 

money, securities and property due to 

customers which is held in segregated 

accounts in compliance with the 

requirements of the Act and these 

regulations. For purposes of this 

paragraph (c)(4)(ii), a futures 

commission merchant that carries 

separate accounts of a separate account 

customer pursuant to § 1.44 of this part 

shall compute the amount of money, 

securities and property due to the 

separate account customer as if the 

separate accounts were accounts of 

separate entities. A futures commission 

merchant may exclude money, 

securities and property due to 

customers, including separate account 

customers, only if such money, 

securities and property held in 

segregated accounts have been excluded 

from current assets in computing net 

capital; 

* * * * * 

(5) The term adjusted net capital 

means net capital less: 

* * * * * 

(viii) (A) In the case of a futures 

commission merchant, for 

undermargined customer accounts, the 

amount of funds required in each such 

account to meet maintenance margin 

requirements of the applicable board of 

trade, or if there are no such 

maintenance margin requirements, 

clearing organization margin 

requirements applicable to such 

positions, after application of calls for 

margin or other required deposits which 

are outstanding no more than one 

business day. If there are no such 

maintenance margin requirements or 

clearing organization margin 

requirements, then the amount of funds 

required to provide margin equal to the 

amount necessary, after application of 

calls for margin or other required 


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15354 Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 

deposits outstanding no more than one 

business day, to restore original margin 

when the original margin has been 

depleted by 50 percent or more. If, 

however, a call for margin or other 

required deposits for an undermargined 

customer account is outstanding for 

more than one business day, then no 

such call for that undermargined 

customer account shall be applied until 

all such calls for margin have been met 

in full. 

(B) If a futures commission merchant 

carries separate accounts for one or 

more separate account customers 

pursuant to § 1.44 of this part, the 

futures commission merchant shall 

compute the amount of funds required 

under paragraph (c)(5)(viii)(A) of this 

section to meet maintenance margin 

requirements for each separate account 

as if the account is owned by a separate 

entity, after application of calls for 

margin or other required deposits which 

are outstanding no more than one 

business day. If, however, a call for 

margin or other required deposits for 

any separate account of a particular 

separate account customer is 

outstanding for more than one business 

day, then all outstanding margin calls 

for all separate accounts of that separate 

account customer shall be treated as if 

the margin calls are outstanding for 

more than one business day, and shall 

be deducted from net capital until all 

such calls have been met in full. 

(C) If a customer account or a 

customer separate account deficit or 

debit ledger balance is excluded from 

current assets in accordance with 

paragraph (c)(2)(i) of this section, such 

deficit or debit ledger balance amount 

shall not also be deducted from current 

assets under this paragraph (c)(5)(viii) of 

this section. 

(D) In the event that an owner of a 

customer account, or a customer 

separate account pursuant to § 1.44 of 

this part, has deposited an asset other 

than cash to margin, guarantee or secure 

the account, the value attributable to 

such asset for purposes of this 

paragraph (c)(5)(viii) of this section 

shall be the lesser of: 

(1) The value attributable to the asset 

pursuant to the margin rules of the 

applicable board of trade, or 

(2) The market value of the asset after 

application of the percentage 

deductions specified in paragraph (c)(5) 

of this section; 

* * * * * 

■ 4. Amend § 1.20 by revising paragraph 

(i)(4) and adding new paragraph (i)(5) to 

read as follows: 

§ 1.20 Futures customer funds to be 

segregated and separately accounted for. 

* * * * * 

(i) * * * 

(4) The futures commission merchant 

must, at all times, maintain in 

segregation an amount equal to the sum 

of any credit and debit balances that the 

futures customers of the futures 

commission merchant have in their 

accounts. Notwithstanding the above, a 

futures commission merchant must add 

back to the total amount of funds 

required to be maintained in segregation 

any futures customer accounts with 

debit balances in the amounts 

calculated in accordance with paragraph 

(5) of this section. 

(5) The futures commission merchant, 

in calculating the total amount of funds 

required to be maintained in segregation 

pursuant to paragraph (i)(4) of this 

section, must include any debit balance, 

as calculated pursuant to this paragraph 

(i)(5), that a futures customer has in its 

account, to the extent that such debit 

balance is not secured by ‘‘readily 

marketable securities’’ that the 

particular futures customer deposited 

with the futures commission merchant. 

(i) For purposes of calculating the 

amount of a futures account’s debit 

balance that the futures commission 

merchant is required to include in its 

calculation of its total segregation 

requirement pursuant to this paragraph 

(i)(5), the futures commission merchant 

shall calculate the net liquidating equity 

of each futures account in accordance 

with paragraph (i)(2) of this section, 

except that the futures commission 

merchant shall exclude from the 

calculation any noncash collateral held 

in the futures customer account as 

margin collateral. The futures 

commission merchant may offset the 

debit balance computed under this 

paragraph (i)(5) to the extent of any 

‘‘readily marketable securities,’’ subject 

to percentage deductions (i.e., 

‘‘securities haircuts’’) as specified in 

paragraph (f)(5)(iv) of this section, held 

for the particular futures customer to 

secure its debit balance. 

(ii) For purposes of this section, 

‘‘readily marketable’’ shall be defined as 

having a ‘‘ready market’’ as such latter 

term is defined in Rule 15c3–1(c)(11) of 

the Securities and Exchange 

Commission (§ 241.15c3–1(c)(11) of this 

title). 

(iii) In order for a debit balance to be 

deemed secured by ‘‘readily marketable 

securities,’’ the futures commission 

merchant must maintain a security 

interest in such securities, and must 

hold a written authorization to liquidate 

the securities at the discretion of the 

futures commission merchant. 

(iv) To determine the amount of such 

debit balance secured by ‘‘readily 

marketable securities,’’ the futures 

commission merchant shall: 

(A) Determine the market value of 

such securities; and 

(B) Reduce such market value by 

applicable percentage deductions (i.e., 

‘‘securities haircuts’’) as set forth in 

Rule 15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title). Futures 

commission merchants that establish 

and enforce written policies and 

procedures to assess the credit risk of 

commercial paper, convertible debt 

instruments, or nonconvertible debt 

instruments in accordance with Rule 

240.15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title) may apply the 

lower haircut percentages specified in 

Rule 240.15c3–1(c)(2)(vi) for such 

commercial paper, convertible debt 

instruments and nonconvertible debt 

instruments. 

* * * * * 

■ 5. Amend § 1.32 by adding new 

paragraph (l) to read as follows: 

§ 1.32 Reporting of segregated account 

computation and details regarding the 

holding of futures customer funds. 

* * * * * 

(l) A futures commission merchant 

that carries futures accounts for futures 

customers as separate accounts for 

separate account customers pursuant to 

§ 1.44 of this part shall: 

(i) Calculate the total amount of 

futures customer funds on deposit in 

segregated accounts carried as separate 

accounts of separate account customers 

on behalf of such futures customers 

pursuant to paragraph (a)(1) of this 

section and the total amount of futures 

customer funds required to be on 

deposit in segregated accounts carried 

as separate accounts of separate account 

customers on behalf of such futures 

customers pursuant to paragraph (a)(2) 

of this section by including the separate 

accounts of the separate account 

customers as if the separate accounts 

were accounts of separate entities; 

(ii) Offset a net deficit in a particular 

futures account carried as a separate 

account of a separate account customer 

in accordance with paragraph (b) of this 

section against the current market value 

of readily marketable securities held 

only for the particular separate account 

of such separate account customer; and 

(iii) Document its segregation 

computation in the Statement of 

Segregation Requirements and Funds in 

Segregation of Customers Trading on 

U.S. Commodity Exchanges required by 

paragraph (c) of this section by 


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incorporating and reflecting the futures 

accounts carried as separate accounts of 

separate account customers as accounts 

of separate entities. 

■ 6. Add § 1.44 to read as follows: 

§ 1.44 Margin Adequacy and Treatment of 

Separate Accounts. 

(a) Definitions. These following 

definitions apply only for purposes of 

this section, except to the extent 

explicitly noted: 

Account means a futures account as 

defined in § 1.3 of this part, a Cleared 

Swaps Customer Account as defined in 

§ 1.3 of this part, or, a 30.7 account as 

defined in § 30.1 of this chapter. 

Business day has the meaning set 

forth in § 1.3 of this part, with the 

clarification that ‘‘holiday’’ has the 

meaning defined in paragraph (a) of this 

section. 

Holiday means Federal holidays as 

established by 5 U.S.C. 6103. 

One business day margin call means 

a margin call that is issued and met in 

accordance with the requirements of 

paragraph (f) of this section. 

Ordinary course of business means 

the standard day-to-day operation of the 

futures commission merchant’s business 

relationship with its separate account 

customer. Events specified in paragraph 

(e) of this section are inconsistent with 

the ordinary course of business. 

Separate account means any one of 

multiple accounts of the same separate 

account customer that are carried by the 

same futures commission merchant. 

Separate account customer means a 

customer for which the futures 

commission merchant has made the 

election set forth in paragraph (d) of this 

section. 

Undermargined amount for an 

account means the amount, if any, by 

which the customer margin 

requirements with respect to all 

products held in that account exceeds 

the net liquidating value plus the 

margin deposits currently remaining in 

that account. For purposes of this 

definition, ‘‘margin requirements’’ shall 

mean the level of maintenance margin 

or performance bond (including, as 

appropriate, the equity component or 

premium for long or short option 

positions) required for the positions in 

the account by the applicable exchanges 

or clearing organizations. With respect 

to positions for which maintenance 

margin is not specified, ‘‘margin 

requirements’’ shall refer to the clearing 

organization margin requirements 

applicable to such positions. 

(b) Ensuring adequacy of customer 

initial margin. 

(1) A futures commission merchant 

shall ensure that a customer does not 

withdraw funds from its accounts with 

such futures commission merchant 

unless the net liquidating value 

(calculated as of the close of business on 

the previous business day) plus the 

margin deposits remaining in the 

customer’s account after such 

withdrawal are sufficient to meet the 

customer initial margin requirements 

with respect to all products held in such 

customer’s account, except as provided 

in paragraph (c) of this section. 

(2) For the purposes of paragraph (1) 

above, where the previous day 

(excluding Saturdays and Sundays) is a 

holiday, as defined in § 1.44(a) of this 

chapter, where any designated contract 

market on which the futures 

commission merchant trades is open for 

trading, and where an account of any of 

the futures commission merchant’s 

customers includes positions traded on 

such a market, the net liquidating value 

for such an account should instead be 

calculated as of the close of business on 

such holiday. 

(c) Separate account treatment with 

respect to withdrawal of customer initial 

margin. A futures commission merchant 

may, only during the ‘‘ordinary course 

of business’’ as that term is defined in 

this section, treat the separate accounts 

of a separate account customer as 

accounts of separate entities for 

purposes of paragraph (b) of this section 

if such futures commission merchant 

elects to do so as specified in paragraph 

(d) of this section. A futures commission 

merchant that has made such an 

election shall comply with the 

requirements set forth in this section, 

and maintain written internal controls 

and procedures designed to ensure such 

compliance. 

(d) Election to treat a customer’s 

accounts as separate accounts. 

(1) To elect to treat the separate 

accounts of a customer as accounts of 

separate entities for purposes of 

paragraph (b) of this section, the futures 

commission merchant shall include the 

customer on a list of separate account 

customers maintained in its books and 

records. This list shall include the 

identity of each separate account 

customer, identify each separate 

account of such customer, and be kept 

current. 

(2) The first time that the futures 

commission merchant includes a 

customer on the list of separate account 

customers, it shall, within one business 

day, provide notification of the election 

to allow separate account treatment for 

customers to its designated selfregulatory organization and to the 

Commission. The notice shall be 

provided in accordance with the process 

specified in paragraph 1.12(n)(3) of this 

part. 

(e) Events inconsistent with the 

ordinary course of business. 

(1) The following events are 

inconsistent with the ordinary course of 

business with respect to the separate 

accounts of a particular separate 

account customer, and the occurrence of 

any such event would require the 

futures commission merchant to cease 

permitting disbursements on a separate 

account basis with respect to all 

accounts of the relevant separate 

account customer: 

(i) The separate account customer, 

including any separate account of such 

customer, fails to deposit initial margin 

or maintain maintenance margin or 

make payment of variation margin or 

option premium as specified in 

paragraph (f) of this section. 

(ii) The occurrence and declaration by 

the futures commission merchant of an 

event of default as defined in the 

account documentation executed 

between the futures commission 

merchant and the separate account 

customer. 

(iii) A good faith determination by the 

futures commission merchant’s chief 

compliance officer, one of its senior risk 

managers, or other senior manager, 

following such futures commission 

merchant’s own internal escalation 

procedures, that the separate account 

customer is in financial distress, or 

there is significant and bona fide risk 

that the separate account customer will 

be unable promptly to perform its 

financial obligations to the futures 

commission merchant, whether due to 

operational reasons or otherwise. 

(iv) The insolvency or bankruptcy of 

the separate account customer or a 

parent company of such customer. 

(v) The futures commission merchant 

receives notification that a board of 

trade, a derivatives clearing 

organization, a self-regulatory 

organization as defined in § 1.3 of this 

part or § 3(a)(26) of the Securities 

Exchange Act of 1934, the Commission, 

or another regulator with jurisdiction 

over the separate account customer, has 

initiated an action with respect to such 

customer based on an allegation that the 

customer is in financial distress. 

(vi) The futures commission merchant 

is directed to cease permitting 

disbursements on a separate account 

basis, with respect to the separate 

account customer, by a board of trade, 

a derivatives clearing organization, a 

self-regulatory organization, the 

Commission, or another regulator with 

jurisdiction over the futures commission 

merchant, pursuant to, as applicable, 

board of trade, derivatives clearing 


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organization or self-regulatory 

organization rules, government 

regulations, or law. 

(2) The following events are 

inconsistent with the ordinary course of 

business with respect to the separate 

accounts of all separate account 

customers of the futures commission 

merchant, and the occurrence of any 

such event would require the futures 

commission merchant to cease 

permitting disbursements on a separate 

account basis with respect to any of its 

customers: 

(i) The futures commission merchant 

is notified by a board of trade, a 

derivatives clearing organization, a selfregulatory organization, the 

Commission, or another regulator with 

jurisdiction over the futures commission 

merchant, that the board of trade, the 

derivatives clearing organization, the 

self-regulatory organization, the 

Commission, or other regulator, as 

applicable, believes the futures 

commission merchant is in financial or 

other distress. 

(ii) The futures commission merchant 

is under financial or other distress as 

determined in good faith by its chief 

compliance officer, senior risk 

managers, or other senior management. 

(iii) The insolvency or bankruptcy of 

the futures commission merchant or a 

parent company of the futures 

commission merchant. 

(3) The futures commission merchant 

must provide notice to its designated 

self-regulatory organization and to the 

Commission of the occurrence of any of 

the events enumerated in paragraphs 

(e)(1) or (e)(2) of this section. The notice 

must identify the event and (if 

applicable) the customer, and be 

provided promptly in writing, and in 

any case no later than the next business 

day following the date on which the 

futures commission merchant identifies 

or has been informed that such event 

has occurred. Such notice must be 

provided in accordance with the process 

specified in paragraph 1.12(n)(3) of this 

part. 

(4) A futures commission merchant 

that has ceased permitting 

disbursements on a separate account 

basis to a separate account customer due 

to the occurrence of any of the events 

enumerated in paragraph (e)(1) of this 

section with respect to a specific 

separate account customer (or in 

paragraph (e)(2) with respect to all of its 

separate account customers) may 

resume permitting disbursements on a 

separate account basis to that customer 

(or, respectively, all customers) if such 

futures commission merchant 

reasonably believes, based on new 

information, that those circumstances 

have been cured, and such futures 

commission merchant documents in 

writing the factual basis and rationale 

for that conclusion. If the circumstances 

triggering cessation of separate account 

treatment were an action or direction by 

one of the entities described in 

paragraphs (e)(1)(v) or (vi), or paragraph 

(e)(2)(i), of this section, then the cure of 

those circumstances would require the 

withdrawal or other appropriate 

termination of such action or direction 

by that entity. 

(f) Requirements: One business day 

margin call. Each separate account must 

be on a one business day margin call. 

The following provisions apply solely 

for purposes of this paragraph (f): 

(1) Except as explicitly provided in 

this paragraph (f), if, as a result of 

market movements or changes in 

positions on the previous business day, 

a separate account is undermargined 

(i.e., the undermargined amount for that 

account is greater than zero), the futures 

commission merchant shall issue a 

margin call for the separate account for 

at least the amount necessary for the 

separate account to meet the initial 

margin required by the applicable 

exchanges or clearing organizations 

(including, as appropriate, the equity 

component or premium for long or short 

option positions) for the positions in the 

separate account, and that call must be 

met by the applicable separate account 

customer no later than the close of the 

Fedwire Funds Service on the same 

business day. 

(2) Payment of margin in currencies 

listed in Appendix A to this part shall 

be considered in compliance with the 

requirements of this paragraph (f) if 

received by the applicable futures 

commission merchant no later than the 

end of the second business day after the 

day on which the margin call is issued. 

(3) Payment of margin in fiat 

currencies other than U.S. Dollars, 

Canadian Dollars, or currencies listed in 

Appendix A to this part shall be 

considered in compliance with the 

requirements of this paragraph (f) if 

received by the applicable futures 

commission merchant no later than the 

end of the business day after the day on 

which the margin call is issued. 

(4) The relevant deadline for payment 

of margin in fiat currencies other than 

U.S. Dollars may be extended by up to 

one additional business day and still be 

considered in compliance with the 

requirements of this paragraph (f) if 

payment is delayed due to a banking 

holiday in the jurisdiction of issue of 

the currency. For payments in Euro, 

either the separate account customer or 

the investment manager managing the 

separate account may designate one 

country within the Eurozone that they 

have the most significant contacts with 

for purposes of meeting margin calls in 

that separate account, whose banking 

holidays shall be referred to for this 

purpose. 

(5) A failure with respect to a specific 

separate account to deposit, maintain, or 

pay margin or option premium that was 

called pursuant to paragraph (f)(1) of 

this section, due to unusual 

administrative error or operational 

constraints that a separate account 

customer or investment manager acting 

diligently and in good faith could not 

have reasonably foreseen, does not 

constitute a failure to comply with the 

requirements of this paragraph (f). For 

these purposes, a futures commission 

merchant’s determination that the 

failure to deposit, maintain, or pay 

margin or option premium is due to 

such administrative error or operational 

constraints must be based on the futures 

commission merchant’s reasonable 

belief in light of information known to 

the futures commission merchant at the 

time the futures commission merchant 

learns of the relevant administrative 

error or operational constraint. 

(6) A futures commission merchant 

would not be in compliance with the 

requirements of this paragraph (f) if it 

contractually agrees to provide separate 

account customers with periods of time 

to meet margin calls that extend beyond 

the time periods specified in paragraph 

(f)(1) through (5) of this section, or 

engages in practices that are designed to 

circumvent this paragraph (f). 

(7) In the case of a holiday where any 

designated contract market on which 

the futures commission merchant trades 

is open for trading, and where a separate 

account of any of the futures 

commission merchant’s separate 

account customers includes positions 

traded on such a market, then for any 

such separate account: 

(i) If, as a result of market movements 

or changes in positions on the business 

day before the holiday, a separate 

account is undermargined, the futures 

commission merchant shall issue a 

margin call for the separate account for 

at least the undermargined amount, and 

that call must be met by the applicable 

separate account customer no later than 

the close of the Fedwire Funds Service 

on the next business day after the 

holiday, and, 

(ii) If, as a result of market movements 

or changes in positions on the holiday, 

a separate account is undermargined by 

an amount greater than the amount it 

was undermargined as a result of market 

movements or changes in positions on 

the business day before the holiday, the 

futures commission merchant shall 


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issue a margin call for the separate 

account for at least the incremental 

undermargined amount, and that call 

must be met by the applicable separate 

account customer no later than the close 

of the Fedwire Funds Service on the 

next business day after the holiday. 

(8) Any person may submit to the 

Commission any currency that such 

person proposes should be added to or 

removed from Appendix A to this part. 

(i) A submission pursuant to this 

paragraph (f)(8) shall include: 

(A) A statement that margin payments 

in the relevant currency cannot, in the 

case of a proposed addition, or can, in 

the case of a proposed removal, 

practicably be received by the futures 

commission merchant issuing a margin 

call no later than the end of the first 

business day after the day on which the 

margin call is issued; 

(B) Documentation or other 

information sufficient to support the 

statement contemplated by paragraph 

(f)(8)(i)(A) of this section; and 

(C) Any additional information 

specifically requested by the 

Commission. 

(ii) A submitter pursuant to paragraph 

(f)(8)(i) of this section that wishes to 

request confidential treatment for 

portions of its submission may do so in 

accordance with the procedures set out 

in § 145.9(d) of this chapter. 

(iii) The Commission shall review a 

submission made pursuant to paragraph 

(f)(8) of this section and determine 

whether to propose to add the relevant 

currency to, or remove the relevant 

currency from, Appendix A to this part. 

(iv) If the Commission proposes to 

add a currency to or remove a currency 

from Appendix A to this part, the 

Commission shall issue such 

determination through notice and 

comment rulemaking, and shall provide 

a public comment period of no less than 

thirty days. 

(v) The Commission may, of its own 

accord and absent a submission 

pursuant to paragraph (f)(8) of this 

section, propose to issue a 

determination to add a currency to or 

remove a currency from Appendix A to 

this part pursuant to the procedure set 

forth in paragraph (f)(8)(iv) of this 

section. 

(g) Requirements: Calculations for 

capital, risk management, and 

segregation. 

(1) The futures commission 

merchant’s internal risk management 

policies and procedures shall provide 

for stress testing and credit limits as set 

forth in § 1.73 of this part for separate 

account customers. Such stress testing 

must be performed, and the credit limits 

must be applied, both on an individual 

separate account and on a combined 

account basis. 

(2) A futures commission merchant 

shall calculate the margin requirement 

for each separate account of a separate 

account customer independently from 

such margin requirement for all other 

separate accounts of the same customer 

with no offsets or spreads recognized 

across the separate accounts. 

(3) A futures commission merchant 

shall, in computing its adjusted net 

capital for purposes of § 1.17 of this 

part, record each separate account of a 

separate account customer in the books 

and records of the futures commission 

merchant as a distinct account of a 

customer. This includes recording each 

separate account with a net debit 

balance or a deficit as a receivable from 

the separate account customer, with no 

offsets between the other separate 

accounts of the same separate account 

customer. 

(4) A futures commission merchant 

shall, in calculating the amount of its 

own funds it is required to maintain in 

segregated accounts to cover deficits or 

debit ledger balances pursuant to 

§§ 1.20(i), 22.2(f), or 30.7(f)(2) of this 

chapter in any futures customer 

accounts, Cleared Swaps Customer 

Accounts, or 30.7 accounts, 

respectively, include any deficits or 

debit ledger balances of any separate 

accounts as if the accounts are accounts 

of separate entities. 

(5) For purposes of its residual 

interest and legally segregated 

operationally commingled compliance 

calculations, as applicable under 

§§ 1.22(c), 22.2(f)(6), and 30.7(f)(1)(ii) of 

this chapter, a futures commission 

merchant shall treat the separate 

accounts of a separate account customer 

as if the accounts were accounts of 

separate entities and include the 

undermargined amount of each separate 

account, and cover such undermargined 

amount with its own funds. 

(6) In determining its residual interest 

target for purposes of §§ 1.11(e)(3)(i)(D) 

and 1.23(c) of this part, the futures 

commission merchant must consider the 

impact of calculating customer 

receivables for separate account 

customers on a separate account basis. 

(h) Requirements: information and 

disclosures. 

(1) A futures commission merchant 

shall obtain from each separate account 

customer or, as applicable, the manager 

of a separate account, information 

sufficient for the futures commission 

merchant to: 

(i) Assess the value of the assets 

dedicated to such separate account; and 

(ii) Identify the direct or indirect 

parent company of the separate account 

customer, as applicable, if such 

customer has a direct or indirect parent 

company. 

(2) Where a separate account 

customer has appointed a third-party as 

the primary contact to the futures 

commission merchant, the futures 

commission merchant must obtain and 

maintain current contact information of 

an authorized representative at the 

customer, and take reasonable steps to 

verify that such contact information is 

and remains accurate, and that the 

person is in fact an authorized 

representative of the customer. 

(3) A futures commission merchant 

must provide each separate account 

customer a disclosure that, pursuant to 

part 190 of the Commission’s 

regulations, all separate accounts of the 

customer in each account class will be 

combined in the event of the futures 

commission merchant’s bankruptcy. 

(i) The disclosure statement required 

by this paragraph (h)(3) must be 

delivered directly to the customer via 

electronic means, in writing or in such 

other manner as the futures commission 

merchant customarily delivers 

disclosures pursuant to applicable 

Commission regulations, and as 

permissible under the futures 

commission merchant’s customer 

documentation. 

(ii) The futures commission merchant 

must maintain documentation 

demonstrating that the disclosure 

statement required by this paragraph 

(h)(3) was delivered directly to the 

customer. 

(iii) The futures commission merchant 

must include the disclosure statement 

required by this paragraph (h)(3) on its 

website or within its Disclosure 

Document required by paragraph 1.55(i) 

of this chapter. 

(4) A futures commission merchant 

that has made an election pursuant to 

paragraph (d) of this section shall 

disclose in the Disclosure Document 

required under paragraph 1.55(i) of this 

part that it permits the separate 

treatment of accounts for the same 

customer under the terms and 

conditions of this § 1.44 and that, in the 

event that separate account treatment 

for some customers were to contribute 

to a loss that exceeds the futures 

commission merchant’s ability to cover, 

that loss may affect the segregated funds 

of all of the futures commission 

merchant’s customers in one or more 

account classes. 

(i) A futures commission merchant 

that applies separate account treatment 

pursuant to this section shall apply such 

treatment in a consistent manner over 

time. If the election pursuant to 

paragraph (d) of this section for a 


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separate account customer is revoked, it 

may not be reinstated during the 30 

days following such revocation. 

■ 7. Amend § 1.58 by revising 

paragraphs (a) and (b) and adding new 

paragraph (c) as follows: 

§ 1.58 Gross collection of exchange-set 

margins. 

(a) Each futures commission merchant 

which carries a futures, options on 

futures, or Cleared Swaps position for 

another futures commission merchant or 

for a foreign broker on an omnibus basis 

must collect, and each futures 

commission merchant and foreign 

broker for which an omnibus account is 

being carried must deposit, initial and 

maintenance margin on each position so 

carried at a level no less than that 

established for customer accounts by the 

rules of the applicable contract market 

or other board of trade. If the contract 

market or other board of trade does not 

specify any such margin level, the level 

required will be that specified by the 

relevant clearing organization. 

(b) If the futures commission 

merchant which carries a futures, 

options on futures, or Cleared Swaps 

position for another futures commission 

merchant or for a foreign broker on an 

omnibus basis allows a position to be 

margined as a spread position or as a 

hedged position in accordance with the 

rules of the applicable contract market, 

the carrying futures commission 

merchant must obtain and retain a 

written representation from the futures 

commission merchant or from the 

foreign broker for which the omnibus 

account is being carried that each such 

position is entitled to be so margined. 

(c) Where a futures commission 

merchant has established an omnibus 

account that is carried by another 

futures commission merchant, and the 

depositing futures commission 

merchant has elected to treat the 

separate accounts of a futures customer 

or a Cleared Swaps Customer as 

accounts of separate entities for 

purposes of § 1.44 of this part, the 

depositing futures commission 

merchant shall calculate the required 

initial and maintenance margin for 

purposes of paragraph (a) of this section 

separately for each such separate 

account. 

■ 8. Amend § 1.73 by adding new 

paragraph (c) as follows: 

§ 1.73 Clearing futures commission 

merchant risk management. 

* * * * * 

(c) A futures commission merchant 

that is not a clearing member of a 

derivatives clearing organization, but 

that treats the separate accounts of a 

customer as accounts of separate entities 

for purposes of § 1.44 of this part, shall 

comply with paragraphs (a) and (b) of 

this section with respect to the accounts 

and separate accounts of separate 

account customers as if it was a clearing 

member of a derivatives clearing 

organization. 

■ 9. Add new Appendix A to Part 1 to 

read as follows: 

Appendix A to Part 1—Treatment of 

Certain Foreign Currencies for Margin 

Adequacy Requirements under 

Regulation 1.44 

Payment of margin in currencies listed in 

Table 1 of this Appendix A shall be 

considered in compliance with the 

requirements of Regulation 1.44(f) of Part 1 

of the Commission’s regulations if received 

by the applicable futures commission 

merchant no later than the end of the second 

business day after the day on which the 

margin call is issued. 

TABLE 1 TO APPENDIX A 

Currency 

Australian dollar (AUD) 

Chinese renminbi (CNY) 

Hong Kong dollar (HKD) 

Hungarian forint (HUF) 

Israeli new shekel (ILS) 

Japanese yen (JPY) 

New Zealand dollar (NZD) 

Singapore dollar (SGD) 

South African rand (ZAR) 

Turkish lira (TRY) 

PART 22—CLEARED SWAPS 

■ 10. 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. 

■ 11. Amend § 22.2 by: 

■ a. Republishing the paragraph heading 

of paragraph (f); 

■ b. Revising paragraphs (f)(4) and (5); 

■ c. Republishing the paragraph heading 

of paragraph (g); and 

■ d. Adding new paragraph (g)(11). 

The republications, revisions, and 

additions read as follows: 

§ 22.2 Futures Commission Merchants: 

Treatment of Cleared Swaps and 

Associated Cleared Swaps Customer 

Collateral. 

* * * * * 

(f) Requirement as to amount. 

* * * * * 

(4) The futures commission merchant 

must, at all times, maintain in 

segregation, in its FCM Physical 

Locations and/or its Cleared Swaps 

Customer Accounts at Permitted 

Depositories, an amount equal to the 

sum of any credit and debit balances 

that the Cleared Swaps Customers of the 

futures commission merchant have in 

their accounts. Notwithstanding the 

above, a futures commission merchant 

must add back to the total amount of 

funds required to be maintained in 

segregation any Cleared Swaps 

Customer Accounts with debit balances 

in the amounts calculated in accordance 

with paragraph (5) of this section. 

(5) The futures commission merchant, 

in calculating the total amount of funds 

required to be maintained in segregation 

pursuant to paragraph (f)(4) of this 

section, must include any debit balance, 

as calculated pursuant to this paragraph 

(f)(5), that a Cleared Swaps Customer 

has in its account, to the extent that 

such debit balance is not secured by 

‘‘readily marketable securities’’ that the 

particular Cleared Swaps Customer 

deposited with the futures commission 

merchant. 

(i) For purposes of calculating the 

amount of a Cleared Swaps Customer 

Account’s debit balance that the futures 

commission merchant is required to 

include in its calculation of its total 

segregation requirement pursuant to this 

paragraph (f)(5), the futures commission 

merchant shall calculate the net 

liquidating equity of each Cleared 

Swaps Customer Account in accordance 

with paragraph (f)(2) of this section, 

except that the futures commission 

merchant shall exclude from the 

calculation any noncash collateral held 

in the Cleared Swaps Customer Account 

as margin collateral. The futures 

commission merchant may offset the 

debit balance computed under this 

paragraph (f)(5) to the extent of any 

‘‘readily marketable securities,’’ subject 

to percentage deductions (i.e., 

‘‘securities haircuts’’) as specified in 

paragraph (f)(5)(iv) of this section, held 

for the particular Cleared Swaps 

Customer to secure its debit balance. 

(ii) For purposes of this section, 

‘‘readily marketable’’ shall be defined as 

having a ‘‘ready market’’ as such latter 

term is defined in Rule 15c3–1(c)(11) of 

the Securities and Exchange 

Commission (§ 241.15c3–1(c)(11) of this 

title). 

(iii) In order for a debit balance to be 

deemed secured by ‘‘readily marketable 

securities,’’ the futures commission 

merchant must maintain a security 

interest in such securities, and must 

hold a written authorization to liquidate 

the securities at the discretion of the 

futures commission merchant. 

(iv) To determine the amount of such 

debit balance secured by ‘‘readily 

marketable securities,’’ the futures 

commission merchant shall: 

(A) Determine the market value of 

such securities; and 


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Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 15359 

(B) Reduce such market value by 

applicable percentage deductions (i.e., 

‘‘securities haircuts’’) as set forth in 

Rule 15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title). Futures 

commission merchants that establish 

and enforce written policies and 

procedures to assess the credit risk of 

commercial paper, convertible debt 

instruments, or nonconvertible debt 

instruments in accordance with Rule 

240.15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title) may apply the 

lower haircut percentages specified in 

Rule 240.15c3–1(c)(2)(vi) for such 

commercial paper, convertible debt 

instruments and nonconvertible debt 

instruments. 

* * * * * 

(g) Segregated account; Daily 

computation and record. 

* * * * * 

(11) A futures commission merchant 

that carries Cleared Swaps Accounts for 

Cleared Swaps Customers as separate 

accounts for separate account customers 

pursuant to § 1.44 of this chapter shall: 

(i) Calculate the total amount of 

Cleared Swaps Customer Collateral on 

deposit in segregated accounts on behalf 

of Cleared Swaps Customers pursuant to 

paragraph (g)(1)(i) of this section and 

the total amount of Cleared Swaps 

Customer Collateral required to be on 

deposit in segregated accounts on behalf 

of Cleared Swaps Customers pursuant to 

paragraph (g)(1)(ii) of this section by 

including the separate accounts of the 

separate account customers as if the 

separate accounts were accounts of 

separate entities; 

(ii) Offset a net deficit in a particular 

Cleared Swaps Customer Account 

carried as a separate account of a 

separate account customer in 

accordance with paragraphs (f)(4) and 

(5) and (g)(1)(ii) of this section against 

the current market value of readily 

marketable securities held only for the 

particular separate account of such 

separate account customer; and 

(iii) Document its segregation 

computation in the Statement of Cleared 

Swaps Customer Segregation 

Requirements and Funds in Cleared 

Swaps Customer Accounts under 4d(f) 

of the CEA required by paragraph (g)(2) 

of this section by incorporating and 

reflecting the Cleared Swaps Customer 

Accounts carried as separate accounts of 

separate account customers as accounts 

of separate entities. 

PART 30—FOREIGN FUTURES AND 

FOREIGN OPTIONS TRANSACTIONS 

■ 12. 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. 

■ 13. Amend § 30.2 by revising 

paragraph (b) to read as follows: 

§ 30.2 Applicability of the Act and rules. 

* * * * * 

(b) The provisions of §§ 1.20 through 

1.30, 1.32, 1.35(a)(2) through (4) and (c) 

through (i), 1.36(b), 1.38, 1.39, 1.40, 1.45 

through 1.51, 1.53, 1.54, 1.55, 1.58, 1.59, 

33.2 through 33.6 and parts 15 through 

20 of this chapter shall not be applicable 

to the persons and transactions that are 

subject to the requirements of this part. 

■ 14. Amend § 30.7 by: 

■ a. Republishing the paragraph heading 

of paragraph (f); 

■ b. Republishing the paragraph 

heading of paragraph (f)(2); 

■ c. Revising paragraph (f)(2)(iv); 

■ d. Adding paragraph (f)(2)(v); 

■ e. Republishing the paragraph heading 

of paragraph (l); and 

■ f. Adding paragraph (l)(11). 

The republications, revisions, and 

additions read as follows: 

§ 30.7 Treatment of foreign futures or 

foreign options secured amount. 

* * * * * 

(f) Limitations on use of 30.7 customer 

funds. 

* * * * * 

(2) Requirements as to amount. 

* * * * * 

(iv) The futures commission merchant 

must, at all times, maintain in 

segregation an amount equal to the sum 

of any credit and debit balances that 

30.7 customers of the futures 

commission merchant have in their 

accounts. Notwithstanding the above, a 

futures commission merchant must add 

back to the total amount of funds 

required to be maintained in segregation 

any 30.7 accounts with debit balances in 

the amounts calculated in accordance 

with paragraph (f)(2)(v) of this section. 

(v) The futures commission merchant, 

in calculating the total amount of funds 

required to be maintained in segregation 

pursuant to paragraph (f)(2)(iv) of this 

section, must include any debit balance, 

as calculated pursuant to this paragraph 

(f)(2)(v), that a 30.7 customer has in its 

account, to the extent that such debit 

balance is not secured by ‘‘readily 

marketable securities’’ that the 

particular 30.7 customer deposited with 

the futures commission merchant. 

(A) For purposes of calculating the 

amount of a 30.7 account’s debit balance 

that the futures commission merchant is 

required to include in its calculation of 

its total segregation requirement 

pursuant to this paragraph (f)(2)(v), the 

futures commission merchant shall 

calculate the net liquidating equity of 

each 30.7 account in accordance with 

paragraph (f)(2)(ii) of this section, 

except that the futures commission 

merchant shall exclude from the 

calculation any noncash collateral held 

in the 30.7 account as margin collateral. 

The futures commission merchant may 

offset the debit balance computed under 

this paragraph (f)(2)(v) to the extent of 

any ‘‘readily marketable securities,’’ 

subject to percentage deductions (i.e., 

‘‘securities haircuts’’) as specified in 

paragraph (f)(2)(v)(D) of this section, 

held for the particular 30.7 customer to 

secure its debit balance. 

(B) For purposes of this section, 

‘‘readily marketable’’ shall be defined as 

having a ‘‘ready market’’ as such latter 

term is defined in Rule 15c3–1(c)(11) of 

the Securities and Exchange 

Commission (§ 241.15c3–1(c)(11) of this 

title). 

(C) In order for a debit balance to be 

deemed secured by ‘‘readily marketable 

securities,’’ the futures commission 

merchant must maintain a security 

interest in such securities, and must 

hold a written authorization to liquidate 

the securities at the discretion of the 

futures commission merchant. 

(D) To determine the amount of such 

debit balance secured by ‘‘readily 

marketable securities.’’ To do so, the 

futures commission merchant shall: 

(1) Determine the market value of 

such securities; and 

(2) Reduce such market value by 

applicable percentage deductions (i.e., 

‘‘securities haircuts’’) as set forth in 

Rule 15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title). Futures 

commission merchants that establish 

and enforce written policies and 

procedures to assess the credit risk of 

commercial paper, convertible debt 

instruments, or nonconvertible debt 

instruments in accordance with Rule 

240.15c3–1(c)(2)(vi) of the Securities 

and Exchange Commission (§ 240.15c3– 

1(c)(2)(vi) of this title) may apply the 

lower haircut percentages specified in 

Rule 240.15c3–1(c)(2)(vi) for such 

commercial paper, convertible debt 

instruments and nonconvertible debt 

instruments. 

* * * * * 

(l) Daily computation of 30.7 

customer secured amount requirement 

and details regarding the holding and 

investing of 30.7 customer funds. 

* * * * * 


ddrumheller on DSK120RN23PROD with PROPOSALS3
15360 Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 

1This would permit non-clearing FCMs to engage 

in separate account treatment and would allow 

FCMs, rather than DCOs, to determine whether or 

not to permit their customers to elect such 

treatment. 

2 Kristin N. Johnson, Commissioner, CFTC, 

Statement on Preserving Trust and Preventing the 

(11) A futures commission merchant 

that carries 30.7 accounts for 30.7 

customers as separate accounts for 

separate account customers pursuant to 

§ 1.44 of this chapter shall: 

(i) Calculate the total amount of 30.7 

customer funds on deposit in 30.7 

accounts on behalf of 30.7 customers 

pursuant to paragraph (l)(1) of this 

section and the total amount of 30.7 

customer funds required to be on 

deposit in segregated accounts on behalf 

of 30.7 customers pursuant to paragraph 

(l)(1) of this section by including the 

separate accounts of the separate 

account customers as if the separate 

accounts were accounts of separate 

entities; 

(ii) Offset a net deficit in a particular 

30.7 account carried as a separate 

account of a separate account customer 

in accordance with this paragraph (l) 

against the current market value of 

readily marketable securities held only 

for the particular separate account of 

such separate account customer; and 

(iii) Document its segregation 

computation in the Statement of 

Secured Amounts and Funds Held in 

Separate Accounts for 30.7 Customers 

pursuant to Commission Regulation 

30.7 required by paragraph (l)(3) of this 

section by incorporating and reflecting 

the 30.7 accounts carried as separate 

accounts of separate account customers 

as accounts of separate entities. 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

■ 15. The authority citation for part 39 

continues to read as follows: 

Authority: 7 U.S.C. 2, 6(c), 7a–1, and 

12a(5); 12 U.S.C. 5464; 15 U.S.C. 8325; 

Section 752 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, title VII, sec. 752, July 21, 2010, 124 

Stat. 1749. 

■ 16. Amend § 39.13 by: 

■ a. Republishing the paragraph heading 

of paragraph (g); 

■ b. Republishing the paragraph 

heading of paragraph (g)(8); 

■ c. Adding paragraph (g)(8)(i)(E); and 

■ d. Revising paragraph (g)(8)(iii). 

The republications, addition and 

revision to read as follows: 

§ 39.13 Risk management. 

* * * * * 

(g) Margin requirements— 

* * * * * 

(8) Customer margin— 

(i) * * * 

(E) For purposes of this paragraph 

(g)(8)(i), each separate account of a 

separate account customer (as such 

terms are defined in § 1.44 of this 

chapter) shall be treated as an account 

of a separate individual customer. 

* * * * * 

(iii) Withdrawal of customer initial 

margin. A derivatives clearing 

organization shall require its clearing 

members to ensure that their customers 

do not withdraw funds from their 

accounts with such clearing members 

unless the net liquidating value plus the 

margin deposits remaining in a 

customer’s account after such 

withdrawal are sufficient to meet the 

customer initial margin requirements 

with respect to all products and swap 

portfolios held in such customer’s 

account which are cleared by the 

derivatives clearing organization, except 

as provided for in § 1.44 of this chapter. 

* * * * * 

Issued in Washington, DC, on February 23, 

2024, by the Commission. 

Robert Sidman, 

Deputy Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Regulations To Address 

Margin Adequacy and To Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants—Commission Voting 

Summary and Chairman’s and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Behnam and 

Commissioners Goldsmith Romero, 

Mersinger, and Pham voted in the 

affirmative. Commissioner Johnson voted to 

concur. No Commissioner voted in the 

negative. 

Appendix 2—Statement of 

Commissioner Kristin N. Johnson 

Introduction 

The Commodity Futures Trading 

Commission (Commission or CFTC) has 

adopted several key regulations that establish 

guardrails to protect against the misuse or 

misapplication of customer funds. The 

Commodity Exchange Act (CEA) and 

Commission regulations establish critical 

protections for customers to help prevent 

them from losing money as a result of losses 

caused by their futures commission merchant 

(FCM) or their fellow customers at the FCM. 

These include Sections 4 and 4d of the CEA 

and Parts 1, 22, and 30 of the Commission 

regulations, which require an FCM to 

segregate its own funds from those of its 

customers and prohibit an FCM from using 

one customer’s funds to cover the losses of 

another. 

A foundational principle of the 

Commission’s customer protection regime is 

a prohibition against the use of one 

customer’s funds to cover the liabilities of 

another customer. It is difficult to overstate 

the importance of regulations that prevent 

this kind of misuse, particularly when 

customer funds are commingled in a single 

omnibus account. 

The Commission must not weaken 

regulations intended to reinforce these 

protections. Determining whether a 

regulation might result in weakening these 

protections requires careful qualitative and 

quantitative assessment and evaluation of 

(un)anticipated risks and thoughtful 

reinforcement of robust risk management 

requirements. 

The Commission is amending an existing 

customer protection provision under CFTC 

Regulation 39.13(g)(8)(iii). This regulation 

establishes a margin adequacy requirement 

by prohibiting the withdrawal of funds by a 

customer of a clearing FCM if such 

withdrawal would result in the account being 

undermargined. The purpose of Commission 

Regulation 39.13(g)(8)(iii) is to mitigate the 

risk that a clearing member, using an 

omnibus margin account, fails to hold 

sufficient funds from one customer to cover 

that customer’s initial margin requirements 

and effectively covers the customer’s margin 

shortfall using another customer’s funds. 

The proposed amendment would codify 

the requirements of CFTC Regulation 

39.13(g)(8)(iii) in Part 1 of the Commission’s 

regulations governing FCMs, thus extending 

the requirements to non-clearing FCMs as 

well, but would permit an FCM to treat the 

separate accounts of a single customer, or 

beneficial owner, as accounts of separate 

entities, subject to certain risk-mitigation 

conditions (Proposed Rule).1 This 

amendment thus allows disbursements on a 

separate account basis such that a customer 

may withdraw funds from one account even 

if its other account is undermargined, so long 

as the customer is in compliance with the 

relevant risk-management conditions. 

It is indisputable that the Proposed Rule 

introduces risks that do not exist under CFTC 

Regulation 39.13(g)(8)(iii). Permitting a 

customer to withdraw ‘‘excess’’ margin from 

one account when it has insufficient margin 

in another account could exacerbate the 

customer’s overall margin deficiency and any 

shortfall in the FCM’s customer account, 

amplify default risk, and increase fellowcustomer risk. Prior to finalizing this rule, it 

is imperative that the Commission 

understand the potential risks that may arise 

by permitting disbursements on a separate 

account basis. 

Customer asset protections are essential to 

the individuals and institutional businesses 

whose assets are held by an intermediary and 

therefore may be at risk. As I have stated 

previously, 

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.2


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Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 15361 

Erosion of Customer Protection Regulation (Nov. 3, 

2023), https://www.cftc.gov/PressRoom/Speeches

Testimony/johnstatement110323. 

3 17 CFR 39.13 (g)(8)(iii). 

4Regulations to Address Margin Adequacy and to 

Account for the Treatment of Separate Accounts by 

Futures Commission Merchants (Voting Draft) at 7. 

5See JAC, Regulatory Alert #19–02 (May 14, 

2019), http://www.jacfutures.com/jac/jacupdates/ 

2019/jac1902.pdf. 

6See, e.g., Letter from SIFMA AMG to Brain A. 

Bussey, Dir. at Div. of Clearing and Risk, CFTC, & 

Matthew B. Kulkin, Dir. at Div. of Swap Dealer and 

Intermediary Oversight, CFTC (June 7, 2019), 

https://www.sifma.org/wp-content/uploads/2021/ 

01/Request-for-Interpretation-Rule-1.56b-and-Rule39.131.pdf. 

7 Id. 

8 Id. 

I am supportive of careful, well-tailored, 

workable, and practical regulations that do 

not undermine or weaken customer 

protection. I strongly believe that the 

Commission would have benefited from a 

formal report detailing relevant risk 

management concerns that may arise as a 

result of introducing the Proposed Rule. 

Among other issues outlined below, the 

Commission would benefit from receiving 

data and analysis that details the potential 

risk management consequences attendant to 

adopting the Proposed Rule as well as any 

related measures that may mitigate risk 

management concerns. 

Before adopting a final rule, the 

Commission, through supporting data and 

analyses, must assure itself that the Proposed 

Rule accomplishes the customer protection 

and risk management goals of regulation 

39.13(g)(8)(iii). 

Call for Supporting Risk Management Data 

and Analyses 

The Commission is amending CFTC 

Regulation 39.13(g)(8)(iii) to permit 

disbursements on a separate accounts basis, 

subject to certain risk-mitigating conditions. 

As I have said before, permitting 

disbursements on a separate accounts basis is 

inconsistent with the plain language of CFTC 

Regulation 39.13(g)(8)(iii), which was 

adopted by the Commission following the 

2008–2009 financial crisis pursuant to the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the Dodd-Frank 

Act), and introduces new or additional risks. 

I am, however, supportive of solutions that 

are grounded in data and analyses 

demonstrating that an amendment to CFTC 

Regulation 39.13(g)(8)(iii) achieves the same 

goals and objectives underpinning this 

regulation. 

It would be helpful, in the context of 

evaluating the Proposed Rule, to have a 

sufficiently robust analysis of the sufficiency 

and adequacy of the risk-mitigating measures 

that have been in place since 2019. 

The Commission should conduct a study to 

assess any additional risks and the scope and 

magnitude of such risks. Alongside a formal 

report offering a data-driven analysis, 

commentators should include comprehensive 

analyses and evidence indicating that the 

adoption of the Proposed Rule does not 

increase risks to our markets, or, if there are 

increased risks, that the risk-mitigation 

measures adopted by the Commission are 

effective. We also welcome feedback on other 

measures to ensure that FCMs maintain 

robust risk-management practices. 

Margin Adequacy Requirement 

In order to register, and maintain 

registration, as a derivatives clearing 

organization (DCO), a clearinghouse must 

demonstrate the ability, and continue, to 

comply with the core principles for DCOs set 

forth in Section 5b of the CEA. The core 

principles were added to the CEA by the 

Commodity Futures Modernization Act of 

2000 (CFMA). In implementing the CFMA, 

the Commission did not adopt implementing 

rules and regulations, but instead 

promulgated guidance for DCOs on 

compliance with the core principles. 

Section 725(c) of the Dodd-Frank Act 

amended Section 5b(c)(2) of the CEA to 

expressly confirm that the Commission may 

adopt implementing rules and regulations 

pursuant to its rulemaking authority under 

Section 8a(5) of the CEA. 

The Commission adopted CFTC Regulation 

39.13(g)(8)(iii) in 2011. The adoption was 

part of a broader rulemaking to implement 

certain provisions of the Dodd-Frank Act 

governing the activities of DCOs, including 

Core Principle D—risk management— 

requiring each DCO to ensure that its risk 

management framework is sufficient to 

manage the risks associated with discharging 

the responsibilities of a DCO through the use 

of appropriate tools and procedures. CFTC 

regulations require DCOs to collect initial 

margin from their customers on a gross basis, 

even if customer collateral is held in an 

omnibus account. 

Under CFTC Regulation 39.13(g)(8)(iii), a 

DCO must require ‘‘its clearing members to 

ensure that their customers do not withdraw 

funds from their accounts with such clearing 

members unless the net liquidating value 

plus the margin deposits remaining in a 

customer’s account after such withdrawal are 

sufficient to meet the customer initial margin 

requirements with respect to all products and 

swap portfolios held in such customer’s 

account which are cleared by the derivatives 

clearing organization.’’ 3

The purpose of this regulation is to 

mitigate the risk that a clearing member, 

using an omnibus margin account, fails to 

hold sufficient funds from one customer to 

cover such customer’s initial margin 

requirements and effectively covers such 

customer’s margin shortfall using another 

customer’s funds. 

In the Preamble to the Proposed Rule, the 

Commission recognizes, 

[i]n light of the use of omnibus margin 

accounts, where the funds of multiple 

customers are held together, this safeguard is 

necessary to ‘‘avoid the misuse of customer 

funds’’ by mitigating the likelihood that the 

clearing member will effectively cover one 

customer’s margin shortfall using another 

customer’s funds.4

An omnibus account structure creates a 

potential dilution of the pool of funds 

available to U.S. customers in the event of a 

bankruptcy of the FCM to the extent the 

FCM’s customer account is undermargined. 

In a bankruptcy proceeding, customer 

property is distributed pro rata and so all 

customers share in any shortfall in the 

customer account of a particular class. 

Concerns With Separate Accounts 

In 2019, the Joint Audit Committee (JAC) 

issued a regulatory alert providing an 

interpretation of the requirements of CFTC 

Regulation 39.13(g)(8)(iii).5 Under the JAC’s 

interpretation, separate accounts of the same 

customer were to be combined for the 

purpose of determining the amount of margin 

funds available for disbursement from any of 

the accounts. 

This interpretation was inconsistent with 

the prevailing practices, including as 

documented under customer agreements, 

among FCMs, and FCM customers with 

respect to the treatment of separate accounts. 

FCMs would establish separate accounts 

for customers for commercial purposes. For 

example, ‘‘such accounts are: (i) separately 

contracted for with different asset 

management firms; (ii) established as a 

separate investment portfolio within the 

same asset management firm; (iii) established 

by a commercial entity for the purpose of a 

commodity or margin financing arrangement 

and secured by the lender as a secondary 

security interest; or (iv) necessary to 

separately account for or settle obligations of 

separate branches established pursuant to 

separate legal/country jurisdictions.’’ 6

Although separate accounts may be owned 

by the same customer or beneficial owner, 

FCMs did not combine those accounts for 

margin purposes. 

In response to the JAC’s interpretation, 

several industry trade associations requested 

that the Commission provide time limited 

no-action relief with respect to the treatment 

of separate accounts by FCMs.7 Specifically, 

they requested that the Commission interpret 

Commission Regulation 39.13(g)(8)(iii) to 

permit separate accounts of the same 

customer to ‘‘be treated as separate legal 

entities’’ therefore not combined when 

determining an account’s margin funds 

available for disbursement.’’ 8

The separate account treatment permits 

margin to be withdrawn from one account of 

a customer while another account of that 

same customer faces a margin call, it creates 

the risk that a customer will withdraw funds 

from the account in surplus and then later 

default on the margin call, leaving the FCM 

with fewer resources to cover the resulting 

losses. 

Separate Account Treatment 

In 2019, the Commission issued a timelimited, temporary no-action letter that 

permitted disbursements on a separate 

account basis, subject to certain conditions 

that mitigate the risk of default and 

strengthen an FCM’s risk-management of 

customers granted separate account 

treatment. The Commission aimed to achieve 

the customer protection and risk 

management goals of CFTC Regulation 

39.13(g)(8)(iii). 

In 2023, the Commission approved a 

proposed rule to codify, in Part 39 governing 

DCOs, the staff no-action position regarding 

the treatment of separate accounts of a single 

customer by an FCM that is a clearing 


ddrumheller on DSK120RN23PROD with PROPOSALS3
15362 Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 

9This would permit non-clearing FCMs to engage 

in separate account treatment and would allow 

FCMs, rather than DCOs, to determine whether or 

not to permit their customers to elect such 

treatment. 

10See e.g., Proposed 17 CFR 1.44(f). 

11 Id. 

12See e.g., Proposed 17 CFR 1.44(c). 

13See e.g., Proposed 17 CFR 1.44(e). 

14 Kristin N. Johnson, Commissioner, CFTC, 

Statement on Closing a Gap, Preserving Market 

Integrity and Protecting Clearing Member Funds 

Held by Derivatives Clearing Organizations (Dec. 

18, 2023), https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/johnsonstatement121823b. 

15 7 U.S.C. 5(b). 

1The Commission’s first proposal on the matter 

was in April 2023. See Derivatives Clearing 

Organization Risk Management Regulations to 

Account for the Treatment of Separate Accounts by 

Futures Commission Merchants, 88 FR 22934 (Apr. 

14, 2023) (2023 Proposal), https://www.federal

register.gov/documents/2023/04/14/2023-06248/ 

derivatives-clearing-organization-risk-managementregulations-to-account-for-the-treatment-of. 

2CEA section 4d(a)(2) Regulation 1.20(a) require 

an FCM to separately account for and segregate 

from its own funds all money, securities, and 

property which it has received to margin, guarantee, 

or secure the trades or contracts of its commodity 

customers. 7 U.S.C. 6d(a)(2); 17 CFR 1.20(a). CEA 

section 4d(a)(2) and Regulation 1.22(a) prohibit an 

FCM from using the money, securities, or property 

of one customer to margin or settle the trades or 

contracts of another customer. 7 U.S.C. 6d(a)(2); 17 

CFR 1.22(a). 

3As explained in the NPRM and the 2023 

Proposal, the Commission is proposing to codify the 

relief in CFTC Letter No. 19–17, July 10, 2019, 

https://www.cftc.gov/csl/19-17/download as 

extended by CFTC Letter No. 20–28, Sept. 15, 2020, 

https://www.cftc.gov/csl/20-28/download; CFTC 

Letter No. 21–29, Dec. 21, 2021, https://

www.cftc.gov/csl/21-29/download; and CFTC Letter 

No. 22–11, Sept. 15, 2022, https://www.cftc.gov/csl/ 

22-11/download; CFTC Letter No. 23–13, Sept. 11, 

2023, https://www.cftc.gov/csl/23-13/download. 

member of a DCO. In April 2023, the 

Commission published in the Federal 

Register a notice of proposed rulemaking that 

would codify the no-action letter. 

Following comments to the proposed rule 

supporting direct application of separate 

account treatment to FCMs (both clearing and 

non-clearing), the Commission proposes to 

withdraw the original proposal in favor of the 

Proposed Rule.9

The Proposed Rule codifies (with 

important changes, including the 

establishment of a margin adequacy 

requirement applicable to clearing and nonclearing FCMs and increased specificity in 

the one-day margin requirement) the existing 

no-action position under which FCMs are 

permitted to treat different accounts of the 

same beneficial owner as separate accounts 

for purposes of permitting margin 

withdrawals. 

Sufficiency of Risk-Mitigation Conditions 

The Proposed Rule permits separate 

account treatment subject to riskmanagement standards. The customer 

protections built into this Proposed Rule help 

to mitigate the risk that it creates, particularly 

by requiring customers receiving separate 

account treatment to meet margin calls the 

same day they are made (referred to as the 

one-day margin requirement), and requiring 

separate account treatment to cease when the 

customer or the FCM is no longer operating 

in the ordinary course of business. In many 

ways, the enhanced requirements for FCMs 

to maintain internal controls and policies 

and procedures designed to ensure 

compliance with the Proposed Rule 

strengthen the risk-management compliance 

practices of FCMs. 

One-day margin requirement. Under the 

one-day margin requirement, a separate 

account customer must meet any margin call 

by the close of the Fedwire Funds Service on 

the same day.10 This requirement is subject 

to enumerated exemptions, including for 

payments in certain foreign currencies where 

the mechanics of international payment 

systems would make compliance with the 

one-day margin requirement impractical.11

Ordinary course of business. Under the 

Proposed Rule, separate account treatment 

for a customer would cease if the customer 

or its FCM ceased operating in the ordinary 

course of business—the day-to-day operation 

of the FCM’s relationship with its 

customer.12 These events include a failure to 

meet the one-day margin call as well as an 

event of default, financial distress, other 

distress, insolvency, bankruptcy, or an 

inability to perform financial obligations. 

These events are standard across all FCMs 

that elect separate account treatment.13

These two requirements work together to 

mitigate the risk of default by a customer that 

benefits from separate account treatment. The 

ordinary course of business standard works 

to prevent an insolvent or soon-to-be 

insolvent beneficial owner from continuing 

to receive separate account treatment. And 

the one-day margin requirement creates a cap 

on the amount of time during which an 

insolvent or soon-to-be insolvent beneficial 

owner could take funds out of one account 

while failing to meet a margin call for 

another account. 

Conclusion 

As I have previously noted, 

[s]ince the earliest days of federal prudential 

and market regulation in our nation, thought 

leaders have advocated for regulation that 

preserves customer assets held by others. In 

his book published in 1914—Other People’s 

Money—former Supreme Court Justice Louis 

Brandeis advocated for similar reforms that 

safeguard the assets of financial markets 

customers.14

Under the CEA, the Commission is 

directed to ‘‘protect all market participants 

from . . . misuses of customer assets.’’15 For 

these reasons articulated above, I concur with 

the Proposed Rule. 

The final rule addressing these issues, 

however, must be supported by data and 

analyses indicating the potential risks arising 

from the Proposed Rule and how such risks 

will be managed. I look forward to comments 

on this Proposed Rule, particularly 

comments that demonstrate the sufficiency or 

adequacy of the risk-mitigation conditions in 

the Proposed Rule. 

I would like to thank the staff of the 

Division of Clearing and Risk for their 

thoughtful work on this rule and for their 

willingness to incorporate feedback from my 

office into the proposed amendments 

published today. 

Appendix 3—Statement of Support of 

Commissioner Caroline D. Pham 

I support the Notice of Proposed 

Rulemaking on the Regulations to Address 

Margin Adequacy and to Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants (FCMs) (Treatment of 

Separate Accounts Proposal or NPRM), as 

well as the Commission’s withdrawal of the 

first proposal on this issue (2023 Proposal).1

Today’s Treatment of Separate Accounts 

Proposal gets the Commission closer to the 

pragmatic approach it was striving for in the 

2023 Proposal. To help ensure the 

Commission truly gets there in the final rule, 

I highlight specific areas for public comment 

below. 

I would like to thank Daniel O’Connell and 

Bob Wasserman in the Division of Clearing 

and Risk, and Jennifer Bauer and Joshua 

Beale in the Market Participants Division, for 

their work on the NPRM. I appreciate the 

staff’s generosity with their time for briefings 

and answering questions, as well as working 

with me to make revisions to address my 

concerns. 

As the Treatment of Separate Accounts 

Proposal explains, two of the fundamental 

purposes of the Commodity Exchange Act 

(CEA) are the avoidance of systemic risk and 

the protection of market participants from 

misuses of customer assets.2 Regulation 

39.13(g)(8)(iii) requires that a CFTCregistered derivatives clearing organization 

(DCO) requires its clearing members to 

ensure that their customers do not withdraw 

funds from clearing member accounts, with 

one exception. 

Clearing member customers can withdraw 

funds if the net liquidating value plus the 

margin deposits remaining in the account 

meet the customer’s initial margin 

requirements with respect to all products and 

swap portfolios cleared by the DCO that are 

held in the customer’s account. This is 

known as the ‘‘Margin Adequacy 

Requirement’’ because it helps ensure a 

clearing member has, from a customer, funds 

sufficient to cover the customer’s cleared 

initial margin requirements. And, in light of 

the use of omnibus margin accounts, the 

Margin Adequacy Requirement avoids the 

clearing member covering one customer’s 

margin shortfall with another customer’s 

funds. Overall, this is one of the many CFTC 

rules that protects customer funds. 

The 2023 Proposal, among other things, 

proposed allowing DCOs to permit clearing 

FCMs to treat the separate accounts of a 

single beneficial owner, or customer, as 

accounts of separate legal entities to satisfy 

the requirements of Regulation 

39.13(g)(8)(iii),3 subject to multiple 

conditions. The 2023 Proposal was intended 

to accommodate certain FCM customer 

agreements that provide that certain accounts 

carried by the FCM that have the same 

beneficial owner are treated as accounts for 


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Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Proposed Rules 15363 

different legal entities for commercial 

purposes. 

However, in response to comments, the 

Commission is now withdrawing the 2023 

Proposal and issuing the Treatment of 

Separate Accounts Proposal. I commend this 

decision because I believe this NPRM gets the 

Commission closer to what it set out to do 

in the 2023 Proposal: accommodate certain 

FCM customer agreements that provide that 

certain accounts carried by the FCM that 

have the same beneficial owner are treated as 

accounts for different legal entities for 

commercial purposes. 

To aid in this effort, I have highlighted 

specific areas for public comment below. 

Specific Areas for Public Comment 

Ordinary Course of Business 

I encourage commenters to review all of 

the definitions, in particular those in 

proposed new Regulation 1.44. For instance, 

I am particularly interested in whether the 

Commission has improved the accuracy of 

the definition of ‘‘ordinary course of 

business,’’ along with what constitutes events 

inconsistent with the ‘‘ordinary course of 

business’’ in Regulation 1.44(e). As we 

learned with the 2023 Proposal, getting this 

right is pivotal to having the proposed 

framework function as intended. 

One Business Day Margin Call 

As a second definitions example, I am 

interested in whether the Commission has 

improved the definition of ‘‘one business day 

margin call’’ along with its requirements in 

Regulation 1.44(f). Commenters provided 

extensive comments on this provision, and 

while the NPRM has improved on it, we need 

to be sure the proposed definition does not 

impede FCM risk management practices and 

is consistent with the law or standard 

practices in other jurisdictions and 

operationally feasible. 

The Treatment of Separate Accounts 

Proposal provides that the relevant deadline 

for payment of margin in fiat currencies other 

than USD may be extended by up to one 

additional business day and still be 

considered in compliance with the 

requirements of Regulation 1.44(f) if payment 

is delayed due to a banking holiday in the 

jurisdiction of issue of the currency. 

Regulation 1.44(f)(4) further provides that, 

for payments in EUR, either the separate 

account customer or the investment manager 

managing the separate account may designate 

only one country within the eurozone that 

they have the most significant contacts with 

for purposes of meeting margin calls in that 

separate account, whose banking holidays 

shall be referred to for such purpose. 

Since the eurozone is comprised of 20 

countries, each with their own national laws 

and banking holidays, I am concerned that 

the CFTC is imposing an overly prescriptive 

and unworkable requirement with little 

practical benefit. I am interested in whether 

commenters believe it will be impracticable 

to comply with Regulation 1.44(f)(4). I 

encourage commenters to look at Question 7 

in the NPRM—which staff added at my 

request—for specific examples and 

additional prompts. 

Other Circumstances Involving Banking 

Holidays 

Similarly, the Treatment of Separate 

Accounts Proposal also provides an 

exception from Regulation 1.44(f)(1), set forth 

in Regulation 1.44(f)(7), for the special case 

of certain holidays when some DCMs may be 

open for trading, but banks are closed. I am 

interested in whether the Commission’s 

expansion of the exception from the 2023 

Proposal fully resolves the issues raised by 

commenters, or still poses operational or 

compliance issues for FCMs. 

Conclusion 

Overall, I am pleased to support the 

Treatment of Separate Accounts Proposal and 

hope we can get it right in the final rule. I 

look forward to the comments on the NPRM. 

[FR Doc. 2024–04107 Filed 2–29–24; 8:45 am] 

BILLING CODE 6351–01–P 


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