7880 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

1Section 3(b) of the CEA, 7 U.S.C. 5(b). 

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

3 7 U.S.C. 6d(a)(2); 17 CFR 1.22(a). 

4Prohibition of Guarantees Against Loss, 46 FR 

11668, 11669 (Feb. 10, 1981). 

5 7 U.S.C. 6d(a)(2); 17 CFR 1.20; 17 CFR 1.22; 

Prohibition of Guarantees Against Loss, 46 FR at 

11669. 

6 7 U.S.C. 7a–1. 

7 Dodd-Frank Wall Street Reform and Consumer 

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

(2010). 

8Section 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). 

9 17 CFR 39.13(g)(8)(iii). 

10For purposes of this final rule, the Commission 

uses the term ‘‘Margin Adequacy Requirement’’ to 

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: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is amending its regulations, 

adopted under the Commodity 

Exchange Act (CEA), to require a futures 

commission merchant (FCM) to ensure 

a customer does not withdraw funds 

from its account with the FCM if the 

balance in the account after the 

withdrawal would be insufficient to 

meet the customer’s initial margin 

requirements; and relatedly, to permit 

an FCM, subject to certain requirements, 

to treat the separate accounts of a single 

customer as accounts of separate entities 

for purposes of certain Commission 

regulations. 

DATES: 

Effective date: This rule is effective 

March 24, 2025. 

Compliance dates: The compliance 

date for FCMs that are clearing members 

of a derivatives clearing organization 

(DCO) as of the date of publication of 

this rule in the Federal Register shall be 

July 21, 2025. The compliance date for 

all other FCMs shall be January 22, 

2026. 

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; Liliya Bozhanova, 

Associate Director, 202–418–6232, 

lbozhanova@cftc.gov; Jennifer Bauer, 

Special Counsel, 202–418–5472, 

jbauer@cftc.gov, Market Participants 

Division; Jasmine Lee, Special Counsel, 

202–418–5226, jlee@cftc.gov, Division 

of Market Oversight, 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 

D. The Commission’s Second Proposal 

II. Regulations 

A. Amendments to Regulation § 1.3 

B. Amendments to Regulation § 1.17 

C. Amendments to Regulations §§ 1.20, 

1.32, 22.2, and 30.7 

D. Regulation § 1.44(a) 

E. Regulation § 1.44(b) 

F. Regulation § 1.44(c) 

G. Regulation § 1.44(d) 

H. Regulation § 1.44(e) 

I. Regulation § 1.44(f) 

J. Regulation § 1.44(g) 

K. Regulation § 1.44(h) 

L. Appendix A to Part 1 

M. Amendments to Regulation § 1.58 

N. Amendments to Regulation § 1.73 

O. Amendments to Regulation § 30.2 

P. Amendments to Regulation § 39.13 

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 

D. Congressional Review Act 

I. Background 

A. The Commission’s Customer Funds 

Protection Regulations 

Protection of market participants from 

misuses of customer assets and 

avoidance of systemic risk are two of the 

fundamental purposes of the CEA.1 The 

Commission has promulgated 

regulations designed to protect customer 

assets, 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. The 

Commission has also promulgated 

regulations designed to diminish the 

risk that a customer default in its 

obligations to an FCM that is a clearing 

member of a DCO (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 

regulation § 1.20(a) require an FCM to 

separately account for, and segregate 

from its own funds, all money, 

securities, and property it has received 

to margin, guarantee, or secure the 

trades or contracts of its commodity 

customers.2 Additionally, 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.3 This 

requirement is designed to prevent an 

FCM from treating customers 

disparately and to mitigate the risk that 

the FCM will not maintain sufficient 

funds in segregation to pay all customer 

claims if the FCM becomes insolvent.4

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.5

Section 5b of the CEA,6 as amended 

by the Dodd-Frank Wall Street Reform 

and Consumer Protection Act of 2010,7

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.8

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 to mitigate the risk that 

such clearing members pose to the DCO. 

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

provides that a DCO shall require a 

clearing member to ensure that a 

customer does not withdraw funds from 

its account with the 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 all products and swap 

portfolios held in the customer’s 

account that are cleared by the DCO.9

Regulation § 39.13(g)(8)(iii) thus 

establishes a ‘‘Margin Adequacy 

Requirement’’ designed to mitigate the 

risk that a clearing FCM fails to hold 

customer funds sufficient to cover the 

required initial margin for the 

customer’s cleared positions.10 In light 


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refer to this requirement, which applies indirectly 

to clearing FCMs via the operation of DCO rules, 

and the analogous requirement set forth in 

regulation § 1.44(b) which will apply directly to all 

FCMs. 

11Section 3(b) of the CEA, 7 U.S.C. 5(b). 

12 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR at 69379. 

13 Joint Audit Committee Margins Handbook, 

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

HandBookWord.aspx. 

14 JAC, JAC Members, available at http://

www.jacfutures.com/jac/Members.aspx. Selfregulatory 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 regulation § 1.3, 17 CFR 1.3. Pursuant 

to regulation § 1.52(d), when an FCM is a member 

of more than one self-regulatory 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 selfregulatory organization for the FCM. 17 CFR 

1.52(d). 

15 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR at 69379. 

16 Id. 

17The 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. Regulation 

§ 30.1(a), 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). 

18CFTC 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; 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; and CFTC Letter No. 24–07, June 24, 

2024, available at https://www.cftc.gov/csl/24-07/ 

download. 

19See, e.g., SIFMA–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). 

20See CFTC, CFTC Form 40, Statement of a 

Reporting Trader, available at https://www.cftc.gov/ 

sites/default/files/idc/groups/public/@forms/ 

documents/file/cftcform40.pdf; see also CFTC, 

Ownership & Control Reporting, available at https:// 

www.cftc.gov/Forms/OCR/index.htm (discussing 

Ownership and Control Reporting under Form 102). 

21See 17 CFR parts 17 (covering reports by 

reporting markets, FCMs, clearing members, and 

foreign brokers), 18 (reports by traders), 19 (reports 

by persons holding reportable positions in excess of 

position limits and by merchants and dealers in 

cotton), and 20 (large trader reporting for physical 

commodity swaps). 

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

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

jacupdates/2019/jac1902.pdf. 

23SIFMA–AMG Letter; First FIA Letter. 

24First FIA Letter. 

25The Industry Letters sometimes used the terms 

‘‘investment manager’’ and ‘‘asset manager’’ 

interchangeably. 

of the use of omnibus margin accounts, 

in which 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 FCM 

will effectively cover one customer’s 

margin shortfall using another 

customer’s funds.11

In adopting the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii), the Commission 

stated 12 that the regulation was 

consistent with the definition of 

‘‘Margin Funds Available for 

Disbursement’’ in the Margins 

Handbook 13 prepared by the Joint Audit 

Committee (JAC), a representative 

committee of U.S. futures exchanges 

and the National Futures Association 

(NFA).14 The Commission noted that 

although 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.15 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.16

Thus, although 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, Commission 

regulations do not apply a Margin 

Adequacy Requirement to non-clearing 

FCMs. Furthermore, regulation 

§ 39.13(g)(8)(iii) does not require DCOs 

to apply a Margin Adequacy 

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).17

B. The Divisions’ No-Action Position 

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 staff 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.18

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 

customer.19

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 

with 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 

102,20 or parts 17–20,21 or with regard 

to the term ‘‘beneficial owner,’’ as that 

term may be used by other agencies), 

this final rule uses only the term 

‘‘customer,’’ except where directly 

quoting or paraphrasing a source that 

uses the term ‘‘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’’). 

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,22 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’’).23

As FIA explained, there are a variety 

of reasons why a customer may want 

separate treatment for its accounts 

under such an agreement.24 For 

instance, an institutional customer, such 

as an investment or pension fund, may 

allocate assets to investment 

managers 25 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 manager(s) 

acting on behalf of other accounts of the 


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26 Id. 

27 Id. 

28 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. First FIA Letter. 

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

CME Letter. 

40CFTC Letter No. 19–17. 

41 Id. 

42 Id. 

43CFTC Letter No. 20–28. 

44 Id. 

45CFTC Letter No. 24–07. 

46 Derivatives Clearing Organization Risk 

Management Regulations to Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants, 88 FR 22934 (Apr. 14, 

2023) (First Proposal). 

customer.26 Under such a 

circumstances, an investment manager, 

in order to implement its trading 

strategy effectively, may 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, as FIA explained, 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 in many 

cases negotiates directly with the 

customer’s agent, which is often 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 margining 

would no longer be prudent.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 customer’s 

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 Although 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 

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 consider, a rulemaking to 

implement on a permanent basis 

requirements related to separate account 

treatment.42 CFTC Letter No. 20–28, 

published on September 15, 2020, 

extended the no-action 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, the 

Divisions would consider further 

extending the no-action position.44 The 

Divisions have continued to extend the 

no-action position in CFTC Letter No. 

19–17 as they have worked toward a 

final rule. The no-action position 

currently expires on the earlier of June 

30, 2025 or the effective date of this 

final rule.45

C. The Commission’s First Proposal 

On April 14, 2023, the Commission 

published in the Federal Register a 

notice of proposed rulemaking designed 

to codify the no-action position in CFTC 

Letter No. 19–17 (First Proposal).46 The 

First Proposal proposed to amend 

regulation § 39.13 to allow 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 risk-mitigating requirements based 

on the conditions in CFTC Letter No. 

19–17. 

The requirements for separate account 

treatment in the First Proposal were 

substantially similar to the conditions in 

CFTC Letter No. 19–17. However, 

certain such proposed requirements 

reflected modification of the no-action 

conditions on which they were based, 

including additional reporting 

requirements for clearing FCMs required 

to cease disbursements on a separate 

account basis, an explicit process for 

clearing FCMs to resume disbursements 

on a separate account basis, and 


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47 Derivatives Clearing Organization Risk 

Management Regulations to Account for the 

Treatment of Separate Accounts by Futures 

Commission Merchants, 88 FR 39205 (June 15, 

2023). 

48The American Council of Life Insurers, CME, 

FIA, Intercontinental Exchange, Inc., the JAC, MFA 

(formerly Managed Funds Association), NFA, 

SIFMA–AMG, Symphony Communications 

Services, LLC, and three individuals. 

49CME, FIA, Intercontinental Exchange, Inc., the 

JAC, NFA, and SIFMA–AMG. 

50Regulations to Address Margin Adequacy and 

To Account for the Treatment of Separate Accounts 

by Futures Commission Merchants, 89 FR 15312 

(Mar. 1, 2024) (Second Proposal). The Second 

Proposal also contained supporting amendments in 

parts 1, 22, 30, and 39. 

51These are 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 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)); regulation 

§ 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 on futures); and 

§ 30.2(b) (to clarify that, 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 changes are discussed in greater 

detail in the relevant sections below. 

52Regulation § 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). 

53 7 U.S.C. 12a(5). 

54 7 U.S.C. 6d(a)(2) and (f)(2). 

55 7 U.S.C. 6(b)(2)(A). 

56 7 U.S.C. 6f(b). 

57 7 U.S.C. 5(b). 

provisions designed to further clarify 

the requirement that separate accounts 

be on a one business day margin call. 

The Commission originally proposed 

to codify the no-action position in CFTC 

Letter No. 19–17 in part 39 to hew 

closely to the operation of the no-action 

position itself. Under the First Proposal, 

DCOs would be able to permit clearing 

FCMs to engage in separate account 

treatment, provided such clearing FCMs 

complied with certain requirements, 

which DCOs would be required to 

monitor and enforce through their rules. 

The comment period for the First 

Proposal was extended once at the 

request of a commenter and closed on 

June 30, 2023.47 The Commission 

received comments from twelve 

commenters.48 Although commenters 

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

17, six commenters 49 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 in its 

part 39 DCO regulations (where it would 

apply only to clearing FCMs, through 

the instrumentality of DCO rules). Other 

commenters did not opine on whether 

the proposed codification should be in 

part 1 versus part 39. 

D. The Commission’s Second Proposal 

On February 20, 2024, the 

Commission voted to approve 

withdrawal of the First Proposal and 

publish a notice of proposed rulemaking 

to codify a Margin Adequacy 

Requirement similar to that of 

regulation § 39.13(g)(8)(iii), along with 

the no-action position in CFTC Letter 

No. 19–17, in part 1 of its regulations, 

whereby it would be applicable to all 

FCMs (Second Proposal).50 In the 

Second Proposal, the Commission 

discussed and addressed comments 

received in response to the First 

Proposal, including the comments that 

informed the Commission’s decision to 

withdraw the First Proposal and instead 

propose to codify the no-action position 

of CFTC Letter No. 19–17 in part 1. 

The notice of proposed rulemaking 

and withdrawal were published in the 

Federal Register on March 1, 2024. The 

Commission is finalizing the Second 

Proposal, with modifications 

responding to the comments received. 

The bulk of the final rule will be 

contained in new regulation § 1.44. 

However, as explained below, the 

Commission is also finalizing 

supporting amendments in 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 regulation § 1.44. 

The Commission is additionally 

finalizing amendments to address 

inadvertent inconsistencies in existing 

regulations.51

Regulation § 1.44 is comprised of 

eight subsections. Regulation § 1.44(a) 

defines key terms solely for purposes of 

regulation § 1.44. Regulation § 1.44(b) 

incorporates, for all FCMs, and for all 

accounts,52 the same Margin Adequacy 

Requirement that DCOs are obligated in 

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

their clearing FCMs to apply. Regulation 

§ 1.44(c) makes clear that an FCM can 

provide disbursements on a separate 

account basis only during the ‘‘ordinary 

course of business,’’ a term that is 

defined in proposed regulation § 1.44(a). 

Regulation § 1.44(d) explains how FCMs 

may elect to engage in separate account 

treatment for one or more customers. 

Regulation § 1.44(e) enumerates the 

events that are inconsistent with the 

ordinary course of business for purposes 

of regulation § 1.44 and contains 

requirements for FCMs related to 

cessation of disbursements on a separate 

account basis upon the occurrence of 

such events, and resumption of separate 

account disbursements upon the cure of 

such events. Regulation § 1.44(f) 

contains the requirement that each 

separate account be on a ‘‘one business 

day margin call’’ and sets out provisions 

designed to establish how a one 

business day margin call is to be made 

and met for purposes of regulation 

§ 1.44. Regulation § 1.44(g) sets forth 

capital, risk management, and 

segregation calculation requirements for 

FCMs with respect to accounts for 

which the FCM has elected separate 

treatment. Lastly, regulation § 1.44(h) 

articulates information and disclosure 

requirements for FCMs that engage in 

separate account treatment. 

II. Regulations 

Section 8a(5) of the CEA 53 authorizes 

the Commission ‘‘to make and 

promulgate such rules and regulations 

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 promulgating these rules 

pursuant to section 8a(5) as reasonably 

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

and 4d(f)(2) of the CEA,54 providing for 

the segregation and protection of, 

respectively, futures customer funds 

and Cleared Swaps Customer Collateral, 

and section 4(b)(2)(A) of the CEA,55

providing for the safeguarding of 

customers’ funds in connection with 

foreign futures and foreign option 

transactions. The Commission is also 

promulgating these rules as reasonably 

necessary to effectuate section 4f(b) of 

the CEA, which requires an FCM to 

meet minimum financial requirements 

prescribed by the Commission as 

necessary to ensure that the FCM meets 

its obligations.56 Moreover, the 

Commission is promulgating these rules 

as reasonably necessary to accomplish 

the purposes of the CEA as set forth in 

section 3(b); 57 specifically, ‘‘the 

avoidance of systemic risk’’ and 

‘‘protect[ing] all market participants 

from . . . misuses of customer assets.’’ 

Accordingly, the Commission believes 

that the amendments adopted herein 

relating to the Margin Adequacy 


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58Section 3(b) of the CEA, 7 U.S.C. 5(b). 

59Section 3(b) of the CEA, 7 U.S.C. 5(b) (It is the 

purpose of the CEA 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’’). 

60 In this final rule, 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. 

61For the avoidance of doubt, the final rule 

permits an FCM to decide to engage in separate 

account treatment for a set of customers. It neither 

requires an FCM to engage in such treatment nor 

requires a customer of an FCM that decides to 

engage in separate account treatment for certain 

customers to choose to have its accounts with such 

FCM treated as separate accounts of separate 

entities. Thus, separate account treatment should 

involve an affirmative decision by both the FCM 

and the customer. 

62As a result, regulation § 1.44 prohibits the 

application of portfolio margining or crossmargining 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. 

63FIA (Question 4), the JAC (Question 5) and 

CME (Question 8). 

64FIA Comment Letter. 

Requirement, and the modification of 

this requirement to permit, subject to 

certain further 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 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 this final rule. 

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 of customer 

funds), 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 regulatory obligations 

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, 

through the Margin Adequacy 

Requirement, an additional layer of 

protection for customer funds, but only 

with respect to FCMs that are clearing 

members of DCOs. Prior to this final 

rule, there was 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 reducing the likelihood that 

the clearing member will cover one 

customer’s margin shortfall using 

another customer’s funds.58

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

provides risk mitigation benefits for 

DCOs, clearing FCMs, and customers. 

The effect of the staff no-action position 

in CFTC Letter No. 19–17 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. 

By establishing requirements for 

separate account treatment for all FCMs 

through the addition of a similar Margin 

Adequacy Requirement to part 1, the 

Commission seeks to replicate the 

regulatory structure presented by the 

interaction of regulation § 39.13(g)(8)(iii) 

and the no-action position of CFTC 

Letter No. 19–17 for all FCMs, and 

further the customer fund protection 

and risk mitigation purposes of the 

CEA 59 by implementing measures 

designed to further ensure that all 

FCMs, whether clearing or non-clearing, 

do not create or exacerbate an 

undermargining scenario. 

The requirements for separate account 

treatment established herein are 

designed to (i) ensure that FCMs carry 

out separate account treatment in a 

consistent and documented manner; (ii) 

monitor customer accounts on a 

separate and combined basis; (iii) 

identify and act upon instances of 

financial or operational distress that 

necessitate a cessation of disbursements 

on a separate account basis; (iv) provide 

appropriate disclosures to customers 60

regarding separate account treatment; 

and (v) apprise their DSROs when they 

apply separate account treatment or 

when an event has occurred that would 

necessitate cessation of disbursements 

on a separate account basis.61

The amendments are 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.62 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, some FCMs will 

have already implemented, in 

significant part, the requirements 

established herein. 

The Commission received comment 

letters in response to the Second 

Proposal from the JAC, FIA, SIFMA– 

AMG, CME, Intercontinental Exchange, 

Inc. (ICE), the Options Clearing 

Corporation (OCC), and MFA (formerly 

Managed Funds Association). 

Commenters supported the 

Commission’s proposal to codify the noaction position of CFTC Letter No. 19– 

17 and the Commission’s proposed 

approach to base that codification in 

part 1. Certain commenters commented 

on the substantive requirements 

proposed, as well as how the proposed 

requirements may interact with one 

another and with other Commission 

regulations, and suggested 

modifications to the Second Proposal. 

The Commission addresses these 

comments in the discussion below. 

Additionally, the Commission posed 

specific questions for comment in the 

Second Proposal. Although in three 

instances commenters responded 

explicitly to these questions,63 FIA 

noted that it considers its comment 

letter responsive to Questions 1–4, 6, 

and 7 in its discussion of proposed 

amendments to regulation § 1.17 and 

proposed regulation § 1.44(d), (f), and 

(h), including proposed requirements 

for the disclosure of information in the 

Disclosure Document required by 

regulation § 1.55(i).64

Questions 1 and 2 concerned the 

Second Proposal generally. In Question 

1, the Commission requested comment 

regarding whether, in light of changes 

made in the Second Proposal relative to 

the First Proposal, the Commission 

should consider any requirements for 

separate account treatment additional to 

those contained in regulation § 1.44 as 

proposed or modify or remove any of 

the proposed requirements. In Question 

2, the Commission requested comment 

regarding whether the interaction 

between regulation § 1.44(g)–(h) as 

proposed and other regulations under 

parts 1, 22, and 30 affected by the 

proposed requirements (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) was 

sufficiently clear. No commenters 

responded explicitly to these questions, 

although, as indicated above, certain 

comments addressed the thematic issues 

these questions raise. 


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65 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. 

66For 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’’). 

67The term ‘‘noncustomer account’’ generally 

means the accounts of affiliates of an FCM or 

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

68 17 CFR 240.15c3–1. 

69As noted in regulation § 39.13(g)(4), a DCO may 

allow reductions 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, then the customer 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 this final rule, 

then the positions would not lead to an initial 

margin reduction as the positions would not be 

margined on a combined or portfolio basis. 

70As noted above, per regulation § 1.17(a)(1)(i), 

the adjusted net capital requirement for an FCM is 

the greatest of several 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 

unchanged, the risk margin requirement would 

correspondingly increase, or leave unchanged, the 

adjusted net capital requirement. 

71For 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 

Continued 

A. Amendments to Regulation § 1.3 

The definitions contained in 

regulation § 1.3 are key to 

understanding and interpreting the 

Commission’s regulations, including 

part 1 FCM regulations. The 

Commission believes the provisions of 

regulation § 1.44 require an amendment 

to regulation § 1.3. 

The Commission proposed to amend 

the definition of ‘‘business day’’ in 

regulation § 1.3. Prior to this final rule, 

regulation § 1.3 provided, in relevant 

part, that ‘‘business day’’ meant any day 

other than a Sunday or holiday. The 

term ‘‘business day’’ is intended to 

encompass days on which banks and 

custodians are open in the United States 

to facilitate payment of margin. For the 

avoidance of doubt, ‘‘holiday’’ in this 

context refers to holidays in the United 

States. The Commission proposed to 

modify the definition of ‘‘business day’’ 

in regulation § 1.3 to confirm that the 

term encompasses any day other than a 

Saturday, Sunday, or holiday. 

The Commission notes that, in actual 

practice, Saturdays are generally not 

treated as business days in the 

markets,65 by market participants, or for 

regulatory purposes.66 The Commission 

proposed to amend the definition of 

‘‘business day’’ in regulation § 1.3 to 

conform to that reality. In connection 

with the proposed amendments to 

regulation § 1.3, in Question 3 of the 

Second Proposal, the Commission 

requested 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. The Commission did not 

receive any comments with respect to 

the proposed amendment to the 

definition of ‘‘business day’’ in 

regulation § 1.3 or explicitly in response 

to Question 3. Accordingly, the 

Commission is adopting the amendment 

to the definition of ‘‘business day’’ in 

regulation § 1.3 as proposed. 

B. Amendments to Regulation § 1.17 

Regulation § 1.17 establishes 

minimum financial requirements for 

FCMs. 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 67 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 § 15c3–1.68 For 

purposes of regulation § 1.17(a)(1)(i), the 

term ‘‘risk margin’’ is defined by 

paragraph (b)(8) of that regulation 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 proposed 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 

requirements contained in regulation 

§ 1.44(g)(3), discussed below. As a 

general matter, the proposed 

amendments to regulation § 1.17 were 

designed to ensure that FCMs manage 

risk with respect to 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 that intent, the 

Commission proposed 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 

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 

amendments as proposed, 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,69 which 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.70 The 

proposed addition of paragraph (b)(8)(v) 

to regulation § 1.17 was 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 accounts as if each 

account is an account of a separate 

entity. 

In proposing to amend the definition 

of the term ‘‘risk margin’’ in regulation 

§ 1.17(b)(8) to reflect separate accounts, 

the Commission noted that such 

amendment, and the resulting potential 

increase in an FCM’s minimum adjusted 

net capital requirement under regulation 

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

regulations that impose obligations on 

FCMs based on their level of adjusted 

net capital.71 The Commission also 


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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). See, 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. 

72See, e.g., 17 CFR 1.12(a), which requires an 

FCM to provide notice to the Commission and the 

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

any time is less than the minimum required by 

regulation § 1.17. 

73CFTC Letter No. 19–17. The letter 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). The letter 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). 

74 17 CFR 1.17(c)(5)(viii). 

75Thus, if, due to activity on Monday, Customer 

A is undermargined by $150, and the FCM calls 

Customer A for that margin on Tuesday, then 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, then the FCM does 

not need to deduct that additional $100 on 

noted that the proposed amendments to 

the minimum capital requirements 

would affect an FCM’s obligation to 

provide certain notices to the 

Commission and to the FCM’s DSRO 

under regulation § 1.12.72

The Commission additionally 

proposed to amend regulation § 1.58 to 

provide that, where a clearing FCM 

carries an omnibus customer account for 

a non-clearing FCM, and the nonclearing 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 proposed 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. However, regulation 

§ 1.17(c)(2)(i) 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 proposed 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 for the calculation of net capital, 

with certain limitations if deficits or 

debit ledger balances were not satisfied 

across the separate accounts of one 

separate account customer in 

accordance with the one business day 

requirements. As proposed, amended 

regulation § 1.17(c)(2)(i) would provide 

that 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 a previous day’s 

deficit or debit ledger balance in its 

entirety. As proposed, amended 

regulation § 1.17(c)(2)(i) further 

provides that, if the separate account 

does not satisfy a previous day’s deficit 

or debit ledger balance in its entirety, 

then the deficit or debit ledger balance 

for the separate account, and any other 

deficits or debit ledger balances 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 Commission’s proposed 

amendments were intended to provide 

the same capital treatment to separate 

accounts as is currently provided 

customer accounts that liquidate to 

deficits or contain debit ledger balances, 

and to be consistent with corresponding 

conditions to the no-action position in 

CFTC Letter No. 19–17.73

Third, the Commission proposed 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 proposed 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 

further proposed 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 proposed 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.’’ 74 However, once a 

customer fails to meet a margin call 

within one business day, the FCM loses 

that one business day period for 

receiving any of that customer’s future 

margin calls, until the point in time at 

which the customer is no longer 

undermargined.75


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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 

period for that customer to meet any of its future 

margin calls, until the point in time at which the 

customer is no longer undermargined. 

76E.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., 

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

replacing the term ‘‘FCM’’ in regulation § 1.17(b)(8) 

with ‘‘futures commission merchant.’’ The 

Commission is also reorganizing paragraph 

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

and (D) to enhance clarity. The Commission is also 

reorganizing 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 in this provision with the wording of the 

term ‘‘business day’’ in regulation § 1.3. 

77FIA Comment Letter. 

78 JAC Comment Letter. 

79 Id. 

80 Id. 

81 Id. 

82 Id. 

83 Id. Specifically, JAC Alert #14–06 provides 

that, at an FCM’s discretion, it may consider a nonUSD deposit as pending in a customer’s account 

and included in the account’s margin equity if ‘‘(i) 

the FCM assesses that it is prudent to do so based 

on the account’s past history of satisfying margin 

calls and the operational and credit risk profile of 

the account owner, (ii) the account is on a 1-day 

wire transfer basis (i.e., the wire is initiated on Day 

2), (iii) the FCM has a sufficient basis that the wire 

was actually initiated, (iv) the FCM continues to age 

the pending non-U.S. Dollar receipts and retains the 

ability to recognize a failed deposit immediately 

upon occurrence, and (v) the FCM treats unsettled 

non-U.S. Dollar disbursements from the account in 

the same manner.’’ JAC Regulatory Alert #14–06, 

Nov. 4, 2014, available at http://

www.jacfutures.com/jac/jacupdates/2014/ 

jac1406.pdf. 

The Commission proposed 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 

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 proposed amendments to 

regulation § 1.17 also include certain 

technical changes designed to improve 

clarity and promote consistency with 

other Commission regulations.76

Commenters did not object to the 

Commission’s proposed addition of 

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

the Commission’s proposed 

amendments to regulation 

§ 1.17(c)(4)(ii), or the technical 

amendments that the Commission 

proposed to regulation § 1.17. FIA 

welcomed the Commission’s proposal to 

amend regulation § 1.17 to require FCMs 

that carry separate accounts to calculate 

the risk margin component of the FCM’s 

regulatory capital requirement as if the 

separate accounts are owned by separate 

entities.77 The JAC did not object to the 

proposed amendments to regulation 

§ 1.17(c)(2)(i), but contended that the 

amendments would introduce a change 

from the current requirements related to 

the treatment of separate account debits 

and deficits in CFTC Letter No. 19–17 

by requiring FCMs to look across all 

separate accounts of a separate account 

customer when determining one day 

debits or deficits to be considered 

current assets for net capital, rather than 

making that determination solely on the 

basis of each of the separate account 

customer’s separate accounts 

individually.78 The JAC noted that 

FCMs may require time to update their 

regulatory systems and records to 

comply with the amendments as 

proposed.79

The JAC also recommended that the 

Commission clarify how an FCM should 

consider whether a separate account 

timely satisfied the previous day’s debit 

or deficits in its entirety, noting that, if 

margin calls are only considered 

satisfied when receipts are settled for 

purposes of proposed regulation 

§ 1.17(c)(2)(i), then margin calls met in 

non-USD in one separate account may 

affect the current or noncurrent 

classification of a debit or deficits in all 

separate accounts of a separate account 

customer.80 As discussed further below, 

JAC guidance provides that FCMs, 

subject to certain conditions, may apply 

margin equity credit to an account for 

certain pending non-USD transactions. 

The JAC noted that, depending on how 

margin calls are considered satisfied, 

the proposed amendments may require 

FCMs permitting separate account 

treatment to consider additional capital 

needs.81

With respect to the proposed 

amendments to regulation 

§ 1.17(c)(5)(viii), the JAC agreed that 

proposed regulation § 1.17(c)(5)(viii)(A) 

(requiring that if one margin call is 

noncurrent, then all margin calls are 

noncurrent), is consistent with how, 

pursuant to the JAC’s guidance, FCMs 

currently calculate noncurrent margin 

calls and account for noncurrent margin 

calls for purposes of determining capital 

charges. The JAC did not take a position 

with respect to the proposed 

amendments to regulation 

§ 1.17(c)(5)(viii)(B), but urged the 

Commission (if adopting the 

amendments as proposed) to highlight 

in its final rulemaking that the 

amendments would require that, if a 

margin call for any separate account of 

a separate account customer is 

outstanding for more than one business 

day, then the calculation of current calls 

used in computing the separate 

account’s undermargined capital charge 

must account for the age of all margin 

calls in all separate accounts of the 

separate account customer. The JAC 

noted that the resulting look-across to 

all margin calls in all separate accounts 

of a separate account customer could 

result in significant capital charges for 

FCMs even where each separate account 

is meeting its calls on a one business 

day basis as required by proposed 

regulation § 1.44(f), due to the 

additional time for compliance with the 

one business day margin requirement 

provided for holidays and foreign 

currency wires as proposed in 

accordance with the practices followed 

under CFTC Letter No. 19–17.82

Additionally, as the JAC noted in its 

comments with respect to the proposed 

amendments to regulation § 1.17(c)(2)(i), 

JAC Regulatory Alert #14–06 provides 

that, when calculating the 

undermargined capital charge and 

consistent with the treatment for 

residual interest, an FCM may consider 

pending non-USD deposits, ACH 

payments, and checks as received, 

subject to certain conditions.83 The JAC 

requested that the Commission confirm 


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84 JAC Comment Letter. 85 Id. 86 Id. 87 Id. 88FIA Comment Letter. 89 Id. 90Specifically, requirements that FCMs electing 

separate account treatment (i) record each separate 

account independently in the FCM’s books and 

records, including by recording each separate 

account as a receivable (debit/deficit) or payable 

with no offsets between the other separate accounts 

of the same customer; and (ii) reflect the receivable 

from a separate account as secured (as a current/ 

allowable asset) based on the assets of that separate 

account rather than on the assets held in another 

separate account of the same customer. 

91FIA Comment Letter. 

92 Id. 

93 Id. 

94 Id. 

95 Id. 

96 Id. 

97 Id. 

98 Id. 

that pending non-USD deposits would 

be permitted to be considered as 

received in computing the 

undermargined capital charge for all 

customers under proposed regulation 

§ 1.17(c)(5)(viii)(A) and (B).84

The JAC also noted that, as the 

Commission has not proposed to modify 

regulation § 1.17(c)(5)(ix), requiring 

undermargined capital charges for 

noncustomer and omnibus accounts, the 

JAC will assume that FCMs will still be 

able to apply treatment for pending 

deposits as set forth in JAC Regulatory 

Alert #14–06 to noncustomers and 

omnibus accounts, unless the 

Commission amends the provision or 

confirms otherwise.85

Additionally, the JAC requested that 

the Commission confirm that for 

purposes of the undermargined capital 

charge for a customer account under 

regulation § 1.17(c)(5), maintenance 

margin requirements include the risk 

component only, and non-cash 

collateral should be valued at market 

value less applicable haircuts, including 

for separate account customers.86 The 

JAC stated that performing such margin 

calculations differently in order to 

comply with different regulatory 

reporting requirements may prove 

burdensome for FCMs that permit 

separate account treatment.87

FIA contended that the proposed 

amendments to regulation § 1.17(c)(2)(i) 

and regulation § 1.17(c)(5)(viii) are 

inconsistent with the principle of 

separate account margining and how 

clearing FCMs have understood the 

conditions of CFTC Letter No. 19–17.88

FIA argued that, for purposes of 

calculating both current assets under 

regulation § 1.17(c)(2)(i) and charges 

against net capital for undermargined 

accounts under regulation 

§ 1.17(c)(5)(viii), the Second Proposal 

would effectively require FCMs to 

suspend the ordinary course of business 

for purposes of both calculations in the 

event that any separate account fails to 

satisfy its previous day’s deficit or debit 

ledger balance in its entirety within one 

business day (for purposes of the 

calculation of current assets) or within 

the close of business at the end of the 

second business day following the call 

(for purposes of the undermargined 

capital charge).89 FIA noted that, on the 

basis of the conditions of the no-action 

position in CFTC Letter No. 19–17,90

FCMs calculate current assets and 

undermargined capital charges for each 

separate account as if each such account 

were owned by a separate entity, and do 

not look across to other separate 

accounts of the same customer for 

purposes of either calculation, unless 

the FCM is suspending the ordinary 

course of business for any such 

account.91

FIA asserted that these proposed 

revisions to regulation § 1.17 would be 

costly for FCMs, which would be 

required to rebuild operational and 

reporting systems, and to rewrite 

underlying programming code, to 

perform the necessary look-across of all 

of the separately margined accounts for 

the same separate account customer 

whenever the separate account customer 

fails to timely satisfy the previous day’s 

deficit/debit ledger balance in its 

entirety for the current asset calculation, 

or fails to settle a margin call by the end 

of the day after the call for the 

undermargined capital charge 

calculation.92

FIA also argued that these proposed 

revisions to regulation § 1.17 would be 

punitive for FCMs, because they would 

impose capital costs on FCMs without 

regard to any related financial or 

operational risk. FIA included in its 

comment letter an example illustrating 

how an FCM could be required to take 

a significant capital charge due to a 

failure to meet a margin call timely in 

one separate account, even if the 

separate account customer’s other 

separate accounts, managed by other 

investment managers, have margin calls 

that have not yet aged to a point that the 

FCM would be required to take a capital 

charge under existing regulation 

§ 1.17.93 FIA noted that a recent survey 

of its members showed that, although 

the percentage of required margin for 

separate accounts to total customer 

margin requirements varied from less 

than one percent to over 20%, members 

uniformly reported material potential 

capital implications measured by 

amount of margin required for a single 

beneficial owner across its separate 

accounts.94

FIA recommended that the 

Commission modify its proposed 

amendments to regulation § 1.17 to 

require a look-across of all of a separate 

account customer’s separate accounts 

only where the ordinary course of 

business has been suspended for the 

separate account customer.95 FIA 

further recommended that such lookacross be made subject to the 

requirements defining the Commission’s 

proposed one business day margin call 

requirement in proposed regulation 

§ 1.44(f) so that FCMs can continue 

taking the benefit of current assets and 

avoiding charges against capital while 

client settlement in non-USD for 

separate accounts is pending.96

Like the JAC, FIA discussed the 

application of margin equity credit to 

accounts for pending non-USD margin 

deposits under JAC guidance.97 FIA 

noted this practice appears to be in 

tension with the Commission’s 

proposed amendments to regulation 

§ 1.17 and urged the Commission to 

clarify that the Second Proposal was not 

adopted with the intention of 

prohibiting such current treatment of 

pending non-USD transfers for purposes 

of computing undermargined capital 

charges.98

In proposing to codify the no-action 

position of CFTC Letter No. 19–17 in 

part 1 of its regulations, the Commission 

considered the way in which it would 

need to modify existing provisions of 

part 1 to facilitate separate account 

treatment for FCMs. With respect to the 

calculation of current assets as set forth 

in regulation § 1.17(c)(2)(i) and the 

undermargined capital charge as set 

forth in regulation § 1.17(c)(5)(viii), the 

Commission proposed a more 

conservative approach to risk 

management that would trigger 

inclusion of debits or deficits (with 

respect to proposed regulation 

§ 1.17(c)(2)(i)) or outstanding margin 

calls (with respect to proposed 

regulation § 1.17(c)(5)(viii)) across a 

separate account customer’s separate 

accounts when a margin call made of 

such separate account customer for 

purposes of either regulation is not 

satisfied timely. Although CFTC Letter 

No. 19–17, which applied directly to 

DCOs, did not speak explicitly to how 

FCMs should treat separate accounts for 

purposes of these regulations, its 

provisions call for DCOs to require 

FCMs to subject accounts receiving 

separate treatment to heightened 

scrutiny and enhanced risk management 

practices, particularly with respect to 

timely receipt of margin. 


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99See JAC, JAC Regulatory Alert #14–03, May 21, 

2014, available at http://www.jacfutures.com/jac/ 

jacupdates/2014/jac1403.pdf; JAC, JAC Regulatory 

Alert #14–06, Nov. 4, 2014, available at http://

www.jacfutures.com/jac/jacupdates/2014/ 

jac1406.pdf. 

The Commission has considered the 

JAC’s and FIA’s assertions that the 

proposed amendments to regulation 

§ 1.17(c)(2)(i) and regulation 

§ 1.17(c)(5)(viii) would represent a 

deviation from how FCMs have 

generally understood and applied the 

conditions of CFTC Letter No. 19–17. 

The Commission further acknowledges 

that a separate account customer’s 

untimely payment of margin with 

respect to a separate account for 

purposes of regulation § 1.17(c)(2)(i) or 

regulation § 1.17(c)(5)(viii) does not 

necessarily indicate that the separate 

account customer is out of the ordinary 

course of business, as set forth in 

proposed regulation § 1.44(a), with 

respect to that separate account or any 

other separate account of such 

customer. It follows that a separate 

account for which payment of margin is 

untimely for purposes of regulation 

§ 1.17(c)(2)(i) or regulation 

§ 1.17(c)(5)(viii) may not be indicative of 

financial or operational distress in the 

same manner as would untimely 

payment of margin for purposes of 

regulation § 1.44. Unlike regulations 

§ 1.17(c)(2)(i) and § 1.17(c)(5)(iii), which 

require an FCM to reserve capital when 

the aggregate of a customer’s accounts 

are, respectively, in debit/deficit or 

undermargined beyond a defined period 

of time to protect the FCM against 

potential losses or price exposure if the 

liquidation of the customer’s positions 

is required, regulation § 1.44 is designed 

to build in allowances to account for 

delays resulting from differences in time 

zones as well as international banking 

conventions in establishing 

requirements for meeting a one business 

day margin call. The Commission 

accordingly appreciates, and finds 

persuasive, FIA’s comments to the effect 

that the proposed look-across of 

separate accounts of a separate account 

customer who does not timely meet a 

margin call for purposes of regulation 

§ 1.17(c)(2)(i) or § 1.17(c)(5)(viii) may 

prove costly to implement and 

operationally disruptive to deploy. The 

Commission also appreciates the JAC’s 

comments regarding the potential 

implementation and compliance burden 

that the proposed requirements would 

pose for FCMs. 

Accordingly, the Commission is 

adopting the amendments to regulation 

§ 1.17 as proposed, but with two 

modifications. First, the Commission is 

removing language from the proposed 

amendments to regulation § 1.17(c)(2)(i) 

that would have provided that, if a 

separate account does not meet a 

previous day’s margin call for a deficit 

or debit balance, the FCM shall exclude 

all separate accounts of that separate 

account customer carried by the FCM 

that have a deficit or debit ledger 

balance from current assets under 

regulation § 1.17(c)(2)(i). Second, the 

Commission is modifying the language 

of proposed regulation 

§ 1.17(c)(5)(viii)(B) to provide that, if 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 that separate account 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. In this manner, where a 

separate account customer’s separate 

account does not meet a previous day’s 

margin call for a deficit or debit balance 

under regulation § 1.17(c)(2)(i), or has a 

margin call or other required deposits 

outstanding for more than one business 

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

then the FCM shall treat the separate 

account on a standalone basis in 

determining current assets or the 

undermargined capital charge, and need 

not look across to debits or deficits, or 

outstanding margin calls, in the separate 

account customer’s other separate 

accounts. 

As previously discussed, the 

Commission believes that separate 

account treatment results in a 

conservative capital treatment due to 

the impact of removing portfolio 

margining across separate accounts, 

including in the calculation of the 

required capital based on risk margin 

separately for each separate account. 

Even during a period outside the 

ordinary course of business when 

disbursements on a separate account 

basis are suspended, the Commission 

believes that net capital treatment may 

in most instances continue to be more 

conservative by maintaining separate 

treatment of separate accounts for net 

capital calculation purposes. In 

consideration of the comments received 

regarding the operational difficulties 

which FCMs may face from being 

required to consolidate the treatment of 

separate accounts for net capital 

calculations and the likely conservative 

effect of maintaining separate treatment, 

the Commission is adopting the final 

rules as modified, and further clarifies 

that even during a period of a 

suspension of disbursements on a 

separate account basis, an FCM must 

continue separate treatment for net 

capital calculations. However, should 

an FCM itself cease treating the separate 

accounts separately, such as by 

initiating any cross-default remedies 

across the separate accounts of a 

separate account customer (thus 

indicating the FCM is exercising legal 

remedies to collapse separate accounts 

for the purpose of collection against the 

separate account customer), then 

continued separate net capital treatment 

by the FCM of such accounts would no 

longer be appropriate, as an FCM’s 

exercise of cross-default remedies that 

combine separate accounts would be 

inconsistent with an FCM’s continued 

election of separate account treatment. 

The Commission additionally 

considered the JAC’s and FIA’s 

comments with respect to the treatment 

of pending non-USD transfers. As the 

JAC and FIA noted, JAC Regulatory 

Alerts #14–03 and #14–06 permit FCMs 

to apply margin equity credit to an 

account for pending non-USD transfers 

for certain purposes and subject to 

certain conditions. As the JAC noted, 

the guidance provided by JAC 

Regulatory Alert #14–03 and #14–06 

provides that, due to the inherent delays 

in the settlement of certain foreign 

currency transfers, in determining a 

customer’s or noncustomer’s margin 

status (under JAC Regulatory Alert #14– 

03) or residual interest requirement 

(under JAC Regulatory Alert #14–06), an 

FCM may, at its discretion, consider 

unsettled non-USD transactions as 

pending in a customer’s or 

noncustomer’s account and include in 

the account’s margin equity if: (i) the 

FCM assesses that it is prudent to do so 

based on the account’s past history of 

satisfying margin calls and the 

operational and credit risk profile of the 

account owner; (ii) the account is on a 

one-day wire transfer basis (i.e., the wire 

is initiated on the day the margin call 

is issued); (iii) the FCM has a sufficient 

basis to believe that the wire was 

actually initiated; (iv) the FCM 

continues to age the pending non-USD 

receipts and retains the ability to 

recognize a failed deposit immediately 

upon occurrence; and (v) the FCM treats 

unsettled non-USD disbursements from 

the account in the same manner.99

Although the Commission did not 

discuss treatment of pending non-USD 

transfers in the First Proposal, in the 

Second Proposal, or in CFTC Letter No. 

19–17, as discussed below, commenters 

raised questions related to the treatment 

of pending non-USD transfers in several 


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100Second Proposal, 89 FR at 15317. 101The Commission notes that a pattern wherein 

funds are not timely received despite such 

representations would undermine the satisfaction of 

the first condition; i.e., the account’s past history of 

satisfying margin calls. 

102The Commission additionally confirms that 

the final rule is not intended to preclude FCMs 

from treating as received pending non-USD 

transfers, subject to the same five conditions listed 

in JAC Regulatory Alerts #14–03 and #14–06 

discussed above, for purposes of calculating 

undermargined capital charges for noncustomer and 

omnibus accounts under regulation § 1.17(c)(5)(ix). 

As the JAC noted in its comment letter, the 

Commission did not propose to amend this 

provision. 

103Section 3(b) of the CEA, 7 U.S.C. 5(b); see also, 

e.g., CEA section 4d(a)(2), 7 U.S.C. 6d(a)(2); CEA 

section 4d(f)(2), 7 U.S.C. 6d(f)(2); CEA section 

4b(2)(A), 7 U.S.C. 6b(2)(A). 

104Each 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)–(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 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. 

contexts, which the Commission has 

focused on in developing this final rule. 

In the Second Proposal, the 

Commission noted that it sought to 

enact a narrow codification, with 

respect to all FCMs, of the no-action 

conditions of CFTC Letter No. 19–17.100

In particular, the Commission does not 

seek to disrupt current, established 

margining practices at FCMs, except 

where explicitly stated in this final rule. 

In considering the JAC’s and FIA’s 

comments with respect to the treatment 

of pending non-USD transfers, the 

Commission considers, in light of this 

objective, that currently, and for the past 

ten years, subject to JAC guidance, a 

number of FCMs have treated as 

received certain pending non-USD 

transfers (i.e., those that are consistent 

with that guidance) for certain purposes. 

As the third condition, the FCM must 

also have a sufficient basis to believe 

that the transfer was actually initiated 

for immediate settlement (including, as 

the Commission understands, that the 

transfer was actually initiated on the 

required one-day basis). The 

Commission notes that, as each 

condition for the treatment of pending 

non-USD transfers is a separate 

condition, the Commission expects that 

in order to meet this third condition, an 

FCM would rely on evidence beyond 

the factors identified in the first 

condition (i.e., the account’s past 

history of satisfying margin calls and the 

operational and credit risk profile of the 

account owner). Further to this point, 

the requirement that the FCM have a 

sufficient basis to believe that the 

transfer was actually initiated indicates 

that an FCM would be expected to 

identify a sufficient, factual basis to 

support its conclusion that a specific 

transfer was initiated for immediate 

settlement consistent with the banking 

practices relative to the jurisdiction 

from which the transfer originated. The 

Commission expects that such sufficient 

factual support would include at 

minimum an affirmative, written 

representation from the customer that 

the specific transfer had actually been 

initiated.101 The fourth condition 

requires the FCM to continue aging 

pending non-USD receipts and have the 

ability to recognize a deposit failure 

immediately when it occurs, both of 

which are critical to complying with the 

requirements of regulation § 1.17 

(among other Commission regulations) 

that require an FCM to be able to 

accurately age outstanding margin calls. 

In particular, a transfer that does not 

arrive by the day it is expected 

(consistent with banking practices 

relative to the jurisdiction from which 

the transfer originated) should be 

considered to have failed. The fifth 

condition requires consistent treatment 

of pending non-USD transfers in an 

account: to the extent an FCM treats 

pending non-USD deposits as received 

for certain purposes, it must similarly 

treat pending non-USD disbursements 

as disbursed. 

The Commission has considered the 

history of FCMs’ treatment of pending 

non-USD transfers under the JAC 

guidance. Among other information, the 

Commission has considered, with 

respect to separate accounts under the 

terms of the no-action position, the 

criteria applied to such treatment under 

the JAC guidance, the potential risks 

and benefits of such treatment for FCMs 

and customers, and the Commission’s 

objectives in codifying the no-action 

position of CFTC Letter No. 19–17. The 

Commission confirms that it does not 

intend for the final rule to preclude 

FCMs from considering pending nonUSD transfers as received for purposes 

of computing the undermargined capital 

charge pursuant to regulation 

§ 1.17(c)(5), consistent with the JAC 

guidance as described above.102 In 

doing so, however, the Commission 

notes that it expects that DSROs will 

diligently monitor their FCMs to ensure 

compliance with the criteria for such 

treatment, and will take appropriate 

supervisory steps where they find 

failures to comply with such criteria, 

with particular focus on the requirement 

that an FCM have a sufficient basis to 

believe that a non-USD transfer 

classified as pending was in fact 

initiated, and the requirement that an 

FCM treat pending non-USD 

disbursements in a manner consistent 

with its treatment of pending non-USD 

receipts. 

Lastly, to respond to the JAC’s request 

for clarification on the subject, the 

Commission confirms that, for purposes 

of the undermargined capital charge for 

a customer account under regulation 

§ 1.17(c)(5), maintenance margin 

requirements include the risk 

component only. The Commission 

further confirms that in computing the 

value of the margin deposits of an 

account, including accounts of separate 

account customers, non-cash collateral 

should be valued at market value less 

applicable haircuts. 

C. Amendments to Regulations §§ 1.20, 

1.32, 22.2, and 30.7 

As previously stated, protecting 

market participants from misuses of 

customer assets is one of the 

fundamental purposes of the CEA.103

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.104 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 proposed to amend 

regulations §§ 1.32, 22.2, and 30.7 to 

provide that an FCM that permits 

separate accounts pursuant to 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 

amendments add new paragraph (l) to 

regulation § 1.32, new paragraph (g)(11) 

to regulation § 22.2, and new paragraph 


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105 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. 

106See 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.’’). 107 17 CFR 22.2(f)(3). 

108 Id. 109 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). 

110For 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. 

(l)(11) to regulation § 30.7. The purpose 

of the amendments is to establish the 

manner in which these existing 

segregation and reporting obligations 

apply to FCMs that permit separate 

accounts pursuant to 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 the funds 

of its futures customers, Cleared Swaps 

Customers, and 30.7 customers, 

respectively. The 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, 

is required to record each separate 

account as if it were 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 amendments 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, net of specified haircuts, 

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 account that is in 

deficit.105 The 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, 

less applicable 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 

amendments are consistent with the 

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

17.106

The Commission also proposed 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 amendment: (i) corrects 

an error included in the drafting of the 

description of the calculation when the 

regulation was originally adopted in 

2012; and (ii) aligns 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 

amendment applies 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 FCM. 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.107 To the 

extent that the calculation results in a 

net liquidating equity that is negative, 

the Cleared Swaps Customer Account 

has a debit balance.108 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.109 An error, however, was 

made in drafting the description of the 

details of the segregation calculation in 

current 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.110

The segregation calculation required 

under regulation § 1.32 for futures 

accounts, and the Commission’s Form 

1–FR–FCM and related Form 1–FR– 


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111The 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. 

112 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). 

113Enhancing 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). 

114The Commission is making technical changes 

in the final amendments with respect to regulations 

§§ 1.20(i)(5)(ii), 1.32(b), 22.2(f)(5)(ii), and 

30.7(f)(2)(v)(B) to correct the citation to the SEC 

regulation defining ‘‘ready market’’ (§ 240.15c3– 

1(c)(11) rather than § 241.15c3–1(c)(11)). 

115 17 CFR 30.1. 

116 ICE Comment Letter. 

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.111 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).112

As noted above, the amendments to 

regulation § 22.2(f)(4) and (5) are 

intended to correct the description of 

the segregation calculation and to make 

it consistent with: (i) how FCMs 

calculate their total Cleared Swaps 

segregation obligations under regulation 

§ 22.2(g), (ii) how FCMs report their 

total segregation requirements on the 

Cleared Swaps Segregation Statement, 

and (iii) the segregation calculation 

requirements for futures accounts under 

regulation § 1.32. Thus, the amendments 

are not expected to have any effect on 

FCMs and their current practices. 

In addition, the Commission proposed 

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 

amendment to regulation § 22.2(f), the 

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)).113

To address the omission, the 

Commission proposed to amend 

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

reflect the requirement that an FCM 

include any unsecured customer debit 

balances, calculated consistent with the 

amendments to regulation § 22.2(f)(4) 

and (5) that are discussed above, in the 

calculation of its futures and foreign 

futures and foreign options segregation 

requirement. The amendments to 

regulations §§ 1.20(i) and 30.7(f) 

accurately describe and reflect the 

existing segregation calculations for 

futures, foreign futures, and Cleared 

Swaps as originally intended. The 

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. 

The Commission did not receive any 

comments with respect to the proposed 

amendments to regulations §§ 1.20, 

1.32, 22.2, and 30.7. Accordingly, the 

Commission is adopting the 

amendments to regulations §§ 1.20, 

1.32, 22.2, and 30.7 as proposed.114

D. Regulation § 1.44(a) 

The Commission structured proposed 

regulation § 1.44 so that FCMs would be 

required to avoid returning margin to 

customers when doing so would create 

or exacerbate a margin deficiency in the 

customer’s account; however, the 

proposed regulation then would allow 

FCMs to provide for separate account 

treatment within the Commission’s 

broader regulatory framework for FCMs. 

As such, regulation § 1.44, as proposed, 

contains certain terms that are designed 

to operate in a specific manner with 

respect to regulation § 1.44, but that do 

not apply, or do not apply in the same 

way, with respect to other of the 

Commission’s FCM regulations. The 

Commission therefore proposed to add 

new regulation § 1.44(a) to define 

certain terms only for purposes of 

regulation § 1.44. The Commission 

believes that regulation § 1.44(a) is 

reasonably necessary to accomplishing 

the goals of protecting customer funds 

and mitigating systemic risk because it 

defines key terms in requirements that 

FCMs will need to apply to ensure 

margin adequacy, and in requirements 

that FCMs will need to apply when 

treating customer accounts separately 

for purposes of margin adequacy. 

The Commission proposed 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 

§ 30.1 115). The Commission proposed 

this definition to implement the 

proposed Margin Adequacy 

Requirement, including in the context of 

separate account treatment, with respect 

to accounts of all three types for all 

FCMs, consistent with comments 

received in response to the First 

Proposal. 

ICE’s comment letter indirectly 

addressed the definition of ‘‘account’’ in 

proposed regulation § 1.44(a). ICE 

voiced support for the Commission’s 

proposal to permit FCMs to provide 

separate account treatment for 

customers with regulation 30.7 accounts 

for futures and options transactions 

traded on exchanges outside the United 

States, but stated it does not believe it 

is necessary for the Commission to 

distinguish regulation 30.7 accounts 

from futures and Cleared Swap 

Customer accounts in connection with 

separate account treatment.116 ICE also 

noted that there are references in 

proposed regulation § 1.44 to DCMs that 

should also include foreign exchanges 


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117 Including proposed regulation § 1.44(b)(2) and 

(f)(7). Id. 

118FIA Comment Letter. 

119 Id. 

120 Id. 

121 Id. 

122SIFMA–AMG Comment Letter. 

123 Id. 

124 Id. 

125 Id. 

in connection with regulation 30.7 

accounts.117

The Commission proposed to codify 

the Second Proposal principally in part 

1 (as opposed to in part 39) in light of 

comments received in response to the 

First Proposal. This is designed to 

ensure that the Margin Adequacy 

Requirement and requirements for 

separate account treatment will apply 

directly to all FCMs and all FCM 

customers, including futures customers, 

Cleared Swaps Customers, and 30.7 

account customers. The Commission is 

distinguishing these accounts in 

regulation § 1.44 to ensure that the 

regulation encompasses each class of 

FCM customer. 

The Commission agrees that certain 

references to DCMs that are included in 

regulation § 1.44 should be clarified to 

include explicitly foreign exchanges in 

connection with 30.7 accounts, as 

separate account customers may have 

foreign futures and foreign options 

positions traded on such exchanges. 

Accordingly, as noted further below in 

connection with regulation § 1.44(b)(2) 

and 1.44(f)(7), in adopting these 

provisions, the Commission is 

modifying them to refer to ‘‘any 

designated contract market or other 

board of trade,’’ in order to encompass 

such foreign exchanges. The 

Commission did not receive any other 

comments related to the definition of 

‘‘account’’ in proposed regulation 

§ 1.44(a) and is adopting that definition 

as proposed. 

The Commission also proposed 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. The 

Commission also proposed in proposed 

regulation § 1.44(a) to define ‘‘holiday’’ 

as meaning Federal holidays as 

established by 5 U.S.C. 6103. 

In Question 4 of the Second Proposal, 

the Commission sought commenters’ 

views on how the proposed definition of 

‘‘business day’’ should address days 

when securities and other markets are 

closed. (E.g., whether the Commission 

should 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.) The Commission sought 

information on potential liquidity 

challenges or other risks that could 

result from such an exception, as well 

as information on how FCMs and 

customers currently address days when 

securities and other markets are closed. 

In its comment letter, FIA noted that 

neither the proposed definitions of 

‘‘business day’’ nor ‘‘holiday’’ in 

proposed regulation § 1.44(a) address 

days on which banks are open but 

futures and securities markets are 

closed.118 FIA stated that, on such days, 

transfers of non-cash collateral cannot 

settle, and separate account customers 

settling initial margin calls with such 

collateral will, under the proposed 

regulation, be deemed to have failed to 

meet a margin call.119 In FIA’s view, a 

separate account customer should not 

be deemed to have failed to settle a 

margin call because securities markets 

are closed.120 FIA suggested the 

Commission revise the definition of 

‘‘holiday’’ in proposed regulation 

§ 1.44(a) to provide that holidays 

include ‘‘any business day that is not a 

securities settlement day in the United 

States.’’ 121 No other commenters 

responded specifically to this question. 

The Commission acknowledges that, 

on days on which banks are open but 

futures and securities markets are 

closed, customers, including separate 

account customers, may be unable to 

use non-cash collateral to aid in their 

meeting margin calls. However, FCMs 

and customers may arrange for a variety 

of methods to settle margin calls, 

including bank transfers. The 

Commission believes that, given the 

availability of such funding mechanisms 

on days when banks are open but 

securities and other markets are closed, 

introducing an exception that would 

allow for additional delays in the 

payment of margin on such days may 

introduce unnecessary additional risk of 

undermargining. 

The Commission did not receive any 

other comments related to the 

definitions of ‘‘business day’’ or 

‘‘holiday’’ in proposed regulation 

§ 1.44(a) and is adopting those 

definitions as proposed. 

Relatedly, the Commission proposed 

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 Commission did not 

receive any comments with respect to 

this proposed definition, but the 

Commission received comments related 

to the substantive requirements defining 

a one business day margin call in 

proposed regulation § 1.44(f). The 

Commission addresses those comments 

below in connection with that 

provision. The Commission is adopting 

the definition of ‘‘one business day 

margin call’’ in regulation § 1.44(a) as 

proposed. 

Under regulation § 1.44, an FCM may 

provide disbursements on a separate 

account basis 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 proposed 

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 either a materially increased 

level of risk that the separate account 

customer may fail promptly to perform 

its financial obligations to the FCM, or 

a decrease in the FCM’s financial 

resilience. The Commission proposed 

regulation § 1.44(e) to set forth the 

circumstances that would be 

inconsistent with the ordinary course of 

business, and the occurrence of which 

would require a cessation of 

disbursements on a separate account 

basis. 

SIFMA–AMG contended that the 

definition of ‘‘ordinary course of 

business’’ in proposed regulation 

§ 1.44(a) poses certain regulatory 

compliance challenges.122 Specifically, 

SIFMA–AMG asserted that the proposed 

definition does not sufficiently clarify 

the meaning of ‘‘standard day-to-day 

operation.’’ 123 SIFMA–AMG argued that 

FCMs and DCOs would be required to 

continuously monitor for a series of 

events, some of which would not appear 

to rise to the level of significance to 

suggest that they are not within the 

ordinary course of business, such as the 

failure of a customer to make a single 

margin payment.124 SIFMA–AMG urged 

the Commission to better define 

‘‘ordinary course of business’’ and 

consider an approach that presumes 

operation in the ordinary course of 

business, with clearly delineated events 

such as default or bankruptcy as the 

only instances that would be considered 

outside the ordinary course of 

business.125

SIFMA–AMG further contended that 

the Commission’s proposed definition 

of ‘‘ordinary course of business’’ fails to 

recognize that FCMs must, under 

Commission regulations, manage risk 

effectively, and that FCMs also have 


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126 Id. 

127 Id. 

128See, e.g., new regulation § 1.44(e)(1)(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.’’). 

129The definition of ‘‘undermargined amount’’ in 

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. 

130The definition of ‘‘undermargined amount’’ in 

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. 

131 ‘‘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). 

commercial incentives to do so.126

SIFMA–AMG argued the proposed 

definition of ‘‘ordinary course of 

business’’ is inconsistent with an FCM’s 

obligations, noting that an FCM’s 

obligations under its Risk Management 

Program (RMP) are intentionally fluid 

and are designed to allow FCMs to tailor 

their RMP to the specific activities of 

the FCM and its customers.127

In adopting regulation § 1.44(a), the 

Commission has determined to modify 

the definition of ‘‘ordinary course of 

business’’ in consideration of SIFMA– 

AMG’s comment. As an initial matter, 

the Commission notes that under 

regulation § 1.44 as proposed, events 

inconsistent with the ordinary course of 

business are generally those that the 

Commission would expect an FCM to 

become aware of through its existing 

compliance function and procedures 

(e.g., with respect to cessation of 

disbursements on a separate account 

basis for a separate account customer, a 

failure to deposit margin timely; 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; a good faith 

determination by the FCM’s chief 

compliance officer (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 the insolvency or 

bankruptcy of the separate account 

customer or a parent company of the 

customer; or, with respect to cessation 

of disbursements on a separate account 

basis for any of an FCM’s customers, a 

determination in good faith by an FCM’s 

CCO, senior risk managers, or other 

senior management, that the FCM itself 

is under financial or other distress; or 

the insolvency or bankruptcy of the 

FCM or a parent company of the FCM) 

and notifications or directives from 

third parties. 

The Commission notes that the list of 

events inconsistent with the ordinary 

course of business proposed as part of 

regulation § 1.44(e) is substantially the 

same as the list of events discussed in 

CFTC Letter No. 19–17, which has been 

relied on by DCOs (and by extension 

their clearing FCMs) successfully since 

2019. As SIFMA–AMG noted in its 

comment letter, FCMs have some 

discretion in managing risk with respect 

to their (and their customers’) activities, 

and FCMs appear to have done so 

effectively under the conditions of 

CFTC Letter No.19–17 for over five 

years. The Commission expects FCMs 

will under regulation § 1.44 similarly 

exercise risk management discretion to 

identify when certain non-ordinary 

course of business events have 

occurred.128

Additionally, the Commission notes 

that although failure to make a single 

margin payment may not in itself 

represent a departure from the ordinary 

course of business (hence the 

Commission’s proposal, consistent with 

the no-action conditions of CFTC Letter 

No. 19–17, to include an exception to 

non-ordinary course of business 

conditions for failure to pay margin due 

to certain unusual administrative errors 

or operational constraints), as a general 

matter, ensuring timely payment of 

margin is critical to the Commission’s 

goal of providing for separate account 

treatment in a manner that ensures the 

safety of customer funds and effective 

risk mitigation. 

Although the Commission believes 

default or bankruptcy of an FCM or 

customer are not the only events that 

could represent a departure from the 

ordinary course of business with respect 

to separate account margining, the 

Commission agrees that the standard for 

what constitutes the ordinary course of 

business can be more clearly defined. 

Under the proposal, although the 

occurrence of any of the events 

described in regulation § 1.44(e) would 

be inconsistent with the ‘‘ordinary 

course of business,’’ it was also possible 

that some other, unspecified, events 

might also be inconsistent with the 

‘‘ordinary course of business.’’ 

Accordingly, the Commission has 

modified regulation § 1.44(a) to close 

the set of such events by providing that 

the ‘‘ordinary course of business’’ means 

the operation of the FCM’s business 

relationship with its separate account 

customer absent the occurrence of one 

or more of the events specified in 

regulation § 1.44(e). In such manner, the 

ordinary course of business continues, 

provided none of the events delineated 

in regulation § 1.44(e) have occurred. 

The Commission proposed 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 

Commission did not receive any 

comments with respect to this proposed 

definition and is adopting it as 

proposed. 

The Commission proposed to define 

‘‘separate account customer’’ as 

meaning a customer for which the FCM 

has elected to engage in separate 

account treatment. The Commission 

also did not receive any comments with 

respect to this proposed definition and 

is adopting it as proposed. 

Lastly, the Commission proposed 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, exceed 

the net liquidating value plus the 

margin deposits currently remaining in 

that account.129 The proposed definition 

noted that ‘‘[f]or 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.’’ 130 This 

clarification (which was 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, unlike risk 

margin, the Commission included the 

equity component or premium for long 

or short option positions, as those are 

part of the total required level of margin. 

‘‘Initial margin’’ is the amount of margin 

(otherwise known as ‘‘performance 

bond’’ 131 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 


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132 JAC Comment Letter. 

133Also referred to as the ‘‘Risk Method’’ or ‘‘Pure 

SPAN Method.’’ 

134 JAC Comment Letter (citing JAC Margins 

Handbook, Chapter 1, Definition of 

‘‘Undermargined Amount’’). 

135 Id. (citing JAC Margins Handbook, Chapter 1, 

Definition of ‘‘Margin Equity’’). 

136 Id. (citing JAC Margins Handbook, Chapter 1, 

Definition of ‘‘Maintenance Margin Requirement 

(MMR)’’). The definition further notes that the 

maintenance margin requirement is the actual risk 

margin calculated by the SPAN® margin system. Id. 

137 Id. (citing JAC Margins Handbook, Chapter 4, 

‘‘Margins Calls’’). The JAC noted that net long 

option value reduces the risk margin requirement 

while net short option value increases it. 

138 Id. 

139 Id. 

140 Id. 

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 used the term 

‘‘undermargined amount’’ 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 proposed regulation 

§ 1.44(g) in setting legally segregated, 

operationally commingled (LSOC) 

compliance calculations for separate 

accounts. 

In its comment letter, the JAC 

contended that the Commission’s 

proposed definition of ‘‘undermargined 

amount’’ in proposed regulation 

§ 1.44(a) is inconsistent with industry 

practice and methodologies for 

calculating the undermargined amount 

provided in the JAC Margins 

Handbook.132 Specifically, proposed 

regulation § 1.44(a) defines 

‘‘undermargined amount’’ for an 

account as, ‘‘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.’’ Further, proposed 

regulation § 1.44(a) provides that, for 

purposes of such definition, ‘‘margin 

requirements’’ means the ‘‘level of 

maintenance margin or performance 

bond (including, as appropriate, the 

equity component or premium for long 

or short options positions) required for 

the positions in the account by the 

applicable exchanges or clearing 

organizations.’’ 

As the JAC explained, its Margins 

Handbook recognizes two methods for 

determining the undermargined 

amount: the Net Liquidating Value 

Method 133 and the Total Equity 

Method. 

For purposes of the Net Liquidating 

Value Method, the JAC Margins 

Handbook defines the undermargined 

amount as: ‘‘The amount by which 

margin equity is less than the 

maintenance margin requirement.’’ 134

The JAC noted that, for purposes of this 

method, its Margins Handbook defines 

margin equity as ‘‘an account’s net 

liquidating equity plus the collateral 

value of acceptable margin deposits’’ 135

and defines the maintenance margin 

requirement as: ‘‘The minimum amount 

of margin equity required to be 

maintained in an account.’’ 136

Under the alternative Total Equity 

Method, the undermargined amount is 

the amount by which total equity plus 

the collateral value of acceptable margin 

deposits is less than the risk 

maintenance margin requirement 

adjusted for the option value.137

The JAC argued that, as proposed, the 

definition of ‘‘undermargined amount’’ 

in proposed regulation § 1.44(a) would 

require that, for all customer accounts 

(not just the separate accounts of 

separate account customers), an FCM 

include the equity component of long 

and short options in both the margin 

equity and the margin requirement.138

However, the JAC asserted, under the 

JAC Margins Handbook, exchange rules, 

and industry practice, the equity 

component of long and short options is 

included only in either the margin 

equity (under the Net Liquidating Value 

Method) or margin requirement (under 

the Total Equity Method).139 The JAC 

further asserted that currently, option 

premium is already included in margin 

equity and is not a component of the 

margin requirement.140

The JAC noted that, depending on the 

composition of an account, the Second 

Proposal’s definition of ‘‘undermargined 

amount’’ may result in different 

undermargined amounts than the Net 

Liquidating Value Method or Total 

Equity Method as those methods are 

applied today. The JAC requested the 

Commission provide the specific 

calculation for inclusion of the equity 

component of premium for long or short 

options positions and provide further 

clarification as to the rationale for the 

apparent proposed change in 

methodology. 

FIA similarly commented that, 

although the proposed definition of 

‘‘undermargined amount’’ in proposed 

regulation § 1.44(a) appeared to derive 

from the JAC Margins Handbook 

definition of the same term, the 

definition as proposed may give the 

impression that the Commission intends 

to codify a preference for the Net 

Liquidating Value Method to the 

exclusion of the Total Equity Method 

alternative in the JAC Margins 

Handbook. FIA recommended that the 

Commission amend the proposed 

definition of ‘‘undermargined amount’’ 

in proposed regulation § 1.44(a) to 

provide that ‘‘undermargined amount’’ 

for an account means the account’s 

margin deficiency, if any, computed in 

accordance with applicable guidance of 

the JAC promulgated under regulation 

§ 1.52(d). 

The Commission’s proposed 

definition of ‘‘undermargined amount’’ 

is based not on the Net Liquidating 

Value/Risk/Pure SPAN Method as set 

forth in the JAC Margins Handbook but 

rather on the Margin Adequacy 

Requirement in regulation 

§ 39.13(g)(8)(iii), which provides that a 

DCO shall require its clearing members 

to ensure 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. In that respect, it 

is not intended to evince a requirement 

to determine the undermargined amount 

of an account specifically using the Net 

Liquidating Value Method to the 

exclusion of the Total Equity Method as 

set forth in the JAC Margins Handbook. 

In proposing the definition of 

‘‘undermargined amount,’’ the 

Commission sought to make clear that 

an FCM’s determination of the 

undermargined amount for a separate 

account should account for the equity 

component or premium for long or short 

options positions in computing the 

required level of margin for an account. 

However, the Commission’s intent was 

not to change FCMs’ current practice 

with respect to the way in which they 

determine the undermargined amount 

for an account. 

In its comment letter, the JAC noted 

that FCMs determine the 

undermargined amount using either the 

Net Liquidating Value method or the 

alternative Total Equity method set forth 

in the JAC Margins Handbook, both of 

which incorporate the equity 

component for long or short option 

positions (the former as part of margin 

equity and the latter as part of margin 

requirements), and that margin 


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7896 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

141The Commission is also making a technical 

(grammatical) change to the definition of 

‘‘undermargined amount’’ in regulation § 1.44(a) to 

change ‘‘by which the customer margin 

requirements . . . exceeds the net liquidating value 

. . .’’ to ‘‘by which the customer margin 

requirements . . . exceed the net liquidating value 

. . . .’’ 

142Consistent 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 10–1 (‘‘Margin Funds 

Available for Disbursement = Net Liquidating Value 

+ Margin Deposits ¥ Initial Margin Requirement ≤ 

0’’); see also supra n. 13 and accompanying text. 

143 Id. 

144Proposed 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. 

premium is already included as part of 

margin equity under either method. 

Having considered the JAC’s and 

FIA’s comments, relevant provisions of 

the JAC Margins Handbook, and the 

Commission’s objectives in defining 

‘‘undermargined amount,’’ the 

Commission is persuaded that utilizing 

either the Net Liquidating Value method 

or the alternative Total Equity method 

to determine an account’s 

undermargined amount generally will 

produce an identical result (with the 

exception, as the JAC notes, of certain 

instances involving long options 

positions, in which the Total Equity 

method will produce a greater margin 

deficiency, resulting in a greater margin 

requirement, which would further serve 

to mitigate risk). 

Accordingly, in adopting the 

definition of ‘‘undermargined amount’’ 

in regulation § 1.44(a), the Commission 

is removing the proposed language 

stating that, for purposes of the 

definition of ‘‘undermargined amount,’’ 

the term ‘‘margin requirements’’ shall 

‘‘include[ ], as appropriate, the equity 

component or premium for long or short 

option positions,’’ based on the 

Commission’s understanding, in light of 

comments received, that under current 

practice, the equity component is 

included as a matter of course in margin 

equity or margin requirements, and the 

option premium is factored into margin 

equity.141 The Commission believes the 

resulting definition is consistent with 

the Net Liquidating Value method for 

determining an undermargined amount, 

as set forth in the JAC’s Margins 

Handbook. Notwithstanding that 

definition, the Commission also believes 

an FCM’s use of the Total Equity 

method, as set forth in the JAC’s 

Margins Handbook, would also be 

consistent with that definition. 

In Question 5 of the Second Proposal, 

the Commission invited commenters to 

provide feedback with respect to 

whether the definition of 

‘‘undermargined amount’’ should apply 

haircuts to the value of customer 

collateral held by an FCM and, if so, 

whether the amount of such haircuts 

should be based on SEC rule 240.15c3– 

1 and Commission regulation 

§ 1.17(c)(5)(ii), or on some other basis. A 

haircut is a reduction in the allowable 

value of an asset to account for market 

risk. In its comment letter, the JAC 

stated that non-cash collateral on 

deposit in a customer’s account should 

be valued at market value less 

applicable SEC and CFTC haircuts for 

determining the margin value of 

collateral. No other commenters 

responded specifically to this question. 

The Commission has determined, in 

adopting the definition of 

‘‘undermargined amount’’ in regulation 

§ 1.44(a), to include in that definition a 

requirement that collateral haircuts 

based on Rule 15c3–1 of the Securities 

and Exchange Commission (17 CFR 

240.15c3–1) and regulation § 1.17(c)(5) 

be applied to the value of the margin 

deposits held by an FCM to reflect 

potential market risk associated with the 

value of the collateral if and when such 

collateral was liquidated. 

Accordingly, the Commission is 

adopting regulation § 1.44(a) as 

proposed, subject to the modifications 

discussed above with respect to the 

definitions of ‘‘ordinary course of 

business’’ and ‘‘undermargined 

amount.’’ 

E. Proposed Regulation § 1.44(b) 

The Commission proposed regulation 

§ 1.44(b) to require all FCMs, whether 

clearing or non-clearing, to comply with 

the same Margin Adequacy Requirement 

that DCOs are required to apply to their 

clearing FCMs pursuant to regulation 

§ 39.13(g)(8)(iii). As 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 (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 proposed 

regulation § 1.44(c), which allows an 

FCM to permit disbursements on a 

separate account basis under ordinary 

course of business conditions.142

In proposing regulation § 1.44(b), the 

Commission sought to articulate a 

standard for the calculation of margin 

adequacy that is consistent with the 

Commission’s requirements for 

calculation of undermargined amounts 

for purposes of an FCM’s residual 

interest calculations.143 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. 

In order to address circumstances in 

which the previous day (for purposes of 

regulation § 1.44(b)(1)’s margin 

adequacy calculation requirements), 

excluding Saturdays and Sundays, is a 

holiday (as defined in regulation 

§ 1.44(a)) on which markets, but not 

banks, may be open, proposed 

regulation § 1.44(b)(2) further provides 

that, in such circumstances, the margin 

adequacy calculation shall instead be 

made using the net liquidating value of 

an account as of the close of business on 

such holiday where (i) any DCM on 

which the FCM trades is open for 

trading; and (ii) an account of any of the 

FCM’s customers includes positions 

traded on such a market.144

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. The proposed 

requirements 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 to reduce the likelihood and 

magnitude of the risk that the FCM must 

cover losses due to a default by the 

customer on obligations that exceed the 

margin held by the FCM. Similarly, 

because customer funds are held by an 

FCM in omnibus accounts, this 


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145See CEA § 4d(a)(2), 7 U.S.C. 6d(a)(2) 

(Providing that 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.’’). 

146 7 U.S.C. 6d(a)(2), 6d(f)(2), and 6(b)(2)(A). 

147CEA § 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. 

148 JAC Comment Letter. The JAC reiterated 

additional points in support of this contention that 

the Commission discusses above in connection with 

the definition of ‘‘undermargined amount’’ in 

regulation § 1.44(a). 

149 Id. 

150 Id. 

151 Id. 

152 Id. 

153 Id. 

154 Id. 

155 Id. The JAC provided the following example: 

a customer’s separate account has an overall 

undermargined amount at the close of business on 

Monday of $2,000 USD (comprised of an 

undermargined amount in GBP currency with a 

USD equivalent value of $6,000 and funds in excess 

of its margin requirements in USD currency of 

$4,000). The JAC requested the Commission clarify 

whether, although the separate account was 

undermargined overall for Monday’s close of 

business, the FCM could allow the separate account 

customer to withdraw on Tuesday the excess 

margin funds denominated in USD of $4,000 while 

also issuing a margin call on Tuesday for the GBP 

undermargined amount (for the USD equivalent 

value of $6,000), and remain in compliance with 

proposed regulation § 1.44(b) and, if so, (i) whether 

there are certain requirements and controls that the 

FCM must have in place; and (ii) how the different 

settlement timeframes of the currencies would 

impact such permissibility, including in cases 

where a specific currency cannot be initiated for 

immediate settlement (e.g., if in the JAC’s example, 

Tuesday is a banking holiday in the UK, but not in 

the U.S.). Id. 

156 Id. 

prohibition will reduce the likelihood 

and magnitude 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,145 whether 

the duty to prevent such withdrawals 

falls on DCOs acting on their clearing 

member FCMs (per regulation 

§ 39.13(g)(8)(iii)), 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 that 

is uniform across all types of FCMs 

directly in part 1 rather than indirectly 

through part 39, the Commission 

continues to view it as reasonably 

necessary to extend the requirement to 

prevent such undermargining scenarios 

to all FCMs. 

Accordingly, it is the Commission’s 

judgment that regulation § 1.44(b), 

which will apply a Margin Adequacy 

Requirement similar to that of 

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

FCMs, both clearing and non-clearing, is 

reasonably necessary to protect 

customer funds and mitigate systemic 

risk, thus effectuating CEA section 

4d(a)(2), 4d(f)(2), and 4(b)(2)(A) 146 and 

accomplishing the purposes of 

‘‘avoidance of systemic risk’’ and 

‘‘protecting all market participants from 

. . . misuses of customer assets.’’ 147

The JAC discussed proposed 

regulation § 1.44(b) in several respects 

in its comment letter. First, the JAC 

asserted that proposed regulation 

§ 1.44(b)(1) is unclear; specifically, 

because it is unclear how the 

Commission is defining customer initial 

margin requirements in light of its 

definition of the term ‘‘margin 

requirements,’’ within the proposed 

definition of the term ‘‘undermargined 

amount’’ in proposed regulation 

§ 1.44(a), as including ‘‘the equity 

component or premium for long or short 

option positions.’’ 148 As the JAC noted, 

proposed regulation § 1.44(b)(1) would 

affect all customers, not just customers 

whose accounts receive separate 

account treatment.149

As discussed above in connection 

with regulation § 1.44(a), the 

Commission is adopting its proposed 

definition of ‘‘undermargined amount’’ 

with modifications to remove language 

that the JAC identified as inconsistent 

with exchange rules and industry 

practice, and the Commission views an 

FCM’s use of either of the Net 

Liquidating Value or alternative Total 

Equity method set forth in the JAC 

Margins Handbook as consistent with 

the Commission’s objective in defining 

an account’s undermargined amount for 

purposes of regulation § 1.44. 

Second, the JAC contended that 

proposed regulation § 1.44(b) may 

impact the way some FCMs settle with 

customers on a daily basis.150

Specifically, the JAC asserted, many 

FCMs initiate multiple cash and/or 

collateral transactions within the same 

customer account on the same business 

day in order to settle each individual 

currency within the account, or may call 

initial margin separately from variation 

margin within a single customer 

account, whether or not such account is 

receiving separate account treatment.151

The JAC noted this may result in a 

withdrawal of margin funds by a single 

customer account or within a separate 

account when, in the aggregate, 

including required margin on all 

positions and total margin equity, the 

account was undermargined as of the 

close of business on the prior business 

day.152 The JAC asserted this is a 

generally accepted practice, provided 

certain controls are in place and 

adequate records are maintained to 

demonstrate margin calls are issued, 

aged, and fully initiated for immediate 

settlement to support any outgoing 

disbursements.153 The JAC requested 

that the Commission confirm whether 

such margin procedures will continue to 

be permissible for separate and nonseparate accounts, particularly with 

respect to the funds available for 

disbursement to a customer.154

Relatedly, the JAC sought clarification 

regarding whether the Second Proposal 

requires each separate account to settle 

a single undermargined amount 

pursuant to proposed regulation 

§ 1.44(f) or disburse a single excess 

margin amount pursuant to proposed 

regulation § 1.44(b), taking into account 

the aggregate of all positions and 

currencies within the separate 

account.155 The JAC indicated that, to 

the extent the proposed regulations 

would require a change in current 

practice with respect to settlement of 

margin payments on a currency-bycurrency basis within a customer 

account (whether or not the account is 

receiving separate treatment), then 

FCMs may be required to update their 

regulatory records, risk programs, 

margin calculations, and reporting for 

customer accounts.156

In response to the JAC’s comment, the 

Commission confirms that each separate 

account would not be required to settle 

a single undermargined amount or 

disburse a single excess margin amount 

pursuant to regulation § 1.44 as adopted 

herein. Rather, each receipt or 

disbursement would add to or subtract 

from the available balance in a 

customer’s account, calculated using a 

single reference currency. As stated 

above, regulation § 1.44(b) as proposed 

would require an FCM to ensure that a 

customer does not withdraw funds from 

its accounts with the FCM 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 the withdrawal are sufficient to 

meet the customer initial margin 

requirements with respect to all 

products held in the customer’s 

account, except as provided for 

pursuant to regulation § 1.44(c), which 

sets forth the fundamental requirements 

for separate account treatment. 


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157Second Proposal, 89 FR at 15324. 

158 17 CFR 1.22(c)(3)(ii). 

159 17 CFR 22.2(f)(6)(iii)(B); 17 CFR 

30.7(f)(ii)(C)(2). See also, e.g., JAC Comment Letter 

(discussing multi-settlement margining procedures 

as well as treatment of pending non-USD transfers 

for purposes of determining a customer’s residual 

interest requirement). 

160 17 CFR 1.49(e). 

161See the Commission’s discussion of the JAC’s 

guidance with respect to pending non-USD 

transfers above in its discussion of amendments to 

regulation § 1.17. 

162 Id. Regulation § 39.13(g)(8)(ii) provides, 

among other things, that a DCO shall require its 

clearing members to collect customer initial margin 

at a level that is not less than 100 percent of the 

DCO’s clearing initial margin requirements with 

respect to each product and portfolio and 

commensurate with the risk presented by each 

customer account. 17 CFR 39.13(g)(8)(ii). 

163 JAC Comment Letter. 

164See Second Proposal, 89 FR at 15317. 

165The JAC noted the Commission could then 

consider allowing separate account treatment for 

such noncustomers under the provisions of 

proposed regulation § 1.44(c)–(h). 

The Commission notes that, for 

purposes of regulation § 1.44(b), the net 

liquidating value is calculated based on 

the market value of the positions in the 

customer’s account. In proposing 

regulation § 1.44(b), the Commission 

noted that real-time calculation of 

margin adequacy with respect to a 

potential withdrawal may prove 

impracticable.157 In doing so, the 

Commission refers to the fact that it may 

be impracticable for an FCM to calculate 

the market value of the positions in a 

customer’s account on a real-time basis. 

However, the Commission does not 

believe it would be impracticable for an 

FCM to account for payments received 

or disbursements made since the close 

of business on the previous business 

day. Indeed, regulation § 1.22(c)(3)(ii) 

provides that an FCM may reduce the 

amount of residual interest required to 

be maintained under regulation 

§ 1.22(c)(3)(i) to account for payments 

received from or on behalf of 

undermargined futures customers (less 

the sum of any disbursements made to 

or on behalf of such customers) between 

the close of business on the previous 

business day and the Residual Interest 

Deadline.158 Regulations 

§§ 22.2(f)(6)(iii)(B) and 30.7(f)(ii)(C)(2) 

permit this practice as to the accounts 

of Cleared Swaps Customers and 30.7 

customers, respectively.159

Similarly, in calculating margin 

adequacy under regulation § 1.44(b), an 

FCM should consider payments 

received from or on behalf of customers, 

including the separate accounts of 

separate account customers, less the 

sum of any disbursements made to or on 

behalf of such customers, between the 

close of business on the previous 

business day and the time at which the 

FCM considers a disbursement to a 

customer. In calculating the current 

balance in a customer’s account, an 

FCM may use either the currency 

exchange rates at the close of business 

on the previous day, or at some later 

time. The FCM should be consistent in 

both the sources of exchange rates that 

it uses and in choosing the time as of 

which it will reference such exchange 

rates in calculating the current balance 

in the customer’s account. Moreover, in 

doing so, the FCM must act consistently 

with regulation § 1.49(e).160

Additionally, as discussed below, the 

Commission notes that the final rule is 

not intended to preclude FCMs from, 

consistent with JAC guidance, 

considering as received for purposes of 

regulation § 1.44(b)’s Margin Adequacy 

Requirement pending receipts 

denominated in non-USD (and nonCAD, in light of regulation § 1.44(f)(1)– 

(3)’s provisions for the timing of margin 

payments to meet a one business day 

margin call standard) currencies.161 The 

Commission expects that an FCM will, 

consistent with JAC guidance, also treat 

pending non-USD (and non-CAD) 

disbursements in the same manner (i.e., 

as disbursed). 

Third, the JAC noted that although the 

Margin Adequacy Requirement in 

proposed regulation § 1.44(b) discusses 

determination of funds available for 

withdrawal from customer accounts, the 

Commission in the Second Proposal 

proposed only to establish a 

requirement to collect margin from 

separate account customers (in 

proposed regulation § 1.44(f)(1)) and did 

not propose a broader requirement for 

FCMs to collect margin, analogous to 

the collection requirement in regulation 

§ 39.13(g)(8)(ii), and applicable to all 

accounts carried by clearing and nonclearing FCMs.162 The JAC further noted 

that, in the absence of such a 

requirement, the requirements 

applicable to margin collection are 

limited to requirements under exchange 

rules whereas requirements applicable 

to disbursements to customers will be 

defined by Commission regulations 

(unless the exchange or clearing 

organization imposes a more stringent 

requirement).163

As discussed above, commenters to 

the First Proposal, including the JAC, 

asked that the Commission codify 

requirements for the treatment of 

separate accounts in its regulations that 

would apply to all FCMs. In the Second 

Proposal, the Commission proposed to 

do just that. The Commission discussed 

in the Second Proposal its intent to 

promulgate a narrow codification, 

applied directly to FCMs, of the 

requirements for margin disbursement 

set forth in regulation § 39.13(g)(8)(iii), 

subject to requirements based on the 

conditional no-action position in CFTC 

Letter No. 19–17, including 

requirements for separate account 

treatment that closely mirror the 

conditions in the no-action position.164

The no-action position in CFTC Letter 

No. 19–17 and the First Proposal 

concerned requirements for separate 

account treatment for purposes of 

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

disbursements of margin, and did not 

discuss requirements for collection of 

margin outside of the separate account 

context. Accordingly, the Commission 

considers the imposition of a 

requirement for collection of margin 

analogous to regulation § 39.13(g)(8)(ii) 

to be out of scope for purposes of this 

rulemaking, although the Commission 

may consider further amendments to its 

regulations in the future to incorporate 

a separate margin collection 

requirement. As the JAC’s comment 

notes, margin collection requirements 

are currently set by exchanges (as well 

as DCOs with respect to cleared 

transactions). 

The JAC also recommended that the 

Commission revise the Margin 

Adequacy Requirement in proposed 

regulation § 1.44(b) (and/or the 

definition of ‘‘account’’ proposed in 

proposed regulation § 1.44(a)) to 

‘‘include accounts of noncustomers who 

pose risk to the FCM if such 

noncustomers are permitted to 

withdraw margin funds that would 

create or exacerbate an undermargined 

situation, or not be required to deposit 

and maintain sufficient margin to cover 

the risk of their positions.’’ 165

The Commission appreciates the 

JAC’s recommendation to consider 

revising the Margin Adequacy 

Requirement to apply to the accounts of 

noncustomers, which the Commission 

generally understands to encompass 

accounts of certain affiliates and 

affiliated individuals of an FCM. The 

Commission notes that the Margin 

Adequacy Requirement of regulation 

§ 39.13(g)(8)(iii) does not apply with 

respect to withdrawals by 

noncustomers, and neither CFTC Letter 

No. 19–17 nor the Commission’s 

proposals to codify the no-action 

position in that letter contemplated the 

application of a Margin Adequacy 

Requirement, or requirements for 

separate account treatment, with respect 

to noncustomers. The Commission 

considers application of the Margin 

Adequacy Requirement in proposed 

regulation § 1.44(b) to noncustomers to 


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166There are currently requirements relating to 

risk assessment recordkeeping for FCMs with 

respect to affiliated persons in regulations §§ 1.14 

and 1.15. 

167Specifically, as adopted, regulation § 1.44(b)(2) 

provides, ‘‘For purposes of [regulation § 1.44(b)(1)] 

. . . where the previous day (excluding Saturdays 

and Sundays) is a holiday . . . where any 

designated contract market or other board of trade 

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 . . . 

be calculated as of the close of business on such 

holiday.’’ 

168As noted above, proposed regulation § 1.44(b) 

is intended to serve as an analog to regulation 

§ 39.13(g)(8)(iii) for FCMs. 

169See CEA §§ 3(b), 8a(5); see also, CEA section 

4d(a)(2), 7 U.S.C. 6d(a)(2); CEA section 4d(f)(2), 7 

U.S.C. 6d(f)(2); CEA section 4b(2)(A), 7 U.S.C. 

6b(2)(A); CEA section 4f(b), 7 U.S.C. 6f(b). 

170 ICE Comment Letter. 171See 17 CFR 1.12(n)(3). 

be outside the scope of this rulemaking, 

but will consider whether to provide 

additional risk management 

requirements applicable to 

noncustomers in the future.166

Lastly, as the Commission discusses 

above in connection with amendments 

to regulation § 1.17, the Commission 

received a number of comments 

requesting that the Commission confirm 

whether FCMs may consider as received 

pending non-USD transfers for purposes 

of certain regulations, consistent with 

JAC guidance and current industry 

practice. Although the Commission did 

not receive any such comments 

specifically with respect to proposed 

regulation § 1.44(b), for the avoidance of 

doubt, the Commission confirms that 

the final rule is not intended to preclude 

FCMs from considering as received 

pending non-USD transfers, consistent 

with JAC guidance, when considering a 

disbursement under regulation § 1.44(b). 

However, in light of regulation 

§ 1.44(f)(1)–(3), under which payment of 

margin in Canadian dollars (CAD) is 

required to be settled pursuant to the 

timing requirements for payment of 

margin in USD for purposes of meeting 

a one business day margin call standard, 

the Commission expects that, when 

considering pending non-USD transfers 

for purposes of regulation § 1.44(b)’s 

Margin Adequacy Requirement, FCMs 

will treat pending CAD transfers on the 

same basis as pending USD transfers 

(i.e., they will not be treated as received 

or as disbursed). Additionally, a nonUSD transfer that ultimately is not 

received on a one business day basis, as 

set forth in regulation § 1.44(f), would 

be considered a failed deposit and could 

no longer be considered pending, even 

if this was due to administrative error or 

operational constraint. Thereafter, that 

transfer would only be considered as 

received upon actual receipt. 

Having considered comments 

received in response to proposed 

regulation § 1.44(b), the Commission is 

adopting regulation § 1.44(b) as 

proposed, subject to modifications to 

regulation § 1.44(b)(2), discussed above 

in connection with regulation § 1.44(a), 

to address foreign exchanges related to 

regulation § 30.7 accounts.167

F. Regulation § 1.44(c) 

The Commission proposed regulation 

§ 1.44(c) to establish the fundamental 

requirements for separate account 

treatment. As a general matter, these 

requirements 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 requirement that a 

DCO specifically authorize such 

treatment. As proposed, regulation 

§ 1.44(c) provides that an FCM may, 

only during the ordinary course of 

business, as that term is defined in 

regulation § 1.44, treat the separate 

accounts of a separate account customer 

as accounts of separate entities for 

purposes of regulation § 1.44(b),168 if 

such FCM elects to do so as specified in 

regulation § 1.44(d). Regulation § 1.44(c) 

further provides that an FCM that has 

made such an election shall comply 

with the risk-mitigating requirements 

set forth in proposed regulation § 1.44 

and maintain written internal controls 

and procedures designed to ensure such 

compliance. 

The Commission believes that 

permitting FCMs to treat the separate 

accounts of separate account customers 

as accounts of separate entities for 

purposes of regulation § 1.44(b), subject 

to the risk-mitigating requirements set 

forth in regulation § 1.44, accomplishes 

the CEA’s purposes of promoting 

responsible innovation as well as 

effective customer fund protection and 

risk mitigation.169 Compliance with 

those requirements can best be achieved 

if the FCM maintains written internal 

controls and procedures designed to 

ensure such compliance. 

In its comment letter, ICE stated that 

it does not object to the specific 

requirements that would be imposed 

under proposed regulation § 1.44(c) 

where an FCM elects separate account 

treatment with respect to a customer.170

The Commission did not receive any 

other comments specific to proposed 

regulation § 1.44(c). Accordingly, the 

Commission is adopting regulation 

§ 1.44(c) as proposed. 

G. Regulation § 1.44(d) 

The Commission proposed regulation 

§ 1.44(d) to provide 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). As 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 regulation § 1.44(b), the 

FCM shall include the customer on a list 

of separate account customers 

maintained in its books and records, 

and that such list shall include both the 

identity of each separate account 

customer and the identity of each 

separate account of such customer. The 

FCM would also be required to keep this 

list current. Furthermore, as proposed, 

regulation § 1.44(d)(2) provides that, 

when an FCM first chooses to include 

a customer on a list of separate account 

customers, the FCM is required to 

provide, within one business day, 

notification of the election to allow 

separate account treatment for 

customers in accordance with the 

process specified in regulation 

§ 1.12(n)(3).171 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 any 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. The Commission 

believes that regulation § 1.44(d) is 

reasonably necessary to protect 

customer funds and mitigate systemic 

risk because it is designed to enable 

DSROs to effectively monitor and 

regulate FCMs that engage in separate 

account treatment, and to provide that 

FCMs will have the records necessary to 

understand which accounts receive 

separate account treatment for purposes 

of monitoring compliance with the 

proposed regulation. 

In its comment letter, the JAC stated 

that a complete and accurate listing of 

separate accounts is critical to ensure 

that the Commission’s risk mitigating 

requirements can be effectively carried 

out by an FCM, monitored by selfregulatory organizations (SROs) and the 

Commission for compliance with such 

requirements, and monitored by DCOs 

for customer gross margin reporting 

under proposed regulation 

§ 39.13(g)(8)(i), and to assist DCOs and/ 

or bankruptcy trustees in porting 

accounts in the event of an FCM’s 


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172 JAC Comment Letter. 

173 Id. 

174 Id. 

175 Id. 

176 ICE Comment Letter. 

177See, e.g., ICE Clear Credit Rule 406(f) (‘‘Each 

Participant shall provide such reports to ICE Clear 

Credit with respect to Non-Participant Parties and 

their related Client Related Positions and NonParticipant Collateral . . . upon request of ICE Clear 

Credit and upon such other basis, if any, as is 

provided in the ICE Clear Credit Procedures.’’). 178FIA Comment Letter. 

insolvency.172 The JAC asserted that, 

currently, when such listing has been 

requested, certain FCMs offering 

separate account treatment under the 

no-action position of CFTC Letter No. 

19–17 include all of the FCM’s accounts 

or potential accounts on such listing 

rather than only those accounts 

‘‘currently subject to separate account 

treatment (i.e., beneficial owners that 

maintain more than one account at the 

FCM which are being treated 

separately).’’ 173 The JAC recommended 

that the Commission require only 

accounts currently receiving separate 

account treatment to be included on 

such listing to ensure proper focus and 

attention to the additional risks posed 

by separate account treatment, effective 

monitoring of reporting of separate 

accounts, and proper and efficient 

porting of separate accounts.174 The JAC 

also recommended that the Commission 

require separate accounts to be clearly 

identified as such in the FCM’s books 

and records, including on the separate 

account customer’s statements to assist 

in ensuring a current, accurate, and 

complete listing of accounts receiving 

separate treatment.175

The Commission notes that the 

recordkeeping requirement in regulation 

§ 1.44(d)(1), described above, is 

substantially similar to the 

corresponding condition in CFTC Letter 

No. 19–17 that an FCM maintain a list 

of all separate accounts receiving 

separate account treatment, indicating 

the beneficial owner and account 

numbers of such accounts. For the 

avoidance of doubt, the Commission 

also believes that the recordkeeping 

requirement in regulation § 1.44(d)(1) as 

proposed is consistent with the JAC’s 

comment. It requires an FCM that elects 

to treat separate accounts of a customer 

as accounts of separate entities for 

purposes of regulation § 1.44(b) to: (i) 

include the customer on a list of 

separate account customers maintained 

in its books and records; (ii) include on 

the list the identity of each separate 

account customer; (iii) include on the 

list the identity of each separate account 

of such customer; and (iv) keep the list 

current. 

The definition of ‘‘separate account 

customer’’ in regulation § 1.44(a) is ‘‘a 

customer for which the [FCM] has made 

the election set forth in [regulation 

§ 1.44(d)].’’ The FCM would thus be 

required to subject the customers on 

that list, as separate account customers, 

to the requirements of regulation § 1.44 

for separate account treatment, 

including regulation § 1.44’s one 

business day margin call standard. 

In its comment letter, ICE opined that 

it would be appropriate for the 

Commission under proposed regulation 

§ 1.44(d) to require an FCM to provide 

notice to DCOs of which it is a clearing 

member of accounts that are subject to 

separate account treatment, so that the 

DCO can comply with its obligations 

with respect to the margining of such 

accounts under regulation § 39.13(g).176

The Commission designed the Second 

Proposal to codify the terms of the noaction position in CFTC Letter No. 19– 

17 in a manner directly applicable to 

FCMs and not through the 

instrumentation of DCO rules. The 

Commission notes that under the 

conditions of CFTC Letter No. 19–17, an 

FCM shall, on a one-time basis, provide 

notification to its DSRO if it will apply 

separate account treatment a provided 

for in the no-action position to any 

separate accounts. No such notification 

to a DCO was a condition of the noaction position and, because the 

Commission is modifying part 1 to 

apply a Margin Adequacy Requirement 

and requirements for separate account 

treatment directly to FCMs, the 

Commission views a requirement, 

imposed by the Commission, for an 

FCM to provide to a DCO of which it is 

a clearing member the one-time 

notification of commencement of 

separate account treatment as outside 

the scope of this rulemaking. The 

Commission further notes that a DCO 

has the discretion to put in place 

additional rules regarding information 

its clearing members must provide, and 

could choose to independently 

promulgate a requirement under DCO 

rules to provide notification to such 

DCO the first time an FCM begins 

separate account treatment for a 

customer.177 Regulation 

§ 39.13(g)(8)(iii), as amended by this 

final rulemaking, requires a DCO to 

have rules requiring that its clearing 

members do not withdraw funds from 

their accounts in a manner that would 

lead to or exacerbate an undermargining 

scenario, except as provided for in 

regulation § 1.44, and DCOs have 

discretion in how they choose to 

monitor for and enforce that 

requirement. 

FIA requested that the Commission 

clarify that any clearing FCM that has 

already provided the notice required by 

proposed regulation § 1.44(d)(2) to its 

DSRO in compliance with the 

conditions of CFTC Letter No. 19–17 

shall be deemed to have complied with 

the requirement of proposed regulation 

§ 1.44(d)(2) that an FCM provide 

notification to its DSRO of the first time 

the FCM includes a customer on its list 

of separate account customers.178

As discussed above, in addition to 

requiring an FCM to maintain a list of 

all separate accounts (indicating the 

beneficial owner and account numbers) 

receiving separate account treatment, 

CFTC Letter No. 19–17 requires as a 

condition to separate account treatment 

that an FCM shall, on a one-time basis, 

provide notification to its DSRO if it 

will apply separate account treatment to 

any separate accounts. As proposed, 

regulation § 1.44(d)(2) adds to this 

requirement that such notification shall 

be provided in accordance with the 

following conditions: (i) the first time 

that the FCM includes a customer on the 

list of separate account customers; (ii) 

within one business day; (iii) to the 

Commission (in addition to the DSRO); 

and (iv) in accordance with the process 

specified in regulation § 1.12(n)(3). With 

respect to the one-time notification that 

the FCM is required to provide to its 

DSRO, the Commission recognizes that 

the requirements of regulation 

§ 1.44(d)(2) are, in the main, 

substantially the same as those in the 

corresponding condition of CFTC Letter 

No. 19–17. Notwithstanding the timing 

and manner requirements of regulation 

§ 1.44(d)(2) as proposed, recognizing 

that FCMs have successfully applied 

separate account treatment under the 

conditions of CFTC Letter No. 19–17 for 

over five years, the Commission 

confirms that a clearing FCM that has 

already provided to its DSRO the onetime notification of commencement of 

separate account treatment pursuant to 

the no-action conditions of CFTC Letter 

No. 19–17 shall be deemed to have 

complied with the analogous 

requirement of regulation § 1.44(d)(2). 

Having considered comments 

received with respect to proposed 

regulation § 1.44(d), the Commission is 

adopting regulation § 1.44(d) as 

proposed. 

H. Regulation § 1.44(e) 

As proposed, regulation § 1.44(e) 

enumerates events that would be 

inconsistent with the ordinary course of 

business, as that term is defined in 

regulation § 1.44(a), and sets forth 


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179For example, while the bankruptcy of an FCM 

or a separate account customer would have direct 

effects, the bankruptcy of an FCM’s 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. 

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

requirement. 

181E.g., the SEC or a foreign regulator. 

182 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. 

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.179 As discussed above with 

respect to regulation § 1.44(a), the list of 

events in regulation § 1.44(e) will be the 

exclusive set of events that are 

inconsistent with the ordinary course of 

business for purposes of regulation 

§ 1.44. 

These events are divided into two 

categories: (i) events that concern the 

separate accounts of a particular 

separate account customer, 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) events 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. 

Significantly, while a separate 

account customer is outside the 

ordinary course of business as defined 

in regulation § 1.44(a), only the privilege 

of permitting disbursements on a 

separate account basis, pursuant to 

regulation § 1.44(c), 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 of regulation § 1.44, 

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) 

regarding 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, 

including with respect to the relevant 

provisions described above, with 

respect to its separate account 

customers and their separate accounts. 

Thus, for the avoidance of doubt, a 

separate account customer that is 

outside the ordinary course of business 

is still a separate account customer. 

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).180

• (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, an SRO as 

defined in regulation § 1.3 or section 

3(a)(26) of the Securities Exchange Act 

of 1934, the Commission, or another 

regulator 181 with jurisdiction over the 

separate account customer, has initiated 

an action 182 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 

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. 

As 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 terminating (or suspending) 

disbursements on a separate account 

basis 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 is 

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 nonordinary course of business events, so 

that they may actively communicate 

with and monitor an FCM with respect 

to the resolution of such events (e.g., 

where an FCM attempts to establish that 

its customer has reentered ordinary 

course of business conditions). 

Regulation § 1.44(e)(4), as proposed, 

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 

disbursements on a separate account 

basis for itself or its customers, as may 

be the case. 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 


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183CME Letter. 

184 Id. 

185Comments with respect to the Commission’s 

proposed definition of ‘‘ordinary course of 

business,’’ set forth in regulation § 1.44(a), are 

addressed above in connection with that section. 

186As a matter of internal consistency and clarity, 

because proposed regulation § 1.44(e)(4) concerns 

the resumption of disbursements on a separate 

account basis following a cessation of such 

treatment due to non-ordinary course of business 

conditions, the Commission is making a change in 

final regulation § 1.44(e)(4), to substitute 

‘‘disbursements on a separate account basis’’ for 

‘‘separate account treatment,’’ in providing, ‘‘If the 

circumstances triggering cessation of disbursements 

on a separate account basis 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.’’ 

187An 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 

conclusion. However, regulation 

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

circumstances triggering cessation of 

such 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 

disbursements on a separate account 

basis 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.183 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.184

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 disbursements would be 

appropriate. By explicitly providing 

FCMs with an avenue to resume 

disbursements on a separate account 

basis consistent with the resumption of 

the ordinary course of business, the 

Commission seeks to ensure that a 

temporary departure from the ordinary 

course of business, once remedied, does 

not continue to preclude an FCM from 

applying (and a customer from having 

applied to its accounts) separate account 

treatment, and 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. 

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 disbursements on a separate 

account basis with respect to the Margin 

Adequacy Requirement is reasonably 

necessary to protect customer funds and 

mitigate systemic risk, and to effectuate 

section 4d of the CEA. 

The JAC, noting the passage of time 

since the Divisions issued CFTC Letter 

No. 19–17, requested that the 

Commission provide examples of nonenumerated events that would 

constitute operating outside the 

ordinary course of business, so that 

FCMs and their customers can better 

understand the circumstances in which 

disbursements on a separate account 

basis are not permitted. 

In the Second Proposal, the 

Commission proposed to define the 

‘‘ordinary course of business’’ as the 

‘‘standard day-to-day operation of the 

futures commission merchant’s business 

relationship with its separate account 

customer,’’ based on the similar 

definition in CFTC Letter No. 19–17 

(‘‘standard day to day operation of the 

FCM’s business relationship with its 

customer’’). Although in both CFTC 

Letter No. 19–17 and proposed 

regulation § 1.44(e) the Commission set 

forth events that it would consider 

inconsistent with the ordinary course of 

business, the Commission acknowledges 

that the Second Proposal’s proposed 

definition of ‘‘ordinary course of 

business’’ in conjunction with the list of 

events inconsistent with the ordinary 

course of business in proposed 

regulation § 1.44(e) may have resulted in 

confusion regarding the scope of events 

that the Commission will consider 

inconsistent with the ordinary course of 

business for purposes of regulation 

§ 1.44(a). 

As discussed above in connection 

with SIFMA–AMG’s comment related to 

the definition of ‘‘ordinary course of 

business’’ in regulation § 1.44(a), the 

Commission is modifying the proposed 

definition of ‘‘ordinary course of 

business’’ in regulation § 1.44(a) to make 

clear that regulation § 1.44(e) contains 

the complete list of events that, for 

purposes of regulation § 1.44, would 

cause a separate account customer or an 

FCM providing separate account 

treatment to fall outside the ordinary 

course of business, such that the FCM 

would need to cease providing 

disbursements on a separate account 

basis for one or more customers. 

Therefore, only the events specifically 

enumerated in regulation § 1.44(e) 

would place a separate account 

customer or an FCM providing separate 

account treatment outside the ordinary 

course of business, as defined in 

regulation § 1.44(a). 

ICE, in its comment letter, stated that 

it did not object to the list of events that 

would be inconsistent with the ordinary 

course of business in proposed 

regulation § 1.44(e). 

The Commission did not receive any 

other comments directly related to 

proposed regulation § 1.44(e).185

Accordingly, the Commission is 

adopting regulation § 1.44(e) as 

proposed.186

I. Regulation § 1.44(f) 

The Commission proposed regulation 

§ 1.44(f) to require 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 same-day basis due to the 

mechanics of international payment 

systems (e.g., time zones and schedules 

of correspondent banks). In 

promulgating requirements to define 

timely payment of margin for purposes 

of the standard set forth in proposed 

regulation § 1.44(f), the Commission 

seeks to establish requirements that 

reflect industry best practices among 

FCMs and customers.187 The 


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Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7903 

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/ 

PublicComments/ViewComment.aspx?id=59283

&SearchText=FIA. 

188The 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. 

189The 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. 

190See, e.g., JAC, Regulatory Alert, #18–02, at 2, 

June 6, 2018 (discussing undermargined accounts), 

regulation § 1.44(g)(5). 

191 JAC Comment Letter. The JAC stated that, 

currently, FCMs calculate a margin call using the 

following formula: Initial Margin Requirement— 

Margin Equity—Outstanding Margins Calls = [a 

positive balance represents the amount of margin 

call to be issued]. Id. 

Commission believes that regulation 

§ 1.44(f) is reasonably necessary to 

protect customer funds and mitigate 

systemic risk, and to effectuate CEA 

section 4d, because it is designed to 

limit the time in which accounts 

receiving separate treatment may be 

undermargined, and to do so in a 

manner that takes into consideration the 

way in which that period may be 

affected by factors such as time zones, 

international banking conventions, and 

(to an appropriate extent) holidays. 

Specifically, the Commission 

understands that, although 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 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. 

In connection with proposed 

regulation § 1.44(f), the Commission 

requested comment (as Question 6) 

regarding whether, in light of changes 

made in the 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, as well as: (i) if not, 

what alternative approach should be 

taken; and (ii) how such an alternative 

approach would better balance 

practicability and burden with risk 

management. As part of this request, the 

Commission requested comment on 

whether the standard of timeliness for a 

one business day margin call set forth in 

proposed regulation § 1.44(f) presented 

practicability challenges and, if so, what 

those challenges would be, and how the 

proposed standard of timeliness could 

be improved. The Commission 

considers the comments received in 

response to the margin payment timing 

requirements set forth in proposed 

regulation § 1.44(f)(1)–(3), and other 

provisions of proposed regulation 

§ 1.44(f) that modify those requirements 

in certain circumstances, to be generally 

responsive to this question. The 

Commission discusses these comments 

below. 

As proposed, regulation § 1.44(f)(1) 

provides that, except as explicitly 

provided in 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), then 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.188

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.189

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, the Commission 

proposed regulation § 1.44(f)(2) to 

provide that payment of margin in 

certain currencies listed in proposed 

Appendix A to part 1 shall be 

considered in compliance with the 

requirements of 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. 

The Commission also proposed 

regulation § 1.44(f)(3), which provides 

that payment of margin in fiat 

currencies other than USD, CAD, or the 

currencies listed in proposed Appendix 

A to part 1 shall be considered in 

compliance with the requirements of 

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 Commission’s view, a ‘‘one 

business day margin call’’ should be 

defined beyond the term itself, in light 

of the effect of time zones and 

international banking conventions that 

may cause a customer to be unable to 

meet a call for margin in certain 

currencies on the day the margin call is 

issued. Although 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. The Commission 

also notes that, 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 

would be calculated on a separate 

account basis, as discussed herein.190

The Commission received several 

comments with respect to the margin 

payment timing framework for separate 

accounts set forth in proposed 

regulation § 1.44(f)(1)–(3). 

As discussed above in connection 

with regulation § 1.44(a), the JAC 

contended that the Commission’s 

proposed definition of the term 

‘‘undermargined amount’’ would be 

inconsistent with existing industry 

practice and the guidance for 

calculating a margin call in the JAC 

Margins Handbook. As with respect to 

other provisions of proposed regulation 

§ 1.44 that use or otherwise rely on the 

term ‘‘undermargined amount,’’ the JAC 

contended that the margin call required 

under proposed regulation § 1.44(f)(1) 

would be similarly inconsistent with 

industry practice and JAC guidance.191

In doing so, the JAC reiterated its 

comment that the Second Proposal’s 

definition of ‘‘undermargined amount’’ 

would require FCMs to compute margin 

calls for separate accounts as required 

under proposed regulation § 1.44(f)(1) 

whereas FCMs would be required to 


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192 Id. 

193SIFMA–AMG Comment Letter. 

194 Id. 

195 Id. 

196 Id. 

197 Id. 

198 Id. 

199 Id. 

200 ICE Comment Letter. 

201For the avoidance of doubt, an FCM may also, 

in its discretion, issue a call for margin based on 

same-day market movements or changes in 

positions. The FCM could, consistent with 

regulation § 1.44(f)(1), make that call due either 

same-day or next-day. For example, under 

regulation § 1.44(f)(1), the FCM would be required 

to make and collect, on Tuesday, a call for margin 

based on market movements and changes of 

positions on Monday. If the FCM determines to 

issue an additional margin call on Tuesday based 

on market movements (or changes in positions, or 

volatility, or other factors) on Tuesday, § 1.44(f)(1) 

would require that that call be collected no later 

than close of Fedwire on Wednesday. However, the 

FCM could, in its discretion (in what would likely 

be an unusual case) make that supplemental call 

also due on Tuesday (or some earlier point in time 

on Wednesday). If that additional margin call does 

not cover the margin required for all of Tuesday’s 

market movements and changes in positions, then 

the FCM would be required to issue (and collect) 

a margin call for the difference on Wednesday. 

compute margin calls differently for 

non-separate account customers.192

As discussed above in connection 

with regulation § 1.44(a), the 

Commission is modifying the definition 

of ‘‘undermargined amount’’ to remove 

the language that the Commission 

believes created the identified 

inconsistency and confirm that the 

Commission considers either of the Net 

Liquidating Value or Total Equity 

methods set forth in the JAC Margins 

Handbook to be consistent with the 

definition of ‘‘undermargined amount’’ 

that the Commission is adopting. 

SIFMA–AMG urged the Commission 

to rescind the one business day margin 

call standard set forth in proposed 

regulation § 1.44(f)(1)–(3).193 SIFMA– 

AMG contended that the Second 

Proposal does not adequately appreciate 

the differences in operational workflows 

and risk management processes 

currently in place and how they may 

differ depending on markets, products, 

clients, custodians, and fund 

structures.194 Specifically, SIFMA–AMG 

disagreed with the Commission’s 

proposal to require same-day margin 

calls to be met regardless of the time the 

FCM issues them.195 SIFMA–AMG 

noted that, for example, a 3:00 p.m. 

margin call would be required to be met 

on a same-day basis under proposed 

regulation § 1.44(f)(1), which would not 

happen in the normal course of 

business.196 According to SIFMA–AMG, 

depending on how late in the day an 

FCM issued the margin call, managers 

may not be capable of meeting the call 

on a same-day basis, due in part to the 

time needed for managers, as 

fiduciaries, to validate the margin calls 

and instruct payments from the separate 

account clients’ custodians globally, 

who may impose earlier cutoff times to 

meet same-day margin transfers or be 

subject to different time zones and 

business days.197 Instead, SIFMA–AMG 

argued, the Commission’s timing 

requirements for meeting margin calls 

should take into account the agreed call 

time in documents between FCMs and 

customers.198 In SIFMA–AMG’s view, 

the Commission’s proposal represents a 

prescriptive framework around timing 

and deadlines for meeting margin calls 

that would eliminate the operational 

flexibility originally provided in CFTC 

Letter No. 19–17, and a one business 

day margin call should be deemed met 

so long as it is issued by the cutoff time 

agreed between the FCM and its 

customer.199

ICE, in its comment letter, noted it did 

not object to the proposed one business 

day margin call standard as it would 

apply to FCMs.200

The Commission proposed regulation 

§ 1.44(f), particularly the margin 

payment timing framework set forth in 

regulation § 1.44(f)(1)–(3), to more 

clearly define the concept of a ‘‘one 

business day margin call,’’ as that term 

is used in CFTC Letter No. 19–17. CFTC 

Letter No. 19–17 provided, among other 

conditions for separate account 

treatment, that: (i) each separate account 

must be on a one business day margin 

call; (ii) situations of administrative 

error or operational constraints which 

prevent the call from being met within 

a one-day period will not be considered 

a violation of such condition; and (iii) 

in no case can customers and FCMs 

contractually arrange for longer than a 

one business day period for a margin 

call to be met. The Commission notes 

that the no-action conditions of CFTC 

Letter No. 19–17 would thus appear to 

unambiguously provide that a margin 

call in a separate account must be met 

within one business day, but do not 

explicitly address certain practical 

challenges in applying such a standard, 

such as how an FCM shall make, and a 

customer shall meet, a call for margin 

paid in a currency that an FCM may be 

unable to practicably receive on the 

same (or in some cases next) business 

day. Although SIFMA–AMG appears to 

interpret this silence as promoting 

operational flexibility, the Commission 

believes it may confuse FCMs as to their 

obligations with respect to the 

margining of separate accounts, and 

may result in interpretations that are 

inconsistent with the Commission’s 

customer funds protection and risk 

management goals in providing for the 

separate treatment of accounts. 

Furthermore, although regulation 

§ 1.44(f)(1)–(3) require a margin call to 

be met on a one business day basis, as 

set forth in regulation § 1.44(f)(1)–(3), 

regardless of the time the call is issued, 

the Commission did not prescribe a time 

by which a margin call must be issued, 

recognizing that there may be legitimate 

operational reasons as to why an FCM 

may need to issue margin calls to 

different separate account customers at 

different times. The margin call 

contemplated by regulation § 1.44(f)(1)– 

(3) is based on market movements or 

changes in positions on the previous 

business day, not as of the day of the 

call itself.201 The Commission proposed 

this standard to provide a clear cutoff 

time for the determination of a margin 

call, and to allow a margin call to be 

reasonably made and met on a one-day 

basis, based on the Commission’s 

understanding that margin calls to 

address market movements or changes 

in positions on a given day are typically 

issued early on the next business day. 

For the avoidance of doubt, FCMs and 

customers may agree on the time the 

margin call required by regulations 

§ 1.44(f) should be made. If the call is 

not made timely due to administrative 

error or operational constraint as set 

forth in regulation § 1.44(f)(5), discussed 

below, then such failure would not be 

deemed a violation of regulation § 1.44’s 

one business day margin call standard. 

However, to require, as SIFMA–AMG 

suggests, only that a margin call be met 

if issued by the cutoff time agreed 

between the FCM and its customer, 

would be to effectively allow FCMs and 

customers to interpret the one business 

day period on a customer-by-customer 

basis. This would be contrary to the 

Commission’s goal of providing clear 

standards around the timely payment of 

margin to prevent separate accounts 

from becoming undermargined, which 

is at the core of the Commission’s riskmitigation goals. 

Accordingly, the Commission is 

adopting regulation § 1.44(f)(1)–(3) as 

proposed. 

The occurrence of a foreign holiday 

during which banks are closed may also 

create difficulties in the payment of 

margin in a fiat currency other than 

USD. Therefore, the Commission 

proposed regulation § 1.44(f)(4), which, 

as proposed, states 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 


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202With respect to margin payments in EUR, 

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

prevent customers or asset managers from 

leveraging banking holidays in a multiplicity of 

jurisdictions, to circumvent requirements to pay 

margin timely. 

203This 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/dcrdsiodirector

statement091319 (‘‘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). 

204FIA Comment Letter. 

205 Id. 

206 Id. 

207 Id. 

208 Id. 

209 Id. 

210 Id. 

211 Id. 

212 Id. 

proposed regulation § 1.44(f) if payment 

is delayed due to a banking holiday in 

the jurisdiction of issue of the currency. 

In effect, as proposed, regulation 

§ 1.44(f)(4) provides one additional 

business day for each nonconsecutive 

holiday in the jurisdiction of issue of 

the currency in which margin is to be 

paid. As proposed, regulation 

§ 1.44(f)(4) also provides that, for 

payments of margin in EUR specifically, 

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, the 

banking holidays of which shall be 

referred to for such purpose.202

The Commission designed regulation 

§ 1.44(f)(4) 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. Regulation 

§ 1.44(f)(4) would not, however, require 

an FCM to extend the deadline for 

payments of margin. In this manner, the 

Commission sought 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 asset 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 expected that 

FCM risk management decisions, 

including the use of any extension 

permitted under 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.203

In the Second Proposal, with respect 

to proposed regulation § 1.44(f)(4), the 

Commission requested comment (as 

Question 7) regarding 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, 

including examples of operational or 

other challenges that would result in 

such impracticability. To the extent 

commenters have such practicability 

concerns, the Commission requested 

comment regarding how, in the 

alternative, the Commission should seek 

to achieve its goal 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. The Commission considers 

the comments received in response to 

proposed regulation § 1.44(f)(4) to be 

responsive to this question. 

With respect to proposed regulation 

§ 1.44(f)’s provisions regarding payment 

of margin in connection with Eurozone 

holidays, FIA stated it does not believe 

motives of leveraging banking holidays 

in a multiplicity of jurisdictions to 

circumvent margin payment timing 

requirements are practicable or can be 

fairly ascribed to the institutional asset 

owners and money managers whom, 

according to FIA, comprise the 

predominant part of the group of 

customers who rely on separate account 

margining.204 FIA contended that 

proposed regulation § 1.44(f)(4) would 

be unworkable, asserting that all 

investment managers and many separate 

account customers maintain custodial 

arrangements in multiple Eurozone 

jurisdictions and will be affected by 

local public holidays, which vary 

widely across the Eurozone.205

FIA noted, for example, that where a 

European state pension fund contracts 

with two unaffiliated institutional 

money managers based in France (i.e., 

two separate accounts of the same 

customer), and custodies funds for one 

mandate with a bank in France and for 

the other with a bank in Germany, and 

both managers designate France as their 

jurisdiction of most significant contacts, 

an asset manager whose custodian is in 

Germany will have no way of settling a 

EUR call received from an FCM on 

October 3, which is German Unity Day, 

a national holiday; and, under 

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

FCM is prohibited from extending the 

benefit of a one business day extension 

to the separate account.206 FIA noted 

that asset owners typically hardwire 

separate investment mandates to 

separate custodial arrangements, and do 

not expect to be involved in settling 

margin calls arising in connection with 

those separate mandates.207 Therefore, 

FIA argued, in this example, the German 

custodian would not be able to pass the 

margin call to the French custodian or 

directly onto the pension fund.208

Furthermore, FIA asserted, FCMs 

would incur operational risk in having 

to track the Eurozone holiday 

preferences of hundreds or thousands of 

separate accounts, and FCMs will need 

to deploy new margin day counting 

systems and protocols, including new 

coding for automated systems.209 FIA 

further contended that, where such 

systems are automated, the workflows 

imposed under the proposed regulation 

would likely result in the need for more 

manual handling, which increases the 

risk of operational error.210 FIA 

recommended that the Commission 

revise proposed regulation § 1.44(f)(4) to 

specify that, with respect to payments in 

EUR, the banking holidays of any 

jurisdiction within the Eurozone with 

which either the separate account 

customer or the investment manager 

managing the separate account has 

significant contacts shall be referred to 

for purposes of receiving the benefit of 

a one business day extension of an EURdenominated margin call in 

consideration of non-U.S. local banking 

holidays.211

Additionally, with respect to 

proposed regulation § 1.44(f)(4)’s 

provision for one additional business 

day to meet a margin call in non-USD 

fiat currency to account for non-U.S. 

banking holidays, FIA noted that a 

growing number of FCM institutional 

clients, managers, and custodians are 

based in jurisdictions where there may 

be consecutive holidays.212 In FIA’s 

view, limiting the extension available to 

such clients to a single business day 

forces the FCM to choose between 

suspending disbursements on a separate 

account basis simply due to holidays in 

the client’s jurisdiction and exercising 

its discretion not to suspend 

disbursements on a separate account 

basis in the absence of any other reason 

to do so, thereby risking disciplinary 

action by the Commission or the FCM’s 


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213 Id. 

214 Id. 

215SIFMA–AMG Comment Letter. 

216A period from April 29 to May 5 containing 

multiple public holidays. 

217SIFMA–AMG Comment Letter. 

218 Id. 

219 Id. 

220 Id. 

221 Id. 

222 Id. 

223 Id. 

224 Id. 

225 Id. 

226 Id. 

227 Id. 

228 Id. 

229 Id. 

230 Id. 

231 Id. 

232 Id. 

233 Id. 

234 Id. 

235MFA Comment Letter. 

DSRO.213 FIA urged the Commission to 

revise proposed regulation § 1.44(f)(4) to 

provide that the deadline for payment of 

margin in non-USD fiat currencies may 

be extended to the next business day 

following any banking holiday in the 

jurisdiction of issue of the currency and 

still be considered in compliance with 

the requirements of regulation § 1.44(f) 

if payment is delayed due to such 

banking holiday.214

SIFMA–AMG asserted it would be 

impractical for FCMs to comply with 

proposed regulation § 1.44(f), and 

further asserted that there does not 

appear to be data or analysis to support 

the Commission’s position.215 SIFMA– 

AMG contended that, although the 

Commission considers technical margin 

deficit scenarios from global business 

that regularly navigate U.S. and nonU.S. bank holidays, it does not consider 

that firms may plan for expected events, 

such as Golden Week in Japan,216 by 

pre-funding accounts.217 According to 

SIFMA–AMG, under the Commission’s 

proposal, such an approach would be 

unmanageable and unsustainable and 

would impose a regulatory burden 

without a corresponding public policy 

benefit.218

SIFMA–AMG argued that requiring 

clients posting cash margin in EUR to 

choose a country in the Eurozone and 

follow its holiday schedule would, in 

the event different managers for the 

same client choose different Eurozone 

countries, require the overhaul of 

agreements and burden FCMs with 

additional monitoring 

responsibilities.219 SIFMA–AMG 

recommended that the Commission 

provide greater flexibility to allow for 

better risk management, asserting that, 

by avoiding having to navigate the bank 

holidays of two different countries, a 

clearing member can appropriately 

manage its risk based on its business 

and customers.220

SIFMA–AMG stated that the base 

currency, custodian, and overall global 

nature of investing complicate efforts to 

pre-fund ahead of known holidays.221

SIFMA–AMG noted that, typically, 

margin payments are made in the base 

currency of a fund, or the client and the 

FCM effectuate single currency 

margining and the asset manager then 

repatriates foreign currency balances.222

SIFMA–AMG asserted that this process 

has been successfully implemented and 

that the Commission should not attempt 

to establish or require particular 

methods of achieving these goals.223

SIFMA–AMG stated that, when a 

global holiday approaches, firms are 

asked by FCMs to prefund anticipated, 

expected initial and/or variation margin, 

resulting in overcollateralization.224

SIFMA–AMG asserted that prefunding 

margin is more operationally risky, 

particularly when scaled across 

multiple jurisdictions and with a global 

client base, because: (i) 

overcollateralization places excess risk 

at the FCM; (ii) it is impractical to 

attempt to estimate what other market 

moves will be in order to proactively 

overcollateralize and post margin; (iii) 

different custodians have different 

cutoff times, which may not be met 

ahead of a holiday; and (iv) prefunding 

leads to an inefficient process of having 

to be credited back payments as 

opposed to paying what is owed on a 

daily basis.225 SIFMA–AMG asserted 

that with large, separate accounts, there 

is always margin on hand to meet 

volatile market movements, and 

requiring prefunding as a precaution 

may be unnecessary because of a firm’s 

ability to pay cash when needed.226

SIFMA–AMG also contended that the 

Commission’s belief that firms might 

use holidays to gain a benefit with 

respect to required margin is misguided 

and impractical.227

Additionally, SIFMA–AMG stated the 

Commission’s Second Proposal does not 

consider the product and foreign 

currency associated with a particular 

trade, noting that a client may always be 

behind on margin due to the client’s or 

fund’s location, the client custodian, the 

product traded, and the 

clearinghouse.228 SIFMA–AMG stated 

the Commission’s regulations should 

consider all parties involved in a 

transaction, such as the FCM, asset 

manager, clearinghouse, product, and 

foreign currency associated with a 

particular trade.229

SIFMA–AMG requested that, to the 

extent the Commission is considering 

the deadline for payment of margin in 

non-USD fiat currencies may be 

extended by up to one additional 

business day and still be considered in 

compliance with proposed regulation 

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

banking holiday in the jurisdiction of 

issue of the currency, the Commission 

confirm that initiating a transfer on the 

same day would suffice to meet the 

requirement.230

SIFMA–AMG contended FCMs 

should have discretion to consider a 

deposit as pending in a customer’s 

account, consistent with JAC Regulatory 

Alert #14–03.231 Specifically, SIFMA– 

AMG argued, if the FCM has a sufficient 

basis to believe the wire was actually 

initiated, and based on its experience 

with the customer and its normal course 

of business and consistent with its risk 

management program, then the FCM 

should have discretion to treat the 

margin as received and credited to a 

customer’s margin equity.232 Otherwise, 

SIFMA–AMG stated, the Commission 

should consider same-day initiation of a 

transfer as an alternative to a grace or 

cure period to demonstrate compliance 

with proposed regulation § 1.44(f).233

SIFMA–AMG stated that utilizing the 

time of initiation would effectively 

build into the regulation notice that 

payment was not received, the cure for 

which would be confirmation that the 

payment was initiated.234

In MFA’s comment letter, MFA 

opined that the manner in which the 

Second Proposal defined ‘‘business 

day’’ provided appropriate extensions of 

time for circumstances in which U.S. 

markets are open, but the day is a 

holiday in a non-U.S. jurisdiction.235

The Commission is adopting 

regulation § 1.44(f)(4) with 

modifications in light of comments 

received. 

Specifically, final regulation 

§ 1.44(f)(4) provides, in its first 

sentence, ‘‘The relevant deadline for 

payment of margin in fiat currencies 

other than U.S. Dollars may be extended 

to the next business day following any 

banking holiday in the jurisdiction of 

issue of the currency, and still be 

considered in compliance with the 

requirements of this paragraph (f) if 

payment is delayed due to such banking 

holiday.’’ Accordingly, final regulation 

§ 1.44(f)(4) provides an extension to 

meet margin calls in non-USD fiat 

currency during consecutive holidays. 

Furthermore, in final regulation 

§ 1.44(f)(4), the Commission eliminates 

the proposed provision regarding 

payments in EUR that a would have 


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236FIA Comment Letter. 

237 Id. 

238 Id. 

239 Id. 

240 Id. 

241 Id. 

242 Id. 

243 Id. 

244 Id. 

245SIFMA–AMG Comment Letter. 

246 Id. 

247 Id. 

248MFA Comment Letter. 

249 Id. 

required the identification of the 

jurisdiction within the Eurozone with 

which either the separate account 

customer or the relevant asset manager 

has the most significant contacts; the 

banking holidays of which would be 

referred to for purposes of receiving a 

one-day extension for EUR-denominated 

payments. 

The Commission views the one 

business day margin call standard set 

forth in regulation § 1.44(f) as a 

fundamental measure for mitigating the 

risk to an FCM and its omnibus 

customer accounts for futures, Cleared 

Swaps, or foreign futures and foreign 

options, as it limits the time in which 

a customer’s separate account may be 

undermargined. However, noting that, 

in codifying the no-action position of 

CFTC Letter No. 19–17, the Commission 

does not seek to disrupt established 

margining practices, the Commission 

has considered, and finds persuasive, 

comments submitted by FIA and 

SIFMA–AMG with respect to the 

anticipated challenges associated with 

implementing regulation § 1.44(f)(4) as 

proposed, including the expected 

difficulties associated with 

implementing and administering new 

operational systems and renegotiating 

customer agreements. The Commission 

also finds persuasive information 

submitted by commenters regarding 

steps FCMs take currently to ensure 

customer accounts will not be 

undermargined during non-U.S. banking 

holidays, including instances in which 

there are consecutive non-U.S. banking 

holidays. Furthermore, both FIA and 

SIFMA–AMG disputed that firms 

leverage banking holidays (or that they 

practicably could) to gain a benefit with 

respect to required margin, and the 

Commission did not receive any 

comments indicating that such 

leveraging occurs, or that it is a 

substantial risk. 

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). 

The Commission proposed regulation 

§ 1.44(f)(5), which, as proposed, 

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 

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, does not 

constitute a failure to comply with the 

requirements of regulation § 1.44(f). As 

proposed, regulation § 1.44(f)(4) also 

provides that, 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. 

FIA contended that proposed 

regulation § 1.44(f)(5) results in a 

proposal that is unnecessarily complex, 

disruptive of existing market practice, 

and an inappropriate and unjustified 

departure from the conditions of CFTC 

Letter No. 19–17.236 FIA further 

contended that the proposed rule is 

overly prescriptive and inflexible, and 

would increase systemic risk in margin 

settlement rather than mitigate it.237 FIA 

argued that proposed regulation 

§ 1.44(f)(5) would effectively require 

FCMs to suspend the ordinary course of 

business for events that are not 

extraordinary or unusual at all, but are 

intrinsic to the complexity and 

multiplicity of the components of the 

global payment settlement system that 

FCMs and their customers rely on.238

Specifically, FIA contended that, by 

reformulating CFTC Letter No. 19–17’s 

standard for situations of administrative 

error or operational constraints to 

require that such situations be 

‘‘unusual,’’ and by requiring FCMs to, in 

effect, document each determination of 

failure to settle based on administrative 

error or operational constraints in light 

of whether the separate account 

customer or investment manager acting 

diligently and in good faith could have 

reasonably foreseen the error or 

constraints giving rise to the settlement 

failure, the Commission has made such 

standard unworkable.239 FIA asserted 

that, when a separate account fails to 

settle within the applicable timeframe, 

FCMs will have to make and document 

a complicated and potentially highly 

speculative assessment of the facts 

under a legal standard that is subjective 

and vague.240 FIA noted that this would 

subject FCMs to the risk of being 

second-guessed by DSRO examiners.241

Additionally, FIA noted, FCMs have 

invested significantly in renovating 

operational and compliance systems in 

order to implement the conditions of 

CFTC Letter No. 19–17.242 FIA argued 

that proposed regulation § 1.44(f)(5) will 

require material levels of new 

investment in compliance, risk 

management, and operations time and 

resources for no discernable risk 

management benefit.243 FIA 

recommended the Commission strike 

the requirement that an administrative 

error or operational constraint be 

‘‘unusual,’’ and the requirement that the 

error or constraint be one that a separate 

account customer or investment 

manager acting diligently and in good 

faith could not have reasonably 

foreseen.244

SIFMA–AMG similarly contended 

that proposed regulation § 1.44(f)(5) 

would establish a standard that is 

subjective and ambiguous and does not 

appropriately balance practicability and 

burden with risk management.245

SIFMA–AMG opined that the 

Commission’s proposal does not make 

sufficiently clear the meaning of 

‘‘unusual,’’ asserting that the meaning of 

the term can be analyzed in any number 

of different contexts and that the 

proposed regulation would therefore be 

difficult to implement without factors or 

a determinative standard.246 SIFMA– 

AMG stated that it believes the level of 

prescriptiveness of proposed regulation 

§ 1.44(f)(5) is inconsistent with the 

Commission’s principles-based 

approach with respect to FCM 

regulation.247

MFA similarly argued that the 

Commission should effectively revert 

proposed regulation § 1.44(f)(5) to the 

original language of the corresponding 

condition in CFTC Letter No. 19–17 

regarding instances when administrative 

error or operational constraints do not 

result in a non-ordinary course of 

business event.248 MFA, like FIA and 

SIFMA–AMG, asserted that FCMs and 

their customers have already developed 

procedures and controls to implement 

the conditions of CFTC Letter No. 19– 

17.249 MFA noted the Commission 


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250 Id. 

251 Id. 

252 Id. 

253 Id. 

254 Id. 255 Id. 

256As proposed, regulation § 1.44(f)(5) provides, 

in part, that, ‘‘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 . . . 

does not constitute a failure to comply with the 

historically has applied a more 

principles-based approach with respect 

to margin regulation to recognize 

differences in FCMs and other market 

participants, and contended that this 

practice has avoided the interpretative 

challenges that would be created by the 

prescriptive nature of proposed 

regulation § 1.44(f)(5).250

MFA opined that the Second Proposal 

revises the conditions of CFTC Letter 

No. 19–17 to narrow them significantly 

and render them all but unusable. 

Specifically, MFA contended that the 

term ‘‘unusual’’ is subjective, and that, 

with the benefit of hindsight, any 

administrative error or operational 

constraint could be argued to have been 

reasonably foreseen.251 MFA further 

questioned how an FCM is to make a 

determination that a failure to pay 

margin is due to administrative error or 

operational constraint, who is required 

to approve such determination, and 

whether it is expected that an FCM 

would be obligated to escalate a 

proposed recommendation that an error 

or constraint is unusual through its 

corporate governance infrastructure.252

MFA argued that regulation § 1.44(f)(5), 

as proposed, would add unnecessary 

delay, complexity, and administrative 

burden to an FCM, creating a 

disincentive for the FCM to develop and 

present a record to support a 

determination that a failure to timely 

pay margin was due to unusual 

administrative error or operational 

constraints.253 MFA further argued that 

the burden imposed by regulation 

§ 1.44(f)(5) as proposed would 

incentivize FCMs to simply declare that 

an event was outside the ordinary 

course of business and seek to eliminate 

separate account margining for the 

client.254 With respect the requirement 

that an FCM’s determination of unusual 

administrative error or operational 

constraint be based on its ‘‘reasonable 

belief,’’ MFA questioned whether an 

FCM is expected to review the entire 

customer relationship to determine the 

frequency of administrative errors or 

operational constraints before it has the 

necessary information to form the basis 

of a determination. 

MFA expressed concern that 

proposed regulation § 1.44(f)(5) would 

impede an FCM from exercising 

reasonable risk management practices 

and would require the FCM to undergo 

a complex and time-consuming analysis 

before determining whether to provide 

some form of grace period to the 

underlying customer.255

The Commission proposed regulation 

§ 1.44(f)(5) to provide that a single 

missed margin payment would not 

result in an FCM being required to 

suspend disbursements on a separate 

account basis for a customer, where the 

missed payment is the result of an 

unexpected, unusual administrative 

error or operational constraint. As 

proposed, regulation § 1.44(f)(5) reflects 

the Commission’s belief that providing 

such an exception for any 

administrative error or operational 

constraint could result in an FCM 

maintaining separate account 

disbursements for a separate account 

customer that fails to make timely 

margin payments on a frequent basis or 

because of known or avoidable issues. 

At the same time, the Commission 

believes that limiting such exceptions to 

specific events, or requiring that the 

FCM’s determination of administrative 

error or operational constraint be based 

on a prescriptive set of criteria, could in 

fact increase the risk that a single ‘‘footfault’’ (i.e., an unusual and inadvertent 

failure), not explicitly addressed by 

Commission regulations, that results in 

a missed margin payment, would result 

in suspension of disbursements on a 

separate account basis, and may 

ultimately make separate account 

treatment unworkable for FCMs and 

their customers. 

The Commission recognizes that there 

could be a wide variety of situations 

that may constitute administrative error 

or operational constraints for purposes 

of regulation § 1.44(f)(5), and, as 

discussed further below, that, at the 

time an FCM learns of such 

administrative error or operational 

constraint, a well-run FCM, may be 

required to act expeditiously based on 

limited information concerning such 

events, and in a manner consistent with 

its own risk management processes and 

procedures. The Commission 

accordingly is not prescribing the form 

or manner in which an FCM must 

document determinations of 

administrative error or operational 

constraints, much less that such 

determination be made following an 

exhaustive analysis. For the same 

reason, the Commission is not 

prescribing specific procedures or lines 

of escalation an FCM must implement 

in order to make a determination of 

administrative error or operational 

constraint in compliance with 

regulation § 1.44(f)(5). 

Moreover, a client’s or asset manager’s 

arrangements for paying margin are not 

necessarily static. Where an 

administrative error or operational 

constraint prevents the prompt payment 

of margin, the FCM may be able to work 

with the client or asset manager so that 

steps are taken to mitigate the likelihood 

of, or prevent, the recurrence of, the 

circumstances that led to that result. 

As discussed above, FIA, SIFMA– 

AMG, and MFA variously commented 

that proposed regulation § 1.44(f)(5) 

uses subjective and ambiguous terms; in 

particular, the requirement that an 

administrative error or operational 

constraint be ‘‘unusual.’’ The 

corresponding condition in CFTC Letter 

No. 19–17, provides an exception to the 

one business day margin call condition 

for margin payments that are untimely 

due to administrative error or 

operational constraint, but does not 

contain an express limiting principle 

with respect to the nature of the 

administrative errors or operational 

constraints that would be within its 

scope. 

The Commission agrees with 

commenters that the ‘‘unusual’’ 

standard could be read to be subjective 

and ambiguous, and does not 

appropriately balance practicability and 

burden with risk management. As such, 

the Commission is declining to retain in 

final regulation § 1.44(f)(5) the proposed 

requirement that an administrative error 

or operational constraint be unusual. 

The Commission is also persuaded by 

commenters’ assertions that the 

requirement that the relevant unusual 

administrative error or operational 

constraint be one that a ‘‘separate 

account customer or asset manager 

acting diligently and in good faith could 

not have reasonably foreseen’’ may 

prove unworkable and may ultimately 

introduce unnecessary delay and 

complexity to an FCM’s determination 

of the occurrence of an unusual 

administrative error or operational 

constraint. 

Accordingly, in adopting regulation 

§ 1.44(f)(5), the Commission is 

eliminating the requirement that an 

administrative error or operational 

constraint be ‘‘unusual’’ or one ‘‘that a 

separate account customer or asset 

manager acting diligently and in good 

faith could not have reasonably 

foreseen.’’ The Commission is otherwise 

adopting regulation § 1.44(f)(5) as 

proposed, with a change for internal 

consistency.256


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requirements of this paragraph (f).’’ As discussed 

above, this provision is intended to implement in 

regulation § 1.44 the no-action condition providing 

that ‘‘[e]ach such separate account must be on a one 

business day margin call’’ and that ‘‘[s]ituations of 

administrative error or operational constraints 

which prevent the call from being met within a oneday period will not be considered a violation of 

[the] condition.’’ CFTC Letter No. 19–17. Regulation 

§ 1.44(f) requires separate accounts to be on a one 

business day margin call, a concept which the 

provisions of regulation § 1.44(f) further define. 

While regulation § 1.44(f)(1) provides a base 

requirement to issue a margin call which must be 

met on a one-day basis, other components of 

regulation § 1.44(f) address how a one business day 

margin call must be made and met in the context 

of international banking conventions as well as 

holidays. For internal consistency, the avoidance of 

confusion, and to ensure that the exception 

provided in regulation § 1.44(f)(5) applies in respect 

of such other provisions informing the meaning of 

a one business day margin call, in final regulation 

§ 1.44(f)(5), the Commission is adjusting the 

reference to regulation § (f)(1) to instead reference 

regulation § 1.44(f) generally. 

257 ICE Comment Letter. 

258 Id. 

259See, e.g., CFTC Letter No. 20–28. 

260For 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 

requirements pursuant to which such FCM may 

engage in separate account treatment. 

261SIFMA–AMG Comment Letter. 

262 Id. 

263 Id. 

264 Id. 

265 Id. 

266 Id. 

267 Id. 

Although not directly related to 

proposed regulation § 1.44(f)(5), ICE 

suggested that the Commission revise 

regulation § 1.56, which prohibits an 

FCM from representing that it will not 

call for or collect margin, to make 

conforming changes to facilitate 

separate account treatment.257 ICE 

asserted that it is concerned that failing 

to do so may not allow FCMs to fully 

take advantage of regulation § 1.44, or 

may create uncertainty with respect to 

the application of regulation § 1.56 for a 

customer with separate accounts.258

The Commission appreciates ICE’s 

comment. The Commission noted in the 

Second Proposal that it seeks in this 

rulemaking only to directly apply the 

Margin Adequacy Requirement 

encompassed by regulation 

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

enact a narrow codification of the noaction position in CFTC Letter No. 19– 

17 as applicable to all FCMs, and that 

it considers amendments to regulation 

§ 1.56 as outside the scope of this 

rulemaking. The Commission believes 

regulation § 1.56’s prohibition of 

guarantees against loss with respect to 

‘‘any commodity interest in any account 

carried by [an FCM]’’ (emphasis added) 

is sufficiently clear that such provision 

would apply to the separate accounts of 

a separate account customer. As staff 

made clear in CFTC Letters Nos. 19–17 

and 20–28, separate account treatment 

is consistent with regulation § 1.56 so 

long as the FCM retains, at all times, the 

discretion to access funds in the other 

separate accounts of the beneficial 

owner held at the FCM.259

The Commission additionally notes 

that the requirement that an FCM 

provide separate account customers 

with a disclosure that under part 190 of 

the Commission’s regulations that all 

separate accounts of a separate account 

customer will be combined in the event 

of an FCM bankruptcy, an original 

condition of the no-action position 

proposed as regulation § 1.44(h)(3), was 

included as a no-action condition due to 

the fact that it would not possible to 

limit the losses in one separate account 

from affecting another separate account 

of the separate account customer in a 

default scenario. 

The Commission proposed regulation 

§ 1.44(f)(6) to make clear that it is 

establishing a maximum period in 

which a margin call must be met for 

purposes of regulation § 1.44, rather 

than establishing a minimum time an 

FCM must allow. As proposed, 

regulation § 1.44(f)(6) provides 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)–(5),260 or engages in 

practices that are designed to 

circumvent proposed regulation 

§ 1.44(f). As 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 did 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. 

SIFMA–AMG urged the Commission 

to consider permitting FCMs to continue 

having discretion to agree on a limited 

grace period, based on their own credit 

assessment and consistent with their 

risk management programs.261 SIFMA– 

AMG contended that such grace periods 

are consistent with the objectives of 

ensuring the timely correction of margin 

shortfalls or timely identification of a 

customer’s inability to meet a margin 

call.262

SIFMA–AMG asserted that 

contractual grace periods can manifest 

in scenarios other than separate account 

treatment, depending on a fund’s 

structure.263 For example, SIFMA–AMG 

noted, in instances where subadvisors 

are hired for a specific fund and the 

investment firm is managing the same 

fund with potentially the same FCM, 

removing the grace period would mean 

that a single ‘‘foot fault’’ with respect to 

a single asset manager can cause the 

FCM to revert to margining on a gross 

basis, which would disrupt the ability of 

certain SIFMA–AMG members to get 

excess margin back and could cause a 

lack of awareness of a client’s overall 

margin requirements.264 SIFMA–AMG 

further asserted that this would 

incentivize customers to change FCMs 

and would result in less transparency 

and opportunity for existing FCMs to 

cover themselves if a client defaults.265

SIFMA–AMG contended that an 

FCM’s inability to rely on the return of 

excess margin due to ‘‘foot faults’’ at 

other managers could cause further 

downstream failures and inadvertent 

consequences.266 For example, SIFMA– 

AMG noted, excess margin is normally 

expected to be returned based on data 

generated early in the morning, and 

managers may anticipate that excess 

margin will be available to make 

additional investments or execute new 

transactions, or to be used to cover other 

margin or payment obligations due.267

However, SIFMA–AMG stated, if later 

in the day, the excess margin 

unexpectedly is not returned due to a 

‘‘foot fault’’ at a separate manager, 

which such manager cannot validate or 

challenge, there may not be time to 

either unwind the new trades or 

investments, or to meet the other margin 

or payment demands, which could lead 

to defaults on these and other 

obligations and potentially trigger other 

cross-defaults. 

SIFMA–AMG also asserted that 

certain sub-advised funds or separate 

account clients are not able to hold cash 

as a buffer against this scenario due to 

cash limits, which, in light of the 

proposed regulation, would incentivize 

managers to move sub-advised funds or 

separate account clients to FCMs where 

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7910 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

268 Id. 

269 JAC Comment Letter. 

270FIA Comment Letter. 

271 Id. 

272 Id. Following the close of the comment period, 

on October 15, 2024, CME published a bulletin 

reminding clearing members of their responsibility 

to comply with CME Rule 930.K.1 and Chicago 

Board of Trade, New York Mercantile Exchange, 

and COMEX Rule 930.K (collectively, Rule 930.K). 

CME Group, Memorandum, Financial and 

Regulatory Bulletin #24–02 re: Rule 930.K.— 

Liquidation of Accounts, Oct. 15, 2024, available at 

https://www.cmegroup.com/notices/clearing/2024/ 

10/frb-24-02.html. The bulletin notes that recent 

disciplinary actions for violation of this rule 

highlight that clearing members may need to review 

and update their account agreements, and further 

notes that where a disciplinary committee has 

found one clearing member’s conduct to be a 

violation of exchange rules, the public posting of 

the disciplinary action provides notice to all 

clearing members and market participants that such 

conduct is a rule violation. Id. CME further stated 

that, aside from reasonable, one-day administrative 

or operational exceptions, contractual language 

providing a period of time (i.e., a grace or cure 

period) after a missed performance bond call before 

the clearing member could take action (including 

liquidation of positions) would violate Rule 930.K. 

Id. 

273As proposed, regulation § 1.44(f)(6) provides, 

‘‘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).’’ This provision is 

intended to implement in regulation § 1.44 the noaction condition (part of the one business day 

margin call condition) that, ‘‘In no case can 

customers and FCMs contractually arrange for 

longer than a one business day period for a margin 

call to be met.’’ CFTC Letter No. 19–17. As a matter 

of internal consistency (with respect to the final 

clause of regulation § 1.44(f)(6)), consistency with 

the corresponding no-action condition, and to 

ensure that the time periods specified in the 

regulation encompass banking holidays for which 

regulation § 1.44(f)(7) provides an exception to the 

timing requirements of regulation § 1.44(f)(1), the 

Commission is adopting final regulation § 1.44(f)(6) 

with a modification to reference paragraph (f) 

generally in the first instance. 

advised funds or separate account 

clients. SIFMA–AMG contended that 

this would result in less transparency 

and fewer assets available to each FCM, 

potentially impairing FCMs’ credit risk 

management, and running counter to 

risk management goals where separate 

account treatment results in an FCM 

holding more margin than it otherwise 

would. Asserting that there may be 

occasions when additional time is 

warranted to allow a customer to 

address delays in the payment of margin 

that are not caused by administrative 

errors or operational constraints, 

SIFMA–AMG recommended that the 

Commission reconsider its position 

regarding grace periods.268

The Commission views grace periods 

as inconsistent with the risk 

management goals of separate account 

treatment, although the Commission 

reiterates that regulation § 1.44, as 

proposed, does not prohibit the use of 

grace periods with respect to the 

accounts of non-separate account 

customers. The Margin Adequacy 

Requirement set forth in regulation 

§ 1.44(b) provides that an FCM shall not 

allow a customer to withdraw funds 

from its accounts if such withdrawal 

would create or exacerbate an 

undermargining scenario in the 

customer’s account. Regulation 

§ 1.44(c)’s provision for an election for 

separate account treatment for purposes 

of the Margin Adequacy Requirement is 

premised on an FCM’s ability to comply 

with risk management requirements 

designed to ensure, in part, that margin 

for separate accounts is paid timely, 

such that a separate account customer’s 

individual separate accounts do not 

become undermargined. The 

Commission’s one business day margin 

call standard is intended to limit the 

window in which a customer’s separate 

account may be undermargined, thus 

limiting the risk to the FCM, and the 

FCM’s omnibus customer account for 

futures, Cleared Swaps, or foreign 

futures or foreign options. 

The Commission notes that while a 

single ‘‘foot fault’’ with respect to a 

single manager theoretically could result 

in an FCM being required to suspend 

disbursements on a separate account 

basis, the error would not lead to that 

result if the FCM determines it 

constitutes an administrative error or 

operational constraints as set forth in 

regulation § 1.44(f)(5). Additionally, the 

Commission notes that, in light of the 

unpredictability of markets, it would 

appear that an asset manager that puts 

its account in a position where a failure 

to receive margin would result in an 

actual default would be placing its 

customer at substantial risk. 

As noted above, as proposed, 

regulation § 1.44(f)(6) provides 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)–(5), or engages in practices 

that are designed to circumvent 

proposed regulation § 1.44(f). While the 

JAC did not directly discuss proposed 

regulation § 1.44(f)(6) in its comment 

letter, the JAC noted that if an FCM and 

customer contract to arrange for margins 

calls to be met in longer than one 

business day, then the FCM is not 

making a bona fide attempt to collect 

margin within one business day after 

the occurrence of the event giving rise 

to the margin deficiency.269

The Commission reiterates that 

regulation § 1.44 is designed to operate 

without prejudice to the rules or 

guidance of a DSRO, and that a DSRO 

may promulgate and maintain rules and 

guidance with respect to the treatment 

of customer accounts, including 

separate accounts, that are more 

stringent than the regulations 

promulgated herein. 

Although FIA in its comment letter 

did not directly discuss proposed 

regulation § 1.44(f)(6), FIA noted that, 

for the past three years, examiners from 

CME’s Financial and Regulatory 

Surveillance Department have taken the 

position in financial and operational 

audits of FCM clearing members for 

which CME serves as DSRO that any 

contractual grace or cure period 

overlying a customer’s failure to satisfy 

a margin call (which is not qualified by 

reference to administrative or 

operational reasons for failure) is a 

violation of CME Rule 930.K.1, 

requiring clearing members to maintain 

full discretion to determine when and 

under what circumstances positions in 

any account shall be liquidated.270 FIA 

stated that it believes clear guidance is 

needed with respect to permissibility of 

grace periods, and requested the 

Commission communicate to CME and 

the JAC that they should make their 

position with respect to the 

permissibility of grace periods under 

CME rules known publicly through a 

market regulatory notice so that all 

clearing member FCMs, buy-side 

managers, and asset owners will receive 

the same message at the same time.271

This issue would appear to have been 

addressed subsequent to FIA’s 

comment.272

With respect to FIA’s comment, the 

Commission believes that DSROs, in 

overseeing FCMs, should make clear the 

manner in which they will apply their 

rules, and should not apply such rules 

in a disparate manner to the entities for 

which they serve as DSRO. 

Accordingly, the Commission is 

adopting regulation § 1.44(f)(6) as 

proposed, with a change for internal 

consistency.273

The Commission proposed regulation 

§ 1.44(f)(7) to provide an exception to 

regulation § 1.44(f)(1) with respect to 

certain holidays (currently, 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). As proposed, regulation 

§ 1.44(f)(7) only applies to an FCM if 

that FCM intermediates trades on such 

a DCM, and to a separate account if that 


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274Additional days due to other provisions of 

proposed regulation § 1.44(f) would also be 

applicable. 

275To illustrate the operation of regulation 

§ 1.44(f)(7)(i)–(ii) as proposed, using Veterans Day 

(November 11) as an example, and assuming 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. 

276 ICE Comment Letter. 

277 Id. 

278Submitters may request confidential treatment 

for parts of its submission in accordance with 

regulation § 145.9(d). 

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.274

Paragraph (ii) deals with margin calls 

based on undermargined amounts 

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 

due to market movements or position 

changes on the business day before the 

holiday, the FCM shall issue a margin 

call for the separate account for at least 

the incremental undermargined amount, 

which 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.275

Although ICE, in its comment letter, 

stated that it did not object to the 

Commission’s proposed standard for a 

one business day margin call as it 

applies to FCMs,276 ICE recommended 

that the Commission modify regulation 

§ 1.44(f)(7), as proposed, to extend to 

DCOs that are open for clearing on a 

U.S. holiday to account for Cleared 

Swaps that may not be traded on a DCM 

and for which margin requirements are 

set by the DCO.277

The Commission acknowledges that 

the same rationale for providing the 

exception in proposed regulation 

§ 1.44(f)(7) with respect to an FCM 

trading uncleared swaps on a DCM 

applies equally in respect of an FCM 

with swaps cleared at a DCO: on days 

when DCOs are open, but banks are 

closed, and margin requirements are set 

by the DCO, it may be difficult or 

impracticable for FCMs to pay margin. 

Accordingly, the Commission is 

adopting regulation § 1.44(f)(7) with the 

modification that its terms shall apply 

in the case of a holiday where any DCM 

or other board of trade on which the 

FCM trades is open for trading, or any 

DCO that clears the Cleared Swaps of 

such FCM’s Cleared Swaps Customers is 

open for clearing such swaps, and 

where a separate account of any of the 

FCM’s separate account customers 

includes positions traded on such 

market or cleared at such a DCO. 

Additionally, as discussed above in 

connection with regulation § 1.44(a), 

final regulation § 1.44(f)(7) will also 

refer to ‘‘any designated contract market 

or other board of trade,’’ to explicitly 

encompass foreign exchanges in 

connection with 30.7 accounts. 

Lastly, the Commission proposed 

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 sought 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. Regulation 

§ 1.44(f)(8), as proposed, 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 FCM 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 be required to support such 

assertion with documentation or other 

relevant supporting information, as well 

as any additional information that the 

Commission requests.278 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. 

The Commission did not receive any 

comments with respect to proposed 

regulation § 1.44(f)(8). Accordingly, the 

Commission is adopting regulation 

§ 1.44(f)(8) as proposed. 

J. Regulation § 1.44(g) 

As 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, except that they 

have been reorganized and subjected 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. Regulation § 1.44(g) is intended 

to ensure that an FCM treats separate 

accounts in a consistent manner for 

purposes of risk management. Many of 

its 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 Industry Letters preceding the 

issuance of CFTC Letter No. 19–17 

provided examples of controls an FCM 

could apply to mitigate the risk of 

permitting disbursements on a separate 

account basis, and discussed restrictions 

used in customer agreements providing 

for the application of separate account 

treatment designed to ensure that a 

customer’s separate accounts are in fact 

treated separately on a consistent basis 

in the FCM’s management of risk. For 

instance, 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 


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279First FIA Letter. 

280 Id. 

281 Id. 

282 17 CFR 1.20(a), 22.2(f)(2), and 30.7(a). 283 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. 284See 17 CFR 1.32(d), 22.2(g)(3), and 30.7(l)(3). 

that it or another asset manager may 

have incurred on behalf of a different 

account of the same customer.279 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.280

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.281

These controls, and conditions for the 

consistent treatment of separate 

accounts in an FCM’s books and records 

for purposes of risk management, 

constitute a key part of the no-action 

conditions of CFTC Letter No. 19–17. 

The Commission considers such 

requirements as reasonably necessary 

with respect to this final rule to ensure 

that FCMs do not manage the risk posed 

by the separate accounts of certain 

separate account customers, or the risk 

posed by certain such separate accounts 

of such customers, in a disparate 

manner. Such disparate treatment could 

reduce the risk-mitigating effects of such 

requirements with respect to certain 

separate account customers and their 

separate accounts, and could impair the 

ability of an FCM’s DSRO or the 

Commission to ascertain the extent to 

which certain customers’ accounts are 

in fact being treated separately. Thus, 

these requirements are reasonably 

necessary to effectuate section 4d of the 

CEA. 

Accordingly, as proposed, regulation 

§ 1.44(g) would apply to all FCMs 

certain conditions in CFTC Letter No. 

19–17 designed to provide for consistent 

treatment of separate accounts. As 

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 regulation § 1.44 

would be risk-managed on a separate 

basis, the Commission believes it is 

appropriate for the 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. 

As 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. 

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 separate 

account of a customer, as well as with 

respect to all of the customer’s separate 

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 better 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. Such FCMs can 

also anticipate and mitigate the risk of 

the occurrence of certain of the events 

detailed in regulation § 1.44(e). 

Regulation § 1.44(g)(2), as proposed, 

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. 

Regulation § 1.44(g)(3), as proposed, 

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 

accounts of the same separate account 

customer. 

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.282 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.283 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.284

Regulation § 1.44(g)(4), as proposed, 

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 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, 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 same separate account customer 

carried by the FCM. Regulation § 1.44(g) 


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285CFTC 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. 

286 17 CFR 1.22(a), 22.2(d), and 30.7(f)(1)(i). 

287An 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). 

288CFTC 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). 

289 17 CFR 1.11(c). 

290 17 CFR 1.11(e)(3)(i)(D). 

291 17 CFR 1.23(c). 

292See, e.g., 17 CFR 1.22(c)(3); 17 CFR 

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

293See, e.g., 17 CFR 22.2(g). 

294CFTC 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). 

295 JAC Comment Letter. The JAC noted that, 

pursuant to JAC Regulatory Alert #14–06, the 

undermargined amount or margin deficiencies 

should be calculated for the residual interest 

requirement as: Risk Maintenance Margin 

Requirement¥Credit Net Liquidating 

Value¥Margin Collateral in Excess of Amounts to 

Secure Debit/Deficits = Undermargined Amount (if 

amount < zero, then the amount is zero.) The JAC 

also noted JAC Regulatory Alert #12–03 defines a 

similar calculation for the margin deficiencies to be 

included in the LSOC compliance calculation in 

accordance with regulation § 22.2(f). Id. 

296 Id. 

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. Regulation 

§ 1.44(g) is also consistent with CFTC 

Letter No. 19–17.285

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.286 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.287

The Commission proposed 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 

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 and are 

consistent with CFTC Letter No. 19– 

17.288

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.289 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.290 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.291

The Commission proposed 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.292

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 

segregated funds reported are in fact 

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.293 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. 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. Regulation 

§ 1.44(g)(6) is also consistent with the 

conditions to the no-action position in 

CFTC Letter No. 19–17.294

Citing proposed regulation 

§ 1.44(g)(5)’s requirement that an FCM, 

for purposes of its residual interest and 

LSOC compliance calculations, must 

‘‘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,’’ the JAC reiterated its 

comment that the definition of 

‘‘undermargined amount’’ in proposed 

regulation § 1.44(a) defines the 

undermargined amount differently than 

how the term is currently defined in the 

JAC Margins Handbook and has been 

applied for purposes of an FCM’s 

compliance with regulations §§ 1.22(c), 

22.2(f)(6), and 30.7(f)(1)(ii).295 The JAC 

stated that, given this discrepancy, for 

non-separate account customers, the 

undermargined amount to be included 

in the residual interest requirements 

and LSOC compliance calculations may 

be different than that for separate 

account customers under proposed 

regulation § 1.44(g)(5), and this change 

would require FCMs that permit 

separate account treatment to bifurcate 

the manner in which they calculate 

their requirements and update their 

regulatory reporting records.296

As discussed above in connection 

with regulation § 1.44(a), the 

Commission is adopting its proposed 

definition of ‘‘undermargined amount’’ 


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297 Id. 

298The 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. 

299The Commission is making a technical change 

to final regulation § 1.44(h)(2), to substitute 

‘‘representative of the customer’’ for ‘‘representative 

at the customer,’’ in recognition of the fact that a 

customer may be a natural person. 

300Public Law 95–598, 92 Stat. 2549. 

301Bankruptcy, 46 FR 57535, 57535–36 (Nov. 24, 

1981). 

302 17 CFR part 190. 

with modifications to remove language 

that the JAC identified as inconsistent 

with exchange rules and industry 

practice, and the Commission views an 

FCM’s use of either of the Net 

Liquidating Value or alternative Total 

Equity method set forth in the JAC 

Margins Handbook as consistent with 

the Commission’s objective in defining 

an account’s undermargined amount for 

purposes of regulation § 1.44. 

Additionally, recalling its comment 

with respect to pending receipts, the 

JAC noted it was unclear whether 

pending non-USD receipts could be 

considered as received under proposed 

regulation § 1.44(g)(5) based on the 

definition of ‘‘undermargined amount’’ 

in proposed regulation § 1.44(a).297

Consistent with its discussion of the 

JAC’s and FIA’s comments with respect 

to treatment of pending non-USD 

transfers in connection with 

amendments to regulation § 1.17, the 

Commission confirms that the final rule 

would not preclude an FCM from 

treating as received pending non-USD 

transfers, consistent with the conditions 

in the JAC guidance discussed above, 

for purposes of complying with 

regulation § 1.44(g)(5). 

ICE noted that it generally supports 

the risk management requirements for 

separate accounts set forth in proposed 

regulation § 1.44(g). 

The Commission did not receive any 

other comments regarding proposed 

regulation § 1.44(g). Accordingly, the 

Commission is adopting regulation 

§ 1.44(g) as proposed. 

K. Regulation § 1.44(h) 

As proposed, regulation § 1.44(h) 

contains requirements related to 

information and disclosures. As with 

the provisions in regulation § 1.44(g), 

these provisions are substantially 

similar to their corresponding no-action 

conditions in CFTC Letter No. 19–17, 

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. The Commission 

believes that regulation § 1.44(h) is 

reasonably necessary to protect 

customer funds and mitigate systemic 

risk, and to effectuate section 4d of the 

CEA, because it establishes 

requirements designed to ensure that 

FCMs applying separate account 

treatment have the customer 

information necessary to apply such 

treatment consistent with the risk 

mitigating requirements of regulation 

§ 1.44 and, with respect to FCMs that 

choose to apply separate account 

treatment, it establishes requirements 

designed to inform customers of certain 

potential risks associated with such 

treatment. 

As 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.298 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 in light 

of those resources, and to identify when 

a customer’s financial circumstances 

would necessitate the cessation of 

disbursements on a separate account 

basis. Regulation § 1.44(h)(1)(i) 

contemplates that, in certain instances, 

an asset 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 asset manager. 

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). 

The Commission did not receive any 

comments with respect to proposed 

regulation § 1.44(h)(1), and accordingly 

is adopting that provision as proposed. 

As 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 asset 

manager acts under a power of attorney 

on behalf of a customer, and the FCM 

has little direct contact with the 

customer. Regulation § 1.44(h)(2) is 

designed to ensure that FCMs have a 

reliable means of contacting separate 

account customers directly if the asset 

manager fails to ensure prompt payment 

on behalf of the customer. 

The Commission did not receive any 

comments with respect to proposed 

regulation § 1.44(h)(2), and accordingly 

is adopting that provision as 

proposed.299

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 regulation § 1.44 will not be 

treated separately in bankruptcy. To 

make this limitation clear to customers 

and FCMs, the Commission proposed 

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. As 

proposed, regulation § 1.44(h)(3) 

provides that the disclosure statement 

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 

regulation § 1.44(h)(3) was delivered 

directly to the customer. The FCM must 

also include the disclosure statement 

required by regulation § 1.44(h)(3) on its 

website or within its Disclosure 

Document required by regulation 

§ 1.55(i). 

The Bankruptcy Reform Act of 

1978 300 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.301 The Commission enacted 

part 190 of its regulations,302 to 


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303 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.’’). 

304FIA Comment Letter. 

305Cf. CFTC Letter No. 19–17 (‘‘The FCM shall 

provide each beneficial owner using separate 

accounts with a disclosure that under CFTC Part 

190 rules all separate accounts of the beneficial 

owner will be combined in the event of an FCM 

bankruptcy. The disclosure statement required by 

this paragraph will be delivered separately to the 

beneficial owner via electronic means in writing or 

in such other manner as the FCM customarily 

delivers disclosures pursuant to applicable CFTC 

regulations and as permissible under the FCM’s 

customer documentation. The FCM must maintain 

evidence that such disclosure was delivered 

directly to the beneficial owner. The FCM shall also 

include the disclosure on its website or within its 

disclosure document required by Regulation 

1.55(i).’’). 

306Adoption of Customer Protection Rules, 43 FR 

31886, 31888 (July 24, 1978). 

307 17 CFR 1.55(i). 

308 17 CFR 1.55(k)(8) & (11). 

309Enhancing Protections Afforded Customers 

and Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

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

310See 17 CFR 1.55(i). 

311FIA Comment Letter. 

312 Id. 

313 Id. 

314 Id. 

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.303

The Commission 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. 

In its comment letter, FIA requested 

that the Commission clarify that any 

FCM that has already provided the 

disclosure specified in proposed 

regulation § 1.44(h)(3) pursuant to the 

identical requirement of CFTC Letter 

No. 19–17 shall be deemed to have 

complied with regulation § 1.44(h)(3).304

The Commission is adopting 

regulation § 1.44(h)(3) as proposed. 

However, the Commission recognizes 

that regulation § 1.44(h)(3) is virtually 

identical to a corresponding condition 

in CFTC Letter No. 19–17,305 and that, 

under the terms of the no-action letter, 

as applied by DCOs, FCMs permitting 

separate account treatment are required 

to comply with the condition. 

Accordingly, the Commission confirms 

that, to the extent an FCM has already 

provided the disclosure required by 

regulation § 1.44(h)(3) to its separate 

account customers consistent with the 

no-action position in CFTC Letter No. 

19–17, and continues to provide such 

disclosure to new separate account 

customers, then such FCM would be in 

compliance with the disclosure 

provision requirement of regulation 

§ 1.44(h)(3). 

As proposed, regulation § 1.44(h)(4) 

provides that an FCM that has made an 

election pursuant to 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 requirements of 

proposed regulation § 1.44 and 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. Regulation § 1.55 was 

adopted to ‘‘advise new customers of 

the substantial risk of loss inherent in 

trading commodity futures.’’ 306 The 

Commission amended regulation § 1.55 

in 2013 to, among other things, add new 

paragraph (i) requiring FCMs to disclose 

to customers ‘‘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.’’ 307 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.’’ 308 These disclosures are 

designed to ‘‘enable customers to make 

informed judgments regarding the 

appropriateness of selecting an FCM’’ 

and to enhance the diligence that a 

customer can conduct prior to opening 

an account and on an ongoing basis.309

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.310

Accordingly, the Commission proposed 

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 letter, FIA contended 

that the Commission’s proposed firmspecific disclosure for regulation 

§ 1.55(i) under proposed regulation 

§ 1.44(h)(4) is confusing and 

misleading.311 As proposed, regulation 

§ 1.44(h)(4) provides that the disclosure 

statement must apprise the customer 

that if 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. FIA argued 

that such language is confusing because 

it fails to specify how separate account 

treatment for some customers might 

contribute to a loss that exceeds the 

FCM’s ability to cover.312 FIA noted any 

customer’s activity in any account could 

contribute to a loss, and FIA asserted 

that such fellow-customer risk is already 

addressed in existing firm-specific 

disclosure.313 FIA asserted that it is 

unclear how separate account margining 

increases such risk, noting that, if 

anything, separate account treatment 

generally mitigates credit risk to the 

underlying asset owner, ensuring, in 

most cases, that the FCM holds more 

collateral against the owner’s 

consolidated portfolio of positions than 

it would if it was net margining the 

portfolio as a single account.314

The Commission notes that, although 

separate account margining may reduce 

risk in the sense that, generally, an FCM 

will hold more collateral with respect to 

the portfolio of a separate account 

customer, separate account margining is 

not risk-free. In adopting a Margin 

Adequacy Requirement applicable to all 

FCMs similar to that presently in 

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

Commission implements a regulation 

designed to guard against the possibility 

that an FCM will permit a withdrawal 

of customer funds that will lead to the 

customer’s account becoming 

undermargined. Regulation § 1.44 

operates to permit the customer’s 

separate accounts to be treated as 

accounts of separate legal entities for 

purposes of the Margin Adequacy 

Requirement, provided the FCM 

complies with specified requirements 

for the treatment of separate accounts. 

Those requirements (including those 

that would result in the FCM holding a 

greater amount of margin than it would 

if it did not engage in separate account 

treatment) are designed to mitigate the 

potential risk posed by the treatment of 

one customer’s separate account as the 

account of a separate legal entity 

without reference to other separate 


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315FIA Comment Letter. 

316 Id. 

317 Id. 

318 Id. 

319SIFMA–AMG Comment Letter. 

320 Id. 

321 Id. 

322 Id. 

323 Id. 

324 Id. 

accounts of the same separate account 

customer. 

Although the Commission believes 

FCMs have successfully complied with 

the no-action conditions of CFTC Letter 

No. 19–17, where ensuring margin 

adequacy is critical to protecting 

customer funds and mitigating risk to an 

FCM and the broader financial system, 

FCMs that engage in separate account 

treatment comply with margin adequacy 

in a materially different manner than 

FCMs that do not engage in separate 

account treatment, and are subject to 

additional requirements. The failure to 

comply with such requirements could 

contribute to a loss that the FCM is 

unable to cover. In light of 

considerations of protection of customer 

funds, and the purpose of regulation 

§ 1.55(i) to provide to customers ‘‘all 

information . . . that would be material 

to the customer’s decision to entrust 

such funds to and otherwise do business 

with’’ the FCM, the Commission 

believes it is appropriate for FCMs to 

apprise customers, whether separate 

account customers or otherwise, of such 

risk of loss resulting from the FCM’s 

separate treatment of accounts. 

Additionally, as 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 proposed this 30-day 

period 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)(4)(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, although 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 to 

achieve 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, 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. 

With respect to the 30-day toll on 

reinstatement of separate account 

disbursements in proposed regulation 

§ 1.44(h)(4)(i), FIA asserted that it is not 

aware that any FCM has ever ‘‘toggled’’ 

separate account treatment for any 

customer, and further asserted the 

tolling period could have negative 

unintended consequences for customers 

and overall market liquidity.315 FIA 

noted that separate account margining is 

crucial for many institutional asset 

managers to efficiently deploy their 

investment strategies across multiple 

accounts, and if an FCM is forced to 

suspend separate account treatment due 

to an event outside the ordinary course 

of business, the 30-day minimum 

waiting period could significantly 

disrupt the trading and risk 

management of affected customers even 

after the underlying issue is resolved.316

FIA urged the Commission to adopt a 

more targeted, risk-based approach that 

defers to FCMs’ judgment.317 FIA 

asserted that the only reasons an FCM 

is likely to have to suspend separate 

account treatment against the wishes of 

its customer are those detailed in the 

risk scenarios in proposed regulation 

§ 1.44(e), and the timeframe within 

which separate account treatment 

should be restored in the wake of any 

such event should be left to the FCM’s 

risk management discretion.318

SIFMA–AMG similarly commented 

that its members are not aware of 

instances in which an FCM might 

‘‘toggle’’ separate account treatment, 

noting that, in addition to significant 

regulatory obligations intended to 

protect customers, including stringent 

risk management provisions, FCMs who 

try to ‘‘game’’ a system to maintain 

separate account status would lose the 

trust necessary to maintain these 

competitive, longstanding commercial 

relationships.319 SIFMA–AMG also 

asserted that, operationally, its members 

would not permit or give contract 

authority for an FCM to 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.320

According to SIFMA–AMG, this would 

be highly unusual and would be a 

significant deviation from industry 

practice.321 Additionally, SIFMA–AMG 

asserted that it did not find the rationale 

for a tolling period of 30 days to be 

persuasive, and does not believe there is 

any reason why such period should be 

considered appropriate or sufficient.322

SIFMA–AMG expressed concern that 

such revocation could cause harm to its 

business activities, in turn harming 

SIFMA–AMG members’ customers and 

their investments.323 SIFMA–AMG also 

expressed concern that the tolling 

period could have a compounding effect 

on markets and liquidity as well as risk 

management of FCMs and asset 

managers, and should be removed or 

modified to be more flexible.324

For the avoidance of doubt, the 

Commission confirms that the proposed 

30-day toll on the reinstatement of 

separate account treatment was not 

intended to apply in instances in which 

the occurrence of events outside the 

ordinary course of business, as 

enumerated in regulation § 1.44(e), have 

caused an FCM to terminate or suspend 

disbursements on a separate account 

basis for a separate account customer. 

An event that is outside the ordinary 

course of business would mean that the 

customer would, at least for a time, not 

be able to obtain disbursements on a 

separate account basis, pursuant to 

regulation § 1.44(c). During that time, 

the FCM would still be subject to the 

requirements attendant upon separate 

account treatment of a customer’s 

account, including, e.g., those under 

regulations §§ 1.44(f) through (h), 

1.58(c), and 1.73(c). It is only where the 

election pursuant to regulation § 1.44(d) 

for a particular customer’s account is 

affirmatively revoked that those 

requirements would cease to be 

applicable, and it is only in that case 

that the 30-day toll period would apply. 

By contrast, if an FCM must cease 

providing disbursements to a customer 

on a separate account basis because the 

customer’s account is no longer in the 

‘‘ordinary course of business,’’ the FCM 

may permit a resumption of 

disbursements on a separate account 

basis for the separate account customer 

as soon as the requirements of 

regulation § 1.44(e)(4), regarding the 


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325The Commission is making a technical change 

in final regulation § 1.44(h)(4) to substitute the 

phrase ‘‘pursuant to the requirements’’ for ‘‘under 

the terms and conditions’’ (‘‘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 

pursuant to the requirements of this § 1.44 . . . .’’). 

326As discussed above, the procedures for adding 

currencies to or removing currencies from 

Appendix A to part 1 will be set forth in regulation 

§ 1.44(f)(8). 

327 17 CFR 17.04. 

328See regulation § 39.13(g)(8)(i). 

329See Gross Margining of Omnibus Accounts, 46 

FR 62864 (Dec. 29, 1981). 

330See Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69334, 69375 

(Nov. 8, 2011). 

331See id., regulation § 39.13(g)(8)(i). 

332 Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69375– 

69376. 

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

Consultative Report [on the Principles for Financial 

Market Infrastructures], Principle 14: Segregation 

and Portability, Explanatory Notes 3.14.6 and 

3.14.8, at 67–68). 

cure of non-ordinary course of business 

conditions and resumption of separate 

account treatment, are met. 

As discussed above, FIA and SIFMA– 

AMG stated in their comments that they 

are not aware that any FCM has ever 

attempted to selectively use separate 

account treatment to obtain an 

illegitimate economic advantage. The 

Commission does not assume that 

establishes that there is no possibility of 

separate account treatment being used 

in such manner, and further submits 

that, if such strategic use of separate 

account treatment is uncommon, then a 

toll on resumption of separate account 

treatment following a revocation of an 

election for separate account treatment 

should not represent a significant 

burden for FCMs or customers. At the 

same time, the Commission is not aware 

of any such instances of ‘‘strategic 

switching’’ occurring under the noaction position, nor has any commenter 

discussed such issue as a significant 

risk. 

Accordingly, in adopting regulation 

§ 1.44(h)(4), including regulation 

§ 1.44(h)(4)(i), the Commission is 

eliminating the proposed 30-day tolling 

period for an FCM to reinstate an 

election for separate account treatment. 

The Commission is also adopting 

regulation § 1.44(h)(4) with a technical 

change.325

L. Appendix A to Part 1 

The Commission proposed 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 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.326

The Commission understands that the 

list of currencies it included 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 proposed 

that the initial currencies under 

proposed Appendix A to part 1 should 

be 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), Turkish lira (TRY), and 

South African rand (ZAR). 

The Commission did not receive any 

comments with respect to proposed 

Appendix A to part 1. Accordingly, the 

Commission is adopting Appendix A to 

part 1 as proposed. 

M. 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 

regulation § 17.04 327 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 non-clearing 

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.328

In proposing regulation § 1.58(a) in 

1981, 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.’’ 329 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.’’ 330 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.331

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.332

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.’’ 333

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 Cleared Swaps in 

omnibus accounts cleared by a nonclearing 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 


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334By 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’’ 

that are ‘‘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 did not propose to require gross 

margining with respect to 30.7 accounts. 

335See proposed regulation § 1.44(g)(2). 

336As 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. 

337 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. 

338 JAC Comment Letter. 

339 Id. 

340 Id. 

341 Id. 

342 Id. 

343CME Comment Letter. 

Cleared Swaps in addition to domestic 

futures.334

Accordingly, in the Second Proposal, 

the Commission proposed to amend 

regulations § 1.58(a) and (b). The 

Commission proposed to amend 

regulation § 1.58(a), addressing gross 

collection of margin generally, to 

require that ‘‘[e]ach 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. The Commission 

proposed to amend regulation § 1.58(b), 

addressing entitlement to spread or 

hedge margin treatment, to require that 

if an FCM that ‘‘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 regulation § 1.58 as proposed 

to be amended, clearing FCM initial and 

maintenance margin requirements for 

separate accounts of the same customer 

are to be calculated on a gross basis as 

the margin for accounts of distinct 

customers.335 The Commission believes 

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.336 The Commission 

therefore proposed 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 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.337

In its comment letter, the JAC 

discussed the Commission’s proposal to 

amend regulation § 1.58(a) and (b) to 

extend the gross margin requirements of 

domestic futures and options accounts 

to Cleared Swaps accounts while 

specifically declining to require gross 

margining for omnibus accounts of 

secured 30.7 futures and options 

positions held by FCMs.338 The JAC 

noted that, although proposed 

regulation § 1.58(a) allows an FCM 

carrying a secured 30.7 omnibus 

account to margin that account on a net 

basis, the FCM would be able to margin 

the account on a net basis even if the 

DCO, a non-U.S. clearinghouse, or 

broker carrying an omnibus account 

were to collect margin on a gross basis 

from the FCM.339 Thus, the FCM would 

be collecting less margin than they are 

paying to the DCO, the non-U.S. 

clearinghouse, or the carrying broker. 

The JAC recommended that the 

Commission consider requiring gross 

margining for secured 30.7 omnibus 

accounts.340 Discussing the 

Commission’s statement in the Second 

Proposal that ‘‘[r]equiring an FCM to 

send a larger amount of 30.7 funds 

upstream to a foreign broker or foreign 

clearing organization would run counter 

to [regulation § 30.7(c)’s] goal of limiting 

such amounts,’’ the JAC asserted that 

requiring a secured 30.7 omnibus 

account to be gross margined under 

regulation § 1.58 would only require the 

FCM to collect gross margin (i.e., versus 

a lower net margin amount) from the 

depositing FCM or foreign broker, not 

for the FCM to send the amount along 

outside the U.S.341 The JAC contended 

that requiring gross margining of 

secured 30.7 omnibus accounts will 

ensure the FCM’s risk-based capital 

requirement is accurately based on the 

risk margin required for all customer 

and noncustomer positions.342

CME also suggested that the 

Commission require FCMs to collect 

margin on a gross basis for the foreign 

futures and foreign options contracts in 

an omnibus account held by the clearing 

FCM, noting that CME believes gross 

margining of customer positions is an 

important element of risk management 

in the event of default by an FCM and 

is essential to the Commission’s stated 

goal in part 190 for porting customers 

regardless of whether the non-DCO 

foreign clearing organization collects 

margin on a gross or net basis.343

The Commission has not proposed to 

require gross margining of secured 30.7 

omnibus accounts and does not in this 

final rulemaking adopt such a 

requirement, although the Commission 

may consider proposing to do so in the 

future. The Commission notes that, with 

respect to the accounts of foreign futures 

and foreign options customers, unless 

an FCM is a direct clearing member of 

a non-U.S. DCO, porting the positions of 

the FCM’s customers may prove 

impracticable because, to the extent the 

FCM clears through a foreign affiliate, 

the foreign affiliate will likely be subject 

to foreign insolvency laws. 

N. Amendments to Regulation § 1.73 

The Commission proposed 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, 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 proposed this amendment 

to ensure that, where non-clearing FCMs 

are engaging in separate account 


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344CFTC Letter No. 19–17 (Condition 3). 

345The Commission is making one technical 

modification to the final amendments to regulation 

§ 1.73. In final regulation § 1.73(c), the Commission 

is changing ‘‘[an FCM] . . . shall comply . . . as if 

it was a clearing member of a [DCO]’’ to ‘‘[an FCM] 

. . . shall comply . . . as if it were a clearing 

member of a [DCO].’’ 

346For 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. Regulation § 30.7 addresses 

the segregation requirements of 30.7 customer 

funds. 

347As previously noted, immediately prior to this 

final rule, regulation § 1.44 was reserved and, 

accordingly, did not impose any regulatory 

obligation on an FCM. However, at the time 

regulation § 30.2 was promulgated, regulation § 1.44 

addressed records and reports of warehouses, 

depositories, and other similar entities. This 

regulation was subsequently deleted. 

348Foreign Futures and Foreign Options 

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

349 17 CFR 39.13(g)(3)(i)(A). 

350OCC Comment Letter. 

351 Id. 

352 Id. 

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 

links regulation § 1.73 to a non-clearing 

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 no-action 

position’s stress testing and credit limit 

conditions,344 to manage the risk of 

accounts subject to separate treatment. 

In proposing to codify the no-action 

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 

will 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 nonclearing FCM. 

The Commission did not receive any 

comments with respect to the proposed 

amendments to regulation § 1.73. 

Accordingly, the Commission is 

adopting the amendments to regulation 

§ 1.73 as proposed.345

O. Amendments to Regulation § 30.2 

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.346 Immediately prior to this 

final rule, regulation § 1.44 was 

reserved. The Commission proposed to 

amend regulation § 30.2(b) to remove 

regulation § 1.44 from the list of 

excluded regulations.347

The amendment to regulation 

§ 30.2(b) is consistent with the 

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 also proposed 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 30,348 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. In this final rule, the 

Commission amends regulation § 30.2 to 

conform with that intention. 

The Commission did not receive any 

comments with respect to the proposed 

amendments to regulation § 30.2. 

Accordingly, the Commission is 

adopting the amendments to regulation 

§ 30.2 as proposed. 

P. Amendments to Regulation § 39.13 

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.’’ 349 The Commission 

proposed 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 proposed 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 proposed this 

amendment to ensure that the carve-out 

(represented by regulation § 1.44(c)–(h)) 

to the Margin Adequacy Requirement 

(represented by 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). 

OCC commented that the Second 

Proposal makes clear, in defining the 

conditions under which an FCM can 

offer separate account treatment, that 

the Commission intended to make 

compliance with the requirements for 

such treatment the responsibility of 

FCMs, and the responsibility for 

monitoring such compliance that of the 

FCM’s DSRO rather than any DCO of 

which it is a member.350 OCC noted 

that, consistent with this, the proposal 

would not require an FCM to notify a 

DCO of which it is a member either of 

the FCM’s initial election for separate 

account treatment, or the occurrence of 

any non-ordinary course of business 

event, which would have the effect of 

removing the DCO’s visibility into its 

members’ separate account treatment 

practices.351

With respect to the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii), which, as proposed, 

would apply except as provided for in 

§ 1.44, OCC noted that the requirements 

for determining whether an FCM is 

operating in compliance with the 

requirements of regulation § 1.44 would 

require detailed knowledge of an FCM’s 

operational and risk management 

practices on an ongoing basis, 

including, among other information, 

real-time knowledge of the timing of 

each such customer’s margin posting to 

the FCM, and information as to the 

exact cause of any delay in posing 

margin.352 OCC expressed concern that, 

without clarification, regulation 

§ 39.13(g)(8)(iii), as amended, could be 

interpreted as imposing strict liability 


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353 Id. 

354 Id. 

355 7 U.S.C. 7a–1(c)(2)(H). 

356 17 CFR 39.17. 

357CME Comment Letter. 

358 Id. 

359 Id. 360 7 U.S.C. 19(a). 

on DCOs for their members’ compliance 

with regulation § 1.44.353 Accordingly, 

OCC recommended that the 

Commission modify regulation 

§ 39.13(g)(8)(iii) to specify that a DCO 

will not be liable for violating regulation 

§ 39.13(g)(8)(iii) on the basis of any 

failure by any clearing member to 

comply with any requirement or 

requirements of regulation § 1.44.354

Although both regulation § 1.44(b) 

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

a Margin Adequacy Requirement, the 

former applies directly to FCMs whereas 

the latter applies to FCMs that are 

clearing members of DCOs through the 

operation of DCO rules. Accordingly, a 

DCO must have in place rules to 

effectuate the requirements of regulation 

§ 39.13(g)(8)(iii) and must monitor and 

enforce compliance with those rules, 

consistent with DCO Core Principle 

H 355 and regulation § 39.17 356

regarding rule enforcement, but a DCO 

is not itself responsible for enforcing 

regulation § 1.44. Although the 

Commission disagrees that there are no 

instances in which a DCO could be held 

liable with respect to a clearing 

member’s violation of regulation § 1.44 

(i.e., where the violation would 

independently result in a violation of 

the Margin Adequacy Requirement of 

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

might result where the DCO has actual 

knowledge of an actual or potential 

underlying violation of regulation § 1.44 

which results in a violation of the DCO’s 

rules to effectuate the Margin Adequacy 

Requirement of regulation 

§ 39.13(g)(8)(iii)), the Commission 

agrees that, as a general matter, 

regulation § 1.44 is not designed to 

impose on a DCO responsibility to 

meticulously supervise a clearing FCM’s 

compliance with the requirements of the 

regulation. Moreover, DCOs currently 

have the responsibility to enforce their 

rules established pursuant to regulation 

§ 39.13(g)(8)(iii), subject to CFTC Letter 

No. 19–17. 

In its comment letter, CME agreed 

with the Commission’s proposal to add 

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

clarify that, for purposes of such 

provision, related to gross margining, 

each separate account of a separate 

account customer shall be treated as an 

account of a separate individual 

customer.357 CME however requested 

that the Commission clarify, for 

purposes of ensuring accurate customer 

gross margin, that an FCM must identify 

not only accounts eligible for separate 

account margining, but also which 

accounts are currently deploying the 

practice on the FCM’s books.358

Consistent with its response above to 

the JAC’s similar comment with respect 

to the recordkeeping requirement in 

regulation § 1.44(d)(1), the Commission 

confirms that such requirement, which 

requires an FCM to keep current the 

required list of separate account 

customers and their separate accounts, 

is intended to ensure that FCMs 

maintain a current list of separate 

account customers and their accounts 

receiving separate treatment. Thus, the 

FCM is required to apply the 

requirements of regulation § 1.44 

applicable to separate account 

customers to all customers on that list. 

Additionally, in connection with 

proposed changes to regulation 

§ 39.13(g)(8)(iii), the Commission 

requested comment with respect to 

whether the Commission should remove 

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

Commission includes the Margin 

Adequacy Requirement and 

requirements regarding separate account 

treatment in part 1 of its regulations as 

proposed (Question 8). In its comment 

letter, CME agreed that it would be 

logical to delete regulation 

§ 39.13(g)(8)(iii) as regulation § 1.44 will 

address withdrawals from customer 

accounts at the clearing member.359 The 

Commission did not receive any other 

comments in response to this question. 

The Commission appreciates CME’s 

comment and acknowledges that the 

Margin Adequacy Requirement in 

regulation § 39.13(g)(8)(iii) is 

substantially the same as that in 

regulation § 1.44(b) (albeit applicable to 

FCMs through the instrumentation of 

DCO rules). The Commission, however, 

notes that in requiring DCOs to prevent 

clearing members from withdrawing 

margin such that it would lead to 

undermargining in the customer’s 

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

provides for an additional layer of 

monitoring and enforcement (in 

addition to FCMs’ DSROs and the 

Commission), to ensure that the Margin 

Adequacy Requirement is being met. 

Considering this substantial oversight 

benefit and noting the low volume of 

responses to this question, the 

Commission has determined to retain 

regulation § 39.13(g)(8)(iii). 

Accordingly, the Commission is 

adopting the amendments to regulation 

§ 39.13 as proposed. 

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.360

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 

this final rule 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 final rule; (2) the alternatives 

contemplated by the Commission and 

their costs and benefits; and (3) the 

impact of the final rule 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 final rule in 

quantitative terms, including Paperwork 

Reduction Act-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 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. 

Notwithstanding these types of 

limitations, the Commission otherwise 

identifies and considers the costs and 

benefits of these final rule amendments 

in qualitative terms. 

In the following consideration of costs 

and benefits, the Commission first 


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361See, e.g., 7 U.S.C. 2(i). 

362Regulation § 1.44(a) provides definitions 

supporting the other subsections of the regulation. 

363While 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, then the 

final part 1 Margin Adequacy Requirement is 

unlikely to impose significant costs on, or cause 

significant benefits with respect to, clearing FCMs. 

identifies and discusses the benefits and 

costs attributable to the final rule 

amendments. Next, the Commission 

identifies and discusses the benefits and 

costs attributable to the final rule 

amendments as compared to 

alternatives to the final rule 

amendments. The Commission, where 

applicable, then considers the costs and 

benefits of the final 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 final 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.361

In the Second Proposal, the 

Commission generally requested 

comment on all aspects of its cost 

benefit considerations. The Commission 

also included a number of questions for 

the purpose of eliciting cost and benefit 

estimates from public commenters 

wherever possible. 

1. Final Rule 

The Commission is promulgating 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) (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 requirements 

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 disbursements on a 

separate account basis (regulation 

§ 1.44(c)–(h)).362 The Commission is 

also adopting revisions to 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 (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 (amendments to 

regulation § 39.13), to facilitate full 

implementation of the Margin Adequacy 

Requirement and the requirements 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 final 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 final rule 

amendments is the Commission 

regulations in effect immediately prior 

to the adoption of this final rule; 

specifically, part 1 of the Commission’s 

regulations (where the operative part of 

the final rule 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 

final rule 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 will be 

directly affected by the final rule. 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 final 

rule. 

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.363 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 

Immediately prior to the adoption of 

this final rule, Commission regulations 

did not, either directly or indirectly, 

impose a Margin Adequacy 

Requirement on non-clearing FCMs. 

Accordingly, non-clearing FCMs had no 

need to engage in separate account 

treatment with respect to such a 

requirement. 

Additionally, immediately prior to the 

adoption of this final rule, the 

Commission’s part 1 regulations did 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 non-clearing FCMs 

previously had 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 was 

not 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). 


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364Section 5b(c)(2)(D) of the CEA, 7 U.S.C. 7a– 

1(c)(2)(D). 

365Section 5b(c)(2)(D)(iv) of the CEA, 7 U.S.C. 7a– 

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

366To 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. 

367 7 U.S.C. 6d(a)(2); 17 CFR 1.20(a); 17 CFR 

1.22(a). 

368See First FIA Letter. 

B. Consideration of the Costs and 

Benefits of the Commission’s Action 

1. Benefits 

a. Margin Adequacy Requirement 

(Regulation § 1.44(b)) 

As discussed above, the Commission 

is (a) promulgating 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 undermargining 

scenario; and (b) adopting 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 final rule. 

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.364 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.365

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 believes that, to the extent 

there are failures in compliance with 

respect to margin adequacy, final 

regulation § 1.44(b) will provide an 

additional avenue (i.e., through the 

Commission and an FCM’s DSRO) for 

monitoring and enforcement of margin 

adequacy for clearing FCMs. Moreover, 

final regulation § 1.44(b) will expand 

the Margin Adequacy Requirement to 

apply to foreign futures transactions 

cleared through both clearing and nonclearing FCMs.366

With respect to non-clearing FCMs, 

the Margin Adequacy Requirement of 

final 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 

undermargining 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.367

The Commission believes that 

regulation § 1.44(b), which will apply a 

Margin Adequacy Requirement directly 

to FCMs, both clearing and nonclearing, 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 undermargining 

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 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 undermargining situations, 

is reasonably necessary to effectuate 

CEA sections 4d and 4(b)(2) and to 

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 (Regulation § 1.44(c)–(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 asset managers to 

achieve certain commercial purposes.368

For example, where a customer has 

apportioned assets among multiple asset 

managers, neither the customer nor their 

asset managers may be able to obtain 

certainty that the individual portion of 

funds allocated to one asset manager 

will not be affected by the activities of 

other asset managers. 

Where FCMs are able to treat the 

separate accounts of a single customer 

as accounts of separate entities for 

purposes of the Margin Adequacy 

Requirement, customers benefit from 

being better able to leverage the skills 

and expertise of asset managers and 

realize the benefits of a balance of 


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369See 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). 

370And, similarly, those of CEA section 4d(f)(2) 

and 4(b). 

371For 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 following the adoption of this 

final rule, the Commission submits that there will 

be significant costs; similar to those faced by nonclearing FCMs. This is discussed further below in 

the costs section. 

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 undermargining of 

customer accounts. By applying 

regulatory safeguards designed to 

preserve the goals of the Margin 

Adequacy Requirement during such 

treatment, the final rule 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, sections 4d(a)(2) 

of the CEA and 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 369—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 principal 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 effectuate 

CEA section 4d(a)(2)’s customer fund 

protection and risk avoidance 

requirements 370 while offering 

commercial utility for a variety of 

market participants. However, prior to 

the adoption of this final rule, part 1 did 

not contain any regulations imposing 

such a Margin Adequacy Requirement, 

or governing the manner in which 

separate account treatment may be 

conducted. 

The final rule is designed to achieve 

the benefit of bridging this gap by 

(i) inserting a Margin Adequacy 

Requirement (regulation § 1.44(b)) into 

part 1 to ensure further that an FCM 

(whether a clearing or non-clearing 

FCM) does not permit margin 

withdrawals that would create or 

exacerbate an undermargining 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 

discussed above (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 (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 from 

receiving (or an FCM with respect to all 

of its separate account customers from 

making) disbursements on a separate 

account basis (regulation § 1.44(e)), 

(v) requiring that separate accounts be 

on a one business day margin call, while 

setting forth limited circumstances in 

which failure to actually receive margin 

on a same-day basis may be excused, 

with the benefit of limiting the extent of 

potential undermargining, (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 

(regulation § 1.44(g)–(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. 

The 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 regulation § 1.44 

and facilitate implementation of 

provisions in regulation § 1.44 that 

would affect compliance with financial 

requirements for FCMs, collection of 

margin, and FCM risk management. 

Additionally, a 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 regulation § 1.44(b), 

does not require DCOs to preclude 

separate account treatment carried out 

subject to regulation § 1.44. 

The Commission believes that final 

regulation § 1.44(c)–(h), and the final 

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 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 final 

regulation § 1.44(c)–(h) are substantially 

similar to the conditions to the staff noaction 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 rule amendments as 

realized in the market may not be as 

significant as a comparison of the rule 

to the regulatory baseline would 

suggest.371

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 


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7924 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

372See 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. 

373CFTC, Financial Data for FCMs, Aug. 31, 2024, 

available at https://www.cftc.gov/MarketReports/

financialfcmdata/index.htm. 

changes. This could entail significant 

expenditures of funds and resources in 

order to rework systems, procedures, 

and customer documentation for such 

FCMs.372 Hence, actual benefits to the 

regulation may accrue from the ability 

of many FCMs to avoid these costs. 

In connection with its discussion of 

the benefits of the proposed 

requirements for separate account 

treatment, the Commission asked as 

Question 9 what evidence can be 

provided that customers have been able 

to achieve better performance by virtue 

of allowing separate account treatment; 

and whether there is evidence of under 

margining due to separate account 

treatment since CFTC Letter No. 19–17 

was issued. Additionally, as Question 

10, the Commission asked whether there 

is evidence of regulatory arbitrage 

between clearing FCMs and nonclearing FCMs on the grounds that the 

latter are not currently subject to the 

Margin Adequacy Requirement. No 

commenter responded to these 

questions. 

2. Costs 

The final rule (i) amends part 1 of the 

Commission regulations to add a new 

requirement (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) amends 

part 1 to, in the same new section 

(regulation § 1.44(c)–(h)), permit FCMs, 

subject to certain requirements and for 

purposes of the Margin Adequacy 

Requirement, treat the accounts of a 

single customer as accounts of separate 

entities; and (iii) amends existing 

regulations in parts 1 and 39 to facilitate 

implementation of the 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 approximately 60 registered 

FCMs, and of these, the Commission 

estimates that approximately 40 are 

clearing FCMs and approximately 20 are 

non-clearing FCMs.373 While the final 

rule 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. Accordingly, as 

noted in connection with the 

Commission’s discussion below related 

to the PRA, the Commission estimates 

that 30 FCMs will choose to apply 

separate account treatment. 

a. Margin Adequacy Requirement 

(Regulation § 1.44(b)) 

The Margin Adequacy Requirement of 

regulation § 1.44(b) requires 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 Margin 

Adequacy Requirement of regulation 

§ 1.44(b) indirectly to clearing FCMs, 

through the rules of their DCOs. Because 

clearing FCMs are already functionally 

subject to the Margin Adequacy 

Requirements of 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. 

Prior to this final rule, non-clearing 

FCMs were not 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 Margin 

Adequacy Requirement. The 

Commission expects that the 

compliance costs for non-clearing 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 non-clearing 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 promulgated under the 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 (Regulation § 1.44(c)–(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 regulation § 1.44(b), the 

Commission is also adopting in 

regulation § 1.44(c)–(h) rules to allow 

FCMs to elect to apply separate account 

treatment for purposes of the Margin 

Adequacy Requirement, and 

requirements for the application of such 

treatment. The 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 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 final rule, the Commission 

expects that clearing FCMs and nonclearing 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 


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Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7925 

374There 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 regulation 

§ 1.44(g)(2) and existing regulation § 39.13(g)(8)(i), 

as clarified by regulation § 39.13(g)(8)(i)(E) for 

clearing FCMs, and 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 

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 nonclearing FCMs that choose separate account 

treatment. 

375FIA letter dated Apr. 1, 2022 to Clark 

Hutchison and Amanda Olear (Second FIA Letter). 

376Third 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. 

377 Id. 

378 Id. 

379 Id. 

380As discussed below, the Commission staff 

estimates total annual costs of $10,292,580 across 

7,530 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. 381This 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 requirements of the final rule, 

but would not need to retrofit existing policies, 

procedures, and systems. 

382For 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 following the adoption of the 

final rule, the Commission submits that there will 

be significant costs similar to non-clearing FCMs. 

FCMs or non-clearing FCMs, and the 

requirements of the final rule generally 

do not distinguish between clearing 

FCMs and non-clearing FCMs.374

The costs of the final rule 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 final rule, 

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 final 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 final rule. 

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.’’ 375

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 

position, clearing FCMs were required 

to review and in some cases amend 

customer agreements, and identify and 

implement information technology 

systems changes.376 FIA also asserted 

that clearing FCMs were likely required 

to revise internal controls and 

procedures.377 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.378 FIA further stated that 

because the relevant provisions of these 

agreements were not uniform, they 

generally required individual 

attention.379

The Commission anticipates that 

similar costs would arise for FCMs 

attempting to meet the requirements of 

the final 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,380 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 regulation 

codifies 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 final rule, 

as well as negotiation costs, even where 

direct recordkeeping costs may not be 

significant on an entity-by-entity 

basis.381

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 final rule amendments as 

realized in the market may not be as 

significant as a comparison of the rule 

to the regulatory baseline would 

suggest.382 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 


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383Communications from FIA indicate that 

significant resources have, in fact, been expended 

to meet the conditions of the no-action position of 

CFTC Letter No. 19–17. See Second FIA Letter. 

384 JAC Comment Letter. 

385 Id. 

386 Id. 

387 Id. 

388FIA Comment Letter. 

389 Id. 

390 Id. 

391SIFMA–AMG Comment Letter. 

392MFA Comment Letter. 

the final rule on an ongoing basis will 

largely have already been built, and the 

costs associated with compliance will 

largely have already been incurred.383

(This would not apply to non-clearing 

FCMs, who have had no need to rely on 

the effects of the no-action position.) 

However, the Commission notes that 

because the provisions of the final rule 

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 final regulation § 1.44(c)– 

(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 

undermargin 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. 

As Question 11, the Commission 

asked whether 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 were appropriately 

comprehensive, and what data can be 

provided about the magnitude of such 

costs, either by type or in the aggregate. 

As Question 12, the Commission 

requested 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 

(requesting that commenters provide 

data where available). As Question 13, 

the Commission requested comment 

regarding whether there are FCMs that 

chose not to rely on the no-action 

position in CFTC Letter No. 19–17 due 

to the conditions required to rely on that 

position. The Commission further 

requested comment on how the 

implementation of those conditions in 

the Second Proposal could be modified 

to mitigate the burden of compliance 

while achieving the goals of mitigating 

systemic risk and protecting customer 

funds. 

No commenters responded to these 

questions; however, several commenters 

submitted comments that dealt with 

potential costs, generally qualitatively. 

For example, in commenting on the 

Commission’s definition of 

‘‘undermargined amount’’ in proposed 

regulation § 1.44(a), the JAC asserted 

that the proposed rule appeared to 

require FCMs to perform margin 

calculations differently for compliance 

with different regulatory reporting 

requirements (including, potentially, 

bifurcated treatment for non-separate 

account customers and separate account 

customers), which the JAC contended 

may prove burdensome for FCMs that 

permit separate account treatment (e.g., 

such FCMs may be required to update 

their regulatory reporting records).384 As 

discussed above, the Commission has 

modified the final definition of 

‘‘undermargined amount’’ to address the 

JAC’s comment and make clear that the 

final rule is not intended to alter the 

manner in which FCMs determine the 

undermargined amount for a separate 

account or non-separate account 

customer. 

In discussing the permissibility under 

the proposed regulation of certain multisettlement margining processes, the JAC 

also noted FCMs may be required to 

undertake significant work to update 

their regulatory records, risk programs, 

margin calculations, and reports for 

separate account customers and nonseparate account customers.385 While 

the Commission confirms above that the 

final rule is not intended to preclude 

FCMs and their customers from, e.g., 

settling margin in multiple currencies, 

and does not require the disbursement 

or settlement of a single amount, the 

Commission nonetheless expects that, 

as a general matter, some FCMs will be 

required to undertake significant work 

to implement requirements for separate 

account treatment (in particular, FCMs 

that have not provided such treatment 

for customers previously but opt to do 

so following the adoption of this final 

rule). 

The JAC discussed in its comment 

letter that FCMs could be subject to 

significant capital charges for separate 

accounts in light of the requirement in 

proposed regulation § 1.17(c)(5)(viii)(B) 

to require the calculation of current 

calls used in computing a separate 

account’s undermargined capital charge 

based on the age of all margin calls in 

all separate accounts of the separate 

account customer.386 With respect to the 

requirement in proposed regulation 

§ 1.17(c)(2)(i), which would have 

required FCMs to look across all 

separate accounts of a separate account 

customer in determining one-day debits 

or deficits for purposes of ascertaining 

current assets, the JAC noted that FCMs 

permitting separate account treatment 

may need to consider additional capital 

needs, particularly in the event that 

margin calls met in non-USD currencies 

would be considered satisfied only 

when receipts are settled.387 FIA 

similarly argued that the proposed 

revisions to regulation § 1.17 would 

likely be costly to FCMs because they 

would require FCMs to rebuild 

operational and reporting systems to 

perform the required look-across of 

separate accounts.388 Using a 

quantitative example and information 

ascertained from a survey of FIA 

members, FIA also argued that the 

proposed look-across could result in 

capital treatment that, in FIA’s view, 

would be punitive and without regard to 

related financial or operational risk.389

As discussed above, in this final rule, 

the Commission has eliminated the 

requirement to look across separate 

accounts for purposes of regulation 

§ 1.17(c)(2)(i) and regulation 

§ 1.17(c)(5)(viii)(B), and further confirms 

that the final rule is not intended to 

preclude treatment of pending non-USD 

transfers as received (subject to 

conditions identical to those set forth in 

JAC guidance) for purposes of regulation 

§ 1.17(c)(5)(viii), among others. 

Additionally, FIA asserted that the 

standard for determining the occurrence 

of an unusual administrative error or 

operational constraint that would 

excuse a margin fail under the one 

business day margin call standard of 

regulation § 1.44, set forth in proposed 

regulation § 1.44(f)(5), introduces 

subjectivity and complexity into routine 

determinations that will require 

material levels of new investment in 

compliance, risk management, and 

operations time and resources, for no 

discernible risk management benefit.390

SIFMA–AMG opined that the proposed 

regulation § 1.44(f)(5) did not 

appropriately balance practicability and 

burden with risk management,391 and 

MFA contended that the proposed 

requirement would result in additional 

administrative burdens on an FCM.392

FIA also contended that proposed 

regulation § 1.44(f)(4), which in part 

permits a separate account customer or 


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393FIA Comment Letter. 

394SIFMA–AMG Comment Letter. 

395FIA Comment Letter. 

396SIFMA–AMG Comment Letter. 397 7 U.S.C. 7a–1(c)(2)(D)(iii)–(iv). 

investment manager to designate the 

holiday schedule of a Eurozone country 

to follow for purposes of regulation 

§ 1.44’s one business day margin call 

standard where margin is to be paid in 

EUR, will require FCMs to deploy new 

margin day counting systems and 

protocols.393 SIFMA–AMG argued that 

proposed regulation § 1.44(f)(4) would 

be unmanageable and unsustainable, 

would impose a regulatory burden 

without a corresponding public policy 

benefit, and could require the overhaul 

of customer agreements and burden 

FCMs with additional monitoring 

responsibilities.394 The Commission is 

adopting regulation § 1.44(f)(4) and 

1.44(f)(5) with modifications in light of 

comments received, and responds to 

FIA’s and SIFMA–AMG’s comments 

above. 

FIA also asserted that proposed 

regulation § 1.44(h)(4)(i)’s 30-day stay 

on reinstating disbursements on a 

separate account basis could have 

certain negative unintended 

consequences for customers and market 

liquidity, if, due to an event outside the 

ordinary course of business, an FCM 

were forced to suspend disbursements 

to customers on a separate account basis 

(even after the underlying event was 

resolved).395 SIFMA–AMG voiced 

similar concerns.396 Here, and above, 

the Commission notes that the 30-day 

stay on reinstating disbursements on a 

separate account basis is intended to 

apply only in instances in which the 

election for separate account treatment 

for a separate account customer 

pursuant to regulation § 1.44(d) is 

revoked. It will not apply where an 

event outside the ordinary course of 

business has required cessation of 

disbursements on a separate account 

basis, and that circumstance 

subsequently has been cured, consistent 

with regulation § 1.44(e)(4). 

C. Costs and Benefits of the 

Commission’s Action as Compared to 

Alternatives 

The Commission considered as an 

alternative to this final rule 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—codified herein on an FCMwide 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 regulation 

§ 1.44(b)). The Commission 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 disbursements on a separate 

account basis 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 riskmitigating 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, before 

promulgating a regulation or issuing an 

order, to consider the costs and benefits 

of the action in light of considerations 

of protection of market participants and 

the public. The Commission believes 

that the amendments adopted 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 

final rule’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 final rule 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 397 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 final rule 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 codified herein, as 

modified and applicable on an FCMwide 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, 

disbursements on a separate account 

basis are 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 final rule also puts 

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 five years, successfully 

relied on a no-action letter, as applied 

through their DCOs, establishing 

conditions substantially similar to the 

requirements for separate account 

treatment set forth in this final rule, and 

the Commission believes that the 

codification of these conditions, as set 

forth herein, supports protection of 

market participants and the public. 


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398See First FIA Letter; SIFMA–AMG Letter; CME 

Letter. 

399See, e.g., First FIA Letter (describing use of 

separate account treatment for hedging purposes). 

400 7 U.S.C. 19(b). 

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 its action in light 

of efficiency, competitiveness, and 

financial integrity of futures markets. 

The Commission believes that the final 

rule may carry potential implications for 

the financial integrity of markets, but 

not for the efficiency or competitiveness 

of markets, which the Commission 

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 

potentially cascading consequences for 

the clearing FCM (if applicable) or the 

DCO and the wider financial system. 

The Margin Adequacy Requirement of 

regulation § 1.44(b) advances those 

purposes directly. The final 

amendments permitting separate 

account treatment reflect the 

Commission’s conclusion that the 

conditions of CFTC Letter No. 19–17, as 

codified herein, are sufficient and 

appropriate to guard against such risks 

for purposes of the 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.398 By codifying in part 1 

a Margin Adequacy 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 promulgating 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 its action in light 

of price discovery considerations. The 

Commission believes that the final 

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 its action 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 Margin Adequacy 

Requirement of regulation § 1.44(b) 

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 final 

rule also applies this requirement to 

non-clearing FCMs, and creates another 

avenue to monitoring and enforcement 

of this requirement for clearing FCMs. 

Additionally, the Commission 

believes that the final rule will ensure 

that application of the requirements 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 noaction 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 

disbursements on a separate account 

basis in certain instances of operational 

or financial distress. The Commission 

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.399

5. Other Public Interest Considerations 

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

the Commission to evaluate the costs 

and benefits of its action 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-and-comment 

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. In 

promulgating this final rule, the 

Commission sought and considered 

public comment both as to the proposed 

regulation generally and as to specific 

aspects of the proposal (including costs 

and benefits). 

As Question 14, the Commission 

requested comment, including any 

available quantifiable data and analysis, 

concerning its analysis of the section 

15(a) factors. No commenters responded 

to this question. 

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.400

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission did not 

identify any anti-competitive effects in 

the NPRM. The Commission requested 

comment on whether the proposed 

regulation implicates any other specific 

public interest to be protected by the 

antitrust laws, as well as on whether the 

proposed regulation is anticompetitive 

and, if it is, what the anticompetitive 

effects are. The Commission did not 

receive any comments in response to 

these requests. 


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401 5 U.S.C. 601 et seq. 

402Bankruptcy 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)). 

403See 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)). 

404 44 U.S.C. 3501 et seq. 

405As noted below in connection with 

recordkeeping requirements, the final rule may also 

contain recordkeeping implications under the PRA 

for certain separate account customers/asset 

managers to the extent an FCM considers pending 

non-USD transfers as received for certain purposes. 

406 7 U.S.C. 12(a)(1). 

407However, the Commission expects that FCMs 

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

but choose to apply separate account treatment 

following the adoption of this final rule, would 

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

account treatment following the adoption of this 

final rule. 

408See CFTC, Selected FCM Financial Data as of 

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

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

%20FCM%20web page%20Update%20- 

%20August%202023.xlsx. 

The Commission confirms its 

determination that this final rule is not 

anti-competitive and has no anticompetitive effects. Given this 

determination, the Commission has not 

identified any less anti-competitive 

means of achieving the purposes of the 

CEA. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires agencies to consider whether 

their rules 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.401 The rules adopted 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 

requirements 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.402 The 

Commission has previously determined 

that FCMs are not small entities for the 

purpose of the RFA.403 Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that these final rules will not 

have a significant economic impact on 

a substantial number of small entities. 

C. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 404 imposes certain requirements 

on Federal agencies, including the 

Commission, in connection with their 

conducting or sponsoring any 

‘‘collection of information’’ as defined 

by the PRA. Under the PRA, an agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid control 

number. The Office of Management and 

Budget (OMB) has assigned to this new 

collection the control number 3038– 

0121. 

The PRA is intended, in part, to 

minimize the paperwork burden created 

for individuals, business, and other 

persons as a result of the collection of 

information by Federal agencies, and to 

ensure the greatest possible benefit and 

utility of information created, collected, 

maintained, used, shared, and 

disseminated by or for the Federal 

government. The PRA applies to all 

information, regardless of form or 

format, whenever the Federal 

government is obtaining, causing to be 

obtained, or soliciting information, and 

includes required disclosure to third 

parties or the public, of facts or 

opinions, when the information 

collection calls for answers to identical 

questions posed to, or identical 

reporting or recordkeeping requirements 

imposed on, ten or more persons. 

This final rule will result in a new 

collection of information within the 

meaning of the PRA, as discussed 

below. 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 § 1.44.405 Beyond 

the reporting, disclosure, and 

recordkeeping provisions identified 

below, the Commission does not believe 

the final rule imposes any other new 

collections of information that require 

approval of OMB under the PRA. The 

Commission requests that OMB approve 

OMB control number 3038–0121 in 

accordance with 44 U.S.C. 3507(d) and 

5 CFR 1320.11. 

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.’’ 406 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 final rule 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 

requirements for separate account 

treatment specified in 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 

requirements for separate account 

treatment under this final rule. For these 

clearing FCMs, the Commission expects 

that any additional cost or 

administrative burden associated with 

complying with the final rule would be 

reduced.407

a. Reporting Requirements 

The final rule 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 60 

registered FCMs.408 The Commission 

staff estimates that slightly less than half 

of all FCMs would engage in separate 

account treatment under the final rule, 

resulting in approximately 30 

respondents. 

First, 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 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 


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409This 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 2023 [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 2023: 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 $116,520. 

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 1.0357 to account for the 3.57% 

change in the Consumer Price Index for Urban 

Wage-Earners and Clerical Workers between May 

2023 and September 2024 (298.382 to 309.046). 

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 $268. 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. 410The Commission staff applies the same 

assumption to notifications to DSROs and the 

Commission with respect to regulation § 1.44(d)(2) 

and regulation § 1.44(e)(3). 

411See BLS Data (category 13–2061, ‘‘Financial 

Examiners,’’ in Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities). 

412This estimate reflects the aggregate 

information collection burden estimate associated 

with the reporting requirements for the first annual 

period following implementation of the final rule. 

Because regulation § 1.44(d)(2) will result in a onetime reporting requirement, the Commission staff 

estimates that for each subsequent annual period, 

the number of reports, burden hours, and burden 

cost will be reduced accordingly. 

413This figure is based on the annual mean wage 

of $264,110 for BLS category 23–1011, ‘‘Lawyers,’’ 

in Securities, Commodity Contracts, and Other 

Financial Investments and Related Activities, 

available at https://data.bls.gov/oes/#/indOcc/

Multiple%20occupations

%20for%20one%20industry. 

414This figure is based on the annual mean wage 

of $264,110 for BLS category 23–1011, ‘‘Lawyers,’’ 

in Securities, Commodity Contracts, and Other 

Financial Investments and Related Activities, 

available at https://data.bls.gov/oes/#/indOcc/ 

Multiple%20occupations%20for

%20one%20industry. 

415This figure is based on the annual mean wage 

of $140,970 for BLS category 15–1254, ‘‘Web 

Developers,’’ in Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities. BLS Data, available at https://

www.bls.gov/oes/current/oes_nat.htm. 

respondents could expend up to $268, 

based on an hourly rate of $268,409 to 

comply with regulation § 1.44(d)(2). 

This would result in an annual burden 

of 30 hours and an aggregated cost of 

$8,040 (30 respondents × $268). 

Second, 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 ‘‘non-ordinary 

course of business’’ events. The 

Commission staff estimates that each 

such FCM may experience two nonordinary 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.410

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 $4,288 

annually, based on an hourly rate of 

$268, to comply with this 

requirement.411 This would result in an 

aggregated cost of $128,640 per annum 

(30 respondents × $4,288). 

The aggregate information collection 

burden estimate associated with the 

reporting requirements is as follows: 412

Estimated number of respondents: 30. 

Estimated number of reports: 90. 

Estimated annual hours burden: 510. 

Estimated annual cost: $136,680. 

b. Disclosure Requirements 

The final rule contains three 

disclosure requirements that could 

affect ten or more persons in a 12-month 

period. 

First, 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 1 response per respondent on a 

one-time basis, and that each 

respondent is likely to spend one hour 

to comply with this requirement for a 

total of 1 annual burden hour and up to 

$268 annually, based on an hourly rate 

of $268.413 This would result in an 

annual burden of 30 hours (1 response/ 

respondent × 1 hour/response × 30 

respondents) and an aggregated cost of 

$8,040 (30 respondents × $268). This 

estimate reflects one initial disclosure 

distributed simultaneously to all 

existing separate account customers. 

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, regulation § 1.44(h)(3)(iii) 

requires that an FCM engaging in 

separate account treatment include the 

disclosure statement required by 

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 requirement would 

result in a total of one response on a 

one-time basis, and that each 

respondent could expend up to $608 

annually, based on an hourly rate of 

$608,414 to comply with regulation 

§ 1.44(h)(3)(iii). This would result in an 

estimated 30 burden hours annually (1 

response × 1 hour/response × 30 

respondents) and an aggregated cost of 

$18,240 (30 respondents × $608). This 

estimate reflects one updated disclosure 

distributed simultaneously to existing 

customers. If the FCM opts to include 

the disclosure on its website, the 

Commission staff estimates that this 

requirement would result in a total of 

one response on a one-time basis, and 

that each respondent could expend up 

to $324 annually, based on an hourly 

rate of $324, to comply with regulation 

§ 1.44(h)(3)(iii).415 This would result in 

an estimated 30 burden hours annually 

(1 response × 1 hour/response × 30 

respondents) and an aggregated cost of 

$9,720 (30 respondents × $324). 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, regulation § 1.44(h)(4) requires 

an FCM that has made an election 

pursuant to regulation § 1.44(d) to treat 

the separate accounts of a customer as 

accounts of separate entities for 

purposes of regulation § 1.44(b), 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 requirements 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 


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416See BLS Data (category 23–1011, ‘‘Lawyers,’’ 

in Securities, Commodity Contracts, and Other 

Financial Investments and Related Activities). 417For purposes of this analysis, the Commission 

staff calculates the aggregate information collection 

burden assuming that respondents choose to 

include the disclosure statement required by 

regulation § 1.44(h)(3) on their websites and within 

their Disclosure Document required by regulation 

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

§ 1.44(h)(3)(iii). Additionally, this estimate reflects 

the aggregate information collection burden 

estimate associated with the disclosure 

requirements for the first annual period following 

implementation of the final rule. Because each of 

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. 

418The Commission does not expect a significant 

time burden required to record that an individual 

customer is receiving separate account treatment 

and add such customer to a list of customers 

receiving separate account treatment. 419Financial Examiners. 

420Regulation § 1.44(e)(4) requires the FCM to 

document in writing the factual basis and rationale 

for its conclusion that the circumstances leading to 

the cessation of separate account treatment for one 

or more separate account customers has been cured 

but does not otherwise prescribe the form or 

manner for such documentation. Nor does it require 

that such documentation be voluminous. As such, 

the Commission staff estimates that two hours per 

response may be reasonable in most instances. 

421Financial Examiners. 

422FIA 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. Applying a 25% upward adjustment to 

account for the passage of time, potential 

onboarding of new customers, and application to 

non-clearing FCMs, the Commission staff estimates 

that there are 3,750 customers of FCMs whose 

accounts could be in scope for the final rule, with 

an average of 125 customers per FCM (among 30 

FCMs). 

423This figure is based on the annual mean wage 

of $70,470 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. 

424This estimate reflects the aggregate 

information collection burden estimates associated 

with the disclosure requirements for the first annual 

period following implementation of the final rule. 

Continued 

that respondents could expend up to 

$608 annually, based on an hourly rate 

of $608,416 to comply with regulation 

§ 1.44(h)(4). This would result in an 

estimated 30 burden hours annually (1 

response × 1 hour/response × 30 

respondents) and an aggregated cost of 

$18,240 (30 respondents × $608). This 

estimate reflects an initial updated 

disclosure distributed simultaneously 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 

disclosure requirements is as 

follows: 417

Estimated number of respondents: 30. 

Estimated number of reports: 120. 

Estimated annual hours burden: 120. 

Estimated annual cost: $54,240. 

c. Recordkeeping Requirements 

The final rule contains four 

recordkeeping requirements that could 

affect ten or more persons in a 12-month 

period. 

First, 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 receiving 

such treatment maintained in its books 

and records. The Commission staff 

estimates that this would result in a 

total of 125 responses per respondent on 

a one-time basis at a rate of 15 minutes 

per response,418 and that respondents 

could expend up to $8,375 annually per 

respondent, based on an hourly rate of 

$268,419 to comply with regulation 

§ 1.44(d)(1). This would result in an 

estimated 938 burden hours annually 

(125 responses × 15 minutes/response × 

30 respondents) and an aggregated cost 

of $251,250 per annum (30 respondents 

× $8,375). 

Second, 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 disbursements on 

a separate account basis 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 

disbursements on a separate account 

basis would be cured. Accordingly, the 

Commission staff estimates that 

documenting the cure of each nonordinary course of business event would 

require two recordkeeping responses per 

respondent on an annual basis, resulting 

in a total of 60 annual responses, and 

that respondents are likely to spend two 

hours to complete the required 

recordkeeping tasks.420 This would 

result in a total of 120 annual burden 

hours (2 responses × 2 hours/response × 

30 respondents) and up to $1,072 

annually per respondent, based on an 

hourly rate of $268,421 to comply with 

this requirement. This would result in 

an aggregated cost of $32,160 per annum 

(30 respondents × $1,072). 

Third, 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 at one hour per 

response,422 and that respondents could 

expend up to $20,250 annually, based 

on an hourly rate of $162.423 This would 

result in an estimated 3,750 burden 

hours annually (125 responses × 1 hour/ 

response × 30 respondents) and an 

aggregated cost of $607,500 per annum 

(30 respondents × $20,250). 

Fourth, regulation § 1.44(h)(3)(ii) 

requires that an FCM maintain 

documentation demonstrating that the 

part 190 disclosure statement required 

by 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 at an 

estimated six minutes per response, and 

that respondents could expend up to 

$2,025 annually, based on an hourly 

rate of $162, to comply with regulation 

§ 1.44(h)(3)(ii). This would result in an 

estimated 375 burden hours annually 

(125 responses × 6 minutes/response × 

30 respondents) and an aggregated cost 

of $60,750 (30 respondents × $2,025). 

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 regulation § 1.44(h)(3)(ii) would be 

required only with respect to new 

customers who receive disclosures 

pursuant to regulation § 1.44(h)(3)(ii), 

and the costs and burden hours 

associated with regulation 

§ 1.44(h)(3)(ii) would be reduced 

accordingly.424


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Because, as noted above, 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. 

425 I.e., with respect to the final amendments to 

regulation § 1.17(c)(5)(viii), with respect to 

regulation § 1.17(c)(5)(ix) as discussed in the JAC’s 

comment letter, and with respect to final regulation 

§ 1.44(b) and (g)(5). 426A response would only be necessary on days 

when a respondent has been called for margin due 

to an undermargined condition, and is meeting that 

call with at least one currency other than USD (or 

CAD). A conservative estimate of the frequency of 

this happening is on half of the trading days in a 

year for each respondent. 427This figure is based on the annual mean wage 

of $249,260 for BLS category 11–3031, ‘‘Financial 

Managers,’’ in Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities, available at https://www.bls.gov/oes/ 

current/oes113031.htm. 428The Commission staff has estimated that there 

are 3,750 separate account customers and further 

estimates that each customer has an average of three 

separate accounts, and that two thirds of these 

accounts settle at least in part in currencies other 

than USD and CAD. While the same asset manager 

may, in fact, manage multiple separate accounts, 

the Commission is treating each separate account as 

a separate respondent. 

Lastly, to the extent FCMs treat 

pending non-USD transfers as received, 

consistent with JAC guidance, for 

certain purposes,425 as discussed above, 

the Commission appreciates that an 

FCM’s application of the condition in 

JAC guidance that an FCM has a 

sufficient basis to believe that the wire 

supporting the transfer was actually 

initiated may result in recordkeeping for 

customers/asset managers. The 

Commission staff estimates that this 

would result in a total of 1 response per 

respondent, 125 times per year,426 at an 

estimated one minute per response, and 

that respondents could expend up to 

$1,220 annually, based on an hourly 

rate of $574, to perform the relevant 

recordkeeping.427 This would result in 

an estimated 15,938 burden hours 

annually (125 responses × 1 minute 

(approximately 0.017 hours)/response × 

7,500 respondents) 428 and an aggregated 

cost of $9,150,000 (7,500 respondents × 

$1,220). The Commission notes that 

while certain other provisions of the 

final rule 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 

recordkeeping requirements is as 

follows: 

Estimated number of respondents: 

7,530. 

Estimated number of reports: 948,810. 

Estimated annual hours burden: 

21,121. 

Estimated annual cost: $10,101,660. 

The Commission invited, but did not 

receive, any public comments related to 

the proposed information collection 

requirements. 

D. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as not a ‘‘major 

rule,’’ as defined by 5 U.S.C. 804(2). 

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. 

For the reasons set forth in the 

preamble, the Commodity Futures 

Trading Commission amends 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 paragraph (b) 

introductory text; 

■ b. Revising paragraphs (b)(6) and 

(b)(8) introductory text; 

■ c. Adding paragraph (b)(8)(v); 

■ d. Republishing paragraphs (c) 

introductory text and (c)(2) introductory 

text; 

■ e. Revising paragraph (c)(2)(i); 

■ f. Republishing paragraph (c)(4) 

introductory text; 

■ g. Revising paragraph (c)(4)(ii); 

■ h. Republishing paragraph (c)(5) 

introductory text; and 

■ i. 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, 

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 


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

commission merchant that carries 

separate accounts for separate account 

customers pursuant to § 1.44 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. 

* * * * * 

(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 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 

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, 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 that separate account 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). 

(D) In the event that an owner of a 

customer account, or a customer 

separate account pursuant to § 1.44, 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) 

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 this paragraph 

(c)(5); 

* * * * * 

■ 4. Amend § 1.20 by revising paragraph 

(i)(4) and adding 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 

preceding sentence, 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 (i)(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 


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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 (17 CFR 240.15c3– 

1(c)(11)). 

(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 (17 CFR 

240.15c3–1(c)(2)(vi)). 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 (17 CFR 

240.15c3–1(c)(2)(vi)) 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: 

■ a. Removing from paragraph (b) the 

reference ‘‘17 CFR 241.15c3–1(c)(2)(vi)’’ 

and adding in its place ‘‘17 CFR 

240.15c3–1(c)(2)(vi)’’ wherever it 

appears, and 

■ b. Adding paragraph (l). 

The addition reads 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 shall: 

(1) 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; 

(2) 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 

(3) 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 

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, a Cleared Swaps 

Customer Account as defined in § 1.3, or 

a 30.7 account as defined in § 30.1 of 

this chapter. 

Business day has the meaning set 

forth in § 1.3, 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 operation of the futures commission 

merchant’s business relationship with 

its separate account customer absent the 

occurrence of one or more of the events 

specified in paragraph (e) of this 

section. 

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 exceed 

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 required for the 

positions in the account by the 

applicable exchanges or clearing 

organizations. Market risk collateral 

haircuts based on Rule 15c3–1 of the 

Securities and Exchange Commission 

(17 CFR 240.15c3–1) and § 1.17(c)(5) 

shall be applied to the value of the 

margin deposits held by a futures 

commission merchant. 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 

(b)(1) of this section, where the previous 

day (excluding Saturdays and Sundays) 

is a holiday, as defined in paragraph (a) 

of this section, where any designated 

contract market or other board of trade 

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 


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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 § 1.12(n)(3). 

(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 or 

section 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 

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 paragraph 

(e)(1) or (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 § 1.12(n)(3). 

(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 disbursements on 

a separate account basis were an action 

or direction by one of the entities 

described in paragraph (e)(1)(v) or (vi) 

or (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 


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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 to the 

next business day following any 

banking holiday in the jurisdiction of 

issue of the currency, and still be 

considered in compliance with the 

requirements of this paragraph (f) if 

payment is delayed due to such banking 

holiday. 

(5) A failure with respect to a specific 

separate account to deposit, maintain, or 

pay margin or option premium that was 

called pursuant to this paragraph (f), 

due to administrative error or 

operational constraints, 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 this 

paragraph (f), or engages in practices 

that are designed to circumvent this 

paragraph (f). 

(7) In the case of a holiday where any 

designated contract market or other 

board of trade on which the futures 

commission merchant trades is open for 

trading, or any derivatives clearing 

organization that clears the Cleared 

Swaps of such futures commission 

merchant’s Cleared Swaps Customers is 

open for clearing such swaps, and 

where a separate account of any of the 

futures commission merchant’s separate 

account customers includes positions 

traded on such a market or cleared at 

such a derivatives clearing organization, 

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 

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). 

(iii) The Commission shall review a 

submission made pursuant to this 

paragraph (f)(8) 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 this paragraph (f)(8), 

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 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, 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. 


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(6) In determining its residual interest 

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

and 1.23(c), 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 of 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 (17 CFR part 190), 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). 

(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 § 1.55(i) that it permits 

the separate treatment of accounts for 

the same customer pursuant to the 

requirements of this section 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. 

■ 7. Revise § 1.58 to read 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, 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 paragraph 

(c) to read 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, 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 were a clearing 

member of a derivatives clearing 

organization. 

■ 9. Add 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 

this Appendix A shall be considered in 

compliance with the requirements of 

Regulation 1.44(f) of Part 1 of the 

Commission’s regulations (17 CFR 1.44(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. 

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 (f) 

heading; 

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

■ c. Republishing the paragraph (g) 

heading; and 

■ d. Adding paragraph (g)(11). 

The republications, revisions, and 

addition to read as follows: 

§ 22.2 Futures Commission Merchants: 

Treatment of Cleared Swaps and 

Associated Cleared Swaps Customer 

Collateral. 

* * * * * 

(f) Requirements as to amount.* * * 

(4) The futures commission merchant 

must, at all times, maintain in 


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7938 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

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 

preceding sentence, 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 (f)(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 (17 CFR 240.15c3– 

1(c)(11)). 

(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 (17 CFR 

240.15c3–1(c)(2)(vi)). 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 (17 CFR 

240.15c3–1(c)(2)(vi)) 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 (f) and 

(f)(2) headings; 

■ c. Revising paragraph (f)(2)(iv); 

■ d. Adding paragraph (f)(2)(v); 

■ e. Republishing the paragraph (l) 

heading; 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 

preceding sentence, 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 


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Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7939 

1CFTC 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; 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; and CFTC Letter No. 24–07, June 24, 

2024, available at https://www.cftc.gov/csl/24-07/ 

download. 

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 (17 CFR 240.15c3– 

1(c)(11)). 

(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 (17 CFR 

240.15c3–1(c)(2)(vi)). 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 (17 CFR 

240.15c3–1(c)(2)(vi)) 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. 

* * * * * 

(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 (g) and 

(g)(8) headings; 

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

■ d. Revising paragraph (g)(8)(iii). 

The republications, addition, and 

revision 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 December 

20, 2024, by the Commission. 

Christopher Kirkpatrick, 

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 Commissioner’s 

Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Behnam and 

Commissioner Goldsmith Romero voted in 

the affirmative. Commissioners Johnson and 

Pham voted to concur. Commissioner 

Mersinger voted in the negative. 

Appendix 2—Statement of Support of 

Chairman Rostin Behnam 

Since 2019, derivatives clearing 

organizations (DCOs) and futures 

commission merchants (FCMs) faithfully 

relied on guidance and a no-action position 

issued through CFTC Staff Letter 19–17 1 to 

comply with DCO rules. In the several years 

during which the original letter was issued, 

DCOs and FCMs invested accordingly in 

anticipation that the Commission would act 

diligently and engage the Commission in the 

process to implement appropriate relief on a 

permanent basis. I am pleased today that, 

consistent with my commitment to 

improving rules and codifying longstanding 

staff positions through rulemakings that 

benefit from the engagement and expertise of 


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7940 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

2On April 14, 2023, the Commission published 

in the Federal Register a notice of proposed 

rulemaking designed to codify the no-action 

position in CFTC Letter No. 19–17. Derivatives 

Clearing Organization Risk Management 

Regulations to Account for the Treatment of 

Separate Accounts by Futures Commission 

Merchants, 88 FR 22934 (Apr. 14, 2023) (First 

Proposal). The First Proposal sought to codify the 

provisions of CFTC Letter No. 19–17 in regulation 

39.13, where it would have applied directly to 

DCOs, and only indirectly to FCMs that are clearing 

members of DCOs through DCO rules. The Second 

Proposal, which withdrew the First Proposal, 

sought to codify these provisions in part 1 of the 

Commission’s regulations, which apply to FCMs 

directly. Regulations To Address Margin Adequacy 

and To Account for the Treatment of Separate 

Accounts by Futures Commission Merchants, 89 FR 

15312 (Mar. 1, 2024) (Second Proposal). The final 

rule follows from the Second Proposal. 

1Statement of Commissioner Caroline D. Pham in 

Support of the Treatment of Separate Accounts 

Proposal (Feb. 20, 2024), https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/phamstatement

022024b. 

our entire Commission, the CFTC is issuing 

a final rule that allocates greater protections 

and more importantly, provides long awaited 

certainty. 

I fully support the final rule which protects 

customer funds, promotes effective DCO and 

FCM risk management, and balances risk 

management with practicability. To ensure 

that the final rule was workable, there were 

numerous discussions and extensive 

engagement between staff and industry, in 

addition to two notices of proposed 

rulemaking.2 This final rule is the 

culmination of these efforts and serves as an 

example of effective collaboration with 

industry yielding positive results. 

I thank Alicia Lewis in my office, and staff 

in the Division of Clearing and Risk, Market 

Participants Division, Office of the General 

Counsel, and the Office of the Chief 

Economist for their work on the final rule. 

Appendix 3—Concurring Statement of 

Commissioner Caroline D. Pham 

I respectfully concur on the Regulations to 

Address Margin Adequacy and to Account 

for the Treatment of Separate Accounts by 

Futures Commission Merchants (FCMs) 

(Separate Accounts Final Rule). I am pleased 

that the Separate Accounts Final Rule has 

resolved two critical issues with the 

proposed rule that were unworkable because 

of (1) conflicts of law under U.S. banking and 

securities regulation and foreign banking law, 

and operational realities regarding the crossborder movement of funds, and (2) lack of 

regulatory clarity for the handling of 

administrative errors and operational 

constraints. In particular, the significant 

changes in the proposed rule from existing 

regulatory requirements under CFTC Letter 

No. 19–17, which FCMs have implemented 

and complied with for the past 5 years, were 

not supported by robust cost-benefit analysis 

to justify imposing overly burdensome new 

rules. I greatly appreciate the support of 

Chairman Behnam and the efforts by CFTC 

staff to address my concerns, and the 

engagement with my fellow Commissioners. 

I would like to thank Daniel O’Connell, 

Bob Wasserman, and Clark Hutchison in the 

Division of Clearing and Risk for their work 

on the Separate Accounts Final Rule and the 

significant time and effort spent working 

with my office, especially to reconsider the 

requirements for a one business day margin 

call and circumstances involving banking 

holidays in the eurozone, and ‘‘unusual’’ 

administrative errors and operational 

constraints.1 I applaud their dedication to 

strengthening our markets and addressing the 

public comments. 

[FR Doc. 2024–31177 Filed 1–14–25; 4:15 pm] 

BILLING CODE 6351–01–P 


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