7810 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

1 7 U.S.C. 1 et seq. 

2The Commission’s regulations are found in 

chapter I of title 17 of the Code of Federal 

Regulations, 17 CFR parts 1 through 199. 

3 7 U.S.C. 6d. 

4See generally 17 CFR 1.20 (segregation 

framework for futures customer funds); 17 CFR 22.2 

and 22.3 (segregation framework for Cleared Swaps 

Customer Collateral); and 17 CFR 30.7 (segregation 

framework for 30.7 customer funds). 

5The term ‘‘futures customer’’ is defined by 

Commission regulation 1.3 to mean, in relevant 

part, any person who uses an FCM as an agent in 

connection with trading in any contract for the 

purchase or sale of a commodity for future delivery 

or any option on such contract. 17 CFR 1.3. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 22, and 30 

RIN 3038–AF24 

Investment of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is amending its regulations 

governing the types of investments that 

futures commission merchants and 

derivatives clearing organizations may 

make with funds held for the benefit of 

customers engaging in futures, foreign 

futures, and cleared swaps transactions. 

The Commission is also revising assetbased and issuer-based concentration 

limits for the investment of customer 

funds. The Commission is also 

specifying market risk capital charges 

that a futures commission merchant 

must take on new investments added to 

the list of permitted investments in 

computing the firm’s adjusted net 

capital. The amendments also revise 

regulations that require each futures 

commission merchant to report to the 

Commission, and to the firm’s 

designated self-regulatory organization, 

the name, location, and amount of 

customer funds held by each depository, 

including any investments of customer 

funds held by the depository. Lastly, the 

Commission is eliminating the 

requirement that each depository 

holding customer funds must provide 

the Commission with read-only 

electronic access to such accounts for 

the futures commission merchant to 

treat the funds as customer segregated 

funds. 

DATES: 

Effective date: This rule is effective 

February 21, 2025. 

Compliance dates: The compliance 

dates for the rule amendments are 

discussed in section VI of 

SUPPLEMENTARY INFORMATION in the 

preamble to this rule. 

FOR FURTHER INFORMATION CONTACT: 

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

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

Deputy Director, 202–418–5495, 

tsmith@cftc.gov; Warren Gorlick, 

Associate Director, 202–418–5195, 

wgorlick@cftc.gov; Liliya Bozhanova, 

Associate Director, 202–418–6232, 

lbozhanova@cftc.gov; Jennifer M. 

Narvaez, Attorney Advisor, 202–418– 

5742, jnarvaez@cftc.gov, Market 

Participants Division, or Lihong 

McPhail, Research Economist, (202) 

418–5722, lmcphail@cftc.gov, Office of 

the Chief Economist, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street NW, 

Washington, DC 20581; Theodore Z. 

Polley, Associate Director, 312–596– 

0551, tpolley@cftc.gov; Division of 

Clearing and Risk, Commodity Futures 

Trading Commission, 77 West Jackson 

Boulevard, Suite 800, Chicago, Illinois 

60604. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. Background and Statutory Authority 

1. Segregation of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

2. Authority for Futures Commission 

Merchants and Derivatives Clearing 

Organizations To Invest Customer Funds 

II. Requests for Amendments to the List of 

Permitted Investments 

III. Summary of the Proposal 

IV. Final Rule 

A. Investment of Customer Funds 

1. Interests in Money Market Funds 

2. Foreign Sovereign Debt 

3. Interests in U.S. Treasury ExchangeTraded Funds 

4. Investments in Commercial Paper and 

Corporate Notes or Corporate Bonds 

5. Investments in Permitted Investments 

With Adjustable Rates of Interest 

6. Investments in Certificates of Deposit 

Issued by Banks 

B. Asset-Based and Issuer-Based 

Concentration Limits for Permitted 

Investments 

C. Futures Commission Merchant Capital 

Charges on Permitted Investments 

D. Segregation Investment Detail Report 

E. Read-Only Electronic Access to 

Customer Funds Accounts Maintained 

by Futures Commission Merchants 

F. Revisions to the Customer Risk 

Disclosure Statement 

V. Section 4(c) of the Act 

VI. Compliance Dates 

VII. Administrative Compliance 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

1. Specified Foreign Sovereign Debt, 

Interests in Qualified Exchange-Traded 

Funds, and Associated Capital Charges 

2. Government Money Market Funds, 

Commercial Paper and Corporate Notes 

or Bonds, and Certificates of Deposit 

Issued by Banks 

3. SOFR as a Permitted Benchmark 

4. Revision of the Read-Only Access 

Provisions 

D. Antitrust Considerations 

I. Introduction 

A. Background and Statutory Authority 

1. Segregation of Customer Funds by 

Futures Commission Merchants and 

Derivatives Clearing Organizations 

The Commodity Exchange Act (‘‘Act’’ 

or ‘‘CEA’’) 1 and the Commission’s 

regulations thereunder 2 establish a 

framework to safeguard funds of 

customers engaged in CFTC-regulated 

derivative transactions. Core elements of 

this framework are requirements for a 

futures commission merchant (‘‘FCM’’) 

or a derivatives clearing organization 

(‘‘DCO’’) to treat customer funds as 

belonging to customers and not as the 

property of the FCM or DCO, and for the 

FCM or DCO to segregate customer 

funds from its own funds in designated 

customer accounts maintained at banks, 

trust companies, FCMs, or DCOs, as 

applicable.3 The segregation of customer 

funds from an FCM’s or DCO’s own 

funds is intended to ensure that 

customer funds are used only to support 

customer trading and transactions and 

to facilitate the return of the funds to 

customers in the event of the insolvency 

of the FCM or DCO. 

Segregated customer funds are 

classified as either: (i) ‘‘futures customer 

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

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

funds.’’ 4 The term ‘‘futures customer 

funds’’ is defined by Commission 

regulation 1.3 to mean, in relevant part, 

all money, securities, and property 

received by an FCM or DCO from, for, 

or on behalf of ‘‘futures customers’’ 5 to 

margin, guarantee, or secure futures and 

options on futures transactions traded 

on CFTC-designated contract markets, 

and all money accruing to futures 

customers resulting from trading futures 

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

of the Act requires an FCM to treat and 

deal with futures customer funds 

received to margin, guarantee, or secure 

trades or contracts of any futures 

customer, or accruing to a futures 

customer as the result of such trades or 

contracts, as belonging to the futures 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7811 

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

7 Id. 

8 7 U.S.C. 6d(b). 

9 Id. 

10 17 CFR 1.20 through 1.30, 17 CFR 1.32, and 17 

CFR 1.49, respectively. 

11 17 CFR 22.1. 

12Commission regulation 22.1 defines the term 

‘‘Cleared Swaps Customer’’ to mean, in relevant 

part, any customer entering into a Cleared Swap. 

The Act and Commission regulation 22.1 further 

define the term ‘‘Cleared Swap’’ to mean any swap 

that is, directly or indirectly, submitted to, and 

cleared by, a DCO registered with the Commission. 

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

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

14 7 U.S.C. 6d(f)(2)(B). 

15 7 U.S.C. 6d(f)(3)(A)(i). 

16 7 U.S.C. 6d(f)(6). 

17 17 CFR 22.2 through 22.13, and 17 CFR 22.15 

through 22.17, respectively. Protection of Cleared 

Swaps Customer Contracts and Collateral; 

Conforming Amendments to the Commodity Broker 

Bankruptcy Provisions, 77 FR 6336 (Feb. 7, 2012) 

(‘‘Protection of Cleared Swaps Customer Contracts 

and Collateral’’). 

18 17 CFR part 30. 

19Commission regulation 30.1 defines the term 

‘‘30.7 customer’’ to mean any person located in the 

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

foreign-domiciled person, who trades in foreign 

futures or foreign options through an FCM. 17 CFR 

30.1. 

20 17 CFR 30.1. 

21 7 U.S.C. 6(b)(2)(A). 

22 17 CFR 30.7. 

23 17 CFR 30.7(b) and 17 CFR 30.7(e)(2). 

24 7 U.S.C. 6d(a)(2). 

25See generally Title 17—Commodity and 

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

amending Commission regulation 1.25 and 

providing that FCMs and clearing organizations 

may invest futures customer funds in obligations of 

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

any political subdivision of any State, or in 

obligations fully guaranteed as to principal and 

interest by the U.S. 

26See generally Rules Relating to Intermediaries 

of Commodity Interest Transactions, 65 FR 77993 

(Dec. 13, 2000) (amending Commission regulation 

1.25 to permit FCMs and DCOs to invest customer 

funds in certificates of deposit, commercial paper, 

corporate notes, foreign sovereign debt, and interest 

in money market funds); and Investment of 

Customer Funds, 65 FR 82270 (Dec. 28, 2000) 

(making technical corrections and accelerating the 

effective date of the final rules from February 12, 

2001 to December 28, 2000) (collectively, the ‘‘2000 

Permitted Investments Amendment’’). The 2000 

Permitted Investments Amendment was adopted 

pursuant to section 4(c) of the Act, which 

empowers the Commission to ‘‘promote responsible 

economic or financial innovation and fair 

competition’’ by exempting any transaction or class 

of transactions (including any person or class of 

persons offering, entering into, rendering advice or 

rendering other services with respect to, the 

agreement, contract, or transaction) from any of the 

Continued 

customer.6 Section 4d(a)(2) further 

provides that an FCM may not 

commingle futures customer funds with 

the FCM’s own funds, provided, 

however, that the FCM may commingle 

the futures customer funds of two or 

more futures customers and deposit the 

funds with any bank, trust company, 

DCO, or other FCM.7

Section 4d(b) of the Act establishes 

obligations for DCOs and other 

depositories receiving futures customer 

funds from FCMs pursuant to section 

4d(a)(2) of the Act.8 Specifically, section 

4d(b) provides that it is unlawful for any 

person, including a DCO, that has 

received futures customer funds to hold, 

dispose of, or use the funds as belonging 

to the depositing FCM or any person 

other than the futures customers of the 

FCM.9 The Commission adopted 

Commission regulations 1.20 through 

1.30, and Commission regulations 1.32 

and 1.49, to implement the segregation 

requirements for futures customer funds 

mandated by sections 4d(a)(2) and 4d(b) 

of the Act.10

With respect to cleared swap 

transactions, Commission regulations 

1.3 and 22.1 11 define the term ‘‘Cleared 

Swaps Customer Collateral’’ to mean, in 

relevant part, all money, securities, or 

other property received by an FCM or 

DCO from, for, or on behalf of, a 

‘‘Cleared Swaps Customer’’ to margin, 

guarantee, or secure ‘‘Cleared Swap’’ 

positions.12 Section 4d(f)(2)(A) of the 

Act requires an FCM to treat Cleared 

Swaps Customer Collateral received 

from a Cleared Swaps Customer, or 

accruing to a Cleared Swaps Customer 

as a result of Cleared Swap positions, as 

belonging to the Cleared Swaps 

Customer.13 Section 4d(f)(2)(B) of the 

Act further provides that an FCM may 

not commingle Cleared Swaps Customer 

Collateral of a Cleared Swaps Customer 

with the FCM’s own funds.14 The FCM 

may, however, commingle Cleared 

Swaps Customer Collateral of two or 

more Cleared Swaps Customers and 

deposit the funds in any bank, trust 

company, DCO, or other FCM.15

Additionally, section 4d(f)(6) of the Act 

provides that it is unlawful for any 

person, including a DCO and any 

depository institution, that receives 

Cleared Swaps Customer Collateral to 

hold, dispose of, or use the Cleared 

Swaps Customer Collateral as belonging 

to the depositing FCM or any person 

other than the Cleared Swaps Customer 

of the FCM.16 The Commission adopted 

Commission regulations 22.2 through 

22.13, and Commission regulations 

22.15 through 22.17, to implement the 

segregation requirements for Cleared 

Swaps Customer Collateral mandated by 

section 4d(f) of the Act.17

Part 30 of the Commission’s 

regulations govern the requirements 

imposed on FCMs that carry futures 

positions for customers trading on 

foreign markets.18 Commission 

regulation 30.1 defines the term ‘‘30.7 

customer funds’’ to mean any money, 

securities, or other property received by 

an FCM from, for, or on behalf of a U.S. 

person or foreign-domiciled person (a 

‘‘30.7 customer’’) 19 to margin, 

guarantee, or secure futures or options 

on futures positions executed on foreign 

boards of trade (‘‘foreign futures’’).20

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

the Commission to adopt regulations 

requiring FCMs to safeguard 30.7 

customer funds deposited by 30.7 

customers for trading on foreign boards 

of trade,21 which the Commission did 

by adopting Commission regulation 

30.7.22 As part of the safeguarding 

requirements, Commission regulation 

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

30.7 customer funds from the FCM’s 

own funds, and Commission regulation 

30.7(b) provides that an FCM may hold 

30.7 customer funds only with certain 

specified depositories, including banks, 

trust companies, DCOs, foreign brokers, 

and clearing organizations of foreign 

boards of trade.23

In order to simplify the discussion in 

this preamble, the terms ‘‘futures 

customer funds,’’ ‘‘Cleared Swaps 

Customer Collateral,’’ and ‘‘30.7 

customer funds,’’ are used when 

referring to regulations applicable 

specifically to futures customers, 

Cleared Swaps Customers, and 30.7 

customers, respectively. In addition, the 

term ‘‘Customer Funds’’ is used when 

referring collectively to ‘‘futures 

customer funds,’’ ‘‘Cleared Swaps 

Customer Collateral,’’ and ‘‘30.7 

customer funds.’’ 

2. Authority for Futures Commission 

Merchants and Derivatives Clearing 

Organizations To Invest Customer 

Funds 

The Act establishes the authority for 

FCMs and DCOs to invest Customer 

Funds. Section 4d(a)(2) of the Act 

authorizes FCMs to invest futures 

customer funds in: (i) obligations of the 

U.S.; (ii) obligations fully guaranteed as 

to principal and interest by the U.S.; 

and (iii) general obligations of any State 

or of any political subdivision of a 

State.24 The Commission’s predecessor 

agency, the Commodity Exchange 

Authority of the U.S. Department of 

Agriculture, adopted Commission 

regulation 1.25 to implement section 

4d(a)(2) of the Act, and authorized 

FCMs and DCOs to invest futures 

customer funds in the instruments 

enumerated in section 4d(a)(2) (the 

‘‘Permitted Investments’’).25

The Commission subsequently 

expanded the Permitted Investments in 

2000 to include certificates of deposit, 

commercial paper, corporate notes, 

foreign sovereign debt, and interests in 

money market funds.26 The Commission 


lotter on DSK11XQN23PROD with RULES2
7812 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

provisions of the Act, subject to certain exceptions. 

The Commission may grant an exemption by rule, 

regulation, or order, after notice and opportunity for 

hearing, and may do so on application of any 

person or on its own initiative. 7 U.S.C. 6(c)(1). A 

further discussion of section 4(c)(1) of the Act is set 

forth in section V of this preamble. 

27 2000 Permitted Investments Amendment at 

78001–78004. Reverse repurchase agreements and 

repurchase agreements are collectively referred to 

as ‘‘Repurchase Transactions’’ in this preamble. 

28 17 CFR 1.25(b). 

29 Id. 

30 2000 Permitted Investments Amendment at 

78007. 

31E.g., Investment of Customer Funds and Record 

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

Permitted Investments Amendment’’), and 

Investment of Customer Funds and Funds Held in 

an Account for Foreign Futures and Foreign 

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

(‘‘2011 Permitted Investments Amendment’’). 

32 17 CFR 1.25(a)(1). 

33 17 CFR 1.25(a)(2). 

34 7 U.S.C. 6(b)(2)(A). 

35 2011 Permitted Investments Amendment at 

78777, providing that because Congress did not 

expressly apply the investment limitations set forth 

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

Commission historically has not subjected such 

funds to the investment limitations applicable to 

futures customer funds. 

36 17 CFR 30.7. The Commission stated that it was 

appropriate to align the investment standards of 

Commission regulation 30.7 with those of 

Commission regulation 1.25 because many of the 

same prudential concerns arise with respect to both 

segregated customer funds and 30.7 customer 

funds. 2011 Permitted Investment Amendment at 

78791. 

37See 17 CFR 22.2(e)(1) and 17 CFR 22.3(d). 

38See generally Protection of Cleared Swaps 

Customer Contracts and Collateral. 

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

40 7 U.S.C. 6d(f)(4). 

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

42 17 CFR 1.25(b)(3)(ii). 

43Commission regulation 1.29 provides that 

FCMs or DCOs, as applicable, shall bear sole 

responsibility for any losses resulting from the 

investment of futures customer funds, and further 

provides that no investment losses shall be borne 

or otherwise allocated to FCM customers or to 

clearing FCMs and their customers. 17 CFR 1.29(b). 

Commission regulation 22.2(e)(1) provides that an 

FCM shall bear sole responsibility for any losses 

resulting from the investment of Cleared Swaps 

Customer Collateral and may not allocate 

investment losses to Cleared Swaps Customers of 

the FCM. 17 CFR 22(e)(1). 

Commission regulation 30.7(i) provides that an 

FCM shall bear sole financial responsibility for any 

losses resulting from the investment of 30.7 

customer funds, and further provides that no 

investment losses may be allocated to the 30.7 

customers of the FCM. 17 CFR 30.7(i). 

In addition, Commission regulation 22.3(d) 

provides that DCOs may invest Cleared Swaps 

Customer Collateral in Permitted Investments set 

forth in Commission regulation 1.25. The 

regulation, however, does not provide that a DCO 

is responsible for investment losses. The 

Commission proposed to amend Commission 

regulation 22.3(d) to explicitly provide that a DCO 

shall bear sole responsibility for any losses resulting 

also authorized FCMs and DCOs to buy 

the Permitted Investments under 

agreements to resell the securities 

(‘‘reverse repurchase agreements’’) and 

to sell the Permitted Investments under 

agreements to repurchase the securities 

(‘‘repurchase agreements’’).27 To 

minimize credit risk, market risk, and 

liquidity risk to the Permitted 

Investments, the Commission imposed 

conditions that are required to be met, 

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

of the securities held in segregated 

portfolios, asset-based and issuer-based 

concentration limits, and prohibitions 

on certain investments containing 

embedded derivatives.28 More 

generally, Commission regulation 1.25 

contains an overarching requirement 

that all Permitted Investments must be 

‘‘consistent with the objectives of 

preserving principal and maintaining 

liquidity.’’ 29 In adopting the 2000 

Permitted Investments Amendment, the 

Commission stated that it was 

expanding the range of instruments in 

which FCMs may invest customer funds 

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

of the Act to enhance the yield available 

to FCMs, clearing organizations, and 

their customers without compromising 

the safety of futures customer funds.30

The list of investments that qualify as 

Permitted Investments has undergone 

several revisions following the 2000 

Permitted Investments Amendment.31

In its current form, Commission 

regulation 1.25 lists seven categories of 

investments that qualify as Permitted 

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

and obligations fully guaranteed as to 

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

government securities’’); (ii) general 

obligations of any State or political 

subdivision of a State (‘‘municipal 

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

government corporation or enterprise 

sponsored by the U.S. (‘‘U.S. agency 

obligations’’); (iv) certificates of deposit 

issued by a bank; (v) commercial paper 

fully guaranteed by the U.S. under the 

Temporary Liquidity Guarantee Program 

(‘‘TLGP’’) as administered by the 

Federal Deposit Insurance Corporation 

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

corporate notes and bonds fully 

guaranteed as to principal and interest 

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

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

money market mutual funds.32 In 

addition, Commission regulation 

1.25(a)(2) permits FCMs and DCOs to 

buy and sell the Permitted Investments 

under Repurchase Transactions.33

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

the Commission authority to adopt rules 

and regulations regarding an FCM’s 

safeguarding of 30.7 customer funds.34

Prior to 2011, an FCM was not subject 

to a specific regulation defining the 

investments that the firm could enter 

into with 30.7 customer funds.35 In 

2011, the Commission determined that 

the terms of Commission regulation 1.25 

should also apply to an FCM’s 

investment of 30.7 customer funds, and 

amended Commission regulation 30.7 to 

provide that to the extent an FCM 

invests 30.7 customer funds, the firm 

must invest such funds subject to, and 

in compliance with, the terms and 

conditions of Commission regulation 

1.25.36

The Commission also extended the 

requirements of Commission regulation 

1.25 to FCMs and DCOs investing 

Cleared Swaps Customer Collateral.37

The Commission adopted Commission 

regulations 22.2 and 22.3 in 2012 38

pursuant to its authority under section 

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

Cleared Swaps Customer Collateral may 

be invested by an FCM or DCO in: (i) 

obligations of the U.S.; (ii) general 

obligations of any State or of any 

political subdivision of a State; (iii) 

obligations fully guaranteed as to 

principal and interest by the U.S.; and 

(iv) any other investment that the 

Commission may by rule or regulation 

prescribe.39 Section 4d(f)(4) of the Act 

further provides that the investments 

must be made in accordance with the 

rules and regulations, and subject to any 

conditions, that the Commission may 

prescribe.40

In addition to enumerating the 

Permitted Investments that FCMs and 

DCOs may enter into with Customer 

Funds, Commission regulation 1.25 also 

imposes several conditions on the 

investment of Customer Funds. 

Commission regulation 1.25(b)(3) 

contains both asset-based and issuerbased concentration limits applicable to 

Permitted Investments. The asset-based 

concentration limits restrict the total 

amount of Customer Funds that an FCM 

or DCO may invest in any particular 

Permitted Investment instrument or 

asset class to a defined percentage of the 

total funds held in segregation by the 

FCM or DCO.41 The issuer-based 

concentration limits cap the total 

amount of Customer Funds that may be 

invested in Permitted Investment 

instruments offered, or managed, by a 

particular issuer to a defined percentage 

of the total funds held in segregation by 

the FCM or DCO.42

To limit risk to customers from the 

investment of Customer Funds, 

Commission regulations provide that 

FCMs and DCOs are financially 

responsible for any losses resulting from 

Permitted Investments and explicitly 

prohibit the allocation of investment 

losses to customers or clearing FCMs, 

respectively.43


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7813 

from the investment of Cleared Swaps Customer 

Collateral and may not allocate such losses to 

Cleared Swaps Customers. Investment of Customer 

Funds by Futures Commission Merchants and 

Derivatives Clearing Organizations, 88 FR 81236 at 

81238–81239, 81259 (Nov. 21, 2023). 

44 2011 Permitted Investments Amendment at 

78777. 

45 Investment of Customer Funds by Futures 

Commission Merchants and Derivatives Clearing 

Organizations, 88 FR 81236 (Nov. 21, 2023) 

(‘‘Proposal’’). 

46Petition for Order under section 4(c) of the 

Commodity Exchange Act, dated May 24, 2023 (the 

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

Petitioners submitted updated data in support of 

the Joint Petition and corrected an inadvertent 

transposition of data items in the Joint Petition. 

Supplement to Petition for Order under section 4(c) 

of the Commodity Exchange Act (‘‘Supplement to 

Joint Petition’’). The Joint Petition and the 

Supplement to Joint Petition are available on the 

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

9531/FIA_CMEPetition_Regulation125_052423/ 

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

FIALetterSupplementing_Regulation125_092223/ 

download. 

47 Joint Petition at p. 4. The currencies of Canada, 

France, Germany, Japan, and the United Kingdom 

are the Canadian dollar, the euro (France and 

Germany), the yen (Japan), and the British pound 

(United Kingdom). 

48 Joint Petition at p. 5. 

Commission regulation 1.25(d)(2) provides that 

an FCM or DCO may enter into Repurchase 

Transactions only with the following 

counterparties: (i) a bank as defined in section 

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

a domestic branch of a foreign bank insured by the 

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

dealer; or (iv) an SEC-registered government 

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

Securities Exchange Act of 1934 defines the term 

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

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

association; (ii) a member bank of the Federal 

Reserve System; (iii) any other banking institution 

or savings association doing business under the 

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

of the business of which consists of receiving 

deposits or exercising fiduciary powers similar to 

those permitted to national banks under the 

authority of the Comptroller of the Currency, and 

which is supervised and examined by a State or 

Federal authority having supervision over banks or 

savings associations; and (iv) a receiver, 

conservator, or other liquidating agent of any 

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

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

78c(a)(6). Foreign-domiciled banks and foreign 

securities brokers or dealers are not authorized 

counterparties for Repurchase Transactions under 

Commission regulation 1.25(d)(2). 

In addition, Commission regulation 1.25(d)(7) 

provides that securities transferred to an FCM or 

DCO under Repurchase Transactions must be held 

in safekeeping accounts with certain U.S.-domiciled 

banks, a Federal Reserve Bank, a DCO, or the 

Depository Trust Company in an account that 

complies with the requirements of Commission 

regulation 1.26. 

49Order Granting Exemption from Certain 

Provisions of the Commodity Exchange Act 

Regarding Investment of Customer Funds and from 

Certain Related Commission Regulations, 83 FR 

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

Order provides an exemption only to DCOs. FCMs 

are not subject to the 2018 Order. 

50Conditions (3)(a), 3(c), and 3(d) of the 2018 

Order at 35245. 

51Condition (3)(b) of the 2018 Order at 35245. 

52Condition 2(a) of the 2018 Order at 35245. 

53Commission regulation 1.49(a) defines the term 

‘‘money center country’’ as Canada, France, Italy, 

Germany, Japan, and the United Kingdom. 

54Conditions 2(b) and 3(e) of the 2018 Order at 

35245. Commission regulation 1.49(d)(3) provides 

that to qualify as a depository for Customer Funds, 

a foreign depository must be a bank or trust 

company that has in excess of $1 billion in 

regulatory capital, a registered FCM, or a DCO. 17 

CFR 1.49(d)(3). 

The Commission has previously noted 

the importance of conducting periodic 

assessments of Commission regulation 

1.25 and, as necessary, revising 

regulatory policies to strengthen 

safeguards designed to minimize risk 

while retaining an appropriate degree of 

investment flexibility and opportunities 

for capital efficiency for DCOs and 

FCMs investing customer segregated 

funds.44 In furtherance of these 

objectives, and in consideration of the 

requests for amendments to Commission 

regulation 1.25 discussed in section II of 

this preamble, the Commission 

published a notice of proposed 

rulemaking to amend the list of 

Permitted Investments in Commission 

regulation 1.25 and to adopt several 

related amendments to its rules 

governing the investment of Customer 

Funds by FCMs and DCOs.45

II. Requests for Amendments to the List 

of Permitted Investments 

The Futures Industry Association 

(‘‘FIA’’) and CME Group Inc. (‘‘CME’’) 

(collectively, the ‘‘Petitioners’’) 

submitted a joint petition requesting 

that the Commission issue an order 

under section 4(c) of the Act, or take 

such other action as the Commission 

deems appropriate, to expand the list of 

Permitted Investments that FCMs and 

DCOs may enter into with Customer 

Funds.46 The Petitioners requested an 

extension of the Permitted Investments 

to include the foreign sovereign debt of 

Canada, France, Germany, Japan, and 

the United Kingdom (‘‘Specified Foreign 

Sovereign Debt’’), subject to the 

condition that any investment is limited 

to balances owed by FCMs and DCOs to 

customers and FCM clearing members, 

respectively, denominated in the 

applicable currency of Canada, France, 

Germany, Japan, or the United 

Kingdom.47 The Petitioners further 

requested that the Commission exempt 

FCMs and DCOs from the provisions of 

Commission regulation 1.25(d)(2) to 

authorize FCMs and DCOs to enter into 

Repurchase Transactions involving 

Specified Foreign Sovereign Debt with 

foreign banks and foreign securities 

brokers or dealers, and to deposit 

Specified Foreign Sovereign Debt in 

safekeeping accounts at foreign banks.48

In support of the request, the 

Petitioners stated that the Commission 

issued an order in 2018 pursuant to 

section 4(c) of the Act providing a 

limited exemption to section 4d of the 

Act and Commission regulation 1.25 to 

permit DCOs to invest futures customer 

funds and Cleared Swaps Customer 

Collateral in the foreign sovereign debt 

of France and Germany.49 The 

Petitioners also asserted that the 

Commission’s stated rationale for 

issuing the 2018 Order and providing an 

exemption to DCOs also applies to 

investments made by FCMs and extends 

to the sovereign debt of Canada, Japan, 

and the United Kingdom, in addition to 

France and Germany. 

The 2018 Order’s section 4(c) 

exemption for DCOs is subject to 

conditions, including that: (i) 

investment in French or German 

sovereign debt is limited to investments 

made with euro-denominated balances 

owed to the futures customers and 

Cleared Swaps Customers of FCM 

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

investments in each of French and 

German sovereign debt may not exceed 

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

a direct investment in any sovereign 

debt instrument of France or Germany 

that has a remaining time-to-maturity in 

excess of 180 calendar days.50 The 2018 

Order also provides that if the two-year 

credit default spread of the French or 

German sovereign debt exceeds 45 basis 

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

any new direct investments in the 

relevant sovereign debt using futures 

customer funds or Cleared Swaps 

Customer Collateral and must 

discontinue investing futures customer 

funds and Cleared Swaps Customer 

Collateral in the relevant debt through 

Repurchase Transactions as soon as 

practicable under the circumstances.51

The 2018 Order also grants an 

exemption from Commission regulation 

1.25(d)(2) to permit DCOs to enter into 

Repurchase Transactions involving 

French or German sovereign debt with 

foreign banks and foreign securities 

brokers or dealers as counterparties.52 A 

DCO may enter into Repurchase 

Transactions with a foreign bank or 

foreign securities broker or dealer 

provided that the firm qualifies as a 

permitted depository under Commission 

regulation 1.49(d)(3) and is located in a 

‘‘money center country’’ 53 or in another 

jurisdiction that has adopted the euro as 

its currency.54 The 2018 Order further 

grants an exemption from the 

requirement in Commission regulation 

1.25(d)(7) that securities transferred to 

an FCM or DCO under reverse 

repurchase agreements must be held in 


lotter on DSK11XQN23PROD with RULES2
7814 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

55Condition 2(b) of the 2018 Order at 35245. 

Commission regulation 1.25(d)(7) provides that 

securities transferred to an FCM or DCO under a 

reverse repurchase agreement must be held in a 

safekeeping account only with the following 

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

domestic branch of a foreign bank insured by the 

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

(v) the Depository Trust Company. 17 CFR 

1.25(d)(7). A foreign-domiciled bank is currently 

not an authorized depository for securities 

transferred to an FCM or DCO under Commission 

regulation 1.25(d)(7). 

56 Joint Petition at pp. 8–9. 

57 Id. 

58Letter from Anna Paglia, Chief Executive 

Officer, Invesco Capital Management LLC, dated 

September 28, 2023 (‘‘Invesco Petition’’), available 

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

CFTCPetition_Regulation125_092823/download. 

Invesco is registered with the Commission as a 

commodity pool operator and commodity trading 

advisor, and is registered with the Securities and 

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

adviser. 

59 Invesco Petition at p. 1. 

60 Id. at p. 9. 

61 Id. at p. 2. 

62CFTC Staff Letter 21–02, CFTC Regulation 

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

Securities with an Adjustable Rate of Interest 

Benchmarked to the Secured Overnight Financing 

Rate (Jan. 4, 2021) (‘‘Staff Letter 21–02’’) available 

at the Commission’s website: https://www.cftc.gov/ 

LawRegulation/CFTCStaffLetters/letters.htm?

title=21-02&field_csl_letter_year_value=&field_csl_

dodd_frank_exists_value=All; CFTC Staff Letter 22– 

21, CFTC Regulation 1.25—Investment of Customer 

Funds in Securities with an Adjustable Rate of 

Interest Benchmarked to the Secured Overnight 

Financing Rate—Extension of Time-Limited NoAction Position Concerning Investments by Futures 

Commission Merchants and No-Action Position 

Concerning Investments by Derivatives Clearing 

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

available at the Commission’s website: 

www.cftc.gov/LawRegulation/CFTCStaffLetters/ 

letters.htm?title=22-21&field_csl_letter_year_

value=&field_csl_dodd_frank_exists_value=All. 

63 Joint Petition at p. 4. 

64See generally Proposal. 

65The following entities submitted comments: 

Alternative Investment Management Association 

(‘‘AIMA’’); Americans for Financial Reform 

Education Fund, Consumer Federation of America, 

Food & Water Watch, Institute for Agriculture and 

Trade Policy, and Public Citizen (collectively, the 

‘‘Investor Advocacy Group’’ and the ‘‘Investor 

Advocacy Group Joint Letter’’); Better Markets; 

BlackRock, Inc. (‘‘BlackRock’’); Eurex Clearing AG 

(‘‘Eurex’’); Federated Hermes, Inc. (‘‘Federated 

Hermes’’); Futures Industry Association and CME 

Group Inc. (‘‘FIA/CME Joint Letter’’); The Global 

Association of Central Counterparties (‘‘CCP 

Global’’); Intercontinental Exchange Inc. (‘‘ICE’’); 

Invesco Capital Management LLC (‘‘Invesco’’); 

Investment Company Institute (‘‘ICI’’); Managed 

Funds Association (‘‘MFA’’); National Futures 

Association (‘‘NFA’’); Nodal Clear, LLC (‘‘Nodal’’); 

the Asset Management Group of the Securities 

Industry and Financial Markets Association 

(‘‘SIFMA AMG’’); State Street Global Advisors 

(‘‘SSGA’’); and World Federation of Exchanges 

(‘‘WFE’’). The comment letters are available at 

https://comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=7453. 

66 Invesco at pp. 2–3; ICI at p. 2; AIMA at pp. 2– 

3; FIA/CME Joint Letter at pp. 2, 4–15; MFA at pp. 

safekeeping accounts with certain U.S.- 

domiciled banks, a Federal Reserve 

Bank, a DCO, or the Depository Trust 

Company, to permit DCOs to hold 

French or German sovereign debt 

received under reverse repurchase 

agreements in a safekeeping account 

with foreign banks that qualify as 

depositories for Customer Funds under 

Commission regulation 1.49(d)(3).55

The Petitioners further requested that 

FCMs and DCOs be permitted to invest 

Customer Funds in certain exchangetraded funds (‘‘ETFs’’) that invest 

primarily in short-term U.S. Treasury 

securities (‘‘U.S. Treasury ETFs’’).56 In 

support of their request, the Petitioners 

stated that U.S. Treasury ETFs have 

characteristics that may be consistent 

with those of other Permitted 

Investments and may provide FCMs and 

DCOs with an opportunity to diversify 

further their investments of customer 

funds.57

The Commission also received a 

petition from Invesco Capital 

Management LLC (‘‘Invesco’’), which 

serves as a sponsor of various ETFs, 

advocating for the addition of U.S. 

Treasury ETF securities to the list of 

Permitted Investments.58 Invesco stated 

that U.S. Treasury ETFs would provide 

FCMs and DCOs with additional 

investment choices for Customer Funds, 

promote operational efficiencies, and 

offer potentially better investment 

returns for FCMs, DCOs, and their 

customers, and facilitate financial 

market innovation.59 Invesco further 

stated that listing U.S. Treasury ETFs as 

Permitted Investments would be 

consistent with the public interest and 

the customer protection regime under 

the Act and Commission regulations as 

U.S. Treasury ETFs may only invest in 

instruments that are otherwise eligible 

as Permitted Investments for Customer 

Funds.60 Invesco further noted that 

because U.S. Treasury ETFs invest in a 

sub-set of the same high-quality liquid 

instruments that are Permitted 

Investments under Commission 

regulation 1.25 (i.e., U.S. government 

securities), the ETFs offer an indirect, 

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

invest Customer Funds in U.S. Treasury 

securities and obligations fully 

guaranteed as to principal and interest 

by the U.S. by eliminating the need for 

FCMs and DCOs to administer direct 

investments in individual U.S. 

government securities.61

Lastly, the Petitioners also requested 

that the Commission amend its 

regulations consistent with CFTC Staff 

Letter 21–02 and CFTC Staff Letter 22– 

21 62 to permit FCMs and DCOs to invest 

Customer Funds in qualifying Permitted 

Investments that have adjustable rates of 

interest that correlate closely to SOFR.63

III. Summary of the Proposal 

In order to revise Commission 

regulation 1.25 to address outdated 

provisions, and in consideration of the 

Joint Petition and the Invesco Petition, 

the Commission proposed to amend the 

list of Permitted Investments to: (i) add 

two new asset classes (i.e., Specified 

Foreign Sovereign Debt instruments and 

U.S. Treasury ETFs), subject to certain 

conditions; (ii) limit the scope of money 

market funds (‘‘MMFs’’) whose interests 

qualify as Permitted Investments; and 

(iii) remove corporate notes, corporate 

bonds, and commercial paper. The 

Commission also proposed amendments 

to FCM financial reporting requirements 

to reflect the proposed amendments to 

the list of Permitted Investments. The 

Commission further proposed changes 

to the counterparty and depository 

requirements of Commission regulation 

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

concentration limits for Permitted 

Investments set forth in Commission 

regulation 1.25(b)(3). The Commission 

also specified proposed capital charges 

that FCMs would have to apply to the 

proposed new Permitted Investment 

instruments and proposed a clarifying 

amendment to Commission regulation 

22.3(d) to specify that DCOs bear the 

financial responsibility for losses 

resulting from investment of Customer 

Funds in Permitted Investments. The 

Commission further proposed to replace 

LIBOR with SOFR as a permitted 

benchmark for the interest rate of 

adjustable rate securities that qualify as 

Permitted Investments. Lastly, the 

Commission proposed to amend its 

regulations to eliminate the requirement 

that a depository holding customer 

funds must provide the Commission 

with read-only electronic access to such 

accounts for the FCM to treat the 

accounts as customer segregated fund 

accounts.64 Each of these proposed 

amendments are discussed in section 

IV. of this preamble. 

The comment period for the Proposal 

closed on January 17, 2024. The 

Commission received 17 comment 

letters from various interested parties, 

including investor advocacy groups, 

trade associations, and financial 

services companies.65 The majority of 

commenters expressed support for the 

Proposal, generally noting that the 

proposed amendments represent 

appropriate updates to the list of 

Permitted Investments. Several 

commenters specifically supported the 

inclusion of foreign sovereign debt and 

U.S. Treasury ETFs as Permitted 

Investments.66 Conversely, two 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7815 

2–6; Nodal at pp. 1–2; SIFMA AMG at pp. 2–8, 12; 

CCP Global at pp. 2–4 WFE at pp. 3–6. 

67Better Markets at pp. 3–7; Investor Advocacy 

Group Joint Letter at pp. 1–2. 

68AIMA at pp. 2–3; MFA at pp. 5–6; FIA/CME 

Joint Letter at pp. 11–16; CCP Global at pp. 3–4; 

BlackRock at pp. 2–6; Invesco at pp. 3–5; ICI at pp. 

2–6 SIFMA AMG at pp. 4–6; SSGA at pp. 2–3; WFE 

at pp. 5–6. 

69The final rulemaking is referred to as the ‘‘Final 

Rule’’ in this preamble. 

70 17 CFR 1.25(a)(vii). 

71 15 U.S.C. 80a–1—80a–64. 

72 17 CFR 270.2a–7 (‘‘SEC Rule 2a–7’’). 

73For a definition of section 3(a)(6) bank, see 

supra note 52. 

74 15 U.S.C. 80b–1—80b–21. 

75 17 CFR 1.25(c). 

76Proposal at 81240–81243. 

77 Id. SEC Rule 2a–7 addresses MMFs that 

primarily invest in securities issued or guaranteed 

by the U.S. government (‘‘government money 

market funds’’ or ‘‘Government MMFs’’), MMFs that 

primarily invest in short-term corporate debt 

securities (‘‘Prime MMFs’’), and other types of 

MMFs that are not relevant to this Proposal, such 

as tax-exempt funds. 17 CFR 270.2a–7. 

78 17 CFR 270.2a–7(a)(14). 

79 15 U.S.C. 80a–2(a)(16). 

80Commission regulation 1.25(a)(1)(i) and (iii) 

defines ‘‘U.S. government securities’’ as obligations 

of the U.S. and obligations fully guaranteed as to 

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

obligations’’ as obligations of any U.S. government 

corporation or enterprise sponsored by the U.S. 

government, respectively. 

81Money Market Fund Reform; Amendments to 

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

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

82 2014 SEC MMF Final Rule at 47747. See also 

Proposal at 81241–81243. The liquidity fees and 

suspension of redemptions provisions introduced 

by the 2014 SEC MMF Final Rule are referred to as 

the ‘‘2014 SEC Redemption Provisions’’ in this 

document. 

83 17 CFR 270.2a–7(c)(2)(iii). 

84CFTC Letter No. 16–68, No-Action Relief with 

Respect to CFTC Regulation 1.25 Regarding Money 

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

available at the Commission’s website: 

www.cftc.gov/LawRegulation/CFTCStaffLetters/ 

letters.htm?title=16-68&field_csl_letter_year_

value=&field_csl_dodd_frank_exists_value=All. 

Staff Letter 16–68 was issued by the 

Commission’s Division of Swap Dealer and 

Intermediary Oversight (‘‘DSIO’’) (subsequently 

renamed the Market Participants Division 

(‘‘MPD’’)). 

85CFTC Letter No. 16–69, Staff Interpretation 

Regarding CFTC Part 39 In Light Of Revised SEC 

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

Staff Letter 16–69 was issued by the Commission’s 

Division of Clearing and Risk (‘‘DCR’’) and is 

available at the Commission’s website: 

www.cftc.gov/LawRegulation/CFTCStaffLetters/ 

letters.htm?title=16-69&field_csl_letter_year_

value=&field_csl_dodd_frank_exists_value=All. 

86See also CFTC Staff Advisory No. 16–75, 

Practical Application of No-Action Letter No. 16– 

68 Regarding the Investments in Money Market 

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

(discussing the practical applicability and effect of 

Staff Letter 16–68) available at the Commission’s 

website: https://www.cftc.gov/LawRegulation/ 

CFTCStaffLetters/letters.htm?title=16-75&field_csl_

letter_year_value=&field_csl_dodd_frank_exists_

value=All. 

87 17 CFR 1.25(b)(1) (investments of customer 

funds must be highly liquid such that the 

investments must have the ability to be liquidated 

and converted into cash within one business day 

without material discount in value). 

88 17 CFR 1.25(c)(5)(i) (to qualify as a Permitted 

Investment an MMF must be legally obligated to 

pay a fund investor (including an FCM) by the close 

of business on the day following a redemption 

request). 

commenters opposed allowing FCMs 

and DCOs to invest Customer Funds in 

foreign sovereign debt.67 Many 

commenters also recommended 

revisions to the proposed conditions 

underlying the Proposal, including the 

conditions proposed for investment in 

certain short-term U.S. Treasury ETFs.68

In consideration of the broad public 

input expressed in the public comments 

and the Commission’s experience 

administering the rules that govern 

investments of Customer Funds by 

FCMs and DCOs, the Commission is 

adopting the proposed amendments, 

subject to the changes discussed 

below.69

IV. Final Rule 

A. Investment of Customer Funds 

1. Interests in Money Market Funds 

a. Proposal 

Commission regulation 1.25(a)(1)(vii) 

currently provides that FCMs and DCOs 

may invest Customer Funds in interests 

in MMFs, subject to specified terms and 

conditions.70 To qualify as a Permitted 

Investment, an MMF must: (i) be an 

investment company registered with the 

SEC under the Investment Company Act 

of 1940 71 and hold itself out to 

investors as an MMF in accordance with 

SEC Rule 2a–7; 72 (ii) be sponsored by a 

federally-regulated financial institution, 

a section 3(a)(6) bank,73 an investment 

adviser registered under the Investment 

Advisers Act of 1940,74 or a domestic 

branch of a foreign bank insured by the 

FDIC; and (iii) compute, and make 

available to MMF shareholders, the net 

asset value (‘‘NAV’’) of the fund by 9 

a.m. of the business day following each 

business day.75

As further described below, the 

Commission proposed to amend 

Commission regulation 1.25(a)(1)(vii) to 

limit the scope of MMFs whose interests 

qualify as Permitted Investments in 

response to two sets of rule amendments 

adopted by the SEC regarding MMFs, 

which rendered, in the Commission’s 

view, certain MMFs incompatible with 

the liquidity requirements of 

Commission regulation 1.25.76

Specifically, the Commission proposed 

to limit Permitted Investments in MMFs 

to interests in certain ‘‘government 

money market funds,’’ as defined in SEC 

Rule 2a–7.77 A Government MMF is 

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

invests 99.5 percent or more of its total 

assets in cash, ‘‘government securities,’’ 

and/or Repurchase Transactions that are 

collateralized fully by cash or 

‘‘government securities.’’ 78 A 

‘‘government security’’ is defined as any 

security issued or guaranteed as to 

principal or interest by the United 

States, or by a person controlled or 

supervised by and acting as 

instrumentality of the Government of 

the United States pursuant to authority 

granted by the Congress of the United 

States; or any certificate of deposit of 

any of the foregoing.79 Therefore, a 

‘‘government security’’ encompasses 

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

agency obligations’’ as defined under 

Commission regulation 1.25(a)(1)(i) and 

(iii), respectively.80

As noted above, the Commission 

proposed to amend Commission 

regulation 1.25 to limit the scope of 

MMFs that qualify as Permitted 

Investments in response to SEC 

revisions to its MMF rules. Specifically, 

in 2014, the SEC amended SEC Rule 2a– 

7 to authorize an MMF to impose 

liquidity fees on participant 

redemptions, or to temporarily suspend 

participant redemptions, if the MMF’s 

investment portfolio triggered certain 

liquidity thresholds.81 The 2014 SEC 

MMF Final Rule was adopted to 

mitigate the adverse effects on fund 

liquidity resulting from increased 

participant redemptions during times of 

financial stress.82 The 2014 SEC 

Redemption Provisions were mandatory 

for Prime MMFs, and Government 

MMFs could voluntarily elect to impose 

the 2014 SEC Redemption Provisions 

(‘‘Electing Government MMFs’’).83

Commission staff subsequently 

received inquiries from market 

participants concerning the 

permissibility of investing Customer 

Funds in MMF interests under 

Commission regulation 1.25 in light of 

the 2014 SEC Redemption Provisions. In 

response, Commission staff issued CFTC 

Staff Letter 16–68 84 and CFTC Staff 

Letter 16–69 85 addressing the 2014 SEC 

Redemption Provisions and the 

investment of Customer Funds in MMFs 

by FCMs and DCOs, respectively. Staff 

Letter 16–68 86 expresses DSIO’s view 

that the 2014 SEC Redemption 

Provisions conflict with paragraphs 

(b)(1) 87 and (c)(5)(i) 88 of Commission 

regulation 1.25, as the Redemption 

Provisions have the effect of potentially 

reducing the liquidity of Prime MMFs 

and Electing Government MMFs 

through the imposition of fees and 

suspension of redemptions. Therefore, 

DSIO stated that FCMs may no longer 


lotter on DSK11XQN23PROD with RULES2
7816 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

89Staff Letter 16–68 at p. 2. However, DSIO also 

states in Staff Letter 16–68 that it would not 

recommend an enforcement action to the 

Commission if an FCM invested Customer Funds 

held in segregation that represents an excess over 

the firm’s targeted residual interest in Prime and 

Electing Government MMFs. Staff Letter 16–68 at 

pp. 3–4. 

90 17 CFR 39.15(c) and (e). 

91While Staff Letter 16–68 provides that DSIO 

would not recommend an enforcement action 

against an FCM that invested Customer Funds in 

Prime and Electing Government MMFs, provided 

that the amount invested represents an amount held 

in customer segregated accounts that exceeds the 

firm’s targeted residual interest amount, staff is not 

aware of FCMs investing Customer Funds in such 

MMFs. 

92Money Market Fund Reforms; Form PF 

Reporting Requirements for Large Liquidity Fund 

Advisers, Technical Amendments to Form N–CSR 

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

SEC MMF Reforms’’). The 2023 SEC MMF Reforms 

became effective on October 2, 2023. 

93As noted in the 2023 SEC MMF Reforms’ 

adopting release, to support the short-term funding 

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

with the approval of the Department of the 

Treasury, established the Money Market Mutual 

Fund Liquidity Facility. The facility provided loans 

to financial institutions on advantageous terms to 

purchase securities from MMFs that were raising 

liquidity. 2023 SEC MMF Reforms at 51408. 

94 2023 SEC MMF Reforms at 51407. The term 

‘‘weekly liquid assets’’ is generally defined as: (i) 

cash; (ii) direct obligations of the U.S. Government; 

(iii) U.S. Agency securities that are issued at a 

discount to the principal amount to be repaid at 

maturity and have a remaining time to maturity of 

60 days or less; (iv) securities that mature, or are 

subject to a demand feature that is exercisable and 

payable, within 5 business days; or (v) amounts 

receivable and due unconditionally within 5 

business days on pending sales of portfolio 

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

95 2023 SEC MMF Reforms at 51407. 

96 Id. at 51409. 

97 Id. 

98 Id. at 51408. 

99 Id. at 51410. 

100 17 CFR 270.2a–7(c)(2)(i) and (ii) (as amended 

by the 2023 SEC MMF Reforms). SEC Rule 2a– 

7(c)(2)(i) provides, in relevant part, that if a Prime 

MMF’s board of directors, including a majority of 

the directors who are not interested persons of the 

fund, determines that a liquidity fee is in the best 

interest of the fund, the fund must institute a 

liquidity fee that does not exceed two percent of the 

value of the shares redeemed. In addition, SEC Rule 

2a–7(c)(2)(ii) provides, in relevant part, that a Prime 

MMF must apply a liquidity fee to all shares that 

are redeemed if the fund experiences total daily net 

redemptions that exceed 5 percent of the fund’s net 

asset value, or such smaller amount of net 

redemptions as the board of directors of the fund 

determines. 

101 17 CFR 270.2a–7(c)(2)(i)(B) (as amended by 

the 2023 SEC MMF Reforms). SEC Rule 2a– 

7(c)(2)(i)(B) permits Government MMFs to elect to 

impose the discretionary liquidity fees on 

shareholder redemptions. 

102 17 CFR 270.2a–7(c)(2)(i) (as amended by the 

2023 SEC MMF Reforms). 

invest Customer Funds in Prime MMFs 

and Electing Government MMFs.89

Staff Letter 16–69 set forth DCR’s 

interpretation that Commission 

regulations 39.15(c) and (e) 90 prohibit a 

DCO from holding funds belonging to 

clearing members or their customers in 

Prime MMFs or Electing Government 

MMFs. Staff Letter 16–69 also states that 

the 2014 SEC Redemption Provisions 

are not consistent with Commission 

regulation 39.15(c), which requires a 

DCO to hold funds and assets belonging 

to clearing members and their customers 

in a manner that minimizes the risk of 

loss or of delay in the access by the DCO 

to such funds and assets. Staff Letter 

16–69 further provides that the 2014 

SEC Redemption Provisions are 

inconsistent with Commission 

regulation 39.15(e), which limits a DCO 

to investing funds and assets belonging 

to clearing members and their customer 

in instruments with minimal credit, 

market, and liquidity risk. FCMs and 

DCOs have not invested Customer 

Funds in Prime MMFs or Electing 

Government MMFs since the issuance of 

Staff Letters 16–68 and 16–69 in 2016.91

In August 2023, the SEC adopted 

additional amendments to its MMF 

rules, including amendments revising 

the 2014 SEC Redemption Provisions 

discussed above.92 The 2023 SEC MMF 

Reforms address issues observed by the 

SEC with MMFs in connection with the 

economic shock from the onset of the 

COVID–19 pandemic. Specifically, the 

SEC stated in March 2020, that concerns 

about the impact of COVID–19 

pandemic led investors to reallocate 

their assets into cash and short-term 

government securities. Certain Prime 

MMFs, in particular, experienced 

significant outflows, contributing to 

stress on short-term funding markets 

that resulted in government intervention 

to enhance the liquidity of such 

markets.93 The events of March 2020 led 

the SEC to re-evaluate certain aspects of 

the regulatory framework applicable to 

MMFs. In considering the potential 

factors that caused the increased 

redemption activity in March 2020, the 

SEC noted that, among other concerns, 

fears about the potential imposition of 

redemption gates and liquidity fees 

based on observed declines in some 

funds’ weekly liquid assets appear to 

have incentivized investors to redeem 

from certain MMFs.94 Further, 

according to the SEC, the presence of a 

liquidity threshold for consideration of 

fees and gates appears to have affected 

fund managers’ behavior, encouraging 

the sale of long-term portfolio assets to 

maintain weekly liquid assets above the 

30 percent threshold.95 The SEC also 

cited evidence suggesting that investors 

are particularly sensitive to the potential 

imposition of redemption gates, which 

restricts MMF share redemption for the 

duration of the gate.96 In the SEC’s view, 

generally supported by commenters’ 

feedback, the gates and liquidity fees 

associated with predictable weekly 

liquid asset triggers proved 

counterproductive in stemming heavy 

redemptions from certain MMFs.97

Thus, the SEC concluded that MMFs 

needed better functioning tools for 

managing through stress while 

mitigating harm to shareholders.98

Accordingly, in an effort to improve 

the resilience of MMFs and address the 

issue of preemptive investor redemption 

behavior, particularly in times of stress, 

the SEC adopted changes to the fee and 

gate provisions in SEC Rule 2a–7. The 

2023 SEC MMF Reforms, among other 

things, amended the 2014 SEC 

Redemption Provisions by removing a 

Prime MMF’s ability to temporarily 

suspend participant redemptions and by 

removing an Electing Government 

MMF’s ability to voluntarily retain 

authority to suspend participant 

redemptions.99 The 2023 SEC MMF 

Reforms also require Prime MMFs to 

impose a liquidity fee when the fund 

experiences net redemptions that 

exceed 5 percent of the fund’s net 

assets, and permit Prime MMFs to 

impose a discretionary liquidity fee if 

the fund’s board of directors determines 

that a fee is in the best interest of the 

fund.100 Government MMFs are not 

required to implement the mandatory 

liquidity fee but may choose to rely on 

the ability to impose discretionary 

liquidity fees.101 Such fees, however, 

are no longer tied to the weekly liquid 

asset threshold.102

The SEC’s liquidity fee mechanism is 

designed to address shareholder 

dilution and the potential for firstmover advantage by allocating liquidity 

costs to redeeming investors. Although 

the mechanism may contribute to 

decreasing outflows from certain MMFs, 

the Commission preliminarily 

considered that the potential imposition 

of a fee would nonetheless potentially 

reduce the principal of an FCM’s or 

DCO’s investment in MMF shares, 

particularly during periods of market 

stress and high shareholder 

redemptions. Such potential loss of 

principal could have an adverse impact 

on the ability of an FCM or DCO to fully 

repay customers, who may need 

liquidity in their accounts to meet 

trading losses and/or margin calls. 

Therefore, consistent with the positions 

taken in Staff Letter 16–68 and Staff 

Letter 16–69, the Commission proposed 

to limit the scope of MMFs whose 

interests qualify as Permitted 

Investments to funds that are not subject 

to a liquidity fee (i.e., Government 

MMFs that are not Electing Government 

MMFs (referred to in this release as 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7817 

103See Proposal at 81240–81243 and proposed 

paragraph (a)(1)(v) of Commission regulation 1.25. 

104See Proposal at 81240–81241. 

105Proposal at 81240–81243, proposed 

Commission regulation 1.25(a)(1)(v). 

106Proposal at 81243. 

107 Id. 

108 Id. at 81263. 

109 Id. 

110 Id. 

111Proposal at 81242. 

112 17 CFR 1.23(a)(1), 22.2(e)(3)(i), and 30.7(g)(1). 

A customer account is ‘‘undersegregated’’ if an FCM 

holds less funds in the account than is necessary 

to cover the total amount due to the customer at any 

given point in time. 

113 Id. 

114See AIMA at p. 3; BlackRock at pp. 2, 6; 

Federated Hermes at pp. 1–2; FIA/CME Joint Letter 

at p. 21; ICI at p. 2; MFA at p. 6. 

115 Id. 

116AIMA at p. 3. 

117 ICI at p. 2. 

118BlackRock at p. 6. 

119FIA/CME Joint Letter at p. 21. As discussed in 

the Proposal, Commission regulations 1.26 and 

30.7(d) require an FCM or DCO, as applicable, to 

obtain, and retain in its files, a written 

acknowledgment from each depository holding 

Permitted Investments. Proposal at 81263. 

120 Id. The FIA/CME Joint Letter included the 

following suggested language: ‘‘Furthermore, you 

acknowledge and agree that the Shares are in a fund 

that holds itself out to investors as a government 

money market fund, in accordance with 17 CFR 

270.2a–7. In addition, the Shares are in a fund that 

does not choose to rely on the ability to impose 

discretionary liquidity fees consistent with the 

requirements of 17 CFR 270.2a–7(c)(2)(i).’’ FIA/ 

CME Joint Letter at p. 21. 

‘‘Permitted Government MMFs’’)).103 As 

discussed in the Proposal, to qualify as 

a Permitted Government MMF, at least 

99.5 percent of the fund’s investment 

portfolio must be comprised of cash, 

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

Treasury securities, securities fullyguaranteed as to principal and interest 

by the U.S. Government, and U.S. 

agency obligations), and/or Repurchase 

Transactions that are fully collateralized 

by government securities as set forth in 

SEC Rule 2a–7.104 The Commission’s 

goal in proposing the amendment was to 

ensure that FCMs and DCOs invest 

Customer Funds in instruments that are 

consistent with the objectives of 

Commission regulation 1.25 of 

preserving principal and maintaining 

liquidity of the investments. 

To eliminate MMFs whose 

redemptions may be subject to a 

liquidity fee from the scope of Permitted 

Investments under Commission 

regulation 1.25, the Commission 

proposed revising Commission 

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

be redesignated as Commission 

regulation 1.25(a)(1)(iv) to accommodate 

other amendments to Commission 

regulation 1.25(a) discussed in the 

Proposal, by replacing the term ‘‘money 

market mutual fund’’ with the term 

‘‘government money market funds as 

defined in § 270.2a–7 of this title, 

provided that the funds do not elect to 

be subject to liquidity fees in 

accordance with § 270.2a–7 of this title 

(government money market fund).’’ 105

The Commission also proposed further 

conforming changes throughout 

Commission regulation 1.25, and the 

appendix to Commission regulation 

1.25, by replacing all references to 

‘‘money market mutual fund’’ with 

‘‘government money market fund.’’ 106

In addition, the appendix to 

Commission regulation 1.25 was 

proposed to be redesignated as 

appendix E to part 1 to address a change 

in the rules of the Office of the Federal 

Register regarding the structure of 

regulatory text to be codified in the 

Code of Federal Regulations.107 Further, 

the Commission proposed conforming 

amendments to Commission regulations 

1.26 and 30.7(d), which require an FCM 

and/or DCO, as applicable, that invests 

Customer Funds in Permitted 

Investments, including qualifying 

MMFs, to obtain and retain in its files 

a written acknowledgement letter from 

the depository holding the instruments 

stating that the depository was informed 

that the instruments belong to 

customers and are being held in 

accordance with the provisions of the 

Act and Commission regulations.108 The 

Commission also proposed conforming 

amendments to the appendices setting 

forth the template acknowledgment 

letters.109 Specifically, the Commission 

proposed to replace the references to 

‘‘money market mutual fund’’ with 

‘‘government money market fund’’ in 

Commission regulation 1.26, appendix 

A and appendix B to Commission 

regulation 1.26 (to be redesignated 

appendix F and appendix G to part 1), 

Commission regulation 30.7(d), and 

appendix F to part 30 of the 

Commission’s regulations.110

The Commission also noted that the 

proposed amendments removing 

interests in MMFs whose redemptions 

may be subject to a liquidity fee from 

the scope of Permitted Investments 

would prohibit an FCM from depositing 

proprietary interests in such MMFs into 

Customer Funds accounts.111 The 

Commission stated that Commission 

regulations 1.23(a)(1), 22.2(e)(3)(i), and 

30.7(g)(1) permit FCMs to deposit 

proprietary cash and unencumbered 

securities into the accounts of futures 

customers, Cleared Swaps Customers, 

and 30.7 customers, respectively, to 

help ensure that at all times the 

accounts maintain sufficient funds to 

cover the amounts due to all 

customers.112 The proprietary securities 

deposited by FCMs into customer 

accounts, however, must satisfy the 

criteria of a Permitted Investment as 

specified in Commission regulation 

1.25.113 Therefore, with respect to 

MMFs, FCMs would only be permitted 

to deposit proprietary interest in 

Permitted Government MMFs in the 

accounts of futures customers, Cleared 

Swaps Customers, and 30.7 customers 

under the Proposal. 

b. Comments 

The Commission received six 

comments on the proposed limit of the 

scope of MMFs whose interests qualify 

as Permitted Investments to Permitted 

Government MMFs.114 Each of the 

commenters supported the proposed 

limitation.115 AIMA noted that the 

amendments would appropriately 

update the list of Permitted Investments 

in line with sound risk management 

practices.116 ICI stated that the proposed 

amendments are consistent with the 

regulatory objective of limiting 

Permitted Investments to safe, shortterm instruments.117 Though supportive 

of the proposed amendments, 

BlackRock raised concerns about the 

Proposal’s rationale, asserting that in 

discussing investor behavior during the 

March 2020 events, the Commission 

failed to acknowledge that there was a 

broader ‘‘dash for cash’’ occurring 

across asset classes, not just MMFs, at 

that time period.118

In addition to supporting the 

proposed revisions to the scope of the 

MMFs, FIA and CME recommended an 

amendment to the template 

acknowledgement letters for 

Government MMFs set forth in 

appendices A and B to Commission 

regulation 1.26 for direct investments by 

FCMs and DCOs of futures customer 

funds and Cleared Swaps Customer 

Collateral in MMFs, and appendix F to 

part 30 for direct investments by FCMs 

of 30.7 customer funds in MMFs.119

Specifically, FIA and CME 

recommended that each template 

acknowledgment letter include a 

representation from the Government 

MMF that the fund does not elect to 

impose discretionary liquidity fees.120

Finally, in response to the 

Commission’s request for comment on 

whether the Commission should revise 

Commission regulation 1.25(b)(5)(ii) to 

prohibit FCMs and DCOs from investing 

Customer Funds in a fund affiliated 

with the FCM or DCO, commenters 

asserted that no changes were 


lotter on DSK11XQN23PROD with RULES2
7818 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

121Proposal at 81243, Question 2. Commission 

regulation 1.25(b)(5)(ii) provides, in relevant part, 

that an FCM or DCO may not invest Customer 

Funds in obligations of an affiliated entity, but 

permits investments by FCMs and DCOs in interest 

in funds affiliated with the applicable FCM or DCO. 

122FIA/CME Joint Letter at p. 19; MFA at p. 6. 

123 Id. (referencing the Commission’s final rule 

Enhancing Protections Afforded Customers and 

Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506 at 68520 Nov. 14, 2013) (‘‘2013 

Protections of Customer Funds Release’’), which 

notes that an FCM’s risk management policies and 

procedures under Commission regulation 1.11 must 

include procedures for assessing the 

appropriateness of investing customer funds in 

accordance with Commission regulation 1.25, and 

‘‘must take into consideration the market, credit, 

counterparty, operational, and liquidity risks 

associated with the investments.’’) 

124Proposal at 81242. Commission regulation 

1.25(b) provides, in relevant part, that an FCM or 

DCO is required to manage its Permitted 

Investments consistent with the objectives of 

preserving principal and maintaining liquidity of 

the Customer Funds. 17 CFR 1.25(b). 

125 2013 Protections of Customer Funds Release at 

68519–68520. 

126Commission regulation 1.11(e)(1)(ii) provides 

that an FCM’s risk management program must 

consider risks posed by affiliates, all lines of 

business of the FCM, and all other trading activity 

engaged in by the FCM. 17 CFR 1.11(e)(1)(ii). 

127See Commission Interpretation Regarding 

Standard of Conduct for Investment Adviser, SEC, 

84 FR 33669 (July 12, 2019) at 33670. 

128 Id. at 33677. 129Blackrock at p. 6. 

necessary.121 These commenters noted 

that ‘‘risk posed by affiliates’’ is a 

component of the risk management 

program that FCMs are required to 

adopt pursuant to Commission 

regulation 1.11.122 The commenters 

further asserted that because Permitted 

Investments involving FCM affiliates are 

already subject to the policies, 

procedures, and controls of 

consolidated risk management 

programs, as well as existing statutory 

and regulatory requirements, there is no 

reason to revisit the Commission’s 

previous consideration of this issue.123

c. Discussion 

The Commission has considered the 

comments received, and is adopting as 

proposed the amendments to 

Commission regulation 1.25 to limit the 

scope of MMFs that qualify as Permitted 

Investments for Customer Funds to 

Permitted Government MMFs. As stated 

in the Proposal, the Commission’s intent 

in eliminating Prime MMFs and 

Electing Government MMFs from the 

list of Permitted Investments is to 

ensure that Customer Funds are 

managed with the objectives of 

preserving principal of the investments, 

consistent with the general 

requirements of Commission regulation 

1.25(b).124 The SEC requirement for 

Prime MMFs to impose a liquidity fee 

on shareholder redemptions when the 

fund experiences net redemptions that 

exceed 5 percent of the fund’s net assets 

and the separate authority granted by 

the SEC that permits funds to impose 

discretionary liquidity fees of up to 2 

percent on shareholder redemptions if 

the board of directors determines that 

such a fee is in the best interest of the 

fund are not consistent with the 

obligation imposed under Commission 

regulation 1.25(b) on FCMs and DCOs to 

preserve the principal of Customer 

Funds invested in Permitted 

Investments. The imposition of 

mandatory or discretionary liquidity 

fees on an FCM’s or DCO’s redemption 

request from a Prime MMF or an 

Electing Government MMF may result 

in an FCM or DCO not realizing the full 

principal value of its investment upon 

its redemption request. The inability of 

the FCM or DCO to receive the full 

principal value of its investment of 

Customer Funds presents potential 

financial risk to the FCM or DCO as it 

may not have sufficient funds to fully 

repay the account balances of each 

customer. Thus, the Commission is 

revising the list of Permitted 

Investments to remove Prime MMFs and 

Electing Government MMFs. 

The Commission is also maintaining 

current Commission regulation 

1.25(b)(5)(ii), which provides that an 

FCM or DCO may invest Customer 

Funds in a fund affiliated with that FCM 

or DCO. Consistent with its views 

expressed in connection with the risk 

management program mandated by 

Commission regulation 1.11,125 the 

Commission expects that FCMs will 

assess the appropriateness of investing 

Customer Funds in affiliated funds in 

accordance with this program.126

Similarly, because DCO Core Principle F 

and Commission regulation 39.15(e) 

require a DCO to hold Customer Funds 

only in instruments with minimal 

credit, market, and liquidity risks, the 

Commission expects that DCOs will 

assess the risk of investing Customer 

Funds in affiliated funds before doing 

so. In addition, investment advisers that 

act as investment managers of a fund 

have fiduciary duties to their client, the 

fund, under the Investment Adviser Act 

of 1940.127 In this context, the 

investment adviser has a duty to 

eliminate, or disclose and mitigate, 

conflicts of interest that may impact the 

advisory relationship.128 Therefore, as 

investors in a fund that qualifies as a 

Permitted Investment, FCMs and DCOs 

should not receive either preferential or 

disadvantageous treatment compared to 

other investors in the fund. 

Lastly, in response to the comment 

asserting that the Commission failed to 

acknowledge the broader ‘‘dash for 

cash’’ that occurred across assets classes 

in March 2020,129 the Commission was 

recounting the SEC’s rationale for 

adopting the 2023 SEC MMF Reforms. 

The Commission’s own rationale for 

revising the scope of MMFs whose 

interests qualify as Permitted 

Investments is the potential reduced 

liquidity of Prime MMFs and Electing 

Government MMFs resulting from the 

implementation of liquidity fees by such 

funds under the SEC’s regulatory 

framework. 

To eliminate MMFs whose 

redemptions may be subject to a 

liquidity fee from the scope of Permitted 

Investments under Commission 

regulation 1.25, the Commission is 

revising Commission regulation 

1.25(a)(1)(vii), which is redesignated 

Commission regulation 1.25(a)(1)(iv) to 

accommodate other amendments to 

Commission regulation 1.25(a) 

discussed in this Final Rule, by 

replacing the term ‘‘money market 

mutual fund’’ with the term 

‘‘government money market funds as 

defined in § 270.2a–7 of this title, 

provided that the funds do not elect to 

be subject to liquidity fees in 

accordance with § 270.2a–7 of this title 

(government money market fund).’’ The 

Commission is also adopting further 

conforming changes throughout 

Commission regulation 1.25 and the 

appendix to Commission regulation 1.25 

by replacing all references to ‘‘money 

market mutual fund’’ with ‘‘government 

money market fund.’’ In addition, the 

appendix to Commission regulation 1.25 

is redesignated as appendix E to part 1 

to address a change in the rules of the 

Office of the Federal Register regarding 

the structure of regulatory text to be 

codified in the Code of Federal 

Regulations. 

To reflect the Final Rule’s 

amendments to the scope of MMFs that 

qualify as Permitted Investments, the 

Commission is also adopting 

conforming amendments to Commission 

regulation 1.26, appendices A and B to 

Commission regulation 1.26, 

Commission regulation 30.7(d), and 

appendix F to part 30 of the 

Commission’s regulations, as proposed. 

Specifically, the Commission is 

adopting conforming amendments to 

paragraphs (a) and (b) of Commission 

regulation 1.26 to replace the term 

‘‘money market mutual fund’’ with the 

term ‘‘government money market fund.’’ 

Paragraph (b) of Commission regulation 

1.26 is further revised to reflect the 

redesignation of appendices A and B to 

Commission regulation 1.26 as 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7819 

130Commission regulation 1.26 currently refers to 

‘‘appendix A or B to this section’’ and ‘‘appendix 

A or B to § 1.20.’’ Appendix A and appendix B to 

Commission regulation 1.26 are being redesignated 

appendix F and appendix G to part 1, and appendix 

A and B to Commission regulation 1.20 are being 

redesignated appendix C and D to part 1, to address 

a change in the rules of the Office of the Federal 

Register regarding the structure of regulatory text to 

be codified in the Code of Federal Regulations. 

131FIA/CME Joint Letter at p. 21. 

132 2000 Permitted Investments Amendment at 

78003. 

133 Id. 

134 Investment of Customer Funds and Funds 

Held in Account for Foreign Futures and Foreign 

Options Transactions, 75 FR 67645 (Nov. 3, 2010) 

at 67645 (‘‘2010 Proposed Permitted Investments 

Amendment’’). 

135 Id. at 67643 (‘‘2007 Review’’). MPD is a 

successor division to DCIO. The 2007 Review was 

conducted to further staff’s understanding of FCM 

investment strategies and practices for customer 

funds and to assess whether any changes to the 

Commission’s regulations would be appropriate. 

136 Id. at 67645. 

137 2011 Permitted Investments Amendment at 

78780–78782. 

138 Id. at 78782. 

139 Id. 

140 Id. 

141 2018 Order. 

142 2018 Order at 35244–35245. The petitioners of 

the 2018 Order did not request any relief with 

respect to the investment of 30.7 customer funds, 

which are held by FCMs for 30.7 customers are 

trading on foreign contract markets that are not 

Commission designated contract markets. 

‘‘appendices F and G to part 1 of the 

Commission’s regulations’’ and to 

reflect the redesignation of appendices 

A and B to Commission regulation 1.20 

as ‘‘appendices C and D to part 1.’’ 130

The Commission is also amending 

appendices A and B to Commission 

regulation 1.26 (redesignated 

appendices F and G to part 1) to replace 

the term ‘‘Money Market Mutual Fund’’ 

with ‘‘Government Money Market 

Fund.’’ 

In addition, the Commission is 

making conforming changes to 

Commission regulation 30.7(d)(2) and 

30.7(l)(5)(iii)(G) (redesignated 

Commission regulation 30.7(l)(5)(iii)(F)) 

to replace the term ‘‘money market 

mutual fund’’ with ‘‘government money 

market fund.’’ The Commission is also 

implementing changes to appendix F to 

part 30, to replace the term ‘‘money 

market mutual fund’’ with ‘‘government 

money market fund.’’ 

In response to FIA/CME Joint Letter, 

the Commission is also adopting 

additional conforming changes to the 

template acknowledgement letters set 

forth in appendices A and B to 

Commission regulation 1.26 

(redesignated as appendices F and G to 

part 1) and in appendix F to part 30 to 

reflect the changes to the scope of 

MMFs that qualify as Permitted 

Investments.131 Specifically, the 

Commission is including a template 

representation that the Government 

MMF does not elect to impose 

discretionary liquidity fees. The 

Commission understands that including 

language to memorialize the 

representation in the template 

acknowledgement letter may create 

efficiencies for registrants seeking to 

ascertain that the MMF meets the 

eligibility conditions of Commission 

regulation 1.25. Thus, the Commission 

is including the following statement 

after the second full paragraph of the 

template acknowledgment letters in 

appendices A and B to Commission 

regulation 1.26 (redesignated 

appendices F and G to part 1 for FCMs 

and DCOs, respectively) and appendix F 

to part 30: Furthermore, you 

acknowledge and agree that the Shares 

are in a fund that holds itself out to 

investors as a government money 

market fund, in accordance with 17 CFR 

270.2a–7. In addition, you acknowledge 

and agree that the Shares are in a fund 

that does not choose to rely on the 

ability to impose discretionary liquidity 

fees consistent with the requirements of 

17 CFR 270.2a–7(c)(2)(i). 

As discussed in section IV.E. of this 

preamble regarding the removal of readonly electronic access, FCMs do not 

need to obtain new acknowledgment 

letters for existing accounts at 

depositories holding Customer Funds 

reflecting this new language regarding 

government money market funds. 

Instead, revised acknowledgment letters 

must be obtained only for accounts 

opened after the effective date of this 

Final Rule or if the FCM is required to 

obtain a new acknowledgment letter for 

reasons unrelated to the addition of the 

government money market fund 

language after the effective date of this 

Final Rule. 

2. Foreign Sovereign Debt 

a. Proposal 

The Commission authorized FCMs 

and DCOs to invest futures customer 

funds in foreign sovereign debt as part 

of the 2000 Permitted Investments 

Amendment.132 The investments were 

subject to specified conditions, 

including that investments in the debt 

of a particular foreign sovereign were 

limited to balances owed by FCMs or 

DCOs to customers denominated in the 

currency of the applicable sovereign 

debt.133

The Commission subsequently 

proposed to eliminate foreign sovereign 

debt as a Permitted Investment in 2010 

citing an interest in simplifying the 

regulation and safeguarding futures 

customer funds in light of economic 

crises experienced by a number of 

foreign sovereigns.134 Specifically, the 

2010 Proposed Permitted Investments 

Amendment cited a Division of Clearing 

and Intermediary Oversight (‘‘DCIO’’) 

2007 review of the investment of futures 

customer funds and 30.7 customer 

funds.135 The 2007 Review revealed that 

only three of the total 87 active FCMs 

invested futures customer funds in 

foreign sovereign debt at any time 

during that year, and that only one FCM 

invested 30.7 customer funds in foreign 

sovereign debt.136

The Commission subsequently 

eliminated foreign sovereign debt as a 

Permitted Investment in 2011.137 In 

eliminating foreign sovereign debt as a 

Permitted Investment, the Commission 

stated that it recognized that the safety 

of sovereign debt issuances of one 

country may vary greatly from the 

sovereign debt issuances of another 

country and that investments in certain 

sovereign debt may be consistent with 

the objective of preserving principal and 

maintaining liquidity of investments 

entered into with Customer Funds 

specified in Commission regulation 

1.25.138 The Commission expanded on 

this view by stating that it was amenable 

to considering requests for section 4(c) 

exemptions to permit FCMs and DCOs 

to invest futures customer funds in 

foreign sovereign debt upon a 

demonstration that the investment is 

appropriate in light of the objectives of 

Commission regulation 1.25, and the 

issuance of the exemption satisfies the 

criteria set forth in section 4(c).139

Specifically, the Commission stated that 

it would consider permitting futures 

customer funds to be invested in the 

foreign sovereign debt of a country to 

the extent that: (i) FCMs or DCOs held 

balances in segregated accounts owed to 

customers denominated in that 

country’s currency; and (ii) the foreign 

sovereign debt serves to preserve 

principal and maintain liquidity of 

futures customer funds as required for 

all other investments of Customer Funds 

under Commission regulation 1.25.140

As discussed in section II. of this 

preamble, the Commission issued an 

order in 2018 pursuant to section 4(c) 

granting DCOs a limited exemption from 

the prohibition on the investment of 

customer funds in foreign sovereign 

debt consistent with its views and the 

criteria expressed in the 2011 Permitted 

Investments Amendment.141

Specifically, the 2018 Order authorizes 

DCOs to invest euro-denominated 

futures customer funds and Cleared 

Swaps Customer Collateral in eurodenominated sovereign debt issued by 

France or Germany.142 The 2018 Order 


lotter on DSK11XQN23PROD with RULES2
7820 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

143Conditions 3(a)–(f) of the 2018 Order at 35245. 

144See generally Joint Petition. 

145 Joint Petition at p. 2. 

146 Id. 

147 Id. 

148 Id. Consistent with arguments presented in 

connection with the 2018 Order, the Petitioners 

further argued that ‘‘in the event a securities 

custodian enters insolvency proceedings, [a DCO or 

FCM] would have a claim to specific securities 

rather than a general claim against the assets of the 

custodian.’’ Id. See also 2018 Order at 35242. 

149Proposal at 81243–81248. 

150Proposal at 81244 and proposed Commission 

regulation 1.25(a)(1)(vii). The proposed condition 

defining the Specified Foreign Sovereign Debt is 

consistent with clause (1) of the 2018 Order, which 

provides that the Commission’s order is limited to 

the sovereign debt of France and Germany. 

151Proposal at 81244–81245 and proposed 

Commission regulation 1.25(a)(1)(vii)(A) and (B). 

The proposed condition is consistent with 

condition 3(a) of the 2018 Order, which limits a 

DCO’s investment in French or German sovereign 

debt to the extent the DCO owes balances owed to 

customers denominated in euros. 

152Proposal at 81245 and proposed Commission 

regulations 1.25(f)(3). The proposed conditions are 

consistent with condition 3(b) of the 2018 Order. 

153Proposal at 81245–81246. 

154 17 CFR 270.2a–7. 

155Proposed Commission regulation 1.25(f)(1). 

The proposed condition is consistent with 

condition 3(c) of the 2018 Order. 

156Consistent with SEC Rule 2a–7(i)(6), the 

reverse repurchase agreement would be deemed to 

have a maturity equal to the period remaining until 

the date on which the resale of the underlying 

instruments is scheduled to occur, or, where the 

agreement is subject to demand, the notice period 

also contains conditions designed to 

ensure that the investments preserve the 

principal and maintain the liquidity of 

customer funds. Specifically, the 

conditions provide that: (i) investments 

of futures customer funds and Cleared 

Swaps Customer Collateral in the 

sovereign debt of France and Germany 

is limited to investments made with 

euro customer cash; (ii) if the two-year 

credit default spread of France or 

Germany, as applicable, exceeds 45 

BPS, a DCO must not make any new 

direct investments in the relevant debt 

using futures customer funds or Cleared 

Swaps Customer Collateral, and a DCO 

must discontinue investing futures 

customer funds and Cleared Swaps 

Customer Collateral in the relevant debt 

instruments through Repurchase 

Transactions as soon as practicable 

under the circumstances; (iii) the dollarweighted average of the time-to-maturity 

of a DCO’s portfolio of investments in 

each of France or Germany’s sovereign 

debt may not exceed 60 days; (iv) a DCO 

may not make a direct investment in the 

sovereign debt instruments of France or 

Germany that have a remaining time-tomaturity of greater than 180 calendar 

days; (v) a DCO may use futures 

customer funds or Cleared Swaps 

Customer Collateral to enter into 

Repurchase Transactions for French or 

German sovereign debt with a 

counterparty that is a foreign bank that 

qualifies as a permitted depository 

under Commission regulation 1.49(d)(3) 

and that is located in a money center 

country (as defined in Commission 

regulation 1.49(a)(1)) or in another 

jurisdiction that has adopted the euro as 

it currency, a securities dealer located in 

a money center country as defined in 

Commission regulation 1.49(a)(1) that is 

regulated by a national financial 

regulator, or the European Central Bank, 

The Deutsche Bundesbank, or the 

Banque de France; and (vi) a DCO may 

hold the sovereign debt of France or 

Germany purchased under Repurchase 

Transactions with a foreign depository 

only if the depository meets the location 

and qualification requirements 

contained in Commission regulation 

1.49(c) and (d) and if the account 

complies with the requirements of 

Commission regulation 1.26.143

As stated in section II. of this 

preamble, the FIA and CME submitted 

a joint petition requesting that the 

Commission expand the scope of the 

2018 Order by permitting both DCOs 

and FCMs to invest Customer Funds 

(i.e., futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds, as applicable) in the 

sovereign debt of Canada, France, 

Germany, Japan, and the United 

Kingdom (i.e., the Specified Foreign 

Sovereign Debt).144 In support of the 

Joint Petition, the Petitioners asserted 

that the Commission’s justification for 

issuing the 2018 Order to permit DCOs 

to invest futures customer funds and 

Cleared Swaps Customer Collateral in 

French and German sovereign debt is 

also applicable to FCMs. Specifically, 

the Petitioners stated that FCMs face the 

same challenges in assuring the 

protection of foreign currencies received 

from customers to margin cleared 

transactions as DCOs.145 In this regard, 

the Petitioners noted that, in issuing the 

2018 Order, the Commission stated that 

cash held in unsecured deposit accounts 

at commercial banks is exposed to the 

credit risk of the banks.146 The 

Petitioners asserted that this credit risk 

can be effectively eliminated if an FCM 

or DCO is permitted to invest Customer 

Funds denominated in Canadian dollars 

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

(‘‘JPY’’), or Great Britain pounds 

(‘‘GBP’’) in the sovereign debt of 

Canada, France, Germany, Japan, or the 

UK (i.e., Specified Foreign Sovereign 

Debt).147 The Petitioners further stated 

that although investments through 

Repurchase Transactions involve 

exposure to a commercial counterparty, 

an FCM or DCO would receive the 

additional added benefit of receiving 

securities as collateral against that 

counterparty’s credit risk.148

After considering the Joint Petition 

and assessing changes to the holding of 

non-U.S. dollar currencies by FCMs and 

DCOs since the 2007 Review, the 

Commission proposed to permit both 

FCMs and DCOs to invest Customer 

Funds in Specified Foreign Sovereign 

Debt securities.149 Specifically, the 

Commission proposed revising 

Commission regulation 1.25 to include 

Specified Foreign Sovereign Debt 

instruments as Permitted Investments, 

subject to conditions that are consistent 

with the conditions specified in the 

Commission’s 2018 Order. As detailed 

in the Proposal, an FCM or DCO: (i) 

would be permitted to invest Customer 

Funds in the sovereign debt of Canada, 

France, Germany, Japan, and the United 

Kingdom (i.e., the Specified Foreign 

Sovereign Debt); 150 (ii) may only invest 

Customer Funds in the Specified 

Foreign Sovereign Debt of a particular 

country to the extent that the FCM or 

DCO has balances in accounts owed to 

customers denominated in such 

country’s currency; 151 (iii) would not be 

permitted to make new investments of 

Customer Funds in the Specified 

Foreign Sovereign Debt of a particular 

country if such country’s two-year 

credit default spread exceeded 45 BPS; 

and, (iv) would be required to 

discontinue investing Customer Funds 

in the Specified Foreign Sovereign Debt 

of a particular country through 

Repurchase Transactions as soon as 

practicable under the circumstances if 

such country’s two-year credit default 

spread exceeded 45 BPS.152

The Commission also proposed to 

limit the time-to-maturity of 

investments in Specified Foreign 

Sovereign Debt.153 Specifically, the 

Commission proposed that an FCM or 

DCO would be required to ensure that 

the dollar-weighted average time-tomaturity of its portfolio of investments 

in the Specified Foreign Sovereign Debt, 

as the average is computed under SEC 

Rule 2a–7 under the Investment 

Company Act of 1940 (‘‘SEC Rule 2a– 

7’’) 154 on a country-by-country basis, 

does not exceed 60 calendar days.155

The Proposal further provided that if the 

portfolio includes Specified Foreign 

Sovereign Debt securities acquired 

under a reverse repurchase agreement, 

the FCM or DCO shall use the maturity 

of the reverse repurchase agreement to 

compute the dollar-weighted average 

time-to-maturity of the portfolio as 

opposed to the remaining time-tomaturity of the securities.156 This 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7821 

applicable to a demand for the resale of the 

instruments. See proposed Commission regulation 

1.25(f)(1). 

157 17 CFR 1.25(d)(6). 

158Proposal at 81245–81246 and proposed 

Commission regulation 1.25(f)(1). In addition, 

under the Proposal, the dollar-weighted average of 

the time-to-maturity of the portfolio would be 

computed pursuant to SEC Rule 2a–7 (17 CFR 

270.2a–7), consistent with the general time-tomaturity provision in Commission regulation 

1.25(b)(4)(i). Commission regulation 1.25(b)(4)(i) 

provides that except for investments in MMFs, the 

dollar-weighted average time-to-maturity of an 

FCM’s or DCO’s portfolio of Permitted Investments, 

as computed under SEC Rule 2a–7, may not exceed 

24 months. 17 CFR 1.25(b)(4)(i). The Commission 

also proposed to amend Commission regulation 

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

Debt, which, as discussed, would be subject to its 

own dollar-weighted average time-to-maturity limit. 

159Proposed Commission regulation 1.25(f)(2). 

The proposed condition is consistent with 

condition 3(d) of the 2018 Order. 

160Proposal at 81246–81247. Commission 

regulation 1.25(a)(2)(i) provides that FCMs and 

DCOs may engage in Repurchase Transactions with 

Permitted Investments provided the transactions are 

in accordance with the provisions of Commission 

regulation 1.25(d). 17 CFR 1.25(a)(2)(i). 

161For a definition of section 3(a)(6) bank, see 

supra note 52. 

162Public Law 99–571, 100 Stat. 3208 (Oct. 28, 

1986). 

163 17 CFR 1.25(d)(7). 

164Proposal at 81246–81247. 

165 Id., and proposed Commission regulation 

1.25(d)(2). 

166 Id. 

167 Id. 

168Condition (e) of the 2018 Order. 

169Proposed Commission regulation 1.25(d)(7). 

170Proposal at 81247. 

171 Id. And Condition (f) of the 2018 Order. 

172Proposal at 81246. 

173Proposed Commission regulation 1.25(b)(4)(i). 

174AIMA; CCP Global; Eurex; FIA/CME Joint 

Letter; ICE; MFA; NFA; Nodal; SIMFA AMG; and 

WFE. 

175 Investor Advocacy Group Joint Letter and 

Better Markets. 

approach takes into account the 

contractual obligation to resell the 

securities within one business day or on 

demand as required by Commission 

regulation 1.25(d)(6).157 Conversely, if 

the FCM or DCO sells Specified Foreign 

Sovereign Debt securities under a 

repurchase agreement, the FCM or DCO 

shall include the debt securities in the 

calculation of the dollar-weighted 

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

account for the contractual obligation to 

repurchase such securities.158 In 

addition, an FCM or DCO would not be 

permitted to make direct investments in 

Specified Foreign Sovereign Debt 

securities with a remaining time-tomaturity greater than 180 calendar 

days.159

The Commission also proposed to 

expand the permissible Repurchase 

Transaction counterparties and 

depositories under Commission 

regulations 1.25(d)(2) and (7) to include 

certain foreign entities to effectively 

permit FCMs and DCOs to engage in 

Repurchase Transactions with Specified 

Foreign Sovereign Debt securities 

pursuant to Commission regulation 

1.25(a)(2).160 Currently Commission 

regulation 1.25(d)(2) limits 

counterparties with whom an FCM or 

DCO may enter into Repurchase 

Transactions involving Customer Funds 

or Permitted Investments to a section 

3(a)(6) 161 bank, a domestic branch of a 

foreign bank insured by the FDIC, a 

securities broker or dealer, or a 

government securities dealer registered 

with the SEC or which has filed a notice 

pursuant to section 15C(a) of the 

Government Securities Act of 1986.162

Additionally, Commission regulation 

1.25(d)(7) further requires an FCM or 

DCO to hold the securities transferred to 

the FCM or DCO under a reverse 

repurchase agreement in a safekeeping 

account with a bank as referred to in 

Commission regulation 1.25(d)(2), a 

Federal Reserve Bank, a DCO, or the 

Depository Trust Company.163

The Commission noted in the 

Proposal that, absent amendment to the 

counterparty and depository provisions 

of Commission regulations 1.25(d)(2) 

and (7), an FCM’s and DCO’s ability to 

buy and sell Specified Foreign 

Sovereign Debt pursuant to Repurchase 

Transactions would be restricted given 

that participants in such markets are 

predominantly non-U.S. entities.164 The 

Commission, therefore, proposed to add 

foreign banks and foreign securities 

brokers or dealers meeting certain 

requirements discussed below, as well 

as the European Central Bank and the 

central banks of Canada, France, 

Germany, Japan, and the United 

Kingdom, to the list of permitted 

counterparties for Repurchase 

Transactions.165 To be deemed a 

permitted counterparty, the Proposal 

provided that a foreign bank would have 

to qualify as a depository under 

Commission regulation 1.49(d)(3) by 

maintaining regulatory capital in excess 

of $1 billion, and would also have to be 

located in a money center country as 

defined in Commission regulation 

1.49(a)(1) (i.e., Canada, France, Italy, 

Germany, Japan, or the United 

Kingdom) or in another jurisdiction that 

adopted the currency of the permitted 

foreign sovereign debt.166 Similarly, a 

foreign securities broker or dealer would 

have to be located in a money center 

country and be regulated by a national 

financial regulator.167 The proposed 

provisions were designed to ensure that 

counterparties would be regulated 

entities comparable to counterparties 

currently permitted under Commission 

regulation 1.25(d)(2) and are consistent 

with the Repurchase Transaction 

counterparty conditions specified in the 

2018 Order.168

The Commission also proposed to 

permit Specified Foreign Sovereign Debt 

securities transferred to an FCM or DCO 

under a reverse repurchase agreement to 

be held with a foreign bank that 

qualifies as a permitted depository 

under Commission regulation 1.49 by 

maintaining in excess of $1 billion in 

regulatory capital.169 The Commission 

noted that mandating the safekeeping of 

foreign securities purchased through 

reverse repurchase agreements with a 

U.S. custodian, as required under the 

current regulation, may be inefficient or 

impractical.170 The proposed 

amendment to permit a foreign bank 

that satisfies the requirements of current 

Commission regulation 1.49 was 

designed to ensure that any additional 

foreign depositories authorized to hold 

Specified Foreign Sovereign Debt 

securities would be comparable to those 

currently permitted under Commission 

regulation 1.25(d)(7), and is consistent 

with the conditions of the 2018 

Order.171

Lastly, the Commission proposed to 

amend Commission regulation 

1.25(b)(4)(i), which provides that except 

for investments in MMFs, the dollarweighted average time-to-maturity of an 

FCM’s or DCO’s portfolio of Permitted 

Investments, as computed under SEC 

Rule 2a–7, may not exceed 24 

months.172 The proposed amendment 

would exclude Specified Foreign 

Sovereign Debt from the calculation of 

the dollar-weighted average time-tomaturity of the portfolio specified under 

Commission regulation 1.25(b)(4)(i).173

The Commission proposed to exclude 

Specified Foreign Sovereign Debt as 

such debt would be subject to a separate 

dollar-weighted average time-tomaturity limit of 60 calendar days, 

which is substantially shorter than the 

two-year dollar-weighted average timeto-maturity requirement for the overall 

portfolio required by Commission 

regulation 1.25(b)(4)(i). 

b. Comments 

The Commission received 12 

comments in response to the proposed 

addition of Specified Foreign Sovereign 

Debt to the list of Permitted Investments 

for Customer Funds. Ten commenters 

supported the Proposal.174 Two 

commenters opposed the Proposal.175

Several commenters expressing 

support for the Proposal stated that 

permitting investment in the Specified 

Foreign Sovereign Debt provides FCMs 


lotter on DSK11XQN23PROD with RULES2
7822 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

176AIMA at p. 2; FIA/CME Joint Letter at p. 2; 

MFA at pp. 1–2; CCP Global at p. 1; WFE at p. 4. 

177MFA at pp. 3–4. 

178 Id. 

179AIMA at p. 2. 

180FIA/CME Joint Letter at pp. 2, 6–7. 

181AIMA at p. 2; Eurex at p. 2; WFE at p. 4; MFA 

at pp. 2–5; FIA/CME Joint Letter at pp. 2–11; CCP 

Global at p.1; Nodal at p. 2; NFA at p. 1. 

182CCP Global at p. 1. 

183AIMA at p. 2. 

184FIA/CME Joint Letter at p. 7. 

185 Id. 

186 Id. 

187 Id. See also Proposal at 81243–81244. 

188FIA/CME Joint Letter at p. 7. FIA and CME 

stated that Cleared Swaps Customers deposit initial 

margin in foreign currency to a much greater extent 

than do futures customers or 30.7 customers. 

Specifically, FIA and CME stated that based on a 

survey of members, the growth of CAD, EUR, GBP 

and JPY customer balances (measured by the total 

equity value of accounts holding cash, securities, 

and positions denominated in those currencies, 

expressed in U.S. dollar-equivalent basis) between 

November 30, 2018 and November 30, 2023 has 

been most pronounced for the Cleared Swaps 

origin. FIA and CME stated that for members 

surveyed, CAD/EUR/GBP/JPY Cleared Swaps 

Customer Collateral balances totaled USD 1.6 

billion in 2018 and USD 9.8 billion in 2023, a 600 

percent increase. FIA/CME Joint Letter at pp. 7–8, 

note 37. 

189FIA/CME Joint Letter at pp. 7–8. 

190FIA/CME Joint Letter at p. 8. 

191 Id. 

192 Id. and 17 CFR 22.2(f)(4). Commission 

regulation 22.2(e)(3) further states that an FCM may 

deposit in the Cleared Swaps Customer Accounts 

its own money, securities, or other property to 

ensure that it is always in compliance with the 

segregation requirements of Commission regulation 

22.2(f), provided, that the proprietary funds 

deposited are cash or unencumbered Permitted 

Investments. 17 CFR 22.2. 

193FIA/CME Joint Letter at p. 8, citing as an 

example an FCM transferring proprietary funds in 

the form of Specified Foreign Sovereign Debt 

instruments to a Cleared Swaps Customer Collateral 

Account to cover a deficit and ensure compliance 

and DCOs with a risk management tool 

to effectively manage foreign currency 

risk from holding Customer Funds 

denominated in non-U.S. dollars.176 In 

this regard, MFA stated that 

Commission regulation 1.25 currently 

requires an FCM holding excess nonU.S. dollar Customer Funds to first 

convert such currency to U.S. dollars 

before investing the funds in Permitted 

Investments, thereby exposing the FCM 

and customers to foreign currency 

risk.177 MFA further stated that a more 

prudent risk management approach 

would be for an FCM to invest excess 

CAD, EUR, GBP, and JPY in 

corresponding Specified Foreign 

Sovereign Debt securities, which 

eliminates the foreign currency 

exposure to the FCM and customers.178

Similarly, AIMA asserted that allowing 

FCMs and DCOs to invest foreigndenominated Customer Funds in shortterm sovereign bonds of the same 

currency would reduce the currency 

risk associated with investing those 

funds in U.S. dollar-denominated 

investments.179 FIA and CME echoed 

these comments, stating that the 

Proposal expands the risk management 

tools available to FCMs and DCOs to 

manage risk associated with holding 

Customer Funds by mitigating foreign 

currency risk resulting from converting 

foreign currencies into U.S. dollars in 

order to invest in U.S. dollardenominated Permitted Investments.180

Several commenters also observed 

that the ability to invest foreign 

currency balances owed to customers in 

Specified Foreign Sovereign Debt 

securities reduces potential credit risk 

that FCMs and DCOs would otherwise 

be exposed to by depositing the foreign 

currencies in unsecured commercial 

bank accounts.181 CCP Global stated 

that, consistent with the Joint Petition, 

the ability of FCMs and DCOs to invest 

customer foreign currencies in Specified 

Foreign Sovereign Debt securities 

effectively eliminates the credit risk of 

commercial banks that FCMs and DCOs 

are exposed to, while holding such 

funds in unsecured deposit accounts.182

AIMA noted that investing foreign 

currencies belonging to customers, 

particularly non-U.S. clients, in 

Specified Foreign Sovereign Debt is a 

more prudent option than depositing 

funds with a foreign depository 

institution that provides less insolvency 

protection, as such deposits would be at 

greater risk of being treated as 

unsecured claims compared to 

securities held in custody.183 FIA and 

CME stated that in the event of a foreign 

depository’s insolvency, claims to 

uninsured cash balances are at greater 

risk of being treated as unsecured claims 

against the depository estate than claims 

to specific securities held in custody.184

FIA and CME further stated that FCMs, 

DCOs, and customers are in a better risk 

posture when FCMs and DCOs are able 

to diversify non-U.S. dollar exposures 

by leveraging both permitted non-U.S. 

depositories for cash as well as 

Permitted Investments in Specified 

Foreign Sovereign Debt securities.185

FIA and CME further commented that 

the significant growth in the holding of 

foreign currencies, particularly CAD, 

EUR, JPY, and GBP, which comprise the 

currencies of the Specified Foreign 

Sovereign Debt securities, provides 

compelling evidence demonstrating the 

risk management rationale for 

expanding the list of Permitted 

Investments to include Specified 

Foreign Sovereign Debt securities.186

Specifically, FIA and CME referenced 

the Proposal, where the Commission 

stated that as of August 15, 2023, FCMs 

collectively held an aggregate U.S. 

dollar equivalent of $51 billion of 

Customer Funds denominated in the 

currencies of the Specified Foreign 

Sovereign Debt, which represented 

approximately 10 percent of the total 

$490 billion of Customer Funds held in 

segregated accounts on that date.187 FIA 

and CME stated that the increase in 

foreign currency-denominated Customer 

Funds is attributable primarily to the 

growth in cleared swaps, which only 

commenced when the Commission 

issued the 2011 Permitted Investments 

Amendment eliminating foreign 

sovereign debt as a Permitted 

Investment.188 In FIA and CME’s view, 

it would be impractical—and unfair to 

Cleared Swaps Customers—to continue 

incentivizing FCMs to manage currency 

fluctuation risk by refusing margin 

deposits not denominated in U.S. 

dollars or requiring customers 

depositing such balances to assume the 

foreign currency risk.189

FIA and CME also observed that as 

non-U.S. dollar customer funds balances 

have increased, so has the customer 

demand for FCM flexibility in servicing 

multi-currency accounts.190 The 

commenters explained that many 

customers, particularly Cleared Swaps 

Customers, deposit non-U.S. dollar cash 

and rely on FCMs to manage those 

deposits to satisfy margin calls on their 

behalf denominated in one or more 

other currencies. They further asserted 

that since several of the Commissionregistered DCOs clearing swaps are 

located in the United Kingdom and the 

European Union, the complexity of 

single-currency margining processes is 

compounded by the operational 

complexity of Cleared Swaps Customer 

Collateral segregation and ‘‘residual 

interest’’ requirements.191 In particular, 

FIA and CME stated that to comply with 

Commission regulation 22.2(f)(4), which 

requires that an FCM maintain in 

segregation, at all times, ‘‘an amount 

equal to the sum of any credit balances 

that the Cleared Swaps Customers of the 

[FCM] have in their accounts,’’ FCMs 

may need to source non-U.S. dollar 

assets to cover deficits in advance of 

settlement with DCOs outside of U.S. 

banking hours.192 In this regard, FIA 

and CME asserted that having the ability 

to convert non-cash balances into 

Specified Foreign Sovereign Debt and to 

use Specified Foreign Sovereign Debt 

instruments to cover deficits incurred 

outside of U.S. banking hours would 

assist FCMs to control the higher level 

of operational risk associated with 

single-currency margining and Cleared 

Customer Collateral-specific segregation 

compliance processes.193


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7823 

with its segregation requirements outside of U.S. 

banking hours. 

194E.g., Eurex at p. 2; ICE at p. 2. See also MFA 

at p. 3 and FIA/CME Joint Letter at p. 5 (noting that 

if liquidity is measured by bid-ask spread (i.e., the 

difference between the lowest ask price and the 

highest bid price), the short-term Specified Foreign 

Sovereign Debt instruments referenced in the 

Proposal are all highly liquid and comparable from 

a liquidity perspective to U.S. government 

securities with the same tenors). 

195FIA/CME Joint Letter at p. 5. 

196WFE at p. 4 (referencing available credit 

ratings for the relevant foreign sovereign debt 

instruments). 

197Better Markets at p. 3; Investor Advocacy 

Group Joint Letter at p. 1. 

198Better Markets at pp. 5–6. 

199 Id. 

200 Id. at p. 6. 

201 Id. 

202 Id. at p. 2. 

203 Id. 

204 Investor Advocacy Group Joint Letter at p. 1 

(the expansion of Permitted Investments to include 

foreign debt instruments of France, Germany, 

Canada, Japan, and the United Kingdom could put 

customers at undue financial risk and asserting that 

avoiding such risk was the rationale for prohibiting 

investments in foreign sovereign debt in 2011 after 

the MF Global meltdown). 

205Better Markets at p. 6; Investor Advocacy 

Group Joint Letter at pp. 1–2. 

206 Investor Advocacy Group Joint Letter at p. 1. 

207Better Markets at p. 4. Better Markets states 

that there is substantial historical evidencing that 

benefits accruing at the higher end of the economic 

spectrum (e.g., DCOs and FCMs) do not ‘‘trickle 

down’’ effectively to lower levels (e.g., customers), 

citing 50 years of tax cuts for the rich failed to 

trickle down, economics study says, CBS News 

Money Watch (December 17, 2020), available at 

https://www.cbsnews.com/news/tax-cuts-rich-5- 

years-no-trickel-down/. 

208 Id. Better Markets, citing Futures Commission 

Merchants Target Expansion, Traders Magazine 

(June 26, 2023), available at https://www.traders

magazine.com/departments/clearing/fcms-targetexpansion/. 

209Proposal at 81247, Question 4. Comments in 

response to Question 4 were submitted by CCP 

Global at pp. 2–3; FIA/CME Joint Letter at pp. 10– 

11; ICE at p. 3; and WFE at p. 4. 

210FIA/CME Joint Letter at p. 11. 

211CCP Global at p. 2. 

212 Id. 

213 Id. 

Commenters also supported the 

Proposal by noting that the credit, 

liquidity, and volatility characteristics 

of Specified Foreign Sovereign Debt 

securities are comparable to those of 

U.S. Treasury securities.194 Specifically, 

FIA and CME stated that if measuring 

liquidity by the bid-ask spread, ‘‘the 

short-term Specified Foreign Sovereign 

Debt instruments in scope of the 

Proposed Regulation all demonstrate 

abundant market liquidity; they are 

comparable to, if not identical with, bidask spreads in U.S. government 

securities of the same tenors.’’ 195 WFE 

further emphasized the low risk of 

default associated with these 

instruments.196

Better Markets and the Investor 

Advocacy Group opposed the proposed 

addition of Specified Foreign Sovereign 

Debt to the list of Permitted 

Investments, stating that such 

investments could compromise the 

protection of Customer Funds and put 

customers at undue financial risk.197

Specifically, Better Markets stated that 

investments in foreign sovereign debt 

can exhibit variable degrees of liquidity, 

affected by factors such as market 

conditions, geopolitical stability, and 

economic policies.198 Better Markets 

further stated that in times of financial 

stress or market volatility, foreign 

sovereign debt instruments may not be 

readily convertible to cash without 

significant loss of value. Better Markets 

argued that the reduced liquidity could 

hinder the ability of DCOs and FCMs to 

promptly meet withdrawal requests or 

margin calls, potentially compromising 

their operational efficiency and 

financial stability.199 Better Markets 

further stated that the increased 

exposure to credit and market risks 

could lead to situations where losses 

from investments in foreign sovereign 

debt impact DCOs’ and FCMs’ financial 

health to the extent of potentially 

limiting DCOs’ and FCMs’ ability to 

return Customer Funds. Better Markets 

also asserted that the proposed 

conditions to investing in Specified 

Foreign Sovereign Debt, such as the 45 

BPS cap on the two-year credit default 

swap spread and the limits on the timeto-maturity of investments, may not be 

sufficient to mitigate the underlying 

liquidity concerns.200 Better Markets 

also criticized the use of credit default 

swap spreads as an indicator of the 

creditworthiness of the issuing 

sovereign, noting that the reliability of 

credit default swap spreads depends 

heavily on the health and liquidity of 

the credit default swaps market.201

Better Markets also asserted that 

allowing investments of Customer 

Funds in foreign sovereign debt would 

constitute a relaxation of regulatory 

enhancements introduced following the 

failures of MF Global Inc. (‘‘MF Global’’) 

and Peregrine Financial Group 

(‘‘Peregrine’’).202 Specifically, Better 

Markets stated that the failures of both 

MF Global and Peregrine resulted from 

misuse of customer funds and fraud, 

which caused significant customer 

losses.203 In addition, the Investor 

Advocacy Group noted that the failure 

of MF Global resulted, at least in part, 

due to risky investments in foreign 

sovereign debt.204

More generally, Better Markets and 

the Investor Advocacy Group contended 

that the Commission lacks a compelling, 

public interest-focused rationale for 

expanding the list of Permitted 

Investments to include Specified 

Foreign Sovereign Debt.205 In particular, 

these commenters criticized the 

Commission’s consideration of the 

potential increase in profits for DCOs 

and FCMs as a benefit of the proposed 

expansion of the list of Permitted 

Investments.206 Better Markets also 

argued that higher profits for DCOs and 

FCMs do not inherently guarantee 

reduced customer charges.207 Instead, 

Better Markets stated that the current 

financial landscape, characterized with 

high interest rates, has generated 

substantial additional revenue for 

FCMs, reportedly amounting to 

hundreds of millions of dollars, and has 

led to an expectation of an expansion of 

the number of FCMs entering the 

market.208

Separately, four commenters 

responded to the Commission’s request 

for comment on whether the 

Commission should impose a ‘‘coolingoff ’’ period, following an exceedance of 

the 45 BPS limit on the two-year credit 

default swap spread of the issuing 

foreign sovereign, during which 

investments in Specified Foreign 

Sovereign Debt would remain 

prohibited.209 FIA and CME stated that 

a ‘‘cooling-off’’ period was not necessary 

because, in their view, an exceedance of 

the 45 BPS limit would most likely be 

related to broader market volatility 

conditions, the improvement of which 

itself constitutes a cooling-off period.210

CCP Global agreed with the Commission 

that there should be a mechanism to 

exclude a sovereign’s debt in the event 

of an increased credit risk, but 

advocated for a phased ‘‘cooling-off’’ 

period and flexibility in terms of the 

number of breaches before investments 

are limited.211 CCP Global also warned 

against potential ‘‘cliff-edge’’ effects due 

to the use of hard limits, which could 

aggravate volatility in the underlying 

bond market.212 CCP Global further 

noted that given the limited maturity of 

investments in reverse repurchase 

agreements (i.e., reverse repurchase 

agreements must be limited to an 

overnight maturity or reversible upon 

demand), imposing an immediate 

limitation on new investments would 

have the effect of requiring a large 

proportion of all FCM and DCO 

investments in reverse repurchase 

agreements collateralized by the 

relevant debt to be re-allocated within 

one business day.213 WFE similarly 

recommended that the Commission 

consider a minimum period of time or 

number of times that this limit is 

breached before investment in the 

applicable Specified Foreign Sovereign 


lotter on DSK11XQN23PROD with RULES2
7824 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

214WFE at p. 4. 

215 ICE at p. 3. 

216 ICE at p. 3. FIA and CME also noted that 

immediate divestment should not be required after 

a change in credit default spread. See FIA/CME 

Joint Letter at p. 10. 

217FIA/CME Joint Letter at p. 10. 

218 Id. 

219 Id. 

220FIA/CME Joint Letter at pp. 9–10. Joint 

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

supply of the Specified Foreign Sovereign Debt 

meeting the restrictions is limited and would be 

thinly traded/quoted). 

221FIA/CME Joint Letter at pp. 9–10. 

222 ICE at p. 3; FIA/CME Joint Letter at p. 9; WFE 

at p. 4. See also Proposal at 81246–81247 and 

proposed Commission regulation 1.25(d)(2) and (7). 

223 ICE at p. 3. 

224Eurex at p. 2, CCP Global at p. 2, Nodal at p. 

2. 

225 Id. 

226BlackRock at p. 7–8 (referring to the 

recommendation made by the Global Market 

Structure Subcommittee of the Commission’s 

Global Markets Advisory Committee on November 

6, 2023). See Proposal by FICC to add CCPs as 

Permitted Repo Counterparties under CFTC Rule 

1.25 Recommendation, November 6, 2023, available 

at https://www.cftc.gov/PressRoom/Events/ 

opaeventgmac110623. 

227Final Commission regulation 1.25(a)(1)(vi). 

The Final Rule thus supersedes the 2018 Order. 

228 In reaching this conclusion, the Commission 

considered, among other factors, the daily volatility 

of exchange rates of the relevant currency pairs. 

Specifically, based on data from the Federal Reserve 

Bank of St. Louis’ FRED database, the Commission 

noted that for the period from September 2018 to 

September 2023, the standard deviation of the daily 

percentage change of exchange rate between the 

relevant currency pairs was 0.45 percent for the 

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

0.61 percent for the GBP/USD pair, and 0.55 

percent for the JPY/USD pair, indicating a currency 

fluctuation that is an additional risk factor with 

respect to the return on investment of customer 

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

foreign sovereign debt as a Permitted Investment in 

2000 to mitigate the potential foreign currency 

fluctuation risk facing FCMs and DCOs in 

converting foreign currencies to U.S. dollars for 

investment purposes. 2000 Permitted Investments 

Amendment at 78003. 

229 17 CFR 1.25(b). 

Debt security is prohibited.214 ICE stated 

that requiring DCOs to discontinue 

investment in Specified Foreign 

Sovereign Debt securities due to 

fluctuations in credit default swap 

spreads could be disruptive.215 In ICE’s 

view, this restriction is not necessary 

given the jurisdictions involved.216

FIA and CME also observed that the 

Commission did not indicate whether 

the calculation of the 45 BPS credit 

default spread condition should be 

based on the bid, offer or mid-level.217

FIA and CME proposed that the 45 BPS 

credit default spread condition be 

determined using mid-level pricing.218

FIA and CME stated that mid-level 

pricing is a widely accepted pricing 

convention, including for sovereign 

debt.219

In addition, FIA and CME reiterated 

their request, originally expressed in the 

Joint Petition, that the Commission set 

a six-month dollar-weighted average 

time-to-maturity limit for the portfolio 

of Specified Foreign Sovereign Debt, 

and a maximum two-year remaining 

time-to-maturity condition for 

individual instruments.220 Although 

FIA and CME agreed with the 

Commission’s observation in the 

Proposal that the new issuance supply 

of Specified Foreign Sovereign Debt 

meeting the proposed restrictions 

appears ‘‘adequate to satisfy the demand 

for investments of Customer Funds in 

the relevant instruments,’’ FIA and CME 

asserted that the time-to-maturity 

restrictions ‘‘may be safely expanded, 

thereby enhancing liquidity (with the 

attendant additional benefit of enhanced 

price stability and diversification across 

currencies and tenors), without 

increasing credit risk.’’ 221

Commenters also supported the 

Commission’s proposal to revise 

Commission regulations 1.25(d)(2) and 

(7) by expanding the eligible 

counterparties for Repurchase 

Transactions for Specified Foreign 

Sovereign Debt securities to include 

foreign banks, foreign securities brokers 

and dealers, and the central banks of 

Canada, France, Germany, Japan, and 

the United Kingdom, and by including 

foreign banks as eligible custodians for 

securities received by FCMs and DCOs 

under agreements to resell the 

securities.222 ICE stated that the 

principal custodians for foreign 

sovereign debt securities are located 

outside of the U.S., and that custody 

through a U.S. institution as required 

under Commission regulation 1.25 

would be impractical or involve an 

indirect custodial relationship through a 

foreign bank or dealer in the relevant 

jurisdiction. ICE also requested that the 

Commission revise Commission 

regulation 1.25(d)(7) to explicitly 

include the central banks of Canada, 

France, Germany, Japan, the United 

Kingdom, and the European Central 

Bank as eligible custodians for Specified 

Foreign Sovereign Debt securities.223

Separately, three commenters asserted 

that the Proposal’s goals of increasing 

investment vehicles for DCOs, while 

minimizing credit risk, market risk, and 

liquidity risk could be effectively met if 

DCOs were allowed to deposit Customer 

Funds at the Federal Reserve Banks.224

The commenters thus recommended 

that the Commission advocate for 

Federal Reserve deposit access for all 

DCOs.225

BlackRock also requested that the 

Commission amend Commission 

regulation 1.25(d)(2) to allow FCMs and 

DCOs to invest Customer Funds 

pursuant to Repurchase Transactions 

cleared by a covered clearing agency 

registered with the SEC under section 

17A of the Securities Exchange Act.226

c. Discussion 

The Commission is amending 

Commission regulation 1.25 to add 

Specified Foreign Sovereign Debt to the 

list of Permitted Investments as 

proposed, subject to certain 

clarifications and revisions to address 

comments. The amendments 

incorporate and expand upon the 

exemptive relief provided by the 

Commission in the 2018 Order by 

authorizing DCOs to invest Customer 

Funds in the sovereign debt of Canada, 

Japan, and the United Kingdom in 

addition to the sovereign debt of France 

and Germany. The amendments also 

expand upon the 2018 Order by 

authorizing FCMs to invest Customer 

Funds in the Specified Foreign 

Sovereign Debt.227

After considering the public 

comments, the Commission continues to 

believe that adding Specified Foreign 

Sovereign Debt securities as a Permitted 

Investment provides FCMs and DCOs 

with an option to manage the potential 

foreign exchange risk that may arise in 

their administration and investment of 

Customer Funds. Specifically, absent 

the ability to invest Customer Funds in 

identically-denominated sovereign debt 

securities, an FCM or DCO seeking to 

invest customer foreign currency 

deposits would need to convert the 

currencies to a U.S. dollar-denominated 

asset, which would introduce potential 

foreign currency fluctuation risk to the 

FCMs and DCOs.228 If the U.S. dollar 

decreases in value relative to the 

particular foreign currency, the FCM or 

DCO may not receive sufficient foreign 

currency to cover the full amount owed 

to its customers upon the conversion of 

the U.S. dollar-denominated investment 

back to the applicable foreign currency. 

This may further impact an FCM’s or 

DCO’s obligation under Commission 

regulation 1.25(b)(1) to preserve the 

principal of Customer Funds invested in 

Permitted Investments. Thus, to provide 

FCMs and DCOs with an investment 

option that allows them to manage 

potential foreign exchange risk, while 

staying consistent with the general 

objectives set forth in Commission 

regulation 1.25 of preserving principal 

and maintaining liquidity of Permitted 

Investments,229 the Commission is 

adopting the conditions discussed above 

as proposed. These conditions are 

consistent with the criteria specified in 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7825 

230 2011 Permitted Investments Amendment at 

78782 (stating that the Commission would consider 

permitting foreign sovereign debt investments to the 

extent that: (i) the petitioner has balances in 

segregated accounts owed to customers or clearing 

member FCMs in that country’s currency; and (ii) 

the sovereign debt serves to preserve principal and 

maintain liquidity of customer funds as required for 

all other investments of customer funds under 

Commission regulation 1.25). 

231 2018 Order at 35245. 

232 17 CFR 1.49(a). In the absence of customer 

instructions to the contrary, Commission regulation 

1.49(c) limits permissible locations of depositories 

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

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

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

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

the United Kingdom, and is intended to correspond, 

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

Denomination of Customer Funds and Location of 

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

233Based on data provided by CME. The amount 

has increased compared to the amount the 

Commission considered in the Proposal (i.e., $51 

billion, representing approximately 10 percent of 

the Customer Funds held in segregation, on August 

15, 2023). Proposal at 81243–81244. 

234The $511 billion represents the U.S. dollar 

equivalent of the total value of margin assets held 

by FCMs for futures customers, Cleared Swaps 

Customers, and 30.7 customers as reported to CME 

as of August 15, 2023. The breakdown by currency 

was as follows: CAD 17 billion; EUR 19 billion; GBP 

7 billion; and JPY 21 billion. Some of these funds 

may have also been posted by the FCMs to DCOs 

as customer margin collateral. 

235Proposal at 81244, note 110 (referencing Joint 

Petition at pp. 6–7). Data provided in the Joint 

Petition, subsequently clarified by the Supplement 

to Joint Petition, indicates that in the period 

between April 2018 and April 2023, the average 2- 

year credit default swap spreads of Canada, France, 

Germany, Japan, and the UK were 13.9 BPS, 9.6 

BPS, 5.3 BPS, 7.4 BPS, and 12.2 BPS, respectively, 

whereas the average 2-year credit default swap 

spread of the U.S. was 15.1 BPS. Joint Petition at 

p. 7 and Supplement to Joint Petition at p. 1. 

236 Id. note 111 (referencing appendix A to Joint 

Petition and Supplement to Joint Petition at p. 1, 

which indicate that the outstanding debt in 

instruments with time-to-maturity of two years or 

less issued by Canada, France, Germany, Japan, and 

the United Kingdom, based on information 

available on Bloomberg as of July 11, 2023, was 

equal to the USD equivalence of $447 billion, $594 

billion, $557 billion, $2.6 trillion, and $534 billion, 

respectively; Bank of International Settlements’ 

Debt Securities Statistics, available here: https://

www.bis.org/statistics/secstats_to180923.htm; and 

2021 Survey on Liquidity in Government Bond 

Secondary Markets, Organization for Economic Cooperation and Development, available here: https:// 

www.oecd-ilibrary.org/governance/oecd-sovereignborrowing-outlook-2022_3f4e2676-en, which 

confirms that Specified Foreign Sovereign Debt 

instruments presented good liquidity characteristics 

in 2021). 

237The Commission reviewed yield data available 

through Bloomberg, a proprietary financial data 

provider, for 1-year sovereign debt instruments 

issued by Canada, France, Germany, Japan, the 

United Kingdom, and the U.S. 

238The Commission reviewed one-year sovereign 

debt instruments yield data, available through 

Bloomberg, for the period from September 21, 2018 

to September 5, 2024. During this period, the 

standard deviation of daily yield change for U.S. 

Treasury bills was approximately 9 BPS, whereas 

the same measure for Canadian, French, German, 

Japanese, and United Kingdom one-year debt 

instruments ranged from approximately 1 to 

approximately 6 BPS. 

239The Commission discussed the preferability 

from a risk management perspective of investing 

foreign currency in high quality foreign sovereign 

debt relative to the credit risk posed by unsecured 

demand deposit accounts at commercial banks in 

issuing the 2018 Order permitting DCOs to invest 

futures customer funds and Cleared Swaps 

Customer Collateral in French and German 

sovereign debt. 2018 Order at 35245–35246. 

240Final Commission regulation 1.25(a)(1)(vi). 

241As discussed above, prior to 2011, the 

Commission permitted an FCM or DCO to invest 

Customer Funds in foreign sovereign debt subject 

to the condition that the FCM or DCO held balances 

owed to customers denominated in the currency of 

the foreign country. In the wake of the 2008 

financial crisis, the Commission eliminated foreign 

sovereign debt from the list of permitted 

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

the potential volatility of foreign sovereign debt in 

the current economic environment and the varying 

degrees of financial stability of different issuers 

make foreign sovereign debt inappropriate for 

hedging foreign currency risk.’’ 2011 Permitted 

Investments Amendment at 78781. Yet the 

Commission recognized that ‘‘the safety of 

sovereign debt issuances of one country may vary 

greatly from those of another, and that investment 

in certain sovereign debt might be consistent with 

the objectives of preserving principal and 

maintaining liquidity, as required by Regulation 

1.25.’’ Id. at 78782. For the reasons discussed above, 

the Commission is reinstating certain foreign 

sovereign debt consistent with the Commission’s 

Continued 

the 2011 Permitted Investments 

Amendment 230 and the conditions set 

forth in the Commission’s 2018 

Order.231

First, an FCM or DCO will be 

permitted to invest in the foreign 

sovereign debt of only Canada, France, 

Germany, Japan, and the United 

Kingdom. The Commission’s 

determination to include the foreign 

sovereign debt to these five countries is 

based on various factors. As a 

preliminary matter, each of these 

countries, including the U.S., is a 

member of the Group of 7 (‘‘G7’’), which 

represents the world’s largest industrial 

democracies, and qualifies as a ‘‘money 

center country’’ as the term is defined 

in Commission regulation 1.49(a)(1).232

Additionally, the currencies of the five 

jurisdictions represent a material 

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

dollar-denominated obligations that 

FCMs owe to customers. FCMs 

collectively held an aggregate of a U.S. 

dollar equivalent of $64 billion of 

Customer Funds denominated in CAD, 

EUR, JPY, and GBP on August 13, 

2024.233 The $64 billion represented 

approximately 12 percent of the total 

$511 billion of Customer Funds held by 

FCMs in segregated accounts on August 

13, 2024.234

In addition, prior to proposing to 

allow FCMs and DCOs to invest in the 

sovereign debt of the enumerated 

countries, the Commission analyzed the 

credit, liquidity, and volatility 

characteristics of Specified Foreign 

Sovereign Debt. In particular, the 

Commission considered data provided 

by the Petitioners in support of the Joint 

Petition’s statement that the credit 

default swaps of Canada, France, 

Germany, Japan, and the United 

Kingdom have relatively narrow spreads 

similar to the credit default spread of 

the U.S.235 To assess the liquidity of 

Specified Foreign Sovereign Debt, the 

Commission also considered the 

amounts of outstanding marketable 

Canadian, French, German, Japanese, 

and United Kingdom debt instruments 

with time-to-maturity of two years or 

less.236

With regard to the volatility 

characteristics of Specified Foreign 

Sovereign Debt, the Commission 

concluded that expanding the list of 

Permitted Investments to include the 

sovereign debt of these five G7 countries 

is warranted based on available data 

that the price risk of the relevant foreign 

sovereign debt is comparable to that of 

U.S. Treasury securities that are already 

included in the list of Permitted 

Investments. Specifically, using oneyear sovereign debt instruments yield 

data for the period September 21, 2018 

to September 20, 2023, the Commission 

observed that the standard deviation of 

daily yield change for one-year U.S. 

Treasury bills was 9 BPS, whereas the 

same measure for Canadian, French, 

German, Japanese, and United Kingdom 

one-year debt instruments ranged from 

1 to 7 BPS.237 The Commission’s 

determination that the price risk of 

Specified Foreign Sovereign Debt 

instruments is comparable to that of 

U.S. Treasury securities, and therefore 

merits inclusion in the list of Permitted 

Investments, is based on data from an 

inquiry including the more recent 

period of September 20, 2023 to 

September 5, 2024, using the standard 

deviation of daily yield change for oneyear debt instruments.238 Finally, in 

proposing to add Specified Foreign 

Sovereign Debt to the list of Permitted 

Investments, the Commission surmised 

that holding high-quality foreign 

sovereign debt may pose less risk to 

Customer Funds than the credit risk of 

commercial banks through unsecured 

bank demand deposit accounts.239

Second, an FCM or DCO is permitted 

to invest in the Specified Foreign 

Sovereign Debt of a country only to the 

extent that the FCM or DCO has 

balances in accounts owed to customers 

denominated in the country’s 

currency.240 This restriction takes into 

account both the need to ensure the 

safety of Customer Funds and the 

Commission’s desire to provide a degree 

of investment flexibility to FCMs and 

DCOs.241 As noted in the Proposal, an 


lotter on DSK11XQN23PROD with RULES2
7826 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

statement in the 2011 Permitted Investments 

Amendment that it would consider permitting such 

investments provided that the investments: (i) are 

limited to balances owed to customers denominated 

in the currency of the applicable foreign sovereign, 

and (ii) serve to preserve the principal and maintain 

the liquidity of Customer Funds. Id. at 78782. The 

Final Rule is also consistent with the Commission’s 

approach in the 2018 Order of permitting DCOs to 

invest in the sovereign debt of France and Germany 

to the extent such foreign sovereign debt satisfies 

specific criteria demonstrating consistency with the 

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

Treasury securities. 

242 2011 Permitted Investments Amendment at 

78003. 

243Proposed Commission regulation 1.25(f)(3). 

244Proposal at 81245. 

245 2018 Order at 35243. 

246 In 2018, the Commission reviewed the daily 

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

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

approximately 26.5 BPS and a standard deviation 

of approximately 9.72 BPS. Forty-five BPS were 

approximately two standard deviations above the 

26.5 mean. 

247See 2018 Order at 35243. 

248Based on an assessment conducted by CFTC 

staff on September 20, 2023. 

249Using the daily U.S. Spread data from July 3, 

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

credit default spread follows a normal distribution, 

the Commission estimated that there was less than 

2.5 percent likelihood that the U.S. credit default 

spread would exceed 45 BPS over a two-year 

period. In addition, the Commission’s estimate, 

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

21, 2018 to September 5, 2024, indicates that there 

is less than 1 percent likelihood, under both normal 

and empirical distributions, that the two-year credit 

default swap spread of the sovereigns issuing 

Specified Foreign Sovereign Debt would exceed 45 

BPS. Therefore, the Commission has determined to 

adopt a threshold of 45 BPS for countries whose 

debt may qualify as a Permitted Investment under 

Commission regulation 1.25. 

250FIA/CME Joint Letter at p. 10 (recommending 

that the spread be determined using the mid-level 

and asserting that mid-level pricing is a widely 

accepted pricing convention for a wide range of 

asset classes including sovereign debt). 

251Proposal at 81247, Question 4. 

252FIA/CME Joint Letter at pp. 10–11. 

253See CCP Global at p. 2; WFE at p. 4–5. 

254See CCP Global at p. 2. 

FCM or DCO seeking to invest deposits 

or amounts owed to customers 

denominated in foreign currencies, 

absent the ability to invest in 

identically-denominated sovereign debt 

securities, would need to convert the 

foreign currencies to a U.S. dollardenominated asset, which would 

increase the FCM’s or DCO’s exposure 

to foreign currency fluctuation risk.242

Commenters did not raise concerns 

regarding this condition, and as such, 

the Commission is adopting this 

requirement as proposed. 

Third, the Commission proposed to 

permit FCMs and DCOs to invest in 

Specified Foreign Sovereign Debt 

provided that the two-year credit default 

spread of the issuing sovereign is 45 

BPS or less.243 As discussed in the 

Proposal, the 45 BPS limit is consistent 

with the conditions specified in the 

2018 Order.244 The Commission set the 

cap of 45 BPS in the 2018 Order based 

on a historical analysis of the two-year 

credit default spread of the U.S. (‘‘U.S. 

Spread’’).245 Forty-five BPS was, at the 

time, approximately two standard 

deviations above the mean U.S. Spread 

over the preceding eight years.246 The 

Commission observed that over that 

eight-year period of July 3, 2009 to July 

3, 2017, the U.S. Spread was 45 BPS or 

less approximately 95 percent of the 

time and exceeded 45 BPS 

approximately 5 percent of the time. 

During the same period, the two-year 

German spread exceeded 45 BPS 

approximately 6 percent of the time and 

the two-year French spread exceeded 45 

BPS approximately 25 percent of the 

time, with all exceedances occurring 

between July 2009 and September 2012, 

in the aftermath of the 2008 financial 

crisis and the European sovereign debt 

crisis.247

During the more recent period of 

September 21, 2018 to September 20, 

2023 preceding the issuance of the 

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

approximately 16.4 BPS,248 which was 

lower than the mean spread of 26.5 BPS 

for the July 3, 2009 to July 3, 2017 

period. In that same time period, the 

two-year credit default swap spread of 

the sovereigns issuing the Specified 

Foreign Sovereign Debt did not exceed 

45 BPS. Thus, based on these U.S. 

Spread and Specified Foreign Sovereign 

Debt data, the Commission is 

maintaining the cap of 45 BPS 

established in the 2018 Order.249

Consistent with the Proposal, if the 

credit default spread of the issuing 

sovereign exceeds the 45 BPS cap, FCMs 

and DCOs will not be permitted to make 

further investments, but neither will 

they be required to immediately divest 

their current investments in Specified 

Foreign Sovereign Debt. The prohibition 

on new investments will reduce the 

exposure to Customer Funds by 

avoiding the risk of default on the 

Specified Foreign Sovereign Debt. In 

situations where the 45 BPS cap is 

exceeded, FCMs and DCOs will hold 

Customer Funds denominated in foreign 

currency in cash or invest the foreign 

currency in U.S. dollar-denominated 

Permitted Investments rather than 

Specified Foreign Sovereign Debt. In 

addition, the requirement that the 

dollar-weighted average time-tomaturity of the portfolio of Specified 

Foreign Sovereign Debt not exceed 60 

calendar days helps mitigate price risks 

to the Customer Funds that might arise 

from a country’s two-year credit default 

spread exceeding the 45 BPS limit. 

In addition, in response to a comment 

stating that the Commission did not 

specify how the 45 BPS limit should be 

calculated, the Commission is clarifying 

that the 45 BPS credit default spread 

must be determined using mid-level 

pricing, rather than the bid or ask 

price.250 The mid-price is the average of 

the bid and ask prices, representing a 

midpoint between what buyers are 

willing to pay (bid) and what sellers are 

asking for (ask). This mid-point price 

provides a more balanced view of the 

security’s credit risk, without the skew 

of immediate buy or sell pressures. 

The Commission also requested 

comments as to whether it was 

appropriate to impose a ‘‘cooling-off’’ 

period before an FCM or DCO could 

invest Customer Funds in the Specified 

Foreign Sovereign Debt of a particular 

country once the two-year credit default 

spread of the country exceeded 45 

BPS.251 As commenters noted, market 

conditions based on broader volatility 

will self-resolve and result in a market 

driven ‘‘cooling-off’’ period.252

Moreover, because FCMs and DCOs will 

not be able to make new investments in 

Specified Foreign Sovereign Debt until 

the credit default spread is back within 

the required limits, any ‘‘cooling-off’’ 

period promulgated by the Commission 

could potentially be arbitrary and 

inconsistent with the market’s 

assessment that the increased credit risk 

that resulted in the exceedance of the 45 

BPS cap no longer exists. Thus, the 

Commission is not specifying a 

‘‘cooling-off’’ period during which 

FCMs and DCOs may not engage in 

investment in the applicable Specified 

Foreign Sovereign Debt. 

However, the Commission has 

determined to immediately halt the 

purchase of additional Specified 

Foreign Sovereign Debt once the 45 BPS 

cap is exceeded. Specifically, the 

Commission does not agree with 

commenters who suggested that there 

should be ‘‘flexibility’’ with respect to 

the number of breaches of the 45 BPS 

cap before investments are limited,253

because the breach of the 45 BPS cap 

indicates the market’s assessment of an 

increased likelihood of credit risk. The 

Commission acknowledges those 

comments cautioning that there is a 

potential for unintended consequences 

such as ‘‘cliff-edge effects,’’ 254 but it is 

for that reason that the Commission is 

taking a measured and balanced 

approach to such situations where the 

45 BPS limit has been exceeded. 

Therefore, the Commission is not 

requiring that FCMs and DCOs sell 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7827 

255Final Commission regulation 1.25(f)(1) and (2). 

256Proposal at 81245–81246. 

257 Data made available by the Bank of Canada, 

l’Agence France Tre ́sor (the French Finance 

Agency), the Bundesrepublik Deutschland 

Finanzagentur (the German Finance Agency), the 

Japan Ministry of Finance, and the United Kingdom 

Debt Management Office indicate that the five 

jurisdictions issue a sizable amount of debt 

securities with time-to-maturity of less than 180 

days on a frequent basis. Specifically, in July 2024, 

Canada auctioned approximately USD 35 billion, 

France auctioned approximately $26.2 billion, 

Germany auctioned approximately $8.2 billion, 

Japan auctioned approximately $12.5 billion, and 

the United Kingdom auctioned approximately $41 

billion in debt instruments with time-to-maturity of 

six months or less (see Canadian Treasury bills 

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

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

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

dernieres-adjudications); German Bubills issuance 

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

en/federal-securities/issuances/issuance-results 

(refer to reopening of 12-month Bubills with 

residual maturities between three and six months); 

Japanese T-bills auction results at https://www.mof.

go.jp/english/policy/jgbs/auction/past_auction_

results/index.html; and United Kingdom Treasury 

Bill tender results at https://www.dmo.gov.uk/data/ 

treasury-bills/tender-results/). 

258 17 CFR 1.25(d)(6). 

259Final Commission regulation 1.25(f)(1). 

260Proposal at 81246. 

261Eurex at p. 2, CCP Global at p. 2, Nodal at p. 

2. 

262See, e.g., Behnam urges wider CCP access to 

Fed deposit accounts, Risk.net (Apr. 1, 2022), 

available at https://www.risk.net/regulation/ 

7945026/behnam-urges-wider-ccp-access-to-feddeposit-accounts. 

263Final Commission regulation 1.25(d)(2). ICE 

requested in its comment letter that the 

Commission explicitly include the central banks of 

Canada, France, Germany, Japan, the United 

Kingdom, and the European Central Bank. See ICE 

at p. 3. The Commission is including these 

recommendations in the terms of the Final Rule. 

264The Commission is revising the Final Rule to 

provide that Canadian securities brokers or dealers 

may be subject to applicable provincial financial 

regulators in recognition of the Canadian regulatory 

Continued 

Specified Foreign Sovereign Debt that 

has already been purchased because it 

could increase volatility and the 

potential for procyclical impacts. The 

Commission, however, maintains its 

position that FCMs and DCOs must stop 

making direct investments in, or 

engaging in Repurchase Transactions 

involving, Specified Foreign Sovereign 

Debt of a country whose credit default 

swap spread on two-year debt 

instruments has exceeded 45 BPS. 

The Commission is also adopting the 

60-calendar-day dollar-weighted average 

time-to-maturity of investments in 

Specified Foreign Sovereign Debt, as 

proposed.255 As discussed in the 

Proposal, the restrictions on time-tomaturity will ensure that an FCM’s or 

DCO’s portfolio of Specified Foreign 

Sovereign Debt is comprised of 

sovereign debt instruments that mature 

within a relatively short period of 

time.256 The short time-to-maturity 

requirement is intended to assist FCMs 

and DCOs in managing and mitigating 

potential market and/or credit risk by 

providing FCMs and DCOs with the 

option of holding the foreign sovereign 

debt securities to maturity during 

periods of market stress and price 

volatility rather than selling the 

securities at potentially significant 

discounts. The option to hold the debt 

securities to maturity may be 

particularly valuable to FCMs and DCOs 

from a risk management perspective 

during periods of significant interest 

rate movements, which could 

exacerbate market risk in sovereign debt 

markets. Thus, the Commission has 

determined to adopt a 60-calendar-day 

dollar-weighted average time-tomaturity requirement for Specified 

Foreign Sovereign Debt securities, 

computed on a portfolio of securities on 

a country-by-country basis, and a 180- 

calendar-day maximum remaining timeto-maturity requirement for each 

individual Specified Foreign Sovereign 

Debt security. 

In addition, data regarding the new 

issuances of short-term Specified 

Foreign Sovereign Debt supports the 

lower 60-day dollar-weighted average 

time-to-maturity requirement and the 

180-day maximum remaining time-tomaturity requirement proposed.257

Therefore, the proposed time-tomaturity conditions more effectively 

account for liquidity needs with the 

market and credit risk management 

considerations than the six-month 

dollar-weighted portfolio average and 

two-year individual remaining time-tomaturity limits recommended by FIA 

and CME. Furthermore, as discussed in 

the Proposal, using the maturity of 

reverse repurchase agreements in 

calculating the dollar-weighted average 

of the portfolio of investments in 

Specified Foreign Sovereign Debt will 

reduce the average time-to-maturity of 

the portfolio as a whole. This approach 

takes into account the expected resale of 

the instruments, which must be 

contractually scheduled to occur within 

one business day or on demand as 

required by Commission regulation 

1.25(d)(6).258 Conversely, if the FCM or 

DCO sells Specified Foreign Sovereign 

Debt instruments under a repurchase 

agreement, the FCM or DCO is required 

to include the instruments in the 

calculation of the dollar-weighted 

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

account for the expected repurchase of 

such instruments.259

In addition, as discussed in the 

Proposal, with the adoption of the 60- 

day dollar-weighted portfolio average 

time-to-maturity requirement, the 

Commission is also amending 

Commission regulation 1.25(b)(4)(i) to 

exclude Specified Foreign Sovereign 

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

FCM’s or DCO’s full portfolio of 

investment of Customer Funds.260 This 

amendment reflects that Specified 

Foreign Sovereign Debt will be subject 

to its own dollar-weighted average timeto-maturity limit. 

The Commission acknowledges the 

request of Eurex, CCP Global, and Nodal 

in their public comments 261 that the 

Commission work with the Federal 

Reserve Board to permit all DCOs to 

deposit Customer Funds at the Federal 

Reserve Banks. The Commission 

supports DCOs having deposit accounts 

at Federal Reserve Banks; 262 however, 

granting access to such accounts is not 

within the jurisdiction of the 

Commission. 

Consistent with the Proposal, the 

Commission is also amending 

Commission regulations 1.25(d)(2) and 

(7) to expand permissible counterparties 

and depositories that can be used in 

connection with Repurchase 

Transactions to include certain foreign 

entities. Without amendment to these 

counterparty and depository provisions, 

an FCM’s and DCO’s ability to buy and 

sell Specified Foreign Sovereign Debt 

securities pursuant to Repurchase 

Transactions would be restricted 

because participants in the foreign 

market are predominantly non-U.S. 

entities. The Commission is therefore 

adding foreign banks and foreign 

brokers or dealers meeting certain 

requirements, as well as the European 

Central Bank and the central banks of 

Canada, France, Germany, Japan, and 

the United Kingdom, to the list of 

permitted counterparties.263 To be 

deemed a permitted counterparty, a 

foreign bank must qualify as a 

depository under Commission 

regulation 1.49(d)(3) by holding 

regulatory capital in excess of $1 billion, 

and must be located in a money center 

country as defined in Commission 

regulation 1.49(a)(1) (i.e., Canada, 

France, Italy, Germany, Japan, and the 

United Kingdom) or in another 

jurisdiction that has adopted the 

currency of the permitted foreign 

sovereign debt. Similarly, a foreign 

broker or dealer must be located in a 

money center country and be regulated 

by a foreign financial regulator or a 

provincial financial regulator with 

respect to a Canadian securities broker 

or dealer.264 The newly adopted 


lotter on DSK11XQN23PROD with RULES2
7828 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

structure vests supervisory authority with 

provincial regulators. Final Commission regulation 

1.25(d)(2). 

265 2018 Order, Condition (e) at 35245. 

266Better Markets at p. 3. 

267 2011 Permitted Investments Amendment at 

78781. 

268 Id. at 78782. 

269 Id. at 78782. 

270Better Markets at p. 3. 

271Another MF Global affiliate was also involved 

in the transactions, but MF Global held the 

economic risk of ownership. First Report of Louis 

J. Freeh, Chapter 11 Trustee of MF Global Holdings 

LTD., et al., for the Period of October 31, 2011 

through June 4, 2012 (‘‘MF Global Trustee Report’’) 

at p. 33, available at https://www.cftc.gov/sites/ 

default/files/idc/groups/public/@newsroom/ 

documents/file/h0711reportof

louisjfreeh060412.pdf. 

272 Id. at pp. 36–37. 

273CFTC Release No. 7508–17, Consent Order: 

Jon S. Corzine (Jan. 5, 2017) at p. 6. 

274Moreover, MF Global had invested not in the 

sovereign debt of Canada, France, Germany, Japan 

and the United Kingdom, which meet the liquidity, 

volatility, and credit characteristics that are 

consistent with the overall objectives set forth in 

Commission regulation 1.25 of preserving principal 

and maintaining liquidity of Customer Funds, but 

rather, such Customer Funds were ultimately used 

to support high-risk transactions involving the 

sovereign debt of Belgium, Ireland, Italy, Portugal, 

and Spain. None of these jurisdictions are on the 

list of allowable foreign sovereign debt that is being 

added to the list of Permitted Investments. See MF 

Global Trustee Report at p. 40. 

275CFTC Release No. 7116–15. 

276U.S. Attorney’s Office Northern District of 

Iowa, Press Release, Peregrine Financial Group CEO 

Sentenced To 50 Years For Fraud, Embezzlement, 

And Lying To Regulators [Court’s Sentence Is The 

Maximum Allowed By Law]. January 31, 2013. 

Available at https://www.justice.gov/usao-ndia/pr/ 

peregrine-financial-group-ceo-sentenced-50-yearsfraud-embezzlement-and-lying. 

277 17 CFR 1.11. 

278 2013 Protections of Customer Funds Release at 

68517–68521. See also 17 CFR 1.11. 

provisions are designed to ensure that 

the counterparties to an FCM’s or DCO’s 

Repurchase Transactions are regulated 

entities comparable to those 

counterparties already permitted under 

Commission regulation 1.25(d)(2). The 

final revisions to Commission regulation 

1.25(d)(2) are also consistent with the 

counterparty conditions set forth in the 

2018 Order.265

In response to Better Markets’ 

assertion that allowing investments in 

Specified Foreign Sovereign Debt is 

relaxing some of the stringent 

requirements put in place after the 

collapse of MF Global,266 the 

Commission notes that the impetus for 

eliminating foreign sovereign debt from 

the list of Permitted Investments in 2011 

was not the bankruptcy of MF Global. 

Under the 2000 Permitted Investments 

Amendment, FCMs and DCOs were 

permitted to invest in the foreign 

sovereign debt of any foreign sovereign 

provided that the FCM or DCO owed 

balances denominated in that currency 

to customers. The Commission 

eliminated foreign sovereign debt in the 

2011 Permitted Investments 

Amendment primarily due to its 

concerns with the varying degree of 

financial stability of different issuers as 

well as because it was not persuaded 

that foreign sovereign debt was used 

with sufficient frequency to justify 

commenters’ claims that such debt 

assisted with the diversification of 

Customer Funds.267 However, as 

previously stated, with respect to 

concerns regarding the economic 

stability of certain countries, the 

Commission recognized that the safety 

of sovereign debt issuances of one 

country may vary greatly from those of 

another. In this context, the Commission 

stated that it was amenable to 

considering applications for exemptions 

with respect to investments in certain 

foreign sovereign debt instruments upon 

a demonstration that the investment in 

the sovereign debt of one or more 

countries is appropriate in light of the 

objectives of Commission regulation 

1.25 and that the issuance of the 

exemption satisfies the criteria set forth 

in section 4(c) of the Act.268

The Commission continues to 

recognize that the safety of sovereign 

debt issuances of one country may vary 

greatly from the sovereign debt 

issuances of another country. Because of 

this, the Commission finds that 

investment in Specified Foreign 

Sovereign Debt that meets the tightly 

circumscribed risk characteristics set 

forth in the 2018 Order and restated in 

the Final Rule is consistent with the 

objectives of preserving principal and 

maintaining liquidity of investments 

specified in Commission regulation 

1.25.269 In light of the varying liquidity 

and credit risk associated with foreign 

sovereign debt, the Commission is 

recognizing jurisdictions whose shortterm debt instruments meet the general 

objectives set forth in Commission 

regulation 1.25 of preserving principal 

and maintaining liquidity, subject to the 

conditions discussed above that are 

consistent with the conditions specified 

in the 2018 Order. 

In addition, MF Global’s trading 

losses, which Better Markets references 

in asserting that FCMs’ and DCOs’ 

investments in Specified Foreign 

Sovereign Debt might compromise the 

protection of Customer Funds,270 were 

undertaken as speculative proprietary 

investments and not as investments of 

Customer Funds. MF Global engaged in, 

among other speculative investments, 

proprietary repurchase-to-maturity 

transactions collateralized with 

sovereign debt issued by various 

European countries that were 

experiencing economic distress.271 As 

the value of the European sovereign 

debt positions deteriorated in the 

summer of 2011, and as MF Global’s 

credit ratings were downgraded in the 

fall of 2011, MF Global was required to 

pay additional variation and initial 

margin on its proprietary 

transactions.272 To satisfy the firm’s 

liquidity needs and, more generally, to 

support the firm’s proprietary 

transactions and the operations of the 

firm’s affiliates, MF Global unlawfully 

used Customer Funds.273 The firm’s 

misuse of Customer Funds violated the 

Act and Commission regulations and 

would have been impermissible 

regardless of the type of investments 

involved in such malfeasance.274

Peregrine’s failure was also the result 

of the misappropriation of Customer 

Funds and violations of the Commission 

segregation requirements for Customer 

Funds.275 Peregrine’s owner and Chief 

Executive Officer plead guilty to the 

embezzlement of customer funds and 

making false statements to the 

Commission.276 These unlawful actions 

have no bearing on the types of 

Permitted Investments authorized by the 

Commission. 

Moreover, the Commission adopted 

major revisions to its rules to enhance 

the protection of Customer Funds in 

response to the MF Global and Peregrine 

bankruptcies. Specifically, the 

Commission adopted Commission 

regulation 1.11,277 which requires each 

FCM carrying customer accounts to 

establish a risk management program 

designed to monitor and manage risks 

associated with the activities of the 

FCM, including risks associated with 

the segregation of Customer Funds, FCM 

operations, and capital resources.278

Commission regulation 1.11 requires an 

FCM to establish written policies and 

procedures that are reasonably designed 

to ensure that Customer Funds are 

separately accounted for and segregated 

as belonging to customers as required by 

the Act and Commission regulations. 

Furthermore, the written policies and 

procedures must, at a minimum, 

include or address: (i) a process for 

assessing the appropriateness of specific 

investments of Customer Funds in 

Permitted Investments, including the 

consideration of the market, credit, 

counterparty, operational, and liquidity 

risks associated with the investments, 

and an assessment of whether the 

investments are managed consistent 

with the objectives of preserving 

principal and maintaining liquidity of 

Customer Funds; (ii) a process for the 

evaluation of depositories of segregated 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7829 

279 17 CFR 1.11(e)(3). 

280 2013 Protections of Customer Funds Release at 

68513–68516. 

281 Id. at 68577. 

282 Id. at 68521–68522. 

283 Id. at 68522. 

284The Commission acknowledges, as discussed 

further in section IV.E. of this preamble, that the 

read-only electronic access to account information 

provisions are being removed. However, the same 

information will be accessible through CME and 

NFA programs that compare the daily balances 

reported by each of the depositories with balances 

reported by the FCMs in their daily segregation 

reports that are filed with CME and/or NFA. This 

will allow the same information to be accessible to 

the Commission without the current difficulties 

involved in the read-only access currently 

maintained. 

285See generally 2013 Protections of Customer 

Funds Release. 

286BlackRock at p. 7–8 (referring to the 

recommendation made by the Global Market 

Structure Subcommittee of the Commission’s 

Global Markets Advisory Committee on November 

6, 2023). See generally Proposal by FICC to add 

CCPs as Permitted Repo Counterparties under CFTC 

Rule 1.25 Recommendation, November 6, 2023, 

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

Events/opaeventgmac110623. 

287See Investor Advocacy Group Joint Letter at p. 

1 (arguing that ‘‘[t]he CFTC must not embed 

revenues and profits of exchanges and brokers into 

the fabric of its definition of the public interest.’’); 

Better Markets at p. 4 (asserting that ‘‘[i]n the 

context of FCMs, higher profits do not inherently 

guarantee reduced customer charges. The dynamics 

of profit allocation within businesses, market 

competition, and economic realities often 

complicate the direct correlation between increased 

profits and reduced costs for customers.’’). 

288 7 U.S.C. 6(c). With respect to investments of 

futures customer funds, the Commission is 

changing the list of Permitted Investments pursuant 

to authority under section 4(c) of the Act. 

289 2010 Proposed Permitted Investments 

Amendment at 67643. 

290 Id. at 67645. 

funds, including, at a minimum, 

documented criteria addressing the 

depository’s capitalization, 

creditworthiness, operational reliability, 

and access to liquidity; (iii) an account 

opening process for depositories, 

including documented authorization 

requirements, procedures to ensure that 

customer segregated funds are not 

deposited with a depository prior to the 

FCM receiving a written 

acknowledgment letter, and procedures 

to ensure that the account is properly 

titled as a customer segregated account 

under the Act and Commission 

regulations; and (iv) a program to 

monitor an approved depository on an 

ongoing basis to assess its continued 

satisfaction of the FCM’s established 

criteria, including a thorough due 

diligence review of each depository at 

least annually.279

The Commission also revised 

Commission regulation 1.10 to require, 

among other things, an FCM to report 

and maintain a targeted amount of 

residual interest (i.e., excess segregated 

funds above the full balance owed to 

customers) that the FCM seeks to hold 

in segregated accounts as a buffer to 

prevent the accounts from becoming 

undersegregated.280 Additionally, the 

Commission amended Commission 

regulation 1.16 to ensure the high 

quality of annual audits of the FCM’s 

financial statements by public 

accountants. The amendments to 

Commission regulation 1.16 require 

public accountants to be registered with, 

and examined by, the Public Company 

Accounting Oversight Board 

(‘‘PCAOB’’), and further require that the 

public accountant’s audit report state 

whether the audit was conducted in 

accordance with auditing standards 

established or adopted by the 

PCAOB.281

The Commission further revised 

Commission regulation 1.12 to enhance 

reporting by FCMs to the Commission. 

Specifically, Commission regulation 

1.12 was amended to define several 

additional reportable events that require 

an FCM to file a notice with the 

Commission and with the FCM’s 

designated self-regulatory 

organization.282 Among other changes, 

the revisions included a requirement for 

FCMs to provide immediate notice 

whenever the FCM discovers or is 

informed that it has invested Customer 

Funds in investments that do not 

qualify as Permitted Investments, or if 

the FCM holds Permitted Investments in 

a manner that is not in compliance with 

the provisions of Commission regulation 

1.25.283

The additional Customer Funds 

safeguards adopted in 2013 are not 

affected by the amendments adopted in 

this Final Rule.284 In light of the 

enhanced safeguards that are now in 

place with respect to the segregation of 

Customer Funds,285 and the limitation 

of investment in foreign sovereign debt 

to jurisdictions whose debt meets 

certain liquidity, volatility, and credit 

characteristics consistent with the 

overall objectives set forth in 

Commission regulation 1.25 of 

preserving principal and maintaining 

liquidity of Customer Funds, concerns 

regarding the past failures of MF Global 

and Peregrine are already addressed. 

The Commission is not addressing 

BlackRock’s request for amendments to 

Commission regulation 1.25(d)(2) to 

allow FCMs and DCOs to invest 

Customer Funds pursuant to 

Repurchase Transactions cleared by a 

covered clearing agency registered with 

the SEC because this requested change 

was not proposed and discussed as part 

of the Proposal.286 Any potential 

amendment to effectuate such change 

would be addressed separately from this 

Final Rule. 

Finally, as discussed previously, some 

commenters raised concerns about the 

profits of FCMs and DCOs and whether 

increased profits were in line with the 

public interest language in the Act to 

justify these changes to the list of 

Permitted Investments.287 In assessing 

the public interest as part of its analysis 

of the conditions of section 4(c) of the 

Act, the Commission has considered 

more than just the potential profits of 

FCMs and DCOs.288 As discussed above, 

the use of foreign sovereign debt 

provides FCMs and DCOs with an 

effective risk management tool for 

foreign currency exchange risk. By 

investing customers’ foreign currency 

deposits in the sovereign debt of the 

applicable foreign currency, an FCM or 

DCO avoids the need to convert the 

foreign currency deposits into U.S. 

dollar-denominated assets and reduces 

potential foreign currency fluctuation 

risk associated with such transactions. 

The ability to manage foreign currency 

fluctuation risk benefits FCMs, DCOs, 

customers, and the markets. In addition, 

as discussed above, holding Customer 

Funds in foreign sovereign debt 

securities with custodians may provide 

enhanced protections to the funds 

relative to holding the funds as 

unsecured deposits with commercial 

banks. 

Furthermore, permitting investments 

in Specified Foreign Sovereign Debt 

facilitates FCMs’ and DCOs’ overall risk 

management in recognition of how the 

market has evolved since the 2007 

Review.289 As previously noted, the 

2007 Review revealed that only three of 

the total 87 active FCMs invested 

futures customer funds in foreign 

sovereign debt at any time during that 

year, and that only one FCM invested 

30.7 customer funds in foreign 

sovereign debt.290 This contrasts sharply 

to the $64 billion U.S. dollar equivalent 

of Customer Funds held in CAD, EUR, 

GBP, and JPY by FCMs today. 

The Commission has also determined 

that it is in the public interest to allow 

FCMs and DCOs to invest in foreign 

sovereign debt because there will be 

increased resources for financial 

stability and responsible innovation. 

Any increase in profits by FCMs and 

DCOs as a result of these expanded 

investment options would generate 

income and potentially increase their 

presence in the futures market and other 

relevant markets to support greater 

competition. This is particularly 

important because the futures industry 

has experienced considerable 

consolidation, with the number of FCMs 


lotter on DSK11XQN23PROD with RULES2
7830 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

291See Statement of CFTC Commissioner 

Giancarlo to the Market Risk Advisory Committee 

(‘‘MRAC’’), June 1, 2015. 

292Selected FCM Financial Data as of January 31, 

2004, COMMODITY FUTURES TRADING COMM’N 

(2004), available at https://www.cftc.gov/sites/ 

default/files/files/tm/fcm/tmfcmdata0401.pdf. 

293Emm, E., Gay, G., Shen, M., Futures 

commission merchants, customer funds and capital 

requirements: An organizational analysis of the 

futures industry, Journal of Commodity Markets 18 

(2020) 100093; Financial Data on FCMs as of 

February 29, 2024, available at https://

www.cftc.gov/MarketReports/financialfcmdata/ 

index.htm. 

294Transcript, MRAC, April 9, 2024, p. 78, 

available at https://www.cftc.gov/sites/default/files/ 

2024/07/1721936529/mrac_transcript040924.pdf. 

295Better Markets questioned the need for any 

‘‘regulatory change aimed at further increasing 

profitability.’’ Better Markets at p. 4. In support of 

its assertion, Better Markets cited a Traders 

Magazine article that references a 2023 study by 

Acuiti asserting that rising interest rates and higher 

trading volumes could potentially increase the 

number of FCM registrants. See A. Lyudvig, Futures 

Commission Merchants Target Expansion (June 26, 

2023) available at https://www.traders

magazine.com/departments/clearing/fcms-targetexpansion/ (‘‘Traders Magazine Article’’); see also 

Acuiti, The Growing Opportunity in Derivatives 

Clearing, (2023), available at https://www.acuiti.io/ 

wp-content/uploads/2023/06/The-GrowingOpportunities-in-Derivatives-Clearing.pdf (‘‘2023 

Acuiti Study’’). However, the Acuiti study also 

found that ‘‘[t]he market needs more FCMs,’’ and 

that for some firms, such as proprietary trading and 

smaller hedge funds, the ‘‘reliance on a smaller 

number of providers presents a major risk to their 

operational models.’’ 2023 Acuiti Study at 13. In 

addition, the Acuiti study was nuanced in its 

prediction of new entrants, finding that ‘‘[o]pinion 

was more mixed on whether increased interest rates 

were likely to attract new FCMs to market.’’ Id. at 

6. In the Commission’s view, the Acuiti study 

shows further support for the Commission’s interest 

in providing additional avenues for FCMs to 

generate revenue to potentially reduce costs to 

clients, rather than the alternative perspective 

articulated by Better Markets that such regulatory 

changes are not in the public interest. 

296See generally Exchange-Traded Funds, 84 FR 

57162 (Oct. 24, 2019) (‘‘SEC ETFs Release’’). 

297 Id. at 57164. 

298See generally ‘‘Exchange-Traded Funds,’’ 

publication by FINRA, available at: https://

www.finra.org/investors/learn-to-invest/typesinvestments/investment-funds/exchange-tradedfund. 

299 Id. 

300An ‘‘open-end company’’ is defined as a 

‘‘management company which is offering for sale or 

has outstanding any redeemable security of which 

it is the issuer.’’ 15 U.S.C. 80a–5. Some ETFs may 

also be structured as unit-investment trusts (e.g., 

SPDR® S&P 500® ETF Trust and SPDR® Dow Jones 

Industrial Average ETF Trust), which have 

characteristics of both open-end and closed-end 

companies. 15 U.S.C. 80a–4 (defining unit 

investment trusts); Unit Investment Trusts (UITs), 

Glossary, available at https://www.investor.gov/ 

introduction-investing/investing-basics/glossary/ 

unit-investment-trusts-uits. The regulatory 

framework set forth by SEC Rule 6c–11, however, 

applies only to ETFs that are organized as open-end 

investment companies. 17 CFR 270.6c–11. 

301A ‘‘mutual fund’’ is a type of open-end 

investment company, meaning that investors can 

purchase and redeem shares in the fund on a 

continuous basis at the NAV of the shares. See 

generally Securities and Exchange Commission, 

Mutual Funds and ETFs, A Guide for Investors, 

available at https://www.sec.gov/investor/pubs/secguide-to-mutual-funds.pdf. Mutual funds pool the 

money of many investors to purchase a range of 

securities and other assets to meet specified 

investment objectives. Id. 

302See 17 CFR 270.6c–11 (defining ‘‘exchangetraded fund’’). 

303 Invesco Petition at p. 5. 

304 Id. 

declining from over 400 in the late 

1970s,291 to 177 FCMs in January 

2004,292 to just 64 as of May 2024.293

Over approximately the same period, 

however, there has been a dramatic 

increase in Customer Funds held at 

FCMs to support derivatives trading, 

with client margin requirements 

increasing by about 700 percent in the 

past 20 years, from approximately $60 

billion to over $500 billion in 2023.294

Such a significant reduction in the 

number of FCMs concentrates risk 

related to Customer Funds in fewer 

firms, thereby increasing the possibility 

of systemic risk, particularly as the 

decline in the number of FCMs creates 

challenges in porting customer positions 

to another firm in the event of an FCM 

failure. Therefore, the changes in this 

Final Rule that could potentially 

increase revenue generated by FCMs 

could serve to increase entrants to the 

FCM market by making entrance more 

attractive and mitigate forces that would 

result in further consolidation of the 

market, thereby supporting both 

institutional and retail customers’ 

access to FCMs and reducing 

concentration and potential systemic 

risk.295

There is no guarantee that the 

potential for additional profits will 

benefit customers directly at all times; 

however, as described above, the 

increased investment options may 

potentially reduce concentration in the 

FCM industry, mitigate foreign currency 

risk, and facilitate FCMs’ ability to 

answer margin calls in foreign currency, 

all of which directly benefit FCM 

customers. 

In consideration of comments 

received, the Commission is amending 

Commission regulation 1.25(a)(1) to add 

Specified Foreign Sovereign Debt to the 

list of Permitted Investments, subject to 

the conditions as described above. The 

Commission is adding Commission 

regulation 1.25(a)(vi), as redesignated to 

accommodate other amendments to the 

list of Permitted Investments pursuant 

to this Final Rule. Paragraph (vi) reflects 

the addition of general obligations of 

Canada, France, Germany, Japan, and 

the United Kingdom as a Permitted 

Investment. 

3. Interests in U.S. Treasury ExchangeTraded Funds 

a. Proposal 

As part of its periodic reassessment of 

the list of Permitted Investments of 

Customer Funds, and as a result of its 

consideration of industry input 

provided in the Joint Petition and the 

Invesco Petition, the Commission 

proposed to include shares in certain 

U.S. Treasury ETFs to the list of 

Permitted Investments under 

Commission regulation 1.25. ETFs are 

collective investment vehicles that issue 

redeemable securities that are also 

traded at the market price on national 

securities exchanges.296 Like other 

investment companies, an ETF pools the 

assets of multiple investors and invests 

those assets according to a set 

investment objective and principal 

investment strategies. Each share of an 

ETF represents an undivided fractional 

interest in the underlying assets of the 

ETF.297 Similar to indexed mutual 

funds, many ETFs are designed to 

passively track a particular market 

index, investing in all, or a 

representative sample, of the 

instruments included in the index, and 

aiming to achieve the same return as the 

tracked index.298 Other ETFs are 

actively managed, with portfolio 

managers buying and selling securities 

in accordance with an investment 

strategy.299

As an open-end investment 

company,300 similar to a mutual 

fund,301 an ETF continuously offers its 

shares for sale. Unlike mutual funds, 

however, ETFs do not sell shares to, or 

redeem shares from, investors directly. 

Instead, ETFs issue (and redeem) shares 

to (and from) ‘‘authorized 

participants’’—market intermediaries 

that have a contractual arrangement 

with the ETF (or its distributor) and are 

members or participants of a clearing 

agency registered with the SEC—in 

blocks called ‘‘creation units.’’ 302

Authorized participants play a key role 

for ETF shares as they are the only 

investors that are allowed to transact 

directly with the ETF.303 An authorized 

participant must: (i) be an SECregistered broker or dealer or other 

securities market participant (such as a 

bank or other financial institution that 

is not required to register as a broker or 

dealer to engage in securities 

transactions); (ii) be a full participating 

member of the National Securities 

Clearing Corporation and the Depository 

Trust Company; and (iii) have entered 

into an authorized participant 

agreement with the ETF (and potentially 

other parties, such as the ETF’s sponsor, 

distributor, or transfer agent).304


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7831 

305SEC ETFs Release at 57164; see also David 

Abner, The ETF Handbook: How to Value and 

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

306Proposal at 81248. 

307 Id. and Joint Petition at pp. 8–9. 

308Proposal at 81248 and Invesco Petition at p. 

2. 

309Proposal at 81248 and Invesco Petition at pp. 

6–7. Financial requirements include: (i) annual 

shareholder report, including audited financial 

statements (17 CFR 270.30e–1); (ii) semi-annual 

shareholder report, including unaudited financial 

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

portfolio statistics and holdings filed quarterly (17 

CFR 270.30b1–9); (iv) annual census report 

containing financial-related information (17 CFR 

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

portfolio liquidity and derivatives use (17 CFR 

270.30b1–10). With respect to liquidity risk 

management, SEC regulations require open-end 

investment companies, including ETFs, to adopt 

and implement a liquidity risk management 

program that is reasonably designed to assess and 

manage liquidity risk, which is defined to mean the 

risk that the fund could not meet requests to redeem 

shares issued by the fund without significant 

dilution of remaining investors’ interests in the 

fund (17 CFR 270.22e–4). 

310 Invesco Petition at p. 2. 

311Proposal at 81250. 

312Proposal at 81248. 

313Proposal at 81241–81242. 

314Proposal at 81253. 

315Proposal at 81248. 

316 Id. 

317 Id. 

318 Id. 

319 Id. 

320Proposal at 81249 and CME Advisory Notice, 

Modifications to Schedule of Acceptable 

Performance Bond—Addition of Short-Term U.S. 

Treasury ETFs (Aug. 2, 2022) (‘‘2022 CME Advisory 

Notice’’), available at https://www.cmegroup.com/ 

notices/clearing/2022/08/Chadv22-293.pdf 

(acceptable ETFs must track a U.S. Treasury index 

and must have a minimum 80 percent investment 

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

of 1 year or less). 

An authorized participant may act as 

a principal for its own account or as an 

agent for others when purchasing or 

redeeming creation units.305 Purchases 

and redemptions of ETF shares by an 

authorized participant are referred to as 

‘‘primary market transactions’’ and 

occur at the next-calculated NAV. As 

noted above, ETF shares can also be 

purchased and sold in the secondary 

market at market prices that may reflect 

a discount or premium to the ETF’s 

NAV. 

In assessing the potential expansion 

of the list of Permitted Investments, the 

Commission considered statements 

emphasizing the liquidity of U.S. 

Treasury ETF shares and the 

diversification opportunity that such 

ETFs provide for Customer Funds.306 In 

particular, as discussed in the Proposal, 

the Petitioners stated that U.S. Treasury 

ETFs have characteristics that they 

believe are consistent with those of 

current Permitted Investments and may 

provide FCMs and DCOs with an 

opportunity to diversify their 

investments of Customer Funds.307

Similarly, the Invesco Petition focused 

on the fact that U.S. Treasury ETFs 

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

Permitted Investments under 

Commission regulation 1.25 (i.e., U.S. 

government securities).308 Invesco also 

noted that ETFs, as registered 

investment companies whose shares are 

registered under the Securities Act and 

Exchange Act, must comply with a 

number of SEC financial reporting 

requirements and liquidity risk 

management program requirements.309

Finally, Invesco asserted that the design 

and characteristics, such as price and 

investment transparency, and intra-day 

trading and liquidity, are additional 

features that help make interests in U.S. 

Treasury ETFs a safe and efficient 

vehicle for investment of Customer 

Funds.310

The Commission also conducted an 

independent preliminary analysis of the 

risk profile and volatility of ETFs 

investing primarily in short-term U.S. 

Treasury securities and observed that 

during the period covered by the 

analysis, the relevant ETFs presented 

characteristics that were comparable to 

that of the underlying U.S. Treasury 

security investments.311 Specifically, 

using data available on Bloomberg, the 

Commission observed that for the 

period June 2020–September 2023, the 

Invesco Collateral Treasury ETF, as well 

as four other short-term U.S. Treasury 

ETFs that CME accepts as performance 

bond—SPDR® Bloomberg 1–3 Month T– 

Bill ETF, Goldman Sachs Access 

Treasury 0–1 Year ETF, iShares 0–3 

Month Treasury Bond ETF, and iShares 

Short Treasury Bond ETF—had a 

standard deviation for a two-day period 

of risk of approximately 6 BPS, whereas 

one-year U.S. Treasury securities had a 

standard deviation of 8 BPS for the same 

period. 

Further, the Commission considered 

the limited types of investments that 

meet the requirements of Commission 

regulation 1.25. As a result of various 

regulatory reforms discussed in the 

Proposal, several asset classes included 

in Commission regulation 1.25 no 

longer qualify as Permitted 

Investments.312 In particular, as 

discussed in section III.A.1. of the 

Proposal, the range of MMFs whose 

securities qualify as Permitted 

Investments has contracted, as only 

interests in Permitted Government 

MMFs currently meet the eligibility 

criteria of Commission regulation 

1.25.313 In addition, as discussed in 

section III.A.4. of the Proposal, 

commercial paper and corporate notes 

and bonds no longer qualify as 

Permitted Investments with the 

expiration of the TLGP.314

The Commission also noted the 

increased demand for high quality 

collateral, including for assets that 

currently qualify as Permitted 

Investments under Commission 

regulation 1.25, resulting from certain 

regulatory reforms.315 As an example, 

the Commission discussed the 

regulatory framework for swaps, 

adopted in the aftermath of the 2008 

financial crisis through the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act. The Commission 

remarked that the framework requires, 

among other things, the clearing of 

certain swaps or the margining of 

certain uncleared swaps, thus requiring 

market participants dealing in swaps to 

post margin to clearinghouses, or post 

and collect margin with swap 

counterparties, in specified forms of 

liquid collateral.316 The Commission 

inferred that these margining 

requirements might be driving an 

increased demand for assets that 

currently qualify as Permitted 

Investments.317

In the Proposal, the Commission 

expressed its preliminary belief that 

expanding the range of available 

Permitted Investments to include 

interests in ETFs that meet specified 

conditions would provide FCMs and 

DCOs with greater flexibility and 

opportunities for capital efficiency in 

the investment of Customer Funds, 

without unacceptably increasing risk to 

customers.318 The Commission also 

expressed its belief that the proposed 

addition of interests in ETFs as 

Permitted Investments under 

Commission regulation 1.25(a) would 

foster innovation and promote 

competition in the ETF market and the 

financial services industry more 

generally.319 The Commission also 

considered that CME accepts shares of 

short-term U.S. Treasury ETFs as 

performance bond for clearing members 

to margin customer and proprietary 

trades, noting that interests in U.S. 

Treasury ETFs that qualify as Permitted 

Investments could ultimately be 

pledged by FCMs as margin 

collateral.320 Consistent with existing 

regulatory limitations on customer risk 

associated with the investment of 

Customer Funds by FCMs and DCOs, 

under the terms of the Proposal, FCMs 

and DCOs would be financially 

responsible for bearing any loss on an 

investment of Customer Funds in a U.S. 


lotter on DSK11XQN23PROD with RULES2
7832 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

321Commission regulation 1.29(b) (an FCM or 

DCO, as applicable, shall bear sole responsibility for 

any losses resulting from the investment of futures 

customer funds in Permitted Investments) and 

Commission regulations 22.2(e)(1) and 30.7(i) (an 

FCM shall bear sole responsibility for any losses 

resulting from the investment of Cleared Swaps 

Customer Collateral and 30.7 funds, respectively, in 

Permitted Investments). As further discussed in 

section IV.C. of this preamble, the Commission is 

also adopting an amendment to Commission 

regulation 22.3(d) to clarify that DCOs are 

financially responsible for investments of Cleared 

Swaps Customer Collateral in Permitted 

Investments. 

322Proposal at 81249–81253. 

323Proposal at 81249. 

324Proposal at 81249. 

325Proposal at 81249 and proposed Commission 

regulation 1.25(c)(1). 

326For a definition of section 3(a)(6) bank, see 

supra note 52. 

327Proposal at 81249 and proposed Commission 

regulation 1.25(c)(2), as applying to Qualified ETFs 

per proposed introductory text of paragraph (c) of 

Commission regulation 1.25. 

328Proposed Commission regulation 

1.25(a)(1)(vi). 

329Proposal at 81294 and proposed Commission 

regulation 1.25(c)(8)(ii). 

330Proposal at 81249. 

331 Id. 

332Proposal at 81250 and paragraph (c)(6) of 

Commission regulation 1.25 as applying to 

Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Commission regulation 1.25. 

333Paragraph (c)(3) of Commission regulation 

1.25 as applying to Qualified ETFs per proposed 

revised introductory text of paragraph (c) of 

Commission regulation 1.25. 

334Proposal at 81250. 

335Paragraph (c)(4) of Commission regulation 

1.25 as applying to Qualified ETFs per proposed 

revised introductory text of paragraph (c) of 

Commission regulation 1.25. The proposed 

requirement was intended to allow for the valuation 

of the Qualified ETF’s investment portfolio to be 

available by 9 a.m. of the business day following an 

investment in the ETF, so that the valuation is 

available in time for FCMs to perform their daily 

segregation calculations, which are required to be 

completed by noon each business day, reflecting 

balances as of the close of business on the previous 

business day. 2000 Permitted Investments 

Amendment at 78003. 

336Paragraph (c)(5)(i) of Commission regulation 

1.25 as applying to Qualified ETFs per proposed 

revised introductory text of paragraph (c) of 

Commission regulation 1.25. 337 Id. 

338Proposal at 81253, Question 11. 

339Proposal at 81251 and proposed paragraph 

(c)(8) of Commission regulation 1.25. 

Treasury ETF.321 Thus, to ensure 

compliance with the requirements 

applicable to other Permitted 

Investments as well as the general 

objectives of Commission regulation 

1.25 to preserve principal and maintain 

liquidity of Permitted Investments, the 

Commission proposed to impose certain 

conditions on ETFs 322 for their interests 

to qualify as Permitted Investments 

(‘‘Qualified ETF’’), as discussed below. 

Given the similarities between ETFs 

investing primarily in short-term U.S. 

Treasury securities and MMFs whose 

interests already qualify as Permitted 

Investments,323 the Commission 

preliminarily determined to impose all 

pertinent requirements applicable to 

MMFs under Commission regulation 

1.25(a) to such ETFs, subject to certain 

modifications to address the unique 

characteristics of the ETFs.324 In 

particular, consistent with Commission 

regulation 1.25(c), which sets forth 

provisions for MMFs whose interests 

qualify as Permitted Investments, the 

Proposal would require that a Qualified 

ETF be an investment company that is 

registered under the Investment 

Company Act of 1940 with the SEC and 

holds itself out to investors as an ETF 

under SEC Rule 6c–11.325 Additionally, 

the ETF would be required to be 

sponsored by a federally regulated 

financial institution, a section 3(a)(6) 

bank,326 an investment adviser 

registered under the Investment 

Advisers Act of 1940, or a domestic 

branch of a foreign bank insured by the 

FDIC.327

In addition, the Commission proposed 

to limit Qualified ETFs to funds that are 

passively managed and that seek to 

replicate the performance of a published 

short-term U.S. Treasury security index 

composed of bonds, notes, and bills 

with a remaining time-to-maturity of 12 

months or less, issued by, or 

unconditionally guaranteed as to timely 

payment of principal and interest by, 

the U.S. Department of the Treasury.328

The Commission further proposed to 

require that the securities comprising 

the short-term U.S. Treasury index 

represent at least 95 percent of the ETF’s 

investment portfolio.329 In that regard, 

the Commission noted that pursuant to 

SEC requirements, certain registered 

investment companies, including ETFs, 

must adopt a policy to invest at least 80 

percent of the value of their assets in 

accordance with the investment focus 

suggested by the fund’s name.330 The 

Commission, however, preliminarily 

concluded that a stricter standard of 95 

percent should to help ensure that 

FCMs and DCOs invest Customer Funds 

in accordance with Commission 

regulation 1.25’s general objectives of 

preserving principal and maintaining 

liquidity.331

The Commission further proposed, 

consistent with the current 

requirements applicable to interests in 

MMFs, to prohibit the agreement 

governing an FCM’s or DCO’s 

acquisition and holding of interests in 

Qualified ETFs from containing 

provisions that would prevent the 

pledging of the Qualified ETF’s 

shares.332 The proposed amendments 

would also require FCMs and DCOs to 

maintain confirmations relating to their 

purchase of interests in a Qualified ETF 

in their records in accordance with 

Commission regulation 1.31, and 

document the ownership of the interests 

(by book-entry or otherwise) in the 

FCMs’ and DCOs’ custody accounts in 

accordance with Commission regulation 

1.26.333 FCMs and DCOs would 

additionally be required to obtain the 

acknowledgment letter required by 

Commission regulation 1.26 from an 

entity that has substantial control over 

the ETF interests purchased with 

Customer Funds and that has the 

knowledge and authority to facilitate 

redemption and payment or transfer of 

the Customer Funds.334

Also, under the terms of the Proposal, 

a Qualified ETF would be required to 

compute the NAV by 9 a.m. of the 

business day following each business 

day and make it available to FCMs or 

DCOs, as applicable, by that time.335 In 

addition, the Qualified ETF would be 

legally obligated to redeem its interests 

and make payment in satisfaction of the 

interests by the business day following 

a redemption request.336 The Proposal 

also provided that FCMs or DCOs, as 

applicable, would be required to retain 

documentation demonstrating 

compliance with this requirement.337

Because Commission regulation 

1.25(c)(5)(ii) currently provides an 

exception to the next-day redemption 

obligation for MMFs for defined 

extraordinary circumstances, such as 

the non-routine closures of the Fedwire 

or applicable Federal Reserve Banks, 

and any period during which the SEC 

by order restricts redemptions for the 

protection of security holders in the 

fund, the Commission sought comments 

on whether these redemption 

exceptions should be extended to 

Qualified ETFs.338

The Commission also proposed 

several conditions specific to Qualified 

ETFs. Specifically, articulating concerns 

related to compliance with the 

Customer Funds segregation 

requirements and Commission 

regulation 1.25(b)(1) liquidity standards, 

the Commission proposed to require an 

FCM or DCO that invests Customer 

Funds in the shares of a Qualified ETF 

to be an authorized participant of the 

ETF.339 The Commission reasoned that 

if an FCM or DCO had to purchase or 

redeem Qualified ETF shares through an 

intermediated transaction involving a 

third-party authorized participant, the 

FCM or DCO would have to transfer 

Customer Funds out of a segregated 

account maintained in compliance with 

section 4d of the Act or part 30 of 

Commission’s regulations, which would 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7833 

340Proposal at 81250–81251. As a result of the 

transfer of Customer Funds to the authorized 

participant, the customer segregated account might 

not be fully funded, potentially violating 

Commission regulations that require FCMs to 

maintain, at all times, in the segregated account, 

money, securities and property in an amount that 

is at least sufficient in the aggregate to cover their 

total obligations to all customers. Id. at 81251 and 

17 CFR 1.20(a), 17 CFR 22.2(f), and 17 CFR 30.7(a). 

341Proposal at 81251 and 17 CFR 1.20(b), 17 CFR 

22.2(b), and 17 CFR 30.7(b). The Commission noted 

that with respect to 30.7 customer funds, 

Commission regulation 30.7(b) also permits funds 

to be deposited with the clearing organization of 

any foreign board of trade, a member of any foreign 

board of trade, or such member’s or clearing 

organization’s designated depositories. 17 CFR 

30.7(b). 

342Proposal at 81251. 

343Proposal at 81252, Question 9. 

344Proposal at 81251 and proposed Commission 

regulation 1.25(c)(8)(i). 

345Proposal at 81251 and proposed Commission 

regulation 1.25(c)(8)(iii). 

346AIMA at p. 2; BlackRock at p. 2; CCP Global 

at p. 3; FIA/CME Joint Letter at p. 11; ICI at p. 2; 

Invesco at p. 2; MFA at p. 5; Nodal at p. 2; SIFMA 

AMG at p. 3; SSGA at p. 2. 347CCP Global at pp. 3–4; ICI at pp. 2–6; Invesco 

at pp. 2–3. 348AIMA at p. 2; BlackRock at p. 2; CCP Global 

at p. 3; FIA/CME Joint Letter at p. 2; ICI at p. 2; 

SIFMA AMG at pp. 3–4; SSGA at p. 2; WFE at p. 

5. 

349SIFMA AMG at pp. 3–4. 

350 Invesco at p. 2; SIFMA AMG at p. 3; SSGA at 

p. 2; WFE at p. 5. 

351 Invesco at p. 2. 

352 Id. at p. 11. The Invesco Petition asserts that 

U.S. Treasury ETFs eliminate operational 

challenges and certain expenses that FCMs and 

DCOs would experience by directly investing in 

U.S. Treasury securities, including managing and 

reinvesting interest payments, periodically rolling 

positions, and maintaining multiple CUSIPs, 

requiring professionals to manage the duration, 

yield, and liquidity of portfolio securities. 

353SIFMA AMG at p. 4; Invesco at p. 2 (n. 4). 

354BlackRock at p. 3; CCP Global at p. 3; Invesco 

at p. 2; SIFMA AMG at p. 5; SSGA at p. 2. 

355AIMA at p. 2; BlackRock at p. 2 and pp. 4– 

5; CCP Global at p. 3; FIA/CME Joint Letter at pp. 

11–13; ICI at pp. 3–4; Invesco at pp. 3–5; SIFMA 

AMG at pp. 5–7; SSGA at p.2; WFE at p. 5. 

356BlackRock at p. 2; CCP Global at p. 3; FIA/ 

CME Joint Letter at pp. 14–15; ICI at p. 3; Invesco 

at p. 3; SSGA at p.2; WFE at p. 5. 

357WFE at p. 5. 

358 ICI at p. 3. 

359 Id. 

360 Id. 

361SIFMA AMG at p. 6. 

introduce risk that the account could be 

undersegregated.340 The Commission 

also expressed concern that the transfer 

of Customer Funds to the authorized 

participant might be in contravention of 

Commission regulations that provide 

that Customer Funds may only be 

deposited with a bank or trust company, 

a DCO, or another FCM.341 The 

Commission was further concerned that 

relying on a third-party authorized 

participant could protract redemptions, 

thus violating the requirement in 

Commission regulation 1.25(b)(1) that 

Permitted Investments have the ability 

to be converted into cash within one 

business day without material discount 

in value.342 The Commission requested 

comment on whether there were 

alternative approaches to requiring 

FCMs or DCOs to be authorized 

participants that could address or 

mitigate the Commission’s concerns 

regarding the segregation of Customer 

Funds during the purchase and 

redemption process.343

Given the time limits for the 

redemption and liquidation of Permitted 

Investments in Commission regulation 

1.25, the Commission also proposed that 

Qualified ETFs be required to redeem 

their shares in cash because in-cash 

redemptions could allow for a more 

expeditious liquidation of the shares as 

compared to in-kind redemptions.344

The Commission also proposed to 

require, as a condition for qualification 

as a Permitted Investment, that 

Qualified ETFs be acceptable by a DCO 

as performance bond from clearing 

members to margin customer trades.345

b. Comments 

The Commission received ten 

comments in support of the addition of 

Qualified ETFs to the list of Permitted 

Investments.346 No commenters 

opposed the addition of Qualified ETFs. 

Some commenters expressed their 

belief that investments in Qualified 

ETFs are generally safe, short-term 

investments consistent with the 

objectives of Commission regulation 

1.25 regarding preserving principal and 

maintaining liquidity of Customer 

Funds.347 Commenters also stated that 

the inclusion of U.S. Treasury ETFs 

would provide FCMs and DCOs the 

opportunity to diversify their 

investments.348 SIFMA AMG asserted 

that at the time of the Commission’s last 

review of Permitted Investments in 

2011, the U.S. Treasury ETF market was 

not well developed, but that at present, 

it ‘‘provides several options’’ that would 

meet the standards for Permitted 

Investments under Commission 

regulation 1.25.349 Commenters also 

highlighted the similarity in 

characteristics between U.S. Treasury 

ETF securities and other instruments 

that currently qualify as Permitted 

Investments.350 In particular, Invesco 

noted that ‘‘customers will continue to 

be safeguarded because Treasury ETFs’ 

underlying holdings are comprised of a 

sub-set of the same high-quality liquid 

instruments that are otherwise 

permitted under the Commodity 

Exchange Act and Regulation 1.25.’’ 351

Consistent with statements made in the 

Invesco Petition,352 commenters also 

asserted that investments by FCMs and 

DCOs in Qualified ETFs would be 

operationally efficient and costeffective, because FCMs and DCOs 

would have the opportunity to invest in 

an ETF holding a portfolio of U.S. 

Treasury securities instead of investing 

directly in the individual U.S. Treasury 

securities.353 Several commenters also 

stated that the design and characteristics 

of ETFs, such as price and investment 

holdings transparency, as well as intraday trading and liquidity, present 

additional features that make short-term 

U.S. Treasury ETFs efficient vehicles for 

investment of Customer Funds.354

On the other hand, commenters 

expressed concerns regarding some of 

the proposed conditions for investing in 

ETFs and urged the Commission to 

reconsider them. Several commenters 

expressed reservations or opposed the 

proposed requirement that FCMs and 

DCOs be authorized participants.355

Some commenters stated that this 

requirement deviates from existing ETF 

market structure and would 

unnecessarily limit the FCMs and DCOs 

that could invest in Qualified ETFs.356

In particular, WFE posited that the 

requirement ‘‘would severely limit the 

parties that could invest in [Qualified] 

ETFs to’’ entities that are registered as 

broker-dealers and authorized 

participants, criteria that DCOs do not 

satisfy.357 Similarly, ICI questioned 

whether DCOs could even become 

authorized participants,358 and raised 

potential operational challenges 

associated with FCMs and DCOs 

becoming authorized participants.359 ICI 

explained that although many FCMs are 

authorized participants, some FCMs 

may take the view that becoming an 

authorized participant is not consistent 

with their business model, or they may 

otherwise not want to take on the 

additional regulatory, compliance, and 

operational costs associated with 

becoming an authorized participant.360

Commenters further asserted that the 

Commission’s concerns regarding 

compliance with the Customer Funds 

segregation requirements and the 

prompt liquidation of the Qualified ETF 

shares could be effectively addressed 

through existing market practices.361

Commenters had several suggestions for 

alternative arrangements. The majority 

of commenters opposing the 

requirement that FCMs and DCOs be 

authorized participants advocated for 

the Commission to allow for 

transactions to occur on a deliveryversus-payment (‘‘DVP’’) basis via an 

authorized participant acting as an agent 

for the FCM or DCO (‘‘Authorized 


lotter on DSK11XQN23PROD with RULES2
7834 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

362CCP Global at p. 3, Invesco at p. 4; FIA/CME 

Joint Letter at pp. 13–15; BlackRock at p. 4; ICI at 

pp. 3–4; SIFMA AMG at pp. 2, 5–7; SSGA at p. 2. 

363 Invesco at p. 4. 

364 Id. 

365 Id. 

366 Id. 

367 Id. 

368 Id. 

369 Invesco at p. 4; SIFMA AMG at p. 6 (noting 

that pursuant to Commission regulation 1.25(d)(9), 

a repurchase agreement that is a Permitted 

Investment must provide for the transfer of 

securities or cash on a DVP basis to a customer 

segregated account.). 

370AIMA at p. 2. 

371 ICI at p. 4. 

372BlackRock at pp. 4–5; CCP Global at p. 3; FIA/ 

CME Joint Letter at pp. 14–15; SIFMA AMG at pp. 

2–3, 5–6; SSGA at p. 2. 

373SIFMA AMG at p. 6; see also Shortening the 

Securities Transaction Settlement Cycle, 88 FR 

13872 (March 6, 2023). 

374SIFMA AMG at p. 6. 

375BlackRock at pp. 2, 5; FIA/CME Joint Letter at 

pp. 12–13; ICI at pp. 4–5; MFA at pp. 5–6; SIFMA 

AMG at pp. 7–8; SSGA at p. 3. 

376BlackRock at pp. 2, 5. BlackRock further noted 

that the SEC recognized the benefits of in-kind 

redemptions in SEC Rule 6c–11, stating ‘‘ETFs that 

meet redemptions in cash may maintain larger cash 

positions to meet redemption obligations, 

potentially resulting in cash drag on the ETF’s 

performance. The use of cash baskets also may be 

less tax-efficient than using in-kind baskets to 

satisfy redemptions, and may result in additional 

transaction costs for the purchase and sale of 

portfolio holdings.’’ Id. at p. 5. 

377 Id. 

378 ICI at pp. 4–5. 

379 Id. at p. 4. 

380 Id. 

381 Id. See also AIMA at p. 2; BlackRock at p. 2. 

382 ICI at p. 4. 

383FIA/CME Joint Letter at pp. 12–13. See also 

WFE at p. 6. 

384 Id. 

385SIFMA AMG at pp. 7–8. 

386 Id. at p. 8. 

387SIFMA AMG at pp. 7–8. 

388 Id. 

389 Id. at p. 8. 

Participant Agency Model’’).362

Through the Authorized Participant 

Agency Model, the FCMs and DCOs 

would have access to the primary 

market, without being an authorized 

participant themselves, pursuant to an 

agreement with other authorized 

participants that would transact as 

agents on their behalf.363 According to 

the commenters, the Authorized 

Participant Agency Model would allow 

FCMs and DCOs to access an ETF’s 

primary market on the same terms as if 

they were authorized participants 

themselves and receive the benefits 

associated therewith (e.g., same day or 

next-day settlement and transacting at 

NAV).364 As explained in the Invesco 

comment letter, when operating on a 

DVP basis through the Authorized 

Participant Agency Model, the FCM or 

DCO would not, in the case of a 

redemption, transfer Qualified ETF 

shares to the Qualified ETF (through the 

authorized participant) until cash is 

received by such FCM or DCO.365 In the 

case of a creation transaction, cash 

would not be transferred by the FCM or 

DCO to the Qualified ETF (through the 

authorized participant) until the 

Qualified ETF shares are received.366

Invesco further stated that at no time 

would Customer Funds (either cash or 

Qualified ETF shares) be in the custody 

of any entity outside of the applicable 

FCM’s or DCO’s segregated Customer 

Funds depository.367 Further, under the 

Authorized Participant Agency Model, 

the redemption or creation would occur 

at NAV and settle within a day.368

Several commenters also noted that this 

DVP process would be similar to what 

is applicable to repurchase agreements 

currently allowed under CFTC 

regulations.369 Finally, AIMA suggested 

allowing the DCOs to provide a letter of 

credit to an ETF and the ETF would 

agree to pay a penalty for late 

redemptions.370 ICI also stated that 

market-based solutions, such as 

providing letters of credit to the 

authorized participant could resolve 

potential exposure concerns that an 

authorized participant could have if it 

engages in redemption transactions 

before receiving the ETF shares.371

Another alternative commenters 

suggested was to allow FCMs and DCOs 

to transact on the secondary market, 

again on a DVP basis.372 SIFMA AMG 

stated that recent changes in SEC 

regulations, effective in May 2024, 

shorten the standard settlement cycle 

for most institutional securities 

transactions from two business days 

after the trade date (T+2) to one 

(T+1).373 Thus, SIFMA AMG asserted 

that as long as transactions are done on 

a DVP basis, secondary market 

transactions to sell Qualified ETF shares 

should be permitted.374

With regard to the proposed 

requirement that Qualified ETFs be 

required to redeem their shares in cash, 

commenters largely advocated that the 

Commission allow Qualified ETFs to 

redeem in kind as well as in cash.375

Specifically, BlackRock recommended 

that the Commission revise the 

condition to allow for redemptions in 

cash or in kind with a same day 

settlement (T+0) option.376 BlackRock 

argued that in-kind redemptions are 

standard for many ETFs as they provide 

an efficient way for portfolio managers 

to execute changes in an ETF’s 

portfolio.377 ICI echoed BlackRock’s 

recommendation and stated that in-kind 

redemptions can offer investors more 

efficient tax treatment.378 ICI explained 

that an ETF’s ability to redeem in kind 

permits it to defer tax realization for 

remaining shareholders in the ETF, thus 

reducing capital gains payments and 

related distributions, as compared to 

redeeming shares for cash.379 ICI argued 

that requiring ETFs to redeem in cash 

would not only potentially reduce the 

benefits of deferred tax treatment to a 

Treasury ETF’s shareholders, but may 

limit the potential universe of Qualified 

ETFs, thus reducing diversification 

opportunities for FCMs and DCOs.380

ICI further asserted that several ETFs, 

including several Treasury ETFs, have a 

T+0 redemption cycle, which allows for 

delivery of in-kind securities on the day 

of the trade so that securities can be sold 

the next business day.381 ICI asserted 

that the ability to redeem at a T+0 

settlement cycle would satisfy the 

Commission’s concerns regarding next 

day liquidation of the underlying U.S. 

Treasury securities.382 Further, FIA and 

CME stated that allowing in-kind 

redemptions is at times more 

advantageous given that U.S. Treasury 

securities themselves are a highly liquid 

investment.383 Additionally, FIA and 

CME noted that requiring cash 

redemptions ‘‘could potentially cause 

an inequitable first-mover advantage; 

liquidation of a significant portion of 

the fund to meet a redemption could 

cause a drop in the value of the 

underlying assets and in turn of the 

shares of the fund.’’ 384

Asserting that in-kind redemptions 

are a key feature of a U.S. Treasury 

ETF’s pricing mechanism, SIFMA AMG 

raised concerns that an in-cash 

redemption mandate could potentially 

distort the price of a Qualified ETF.385

SIFMA AMG argued that, as a result, an 

FCM or DCO may be subject to a 

settlement price that is not at the fund’s 

NAV (i.e., not its fair value).386 SIFMA 

AMG also noted that some DCOs accept 

U.S. Treasury securities as margin and 

an FCM might want to have the option 

to redeem shares in kind to post such 

securities with the clearinghouse or to 

return U.S. Treasury collateral to 

customers.387 Further, according to 

SIFMA AMG’s understanding, when an 

authorized participant makes an in-kind 

redemption request, whether for itself or 

on behalf of another market participant 

with whom it has an agency 

arrangement, a Qualified ETF is able to 

complete settlement within one 

business day.388 Finally, SIFMA AMG 

asserted that in-kind redemptions also 

avoid certain transaction fees, keeping 

cost lower for investors.389

Several commenters also criticized 

the condition that DCOs accept the 

interest in the Qualified ETF as 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7835 

390Blackrock at p. 6; WFE at p. 6; FIA/CME at p. 

13; SIFMA AMG at p. 7; CCP Global at p. 3–4. 

391FIA/CME Joint Letter at p. 13. 

392FIA/CME Joint Letter at p. 13 (referencing 

Commission regulation 39.13(g)(10), which 

provides that DCOs must limit the assets they 

accept as initial margin to those that have minimal 

credit, market, liquidity risk, and Commission 

regulation 39.33, which provides that DCOs’ 

financial resources may include highly marketable 

collateral, including high quality, liquid, general 

obligations of a sovereign nation provided that 

these assets are readily available and convertible 

into cash pursuant to prearranged and highly 

reliable funding arrangements under extreme but 

plausible market conditions); CCP Global at p. 4. 

393CCP Global at p. 4; SIFMA AMG at p. 7. 

394SIFMA AMG at p. 7. 

395 Id. 

396AIMA at p. 3; CCP Global at p. 3; MFA at p. 

5; FIA/CME Joint Letter at p. 12; WFE at p.6. 

397 ICI at p. 5; see also 17 CFR 270.35d–1. 

398CCP Global at p. 3; WFE at p. 6. 

399WFE at p. 6. 

400BlackRock at p. 3; ICI at p. 5. 

401BlackRock at p. 3; see also ICI at p. 6. 

402 ICI at p. 5. 

403 ICI at p. 6. 

404 ICI at p. 5; see also BlackRock at p. 2; CCP 

Global at p. 3; FIA/CME Joint Letter at p. 12 (note 

58); WFE at p. 6. 

405FIA/CME Joint Letter at p. 12. 

406WFE at p. 6. 

407BlackRock at pp. 2–3; CCP Global at p. 3; FIA/ 

CME Joint Letter at pp. 11–12; MFA at p. 5; WFE 

at p 6. 

408BlackRock at p. 3 (arguing that the 

Commission should expand the eligible underlying 

investments to align them with those allowed for 

Permitted Government MMFs, i.e., cash, 

government securities, and/or repurchase 

agreements that are fully collateralized); CCP Global 

at p 3 (arguing that the Commission should allow 

Qualified ETFs to invest in U.S. Treasury securities, 

cash, Repurchase Transactions collateralized in 

U.S. Treasury securities, and U.S. Treasury MMFs); 

FIA/CME Joint Letter at p. 12 (recommending that 

the Commission allow a Qualified ETF to invest in 

securities with a maximum remaining maturity of 

12 months or less issued or guaranteed by the U.S. 

Treasury, including securities issued by U.S. 

government agencies that are backed by the full 

faith and credit of the U.S. government, as well as 

government MMFs, and/or Repurchase 

Transactions with a remaining term to final 

maturity of 12 months or less collateralized by U.S. 

Treasury securities or other government securities 

(as defined under SEC Rule 2a–7) with a remaining 

term to final maturity of 12 months or less); MFA 

at p. 5 (arguing that the Commission should allow 

Qualified ETFs to invest in securities with a 

maximum remaining maturity of less than 12 

months issued or guaranteed by the U.S. Treasury, 

including short-term securities issued by U.S. 

government agencies that are backed by the full 

faith and credit of the U.S. government, government 

MMFs, and/or Repurchase Transactions with a 

remaining term to final maturity of 12 months or 

less collateralized by U.S. Treasury securities or 

other government securities with a remaining term 

to final maturity of 12 months or less). 

409BlackRock at p. 3; FIA/CME Joint Letter at p. 

12; WFE at p. 6. 

410BlackRock at p. 3; FIA/CME Joint Letter at p. 

11; MFA at p. 5. 

performance bond.390 Among them, FIA 

and CME observed that CME is the only 

DCO that currently accepts U.S. 

Treasury ETFs as collateral, and that if 

CME were to modify or cease its 

acceptance of such ETFs, the change 

would be disruptive to FCMs.391 FIA 

and CME cautioned that the 

Commission should not conflate the 

standards governing collateral 

acceptability at DCOs with the 

requirements for Permitted 

Investments.392 Consistent with these 

concerns, other commenters argued that 

DCOs and FCMs have their own risk 

management policies, which consider 

the institution’s unique characteristics 

and specific risk management needs.393

SIFMA AMG further asserted that using 

a DCO’s initial margin standards as a 

proxy for determining whether a U.S. 

Treasury ETF is a safe investment 

instrument for Customer Funds is not 

appropriate.394 In this regard, SIFMA 

AMG argued that the Commission 

should rely instead on factors that 

address the preservation of principal 

and liquidity already specified in 

Commission regulation 1.25. They 

further asserted that using a DCO’s 

performance bond criteria as a 

gatekeeper unnecessarily constrains the 

diversification determination that 

should be made by each FCM or DCO 

using factors set out in Commission 

regulation 1.25.395

Commenters also generally opposed 

the proposed condition that Qualified 

ETFs invest at least 95 percent of their 

portfolio in securities comprising the 

short-term U.S. Treasury index that the 

fund is designed to track, suggesting 

instead that the Commission adopt an 

80 percent threshold requirement, 

which is consistent with current market 

conventions.396 ICI pointed out that 

many ETFs, including certain Treasury 

ETFs, have adopted an 80 percent 

investment policy pursuant to SEC Rule 

35d–1 under the Investment Company 

Act of 1940 (‘‘SEC Rule 35d–1’’), which 

requires a fund to have adopted a 

‘‘policy to invest, under normal 

circumstances, at least 80% of the value 

of its assets in investments in 

accordance with the investment focus 

that the fund’s name suggests.’’ 397 CCP 

Global and WFE stated that the 

proposed condition was unnecessarily 

punitive.398 WFE added that the 

proposed 95 percent threshold could 

cause funds to deviate from their 

index.399 Conversely, although they did 

not oppose the Commission’s 95 percent 

portfolio threshold requirement, 

BlackRock and ICI requested 

clarification on the impacts of this 

increased threshold on the ETF’s stated 

investment policies and associated 

documentation.400 BlackRock and ICI 

asked if the Commission were to adopt 

the proposed 95 percent portfolio 

threshold, that the Commission clarify 

that an investment requirement would 

be satisfied by funds that maintain 

investments meeting the specified 

threshold, even if the fund’s prospectus 

permits the fund to hold securities 

outside of the threshold.401 ICI stated 

that if the 95 percent threshold was 

adopted as a fundamental investment 

policy, changing the investment policy 

would require a shareholder proxy vote, 

which is costly and burdensome to 

obtain.402 Therefore, ICI recommended 

that the Commission confirm that it is 

establishing a portfolio test for a 

Qualified ETF, which would not require 

the Treasury ETFs to change any 

existing investment policies or 

associated disclosures.403 ICI also 

requested that cash be allowed to satisfy 

the threshold requirement set in 

addition to eligible U.S. Treasury 

securities.404 FIA and CME noted, 

however, that FCMs and DCOs rely on 

the composition thresholds stated in 

funds’ prospectus terms in conducting 

due diligence of investments and 

expressed concerns that there may not 

be industry-wide amendments to 

prospectus terms in response to the 95 

percent threshold requirement.405 WFE 

also recommended that the Commission 

clarify the steps that would be taken in 

the situation where a percentage 

threshold requirement is breached and 

an FCM or DCO is expected to divest 

from the fund.406

In addition, five commenters 

requested that the Commission revise 

the portfolio composition requirements 

to allow for additional investments.407

Specifically, commenters recommended 

that in addition to short-term U.S. 

Treasury securities, the Commission 

allow Qualified ETFs to invest in certain 

repurchase agreements, cash, and ‘‘cash 

equivalents,’’ including MMFs.408 Three 

commenters asserted that the revision 

would provide appropriate flexibility, 

while preserving the high quality and 

liquid nature of the ETF.409 Arguing that 

the Commission should align the 

Qualified ETF’s portfolio requirements 

with the requirements applicable to 

Permitted Government MMFs, a few 

commenters also requested that the 

Commission allow Qualified ETFs to 

invest in short-term securities issued by 

U.S. government agencies that are fully 

guaranteed as to principal and interest 

by the U.S. government.410

In connection with the proposed 

requirement that FCMs and DCOs obtain 

the acknowledgement letter required by 

Commission regulation 1.26 from an 

‘‘entity with substantial control over the 


lotter on DSK11XQN23PROD with RULES2
7836 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

411Proposal at 81250 and proposed Commission 

regulation 1.25(c)(3). 

412FIA/CME Joint Letter at p. 15. 

413 Id. at pp. 15–16. 

414 ICI at p. 6 (focusing on the circumstances 

specified in section 22(e) of the Investment 

Company Act of 1940); FIA/CME Joint Letter at p. 

18; SSGA at p. 3. 

415FIA/CME Joint Letter at p. 18. 

416 ICI at p. 6. ICI further stated that since section 

22(e) of the Investment Company Act of 1940 

applies to ETFs as well as MMFs, the redemption 

exemptions under Commission regulation 

1.25(c)(5)(ii), which are consistent with, and 

expand upon, the exceptions listed in section 22(e), 

should also apply to ETFs. Id.; see also section 22(e) 

of the Investment Company Act of 1940, 15 U.S.C. 

80a–22(e) (restricting investment companies from 

suspending the right of redemption or postponing 

the date of payment or satisfaction upon 

redemption of any redeemable security, for more 

than seven days, except in certain enumerated 

circumstances including New York Stock Exchange 

closures outside of customary week-end and 

holiday closings or periods when trading on the 

New York Stock Exchange is restricted). 

417 Invesco at p. 2; SIFMA AMG at p. 4. 

418SEC Rule 2a–7, which applies to MMFs, 

restricts the types of investments in which MMFs 

can invest their assets, limits the terms of the 

investments, and imposes liquidity requirements 

with respect to the investments, among other 

things. 17 CFR 270.2a–7(d)(2) (providing that MMFs 

must limit their portfolio investments to U.S. 

dollar-dominated securities that at the time of 

acquisition are eligible securities), 17 CFR 270.2a– 

7(d)(1) (limiting the terms of maturity of MMFs’ 

investments), and 17 CFR 270.2a–7(d)(4) (providing 

that MMFs must hold securities that are sufficiently 

liquid to meet reasonably foreseeable shareholder 

redemptions and setting forth other liquidity 

requirements). Although SEC Rule 2a–7 does not 

apply to ETFs, as described below, this Final Rule 

admits as a Permitted Investment only ETFs 

providing investors with substantial protections 

that are comparable, though not identical, to those 

afforded to MMF investors. 

419Proposal at 81252 and proposed Commission 

regulation 1.25(c)(8). 

ETF interests,’’ 411 FIA and CME 

requested clarification regarding the 

appropriate signatory to the letter. FIA 

and CME noted that the entity with 

substantial control over the ETF 

interests may differ depending on 

whether the Final Rule requires FCMs 

and DCOs to be authorized 

participants.412 Specifically, FIA and 

CME noted that if, in referring to the 

‘‘depository acting as custodian for the 

ETF interests,’’ the Commission intends 

to refer to the custodian of the Qualified 

ETF, such depository is likely not the 

entity with substantial control over the 

Qualified ETF interests given that it will 

not have a record of the FCM’s or DCO’s 

interests in the Qualified ETF and the 

‘‘depository’s role, including in effecting 

purchase/redemption/transfer 

transactions, will be at the direction of 

the Qualified ETF.’’ 413

Finally, in response to the 

Commission’s question whether there 

are any extraordinary circumstances, 

similar to the events listed in 

Commission regulation 1.25(c)(5)(ii) 

with respect to MMFs, that may justify 

an exception to the proposed next-day 

redemption requirement with regard to 

Qualified ETFs, three commenters 

recommended that the redemption 

exceptions for MMFs be made available 

for Treasury ETFs.414 FIA and CME 

argued that Qualified ETFs and 

Permitted Government MMFs have 

comparable credit, market, and liquidity 

risk and therefore should be subject to 

the same regulatory treatment of 

extraordinary circumstances in which 

redemptions could be postponed.415 ICI 

also supported exceptions to the nextday redemption requirement for ETFs 

and noted that many ETFs include 

disclosure in their registration 

statements regarding the ability to 

suspend redemption and payment 

consistent with section 22(e) of the 

Investment Company Act of 1940.416

c. Discussion 

After considering the comments 

received, the Commission is adopting 

the proposed addition of interests in 

Qualified ETFs to the list of Permitted 

Investments, subject to certain 

modifications discussed below. The 

Commission reiterates that the inclusion 

of Qualified ETFs as a Permitted 

Investment should foster innovation and 

promote competition in the ETF market 

and the financial services industry more 

generally. Further, the addition of 

Qualified ETFs should also foster 

diversification in the investment of 

Customer Funds through a new type of 

financial instrument that allows FCMs 

and DCOs to purchase a type of 

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

that is already a Permitted Investment 

without having to acquire the securities 

directly or through an MMF. That is, the 

Commission agrees with commenters 

that by allowing FCMs and DCOs to 

invest Customer Funds in Qualified 

ETFs, the Commission would provide 

FCMs and DCOs with an efficient means 

for investing indirectly in Permitted 

Investments, specifically U.S. Treasury 

securities, while allowing FCMs and 

DCOs to reduce the expenses and 

resources required to manage 

individual, direct investments in such 

instruments.417 Further, because 

Qualified ETFs would be required to 

meet the conditions discussed below, 

Qualified ETFs would be comparable to 

Permitted Government MMFs whose 

interests currently qualify as Permitted 

Investments under Commission 

regulation 1.25(a).418

In response to the comments received, 

the Commission has determined to 

revise the requirement that an FCM or 

DCO be an authorized participant in 

order to invest Customer Funds in 

Qualified ETFs.419 Instead, under the 

terms of the Final Rule, an FCM or DCO 

would be able to invest Customer Funds 

in interests of a Qualified ETF either as 

an authorized participant of the 

Qualified ETF or by entering into an 

agency agreement with an authorized 

participant, whereby the authorized 

participant would transact with the ETF 

on behalf of the FCM or DCO. In both 

instances, the transactions must take 

place on a DVP basis, such that no 

Customer Funds are transferred out of 

the segregated customer accounts 

maintained in compliance with section 

4d of the Act and/or part 30 of the 

Commission’s regulations until property 

of equal or greater value is deposited in 

the customer segregated accounts. 

The Commission understands that 

generally the process of transacting on 

a DVP basis through an authorized 

participant acting on behalf of an FCM 

or DCO would function as follows. In 

the case of a creation transaction, the 

authorized participant would use its 

proprietary funds to acquire a creation 

basket of U.S. Treasury securities before 

placing an order with the Qualified 

ETFs for the purchase of creation units. 

Upon receipt of the Qualified ETF 

shares, the authorized participant would 

transfer such shares to the FCM’s or 

DCO’s customer segregated accounts 

and receive payment from the FCM or 

DCO customer segregated account on a 

DVP basis. Under no circumstances 

would the authorized participant 

receive payment of Customer Funds 

from the FCM or DCO until the 

authorized participant has transferred 

the Qualified ETF interests to the FCM’s 

or DCO’s customer segregated accounts. 

In the case of a redemption 

transaction, the authorized participant 

would either pre-fund the redemption 

with the FCM or DCO (i.e., transfer 

proprietary cash funds to the FCM’s or 

DCO’s customer segregated accounts 

prior to the transfer of the Qualified ETF 

shares from the customer segregated 

accounts to the authorized participant) 

or post cash collateral with the fund to 

obtain U.S. Treasury securities prior to 

receiving the Qualified ETF shares from 

the FCM or DCO and then transferring 

the shares to the fund. The authorized 

participant would receive a fee from the 

FCM or DCO for the service. For the 

process to comply with the 

Commission’s segregation requirements, 

the fee may not be paid with Customer 

Funds. In addition, although the 

authorized participant would be acting 

as an agent of the FCM or DCO, the ETF 

would not hold the FCM or DCO 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7837 

420The Commission’s understanding on this 

matter is based on representations made by ICI and 

Invesco during a conversation with Commission 

staff on August 5, 2024, during which ICI and 

Invesco further explained the statements in their 

comment letters. In its comment letter, ICI noted 

that market-based solutions, such as submitting 

letters of credit to the authorized participant ‘‘could 

resolve potential exposure concerns that an 

[authorized participant] could have if engaging in 

redemption transactions before receiving the ETF 

shares.’’ ICI at p.3. Additionally, one other 

commenter, AIMA, suggested permitting a DCO to 

submit a letter of credit to the ETF in lieu of 

requiring a DCO to become an authorized 

participant. AIMA at p. 2. During a conversation 

with Commission staff on August 5, 2024, however, 

ICI represented that the submission of letters of 

credit is not a common business practice. 

421WFE at p. 5; ICI at p. 3. 

422 ICI at p. 3 (n. 8). 

423BlackRock at p. 5. 

424BlackRock at pp. 4–5; CCP Global at p. 3; 

SSGA at p. 2; SIFMA AMG at pp. 2–3, 5–6; FIA/ 

CME Joint Letter at pp. 14–15. 

425Shortening the Securities Transaction 

Settlement Cycle, 88 FR 13872 (March 6, 2023). 

426 17 CFR 1.25(b)(1). 

427FIA/CME Joint Letter at p. 15; CCP Global at 

p. 3. 

428The Commission reviewed Bloomberg data 

from five ETFs: iShares Short Treasury Bond ETF 

(SHV); SPDR Bloomberg 1–3 Month T-Bill ETF 

(BIL); iShares 0–3 Month Treasury Bond ETF 

(SGOV); Goldman Sachs Access Treasury 0–1 Year 

ETF (GBIL); and Invesco Short Term Treasury ETF 

(TBLL). 

429An FCM or DCO is required to manage the 

purchase and sale of Qualified ETF shares on the 

secondary market consistent with the Commission’s 

segregation requirements, particularly the 

requirement to ensure that the firm is not 

undersegregated at any point in time. In this 

respect, an FCM or DCO may elect to use 

proprietary funds to purchase Qualified ETF shares 

and subsequently transfer the shares to a customer 

segregated account. Alternatively, to the extent that 

an FCM or DCO holds funds in customer segregated 

accounts in excess of the total amount owed to 

customers (including any applicable residual 

interest requirements), the FCM or DCO may 

withdraw such funds and use such funds to 

purchase shares of Qualified ETFs. Furthermore, an 

FCM or DCO liquidating Qualified ETF shares that 

are held in customer segregated accounts must 

ensure that the removal of such shares does not 

result in the customer accounts becoming 

undersegregated (including any applicable residual 

interest requirements). Alternatively, the FCM or 

DCO must transfer proprietary cash or other 

Permitted Investments into customer segregated 

accounts in an amount equal or greater than the fair 

market value of the Qualified ETF Shares prior to 

the removal of the shares from the customer 

segregated accounts. 

430See Letter titled Net Capital Treatment of 

Certain U.S. Treasury Exchange-Traded Funds, 

issued by the Division of Trading and Markets to 

Ms. Kris Dailey, Vice President, Risk Oversight & 

Operational Regulations, Financial Industry 

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

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

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

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

1.pdf. 

431Proposal at 81251. 

accountable for any failure of the 

authorized participant to perform its 

obligations to the ETF.420 The 

Commission has addressed the concern 

of commenters who requested an 

alternative to the proposed requirement 

that the FCM or DCO be an authorized 

participant in the revisions from the 

Proposal discussed above that enable an 

FCM or DCO to invest Customer Funds 

in interests of a Qualified ETF through 

an agency agreement with an authorized 

participant. 

Moreover, regardless of the exact 

process used by FCMs and DCOs to 

transact with an authorized participant, 

for the transaction to be compliant with 

Commission regulations, the FCM or 

DCO must ensure that: (i) all 

Commission segregation requirements 

are met throughout the process; (ii) the 

transaction occurs on a DVP basis; (iii) 

no fees and/or other costs associated 

with the transaction are charged to the 

customer segregated accounts; and (iv) 

no person, including, but not limited to, 

the ETF or the authorized participant 

has any claim over Customer Funds 

held by the FCM or DCO. 

Eliminating the requirement that 

FCMs and DCOs be authorized 

participants from the Final Rule should 

expand the opportunity to invest 

Customer Funds in Qualified ETFs 

beyond those FCMs and DCOs that have 

the resources to become authorized 

participants. This change addresses 

concerns raised by commenters that 

requiring FCMs and DCOs to be 

authorized participants would unfairly 

favor the limited number of FCMs that 

are already authorized participants and 

disadvantage DCOs that may not meet 

the criteria of an authorized 

participant.421 Further, as noted by 

commenters, some FCMs may not want 

to incur the regulatory, compliance, and 

operational costs associated with 

becoming an authorized participant.422

In addition to these costs, which some 

FCMs may find excessive, commenters 

asserted that there are ‘‘potential 

operational burdens and registration 

requirements for becoming an 

authorized participant [that] may 

outweigh the potential benefits of 

investing customer funds in ETFs.’’ 423

The Commission is persuaded by 

commenters that the stated challenges to 

becoming an authorized participant may 

burden FCMs and DCOs so substantially 

that they are unable to take advantage of 

Qualified ETFs as an investment option. 

Thus, removing the requirement that 

FCMs and DCOs be authorized 

participants should provide an 

opportunity for all FCMs and DCOs, 

regardless of their size or specific 

business model, to invest Customer 

Funds in Qualified ETFs if the FCMs 

and DCOs determine that such 

investment is consistent with their riskmanagement policies. 

As noted above, several commenters 

requested that the Commission also 

allow FCMs and DCOs to invest 

Customer Funds in shares of Qualified 

ETFs via secondary market transactions 

on a DVP basis.424 The Commission 

understands that the changes to the 

standard settlement cycle of certain 

broker-dealer transactions, including 

transactions in ETFs, that became 

effective in May 2024,425 may allow 

liquidation of Qualified ETF shares to 

occur on the secondary market in 

compliance with Commission regulation 

1.25’s general liquidity requirement, 

which provides that Permitted 

Investments must have the ability to be 

converted into cash within one business 

day without material discount in 

value.426 Commenters also noted that 

there has been substantial growth in the 

secondary ETF market, which has made 

pricing differences from the primary 

market minimal.427 The Commission 

has also observed that individual 

Treasury bills, when purchased on the 

secondary market, may have a wider 

bid-ask spread when compared to 

Treasury ETF shares.428 Therefore, the 

Commission has determined not to 

restrict FCMs and DCOs from investing 

Customer Funds in shares of Qualified 

ETFS by buying and selling such shares 

on the secondary market, provided such 

transactions are transacted in 

compliance with the Commission’s 

segregation requirements, and 

consistent with Commission regulation 

1.25’s liquidity requirements, as well as 

all other applicable provisions.429 The 

Commission also notes, as further 

discussed in section IV.C. of this 

preamble, that the Final Rule provides 

that FCMs would be subject to a 6 

percent capital charge on investments in 

Qualified ETF shares that do not 

comprise a full creation unit.430

In adopting the Final Rule, the 

Commission has also determined to 

modify the proposed requirement that 

FCMs and DCOs redeem Qualified ETFs 

in cash. The Commission understands 

that ETFs typically redeem interests in 

kind, although they may also redeem in 

cash or both in kind and in cash. As 

discussed above, the Commission 

proposed to require that Qualified ETFs 

redeem their shares within one business 

day following the submission of the 

redemption request to help ensure a 

more expeditious liquidation of the 

Qualified ETF shares, consistent with 

the time limit for redemptions 

applicable to MMFs under Commission 

regulation 1.25(c)(5) and the general 

liquidity requirement in Commission 

regulation 1.25(b)(1).431 The 


lotter on DSK11XQN23PROD with RULES2
7838 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

432BlackRock at pp. 2,5; ICI at pp. 4–5; MFA at 

pp. 5–6; SSGA at p. 3; SIFMA AMG at pp. 7–8; FIA/ 

CME Joint Letter at pp. 12–13. 

433 ICI at p. 4; AIMA at p. 2; BlackRock at p. 5; 

Invesco at p. 4; see also Invesco Petition at p. 6. 

434 Invesco Petition at p. 6 (noting that an U.S. 

Treasury ETF generally offers and redeems shares 

with settlement on the same day (if creation or 

redemption orders are received before 12:00 p.m. 

Eastern time) or the next business day (if creation 

or redemption orders are received on or after 12:00 

p.m. Eastern time) at the NAV next calculated in 

creation units in exchange for the deposit or 

delivery of a basket of securities). 

435 ICI at p. 4. 

436FIA/CME Joint Letter at pp. 12–13. 

437CCP Global at p. 4; FIA/CME Joint Letter at p. 

13; SIFMA AMG at p. 7. 

438 17 CFR 1.25(b). 

439 17 CFR 39.13(g)(10). Further, 17 CFR 

39.33(c)(3)(E) allows DCO’s financial resources to 

include highly marketable collateral, including high 

quality, liquid, general obligations of a sovereign 

nation that must be readily available and 

convertible into cash pursuant to prearranged and 

highly reliable funding arrangements, even in 

extreme but plausible market conditions. 

440FIA/CME Joint Letter at p. 13. 

441 ICI at p. 5; FIA/CME Joint Letter at p. 12 (note 

58); CCP Global at p. 3; WFE at p. 6; BlackRock at 

p. 2. 

442AIMA at p. 3; MFA at p. 5; FIA/CME Joint 

Letter at p. 12; CCP Global at p. 3; ICI at p. 5. 

443SEC Rule 35d–1 under the Investment 

Company Act of 1940 (indicating that a fund name 

suggesting that the fund focuses its investments in 

a particular type of investments or in investments 

in a particular industry would be a materially 

deceptive and misleading name unless the fund has 

adopted a policy to invest, under normal 

circumstances, at least 80 percent of the value of 

its assets in the particular type of investments or in 

investments in the particular industry suggested by 

the fund’s name). 17 CFR 270.35d–1. 

Commission has considered the 

comments asserting that redemptions in 

kind can satisfy the liquidity 

requirements imposed by Commission 

regulation 1.25.432 Specifically, the 

Commission has considered arguments 

that short-term U.S. Treasury ETFs may 

commit to redeem shares on the same 

business day of the redemption request, 

thus allowing FCMs and DCOs to 

liquidate the underlying U.S. Treasury 

securities within one business day, as 

required by Commission regulation 

1.25.433 The Commission, however, 

understands that such redemption 

timeframe may be conditioned upon the 

fund receiving the redemption request 

before a certain cut-off time during the 

business day.434 In addition, liquidation 

of the underlying U.S. Treasury 

securities may be delayed during 

periods of market turmoil. Such delay 

may, in particular, hinder the FCM’s 

ability to return Customer Funds to 

customers or to post variation margin to 

the clearing house. To ensure that FCMs 

and DCOs are able to liquidate an 

investment in a Qualified ETF within 

the timeframe mandated by Commission 

regulation 1.25, the Commission has 

determined to require FCMs and DCOs 

that are not authorized participants to 

redeem Qualified ETF shares in cash 

within one business day of the 

redemption request. To that effect, an 

FCM DCO conducting the redemption 

through an authorized participant acting 

as the FCM’s or DCO’s agent must 

ensure that its contractual agreement 

with the authorized participant requires 

the authorized participant to transfer 

cash to the customer segregated account 

of the FCM or DCO, on a DVP basis, 

within one business day of the 

redemption request. For FCMs that are 

authorized participants of the Qualified 

ETF, the Commission has determined to 

allow such FCMs to redeem Qualified 

ETF shares in kind, provided that the 

FCM has the operational ability to 

convert the instruments received 

pursuant to the redemption into cash 

within one business day of the 

redemption request. The Commission is 

making this determination based on the 

understanding that FCMs that qualify as 

authorized participants are securities 

brokers or dealers that have the 

operational capacity and arrangements 

in place to convert the U.S. Treasury 

securities received upon redemption 

into cash in a timely manner. The 

Commission believes that such policy, 

where the FCM or DCO is obligated to 

have the necessary contractual 

agreements in place to redeem Qualified 

ETF shares in cash or to swiftly convert 

U.S. Treasury securities into cash, as 

applicable, but the Qualified ETFs 

preserve the possibility to redeem in 

kind, should resolve commenters’ 

concerns that applying an in-cash 

redemption condition to the ETF would 

limit the potential universe of ETFs that 

qualify as a Permitted Investment.435 It 

should also resolve other commenters’ 

concerns discussed above that requiring 

an ETF to redeem in cash might cause 

an inequitable first-mover advantage.436

Further, following consideration of 

comments received, the Commission 

has determined not to adopt, as a 

condition for qualification as a 

Permitted Investment, the proposed 

requirement that Qualified ETFs be 

acceptable by a DCO as performance 

bond from clearing members to margin 

customer trades. In making this 

determination, the Commission 

acknowledges the views of various 

commenters that the standards for DCO 

collateral acceptability and the 

standards for Permitted Investments 

should not be conflated.437 Specifically, 

Commission regulation 1.25(b) requires 

that an FCM or DCO ‘‘manage the 

permitted investments consistent with 

the objectives of preserving principal 

and maintaining liquidity.’’ 438 By 

comparison, Commission regulation 

39.13(g)(10) requires DCOs to ‘‘limit the 

assets it accept as initial margin to those 

that have minimal credit, market, and 

liquidity risk.’’ 439 Although there are 

similarities between these requirements, 

the Commission confirms that an FCM’s 

or DCO’s investment choices for 

Permitted Investments of Customer 

Funds should be governed by the 

standards set forth in Commission 

regulation 1.25. The Commission also 

recognizes the potential unintended 

consequences for FCMs if CME— 

currently the only DCO that accepts 

short-term U.S. Treasury ETFs as a 

performance bond—changes its 

collateral acceptability policy and stops 

accepting such ETFs, particularly if the 

change in policy is unrelated to the 

safety and liquidity of the collateral 

instrument.440

The Commission is also adopting with 

some changes the requirement that the 

Qualified ETF invest at least 95 percent 

of its assets in eligible securities 

comprising the short-term U.S. Treasury 

index whose performance the fund 

seeks to replicate and cash. In the Final 

Rule, eligible short-term securities are 

defined as bonds, notes, and bills with 

a remaining maturity of 12 months or 

less, issued by, or unconditionally 

guaranteed as to the timely payment of 

principal and interest by, the U.S. 

Department of the Treasury. In response 

to comments, the Commission did not 

intend to limit the amount of cash that 

Qualified ETFs hold and is therefore 

adjusting the requirement to clarify that 

cash is an eligible underlying asset for 

purposes of the 95 percent threshold.441

The Commission understands that many 

ETFs, including certain U.S. Treasury 

ETFs, have adopted an investment 

policy consistent with SEC Rule 35d– 

1,442 which requires that certain 

registered investment companies, 

including ETFs, adopt a policy to invest 

at least 80 percent of the value of their 

assets in accordance with the 

investment focus suggested by the 

fund’s name.443 The Commission, 

however, has determined to maintain a 

stricter standard than an 80 percent 

minimum in order to help ensure that 

FCMs and DCOs invest Customer Funds 

in accordance with Commission 

regulation 1.25’s general objectives of 

preserving principal and maintaining 

liquidity. 

The Commission acknowledges 

commenters’ concerns regarding the 

potential burdens and costs associated 

with changing the fund’s fundamental 

investment policy to reflect the 

adoption of a 95 percent portfolio 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7839 

444BlackRock at p. 3; ICI at p. 5. 

445 17 CFR 1.10(b)(1). 

446Proposal at 81249–81250. 

447WFE at p. 6. 

448Proposal at 81249–81250. 

449BlackRock at p. 3 (arguing that the 

Commission should expand the eligible underlying 

investments to align them with those allowed for 

Permitted Government MMFs, i.e., cash, 

government securities, and/or repurchase 

agreements that are fully collateralized); CCP Global 

at p 3 (arguing that the Commission should allow 

Qualified ETFs to invest in U.S. Treasury securities, 

cash, Repurchase Transactions collateralized in 

U.S. Treasury securities, and U.S. Treasury MMFs); 

FIA/CME Joint Letter at p. 12 (recommending that 

the Commission allow a Qualified ETF to invest in 

securities with a maximum remaining maturity of 

12 months or less issued or guaranteed by the U.S. 

Treasury, including securities issued by U.S. 

government agencies that are backed by the full 

faith and credit of the U.S. government, as well as 

government MMFs, and/or Repurchase 

Transactions with a remaining term to final 

maturity of 12 months or less collateralized by U.S. 

Treasury securities or other government securities 

(as defined under SEC Rule 2a–7) with a remaining 

term to final maturity of 12 months or less); MFA 

at p. 5 (arguing that the Commission should allow 

Qualified ETFs to invest in securities with a 

maximum remaining maturity of less than 12 

months issued or guaranteed by the U.S. Treasury, 

including short-term securities issued by U.S. 

government agencies that are backed by the full 

faith and credit of the U.S. government, government 

MMFs, and/or Repurchase Transactions with a 

remaining term to final maturity of 12 months or 

less collateralized by U.S. Treasury securities or 

other government securities with a remaining term 

to final maturity of 12 months or less). 450Federal Reserve Bank of New York, Staff 

Report: Mortgage Backed Securities, No. 1001 

February 2022 available at https://

www.newyorkfed.org/medialibrary/media/research/ 

staff_reports/sr1001.pdf. 

451Also, as discussed in section IV.C. of this 

preamble, FCMs will be required to determine 

capital charges for Qualified ETF shares based on 

SEC staff guidance. The SEC ETF Letter only 

applies to certain ETFs, specifically those that 

invest ‘‘solely in cash and government securities 

that are eligible securities under paragraph (a)(11) 

of SEC Rule 2a–7, limited to U.S. Treasury floating 

and fixed rate bills, notes, and bonds with a 

remaining term to final maturity of 12 months or 

less, government money market funds as defined in 

Rule 2a–7, and/or Repurchase Transactions with a 

remaining term to final maturity of 12 months or 

less collateralized by U.S. Treasury securities or 

other government securities with a remaining term 

to final maturity of 12 months or less.’’ SEC ETF 

Letter, available at: https://www.sec.gov/divisions/ 

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

1.pdf. The portfolio composition of an ETF that 

invests a portion of its assets in short-term U.S. 

agency obligations that are unconditionally 

guaranteed as to the timely payment of principal 

and interest by the U.S. Department of the Treasury 

should not differ materially from that of an ETF that 

invests solely in U.S. Treasury securities and cash. 

Therefore, the Commission requires that FCMs 

determine capital charges for Qualified ETFs whose 

portfolio includes U.S. agency obligations that are 

unconditionally guaranteed as to the timely 

payment of principal and interest by the U.S. 

Department of the Treasury based on the SEC ETF 

Letter. 

452FIA/CME Joint Letter at p. 18; ICI at p. 6; 

SSGA at p. 3. 

453Section 22(e) of the Investment Company Act 

of 1940, codified at 15 U.S.C. 80a–22(e), restricts 

investment companies from suspending the right of 

redemption or postponing the date of payment or 

Continued 

threshold.444 Therefore, the Commission 

is clarifying that a U.S. Treasury ETF 

meets the 95 percent portfolio threshold 

requirement if the fund effectively 

invests 95 percent or more of its assets 

in eligible securities and cash, even if 

the fund’s registration statement sets a 

lower threshold. However, to ensure 

that a U.S. Treasury ETF meets the 

conditions for qualification as a 

Permitted Investment, FCMs and DCOs 

must verify that the fund satisfies the 95 

percent threshold requirement. Thus, 

FCMs and DCOs are required to monitor 

the Qualified ETF’s portfolio and should 

do so on a monthly basis, consistent 

with existing regulations applicable to 

FCMs to submit monthly financial 

reports within 17 business days after the 

end of each month,445 particularly in 

the absence of registration statement 

language reflecting the fund’s 

commitment to adhere to the 95 percent 

threshold requirement. 

Further, the Commission confirms 

that, under the Final Rule, if the 

aggregate of the ETF’s cash holdings and 

assets invested in eligible securities 

comprising the short-term U.S. Treasury 

index falls below 95 percent of the 

fund’s total assets, the FCM or DCO is 

not permitted to make additional 

investments of Customer Funds in the 

Qualified ETF. Rather, as the 

Commission stated in the Proposal, the 

FCM or DCO should take reasonable 

actions to divest interests in the fund, 

while managing Customer Funds in a 

manner consistent with Commission 

regulation 1.25’s general objectives of 

preserving principal and maintaining 

liquidity.446 In response to a comment 

requesting further clarification on the 

actions to be taken should a threshold 

breach by the fund occur,447 the 

Commission confirms, as discussed in 

the Proposal, that depending on the 

market conditions, such actions may 

include taking steps to progressively 

reduce the amount of Customer Funds 

invested in Qualified ETFs rather than 

immediately divesting the full amount 

of the investments in a potentially 

volatile market.448

In addition, the Commission has 

determined to maintain the scope of 

eligible underlying instruments to be 

included in the 95 percent threshold to 

bonds, notes, and bills with a remaining 

maturity of 12 months or less, issued by, 

or unconditionally guaranteed as to the 

timely payment of principal and interest 

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

and cash. In response to comments 

advocating that the scope of Qualified 

ETFs be expanded to funds that invest 

in certain short-term U.S. agency 

obligations,449 the Commission 

acknowledges that the universe of shortterm U.S. agency obligations that are 

fully and unconditionally guaranteed as 

to the timely payment of principal and 

interest by the U.S. Department of the 

Treasury is limited and that securities 

issued by U.S. government-sponsored 

enterprises do not fall into this category. 

The Commission, however, declines to 

expand the scope of eligible underlying 

instruments included in the 95 percent 

threshold to U.S. agency obligations that 

are not unconditionally guaranteed by 

the U.S. Department of the Treasury, 

because such obligations present 

different liquidity characteristics than 

U.S. Treasury securities. Given that 

many U.S. agency obligations are also 

mortgage-backed securities, they have 

structural features that produce less 

predictable cashflow and additional 

risks than U.S. Treasury securities.450

The Commission is adopting the 95 

percent threshold requirement as 

proposed.451

In consideration of comments 

received,452 the Commission is not 

adopting the proposed revision to 

Commission regulation 1.25(c)(5)(ii) that 

would have precluded Qualified ETFs 

from postponing redemption and 

payment under the circumstances 

enumerated in that paragraph. As a 

result of this modification, Qualified 

ETFs will also be able to rely on 

Commission regulation 1.25(c)(5)(ii), as 

applicable. Specifically, the exception 

provided under Commission regulation 

1.25(c)(5)(ii)(A) relates to a non-routine 

closure of the Fedwire or applicable 

Federal Reserve Banks and, under the 

Final Rule, will be extended to 

Qualified ETFs in addition to 

Government MMFs. Next-day 

redemption exceptions detailed at 

Commission regulation 1.25(c)(5)(ii)(B)– 

(D) correspond to exceptions provided 

in section 22(e) of the Investment 

Company Act and therefore apply to 

registered investment companies 

generally. As a result, because Qualified 

ETFs will be required to be investment 

companies registered under the 

Investment Company Act of 1940, these 

exceptions will also apply to Qualified 

ETFs. The exception in Commission 

regulation 1.25(c)(5)(ii)(E) refers to 

periods during which the SEC has by 

rule or regulation deemed that trading 

should be restricted or that an 

emergency exists. This exception could 

potentially apply to all registered 

investment companies and will apply to 

Qualified ETFs. Finally, the exception 

in Commission regulation 

1.25(c)(5)(ii)(F) refers to the condition of 

SEC Rule 22e–3,453 which is only 


lotter on DSK11XQN23PROD with RULES2
7840 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

satisfaction upon redemption of any redeemable 

security, for more than seven days, except in certain 

enumerated circumstances including New York 

Stock Exchange closures outside of customary 

week-end and holiday closings or periods when 

trading on the New York Stock Exchange is 

restricted. Section 22(e)(3) allows the SEC to define, 

by order, additional circumstances, during which 

redemptions may be restricted ‘‘for the protection 

of security holders of the company.’’ 15 U.S.C. 80a– 

22(e)(3). 

454The Commission’s understanding on this 

matter is based on an email from Kevin Ercoline, 

Associate General Counsel, ICI, to Commission 

staff, dated August 15, 2024, ICI Email 20240913, 

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

PublicComments/ViewExParte.

aspx?id=1826&SearchText=. As explained in the 

August 15, 2024 email, it is common practice that 

an FCM or DCO purchases ETF shares and 

custodies them with the FCM’s or DCO’s custodian. 

455FIA/CME Joint Letter at p. 15. 

456Paragraph (c)(4) of Commission regulation 

1.25 as applying to Qualified ETFs per proposed 

revised introductory text of paragraph (c) of 

Commission regulation 1.25. 

457 2000 Permitted Investments Amendment at 

78003. 

458Paragraph (c)(5)(i) of Commission regulation 

1.25 as applying to Qualified ETFs per proposed 

revised introductory text of paragraph (c) of 

Commission regulation 1.25. 

459See 17 CFR 1.25(c)(5) (MMFs must be legally 

obligated to redeem their interests and to make 

payment in satisfaction of the interests by the 

business day following a redemption request) and 

17 CFR 1.25(b)(1) (Permitted Investments must be 

‘‘highly liquid’’ such that the investments have the 

ability to be converted into cash within one 

business day without material discount in value). 460Proposed Commission regulation 1.25(c)(1). 

applicable to MMFs, and will not apply 

to Qualified ETFs. 

The Commission has determined not 

to adopt the proposed requirement that 

FCMs and DCOs obtain the 

acknowledgment letter required by 

Commission regulation 1.26 from an 

entity that has substantial control over 

the ETF interests purchased with 

Customer Funds and that has 

knowledge and authority to facilitate 

redemption and payment or transfer of 

the Customer Funds. Under the terms of 

the Final Rule, FCMs and DCOs will 

instead be required to obtain the 

acknowledgement letter mandated by 

Commission regulation 1.20, as required 

for any investment of Customer Funds 

in Permitted Investments except 

Permitted Government MMFs. This 

change from the Proposal is based on 

the Commission’s understanding that, 

unlike MMF shares that may be held 

directly with the fund or its affiliate, 

Qualified ETFs shares will be held with 

a depository.454 The deletion of this 

proposed requirement also addresses 

FIA’s and CME’s comment about the 

lack of clarity with respect to the ‘‘entity 

that has substantial control’’ over the 

Qualified ETF, from which the 

acknowledgement letter would have to 

be obtained.455

The Commission is adopting the 

remaining conditions for Qualified ETF 

eligibility set forth in the Proposal as 

proposed without change. That is, under 

the terms of the Final Rule, an FCM or 

DCO that acquires and holds interests in 

Qualified ETFs may not enter into an 

agreement that would prevent it from 

pledging the Qualified ETF’s shares. 

FCMs and DCOs must also maintain 

confirmations relating to their purchase 

of interests in a Qualified ETF in their 

records. 

Additionally, the NAV for the 

Qualified ETF must be computed by 9 

a.m. of the business day following each 

business day and made available to 

FCMs or DCOs, as applicable, by that 

time.456 This requirement is intended to 

allow for the valuation of the Qualified 

ETF’s investment portfolio to be 

available by 9 a.m. the business day 

following an investment in the ETF, so 

that the valuation is available in time for 

FCMs to perform their daily segregation 

calculations, which are required to be 

completed by noon each business day, 

reflecting balances as of the close of 

business on the previous business 

day.457

Further, the Qualified ETF must be 

legally obligated to redeem its interests 

and make payment in satisfaction of the 

interests by the business day following 

a redemption request.458 As discussed 

above, limiting Qualified ETFs to funds 

that track the performance of a 

published short-term U.S. Treasury 

security index should facilitate 

redemptions of Qualified ETFs’ shares 

being completed within one business 

day, consistent with Commission 

regulations 1.25(c)(5)(i) and 

1.25(b)(1).459

The Commission is adding paragraph 

(v) to Commission regulation 1.25(a)(1), 

as redesignated to accommodate other 

amendments to the list of Permitted 

Investments pursuant to the Final Rule, 

to add the interests of Qualified ETFs 

(U.S. Treasury exchange-traded funds) 

to the list of Permitted Investments 

under Commission regulation 1.25. The 

Commission is adopting further 

conforming changes throughout 

Commission regulation 1.25. As 

discussed above, the Final Rule 

provides for the replacement of ‘‘money 

market mutual fund’’ or ‘‘money market 

mutual funds’’ with ‘‘government 

money market fund’’ or ‘‘government 

money market funds’’ throughout 

Commission regulation 1.25. The 

Commission is inserting next to the term 

‘‘government money market fund’’ or 

‘‘government money market funds,’’ the 

term ‘‘U.S. Treasury exchange-traded 

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

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

or ‘‘and’’), as necessary. 

The Commission is revising 

Commission regulation 1.25(c)(1) to 

incorporate the condition as set forth in 

the Proposal that a Qualified ETF must 

be an investment company that is 

registered under the Investment 

Company Act of 1940 with the SEC and 

holds itself out to investors as an ETF 

under SEC Rule 6c–11.460

Consistent with the Proposal, the 

Commission is also adding a new 

paragraph (8) to Commission regulation 

1.25(c) to incorporate the requirement 

that investments of Customer Funds in 

Qualified ETFs occur on a DVP basis. In 

a modification from the Proposal, 

however, new Commission regulation 

1.25(c)(8) does not specify that 

Qualified ETF interests must be 

redeemable by the FCM or DCO ‘‘in its 

capacity of an authorized participant.’’ 

The Commission is also not specifying 

the ETF’s interests must be ‘‘redeemable 

in cash’’ but rather that the FCM or DCO 

must have the necessary contractual 

arrangements in place to liquidate the 

ETF shares in cash in compliance with 

Commission regulation 1.25’s liquidity 

requirements. New Commission 

regulation 1.25(c)(8) provides that an 

FCM or DCO transacting with a 

Qualified ETF through an authorized 

participant must redeem interests in the 

Qualified ETF in cash, whereas an FCM 

that is an authorized participant of the 

Qualified ETF may redeem interests in 

the Qualified ETF in kind, provided the 

FCM is able to convert the U.S. Treasury 

securities received pursuant to the 

redemption in cash within one business 

day of the redemption request. 

To account for the possibility that, as 

part of their investment strategy and 

within the limits of applicable SEC 

rules, Qualified ETFs may engage in 

derivatives transactions, the 

Commission is adopting the revision set 

forth in the Proposal to amend 

Commission regulation 1.25(b)(2)(i) to 

indicate that the prohibition of 

investments containing embedded 

derivatives does not apply to Qualified 

ETFs. 

The Commission is also adopting the 

revision set forth in the Proposal to 

amend Commission regulation 

1.25(b)(4)(i), which provides that, 

except for investments in MMFs, the 

dollar-weighted average time-tomaturity of an FCM’s or DCO’s portfolio 

of Permitted Investments, as computed 

under SEC Rule 2a–7, may not exceed 

24 months. The amendment revises 

Commission regulation 1.25(b)(4)(i) to 

exclude Qualified ETFs from the 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7841 

461Revised Commission regulation 1.25(b)(4)(i). 

462Temporary Liquidity Guarantee Program, 

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

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

Guarantee Program], the FDIC guaranteed in full, 

through maturity or June 30, 2012, whichever came 

first, the senior unsecured debt issued by a 

participating entity between October 14, 2008, and 

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

extended through October 31, 2009. The FDIC’s 

guarantee on each debt instrument was also 

extended in 2009 to the earlier of the stated 

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

463Proposal at 81253. 

464AIMA at p. 2; FIA/CME Joint Letter at p. 20; 

MFA at p.7. 

465FIA/CME Joint Letter at p. 20; MFA at p. 7. 

466AIMA at p. 2. 

467 In light of the Proposal’s proposed elimination 

of commercial paper, corporate notes, and corporate 

bonds from the list of Permitted Investments, the 

FIA/CME Joint Letter suggested a technical 

amendment to remove paragraph (b)(2)(vi) from 

Commission regulation 1.25, which sets forth 

conditions that commercial paper, corporate notes, 

and corporate bonds must satisfy to be Permitted 

Investments. FIA/CME Joint Letter at p. 21. The 

Proposal included the deletion of current 

Commission regulation 1.25(b)(2)(vi), and the 

Commission is deleting current paragraph (b)(2)(vi) 

as proposed. Proposal at 81273. 

468 17 CFR 1.25(b)(2)(iv)(A)(1). 

469For simplicity, subsequent references to ‘‘onemonth or three-month LIBOR rate’’ will be referred 

to as ‘‘LIBOR’’ unless otherwise required by the 

context of the discussion. 

470 17 CFR 1.25(b)(2)(iv)(A)(2). 

471Proposal at 81253–81254. See also, Staff 

Statement on LIBOR Transition, SEC Division of 

Corporation Finance, Division of Investment 

Management, Division of Trading and Markets, and 

Office of the Chief Accountant (July 12, 2019), 

available at https://www.sec.gov/news/publicstatement/libor-transition. 

472See e.g., In re Barclays PLC, CFTC Docket No. 

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

No. 13–09 (Dec. 19, 2012). 473See generally CFTC Staff Letter No. 21–26, 

Revised No-Action Positions to Facilitate an Orderly 

Transition of Swaps from Inter-Bank Offered Rates 

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

Letter 21–26’’) available at the Commission’s 

website: . The UK FCA, which regulates ICE 

Benchmark Administration Limited, the 

administrator of ICE LIBOR, confirmed that LIBOR 

would either cease to be provided by any 

administrator or would no longer be representative 

for the 1-week and 2-month U.S. dollar LIBOR 

settings, immediately after December 31, 2021, and 

for all other U.S. dollar LIBOR settings immediately 

after June 30, 2023). 

474Staff Letter 21–26 at p. 3. 475ARRC, ‘‘The ARRC Selects a Broad Repo Rate 

as its Preferred Alternative Reference Rate,’’ June 

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

medialibrary/microsites/arrc/files/2017/ARRCpress-release-Jun-22-2017.pdf. 476See Secured Overnight Financing Rate Data, 

published by the Federal Reserve Bank of New York 

(‘‘FRBNY’’) and available at https://

apps.newyorkfed.org/markets/autorates/sof. 477 Id. 478See Additional Information about the Treasury 

Repo Reference Rates, published by the FRBNY and 

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

treasury-repo-reference-rates-information. 

calculation of the dollar-weighted 

average time-to-maturity of the portfolio 

of Permitted Investments.461 The 

Commission is implementing this 

change because interests in Qualified 

ETFs do not have maturity dates as the 

Qualified ETF manages the rolling of 

maturing U.S. Treasury securities into 

new investments. 

4. Investments in Commercial Paper and 

Corporate Notes or Corporate Bonds 

Commission regulation 1.25(b) 

currently provides that FCMs and DCOs 

may invest Customer Funds in 

commercial paper, corporate notes, and 

corporates bonds that are guaranteed 

under the TLGP administered by the 

FDIC. The TLGP program, however, 

expired in 2012.462 Therefore, 

commercial paper, corporate notes, and 

corporate bonds have not been 

Permitted Investments for more than a 

decade. To address the termination of 

the TLGP, the Commission proposed to 

remove commercial paper, corporate 

notes, and corporate bonds from the list 

of Permitted Investments in 

Commission regulation 1.25.463

The Commission received three 

comments supporting the removal of 

commercial paper, corporate notes, and 

corporate bonds as Permitted 

Investments.464 No commenters 

opposed the proposed revisions. FIA, 

CME, and MFA, expressed general 

support for the removal of commercial 

paper, corporate notes, and corporate 

bonds from the list of Permitted 

Investments.465 AIMA commented that 

the removal of commercial paper, 

corporate notes, and corporate bonds 

from the list of Permitted Investments, 

along with the other proposed changes, 

would ‘‘appropriately update the list of 

permitted investments in line with 

sound risk management practices, allow 

DCOs and FCMs greater flexibility to 

manage risks and reduce currency and 

concentration risk.’’ 466

The Commission has considered the 

comments received and has determined 

to amend the list of Permitted 

Investments by revising Commission 

regulation 1.25(a)(1) to eliminate 

commercial paper, corporate notes, and 

corporate bonds as proposed, because 

these instruments have not been 

Permitted Investments since the 

expiration of the TLGP in 2012.467

5. Investments in Permitted Investments 

With Adjustable Rates of Interest 

Commission regulation 

1.25(b)(2)(iv)(A) currently provides that 

Permitted Investments may contain 

variable or floating interest rates 

provided, among other things, that: (i) 

the interest payments on variable rate 

securities correlate closely, on an 

unleveraged basis, to a benchmark of 

either the Federal Funds target or 

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

or three-month LIBOR, or the interest 

rate of any fixed rate instrument that is 

a listed Permitted Investment under 

Commission regulation 1.25(a); 468 and 

(ii) the interest rate, in any period, on 

floating rate securities is determined 

solely by reference, on an unleveraged 

basis, to a benchmark of either the 

Federal Funds target or effective rate, 

the prime rate, the three-month 

Treasury Bill rate, the one-month or 

three-month LIBOR,469 or the interest 

rate of any fixed rate instrument that is 

a listed Permitted Investment under 

Commission regulation 1.25(a).470

LIBOR had commonly been used as a 

reference rate in various commercial 

and financial contracts, including 

corporate and municipal bonds, 

commercial loans, floating rate 

mortgages, asset-backed securities, 

consumer loans, and interest rate swaps 

and other derivatives.471 After a loss of 

confidence in LIBOR as a reliable 

benchmark following a number of 

enforcement actions concerning 

attempts to manipulate the 

benchmark,472 the U.K. Financial 

Conduct Authority (‘‘UK FCA’’) 

announced on March 5, 2021 that 

LIBOR would cease to be published and 

would effectively be discontinued.473

Prior to the UK FCA announcement, 

the Federal Reserve Bank of New York 

had convened the Alternative Reference 

Rate Committee (‘‘ARRC’’) in 2014 to 

identify best practices for U.S. 

alternative reference rates as well as best 

practices for contract robustness, to 

develop an adoption plan, and to create 

an implementation plan with metrics of 

success and a timeline.474 In June 2017, 

the ARRC identified SOFR, a broad 

Treasury repurchase agreements 

financing rate, as the preferred 

alternative benchmark to U.S. dollar 

LIBOR for certain new U.S. dollar 

derivatives and financial contracts.475

SOFR is a broad measure of the cost of 

borrowing cash overnight collateralized 

by U.S. Treasury securities in the 

Repurchase Transaction market used by 

financial institutions, governments, and 

corporations.476 SOFR is calculated as a 

volume-weighted median of transactionlevel triparty repo data collected from 

the Bank of New York Mellon as well as 

data on bilateral U.S. Treasury 

Repurchase Transactions cleared 

through the Fixed Income Clearing 

Corporation.477 The Federal Reserve 

Bank of New York (‘‘FRBNY’’), in 

cooperation with the U.S. Office of 

Financial Research, publishes SOFR by 

8:00 a.m. each business day.478

In response to the anticipated 

termination of the publication of LIBOR 


lotter on DSK11XQN23PROD with RULES2
7842 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

479CFTC Staff Letter 21–02. 

480CFTC Staff Letter 22–21. 

481Proposal at p. 81254, Question 15. 

482MFA at pp. 2, 7; FIA/CME Joint Letter at p. 

20; SIFMA AMG at p. 12. 

483MFA at p. 7; FIA/CME Joint Letter at p. 20. 

484FIA/CME Joint Letter at p. 20. 

485CME Group Benchmark Administration 

Limited is registered benchmark administrator, 

authorized and supervised by the UK FCA. CME 

Term SOFR Rates provide an indication of the 

forward-looking measurement of overnight SOFR, 

based on market expectations implied from 

derivatives markets. See generally CME’s web page 

on CME Term SOFR Rates available at https://

www.cmegroup.com/market-data/cme-groupbenchmark-administration/term-sofr.html. 

486Final Commission regulation 

1.25(b)(2)(iv)(A)(1) and (2). 487 2005 Permitted Investments Amendment at 

28192 (it is appropriate to afford latitude in 

establishing benchmarks for Permitted Investments 

to enable FCMs and DCOs to more readily respond 

to changes in the market). 488Commission regulation 1.25(b)(2)(v); 17 CFR 

1.25(b)(2)(v). 489Proposal at 81254–81255. Although FCMs 

have not communicated a specific reason for the 

lack of investments in bank CDs, the Commission 

understands that few, if any, bank CDs meet the 

requirements in Commission regulation 1.25(b)(v) 

that the CD is redeemable at the issuing bank within 

one business day, with any penalty for early 

withdrawal limited to any accrued interest earned 

according to its written terms. 17 CFR 1.25(b)(v). 

490Proposal at 81254–81255. Commission 

regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5) require 

each FCM to submit a SIDR Report to the 

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

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

other depositories or custodians holding futures 

customer funds, Cleared Swaps Customer 

Collateral, or 30.7 customer funds, respectively. 

FCMs are further required to include the total 

amount invested in each of the Permitted 

Investments in the SIDR Report. FCMs are required 

to submit the SIDR Report as of the 15th day of each 

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

the month is not a business day) and the last 

business day of the month. 17 CFR 1.32(f), 17 CFR 

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

is also revising the SIDR Report to reflect the 

revisions to the list of Permitted Investments 

adopted by the Commission under this rulemaking. 

See section IV.D. for a discussion of the final 

amendments to the SIDR Report. 

and the increasing acceptance and use 

of SOFR as a benchmark interest rate, 

MPD issued Staff Letter 21–02 on 

January 4, 2021.479 Staff Letter 21–02 

provides that MPD would not 

recommend enforcement action to the 

Commission if an FCM invested 

Customer Funds in Permitted 

Investments that contain adjustable 

interest rates benchmarked to SOFR. 

Staff Letter 21–02 was a time-limited 

no-action position that was to expire on 

December 31, 2022. MPD and DCR, 

however, issued a joint letter on 

December 23, 2022, Staff Letter 22–21, 

extending the effective date of the noaction position to December 31, 2024, 

and expanding the scope of the noaction position to include Permitted 

Investments made by DCOs.480 Due to 

the transition from LIBOR to SOFR, the 

Commission proposed to amend 

Commission regulation 1.25(b)(2)(iv)(A) 

by replacing LIBOR with SOFR as a 

permitted benchmark for Permitted 

Investments that contain an adjustable 

rate of interest. The Commission also 

requested comment on whether it 

should consider other additional 

interest rates beyond SOFR as permitted 

benchmarks for adjustable rate 

securities under Commission Regulation 

1.25.481

The Commission received three 

comments regarding the proposed 

transition to SOFR, and all three 

comments supported the proposed 

amendment to replace LIBOR with 

SOFR as a permitted benchmark for 

adjustable rate securities under 

Commission regulation 

1.25(b)(2)(iv)(A).482 In addition to 

supporting the addition of SOFR, FIA, 

CME, and MFA also recommended that 

the Commission amend Commission 

regulation 1.25 to permit FCMs and 

DCOs to invest Customer Funds in 

adjustable rate securities that reference 

SONIA, ÖSTR, TONAR, and COBRA, to 

the extent that an FCM or DCO has 

balances owed to customers 

denominated in GBP, EUR, JPY, or CAD, 

respectively.483 In support of its 

recommendation, the FIA/CME Joint 

Letter states that these additional 

alternative reference rates have been 

selected by public/private-sector 

working groups, similar to the ARRC, 

formed by the Bank of England 

(SONIA), the European Central Bank 

(ÖSTR), the Bank of Japan (TONAR), 

and the Bank of Canada (COBRA), in 

connection with the transition away 

from LIBOR rates in these currencies.484

The Commission has considered the 

comments received and upon further 

consideration is adopting the proposed 

revision to Commission regulation 

1.25(b)(2)(iv)(A)(1) and (2) subject to a 

clarification regarding the SOFR rates 

that qualify as acceptable benchmarks. 

The Final Rule specifies that adjustable 

rate securities may reference the 

overnight, 1-month, 3-month, and 6- 

month SOFR rate published by the 

FRBNY. The Final Rule also permits 

adjustable rate securities to be 

benchmarked to the CME Term SOFR 

Rate published by the CME Group 

Benchmark Administration Limited.485

The CME Term SOFR Rate is computed 

by the CME Group Benchmark 

Administration Limited based on SOFR 

futures contracts traded on the CME. 

The FRBNY and CME Group Benchmark 

Administration Limited published 

SOFR rates are reliable reference rates as 

they are calculated in a transparent 

manner based on actual trading activity 

in the overnight or futures markets and 

subject to regulatory oversight. The 

replacement of LIBOR with SOFR 

advances the objective of Commission 

regulation 1.25 of preserving principal 

and maintaining liquidity by requiring 

the use of reliable benchmarks in the 

qualification of adjustable rate securities 

as Permitted Investments. 

The Commission has decided not to 

adopt the additional alternative rates 

suggested by the commenters. At this 

time, the Commission has not observed 

any investment instruments that would 

qualify as Permitted Investments using 

these alternative reference rates. 

Furthermore, as discussed above and in 

the Proposal, the Commission has 

performed an extensive review of SOFR 

and has followed the work of the ARRC 

in developing SOFR. It has not, 

however, engaged in a similar review of 

the additional alternative reference rates 

at this time. 

To give effect to the adoption of SOFR 

as a permitted benchmark for Permitted 

Investments with an adjustable rate of 

interest, paragraphs (b)(2)(iv)(A)(1) and 

(2) of Commission regulation 1.25 are 

amended by replacing the phrase ‘‘onemonth or three-month LIBOR rate’’ with 

the phrase ‘‘Secured Overnight 

Financing Rate.’’ 486 These amendments 

are consistent with the Commission’s 

intent of providing FCMs and DCOs 

with a certain degree of flexibility in 

selecting Permitted Investments with 

adjustable rates of interest, and align 

with the evolution of the market.487

6. Investments in Certificates of Deposit 

Issued by Banks 

Commission regulation 1.25(a)(1)(iv) 

currently permits, subject to certain 

conditions, FCMs and DCOs to invest 

Customer Funds in certificates of 

deposit (‘‘CDs’’) issued by a section 

3(a)(6) bank or a domestic branch of a 

foreign bank that carries deposits 

insured by the FDIC (‘‘bank CDs’’). To 

qualify as a Permitted Investment under 

Commission regulation 1.25, a bank CD 

must be redeemable at the issuing bank 

within one business day, with any 

penalty for early withdrawal limited to 

accrued interest earned according to the 

terms of the bank CD agreement.488

As stated in the Proposal, the 

Commission’s experience has been that 

FCMs and DCOs have not elected bank 

CDs as an investment option for 

Customer Funds.489 In connection with 

the Proposal, Commission staff 

reviewed SIDR Reports filed by FCMs 

for the period September 15, 2022 

through February 15, 2023 and noted no 

FCMs reporting investments of 

Customer Funds in bank CDs.490


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7843 

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

responsibility under a formal plan approved by the 

Commission pursuant to Commission Regulation 

1.52 to monitor and examine the FCM for 

compliance with Commission and self-regulatory 

organization minimum financial and related 

financial reporting requirements. 17 CFR 1.52. 

491 Id. 

492Proposal at 81255, Question 17. 

493 Id., Questions 18 and 19. 

494 Id., Question 20. 

495 Id., Question 21. 

496 Id. In the Proposal, the Commission also 

detailed the additional conforming amendments 

that it would make to Commission regulations to 

reflect the potential elimination of bank CDs from 

Commission regulation 1.25(a)(1). Proposal at 

81255. 

497FIA/CME Joint Letter at p. 20; Nodal pp. 3– 

4; ICE at p. 4. 

498FIA/CME Joint Letter at p. 20. 

499FIA/CME Joint Letter at p. 20; Nodal at pp. 3– 

4. 

500 ICE at p. 4. 

501Proposal at 81237. 

502FIA/CME Joint Letter at p. 20. 

503 17 CFR 1.25(b)(3). 

504The asset-based and issuer-based 

concentration limits for futures customer funds are 

set forth in Commission regulation 1.25(b)(3). With 

respect to 30.7 customer funds, Commission 

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

invest 30.7 customer funds subject to, and in 

compliance with, the terms and conditions of 

Commission regulation 1.25, which includes the 

asset-based and issuer-based concentration limits. 

17 CFR 30.7(h)(1). With respect to Cleared Swaps 

Customer Collateral, Commission regulations 

22.2(e)(1) and 22.3(d) provide that an FCM or DCO, 

respectively, may invest Cleared Swaps Customer 

Collateral in accordance with Commission 

regulation 1.25, which includes the asset-based and 

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

and 17 CFR 22.3(d). 

505 2011 Permitted Investments Amendment at 

78787 (concentration limits are to be calculated on 

a customer-segregation origin by customersegregation origin basis, i.e., based on separate 

segregation account classes). 

506Proposal at 81255–81259; Commission 

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

1.25(b)(3)(i)(A)–(D). The term ‘‘U.S. government 

securities’’ refers to general obligations of the U.S. 

and obligations fully guaranteed as to principal and 

interest by the U.S. See 17 CFR 1.25(a)(1)(i). 

In the Proposal, the Commission 

requested comment on whether 

Commission regulation 1.25 should be 

amended by removing bank CDs from 

the list of Permitted Investments given 

the historical lack of usage by FCMs and 

DCOs.491 Specifically, the Commission 

requested comment on whether the 

elimination of bank CDs as a Permitted 

Investment would have a material 

adverse impact on FCMs’ and DCOs’ 

ability to invest Customer Funds.492 The 

Commission also requested comment 

regarding whether there were provisions 

of Commission regulation 1.25, or other 

legal or operational issues, that hinder 

or prevent FCMs and DCOs from 

investing Customer Funds in bank 

CDs.493 The Commission also requested 

comment on whether FCMs and DCOs 

may elect to invest Customer Funds in 

bank CDs with the current rising interest 

rate environment for bank deposits and 

bank CDs.494 In addition, the 

Commission requested comment on 

what factors it should consider before 

removing bank CDs from the list of 

Permitted Investments.495 Lastly, the 

Commission stated that based on the 

comments received, and the 

Commission’s further consideration of 

this issue, it may determine to revise the 

list of Permitted Investments by 

removing bank CDs in the final 

rulemaking.496

Three comments responded to the 

Commission’s request for comment on 

this subject.497 Two commenters 

supported the removal of bank CDs as 

Permitted Investments. FIA and CME 

stated in their joint letter that bank CDs 

should be removed from the list of 

Permitted Investments as they are not 

aware of the recent use of bank CDs as 

a Permitted Investment, nor has any FIA 

member stated that it foresees investing 

Customer Funds in bank CDs.498 Nodal 

also supported the removal of bank CDs 

from the list of Permitted Investments, 

noting that from a risk perspective, bank 

CDs replace, but do not materially 

mitigate, counterparty risk faced by 

FCMs and DCOs with respect to direct 

bank deposits.499 ICE stated, however, 

that it did not believe that it would be 

beneficial to remove bank CDs as 

Permitted Investments even if the use of 

such investments by FCMs and DCOs is 

currently limited.500

The Commission has considered the 

comments received and is removing 

bank CDs from the list of Permitted 

Investments in Commission regulation 

1.25(a)(1) as proposed. The Commission 

adopted bank CDs as a Permitted 

Investment in 2000.501 Since its 

adoption, the Commission has not 

observed any material use of bank CDs 

as an investment instrument for 

Customer Funds. Although ICE stated 

that it did not believe that it was 

beneficial to remove bank CDs, the lack 

of use of bank CDs suggests that FCMs 

and DCOs do not view bank CDs as 

viable investments for Customer Funds. 

Furthermore, the FIA/CME Joint Letter 

states that no FIA member has indicated 

that it foresees investing Customer 

Funds in bank CDs.502

The Commission is therefore deleting 

paragraph (a)(1)(iv) of Commission 

regulation 1.25 and redesignating 

paragraphs (i) through (vii) of 

Commission regulation 1.25(a)(1) to 

reflect the removal of bank CDs from the 

revised list of Permitted Investments. In 

addition, the Commission is deleting 

paragraph (b)(2)(v) of Commission 

regulation 1.25, which sets forth 

restrictions on the features of permitted 

bank CDs, and is revising and/or 

deleting, as appropriate in light of other 

amendments, paragraphs (b)(3)(i)(C) and 

(b)(3)(ii)(B) of Commission regulation 

1.25, which set forth asset-based and 

issuer-based concentration limits for 

certain instruments currently included 

in the list of Permitted Investments, to 

reflect the elimination of bank CDs from 

that list. The Commission is also making 

conforming amendments to Commission 

regulations 1.32(f)(3), 22.2(g)(5), and 

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

the SIDR Reports described in section 

IV.D. of this preamble, to reflect the 

removal of bank CDs from the list of 

Permitted Investments in Commission 

regulation 1.25. Finally, the 

Commission has deleted the 

requirement for an FCM to report the 

balances invested in bank CDs in the 

SIDR Report. 

B. Asset-Based and Issuer-Based 

Concentration Limits for Permitted 

Investments 

a. Proposal 

Commission regulation 1.25(b)(3) 

establishes asset-based and issuer-based 

concentration limits for an FCM’s or 

DCO’s investment of Customer Funds in 

Permitted Investments.503 The assetbased and issuer-based concentration 

limits are set at the same levels for 

investments of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds.504 An FCM or 

DCO is also required to calculate the 

asset-based and issuer-based 

concentration limits separately for 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds based on the total amount of 

funds held by the FCM or DCO in each 

respective segregation classification.505

As explained in the Proposal, an FCM 

or DCO is currently permitted to 

directly invest futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds in each of the 

Permitted Investments up to the 

following asset-based limits: (i) U.S. 

government securities—100 percent; (ii) 

U.S. agency obligations—50 percent; 

(iii) for each investment asset class of 

bank CDs, commercial paper, and 

corporate notes and bonds—25 percent; 

and (iv) municipal securities—10 

percent.506

With respect to MMFs, an FCM or 

DCO may currently invest up to 100 

percent of the total futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds that 

it holds in MMFs that invest only in 

U.S. government securities, provided 


lotter on DSK11XQN23PROD with RULES2
7844 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

507 17 CFR 1.25(b)(3)(i)(E). 

508 17 CFR 1.25(b)(3)(i)(G). 

509 17 CFR 1.25(b)(3)(i)(F) and (G). 

510See 17 CFR 1.25(b)(3)(ii), which excludes U.S. 

government securities from the issuer-based 

concentration limits. See also 2011 Permitted 

Investments Amendment at 78788. 

511 17 CFR 1.25(b)(3)(ii)(A) and (B). 

512See 17 CFR 1.25(b)(3)(ii), which excludes 

MMFs that invest only in U.S. government 

securities from the issuer-based concentration 

limits. 

513 17 CFR 1.25(b)(3)(ii)(C) and (D). 

514Proposal at 81255–81259. 

515Proposal at 81241 and 81256. 

516Proposed Commission regulation 

1.25(b)(3)(i)(E). 

517 17 CFR 1.25(b)(3)(i)(B). 

518Proposed Commission regulation 

1.25(b)(3)(i)(F). 

519Proposed Commission regulations 

1.25(b)(3)(ii)(C) and (D), respectively. 

520See discussion in section IV.B. of this 

preamble. 

521Proposed Commission regulation 

1.25(a)(1)(vi). 

522See section IV.A.3. of this preamble. 

that the size of the funds’ portfolio is at 

least $1 billion and the funds’ 

management company has at least $25 

billion of assets under management.507

If a fund has less than $1 billion of 

assets under management, or if the 

manager of the fund has less than $25 

billion of assets under management, the 

FCM or DCO may invest up to 10 

percent of its total futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds in 

the fund.508 For Prime MMFs, an FCM 

or DCO may invest up to 50 percent of 

the total futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds in such MMFs; 

however, the asset-based concentration 

is limited to 10 percent if a fund has less 

than $1 billion in assets under 

management or if the fund’s manager 

has less than $25 billion of assets under 

management.509

With respect to issuer-based 

concentration limits, an FCM or DCO is 

permitted to invest up to 100 percent of 

the total futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds that it holds in U.S. 

government securities.510 An FCM or 

DCO also may invest futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds 

directly in qualifying Permitted 

Investments, other than U.S. 

government securities, subject to the 

following issuer-based concentration 

limits: (i) obligations of any single issuer 

of U.S. agency obligations—25 percent; 

(ii) obligations of any single issuer of 

municipal securities, bank CDs, 

commercial paper, or corporate notes or 

bonds—5 percent.511

With respect to MMFs, an FCM or 

DCO may invest up to 100 percent of the 

total futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds in a single MMF that 

invests only in U.S. government 

securities.512 With respect to MMFs that 

maintain investment portfolios that hold 

instruments other than U.S. government 

securities, an FCM or DCO is subject to 

the following issuer-based concentration 

limits: (i) interest in any single MMF 

family may not exceed 25 percent of 

customer funds held; and (ii) interest in 

any individual MMF may not exceed 10 

percent of customer funds held.513

The Commission proposed to amend 

the asset-based and issuer-based 

concentration limits in Commission 

regulation 1.25(b)(3) to reflect the 

proposed revisions to the list of 

Permitted Investments discussed in the 

Proposal and to adjust the limits based 

on the Commission’s experience 

administering Commission regulation 

1.25.514 As discussed in section IV.A.1. 

of this preamble, the Commission 

proposed to limit the scope of MMFs 

whose interests qualify as Permitted 

Investments to Permitted Government 

MMFs. Under the Proposal, a Permitted 

Government MMF would be defined by 

reference to SEC Rule 2a–7 as an MMF 

that invests at least 99.5 percent or more 

of its total assets in cash, government 

securities, and/or Repurchase 

Transactions that are fully 

collateralized.515 The scope of 

underlying instruments in which a 

Permitted Government MMF would be 

allowed to invest is broader than that of 

the MMFs currently excluded from the 

concentration limits of Commission 

regulation 1.25(c) (i.e., MMFs investing 

solely in U.S. government securities). To 

account for the potential increase in risk 

associated with such broader scope, and 

in the interest of imposing a simple and 

consistent approach to concentration 

limits, the Commission proposed to 

establish a single concentration limit of 

50 percent for all Permitted Government 

MMFs of a certain size, without 

distinguishing between funds investing 

solely in U.S. government securities and 

those whose portfolio may also include 

U.S. agency obligations and/or other 

instruments within the limits of SEC 

Rule 2a–7. More precisely, under the 

Proposal, an FCM’s or DCO’s investment 

of Customer Funds in interests in 

Permitted Government MMFs with at 

least $1 billion in assets and whose 

management company manages at least 

$25 billion in assets would be limited to 

no more than 50 percent of the total 

Customer Funds computed separately 

for each of the segregated funds account 

classes of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds.516 The proposed 

asset-based concentration limits are 

consistent with the concentration limits 

applicable to U.S. agency obligations, 

which along with U.S. Treasury 

securities, are a permitted underlying 

instrument for Permitted Government 

MMFs.517

The Commission also proposed to 

maintain the current 10 percent assetbased concentration limit on 

investments in MMFs that hold less 

than $1 billion in assets or have a 

management company with less than 

$25 billion in assets under 

management.518 For purposes of clarity, 

the Commission proposed to delete the 

conjunction ‘‘and’’ in that provision to 

indicate that the fund size threshold and 

the management company size 

threshold are to be construed as 

alternative prongs triggering the 10 

percent limit. 

In addition, to mitigate the potential 

risks arising from concentration in any 

particular fund or family of funds, the 

Commission proposed issuer-based 

concentration limits for investments in 

Permitted Government MMFs. 

Specifically, the Commission proposed 

to limit investments of Customer Funds 

in any single family of Permitted 

Government MMFs to 25 percent and 

investments of Customer Funds in any 

individual Permitted Government 

MMFs to 5 percent of the total assets 

held in each of the segregated account 

classes of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds.519

Further, as part of the proposed 

amendments to the concentration limits 

in Commission regulation 1.25,520 the 

Commission proposed to revise the 

asset-based and issuer-based 

concentration limits set forth in 

paragraphs (b)(3)(i)(F) and (b)(3)(ii)(C) 

and (D), respectively, to reflect the 

removal of Prime MMFs from the list of 

Permitted Investments. 

As discussed in section IV.A.3. of this 

preamble, the Commission is adding 

Qualified ETFs to the list of Permitted 

Investments.521 The Commission 

proposed to impose conditions on 

Qualified ETFs that are substantially 

similar to the conditions that are 

imposed on Permitted Government 

MMFs whose interests qualify as 

Permitted Investments.522 Given the 

similarity of the terms that would apply 

to Permitted Government MMFs and 

Qualified ETFs under the Proposal, and 

the comparable credit, market, and 

liquidity risk associated with these 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7845 

523Proposed Commission regulation 

1.25(b)(3)(i)(E). 

524Proposed Commission regulations 

1.25(b)(3)(ii)(C) and (D). These limits are the same 

for both Permitted Government MMFs and 

Qualified ETFs. 

525 2022 CME Advisory Notice, supra note 320 

(announcing that CME has added five Short-Term 

U.S. Treasury ETFs to the list of accepted margin 

collateral). The five ETFs added by the CME would 

meet the proposed condition of being accepted as 

performance bond by a DCO. For purposes of 

clarity, FCMs and DCOs would need to assess ETFs’ 

eligibility in light of all applicable conditions. 

526Proposed Commission regulation 

1.25(b)(3)(i)(C) (removing commercial paper and 

corporate notes and bonds from the 25 percent 

asset-based concentration limit); proposed 

Commission regulation 1.25(b)(3)(ii)(B) (removing 

commercial paper and corporate notes and bonds 

from the 5 percent issuer-based concentration 

limit). 

527Proposal at 81257–81258. 

528Proposal at 81258. The Commission has stated 

in prior rulemakings that FCMs are expected to 

carefully evaluate the appropriateness of each 

permitted investment in terms of its investment 

objectives and compliance with the time-tomaturity, concentration limits, and other 

requirements of Rule 1.25. 2005 Permitted 

Investments Amendment at 28192. As noted in 

other parts of this preamble, the Commission has 

adopted Commission regulation 1.11 to require 

FCMs to establish a risk management program that 

considers risks posed by affiliates, all lines of 

business of the FCM, and all other trading activity 

engaged in by the FCM. See supra note 126, section 

IV.A.2.c, and section IV.B.a. DCOs are subject to 

similar risk management requirements as laid out 

in Commission regulation 39.13. 

529 17 CFR 1.11. 

530AIMA at pp. 2–3; BlackRock at p. 7; Eurex at 

pp. 2–3; Federated Hermes at pp. 1–3; ICI at pp. 2, 

6–10; Nodal at pp. 2–3; SIFMA AMG at pp. 2, 8– 

12, FIA/CME Joint Letter at pp. 16–18; WFE at p. 

4. 

531Eurex at p. 2; WFE at p. 5. 

532AIMA at pp. 2–3; BlackRock at p. 7; Federated 

Hermes at pp. 1–3; ICI at pp. 2, 6–10; Nodal at pp. 

2–3; SIFMA AMG at pp. 2, 8–12, FIA/CME Joint 

Letter at pp. 16–18. 

types of funds, the Commission 

preliminarily determined that it would 

be appropriate for Qualified ETFs to 

have the same asset-based and issuerbased concentration limits as those 

proposed for Permitted Government 

MMFs. 

Under the Proposal, an FCM’s or 

DCO’s investment of Customer Funds in 

Qualified ETFs with at least $1 billion 

in assets and whose management 

company manages at least $25 billion in 

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

of total funds held in each of the 

segregated account classes of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds.523 The Commission also 

proposed to extend the current 10 

percent asset-based concentration limit 

for investments in MMFs that hold less 

than $1 billion in assets or whose 

management company manages less 

than $25 billion in assets under 

management to Qualified ETFs. In 

addition, to mitigate the potential risks 

arising from concentration in any 

particular fund or family of funds, the 

Commission proposed to limit 

investments of Customer Funds in any 

single family of Qualified ETFs to 25 

percent and investments of Customer 

Funds in any individual Qualified ETF 

to 5 percent of the total assets held in 

each of the segregated account classes of 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds.524 Because there may be at least 

five U.S. Treasury ETFs that could 

potentially qualify as Permitted 

Investments, the Commission 

preliminarily believed that the proposed 

issuer-based concentration limits would 

not be overly restrictive.525

The Commission also proposed 

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

limits on commercial paper, and 

corporate notes and bonds, given that 

the Commission proposed to eliminate 

these instruments from the list of 

Permitted Investments.526 The 

Commission stated that if bank CDs 

were removed from the list of Permitted 

Investments based on public feedback, 

the Commission would eliminate the 

asset-based and issuer-based 

concentration limits for these 

instruments as well.527

Finally, the Commission proposed to 

expand the types of investments that 

would qualify as Permitted Investments 

to include Specified Foreign Sovereign 

Debt. However, the Commission did not 

propose asset-based or issuer-based 

concentration limits on an FCM’s or 

DCO’s investments in Specified Foreign 

Sovereign Debt. Among other 

considerations, the Commission noted, 

in the Proposal, that proposed 

Commission regulation 1.25(a)(1)(vii), 

which permits an FCM or DCO to invest 

Customer Funds in Specified Foreign 

Sovereign Debt only to the extent that 

the FCM or DCO has balances owed to 

customers denominated in the currency 

of the applicable country, is expected to 

effectively limit the amount of Customer 

Funds that an FCM or DCO may invest 

in Specified Foreign Sovereign Debt. 

The concentration limits in 

Commission regulation 1.25 are 

minimum requirements.528 As 

discussed in the Proposal, pursuant to 

Commission regulation 1.11, an FCM is 

required to monitor and manage market, 

credit, liquidity, foreign currency, legal, 

operational, settlement, segregation, 

capital, and any other applicable risks 

associated with its activity, as part of 

the FCM’s risk management program.529

If, based on its independent risk 

assessment, an FCM determines that 

stricter concentration limits with 

respect to Permitted Investments of 

Customer Funds are appropriate, the 

FCM is required to implement such 

stricter limits, in accordance with 

Commission regulation 1.11. Similarly, 

Commission regulation 39.13(g)(10) 

requires a DCO to limit the assets it 

accepts as initial margin to those that 

have minimal credit, market, and 

liquidity risks, whereas Commission 

regulation 39.13(g)(13) requires the DCO 

to apply appropriate limitations or 

charges on the concentration of assets 

posted as initial margin, as necessary, to 

ensure its ability to liquidate such assets 

quickly with minimal adverse price 

effects. 

In addition, if as a result of market 

events or extraneous circumstances, 

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

FCM or DCO inadvertently breaches the 

concentration thresholds, the FCM or 

DCO would be expected to undertake 

prompt actions to restore compliance 

with the concentration limits, while 

managing the investments of Customer 

Funds in a manner consistent with the 

general objectives of preserving 

principal and maintaining liquidity. 

Depending on the market conditions, 

such actions may include taking steps to 

progressively reduce the amount of 

Customer Funds invested in a particular 

asset class instead of immediately 

divesting the full portfolio of 

investments in a potentially volatile 

market. 

b. Comments 

The Commission requested comment 

on all aspects of its Proposal relating to 

concentration limits, including the 

proposed asset-based and issuer-based 

concentration limits for Permitted 

Government MMFs and Qualified ETFs. 

The Commission received nine 

comments addressing concentration 

limits.530 Eurex and WFE supported the 

Commission’s decision not to impose 

asset-based or issuer-based 

concentration limits on Specified 

Foreign Sovereign Debt, citing 

consistency with the 2018 Order.531 A 

number of other commenters, however, 

recommended changes to the assetbased and issuer-based concentration 

limits for Permitted Government MMFs 

and Qualified ETFs proposed by the 

Commission as discussed below.532

Regarding the proposed change of 

imposing a 50 percent asset-based 

concentration limit for all Permitted 

Government MMFs with at least $1 

billion in assets and whose management 

company manages at least $25 billion in 

assets, FIA and CME did not support the 


lotter on DSK11XQN23PROD with RULES2
7846 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

533FIA/CME Joint Letter at p. 17. 

534 Id. Commission regulation 1.25(c) currently 

excludes from the concentration limits MMFs 

investing solely in U.S. government securities as 

this term is currently used in Commission 

regulation 1.25. Because the Commission proposed 

to defined Permitted Government MMF by 

reference to SEC Rule 2a–7 as an MMF that invests 

99.5 percent or more of its assets in cash, 

government securities (defined in 15 U.S.C. 80a– 

2(a)(16) to broadly include U.S. Treasury securities 

and U.S. agency obligations), and/or Repurchase 

Transactions that must be collateralized fully, the 

scope of underlying instruments in which a 

Permitted Government MMF would be allowed to 

invest is broader than that of MMFs currently 

excluded from the concentration limits. Proposal at 

81256. 

535FIA/CME Joint Letter at p. 17. 

536 Id.; 2011 Permitted Investments Amendment 

at 78796. 

537FIA/CME Joint Letter at p. 17. 

538 Id. at 16 (referencing Commission Regulations 

1.11, 39.13, 39.18(b), 160.30, and 162.21). 

539 Id. (referencing Operational Resilience 

Framework for Futures Commission Merchants, 

Swap Dealers, and Major Swap Participants, 89 FR 

4706 (Jan. 24, 2024)). 

540 Id. at 17. 

541BlackRock at p. 7. 

542 ICI at p. 8. 

543AIMA at p. 3; Federated Hermes at p. 1; ICI 

at pp. 6–7 (arguing that a failure to appropriately 

calibrate the proposed concentration limits will 

result in the reduced utility of Permitted 

Government MMFs and Treasury ETFs for many 

FCMs and DCOs, especially smaller firms); Nodal 

at p. 3 (calling for a ‘‘flat limit of 25%’’ for both 

individual and any single family of funds). 

544Federated Hermes at p. 1. 

545SEC Rule 38a–1 requires registered investment 

companies to adopt and implement written policies 

and procedures reasonably designed to prevent 

Federal securities laws violations; obtain approval 

by the registered investment company’s board of the 

policies and procedures of the registered 

investment company and the policies and 

procedures of certain service providers; review the 

adequacy of those policies and procedures at least 

annually; and designate a chief compliance officer 

responsible for the administration of the registered 

investment company’s policies and procedures. 17 

CFR 270.38a–1. 

546Federated Hermes at pp. 2–3 (referencing a 

Federal Register release, 88 FR 16921 (March 21, 

2023), reopening the comment period for an SEC 

proposal, Cybersecurity Risk Management for 

Investment Advisers, Registered Investment 

Companies, and Business Development Companies, 

87 FR 13524 (March 9, 2022) (‘‘SEC Investment 

Management Cybersecurity Release’’). 

547FIA/CME Joint Letter at p. 18; BlackRock at p. 

7; SIFMA AMG at p. 10 (n. 35) (referencing the SEC 

Investment Management Cybersecurity Release). 

548FIA/CME Joint Letter at p. 18. 

549Nodal at p. 2. 

550AIMA at p. 3. As an alternative, AIMA 

supports an individual fund limit of 25 percent. Id. 

551SIFMA AMG at p. 10. 

Commission’s proposed changes and 

urged the Commission to keep the 

current asset-based limits.533 FIA and 

CME argued that the Commission 

should continue to allow investments in 

‘‘Treasury-only’’ MMFs without 

imposing asset-based concentration 

limits.534 These commenters contended 

that large Government MMFs invest in 

high-quality securities, have stable 

market value NAVs, have robust 

liquidity profiles, have implemented 

significant cybersecurity safeguards, and 

operate in a manner that is consistent 

with the Commission’s customer asset 

protection regime.535 Thus, FIA and 

CME asserted that the Commission’s 

statement in the 2011 Permitted 

Investments Amendment that 

‘‘[i]ndirect investments in Treasuries via 

a Treasury-only MMMF is essentially 

the risk equivalent of a direct 

investment in Treasuries, while 

allowing an FCM or DCO the 

administrative ease of delegating the 

management of its portfolio to a 

MMMF’’ is no less true today than it 

was in 2011.536 Further, FIA and CME 

asserted that Government MMFs 

‘‘arguably present greater diversification 

and more resiliency for investors than 

government securities themselves in 

rare instances of volatility or stress in 

the government securities market.’’ 537

FIA and CME also argued that although 

financial institutions, including FCMs 

and DCOs, like all commercial entities, 

could be targets for cyber-attacks that 

may adversely impact normal operating 

capabilities and impair an FCM’s or 

DCO’s ability to redeem, promptly on 

demand, interests in Permitted 

Government MMFs or Qualified ETFs, 

FCMs and DCOs are already ‘‘subject to 

comprehensive regulatory requirements 

to implement policies, procedures, and 

controls to detect, prevent, monitor, and 

mitigate operational risk, including 

cybersecurity risk.’’ 538 FIA and CME 

further noted that the Commission has 

proposed to augment and reinforce 

these required policies, procedures, and 

controls with a new requirement for 

FCMs to establish an ‘‘operational 

resilience framework.’’ 539 As a result of 

the existing protections, FIA and CME 

believe that the proposed concentration 

limits are not well-tailored to the 

regulatory objectives that the 

Commission articulated in the 

Proposal.540 BlackRock also suggested 

that the Commission keep the existing 

asset-based concentration limit 

framework because, in their view, the 

framework is operating as intended.541

ICI did not object to the changes to the 

asset-based concentration limits 

proposed for Permitted Government 

MMFs given their relative risk and 

liquidity profiles.542

Regarding the proposed changes to 

issuer-based concentration limits, 

AIMA, Federated Hermes, ICI, and 

Nodal recommended a 25 percent single 

fund concentration limit for both 

Permitted Government MMFs and 

Qualified ETFs, a limit that they 

asserted would be more consistent with 

market practices.543 Federated Hermes 

argued that the proposed 5 percent 

issuer-based concentration limit per 

fund for Permitted Government MMFs 

was ‘‘unnecessarily restrictive and [an] 

arbitrary number.’’ 544 This commenter 

objected to the proposed limit because, 

from their perspective, the proposed 

limit is not based on meaningful data 

and the risks the Commission raises as 

concerns are already addressed by SEC 

Rule 38a–1,545 which Federated Hermes 

summarizes as requiring registered 

investment companies, including 

Permitted Government MMFs, to adopt 

and implement written compliance 

policies and procedures reasonably 

designed to prevent violation of the 

Federal securities laws. In addition, 

Federated Hermes, and other 

commenters, pointed to the SEC’s 

proposed rule that would require funds 

to adopt and implement compliance 

policies and procedures, and 

cybersecurity programs, to detect, 

respond to, and recover from a 

cybersecurity incident, and that are 

reasonably designed to ensure that a 

fund can continue to operate during a 

cybersecurity event.546

FIA, CME, BlackRock, and SIFMA 

AMG expressed support for keeping the 

current issuer-based concentration limit 

thresholds of 10 percent for individual 

funds, and 25 percent for fund 

families.547 FIA, CME, and BlackRock 

contended that these limits are better 

aligned with current market structure 

given that there are few, if any, families 

of Permitted Government MMFs and 

Qualified ETFs that include more than 

two individual eligible funds.548

Relatedly, Nodal, which was one of the 

commenters that supported a 25 percent 

limit for individual funds, stated that 

many fund families only have one 

Government MMF, which would result 

in an effective limit of 5 percent per 

fund family instead of the proposed 25 

percent.549 AIMA echoed this point by 

noting that the proposed limits are ‘‘not 

consistent with market practice given 

that there are very few families of 

eligible MMFs or ETFs that offer more 

than two eligible individual funds.’’ 550

SIFMA AMG also criticized the 

proposed 5 percent issuer concentration 

limit and advocated for keeping the 

current 10 percent concentration 

limit.551 SIFMA AMG expressed a 

general concern about the use of 

cybersecurity risk as a justification for a 

Commission rulemaking in areas 

unrelated to cybersecurity, which, in 

SIFMA AMG’s opinion, could provide 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7847 

552 Id. 553 Id. 554 17 CFR 248.30. 555 17 CFR 248.30 sets forth regulatory obligations 

for the protection of customer information, response 

programs for unauthorized access to customer 

information, and requirements relating to the 

disposal of customer information. 

556SIFMA AMG at p. 10 (referencing SEC 

Investment Management Cybersecurity Release). 

557 Id. 

558 Id. 

559 Id. 

560 Id. 

561As proposed, the Commission is also deleting 

the conjunction ‘‘and’’ in Commission regulation 

1.25(b)(i)(G), redesignated as Commission 

regulation 1.25(b)(i)(E) and revised to reflect other 

amendments adopted in this Final Rule, to clarify 

that the fund size threshold and the management 

company size threshold are to be construed as 

alternative prongs triggering the 10 percent limit. 

‘‘an unfounded, unquantifiable 

precedent for future rulemakings.’’ 552

SIFMA AMG further noted that 

‘‘MMFs and U.S. Treasury ETFs are 

sponsored by SEC-registered investment 

advisers that are subject to their own 

cyber safeguards and regulatory 

obligations.’’ 553 In particular, SIFMA 

AMG cited SEC Regulation S–P,554

which requires registered brokerdealers, investment companies, and 

investment advisers to ‘‘develop, 

implement, and maintain written 

policies and procedures that address 

administrative, technical, and physical 

safeguards for the protection of 

customer information,’’ 555 as well as the 

SEC Investment Management 

Cybersecurity Release that was also 

cited by other commenters.556

SIFMA AMG also asserted that the 

Proposal had not adequately explained 

why the proposed 5 percent limit more 

appropriately addressed the 

Commission’s concerns over 

redemption and liquidity risks.557 This 

commenter also asserted that a low 

issuer-based concentration limit would 

require more monitoring by FCMs and 

DCOs and potentially increase 

transaction fees.558 Finally, SIFMA 

AMG noted that only five Qualified 

ETFs are currently accepted as 

performance bond by a DCO which 

would mean that only 25 percent of the 

Customer Funds held by the FCM or 

DCO may be invested in a Qualified ETF 

even though the concentration limit 

overall is 50 percent for Qualified 

ETFs.559 SIFMA AMG opined that the 

Commission should instead allow FCMs 

and DCOs to allocate based upon their 

own risk assessments of the Permitted 

Investments in which they choose to 

invest Customer Funds, subject to 

‘‘more appropriate guardrails like the 

current 10% limit.’’ 560

c. Discussion 

After consideration of the comments 

received, coupled with the 

Commission’s concerns regarding the 

safety of Customer Funds, the 

Commission has decided to adopt, with 

one exception described below, the 

proposed concentration limits as set 

forth in the Proposal. Specifically, the 

Commission is adopting a single assetbased concentration limit of 50 percent 

for all Permitted Government MMFs of 

at least $1 billion in assets and whose 

management company manages at least 

$25 billion in assets. For MMFs that 

hold less than $1 billion in assets or 

have a management company with less 

than $25 billion in assets under 

management, the Commission is 

maintaining the current 10 percent 

asset-based concentration limit.561

Regarding issuer-based concentration 

limits for Permitted Government MMFs, 

the Commission is limiting investments 

of Customer Funds in any single family 

of Permitted Government MMFs to 25 

percent, as set forth in the Proposal. 

With respect to investments of Customer 

Funds in any individual Permitted 

Government MMF, however, the 

Commission is increasing the 

permissible concentration to 10 percent 

of the total assets held in each of the 

segregated account classes of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds. This is a change from the 5 

percent that was set forth in the 

Proposal. 

For Qualified ETFs, the asset-based 

concentration limits will be the same as 

those set forth in this Final Rule for 

Permitted Government MMFs. For 

Qualified ETFs with at least $1 billion 

in assets and whose management 

company manages at least $25 billion in 

assets, the asset-based concentration 

limit will be 50 percent of total funds 

held in each of the three categories of 

Customer Funds. For Qualified ETFs 

that hold less than $1 billion in assets 

or whose management company 

manages less than $25 billion in assets 

under management, the asset-based 

concentration limit will be 10 percent. 

The issuer-based concentration limit for 

Qualified ETFs will be 25 percent for a 

single family of Qualified ETFs, which 

is unchanged from the Proposal. With 

respect to any individual Qualified ETF, 

however, consistent with the upward 

revision for Permitted Government 

MMFs, the concentration limit will be 

10 percent, rather than 5 percent as set 

forth in the Proposal. 

The new concentration limits are 

summarized below: 

Instrument Size 

Current concentration limits New concentration limits 

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

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

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

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

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

Government MMFs investing solely in 

U.S. government securities (i.e., securities issued or fully 

guaranteed by the 

U.S. government).

>$1B assets and 

management company with >25B in 

assets.

No limit ...................... No limit ...................... 50% ........................... 25% per family 10% 

per fund. 

<$1B assets or management company 

with <$25B in assets.

10% ........................... 10% (de facto limit 

based on assetbased limit).

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


lotter on DSK11XQN23PROD with RULES2
7848 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

562Proposal at 81258. 

563 Id. See also Statistical Appendix to the World 

Economic Outlook, April 2023, International 

Monetary Fund, available here: https://

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

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

564Proposed Commission regulation 

1.25(a)(1)(vii). 

565Proposed Commission regulation 1.25(f)(3). 

566See generally section IV.B.b. 

567FIA/CME Joint Letter at p. 17; BlackRock at 

pp. 2, 7. 

568 2000 Permitted Investments Amendment at 

78010. The 2000 Permitted Investments 

Amendment provided in paragraph (a)(1)(vii) of 

Commission regulation 1.25 that an FCM or DCO 

could invest in debt of a foreign sovereign subject 

to certain conditions, including that the FCM or 

DCO had balances owed to customers denominated 

in that country’s currency. 

Instrument Size 

Current concentration limits New concentration limits 

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

Government MMFs as 

defined in SEC Rule 

2a–7 (including 

MMFs whose portfolio includes U.S. 

agency obligations 

and other instruments).

>$1B assets and 

management company with >25B in 

assets.

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

per fund..

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

<$1B assets or management company 

with <$25B in assets.

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

Qualified ETFs ........... >$1B assets and 

management company with >25B in 

assets.

N/A ............................ N/A ............................ 50% ........................... 25% per family 10% 

per fund 

<$1B assets or management company 

with <$25B in assets.

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

As in the Proposal, Specified Foreign 

Sovereign Debt will be excluded from 

the concentration limits.562 This is 

consistent with the current exclusion of 

U.S. government securities from the 

asset-based and issuer-based 

concentration limits. The Commission 

reiterates that the relative strength of the 

economies and limited default risk of 

Canada, France, Germany, Japan, and 

the United Kingdom are demonstrated 

by such countries being ranked among 

the seven largest economies in the 

International Monetary Fund’s 

classification of advanced economies,563

and by the countries being members of 

the G7, which represents the world’s 

largest industrial democracies. In 

addition, the Commission has 

determined that the two-year debt 

instruments that would qualify as 

Specified Foreign Sovereign Debt have 

credit, liquidity, and volatility 

characteristics that are consistent with 

two-year U.S. Treasury securities. 

Furthermore, the new condition that 

would permit an FCM or DCO to invest 

Customer Funds in Specified Foreign 

Sovereign Debt only to the extent that 

the FCM or DCO has balances owed to 

customers denominated in the currency 

of the applicable country should limit 

the amount of Customer Funds that an 

FCM or DCO may invest in the 

Specified Foreign Sovereign debt.564

Additionally, the condition that an FCM 

or DCO must stop making direct 

investments, or engaging in reverse 

repurchase agreements, involving the 

Specified Foreign Sovereign Debt of a 

country whose credit default spread on 

two-year debt instruments exceeds 45 

BPS would further preserve the 

principal of customers’ foreign currency 

deposits held by FCMs and DCOs.565

Lastly, not imposing asset-based or 

issuer-based concentration limits on an 

FCM’s or DCO’s investments in 

Specified Foreign Sovereign Debt is 

consistent with the Commission’s 2018 

Order, which did not impose 

concentration limits on a DCO’s 

investment of futures customer funds or 

Cleared Swaps Customer Collateral in 

the sovereign debt of France or 

Germany. Accordingly, the Commission 

will not adopt asset-based and issuerbased concentration limits for 

investments in Specified Foreign 

Sovereign Debt. 

As discussed above, the Commission 

received a substantial number of 

comments with respect to the issue of 

asset-based and issuer-based 

concentration limits pertaining to the 

proposed limits for Permitted 

Government MMFs and Qualified 

ETFs.566 These include the comments 

previously discussed from FIA, CME, 

and BlackRock that advocated for no 

asset-based concentration limit for 

Permitted Government MMFs and 

Qualified ETFs, emphasizing the greater 

diversification and resiliency such 

funds provide in times of market 

stress.567

The Commission has considered these 

comments but continues to believe that 

the asset-based concentration limits set 

forth in the Proposal are an effective 

tool in ensuring that Customer Funds 

are invested in a manner that limits 

risks arising from a high concentration 

in any particular Permitted Investment 

asset class. Based on its experience 

administering its customer protection 

rules, the Commission declines to allow 

FCMs and DCOs to invest up to 100 

percent of segregated Customer Funds 

in any category of Permitted 

Government MMFs and Qualified ETFs. 

That the new Permitted Government 

MMF category is broader in scope than 

MMFs investing solely in U.S. 

government securities is particularly 

relevant here. This new Permitted 

Government MMF category is defined 

by reference to SEC Rule 2a–7 as an 

MMF that invests at least 99.5 percent 

or more of its total assets in cash, 

government securities, and/or 

Repurchase Transactions that are 

collateralized fully.568 The scope of 

underlying instruments in which a 

Permitted Government MMF would be 

allowed to invest is therefore broader 

than that of the MMFs currently 

excluded from the concentration limits 

of Commission regulation 1.25(c) (i.e., 

MMFs investing solely in U.S. 

government securities). To account for 

the potential increase in risk associated 

with such broader scope, and in the 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7849 

569Proposed Commission regulation 

1.25(c)(3)(i)(D). 

570The Commission acknowledges the possibility 

that FCMs may make greater use of MMFs going 

forward and may reconsider the asset-based 

concentration levels for such funds, as appropriate, 

if that were to occur. 

571As discussed previously, FIA and CME in 

their Joint Letter, as well as BlackRock and SIFMA 

AMG, expressed support for setting the individual 

fund concentration limit at 10 percent. By contrast, 

AIMA, Federated Hermes, ICI, and Nodal advocated 

for a 25 percent limit for any individual fund. 

572Proposal at 81257. 

573 Id. 

574 ICI at p. 9. 

575SIFMA AMG at p. 10. 

576 Id. 

577Federated Hermes at p. 2; ICI at pp. 7–8; 

SIFMA AMG at p. 11. 

interest of imposing a simple and 

consistent approach to concentration 

limits, the Commission proposed, and 

the Commission is now adopting, a 

single concentration limit of 50 percent 

for all Permitted Government MMFs of 

a certain size, without distinguishing 

between funds investing solely in U.S. 

government securities and those whose 

portfolio may also include U.S. agency 

obligations and/or other instruments 

within the limits of SEC Rule 2a–7. 

More precisely, under the Proposal, an 

FCM’s or DCO’s investment of Customer 

Funds in interests in Permitted 

Government MMFs with at least $1 

billion in assets and whose management 

company manages at least $25 billion in 

assets would be limited to no more than 

50 percent of the total Customer Funds 

computed separately for each of the 

segregated account classes of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds.569 This asset-based concentration 

limit that the Commission is adopting is 

consistent with the concentration limits 

applicable to U.S. agency obligations, 

which, along with U.S. Treasury 

securities, are a permitted underlying 

instrument for Permitted Government 

MMFs. 

The new Permitted Investment 

category of Qualified ETFs provides 

additional flexibility to FCMs and DCOs 

with respect to the investment of 

Customer Funds, as FCMs and DCOs 

could invest 50 percent in Permitted 

Government MMFs, and the other 50 

percent in Qualified ETFs under the 

Final Rule, which lessens any practical 

impact of an overall asset-based 

concentration limit of 50 percent for 

each type of fund. 

Moreover, Commission staff reviewed 

SIDR Reports filed by FCMs for the 

period between January 16, 2024 and 

June 28, 2024. The available data from 

the reports indicate that FCMs are 

investing a relatively low proportion of 

the Customer Funds they hold in MMFs 

in comparison to direct purchases of 

U.S. Government Securities, and that 

such firms’ investments in MMFs are 

sufficiently small that they are unlikely 

to rise to levels that would breach the 

asset-based concentration limits that the 

Commission is adopting in this Final 

Rule.570

With respect to issuer-based 

concentration limits for Permitted 

Government MMFs and Qualified ETFs, 

as discussed above, no commenter on 

this issue supported the proposed 5 

percent limit on any individual 

Permitted Government MMF or 

Qualified ETF. The commenters 

differed, however, as to whether the 

applicable limit for any individual 

Permitted Government MMF or 

Qualified ETF should be the 10 percent 

limit that is the existing limit for certain 

MMFs, or a higher limit of 25 percent 

that is applicable to fund families.571

In light of these comments, the 

Commission is adopting issuer-based 

concentration limits for MMFs and ETFs 

that differ from those in the Proposal. 

With respect to the issuer-based 

concentration limits on Permitted 

Government MMFs, the Commission 

proposed to limit investments of 

Customer Funds in any single family of 

Government MMFs to 25 percent, 

consistent with the existing 

requirements applicable to MMFs, but 

to reduce the existing 10 percent limit 

for investments of Customer Funds in 

any individual Government MMF, to 

just 5 percent. The Commission 

proposed the same limits for Qualified 

ETFs. In proposing stricter 

concentration limits, the Commission 

intended to facilitate the preservation of 

principal and maintenance of liquidity 

of Customer Funds through sound 

diversification standards and to mitigate 

the potential risk that a large portion of 

Customer Funds could become 

inaccessible due to cybersecurity or 

operational incidents, among other 

events.572

In light of comments received, 

however, the Commission has 

determined to raise the proposed 5 

percent individual fund concentration 

limit for both Permitted Government 

MMFs and Qualified ETFs to 10 

percent. In proposing to reduce the 

individual fund threshold to just 5 

percent, the Commission’s concerns 

with respect to the risk to principal and 

potential lack of sufficient liquidity for 

both Permitted Government MMFs and 

Qualified ETFs were illustrated by the 

2008 ‘‘breaking the buck’’ by the 

Reserve Primary Fund as described in 

the Proposal.573 But as ICI pointed out, 

this example involved a Prime MMF 

that held privately issued debt in its 

portfolio, which will no longer be a 

Permitted Investment under the Final 

Rule.574 Other commenters pointed out 

other practical challenges with regard to 

the 5 percent limit relating to the 

requirement that FCMs and DCOs 

monitor for compliance with 

concentration limits across a greater 

number of funds.575 Regarding the 

potential for cyber-attacks, the 

Commission acknowledges comments 

highlighting that both Permitted 

Government MMFs and Qualified ETFs 

are subject to comprehensive SEC 

regulatory requirements, which include 

cyber safeguards.576 After considering 

these comments, the Commission has 

determined that concentration limits of 

10 percent for any individual Permitted 

Government MMF or Qualified ETF, 

along with the adoption of the 

Proposal’s 25 percent limit for any 

signed family of Permitted Government 

MMFs or Qualified ETFs, should 

address the Commission’s concerns 

regarding risk to Customer Funds and 

cybersecurity risks. 

The concentration limits set forth in 

this Final Rule, including increasing the 

limit for any individual Permitted 

Government MMF or Qualified ETF 

from 5 percent to 10 percent (but not 25 

percent, as some commenters 

recommended as discussed above), 

should promote both the preservation of 

principal and maintenance of liquidity 

of Customer Funds through sound 

diversification standards, while 

ensuring that the limit is not set so low 

that the application of the requirement 

might not be practical. Even with the 

higher threshold of 10 percent for 

individual Permitted Government 

MMFs and Qualified ETFs, this 

restriction should mitigate the potential 

risk that FCMs and DCOs may be unable 

to access a large portion of Customer 

Funds due to cybersecurity or 

operational incidents, among other 

events. 

Although commenters generally 

criticized any issuer-based 

concentration limit for Permitted 

Government MMFs and Qualified ETFs 

as arbitrary,577 the Commission has 

chosen to maintain the existing 10 

percent limitation on any individual 

fund based on its prior experience with 

this standard. In the Commission’s 

experience, this limit has not proven to 

be a problem as it applies to current 

Permitted Investments, and this will not 

change for Permitted Government 

MMFs and Qualified ETFs. 


lotter on DSK11XQN23PROD with RULES2
7850 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

578AIMA at p. 3. FIA/CME Joint Letter at p. 18. 

579Proposal at 81259–81260. Specifically, the 

Commission stated that: (i) Commission regulation 

1.29, 17 CFR 1.29(b), provides that FCMs or DCOs, 

as applicable, bear sole responsibility for any losses 

resulting from the investment of futures customer 

funds and further provides that no investment 

losses shall be borne or otherwise allocated to FCM 

customers or to FCMs clearing customer accounts 

at DCOs; (ii) Commission regulation 22.2(e)(1), 17 

CFR 22.2(e)(1), provides that FCMs shall bear sole 

responsibility for any losses resulting from the 

investment of Cleared Swaps Customer Collateral 

and may not allocate investment losses to Cleared 

Swaps Customers of the FCM; and Commission 

regulation 30.7(i), 17 CFR 30.7(i), provides that 

FCMs shall bear sole financial responsibility for any 

losses resulting from the investment of 30.7 

customer funds, and further provides that no 

investment losses may be allocated to the 30.7 

customers of the FCM. 

580 17 CFR 1.17(c)(5)(v). Although capital charges 

do not also apply to DCOs, a DCO is required under 

Commission regulation 39.11(a)(2) to maintain 

financial resources sufficient to enable it to cover 

its operating costs for a period of at least one year, 

calculated on a rolling basis. Potential investment 

losses would be included in the DCO’s operating 

costs. 

581Commission regulation 1.17(c)(5)(v) provides 

that an FCM that invests Customer Funds in 

Permitted Investments must take a charge (or 

deduction) in the amount specified in SEC Rule 

15c3–1(c)(2)(vi) or (vii). 17 CFR 240.15c3–1(c)(2)(vi) 

and (vii). 

582SEC Rule 15c3–1 sets forth minimum capital 

requirements for broker-dealers and specifies 

standardized haircuts to be applied on the market 

value of assets held by the broker-dealer for 

purposes of calculating the minimum capital 

requirements. SEC Rule 15c3–1(c)(2)(vi) details 

market risk capital charges for securities, including 

U.S. Treasury securities, municipal securities, and 

equity securities. SEC Rule 15c3–1(c)(2)(vii) 

imposes a capital charge of 100 percent of the 

carrying value of any securities that are not readily 

marketable. 

583 17 CFR 240.15c3–1a. SEC Rule 15c3–1a 

provides standardized haircuts for equity options 

and related positions. 

584Final Commission regulation 1.25(a)(1)(vi). 

585Final Commission regulation 1.25(f)(1) and (2). 

586SEC Rule 15c3–1(c)(2)(vi)(C) provides that the 

capital charges on the sovereign debt of Canada is 

the same as the capital charges set forth in SEC Rule 

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

debt obligations fully guaranteed as to principal and 

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

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

a broker or dealer must take a 0.5 percent capital 

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

instruments that have a remaining time-to-maturity 

of between 3 months and 6 months, and no capital 

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

instruments having a remaining time-to-maturity of 

less than 3 months. 

587SEC Rule 15c3–1(c)(2)(F)(1) specifies the 

capital charges for nonconvertible debt securities 

with a fixed interest rate, fixed maturity date, and 

minimal credit risk, which includes the sovereign 

debt of France, Germany, Japan, and the United 

Kingdom. 

588 Id. 

589Proposal at 81259–81260. 

590Final Commission regulation 1.25(a)(1)(v). 

Although the foregoing discussion is 

applicable to both Permitted 

Government MMFs and Qualified ETFs, 

a few issues are of particular relevance 

to Qualified ETFs. As discussed above, 

for Qualified ETFs, the asset-based and 

issuer-based concentration limits will be 

the same as those for Permitted 

Government MMFs. In addition to 

raising similar objections to the issuerbased concentration limits for Qualified 

ETFs as for Permitted Government 

MMFs, commenters specifically noted 

that few families of ETFs offer more 

than two eligible funds, making the 

proposed 5 percent per fund 

concentration limit overly restrictive.578

The Commission recognizes that the 

small number of funds may limit the 

ability of FCMs and DCOs to fully 

utilize the Qualified ETFs allocation, 

but prior to this Final Rule, ETFs were 

not Permitted Investments at all. 

Moreover, even if there is only a small 

number of Qualified ETFs currently, 

more such ETFs may be created to meet 

the interest of FCMs and DCOs 

following the Commission’s inclusion of 

Qualified ETFs in Commission 

regulation 1.25. Even if additional 

Qualified ETFs are not created in 

response to industry demand, however, 

because there is a relatively high 50 

percent asset-based concentration limit 

on Permitted Government MMFs that 

are economically similar to Qualified 

ETFs, an FCM or DCO should have 

sufficient flexibility to invest Customer 

Funds in a combination of Permitted 

Government MMFs and Qualified ETFs 

to gain their desired exposure, provided 

the FCM or DCO determines that such 

investments are appropriate. 

C. Futures Commission Merchant 

Capital Charges on Permitted 

Investments 

The Commission discussed in the 

Proposal that Commission regulations 

1.29, 22.2(e)(1), and 30.7(i) provide that 

FCMs and DCOs, as applicable, are 

financially responsible for any losses 

resulting from the investment of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds, respectively.579 To reserve 

liquidity for potential losses resulting 

from the investments of Customer 

Funds, Commission regulation 

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

prescribed capital charges (or 

‘‘haircuts’’) on such investments in 

computing the firm’s regulatory 

capital.580 The capital charges are 

designed to address potential market 

risk associated with the FCM’s holding 

of Permitted Investments, and to ensure 

that the firm has sufficient liquid 

financial resources to cover potential 

realized and unrealized losses 

associated with the Permitted 

Investments, while also retaining 

sufficient funds in segregation to fully 

meet its financial obligation to 

customers. Commission regulation 

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

FCM must apply the prescribed capital 

charges specified in Rule 15c3–1 581

under the Securities Exchange Act 

(‘‘SEC Rule 15c3–1’’) 582 and appendix 

A to SEC Rule 15c3–1 583 to the 

Permitted Investments. 

As discussed in section IV.A.2. of this 

preamble, the Commission is amending 

the Permitted Investments under 

Commission regulation 1.25 to include 

Specified Foreign Sovereign Debt 

instruments (i.e., the sovereign debt of 

Canada, France, Germany, Japan, and 

the United Kingdom).584 Under the 

Final Rule, the total dollar-weighted 

average time-to-maturity of each of the 

portfolios of Canadian, French, German, 

Japanese, and United Kingdom debt 

may not exceed 60 calendar days, and 

the total remaining time-to-maturity for 

any individual debt instrument may not 

exceed 180 calendar days.585

Pursuant to SEC Rule 15c3–1(c)(2)(vi), 

an FCM investing Customer Funds in 

qualifying sovereign debt of Canada 

would have no capital charge for debt 

instruments with a remaining time-tomaturity of less than 3 months, and a 

capital charge of 0.5 percent of the 

market value for debt instruments with 

a remaining time-to-maturity of 3 to 6 

months.586 The capital charges for the 

sovereign debt of France, Germany, 

Japan, and the United Kingdom are 

determined under SEC rules by 

reference to nonconvertible debt 

securities with a fixed interest rate, 

fixed maturity date, and minimal credit 

risk.587 Nonconvertible debt securities 

with a remaining time-to-maturity of 

one year or less are subject to a capital 

charge of 2 percent of the market value 

of the security under SEC Rule 15c3– 

1(c)(2)(F)(1).588 The Commission, 

therefore, proposed capital charges 

consistent with the above percentages 

for FCM investments in Specified 

Foreign Sovereign Debt instruments.589

As discussed in section IV.A.3. of this 

preamble, the Commission is also 

amending the Permitted Investments 

under Commission regulation 1.25 to 

include interests in Qualified ETFs.590

Neither SEC Rule 15c3–1 nor appendix 

A to SEC Rule 15c3–1 explicitly address 

capital charges for Qualified ETFs. SEC 

Rule 15c3–1(c)(2)(vi)(D)(1) does, 

however, specify a 2 percent capital 

charge for a broker-dealer’s net position 

in redeemable securities of a Prime 

MMF or a Permitted Government MMF. 

SEC staff has also provided guidance to 

registered securities brokers or dealers 

stating that staff would not recommend 

an enforcement action to its 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7851 

591See generally SEC ETF Letter, available at the 

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

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

1.pdf. 

592 17 CFR 240.15c6–1. 

593Proposal at 81260. The Commission proposed 

to permit Qualified ETFs as a Permitted Investment 

provided the FCM or DCO transacted with the 

Qualified ETF for the purchase or sale of full 

creation or redemption units (i.e., redeemable 

securities). As the Proposal did not permit the 

investment of Customer Funds in Qualified ETFs in 

non-creation unit sizes, the Commission did not 

explicitly address the 6 percent capital requirement 

specified in the SEC ETF Letter. 

594BlackRock at pp. 2, 6–7. 

595FIA/CME Joint Letter at p. 11. 

596See generally SEC ETF Letter. 

597Proposal at 81260–81261. 

598 In the Proposal, the Commission stated that if 

the Commission eliminated bank CDs as a 

Permitted Investment in the final rulemaking, the 

Commission would also amend Commission 

regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5) to 

remove references to bank CDs from the SIDR 

Report template. Proposal at 81261 (n. 264). 

599Proposal at 81260–81261. 

600The Read-only Access Provisions are set forth 

in Commission regulation 1.20, appendix A to 

Commission regulation 1.20, and appendix A to 

Commission regulation 1.26, for futures customer 

funds; Commission regulation 22.5 for Cleared 

Swaps Customer Collateral; and Commission 

regulation 30.7 and appendices E and F to part 30 

Continued 

Commission if a broker or dealer 

applied a capital charge of 2 percent of 

the market value of a creation unit of 

ETF shares, and a capital charge of 6 

percent of the market value of ETF 

shares that do not comprise a full 

creation unit.591

The SEC staff’s guidance is applicable 

to a U.S. Treasury ETF that: (i) is an 

open-end investment company 

registered with the SEC under the 

Investment Company Act of 1940 that 

issues securities redeemable at the 

fund’s NAV; and (ii) invests solely in 

cash and government securities that are 

eligible securities under paragraph 

(a)(11) of SEC Rule 2a–7, which are 

limited to U.S. Treasury floating and 

fixed rate bills, notes, and bonds with a 

remaining term to final maturity of 12 

months or less, government money 

market funds as defined in SEC Rule 

2a–7, and/or Repurchase Transactions 

with a remaining term to final maturity 

of 12 months or less collateralized by 

U.S. Treasury securities or other 

government securities with a remaining 

term to final maturity of 12 months or 

less. The SEC staff position is subject to 

the following conditions: (i) the broker 

or dealer is not aware of any substantial 

operational problem that the U.S. 

Treasury ETF may be experiencing; (ii) 

the U.S. Treasury ETF shares can be 

redeemed by a broker or dealer through 

an authorized participant, the 

redemption of the U.S. Treasury ETF’s 

shares can be settled in exchange for a 

basket of the ETF’s underlying securities 

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

Treasury ETF has committed in its 

registration statement to permit 

shareholders, except in extraordinary 

circumstances, to settle transactions 

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

Treasury ETF’s shares are listed for 

trading on a national securities 

exchange and trades of such shares are 

settled in accordance with the standard 

cycle prescribed by SEC Rule 15c6–1 592

under the Securities Exchange Act of 

1934. Based on the SEC’s guidance 

regarding the capital charges for U.S. 

Treasury ETFs, and the Commission’s 

general incorporation of the SEC capital 

charges for Permitted Investments as set 

forth in Commission regulation 

1.25(c)(5)(v), the Commission proposed 

that FCMs investing Customer Funds in 

redeemable shares (i.e., creation units) 

of a Qualified ETF must apply a capital 

charge equal to 2 percent of the fair 

market value of the shares in computing 

the firm’s regulatory capital.593

The Commission received two 

comments on the capital charges for 

Specified Foreign Sovereign Debt and 

Qualified ETFs. BlackRock expressed 

support for the 2 percent FCM capital 

charge on the shares of Qualified ETFs 

held as Permitted Investments.594 FIA 

and CME requested that the 

Commission simplify and clarify the 

definition of a Qualified ETF to better 

align the eligibility conditions for 

Qualified ETFs with the SEC’s guidance 

on capital charges.595 The Commission 

is adopting the FCM capital charges for 

Specified Foreign Sovereign Debt and 

Qualified ETF shares held as Permitted 

Investments shares as proposed. In 

addition, in a modification from the 

Proposal, the Commission is not 

restricting FCMs and DCOs from buying 

and selling Qualified ETF shares 

through secondary market transactions, 

provided that such transactions 

otherwise comply with the 

Commission’s segregation regulations 

and liquidity requirements. Therefore, 

consistent with the capital charge 

specified in the SEC ETF Letter, the 

applicable capital charge for Qualified 

ETF shares that do not comprise a full 

creation unit is 6 percent.596 The 

Commission intends to keep these 

capital charges consistent with the SEC 

to ensure that FCMs, many of whom are 

also broker-dealers, will only have to 

comply with a single set of capital 

charges. Consistency in requirements 

between the SEC and the Commission, 

which has long been a defining 

characteristic of the Commission’s 

regulatory approach to FCM capital, 

should foster a more level playing field, 

ultimately promoting trust and integrity 

within the market. 

D. Segregation Investment Detail Report 

Commission regulations 1.32(f), 

22.2(g)(5), and 30.7(l)(5) require each 

FCM to submit a SIDR Report twice 

each month to the Commission and the 

firm’s DSRO listing the names of all 

banks, trust companies, FCMs, DCOs, 

and other depositories or custodians 

holding futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 

customer funds, respectively.597 The 

SIDR Report also identifies the amount 

of futures customer funds, Cleared 

Swaps Customer Collateral, or 30.7 

customer funds invested in each 

category of Permitted Investments: (i) 

U.S. Treasury securities; (ii) municipal 

securities; (iii) government sponsored 

enterprise securities (i.e., U.S. agency 

obligations); (iv) bank CDs; (v) 

commercial paper; (vi) corporate notes 

or bonds; and (vii) interests in MMFs. 

The Commission proposed to amend 

the content of the SIDR Report to reflect 

the proposed amendments to the list of 

Permitted Investments detailed in the 

Proposal. Specifically, the Commission 

proposed to amend the content of the 

SIDR Report by: (i) limiting the 

reporting of MMFs to Permitted 

Government MMFs; (ii) deleting the 

reporting of balances invested in 

commercial paper, corporate notes and 

bonds, and bank CDs; 598 (iii) adding the 

reporting of balances invested in the 

Specified Foreign Sovereign Debt of 

each particular foreign jurisdiction (i.e., 

individual reporting for Canada, France, 

Germany, Japan, and the United 

Kingdom); and, (iv) adding balances 

invested in Qualified ETFs.599

The Commission did not receive any 

comments on the proposed amendments 

to the SIDR Report. Therefore, the 

Commission is amending the content of 

the SIDR Report specified in 

Commission regulations 1.32(f), 

22.2(g)(5), and 30.7(l)(5) as proposed, to 

reflect the amendments to the list of 

Permitted Investments adopted in this 

Final Rule and reflected in Final 

Commission regulation 1.25(a)(1). 

E. Read-Only Electronic Access to 

Customer Funds Accounts Maintained 

by Futures Commission Merchants 

Commission regulations currently 

provide that an FCM may deposit 

Customer Funds only with depositories 

and custodians that agree to provide the 

Commission with direct, read-only 

electronic access to the Customer Fund 

accounts (‘‘Read-only Access 

Provisions’’).600 The Commission 


lotter on DSK11XQN23PROD with RULES2
7852 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

of the Commission’s regulations for 30.7 customer 

funds. 601 2013 Protections of Customer Funds Release at 

68509. 602 Id. at 68510. 603Commission regulations 1.32 (for futures 

customer funds), 22.2(g) (for Cleared Swaps 

Customer Collateral), and 30.7(l) (for 30.7 customer 

funds) require an FCM to prepare, among other 

records, a daily record as of the close of each 

business detailing the total amount of funds on 

deposit in customer segregated accounts and the 

total amount of funds owed to customers. The 

purpose of the daily record is to demonstrate the 

FCM’s compliance with its obligation to hold a 

sufficient amount of funds in segregated accounts 

to pay the full account balance of each customer. 

604 2013 Protections of Customer Funds Release at 

68537 and 68580. 605These appendices are intended to be used by 

depositories that accept Customer Funds from 

FCMs to acknowledge that the funds belong to the 

FCM customer and cannot be used to offset 

obligations of the FCM. 606 17 CFR 1.20, appendix A; 17 CFR part 30, 

appendix E. 607 17 CFR 1.26, appendix A; 17 CFR part 30, 

appendix F. 

608 2013 Protections of Customer Funds Release at 

68537 and 68592 (noting in footnote 662 that the 

Commission generally expected that it would seek 

to obtain account information from the CME and 

NFA automated daily segregation confirmation 

system and/or from depositories directly prior to 

requesting a depository to activate electronic 

access). 

609 Id. at 68512. CME Rule 971.C. provides that 

in order for an FCM clearing member’s account held 

at a depository to qualify as a segregated account 

for Customer Funds, the FCM clearing member 

must provide CME with access to account 

information, in a form and manner prescribed by 

CME, and the depository must allow the FCM 

clearing member to provide CME with access to the 

account information, in a form and manner 

prescribed by CME. NFA Financial Requirements 

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

FCM must instruct each depository, as required by 

NFA, holding segregated Customer Funds to report 

balances in the FCM’s customer segregated accounts 

to NFA or a third party designated by NFA in the 

form and manner prescribed by NFA. CME and 

NFA Rules are available at the following websites: 

https://www.cmegroup.com, and https://www.nfa.

futures.org. 

610At the time the Commission issued the 2013 

Protections of Customer Funds Release, CME and 

NFA had just recently launched their programs. 

2013 Protections of Customer Funds Release at 

68512. The verification programs have developed 

further in the years that followed. FCMs report on 

the daily segregation records total funds held in 

segregation with banks, clearing organizations, and 

net equities with other FCMs in addition to other 

balances. 

611 2013 Protections of Customer Funds Release at 

68537 (the Commission anticipated that the 

combination of receipt of daily account balances 

reported by depositories to CME and NFA and the 

Commission’s ability to confirm account balances 

and transactions directly with depositories via 

direct communications would reduce the need to 

rely upon direct electronic access to account 

information at depositories). 

612Commission regulations 1.20(d)(5) and (6), 

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

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

Commission regulation 1.20(d)(5) provides that an 

FCM must deposit futures customer funds only 

with a depository that agrees that accounts may be 

examined at any reasonable time by specified 

Commission or DSRO staff. Commission regulation 

1.20(d)(6) provides that an FCM must deposit 

futures customer funds only with a depository that 

agrees to reply promptly and directly to any request 

from specified Commission staff or DSRO staff for 

confirmation of account balances or provision of 

any other information regarding or related to the 

FCM’s account. Commission regulation 1.20(d)(5) 

and (6) further provide that the written 

acknowledgment required from the depository must 

contain the FCM’s authorization to the depository 

to reply promptly and directly to the Commission 

or DSRO without further notice to or consent from 

the FCM. Commission regulation 22.5 provides that 

an FCM must obtain a written acknowledgment 

letter in accordance with Commission regulation 

1.20 and Commission regulation 1.26 from each 

depository holding Cleared Swaps Customer 

Collateral, except an acknowledgment letter is not 

required of a DCO that has adopted rules providing 

for the segregation of Cleared Swaps Customer 

Collateral. 

adopted the Read-only Access 

Provisions in 2013 as part of its 

regulatory reforms to enhance the 

Commission’s customer protection 

regime in response to the failure of two 

FCMs that violated customer fund 

segregation statutory and regulatory 

requirements, which resulted in 

shortfalls in Customer Funds 

balances.601 Along with other regulatory 

measures, the Read-only Access 

Provisions were designed to address 

concerns regarding the efficacy of the 

Commission’s oversight program to 

monitor FCM activities, verify Customer 

Funds balances, and detect fraud.602

By adopting the Read-only Access 

Provisions, the Commission established 

a mechanism to enable Commission 

staff to review and identify 

discrepancies between an FCM’s daily 

segregation reports 603 and customer 

fund balances on deposit at various 

depositories.604 The Commission also 

adopted template acknowledgment 

letters in appendix A to Commission 

regulation 1.20 and appendix E to part 

30 of the Commission’s regulations 

requiring, among other things,605 that a 

depository acknowledge and agree, 

pursuant to authorization granted by the 

FCM, to provide the appropriate 

Commission staff with the technological 

connectivity, which may include 

provision of hardware, software, and 

related technology and protocol 

support, to facilitate direct, read-only 

electronic access to transaction and 

account balance information.606 The 

template acknowledgment letters in 

appendix A to Commission regulation 

1.26 and appendix F to part 30 contain 

similar provisions with respect to MMF 

accounts in which FCMs hold customer 

segregated funds.607

When adopting the Read-only Access 

Provisions, the Commission did not 

anticipate that staff would access FCM 

accounts on a regular basis to monitor 

account activity, but, rather, that staff 

would make use of the Read-only 

Access Provisions only to obtain 

account balances and other information 

that staff could not obtain via the CME 

and NFA automated daily segregation 

confirmation system, or otherwise 

directly from the depositories.608 The 

Commission explained that CME and 

NFA had adopted rules requiring FCMs 

to instruct each depository holding 

Customer Funds to report balances on a 

daily basis to CME or NFA, 

respectively.609

In practice, CME and NFA receive 

account information from all 

depositories holding Customer Funds 

on a daily basis pursuant to CME Rule 

971.C. and NFA Financial Requirements 

section 4. CME and NFA have 

developed programs that compare the 

daily balances reported by each of the 

depositories with balances reported by 

the FCMs in their daily segregation 

reports that are filed with CME and/or 

NFA.610 These programs generate alerts 

for discrepancies that exceed defined 

thresholds. When such alerts occur, 

CME/NFA staff conduct analysis and 

follow-up actions, which include 

engaging with an FCM to clarify or 

remedy the situation and documenting 

the outcome. 

The Commission’s experience with 

overseeing the administration of the 

CME and NFA daily segregation 

confirmation and verification processes 

for several years has demonstrated that 

the system provides adequate access to 

relevant information and is capable of 

detecting discrepancies in account 

balances in a timely manner. Moreover, 

the establishment of an efficient method 

for obtaining and verifying FCM 

balances of Customer Funds at each 

depository supports the Commission’s 

initial expectation that the direct, readonly electronic access would not be the 

Commission’s principal tool for 

obtaining account information at 

depositories.611 The Commission is 

retaining the current requirement that 

FCMs deposit Customer Funds only 

with depositories that agree that 

accounts may be examined by 

Commission or DRSO staff at any 

reasonable time, and that further agree 

to reply promptly and directly to any 

request from Commission or DSRO staff 

for confirmation of account balances or 

for provision of any other information 

regarding or related to an account, to 

ensure that staff have timely access to 

information concerning Customer Funds 

from depositories.612

The Commission has encountered 

various practical challenges in 

implementing the Read-only Access 

Provisions. Due to the number of 

depositories utilized by FCMs, as well 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7853 

613Based on information provided by CME, as of 

March 7, 2023, FCM registrants maintained over 

3,600 active accounts with approximately 200 

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

614 Depositories often require Commission staff to 

update user-IDs and passwords on a regular basis; 

otherwise, the access is interrupted and must be 

reset by the depositories. Some depositories also 

require the use of additional security devices 

beyond user-IDs and passwords, including key fobs 

or other forms of multi-factor authentication. 

615Commission staff has not had a regulatory 

need to attempt to use read-only access for any 

FCM’s depository accounts since it was 

implemented over 10 years ago. 

616Eurex at p. 3; NFA at p. 2. 

617NFA at p. 2. 

618 Id. 

619 Id. 

620 Id. 

621Eurex at p. 3. 

622 Id. 

623These amendments also apply to Commission 

regulation 22.5, which requires FCMs to obtain an 

acknowledgment letter from depositories before 

depositing Cleared Swaps Customer Collateral with 

a depository, in accordance with Commission 

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

Commission regulation 22.5(b) further requires 

FCMs to adhere to all requirements specified in 

Commission regulations 1.20 and 1.26 regarding 

retaining, permitting access to filing, or amending 

the written acknowledgment letters. 17 CFR 22.5. 

Separately, the Commission is redesignating 

appendices A and B to Commission regulation 1.20 

as appendices C and D to part 1, and appendices 

A and B to Commission regulation 1.26 as 

appendices F and G to part 1, to address a change 

in the rules of the Office of the Federal Register 

regarding the structure of regulatory text to be 

codified in the Code of Federal Regulations. 

624Proposal at 81262. 

625 17 CFR 1.55(a). The term ‘‘eligible contract 

participant’’ is defined in section 1a(18) of the CEA 

and Commission regulation 1.3. 7 U.S.C. 1a(18) and 

17 CFR 1.3. The definition covers various CFTCregulated entities meeting specified conditions, 

including swap dealers, FCMs, and commodity 

pools with over $5 million in assets under 

management, as well as various types of other 

federally-regulated financial institutions such as 

certain banks, broker-dealers, insurance companies, 

pension plans, as well as corporations and other 

forms of corporate entities with over $10 million in 

assets, and individuals with $10 million invested 

on a discretionary basis or $5 million invested on 

a hedging basis. Certain other exclusions and 

conditions apply with respect to these various types 

of designated entities and individuals. 

626 Id. 

as the total number of accounts that 

FCMs maintain with various depository 

institutions, the Commission must 

obtain and keep a current log of 

credentials, and, in some instances, 

must obtain and store physical devices 

required as part of a multi-factor 

authentication process, for thousands of 

different depository accounts.613

Frequently, Commission staff must be 

trained to navigate the various account 

access systems and work regularly with 

depositories’ technology staff to ensure 

that the systems’ security features do 

not prevent the Commission’s access to 

the accounts.614 Furthermore, due to 

lack of infrastructure, some foreign 

depository institutions are unable to 

provide direct electronic access to the 

customer segregated accounts, offering 

instead to provide end-of-day account 

statements by email. These operational 

challenges put an undue burden on the 

Commission’s resources, particularly 

considering that the Commission 

contemplated that the use of real-time 

access would be limited, and prevent 

Commission staff from using the Readonly Access Provisions as intended.615

Thus, in light of the practical challenges 

of maintaining direct read-only access to 

depository accounts and the availability 

of efficient alternative methods for 

verifying customer segregated account 

balances, the Commission proposed to 

eliminate the Read-only Access 

Provisions in Commission regulations 

1.20 and 30.7, and appendix A to 

Commission regulation 1.20, appendix 

A to Commission regulation 1.26, and 

appendices E and F to part 30 of the 

Commission’s regulations. 

The Commission received two 

comments regarding the proposed 

elimination of the Read-only Access 

Provisions.616 NFA supported the 

Commission’s Proposal, stating that 

NFA and CME, collectively, receive 

account balance information each 

business day directly from all 

depositories holding Customer Funds 

for FCMs.617 Furthermore, NFA stated 

that it and CME have programs that 

compare daily balances reported by 

depositories holding Customer Funds to 

balances reported by FCMs in their 

daily segregation schedules.618 NFA 

also stated that when there is a 

discrepancy in reported balances that 

exceed defined thresholds, alerts are 

generated and staff conduct appropriate 

analysis and prompt follow up with an 

impacted FCM to clarify and remedy the 

situation, if necessary, and document 

this work.619 In light of its program, 

NFA stated that it does not believe that 

the Commission’s Read-only Access 

Provisions provide any meaningful 

additional customer protection.620

Eurex also supported the 

Commission’s proposal to eliminate the 

Read-only Access Provisions, stating 

that it fully agrees with the Proposal’s 

rationale regarding the effectiveness of 

the CME and NFA daily segregation 

confirmation and verification 

process.621 Eurex further stated that the 

Read-only Access Provisions posed 

substantial challenges, which Eurex 

believes do not bring any corresponding 

benefits given the existing CME and 

NFA confirmation and verification 

processes.622

The Commission has considered the 

comments and is eliminating the Readonly Access Provisions as proposed for 

the reasons stated in the Proposal. 

Therefore, the Commission is 

eliminating the Read-only Access 

Provisions in Commission regulations 

1.20(d)(3) and 30.7(d)(3), and appendix 

A to Commission regulation 1.20 

(redesignated as appendix C to part 1), 

appendix A to Commission regulation 

1.26 (redesignated as appendix F to part 

1), and appendices E and F to part 30 

of the Commission’s regulations.623

Consistent with the position stated in 

the Proposal, FCMs will not need to 

obtain new acknowledgment letters for 

existing accounts at depositories 

holding Customer Funds reflecting the 

elimination of the Read-only Access 

Provisions.624 Instead, revised 

acknowledgment letters must be 

obtained only for accounts opened 

following the effective date of the rule 

amendments, or in the event that the 

FCM is required to obtain a new 

acknowledgment letter for reasons 

unrelated to the elimination of the Readonly Access Provisions after the 

effective date of the rule amendments. 

F. Revisions to the Customer Risk 

Disclosure Statement 

Commission regulation 1.55(a) 

currently requires an FCM, or an 

introducing broker (‘‘IB’’) in the case of 

an introduced account, to provide each 

customer that is not an ‘‘eligible 

contract participant’’ a written risk 

disclosure statement prior to opening 

the customer’s account (‘‘Risk 

Disclosure Statement’’).625 Commission 

regulation 1.55(a) further requires the 

FCM or IB to receive a signed and dated 

statement from the customer 

acknowledging the receipt and 

understanding of the Risk Disclosure 

Statement.626 The Commission has 

specified standardized language for the 

disclosures that are required to be 

included in the Risk Disclosure 

Statement. The disclosures address risks 

associated with transaction in cleared 

derivatives, customer segregation, and 

bankruptcy. Furthermore, Commission 

regulation 1.55(b)(6) requires the Risk 

Disclosure Statement to include the 

following disclosure: The funds you 

deposit with a futures commission 

merchant may be invested by the futures 

commission merchant in certain types 

of financial instruments that have been 

approved by the Commission for the 

purpose of such investments. Permitted 

investments are listed in Commission 

regulation 1.25 and include: U.S. 

government securities; municipal 

securities; money market mutual funds; 

and certain corporate notes and bonds. 

The futures commission merchant may 


lotter on DSK11XQN23PROD with RULES2
7854 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

627Final Commission regulation 1.55(b)(6). 

628 7 U.S.C. 6d(a)(2). 

629 7 U.S.C. 6(c). With respect to investments of 

Cleared Swaps Customer Collateral and 30.7 

customer funds, the Commission would be acting 

pursuant to its plenary authority under sections 

4d(f) and 4(b) of the Act, respectively, rather than 

section 4(c). 7 U.S.C. 6d(f)(4) (providing that 

Cleared Swaps Customer Collateral may be invested 

in certain specified investments and in any other 

investment that the Commission may by rule or 

regulation prescribe, and such investments shall be 

made in accordance with such rules and regulations 

and subject to such conditions as the Commission 

may prescribe.) and 7 U.S.C. 6(b)(2)(A) (providing 

that the Commission may adopt rules and 

regulations requiring, among other things, the 

safeguarding of customer’s funds, by any person 

located in the U.S. who engages in foreign futures 

trading). 

630 7 U.S.C. 6(c)(1). 

631House Conf. Report No. 102–978, 1992 

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

632 7 U.S.C. 6(c)(1). 

633 7 U.S.C. 6(c)(2). 

634Public Law 102–546, 106 Stat. 3590 (1992) and 

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

Conference Report also states that the reference in 

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

to ‘‘underscore [the Conferees’] expectation that the 

Commission will assess the impact of a proposed 

exemption on the maintenance of the integrity and 

soundness of markets and market participants.’’ 

635 7 U.S.C. 5(b) (providing that it is further the 

purpose of the Act to deter and prevent price 

manipulation or any other disruptions to market 

integrity; to ensure the financial integrity of all 

transactions subject to the Act and the avoidance 

of systemic risk; to protect all market participants 

from fraudulent or other abusive sales practices and 

misuses of customer assets; and to promote 

responsible innovation and fair competition among 

boards of trade, other markets and market 

participants.) 

retain the interest and other earnings 

realized from its investment of customer 

funds. You should be familiar with the 

types of financial instruments that a 

futures commission may invest 

customer funds in. 

Although certain conforming 

amendments to Commission regulation 

1.55 are necessary to reflect the changes 

to the list of Permitted Investments in 

Commission regulation 1.25, the 

Commission omitted to include a 

discussion of potential amendments to 

Commission regulation 1.55(b)(6) in the 

Proposal. The Commission is now 

adopting technical, conforming 

amendments to Commission regulation 

1.55(b)(6) to: (i) delete the reference in 

the Risk Disclosure Statement to 

investments in corporate notes and 

bonds; (ii) clarify that only certain 

MMFs may be Permitted Investments, 

and (iii) add investments in Specified 

Foreign Sovereign Debt and Qualified 

ETFs, which reflect the revised list of 

Permitted Investments that are being 

adopted under this Final Rule. As 

amended, the disclosure will state: The 

funds you deposit with a futures 

commission merchant may be invested 

by the futures commission merchant in 

certain types of financial instruments 

that have been approved by the 

Commission for the purpose of such 

investments. Permitted investments are 

listed in Commission regulation 1.25 

and include: U.S. government securities; 

municipal securities; certain money 

market funds; certain foreign sovereign 

debt, and U.S. Treasury exchange-traded 

funds. The futures commission 

merchant may retain the interest and 

other earnings realized from its 

investment of customer funds. You 

should be familiar with the types of 

financial instruments that a futures 

commission merchant may invest 

customer funds in.627

The Commission is not requiring 

FCMs and IBs to obtain 

acknowledgment of revised Risk 

Disclosure Statements from existing 

customers due to the technical 

amendment. FCMs and IBs are required 

to use the amended Risk Disclosure 

Statement for any customers onboarded 

on or after the compliance date of March 

31, 2025. The Commission is setting an 

extended compliance date to provide 

FCMs and IBs with sufficient time to 

make any necessary system changes to 

reflect the revised Risk Disclosure 

Statement, which is generally prepared 

as an electronic document. The 

extended compliance period also 

addresses the fact that the Proposal did 

not include a discussion of proposed 

conforming amendments to Commission 

regulation 1.55. 

V. Section 4(c) of the Act 

With respect to an FCM’s or DCO’s 

investment of futures customer funds, 

the amendments to Commission 

regulation 1.25 are being promulgated 

under section 4d(a)(2) of the Act.628

Section 4d(a)(2) provides that an FCM 

or DCO may invest futures customer 

funds in U.S. government securities and 

municipal securities. Section 4d(a)(2) 

further provides that such investments 

must be made in accordance with such 

rules and regulations and subject to 

such conditions as the Commission may 

prescribe. 

Pursuant to its authority under 

section 4(c) 629 of the Act, the 

Commission proposed to expand the 

range of instruments in which FCMs 

and DCOs may invest futures customer 

funds beyond those listed in section 

4d(a)(2) of the Act to enhance the yield 

available to FCMs, DCOs, and their 

customers, without compromising the 

safety of futures customer funds. 

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

Commission to ‘‘promote responsible 

economic or financial innovation and 

fair competition’’ by exempting any 

transaction or class of transactions 

(including any person or class of 

persons offering, entering into, 

rendering advice, or rendering other 

services with respect to, the agreement, 

contract, or transaction), from any of the 

provisions of the Act, subject to certain 

exceptions.630 The Commission’s 

authority under section 4(c) extends to 

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

and to FCMs and DCOs that offer, enter 

into, render advice, or render other 

services with respect to such 

transactions. In enacting section 4(c), 

Congress’ goal was to give the 

Commission a means of providing 

certainty and stability to existing and 

emerging markets so that financial 

innovation and market development can 

proceed in an effective and competitive 

manner.631 The Commission may grant 

such an exemption by rule, regulation, 

or order, after notice and opportunity 

for hearing, and may do so on 

application of any person or on its own 

initiative.632

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

that the Commission may grant 

exemptions under section 4(c)(1) only 

when it determines that the 

requirements for which an exemption is 

being provided should not be applied to 

the agreements, contracts, or 

transactions at issue; that the exemption 

is consistent with the public interest 

and the purposes of the Act; that the 

agreements, contracts, or transactions 

will be entered into solely between 

appropriate persons; and that the 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or 

self®ulatory responsibilities under 

the Act.633 When section 4(c) was 

enacted, the Conference Report 

accompanying the Futures Trading 

Practices Act of 1992 stated that the 

‘‘public interest’’ in this context would 

‘‘include the national public interests 

noted in the Act, the prevention of fraud 

and the preservation of the financial 

integrity of the markets, as well as the 

promotion of responsible economic or 

financial innovation and fair 

competition.’’ 634 The definition of 

‘‘public interest’’ in this context is 

consistent with the purposes of the Act 

as described in section 3(b) of the 

Act.635

In the Proposal, the Commission 

detailed its preliminary analysis on how 

the proposed expansion of the list of 

Permitted Investments meets the 

conditions in section 4(c)(2)(A) as they 

apply to an exemption with respect to 

an FCM or DCO. The discussion in the 

Proposal focused on how the proposed 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7855 

636Proposal at 81264. The analysis did not 

include a discussion of section 4(c)(2)(B)’s 

conditions because the exemption in this instance 

does not implicate or affect a futures agreement, 

contract, or transaction. 

637 Investor Advocacy Group Joint Letter at p. 1; 

Better Markets at p. 3. 

638Better Markets at p. 3. 

639 Id. 

640 Investor Advocacy Group Joint Letter at pp. 1– 

2. 

641Better Markets at 4. 

642 Investor Advocacy Groups Joint Letter at p. 2. 

643Consistent with the Proposal, the analysis 

does not include a discussion of section 4(c)(2)(B)’s 

conditions (i.e., that the agreement, contract, or 

transaction will be entered solely between 

‘‘appropriate persons’’ and will not have a material 

adverse effect on the ability of the Commission or 

any contract market or derivatives transaction 

execution facility to discharge its regulatory or selfregulatory duties under the Act) because the 

exemption in this instance does not implicate or 

affect a futures agreement, contract, or transaction. 644Better Markets at p. 4. 

expansion is, in the Commission’s view, 

consistent with the public interest and 

the purposes of the Act.636

The Commission solicited public 

comment on whether the Proposal 

satisfies the requirements for exemption 

under section 4(c) of the Act. 

Commenters criticizing the expansion of 

Permitted Investments to Specified 

Foreign Sovereign Debt asserted that 

this expansion could put customers at 

undue financial risk 637 and ‘‘might 

compromise the protection of customer 

funds in favor of expanding the 

financial industry’s quest for wider 

investment options.’’ 638 Better Markets 

further stated that the Commission has 

not provided an adequate public 

benefit-oriented justification for adding 

this new type of investment to 

Commission regulation 1.25.639 The 

Investor Advocacy Group also argued 

that the Commission should not 

‘‘embed’’ the goal of profits into the 

‘‘fabric’’ of its definition of the public 

interest by including potential revenue 

and profits for FCMs as a public interest 

purpose.640 Better Markets also asserted 

that higher profits ‘‘do not inherently 

guarantee reduced customer 

charges.’’ 641 Finally, the Investor 

Advocacy Group argued that the public 

interest language in the Act is not 

intended to promote the financial 

interests of the exchanges or dealers, but 

to protect the public and markets from 

fraud.642

The Commission acknowledges the 

concerns raised by commenters but after 

consideration it maintains that the 

expansion to the list of Permitted 

Investments adopted in the Final Rule is 

consistent with the conditions in 

section 4(c) of the Act as they apply to 

an exemption with respect to an FCM or 

DCO. The discussion below describes 

why the Commission has determined 

that the exemption granted and the 

expansion adopted in the Final Rule is 

consistent with the public interest and 

the purposes of the Act as required 

pursuant to section 4(c)(2)(A) of the 

Act.643 The amendments to the 

Permitted Investments adopted in this 

Final Rule should provide FCMs and 

DCOs with an opportunity to diversify 

their investments of futures customer 

funds, mitigating the risks that can arise 

from concentrating futures customer 

funds in a smaller set of Permitted 

Investments, without compromising the 

safety of such investments. To qualify as 

Permitted Investments, the instruments 

subject to this Final Rule must meet 

strict conditions to ensure that 

investments of futures customer funds 

are consistent with the objective of 

preserving principal and maintaining 

liquidity, as required by Commission 

regulation 1.25. The additional 

Permitted Investments that the 

Commission is adding to Commission 

regulation 1.25 present credit and 

volatility characteristics that are 

comparable to instruments that already 

qualify as Permitted Investments. 

The Final Rule permits FCMs and 

DCOs to invest futures customer funds 

only in the sovereign debt of Canada, 

France, Germany, Japan, and the United 

Kingdom and only to the extent that the 

FCMs’ and DCOs’ hold balances owed to 

customers denominated in the 

applicable currency. As noted in section 

IV.2.b. of this preamble, FCMs held 

collectively a U.S. dollar equivalent of 

$64 billion of Customer Funds 

denominated in CAD, EUR, JPY, and 

GBP in August 2024. The ability for 

FCMs and DCOs to invest such 

Customer Funds in the applicable 

Specified Foreign Sovereign Debt 

instruments reduces potential currency 

risk that DCOs, FCMs, and customers 

would otherwise be exposed to as a 

result of investing such foreign 

currencies in U.S.-dollar denominated 

assets. 

The Final Rule further conditions an 

FCM’s or DCO’s investment in Specified 

Foreign Sovereign Debt to mitigate 

potential credit and liquidity risk. The 

Final Rule provides that an FCM’s or 

DCO’s portfolio of investments must 

have a dollar-weighted average time-tomaturity of 60 calendar days or less, 

which will mitigate price risk and 

liquidity risk of the debt securities by 

providing an FCM with an option of 

holding the securities to maturity and 

not liquidating the securities at a loss. 

The Final Rule also mitigates credit risk 

by prohibiting an FCM or DCO from 

purchasing new debt securities if the 

two-year credit default spread of the 

applicable foreign sovereign exceeds 45 

BPS. 

In addition, permitting investments in 

Qualified ETFs, subject to the adopted 

conditions, including that the ETF is 

passively managed with the investment 

objective of replicating the performance 

of a published short-term U.S. Treasury 

security index composed of U.S. 

Treasury bonds, notes, and bills with a 

remaining maturity of 12 months or less, 

provides an opportunity for greater 

diversification of the types of 

investment options that FCMs and 

DCOs may use to manage the risk of 

holding futures customer funds. 

Qualified ETFs also provide potential 

benefits to FCMs, particularly smaller 

FCMs, that may lack the internal 

operations and resources to effectively 

manage direct investments in other 

Permitted Investments, such as U.S. 

government securities, U.S. agency 

obligations, and municipal securities. 

Both Specified Foreign Sovereign Debt 

and Qualified ETFs have the potential to 

reduce costs to FCMs, DCOs, and 

customers, while remaining consistent 

with the requirement in Commission 

regulation 1.25 for the preservation of 

principal and liquidity of Permitted 

Investments. 

Although higher profits for FCMs do 

not ‘‘guarantee’’ lower costs to 

customers,644 one can reasonably infer 

that if FCMs and DCOs obtain an 

additional source of income, they may 

be less likely to increase the cost of their 

services, even if such a result cannot be 

guaranteed. In turn, lower costs for 

customers may lead to greater market 

participation and increased market 

liquidity. 

An expanded list of Permitted 

Investments should thus increase the 

likelihood that FCMs and DCOs will 

continue as viable businesses and 

remain available for customers at a time 

when the overall number of FCMs 

continues to decrease. Without the 

ability to generate revenue and operate 

at a profit sufficient to remain a going 

concern, FCMs, which are central to a 

well-functioning commodity interest 

market, may continue to exit the 

business, which would disrupt the 

ability of farmers, financial service 

providers, and other commercial 

enterprises to effectively manage the 

commodity risk associated with their 

businesses. A smaller number of FCMs 

would also concentrate risk associated 

with Customer Funds in fewer firms, 

increasing the potential for systemic risk 

due to the potential for significant 

disruption should one of the remaining 

FCMs fail. This is particularly an issue 


lotter on DSK11XQN23PROD with RULES2
7856 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

645 5 U.S.C. 601 et seq. 

646 5 U.S.C. 553. The Administrative Procedure 

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

647See 5 U.S.C. 601(2), 603, 604, and 605. 

648See 47 FR 18618, 18619 (Apr. 30, 1982) and 

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

649 44 U.S.C. 3501 et seq. 

650See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3). 

651See 44 U.S.C. 3501. 

652See 44 U.S.C. 3502(3). 

653For the previously approved PRA estimates 

under OMB Control No. 3038–0024, see ICR 

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

in situations where an FCM is required 

to liquidate under a bankruptcy 

proceeding and port Customer Funds 

and positions to other FCMs. To 

efficiently and effectively manage such 

a process, the market needs other 

financially sound FCMs that are willing 

to receive the positions and funds of the 

customers of the failing FCM. Without 

the available capacity, customers may 

be required to liquidate positions that 

hedge cash market or other exposures. 

Therefore, promoting the continued 

participation of FCMs and DCOs in the 

market is a public benefit to customers, 

the efficient operation of the commodity 

interest markets, and the public in 

general. 

Moreover, additional investment 

options may also motivate FCMs or 

DCOs to increase their presence in the 

commodity interest markets, or 

encourage new entrants to the industry, 

thereby increasing competition, which 

could result in reduced costs to 

customers and an increase in trading 

activity and liquidity, which supports 

efficient price discovery. 

Based on the considerations discussed 

above, the Commission finds that the 

amendments to the list of Permitted 

Investments promote responsible 

economic and financial innovation and 

fair competition. By providing 

opportunities for investment 

diversification and risk management, 

promoting the continued participation 

of FCMs and DCOs in the market, and 

encouraging new entrants to the 

industry, the expansion of the list of 

Permitted Investments is consistent 

with the ‘‘public interest’’ and the 

purposes of the Act. Thus, the 

Commission has determined that the 

Final Rule meets the conditions in 

section 4(c) of the Act. 

VI. Compliance Dates 

The compliance date for the Final 

Rule is the effective date of this release, 

except for the amendments to the SIDR 

Report, which are specified in 

Commission regulations 1.32, 22.2(g)(5), 

and 30.7(l)(5), and the amendments to 

the customer Risk Disclosure Statement 

required under Commission regulation 

1.55. 

As discussed in section IV.D. of this 

preamble, the Commission is amending 

the SIDR Report required under 

Commission regulations 1.32, 22.2(g)(5), 

and 30.7(l)(5) to align with the revisions 

to the list of Permitted Investments 

adopted herein. Specifically, the 

Commission is amending the content of 

the SIDR Report by: (i) revising the 

reporting of MMFs to include balances 

invested only in Permitted Government 

MMFs; (ii) deleting the reporting of 

balances invested in commercial paper, 

corporate notes and bonds, and bank 

CDs; (iii) adding the reporting of 

balances invested in the Specified 

Foreign Sovereign Debt of each 

particular foreign jurisdiction (i.e., 

individual reporting for Canada, France, 

Germany, Japan, and the United 

Kingdom); and, (iv) adding balances 

invested in Qualified ETFs. 

In addition, as discussed in section 

IV.F. of this preamble, the Commission 

is revising the Risk Disclosure 

Statement that an FCM or IB is required 

to provide to a customer prior to the 

opening of an account. The Final Rule 

amends Commission regulation 

1.55(b)(6) by removing corporate notes 

and bonds from, and by adding 

Specified Foreign Sovereign Debt and 

Qualified ETFs to, the list of Permitted 

Investments that an FCM is authorized 

to enter into with Customer Funds. 

The Commission is setting a 

compliance date of March 31, 2025 for 

the amendments to the SIDR Report and 

Risk Disclosure Statement. The 

compliance period is intended to 

provide FCMs with an opportunity to 

make any necessary updates to their 

policies, procedures, systems, and 

practices resulting from the amendment 

to the SIDR Report. The compliance 

period will also allow the Commission, 

NFA, and CME to make necessary 

updates to the electronic filing systems 

that are currently used to receive and 

process the SIDR Reports submitted by 

FCMs. The compliance period also 

provides FCMs and IBs with time to 

update their Risk Disclosure Statements 

and to make necessary revisions to any 

electronic account opening documents 

and processes. 

VII. Administrative Compliance 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires Federal agencies to 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.645 Whenever an agency 

publishes a general notice of proposed 

rulemaking for any rule, pursuant to the 

notice-and-comment provisions of the 

Administrative Procedure Act,646 a 

regulatory flexibility analysis or 

certification typically is required.647 As 

discussed in the Proposal, the 

amendments being adopted herein affect 

FCMs and DCOs. The Commission has 

previously determined that registered 

FCMs and DCOs are not small entities 

for purposes of the RFA.648

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

Proposal will not have a significant 

economic impact on a substantial 

number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 649 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 from the 

Office of Management and Budget 

(‘‘OMB’’).650 The PRA is intended, in 

part, to minimize the paperwork burden 

created for individuals, businesses, and 

other persons as a result of the 

collection of information by Federal 

agencies, and to ensure the greatest 

possible benefit and utility of 

information created, collected, 

maintained, used, shared, and 

disseminated by or for the Federal 

Government.651 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.652

This final rulemaking amends 

regulations that contain collections of 

information for which the Commission 

has previously received control 

numbers from OMB. The titles for these 

collections of information are OMB 

Control No. 3038–0024, Regulations and 

Forms Pertaining to Financial Integrity 

of the Market Place; Margin 

Requirements for SDs/MSPs and OMB 

Control No. 3038–0091, Disclosure and 

Retention of Certain Information 

Relating to Cleared Swaps Customer 

Collateral.653


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7857 

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

nbr=202207-3038-001. For previously approved 

PRA estimated under OMB Control No. 3038–0091, 

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

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

nbr=202009-3038-007. 

654The Commission has previously estimated that 

compliance with the requirements under 

Commission regulations 1.32(f) and 1.32(g) to file 

SIDR reports requires 59 covered FCMs to expend 

2,832 burden hours annually. The Commission has 

estimated that each FCM will file 24 reports per 

year requiring approximately 48 burden hours per 

respondent. This yields a total of 2,832 burden 

hours annually (59 FCM respondents × 48 burden 

hours annually = 2,832 hours). 

655An amendment to Commission regulation 22.5 

is not necessary because Commission regulation 

22.5 cross-references Commission regulation 1.26. 

656For any Permitted Investment, other than 

investment in Permitted Government MMFs, FCMs 

and DCOs are required to obtain an 

acknowledgement letter pursuant to Commission 

regulations 1.20, 22.5, and 30.7(d). 17 CFR 1.20, 

22.5, and 30.7(d). 

657The Commission had proposed to add new 

template acknowledgment letters modeled on the 

acknowledgment letter under Commission 

regulation 1.26 for MMFs but addressing 

investments in Qualified ETFs (proposed 

appendices H and I to part 1 and proposed 

appendix G to part 30). Based on public comments 

received and communications with industry 

representatives, the Commission has concluded that 

it is not necessary to provide such new template 

acknowledgment letters. Instead, FCMs and DCOs 

will be able to follow the process for Permitted 

Investments other than Permitted Government 

MMFs and obtain an acknowledgment letter 

pursuant to Commission regulations 1.20, 22.5, and 

30.7(d), using the template under Commission 

regulation 1.20 (redesignated as appendix C to part 

1). 

658For the definition of ‘‘eligible contract 

participant,’’ see supra note 625. 

659The Commission has previously estimated that 

59 respondents will incur an annual burden of 20 

hours per statement. Supporting Statement for 

Revised Information Collections for Regulations and 

Forms Pertaining to Financial Integrity of the 

Market Place; Margin Requirements for SDs/MSPs 

(OMB Control 3038–0024) and Disclosure and 

Retention of Certain Information Relating to Cleared 

Swaps Customer Collateral (OMB Control Number 

3038–0091). 

The Commission requested public 

comment on all aspects of its burden 

analysis under the PRA in the Proposal. 

No comments were received addressing 

the PRA analysis. As further discussed 

below, however, based on public 

comments received and conversations 

with industry representatives, the 

Commission has concluded that it is not 

necessary to provide a new template 

acknowledgement letter for investments 

in Qualified ETFs. Accordingly, as 

described below, the Commission has 

concluded that the amendments 

introduced by this Final Rule do not 

contain any new collections of 

information and will not increase the 

burden associated with the information 

collections contained in the affected 

regulations. 

As discussed in section IV.D. of this 

preamble, among other reporting items, 

FCMs are required to report in the SIDR 

Reports the amount of futures customer 

funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds 

invested in each of the current 

categories of Permitted Investments. The 

Commission is amending Commission 

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

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

the SIDR Report, by: (i) deleting the 

requirement for an FCM to report the 

balances invested in commercial paper, 

corporate notes and bonds, and bank 

CDs as such investments would no 

longer be Permitted Investments under 

the Final Rule; (ii) requiring each FCM 

to report the total amount of futures 

customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds invested in Specified Foreign 

Sovereign Debt of each country that is 

included within the Specified Foreign 

Sovereign Debt; and (iii) requiring an 

FCM to include in the SIDR Report the 

total amount of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds invested in 

Qualified ETFs as such investments are 

now Permitted Investments. As such, 

the changes to the content of the SIDR 

Reports would reflect the revisions to 

the list of Permitted Investments 

discussed in section IV.A. of this 

preamble. The Commission does not 

expect these changes to result in an 

increase in the number of burden hours 

required for the completion of the 

reports. Accordingly, the Commission is 

retaining its existing burden estimates 

associated with this collection of 

information.654

In addition, the Commission is 

revising Commission regulation 1.26, 

which requires each FCM or DCO 

investing futures customer funds in 

MMFs that are Permitted Investments to 

obtain and retain in its files a written 

acknowledgment from the depository 

holding the funds stating that the 

depository was informed that the funds 

belong to customers and are being held 

in accordance with the provisions of the 

Act and Commission regulations. 

Commission regulation 1.26 also 

specifies the form of the written 

acknowledgment letter that each FCM or 

DCO must obtain from an MMF, in the 

event futures customer funds are held 

directly with the MMF. Commission 

regulations 22.5 and 30.7(d) set forth 

similar requirements with respect to 

Cleared Swaps Customer Collateral and 

30.7 customer funds. The amendments 

to Commission regulation 1.26 require 

FCMs and DCOs investing Customer 

Funds in a Permitted Government MMF 

to obtain and maintain in their files an 

acknowledgment letter from the fund in 

which Customer Funds are held and to 

file such acknowledgment letter 

electronically with the Commission. 

The Commission is adopting an 

analogous amendment to Commission 

regulation 30.7(d)(2) with respect to 

investments of 30.7 customer funds by 

FCMs.655 The revisions to Commission 

regulations 1.26 and 30.7(d) should 

reduce the number of MMFs from which 

FCMs and DCOs, as applicable, will be 

required to obtain an acknowledgment 

letter by limiting the requirement to 

Permitted Government MMFs, a smaller 

set of MMFs. The addition of Qualified 

ETFs to the list of Permitted 

Investments is not expected to create a 

new acknowledgment letter 

requirement, as Qualified ETF shares 

will be held in the customer segregated 

accounts maintained by the FCM’s or 

DCO’s custodian, from which the FCM 

or DCO had to obtain an 

acknowledgement letter pursuant to 

Commission regulations 1.20, 22.5, and 

30.7(d).656 This is consistent with the 

Commission’s understanding of current 

practices.657

As discussed in section IV.F. of this 

preamble, FCMs and IBs are required to 

provide each customer that is not an 

‘‘eligible contract participant’’ a Risk 

Disclosure Statement prior to opening 

the customer’s account.658 The 

Commission is adopting technical 

amendments to Commission regulation 

1.55(b) to account for changes in the list 

of Permitted Investments in 

Commission regulation 1.25 by: (i) 

deleting the reference in the Risk 

Disclosure Statement to investments in 

corporate notes and bonds; (ii) clarifying 

that only certain MMFs may be 

Permitted Investments, and (iii) adding 

investments in Specified Foreign 

Sovereign Debt and Qualified ETFs. The 

Commission is not requiring FCMs and 

IBs to obtain acknowledgment of revised 

Risk Disclosure Statements from 

existing customers due to the technical 

amendments. FCMs and IBs are required 

to use the amended Risk Disclosure 

Statement for any customers onboarded 

on or after the compliance date of March 

31, 2025. Accordingly, the Commission 

is retaining its existing burden estimates 

associated with this collection of 

information.659 Additionally, the 

Commission does not expect the 

technical, conforming amendments to 

result in an increase in the number of 

burden hours required for customers to 

review and acknowledge the amended 

Risk Disclosure Statement. 

Also, in connection with the revisions 

related to the elimination of the ReadVerDate Sep<11>2014 19:57 Jan 21, 2025 Jkt 265001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 E:\FR\FM\22JAR2.SGM 22JAR2

lotter on DSK11XQN23PROD with RULES2
7858 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

660The Commission has estimated that 36 

covered FCMs incur an estimated 216 burden hours 

annually to file required acknowledgment letters 

pursuant to Commission regulation 1.20(d). The 

Commission has estimated that each respondent 

will file 3 reports per year requiring an estimated 

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

hours per respondent. This yields a total of 216 

burden hours annually (36 respondents × 6 burden 

hours annually = 216 burden hours). Under 

Commission regulation 1.26, the Commission has 

estimated that 74 covered respondents incur an 

estimated 111 burden hours annually to obtain and 

maintain required acknowledgement forms (74 

respondents × 1.5 hours annually = 111 burden 

hours). Under Commission regulation 30.7, the 

Commission has estimated that 42 covered 

respondents incur an estimated 252 burden hours 

annually (42 respondents × 6 burden hours 

annually = 252 burden hours) and under 

Commission regulation 22.5, the Commission has 

estimated that 78 covered respondents incur an 

estimated 390 burden hours annually (78 

respondents × 5 burden hours annually = 390 

burden hours) to obtain and maintain the required 

acknowledgment letters. 

661 7 U.S.C. 19(a). 662 7 U.S.C. 2(i). 

only Access Provisions, an FCM will 

need to obtain the revised 

acknowledgment letter only for 

accounts opened following the effective 

date of the revisions, or if the FCM is 

required to obtain a new 

acknowledgment letter for reasons 

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

a new depository account triggers a 

requirement to obtain an 

acknowledgment letter in all 

circumstances, regardless of the 

revisions related to the elimination of 

the Read-only Access Provisions. For 

these reasons, the Commission is 

retaining its existing estimate of the 

burden that covered FCMs and DCOs 

incur to obtain, maintain, and 

electronically file the acknowledgment 

letters with the Commission, as 

currently provided in the approved 

collection of information.660

C. Cost-Benefit Considerations 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

Act.661 Section 15(a) further specifies 

that the costs and benefits shall be 

evaluated in light of the following five 

broad areas of market and public 

concern: (i) protection of market 

participants and the public; (ii) 

efficiency, competitiveness and 

financial integrity of futures markets; 

(iii) price discovery; (iv) sound risk 

management practices; and (v) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) considerations. 

As described in more detail in section 

IV.A. of this preamble, the Commission 

is revising the list of Permitted 

Investments in Commission regulation 

1.25(a) to: (i) add Specified Foreign 

Sovereign Debt and interests in 

Qualified ETFs; (ii) limit the scope of 

MMFs whose interests qualify as 

Permitted Investments to Permitted 

Government MMFs; and (iii) eliminate 

commercial paper, corporate notes or 

bonds, and bank CDs. The Commission 

is amending the Risk Disclosure 

Statement specified in Commission 

regulation 1.55 that FCMs are required 

to provide to certain customers to reflect 

the revisions to the list of Permitted 

Investments. The Commission is further 

amending the asset-based and issuerbased concentration limits for Permitted 

Investments to reflect the revisions to 

the investments that FCMs and DCOs 

may make with Customer Funds. The 

Commission is further specifying the 

capital charges that FCMs, in computing 

their regulatory capital, are required to 

take on investments of Customer Funds 

in Specified Foreign Sovereign Debt and 

Qualified ETFs. The Commission is also 

amending Commission regulation 

1.25(b)(2)(iv)(A)(1) and (2) by replacing 

LIBOR with SOFR as a permitted 

benchmark for Permitted Investments 

with an adjustable interest rate. The 

Commission is also revising relevant 

provisions in parts 1 and 30 of the 

Commission’s regulations to eliminate 

the requirement for FCMs to ensure that 

each depository that it uses to hold 

Customer Funds provides the 

Commission with read-only electronic 

access to the account. Finally, the 

Commission is adopting certain 

conforming and technical revisions to 

its regulations to reflect or incorporate 

the amendments above. 

The Commission recognizes that the 

Final Rule may impose costs. The 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

leading industry members typically 

conducting operations both within and 

outside the United States; and with 

industry members commonly following 

substantially similar business practices 

wherever located. Where the 

Commission does not specifically refer 

to matters of location, the below 

discussion of costs and benefits refers to 

the effects of the amendments on all 

activity subject to the amended 

regulations, whether by virtue of the 

activity’s physical location in the 

United States or by virtue of the 

activity’s connection with activities in, 

or its effect on, U.S. commerce under 

section 2(i) of the Act.662

The Commission has endeavored to 

assess the expected costs and benefits of 

the Final Rule in quantitative terms, 

including PRA-related costs, where 

possible. 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 rules in 

qualitative terms. The lack of data and 

information to estimate those costs is 

attributable in part to the nature of the 

Final Rule. Additionally, any initial and 

recurring compliance costs for any 

particular FCM or DCO will depend on 

its size, existing infrastructure, 

practices, and cost structure. 

To further inform the Commission’s 

consideration of the costs and benefits 

imposed by the Proposal, the 

Commission invited comments from the 

public on all aspects of its cost-benefit 

considerations, including the 

identification and assessment of any 

costs and benefits not discussed by the 

Commission; data and any other 

information to assist or otherwise 

inform the Commission’s ability to 

quantify or qualitatively describe the 

costs and benefits of the proposed 

amendments; and any other information 

to support positions posited by 

commenters with respect to the 

Commission’s discussion. The 

Commission did not receive comments 

specific to the benefits and costs of the 

Proposal. To the extent that the 

Commission received comments that 

indirectly address the costs and benefits 

of the Proposal, those comments are 

discussed below. 

The baseline for the Commission’s 

consideration of the costs and benefits 

associated with this Final Rule are the 

costs and benefits that FCMs, DCOs, and 

the public would realize if the 

Commission did not proceed with the 

proposed amendments, or in other 

words, the status quo. 

The Commission requested comment 

on any such incremental costs, 

especially by DCOs and FCMs, who may 

be better able to provide quantitative 

costs data or estimates, based on their 

respective experiences relating to 

Commissions regulations governing the 

investment of Customer Funds and 

related requirements. Commenters 

generally supported the proposed 

amendments to Commission regulation 

1.25, with two commenters opposed to 

the proposed addition of Specified 

Foreign Sovereign Debt to the list of 

Permitted Investments. The commenters 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7859 

663Final Commission regulation 1.25(a)(1)(vi). 664Final Commission regulation 1.25(a)(1)(vi)(A) 

and (B), and final Commission regulation 1.25(f). 665Commission regulation 1.25(d)(2) currently 

permits an FCM and DCO to engage in Repurchase 

Transactions involving Customer Funds with 

counterparties that are: (i) section 3(a)(6) banks; (ii) 

a domestic branch of a foreign bank insured by the 

FDIC; or (iii) a securities broker or dealer, or a 

government securities broker or government 

securities dealer that is registered with the SEC or 

that has filed a notice pursuant to section 15C(a) of 

the Government Securities Act of 1986. 

666Commission regulation 1.49(a)(1) defines 

‘‘money center country’’ as Canada, France, Italy, 

Germany, Japan, or the United Kingdom. 

667Final Commission regulation 1.25(d)(2). 

668Commission regulation 1.25(d)(7) currently 

permits an FCM or DCO to hold securities received 

under Repurchase Transactions in safekeeping 

accounts with a section 3(a)(6) bank, a domestic 

branch of a foreign bank insured by the Federal 

Deposit Insurance Corporation, a Federal Reserve 

Bank, a DCO, or the Depository Trust Company in 

account that complies with Commission regulation 

1.26. 

669Final Commission regulation 1.25(d)(7). 

670 Id. 

671Final Commission regulation 1.25(a)(1)(v). 

672Final Commission regulation 1.25(c)(1). 

673Final Commission regulation 1.25(a)(1)(v). 

674Final Commission regulation 1.25(c)(8). 

675 17 CFR 1.25(c)(5)(ii). The Commission has 

determined not to adopt the proposed revision to 

Commission regulation 1.25(c)(5)(ii), which would 

have limited the ability to provide for the 

postponement of redemption and payment due to 

any of the circumstances listed in that subsection 

to Government MMFs. 

676 Id. 

supporting the Proposal also 

recommended or requested revisions to 

several proposed amendments and 

proposed conditions specified in the 

Proposal; however, no specific costs 

were identified by these commenters 

that would affect DCOs and FCMs as a 

result of the changes. 

1. Specified Foreign Sovereign Debt, 

Interests in Qualified Exchange-Traded 

Funds, and Associated Capital Charges 

The Final Rule expands the list of 

Permitted Investments that an FCM and 

DCO may enter into with Customer 

Funds by adding Specified Foreign 

Sovereign Debt (i.e., the sovereign debt 

of Canada, France, Germany, Japan, and 

the United Kingdom).663 The Final Rule 

provides that an FCM or DCO may 

invest Customer Funds in Specified 

Foreign Sovereign Debt subject to the 

following conditions: (i) the investment 

by an FCM or DCO in the debt securities 

of Canada, France, Germany, Japan, and 

the United Kingdom is limited to 

balances owed to customers 

denominated in CAD, EUR, JPY, and 

GBP, respectively; (ii) the dollarweighted average of the remaining timeto-maturity of the portfolio of 

investments in Specified Foreign 

Sovereign Debt, computed on a countryby-country basis, may not exceed 60 

calendar days; (iii) the remaining timeto-maturity in any Specified Foreign 

Sovereign Debt security may not exceed 

180 calendar days; and (iv) the FCM or 

DCO does not make any new 

investments, and discontinues investing 

Customer Funds through Repurchase 

Transactions as soon as possible, if the 

two-year credit default spread of the 

relevant foreign sovereign exceeds 45 

BPS.664

The Final Rule also permits FCMs and 

DCOs to engage in Repurchase 

Transactions involving Specified 

Foreign Sovereign Debt with a broader 

group of counterparties than otherwise 

permitted 665 by authorizing 

transactions with: (i) a foreign bank that 

maintains in excess of $1 billion in 

regulatory capital and is located in a 

money center country 666 or in a 

jurisdiction that has adopted the 

currency in which the Specified Foreign 

Sovereign Debt is denominated as its 

currency; (ii) a securities broker or 

dealer located in a money center 

country and regulated by a national 

financial regulator (or a provincial 

financial regulator with respect to a 

Canadian securities broker or dealer), 

and (iii) the Bank of England, the 

Banque de France, the Bank of Japan, 

the Deutsche Bundesbank, or the 

European Central Bank.667

The Final Rule also expands the type 

and number of custodians that FCMs 

and DCOs may use to hold securities 

received under Repurchase 

Transactions. In addition to current 

permitted custodians,668 Final 

Commission regulation 1.25(d)(7) 

provides that an FCM or DCO may hold 

Specified Foreign Sovereign Debt 

securities received under an agreement 

to resell the securities in a safekeeping 

account at a foreign bank that maintains 

regulatory capital in excess of $1 billion 

and is located in a money center 

country.669 The Final Rule also adds the 

Bank of England, the Banque de France, 

the Bank of Japan, the Deutsche 

Bundesbank, and the European Central 

Bank as permitted custodians for 

securities received under agreements to 

resell the securities.670

The Final Rule also expands the list 

of Permitted Investments by adding 

Qualified ETFs.671 To be eligible as a 

Permitted Investment, a Qualified ETF 

must be an investment company that is 

registered under the Investment 

Company Act of 1940, and must hold 

itself out to investors as an exchangetraded fund in accordance with SEC 

Rule 270.2a–7.672 A Qualified ETF also 

must engage in an investment program 

that seeks to replicate the performance 

of a published short-term U.S. Treasury 

security index composed of bonds, 

notes, and bills with a remaining timeto-maturity of 12 months or less, issued 

by, or unconditionally guaranteed as to 

timely payment of principal and interest 

by, the U.S. Department of the 

Treasury.673 Specifically, the Qualified 

ETF must invest at least 95 percent of 

its assets in securities comprising the 

short-term U.S. Treasury index whose 

performance the fund seeks to replicate, 

and cash. In addition, the FCM or DCO 

must be able to redeem or liquidate, as 

applicable depending on whether the 

transaction is intermediated by a thirdparty authorized participant, the 

Qualified ETF interests in cash within 

one business day of a redemption 

request.674 As discussed in section 

IV.A.3. of this preamble, the 

Commission understands that an FCM 

or DCO should be able to arrange for the 

timely redemption or liquidation of 

Qualified ETF interests in cash either 

through an agreement with an 

authorized participant or by being an 

authorized participant itself with the 

necessary arrangements in place to 

convert U.S. Treasury securities into 

cash within one business day of the 

redemption request. Under the Final 

Rule, however, Qualified ETFs will be 

able to rely on Commission regulation 

1.25(c)(5)(ii), as applicable, and provide 

for the postponement of redemption and 

payment due to certain enumerated 

emergency situations.675 The 

Commission also specified the capital 

charges that an FCM is required to take 

on any investment of Customer Funds 

in Specified Foreign Sovereign Debt and 

Qualified ETFs in computing its 

regulatory capital to meet its minimum 

requirement under Commission 

regulation 1.17. Specifically, the Final 

Rule provides that there is no capital 

charge for Canadian sovereign debt 

instruments with a remaining time-tomaturity of less than 3 months, and a 

capital charge of 0.5 percent of the 

market value of Canadian sovereign debt 

instruments with a remaining time-tomaturity of 3 to 6 months. Under the 

Final Rule, the capital charge for the 

sovereign debt of France, Germany, 

Japan, and the United Kingdom is 2 

percent of the market value of the debt 

security.676 The Final Rule further 

requires an FCM to take a 2 percent 

capital charge on the market value of 

Qualified ETF shares that comprise a 

full creation or redemption unit, and a 

6 percent capital charge on Qualified 

ETF shares that do not comprise a full 

creation or redemption unit. The capital 

charges adopted herein are consistent 

with market risk capital charges 

imposed by the SEC on brokers and 


lotter on DSK11XQN23PROD with RULES2
7860 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

677SEC ETF Letter. 

678See generally section IV.C. of this preamble for 

a discussion of the capital charges on Specified 

Foreign Sovereign Debt securities and shares of 

Qualified ETFs. 

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

regulatory requirements, Article 45 of the regulatory 

technical standards on requirements for central 

counterparties (Commission Delegated Regulation 

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

supplements provisions in the EU Market 

Infrastructure Regulation (Regulation (EU) No 648/ 

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

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

CCP RTS, not less than 95 percent of cash deposited 

other than with a central bank and maintained 

overnight must be deposited through arrangements 

that ensure its collateralization with highly liquid 

financial instruments). 

dealers holding proprietary positions in 

Specified Foreign Sovereign Debt 

instruments and Qualified ETF 

shares.677 The FCM capital charges are 

intended to ensure that the firm’s 

calculation of its adjusted net capital 

reflects that the firm’s obligation to 

internalize financial losses associated 

with the investment of Customer Funds 

in Specified Foreign Sovereign Debt and 

Qualified ETFs.678

The Final Rule also imposes the same 

asset-based and issuer-based 

concentration limits to Qualified ETFs 

as it imposes on Permitted Government 

MMFs previously described in the 

preamble and further discussed below. 

A 50 percent concentration limit will 

apply to Qualified ETFs with at least $1 

billion in assets and whose management 

companies have more than $25 billion 

in assets under management. The Final 

Rule further allows for a 10 percent 

concentration limit for Qualified ETFs 

with less than $1 billion in assets or 

which have a management company 

managing less than $25 billion in assets. 

The Commission is limiting investments 

of Customer Funds in any single family 

of Qualified ETFs to 25 percent and 

investments of Customer Funds in 

interests in an individual Qualified ETF 

to 10 percent of the total assets held in 

each of the segregated account classes of 

futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer 

funds. 

a. Benefits 

Expanding the list of Permitted 

Investments to include Specified 

Foreign Sovereign Debt should benefit 

FCMs, DCOs, and market participants 

(including customers) by facilitating the 

management of risk associated with the 

acceptance of certain foreign currency 

deposits from customers to margin their 

trades, and should enable FCMs and 

DCOs to avoid certain risks and 

practical challenges in the handling of 

foreign currencies. Specifically, 

permitting FCMs and DCOs to invest 

foreign currencies deposited or owed to 

customers in identically denominated 

sovereign debt securities mitigates the 

risk that FCMs and DCOs face when 

converting foreign currencies to U.S. 

dollars to invest in Permitted 

Investments. The foreign currency risk 

arises from the FCMs’ and DCOs’ 

obligation to convert the Customer 

Funds from U.S. dollars back to the 

applicable foreign currencies when the 

margin deposits are returned to the 

customers. 

The investment of non-U.S. dollardenominated Customer Funds in 

Specified Foreign Sovereign Debt 

further benefits FCMs, DCOs, and 

market participants by providing an 

option that may assist with the 

mitigation of potential risks associated 

with FCMs and DCOs holding Customer 

Funds in unsecured deposit accounts 

with domestic or foreign commercial 

banks. If the depository or custodian 

becomes insolvent, claims related to 

uninsured cash balances are at greater 

risk of being treated as unsecured claims 

against the depository estate as 

compared to claims to specific securities 

held in custody. As a result, FCMs and 

DCOs may face less counterparty 

exposure by maintaining Customer 

Funds in the form of securities as 

opposed to cash, which would benefit 

market participants (including 

customers) by providing greater security 

to the timely, full payment of Customer 

Funds held by an insolvent depository 

or custodian. 

Also, for reasons such as capital 

requirements and balance sheet 

management, banks may not accept 

foreign currencies at all or may place 

limits on the accepted amount. Banks 

may also charge higher rates for holding 

foreign currencies. As such, FCM 

customers depositing foreign currencies 

might potentially absorb those costs. 

Permitting investments in Specified 

Foreign Sovereign Debt also benefits 

FCMs that post customer margin 

collateral with non-U.S. clearing 

organizations that impose strict cut-off 

times for cash withdrawals and more 

lenient cut-off times for non-cash 

collateral withdrawals.679 In such 

situations, FCMs have broader access to 

the deposits of Customer Funds held in 

the form of Specified Foreign Sovereign 

Debt securities than they do when such 

deposits are in the form of cash. 

Further, expanding Permitted 

Investments to include Qualified ETFs 

should also benefit FCMs, DCOs, and 

market participants. As discussed in 

section IV.A.3. of this preamble, 

Qualified ETFs are passively managed 

funds that seek to replicate the 

performance of published short-term 

U.S. Treasury security indices. 

Qualified ETFs provide FCMs and DCOs 

with the ability to invest Customer 

Funds in funds that are primarily 

comprised of U.S. Treasury securities 

and avoid the costs associated with 

direct investments, which involves 

managing interest payments and the 

maturity of securities. 

The ability to invest in Specified 

Foreign Sovereign Debt and interests in 

Qualified ETFs will provide FCMs and 

DCOs with a wider range of alternatives 

in which to invest Customer Funds. As 

a result, FCMs and DCOs will have more 

investment options, some of which may 

be more economical than the existing 

Permitted Investments, such that FCMs 

and DCOs may be able to generate 

higher returns. In addition to allowing 

FCMs and DCOs to continue as viable 

businesses, this may motivate FCMs and 

DCOs to increase their presence in the 

commodity interest markets, thereby 

increasing competition, which might 

lead to a reduction in charges to 

customers and an increase trading 

activity and liquidity. 

Expanding the list of Permitted 

Investments to instruments that meet 

the overall regulatory goals of 

preserving principal and maintaining 

liquidity, while also providing the 

potential for greater diversification or 

higher returns for FCMs, DCOs and 

customers, will give FCMs and DCOs 

more flexibility in the management of 

Customer Funds. This might be 

particularly important given the more 

limited categories of assets that 

currently qualify as Permitted 

Investments under Commission 

regulation 1.25. 

Revising the Risk Disclosure 

Statement required by Commission 

regulation 1.55 to be provided to noninstitutional or non-eligible contract 

participants customers to accurately 

reflect the types of instruments 

approved as Permitted Investments 

should benefit customers and potential 

customers. The final amendments to the 

Risk Disclosure Statement alert 

potential customers that, among other 

things, an FCM is permitted to invest 

Customer Funds in Permitted 

Investments detailed in Commission 

regulation 1.25, an FCM may retain 

earnings on such investments, and 

customers may obtain further detail 

regarding the FCM’s policies for the 

investment of Customer Funds from the 

firm if needed. 

Also, requiring an FCM to apply 

capital charges on investments of 

Customer Funds in Specified Foreign 

Sovereign Debt and Qualified ETFs 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7861 

680The terms ‘‘futures account,’’ ‘‘Cleared Swaps 

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

defined in Commission Regulations 1.3, 22.1, and 

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

CFR 30.1. 681Final Commission regulation 1.25(f). 

682Final Commission regulation 1.25(a)(1)(v). 

683Final Commission regulation 1.25(c)(8)(ii). 

684See supra note 43. 

should help to ensure that the FCM 

maintains a sufficient level of readily 

available liquid funds that could be 

transferred into the FCM’s futures 

customer accounts, Cleared Swaps 

Customer Accounts, and/or 30.7 

customer accounts to cover decreases in 

value of the investments, which would 

support the FCM’s continued 

compliance with Customer Funds 

segregation requirements.680 Requiring 

an FCM to maintain regulatory capital to 

cover potential decreases in the value of 

the Permitted Investments benefits the 

FCM by helping to ensure that the firm 

has sufficient, liquid financial resources 

to meet 100 percent of its obligations to 

futures customers, Cleared Swaps 

Customers, and 30.7 customers at all 

times as required by Commission 

regulations 1.20, 22.2, and 30.7. Capital 

charges on Permitted Investments also 

benefit FCM customers as the charges 

help ensure an FCM maintains capital 

in an amount sufficient to cover 

investment losses and to prevent such 

losses from being passed on to 

customers in violation of Commission 

regulations 1.29(b), 22.2(e)(1), and 

30.7(i). 

The Commission is also adopting new 

concentration limits for Qualified ETFs. 

The new concentration limits adopted 

by this Final Rule promote investments 

of Customer Funds in Qualified ETFs of 

different sizes subject to different 

concentration limits, leading to 

diversification in FCMs’ and DCOs’ 

portfolios, while encouraging 

investments in larger, presumably safer 

Qualified ETFs. The Commission is 

adopting different concentration limits 

depending on the size of the fund 

because larger Qualified ETFs may be 

more resilient during times of 

significant financial stress and better 

equipped to manage high levels of 

redemptions. The Final Rule’s 

concentration limits may also reduce 

the potential concentration in certain 

Qualified ETFs, in turn fostering 

competition across the funds, which 

may lead to better terms and reduced 

costs for FCMs and DCOs. 

Finally, the amendment to 

Commission regulation 22.3(d), 

clarifying that DCOs are responsible for 

losses resulting from their investments 

of Customer Funds, provides legal 

certainty with respect to the 

Commission’s customer protection 

regulations. Specifically, in situations 

where an investment made by either an 

FCM or DCO experiences a realized or 

unrealized loss in market value, the 

amended regulations make clear that the 

FCM or DCO, not the customer, is 

responsible for bearing the loss. 

b. Costs 

Although the Final Rule increases the 

range of permissible investments in 

which DCOs and FCMs may invest 

Customers Funds, facilitating their 

management of investments and capital, 

the Final Rule may result in Customer 

Funds being invested in instruments 

that may be less liquid and have 

increased exposure to credit and market 

risks than those currently permitted 

under Commission regulation 1.25. 

Such risks could result in an increased 

exposure for FCMs and DCOs, who, 

pursuant to Commission regulations 

1.29(b), 22.2(e)(1), 22.3(d), and 30.7(i), 

as applicable, are responsible for losses 

resulting from investments of Customer 

Funds. A heightened risk exposure may 

also indirectly impact customers if the 

losses compromise the FCM’s or DCO’s 

ability to return Customer Funds. 

To account for these potential risks 

and ensure that the new Permitted 

Investments are consistent with the 

general objectives of Commission 

regulation 1.25 of preserving principal 

and maintaining liquidity, the 

Commission is adopting several 

conditions for foreign sovereign debt 

and interests in U.S. Treasury ETFs to 

qualify as Permitted Investments. 

Specifically, for Specified Foreign 

Sovereign Debt, the conditions include: 

(i) investments may be made only in the 

sovereign debt of Canada, France, 

Germany, Japan, and the United 

Kingdom, which are members of the 

G7and represent the world’s largest 

industrial democracies; (ii) investments 

may only be made in the sovereign debt 

of a particular country to the extent an 

FCM or DCO holds balances owed to 

customers denominated in the currency 

of the particular country; (iii) the credit 

default spread of the two-year debt 

instruments of the relevant foreign 

sovereign jurisdiction may not exceeds 

45 BPS; (iv) the dollar-weighted average 

of the time-to-maturity of the FCM’s or 

DCO’s portfolio of investments in each 

type of Specified Foreign Sovereign 

Debt may not exceed 60 calendar days; 

and (v) the remaining time-to-maturity 

of any individual Specified Foreign 

Sovereign Debt instrument may not 

exceed 180 calendar days.681 For 

interests in Qualified ETFs to be 

deemed Permitted Investments, the 

Commission is requiring, among other 

conditions, that the ETF is passively 

managed and seeks to replicate the 

performance of a published short-term 

U.S. Treasury security index composed 

of bonds, notes, and bills with a 

remaining time-to-maturity of 12 

months or less, issued by, or 

unconditionally guaranteed as to timely 

payment of principal and interest by, 

the U.S. Department of the Treasury.682

The eligible securities and cash must 

also represent at least 95 percent of the 

Qualified ETF’s investment portfolio.683

Moreover, as discussed above, the Final 

Rule would require FCMs to take capital 

charges based on the current market 

value of the Specified Foreign Sovereign 

Debt and Qualified ETFs to address the 

potential market risk of such 

investments. The capital charges are 

intended to ensure that an FCM has 

sufficient financial resources in the form 

of cash and other readily marketable 

collateral to adequately cover potential 

market risk of the investments, 

consistent with the FCM’s obligation to 

bear any losses resulting from such 

investments. 

Requiring an FCM to apply capital 

charges in connection with the new 

categories of Permitted Investments will 

result in costs associated with reserving 

capital. The FCM may not be able to use 

funds reserved for capital to otherwise 

support its business operations, thus 

potentially making the operation of the 

FCM less economical. Capital 

requirements are nevertheless an 

essential risk-management feature of the 

FCM’s regulatory regime, and the 

amounts reserved as capital are 

necessary and expected costs associated 

with operating an FCM. 

In addition, the clarifying amendment 

to Commission regulation 22.3(d) 

should not result in increased costs for 

DCOs. The amendment expressly states 

a regulatory obligation that is consistent 

with the Commission’s original intent to 

permit DCOs to invest Cleared Swaps 

Customer Collateral within the 

parameters applicable to investments of 

futures customer funds.684 DCOs 

already reserve or otherwise take into 

consideration financial resources to 

account for their responsibility to absorb 

losses for such investments. 

Finally, as discussed earlier in this 

preamble, the Commission has retained 

its existing burden estimates associated 

with the approved collection of 

information for the reasons explained in 

section VII.B. of this preamble. FCMs 

and DCOs should not incur material 

costs relating to the collection of 

information as a result of the Final Rule. 


lotter on DSK11XQN23PROD with RULES2
7862 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

685See supra note 238 (using one-year sovereign 

debt instruments yield data to demonstrate that the 

price risk of the Specified Foreign Sovereign Debt 

instruments is comparable to that of U.S. 

government securities), section IV.A.2 (using credit 

default swap data to demonstrate that the Specified 

Foreign Sovereign Debt instruments have a risk 

profile comparable to that of U.S. government 

securities) and Proposal at 81250 (using yield data 

to demonstrate that five ETFs currently available on 

the market, which invest in short-term U.S. 

Treasury securities, are at least as stable as one-year 

U.S. Treasury securities). 

c. Section 15(a) Factors 

In addition to the discussion above, 

the Commission has evaluated the costs 

and benefits of the Final Rule pursuant 

to the five considerations identified in 

section 15(a) of the Act as follows: (1) 

protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Final Rule should 

have a beneficial effect on sound risk 

management practices and on the 

protection of market participants and 

the public. 

i. Protection of Market Participants and 

the Public 

The expansion of Permitted 

Investments to include Specified 

Foreign Sovereign Debt securities 

should enhance the protection of market 

participants and the public by providing 

FCMs and DCOs with the ability to 

manage risks associated with the receipt 

and holding of foreign currencies 

deposited as margin by customers. As 

discussed in section IV.2. of this 

preamble, FCMs hold approximately 

$64 billion of Customer Funds 

denominated in non-U.S. dollars, which 

represents approximately 12 percent of 

the total $511 billion of Customer Funds 

held by FCMs. Investing these foreign 

currencies in foreign sovereign debt 

instruments meeting specified 

conditions provides FCMs and DCOs 

with a risk management tool to mitigate 

foreign currency exchange rate 

fluctuation risk that they would 

otherwise be exposed to if the foreign 

currency deposits had to be converted to 

U.S. dollars and then invested in U.S. 

dollar-denominated Permitted 

Investments. This risk mitigation 

protects market participants and the 

public by reducing exposures that FCMs 

and DCOs would otherwise face from 

investing foreign currency in U.S. 

dollar-denominated assets, and by 

reducing risk to customers of FCMs that 

would share pro rata in any shortfall in 

Customer Funds in the event of an 

insolvency. Providing FCMs and DCOs 

with efficient risk management tools 

also protects market participants and 

the public by supporting FCMs’ and 

DCOs’ ongoing ability to continue to 

provide access to the commodity 

interest markets. 

As discussed in section IV.2. of this 

preamble, to limit the potential risks 

associated with investing in foreign 

sovereign debt, the Commission is 

adding to the list of Permitted 

Investments only certain foreign 

sovereign debt instruments that meet 

strict conditions designed to ensure the 

instruments’ liquidity. The 

Commission’s analysis indicates that 

instruments meeting the specified 

conditions present credit and volatility 

characteristics that are comparable to 

those of instruments that already qualify 

as Permitted Investments.685 Thus, the 

current level of protection provided to 

Customer Funds will be maintained 

under the terms of this Final Rule. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

As discussed in the Proposal and in 

section IV.A. of this preamble, 

expanding the list of Permitted 

Investments may provide FCMs and 

DCOs with the ability to generate 

additional income for themselves and 

their customers from their investment of 

Customer Funds. This may motivate 

FCMs or DCOs to increase their 

presence in the futures and cleared 

swaps markets increasing competition, 

which might lead to lower commission 

charges and fees for customers. The 

increase in revenue for FCMs and DCOs 

may also increase earnings to customers 

as DCOs and FCMs often pay a return 

on customer deposited funds, and FCMs 

may otherwise share some or all of the 

income with customers. 

The increased range of Permitted 

Investments should provide investment 

flexibility to FCMs and DCOs and an 

opportunity to realize cost savings. 

More specifically, by being able to 

invest in Specified Foreign Sovereign 

Debt, FCMs and DCOs may be able to 

avoid practical challenges, such as 

having to meet clearing organizations’ 

strict cut-off times for cash withdrawal, 

or the additional fees for holding foreign 

currencies, imposed by some 

institutions. In addition, investing in 

Specified Foreign Sovereign Debt could 

be a safer alternative than holding cash 

at a commercial bank. It may also help 

avoid the foreign currency risk to which 

FCMs and DCOs may be exposed absent 

the ability to invest customer foreign 

currencies in identically denominated 

assets. 

In addition, Qualified ETFs may 

provide a simpler and cost-efficient way 

of investing in U.S. Treasury securities, 

saving the resources that would 

otherwise be required to roll over such 

securities at their maturity. 

iii. Price Discovery 

The Final Rule expands upon the 

types of investments that FCMs and 

DCOs may make with Customer Funds 

by including Specified Foreign 

Sovereign Debt securities and Qualified 

ETFs. The ability of FCMs and DCOs to 

invest Customer Funds in additional 

investments may generate additional 

income for FCMs and DCOs, which may 

lead to an increased participation in the 

commodity interest markets and thus 

enhance price discovery. Specifically, 

FCMs’ main sources of revenue from 

engaging in the futures markets are 

commission income and income from 

the investment of Customer Funds. 

Therefore, an increase in income from 

the investment of Customer Funds may 

benefit market participants by indirectly 

offsetting or reducing commissions 

charged to customers. In addition, 

FCMs, pursuant to customer 

agreements, may provide customers 

with interest on their margin deposits, 

and therefore, an increase in revenue 

from the investment of Customer Funds 

may directly benefit customers via 

increased interest income on their 

deposits. DCOs also pay interest to 

FCMs on deposits held at the DCO, and 

greater interest income from such 

deposits may benefit an FCM and its 

customers. Increases in revenue may 

also encourage greater participation in 

the commodity interest markets by 

customers and by firms willing to take 

on the responsibilities of an FCM. Such 

greater participation in the commodity 

interest markets may increase liquidity 

in the market and enhance the process 

of price discovery. 

iv. Sound Risk Management 

Increasing the range of Permitted 

Investments provides FCMs and DCOs 

with a broader selection of investment 

options to invest Customer Funds, 

enabling FCMs and DCOs to have more 

diversified portfolios and reduce the 

potential concentration in a few 

instruments. Providing safe alternative 

investment options may be particularly 

beneficial for FCMs and DCOs 

considering the limited range of 

instruments that meet the eligibility 

criteria of current Commission 

regulation 1.25 and the competing 

demand for high quality forms of 

collateral driven by the regulatory 

reforms implementing the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act of 2010. 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7863 

686Separately, as discussed in section VII.C.1. of 

this preamble, the Final Rule adds Qualified ETFs 

to the list of Permitted Investments and adopts 

concentration limits for such Qualified ETFs. 

687Although commenters did not provide a 

specific reason for the lack of use of bank CDs, the 

Commission understands that few, if any, bank CDs 

meet the requirements in Commission regulation 

1.25(b)(v) that the CD is redeemable at the issuing 

bank within one business day, with any penalty for 

early withdrawal limited to any accrued interest 

earned according to its written terms. 17 CFR 

1.25(b)(v). Thus, eliminating this investment option 

also aligns with the decision to eliminate certain 

government MMFs that elect to impose liquidity 

fees to stem redemptions. 

688As discussed in section IV.B. of this preamble, 

the Commission is deleting the conjunction ‘‘and’’ 

in Commission regulation 1.25(b)(3)(i)(G), 

redesignated as Commission regulation 

1.25(b)(3)(i)(E) and revised to reflect other 

amendments adopted in this Final Rule, to clarify 

that the fund size threshold and the management 

company size threshold are to be construed as 

alternative prongs triggering the 10 percent limit. 

By making available Specified Foreign 

Sovereign Debt as a Permitted 

Investment, the Commission is 

providing FCMs and DCOs with an 

opportunity to better manage risks 

associated with holding foreign 

currencies deposited by customers. As 

noted above, investing Customer Funds 

in Specified Foreign Sovereign Debt 

provides an alternative to taking on the 

exposure of holding cash at a 

commercial bank. Also, absent the 

ability to invest Customer Funds in 

identically denominated sovereign debt 

securities, an FCM or DCO seeking to 

invest customer foreign currency 

deposits would need to convert the 

currencies to a U.S. dollar-denominated 

asset, which would increase the 

potential foreign currency risk. In 

addition, by limiting the investment of 

foreign currency to foreign sovereign 

debt that meets certain requirements, 

the Final Rule should further promote 

sound risk management. Lastly, 

requiring an FCM to reserve capital to 

cover potential decreases in the value of 

the Specified Foreign Sovereign Debt 

and Qualified ETFs helps ensure that an 

FCM has the financial resources to meet 

its regulatory obligations of bearing 100 

percent of the losses on the investment 

of Customer Funds. 

v. Other Public Interest Considerations 

Although the four factors mentioned 

above are the primary cost-benefit 

considerations, other public interest 

considerations may also be relevant. For 

instance, in addition to the potential 

benefits that may accrue to FCMs, 

DCOs, and customers, benefits 

associated with the addition of 

Qualified ETFs to the list of Permitted 

Investments may also accrue to the 

general public, in that allowing FCMs 

and DCOs to invest Customer Funds in 

such instruments may contribute to a 

more robust market for U.S. Treasury 

ETFs. In addition, the expansion of 

Permitted Investments to include 

Specified Foreign Sovereign Debt may 

ease access to futures and cleared swaps 

markets for entities domiciled in nonU.S. jurisdictions that can now more 

easily transact in foreign currency with 

potentially lower costs and risk. This 

may provide additional hedging 

opportunities for entities and enhance 

market liquidity. 

2. Government Money Market Funds, 

Commercial Paper and Corporate Notes 

or Bonds, and Certificates of Deposit 

Issued by Banks 

The Final Rule limits the scope of 

MMFs whose interests qualify as 

Permitted Investments to certain 

Government MMFs as defined by SEC 

Rule 2a–7, revises the asset-based 

concentration limits applicable to 

Government MMFs, and adds issuerbased concentration limits for such 

funds.686 The Final Rule also removes 

from the list of Permitted Investments 

commercial paper and corporate notes 

or bonds guaranteed as to principal and 

interest by the United States under the 

TLGP. Finally, bank CDs are removed 

from the list of Permitted Investments 

due to a lack of use by FCMs and 

DCOs.687

a. Benefits 

The Final Rule removes interests in 

Prime MMFs and Electing Government 

MMFs from the list of Permitted 

Investments currently set forth in 

Commission regulation 1.25. Pursuant 

to the Final Rule, FCMs and DCOs are 

permitted to invest Customer Funds in 

interests of Permitted Government 

MMFs. As discussed in section IV.A.1. 

of this preamble, interests in Prime 

MMFs and Electing Government MMFs 

should not be Permitted Investments 

under Commission regulation 1.25 

because such MMFs are subject to the 

SEC MMF Reforms, which include the 

ability of the fund to impose liquidity 

fees to stem redemptions, which could 

hinder the liquidity of the MMFs and 

adversely impact customers’ access to 

their funds, which may be needed to 

meet margin calls on open positions or 

cash market transactions. The Final 

Rule, therefore, prevents investments of 

Customer Funds in MMFs that may pose 

unacceptable levels of liquidity risk. 

The Final Rule imposes asset-based 

concentration limits corresponding to 

the size of the Permitted Government 

MMFs and their management 

companies. A 50 percent concentration 

limit will apply to Government MMFs 

with at least $1 billion in assets and 

whose management companies have 

more than $25 billion in assets under 

management. The Final Rule retains the 

current 10 percent concentration limit 

for MMFs with less than $1 billion in 

assets or which have a management 

company managing less than $25 billion 

in assets.688 These concentration limits 

recognize that larger Government MMFs 

may be more resilient during times of 

significant financial stress and better 

equipped to manage high levels of 

redemptions. As such, these 

concentration limits should help to 

ensure that FCMs’ and DCOs’ 

investments in Permitted Government 

MMFs account for the level of liquidity, 

market, and credit risk posed by a fund 

in light of its capital base, portfolio 

holdings, and capacity to handle market 

stress. 

The new concentration limits adopted 

by this Final Rule promote investments 

of Customer Funds in Permitted 

Government MMFs of different sizes 

subject to different concentration limits, 

leading to diversification in FCMs’ and 

DCOs’ portfolios, while encouraging 

investments in larger, presumably safer 

Government MMFs. The Final Rule’s 

concentration limits may also reduce 

the potential concentration in certain 

Permitted Government MMFs, in turn 

fostering competition across the funds, 

which may lead to better terms and 

reduced costs for FCMs and DCOs. In 

addition, the Commission is adopting 

issuer-based limits with the goal of 

mitigating potential risks associated 

with concentrating investments of 

Customer Funds in any single fund or 

family of Government MMFs such as the 

risk that access to Customer Funds may 

become restricted due to a cybersecurity 

or other operational incident affecting 

the fund. Specifically, the Commission 

is limiting investments of Customer 

Funds in any single family of 

Government MMFs to 25 percent and 

investments of Customer Funds in 

interests in an individual Government 

MMF to 10 percent of the total assets 

held in each of the segregated account 

classes of futures customer funds, 

Cleared Swaps Customer Collateral, and 

30.7 customer funds. There are no 

precise concentration limits that can 

guarantee absolute protection against 

market volatility. The Commission’s 

assessment is, however, that these limits 

represent a practical approach that takes 

the need to support the viability of 

FCMs’ and DCOs’ business model into 

account, while safeguarding the 

principal and liquidity of the Customer 

Funds. 


lotter on DSK11XQN23PROD with RULES2
7864 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

689 2010 Proposed Permitted Investments 

Amendment at 67644. 690 ICE at p. 4; FIA/CME Joint Letter at pp. 20; 

Nodal at pp. 3–4. In addition to the Commission’s 

general experience in overseeing DCOs and FCMs, 

Commission staff also reviewed how FCMs invested 

customer funds as reported in the SIDR Report for 

the period September 15, 2022 to February 15, 2023 

and observed that no FCMs reported investing 

customer funds in bank CDs. 691See 17 CFR 1.25(b)(1). 

692SEC 2023 MMF Reforms at 51417 (investors 

typically view government MMFs, in contrast to 

Prime MMFs, as a relatively safe investment during 

times of market turmoil). See also Money Market 

Fund Reforms, 87 FR 7248 (Feb. 8, 2022) (‘‘SEC 

2023 MMF Reforms Proposing Release’’) at 7250. 

During the 2008 financial crisis there was a run 

primarily on institutional Prime MMFs after an 

MMF ‘‘broke the buck’’ and suspended 

redemptions, which motivated many fund sponsors 

to step in and provide financial support to their 

funds. The events led to general turbulence in the 

financial markets and contributed to severe 

dislocations in short-term credit markets. Id. 

The Final Rule also revises the list of 

Permitted Investments in Commission 

regulation 1.25 to remove commercial 

paper and corporate notes or bonds 

guaranteed under the TLGP, to reflect 

that the TLGP expired in 2012 and, 

therefore, FCMs and DCOs have not 

been permitted to invest in such 

instruments since 2012. This 

amendment streamlines the 

Commission’s rules, facilitating their 

implementation and administration, and 

is consistent with the Commission’s 

earlier determination that commercial 

paper and corporate notes or bonds are 

rarely used and pose unacceptable 

levels of credit, liquidity, and market 

risk.689

The Final Rule also removes bank CDs 

from the list of Permitted Investments. 

The Commission’s experience 

administering Commission regulation 

1.25 indicates that FCMs and DCOs 

have not invested Customer Funds in 

bank CDs. The Commission requested 

comment on the proposed elimination 

of bank CDs from the list of Permitted 

Investments. One commenter generally 

opposed the removal of bank CDs from 

the list of Permitted Investments, stating 

that the removal ‘‘would not be 

beneficial,’’ but other commenters 

supported the removal, including the 

FIA which stated that its member FCMs 

did not foresee investing Customer 

Funds in bank CDs.690 The Commission 

is removing bank CDs from the list of 

Permitted Investments in the Final Rule. 

Similar to the removal of commercial 

paper and corporate notes and bonds, 

the amendment will streamline the 

Commission’s regulations and avoid 

potential confusion regarding the 

eligibility of bank CDs as Permitted 

Investments. 

b. Costs 

This Final Rule limits the scope of 

MMFs whose interests qualify as 

Permitted Investments to Permitted 

Government MMFs and could lead to 

less diversification in the investment of 

Customer Funds by FCMs and DCOs. 

FCMs’ and DCOs’ portfolios may be 

concentrated in the Permitted 

Government MMFs, increasing exposure 

to risks associated with the funds, 

which might heighten the risk of loss of 

Customer Funds. Also, because fewer 

MMFs would be available as Permitted 

Investments, FCMs and DCOs might 

have less flexibility in investing 

Customer Funds. FCMs and DCOs might 

thus generate lower returns and could 

pass on additional operational costs to 

customers by increasing their fees. 

The potential risk of concentration of 

investments in Permitted Government 

MMFs is nonetheless mitigated by the 

asset-based and issuer-based 

concentration limits, which are 

designed to promote diversification 

among different categories of Permitted 

Investments and among different 

individual Permitted Government 

MMFs. Additionally, the potential risk 

of concentration of investments is 

mitigated by the addition of Qualified 

ETFs to the list of Permitted 

Investments, a viable alternative to 

Permitted Government MMFs allowing 

FCMs and DCOs to diversify their 

investment holdings. 

To meet the concentration limits 

adopted herein, FCMs and DCOs may be 

required to liquidate Government MMFs 

held in their portfolios and might incur 

losses. The risk of loss is likely to be 

mitigated because the Government 

MMFs permitted under Staff Letter 16– 

68 and Staff Letter 16–69 are 

presumably highly liquid.691

The elimination of commercial paper 

and corporate notes or bonds guaranteed 

under the TLGP does not result in any 

costs as the instruments have not been 

available as Permitted Investments since 

2012 when the TLGP expired. Similarly, 

removing bank CDs does not result in an 

immediate potential cost because, in the 

Commission’s experience, FCMs and 

DCOs do not currently invest Customer 

Funds in this type of instrument. 

Eliminating this investment option, 

however, may lead to potential longterm costs should this option become 

more economical for FCMs and DCOs. 

c. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of this Final Rule pursuant to 

the five considerations identified in 

section 15(a) of the Act as follows: 

i. Protection of Market Participants and 

the Public 

The Final Rule removes interests in 

MMFs whose redemptions may be 

subject to liquidity fees, including 

Prime MMFs and Electing Government 

MMFs, from the list of Permitted 

Investments. The imposition of a 

liquidity fee conflicts with provisions in 

Commission regulation 1.25 that are 

designed to reduce Customer Funds’ 

exposure to liquidity risk and to 

preserve the principal of investments 

purchased with Customer Funds. As a 

result, by preventing investments in 

instruments that pose unacceptable 

levels of liquidity risk, the Final Rule 

provides greater protection to Customer 

Funds and promotes the efficient and 

safe investment of Customer Funds by 

FCMs and DCOs. 

The Final Rule also limits the scope 

of MMFs whose interests qualify as 

Permitted Investments to Government 

MMFs as defined by SEC Rule 2a–7. 

These types of funds are less susceptible 

to runs and have seen inflows during 

periods of market instability.692 Thus, 

limiting the scope of eligible MMFs to 

Government MMFs should reduce the 

possibility that funds in which 

Customer Funds are invested may be 

adversely affected by run risk and other 

associated risks. However, because there 

will be fewer MMFs that will qualify as 

Permitted Investments under the Final 

Rule, FCMs’ and DCOs’ investments 

may be concentrated in fewer MMFs 

and the investments may be more 

susceptible to concentration risk. 

The asset-based concentration limits 

for Government MMFs and Qualified 

ETFs assign limits according to the size 

of the funds, with larger funds being 

subject to a 50 percent limit and smaller 

funds to a 10 percent limit. These limits 

reflect that larger funds have capital 

bases better capable of handling a high 

volume of redemptions in times of 

stress. Accordingly, the concentration 

limits promote investments in larger 

funds, which by virtue of their size tend 

to be more resilient, while providing for 

diversification by permitting 

investments in smaller Government 

MMFs and Qualified ETFs subject to 

concentration limits intended to ensure 

the safety of Customer Funds. In 

addition, the issuer-based concentration 

limits promote diversification among 

different individual Government MMFs 

and Qualified ETFs, thus mitigating the 

potential risks associated with 

concentrating investments of Customer 

Funds with a single fund or family of 

funds. 

The implementation of these newly 

adopted concentration limits may 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7865 

693Staff Letter 21–26 at p. 1. 

694 17 CFR 1.25(b)(2)(iv)(A). 

695See Staff Letter 21–26 at p. 3. 

require FCMs and DCOs to liquidate 

their fund holdings, which could lead to 

losses. The potential for losses would be 

mitigated because since the issuance of 

Staff Letter 16–68 and Staff Letter 16– 

69 in 2016, FCMs and DCOs have been 

allowed to invest only in Government 

MMFs meeting the liquidity standards 

of Commission regulation 1.25. 

By removing commercial paper and 

corporate notes or bonds guaranteed 

under the TLGP from the list of 

Permitted Investments under 

Commission regulation 1.25, the Final 

Rule eliminates instruments that are no 

longer available as a result of the 

expiration of the TLGP in 2012. Deleting 

these investments from the list 

streamlines the Commission’s rules and 

removes a potential source of confusion 

for the public and market participants. 

Because they are no longer Permitted 

Investments, maintaining these 

instruments in the list of Permitted 

Investments could cause 

misunderstanding among the public and 

market participants about the eligibility 

of these instruments as permissible 

investments of Customer Funds. By 

removing bank CDs, a type of 

instrument that is not used by FCMs 

and DCOs as an investment instrument, 

the Commission is also contributing to 

the ongoing effort to streamline the 

Commission’s regulations and reduce 

the possibility of confusion. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By eliminating interests in Prime 

MMFs and Electing Government MMFs 

from the list of Permitted Investments, 

the Final Rule prevents investments of 

Customer Funds in instruments that 

may be less liquid due to the SEC MMF 

Reforms. The changes imposed by the 

SEC MMF Reforms may not allow FCMs 

and DCOs to redeem interests in Prime 

MMFs and Electing Government MMFs 

without a material discount in value. 

The exclusion of these types of 

investments will improve efficiency in 

the markets, especially at times of stress 

when liquidity fees may be imposed, 

and ensure that Permitted Investments 

are always consistent with Commission 

regulation 1.25’s objectives of 

preserving principal and maintaining 

liquidity. 

As discussed above, the deletion of 

commercial paper and corporate notes 

or bonds guaranteed under the TLGP 

and bank CDs from the list of Permitted 

Investments removes investment 

instruments that are either no longer 

available or not used as an investment 

of Customer Funds, streamlining the 

Commission’s regulations and 

contributing to their efficient 

implementation by market participants. 

iii. Price Discovery 

The Final Rule, by reducing the range 

of products that qualify as Permitted 

Investments, results in fewer investment 

options available to FCMs and DCOs. 

This could cause FCMs and DCOs to 

generate less income from their 

investment of Customer Funds and pass 

the costs of operations onto customers 

by increasing commissions and other 

fees. Facing increased costs, customers 

may reduce trading, thereby reducing 

liquidity, which may hinder price 

discovery. 

The elimination of commercial paper 

and corporate notes or bonds guaranteed 

under the TLGP and bank CDs as 

Permitted Investments will not have an 

impact of this factor, because FCMs and 

DCOs have not invested Customer 

Funds in these instruments for several 

years. 

iv. Sound Risk Management 

By deleting interests in Prime MMFs 

and Electing Government MMFs from 

the list of Permitted Investments, the 

Final Rule prohibits investment of 

Customers Funds in such MMFs, which 

should reduce liquidity risk in light of 

the SEC MMF Reforms, thus promoting 

sound risk management. Also, the 

concentration limits that will apply to 

the Permitted Government MMFs and 

Qualified ETFs should foster 

diversification in FCMs’ and DCOs’ 

portfolios by encouraging investments 

of Customer Funds in larger funds that 

the Commission anticipates would have 

the capacity to withstand significant 

market stress and increasing 

redemptions, while making available 

smaller funds subject to specified 

concentration limits. 

The elimination of commercial paper 

and corporate notes or bonds guaranteed 

under the TLGP and bank CDs as 

Permitted Investments will not have an 

impact of this factor. 

v. Other Public Interest Considerations 

The relevant cost-benefit 

considerations are captured in the four 

factors above. 

3. SOFR as a Permitted Benchmark 

In March 2021, the U.K. FCA 

announced that LIBOR would be 

effectively discontinued.693 As a result 

of the transition from LIBOR to SOFR, 

the Commission is replacing LIBOR 

with SOFR as a permitted benchmark 

for variable and floating rate securities 

that qualify as Permitted Investments 

under Commission regulation 1.25. 

Under the terms of the Final Rule, 

adjustable rate securities would qualify 

as a Permitted Investment if, among 

other conditions, they reference a SOFR 

Rate published by the FRBNY or a CME 

Term SOFR Rate published by the CME 

Group Benchmark Administration 

Limited. 

a. Benefits 

Currently under Commission 

regulation 1.25(b)(2)(iv)(A), Permitted 

Investments may have a variable or 

floating rate of interest, provided that 

the interest rate correlates to specified 

benchmarks, including LIBOR.694 As 

discussed in section IV.A.5. of this 

preamble, a number of enforcement 

actions concerning attempts to 

manipulate the LIBOR benchmark led to 

a loss of confidence in the reliability 

and robustness of LIBOR and to the 

benchmark’s discontinuation. The 

Commission therefore is amending 

Commission regulation 1.25 to remove 

LIBOR as a permitted benchmark and to 

replace it with SOFR. Accordingly, the 

replacement of LIBOR with SOFR, 

which has been identified as a preferred 

benchmark alternative by the ARRC,695

should help to ensure that Customer 

Funds invested in Permitted 

Investments with adjustable rates of 

interest reference a reliable and robust 

benchmark providing greater protection 

to Customer Funds. 

b. Costs 

Given the widespread use of LIBOR as 

a benchmark, FCMs and DCOs that 

invest Customer Funds in Permitted 

Investments with variable and fixed rate 

securities might incur costs associated 

with the transition to SOFR. To the 

extent that FCMs and DCOs already 

invest in Permitted Investments with 

variable and fixed rate securities 

benchmarked to LIBOR, they would 

need to amend the terms of their 

agreements to incorporate the new 

benchmark. If they have not done so 

already, FCMs and DCOs may also need 

to adjust their systems and processes to 

implement and recognize SOFR as a 

benchmark. 

c. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Final Rule pursuant to 

the five considerations identified in 

section 15(a) of the Act as follows: 


lotter on DSK11XQN23PROD with RULES2
7866 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

696The replacement of LIBOR as a benchmark for 

Permitted Investments represents another step in 

the Commission’s efforts to facilitate the transition 

away from LIBOR, as illustrated by a recent 

amendment to the clearing requirements. See 

generally Clearing Requirement Determination 

Under Section 2(h) of the Commodity Exchange Act 

for Interest Rate Swaps to Account for the 

Transition from LIBOR and Other IBORs to 

Alternative Reference Rates, 87 FR 52182 (Aug. 24, 

2022) (replacing the requirement to clear interest 

rate swaps referencing LIBOR and certain other 

interbank offered rates with the requirement to clear 

interest rate swaps referencing overnight, nearly 

risk-free reference rates). 

697The relevant provisions appear in Commission 

regulation 1.20, appendix A to Commission 

regulation 1.20, appendix A to Commission 

regulation 1.26, Commission regulation 30.7 and 

appendices E and F to part 30 of CFTC’s 

regulations. The amendments also extend to 

Commission regulation 22.5, which requires FCMs 

and DCOs, before depositing Cleared Swaps 

Customer Collateral with a depository, to obtain an 

acknowledgment letter from each depository in 

accordance with Commission regulations 1.20 and 

1.26. 17 CFR 22.5(a). Commission regulation 22.5 

further requires FCMs and DCOs to adhere to all 

requirements specified in Commission regulation 

1.20 and 1.26 regarding retaining, permitting access 

to filing, or amending the written acknowledgment 

letters. 17 CFR 22.5(a). 

i. Protection of Market Participants and 

the Public 

LIBOR is no longer a reliable and 

robust benchmark. By eliminating 

LIBOR as a permitted benchmark, the 

Final Rule prevents investments of 

Customer Funds in securities 

referencing an unreliable benchmark 

and promotes the use of a safer, more 

accurate benchmark alternative. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By codifying the use of SOFR as a 

permitted benchmark for Permitted 

Investments in which Customer Funds 

may be invested, the Final Rule 

conforms to current market 

developments, facilitates the transition 

to SOFR and reflects the phasing out of 

LIBOR, which is no longer published 

and deemed unreliable, removing a 

potential source of risk to the financial 

system.696

In addition, SOFR is now an essential 

benchmark that helps to ensure the 

stability and integrity of financial 

markets. Thus, codifying SOFR as a 

permitted benchmark for permitted 

investments may enhance the financial 

integrity of markets. 

iii. Price Discovery 

The replacement of LIBOR with SOFR 

as a permitted benchmark may have a 

positive impact on price discovery. By 

replacing an obsolete benchmark, 

LIBOR, with the now widely accepted 

benchmark, SOFR, FCMs and DCOs 

should have a greater opportunity to 

invest in variable or floating rate 

instruments that reference SOFR. The 

opportunity to invest in instruments 

referencing SOFR may encourage greater 

participation in the commodity interest 

markets, thereby increasing liquidity in 

the markets and enhancing the process 

of price discovery. 

iv. Sound Risk Management 

By eliminating LIBOR as a permitted 

benchmark and replacing it with SOFR, 

the Final Rule ensures that to the extent 

FCMs and DCOs select variable and 

floating rate securities as Permitted 

Investments to invest Customer Funds, 

these instruments reference benchmarks 

that are, in the Commission’s view, 

sound and reliable, thus fostering sound 

risk management. 

v. Other Public Interest Considerations 

The relevant cost-benefit 

considerations are captured in the four 

factors above. 

4. Revision of the Read-Only Access 

Provisions 

The Final Rule eliminates the Readonly Access Provisions in parts 1 and 30 

of the Commission’s regulations,697

which currently require FCMs to ensure 

that depositories holding Customer 

Funds provide the Commission with 

direct, read-only electronic access to 

such accounts. 

a. Benefits 

Eliminating the Read-only Access 

Provisions streamlines the CFTC rules, 

facilitating their implementation and 

administration, and is consistent with 

the Commission’s expectation that the 

existence of alternative methods for 

obtaining and verifying account balance 

information will diminish the need to 

rely on the direct read-only access to 

accounts. By relying on CME’s and 

NFA’s daily segregation confirmation 

and verification process, the 

Commission can allocate resources to 

more immediate regulatory concerns 

within its jurisdictional purview. As 

discussed in section IV.E. of this 

preamble, the Commission has 

encountered numerous practical 

challenges in the administration of 

direct access to depository accounts. 

These challenges unduly burden the 

Commission’s resources, particularly 

when one considers that the 

Commission contemplated that the use 

of real-time access would be limited. 

That is, the practical challenges prevent 

Commission staff from using the Readonly Access Provisions as intended. 

In addition, eliminating the 

requirement to provide the Commission 

with direct, read-only access to accounts 

maintained by FCMs, reduces costs for 

depositories, which may motivate these 

institutions to more readily take FCM 

Customer Funds on deposit, thereby 

lowering the bar to entry for new FCMs. 

The Final Rule may thus foster 

competition in the futures market and 

ultimately reduce costs for FCMs and 

their customers. 

Furthermore, the deletion of the Readonly Access Provisions eliminates the 

need for the Commission to keep a log 

of access credentials and physical 

authentication devices, thereby 

reducing the potential cybersecurity risk 

associated with the maintenance of such 

credentials and devices. 

b. Costs 

Withdrawing the requirement that 

depositories provide the Commission 

with direct, read-only electronic access 

to depository accounts holding 

Customer Funds deprives the 

Commission from ongoing, 

instantaneous access to the accounts for 

purposes of identifying potential 

discrepancies between the account 

balance information reported by the 

FCMs and the account balance 

information available directly from the 

depositories. 

More efficient means for identifying 

discrepancies in the account balance 

information exist: obtaining account 

balance and transaction information 

through CME’s and NFA’s automated 

daily segregation confirmation system or 

by requesting the information directly 

from the depositories. 

c. Section 15(a) Considerations 

In light of the foregoing, the 

Commission has evaluated the costs and 

benefits of the Final Rule pursuant to 

the five considerations identified in 

section 15(a) of the Act as follows: 

i. Protection of Market Participants and 

the Public 

The Final Rule removes the 

requirement to provide the Commission 

with direct, read-only access to 

depository accounts. This change 

eliminates the potential cybersecurity 

risk associated with the maintenance of 

access credentials and authentication 

devices, thus limiting risk for market 

participants and the public. 

CME’s and NFA’s automated daily 

segregation confirmation system 

provides an efficient and effective 

method for verifying customer account 

balances, which, in conjunction with 

the Commission’s right to request 

information from the depositories, 

protects market participants and the 

public. 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7867 

698 7 U.S.C. 19(b). 

699Proposal at 81273. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

By eliminating the Read-only Access 

Provisions, the Commission has 

dispensed with a method for verifying 

account balance information that 

imposes technological challenges in its 

implementation and administration, 

permitting Commission staff to direct its 

efforts to more effective alternative 

means for verifying the information. 

In addition, depositories holding 

Customer Funds will no longer have to 

provide and continuously update the 

login information necessary for 

Commission staff’s access to the 

accounts or to train Commission staff on 

how to access their systems. This will 

reduce the burden on depository service 

providers and make the Commission’s 

surveillance of accounts more efficient. 

Streamlining these processes may 

motivate depositories to more readily 

hold FCM Customer Funds, potentially 

fostering competition with respect to 

depository services provided to FCMs 

and ultimately reducing costs for such 

FCMs. 

iii. Price Discovery 

The Final Rule, by eliminating the 

requirement for depositories to provide 

the Commission with read-only access 

to accounts maintained by FCMs, may 

reduce operational costs for 

depositories, which may ultimately lead 

to cost reductions that benefit both 

depositories and FCMs. The FCMs may, 

in turn, pass those benefits to customers 

via reduced charges. 

iv. Sound Risk Management 

As previously noted, CME and NFA 

have developed a sophisticated 

system—the automated daily 

segregation confirmation system— 

which provides DSROs and the 

Commission with an efficient tool for 

detection of potential discrepancies 

between FCMs’ daily segregation 

statements and the balances reported by 

the various depositories holding 

Customer Funds. Although the 

Commission is eliminating the Readonly Access Provisions, the Commission 

will continue to rely on CME’s and 

NFA’s automated system for oversight 

purposes. Thus, the amendment should 

not be detrimental to sound risk 

management practices. 

Furthermore, as noted above, the 

deletion of the Read-only Access 

Provisions eliminates a potential 

cybersecurity risk associated with the 

maintenance by the Commission of 

periodically updated access credentials 

and physical authentication devices, 

thus promoting sound risk management. 

v. Other Public Interest Considerations 

The relevant cost-benefit 

considerations are captured in the four 

factors above. 

The Commission requested public 

comment on its cost-benefit 

considerations, including the section 

15(a) factors described above. The 

Commission received no specific 

comments on this part of the Proposal 

in response to this request. 

D. Antitrust Considerations 

Section 15(b) of the Act requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the Act, in 

issuing any order or adopting any 

Commission rule or regulation 

(including any exemption under section 

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

approving any bylaw, rule or regulation 

of a contract market or registered futures 

association established pursuant to 

section 17 of the Act.698

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. In the Proposal, the 

Commission requested comment on 

whether: (i) the Proposal implicates any 

other specific public interest to be 

protected by the antitrust laws; (ii) the 

Proposal is anticompetitive and, if it is, 

what the anticompetitive effects are; (iii) 

whether there are less anticompetitive 

means of achieving the relevant 

purposes of the Act that would 

otherwise be served by adopting the 

Proposal.699 The Commission did not 

receive comments on the 

anticompetitive effects of the Proposal. 

The Commission has considered the 

Final Rule to determine whether it is 

anticompetitive and has identified no 

anticompetitive effects. Because the 

Commission has determined that the 

Final Rule is not anticompetitive and 

has no anticompetitive effects, the 

Commission has not identified any less 

anticompetitive means of achieving the 

purposes of the Act. 

List of Subjects 

17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

17 CFR Part 22 

Brokers, Clearing, Consumer 

protection, Reporting and 

recordkeeping, Swaps. 

17 CFR Part 30 

Consumer protection. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission 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). 

§ 1.20 [Amended] 

■ 2. Amend § 1.20 by: 

■ a. Removing the cross-reference to 

‘‘Appendix A to § 1.20’’ and adding in 

its place ‘‘appendix C to this part’’ in 

paragraph (d)(2); 

■ b. Removing and reserving paragraph 

(d)(3); and 

■ c. Removing the cross-reference to 

‘‘Appendix B to § 1.20’’ and adding in 

its place ‘‘appendix D to this part’’ in 

paragraph (g)(4)(ii); 

Appendices C and D to Part 1 

■ 3. Further amend § 1.20 by 

redesignating appendices A and B to 

§ 1.20 as appendices C and D to part 1, 

respectively. 

■ 4. Amend § 1.25 by: 

■ a. Revising and republishing the 

paragraph (a) heading and paragraph 

(a)(1) introductory text; 

■ b. Removing paragraphs (a)(1)(iv) 

through (vi); 

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

as new paragraph (a)(1)(iv) and revising 

it; 

■ d. Adding new paragraphs (a)(1)(v) 

and (a)(1)(vi); 

■ e. Revising and republishing 

paragraph (b) introductory text and the 

paragraph (b)(2) heading; 

■ f. Revising paragraph (b)(2)(i) 

introductory text; 

■ g. Revising and republishing 

paragraph (b)(2)(iv)(A) introductory text; 

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

and (2); 

■ i. Removing paragraphs (b)(2)(v) and 

(vi); 

■ j. Republishing the paragraph (b)(3) 

heading; 

■ k. Removing paragraph (b)(3)(i)(C); 

■ l. Redesignating paragraphs 

(b)(3)(i)(D) and (E) as paragraphs 

(b)(3)(i)(C) and (D); 

■ m. Revising newly redesignated 

paragraph (b)(3)(i)(D); 

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


lotter on DSK11XQN23PROD with RULES2
7868 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

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

as (b)(3)(i)(E); 

■ p. Revising newly redesignated 

paragraph (b)(3)(i)(E) and paragraphs 

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

introductory text, and (c)(1); 

■ q. Removing ‘‘The appendix to this 

section’’ and adding in its place 

‘‘Appendix E to this part’’ in paragraph 

(c)(7); 

■ r. Adding paragraph (c)(8); 

■ s. Republishing paragraph (d) 

introductory text; 

■ t. Revising paragraphs (d)(2) and (7); 

and 

■ u. Adding paragraph (f). 

The republications, revisions, and 

additions read as follows: 

§ 1.25 Investment of customer funds. 

(a) Permitted investments. (1) Subject 

to the terms and conditions set forth in 

this section, a futures commission 

merchant or a derivatives clearing 

organization may invest customer 

money in the following instruments 

(permitted investments): 

* * * * * 

(iv) Interests in government money 

market funds as defined in § 270.2a–7 of 

this title, provided that the government 

money market funds do not choose to 

rely on the ability to impose 

discretionary liquidity fees consistent 

with the requirements of 17 CFR 

270.2a–7(c)(2)(i)(government money 

market fund); 

(v) Interests in exchange-traded funds, 

as defined in 17 CFR 270.6c–11, which 

seek to replicate the performance of a 

published short-term U.S. Treasury 

security index composed of bonds, 

notes, and bills with a remaining 

maturity of 12 months or less, issued by, 

or unconditionally guaranteed as to the 

timely payment of principal and interest 

by, the U.S. Department of the Treasury 

(U.S. Treasury exchange-traded fund); 

and 

(vi) General obligations of Canada, 

France, Germany, Japan, and the United 

Kingdom (permitted foreign sovereign 

debt), subject to the following: 

(A) A futures commission merchant 

may invest in the permitted foreign 

sovereign debt of a country to the extent 

the futures commission merchant has 

balances in segregated accounts owed to 

its customers denominated in that 

country’s currency; and 

(B) A derivatives clearing organization 

may invest in the permitted foreign 

sovereign debt of a country to the extent 

the derivatives clearing organization has 

balances in segregated accounts owed to 

its clearing members that are futures 

commission merchants denominated in 

that country’s currency. 

* * * * * 

(b) General terms and conditions. A 

futures commission merchant or a 

derivatives clearing organization is 

required to manage the permitted 

investments consistent with the 

objectives of preserving principal and 

maintaining liquidity and according to 

the following specific requirements: 

* * * * * 

(2) Restrictions on instrument 

features. (i) With the exception of 

government money market funds and 

U.S. Treasury exchange-traded funds, 

no permitted investment may contain an 

embedded derivative of any kind, 

except as follows: 

* * * * * 

(iv)(A) Adjustable rate securities are 

permitted, subject to the following 

requirements: 

(1) The interest payments on variable 

rate securities must correlate closely 

and on an unleveraged basis to a 

benchmark of either the Federal Funds 

target or effective rate, the prime rate, 

the three-month Treasury Bill rate, a 

Secured Overnight Financing Rate 

published by the Federal Reserve Bank 

of New York or a CME Term SOFR Rate 

published by the CME Group 

Benchmark Administration Limited, or 

the interest rate of any fixed rate 

instrument that is a permitted 

investment listed in paragraph (a)(1) of 

this section; 

(2) The interest payment, in any 

period, on floating rate securities must 

be determined solely by reference, on an 

unleveraged basis, to a benchmark of 

either the Federal Funds target or 

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

Overnight Financing Rate published by 

the Federal Reserve Bank of New York 

or a CME Term SOFR Rate published by 

the CME Group Benchmark 

Administration Limited, or the interest 

rate of any fixed rate instrument that is 

a permitted investment listed in 

paragraph (a)(1) of this section; 

* * * * * 

(3) Concentration— 

(i) * * * 

(D) Investments in government money 

market funds or U.S. Treasury 

exchange-traded funds with $1 billion 

or more in assets and whose 

management company manages $25 

billion or more in assets may not exceed 

50 percent of the total assets held in 

segregation by the futures commission 

merchant or derivatives clearing 

organization. 

(E) Investments in government money 

market funds or U.S. Treasury 

exchange-traded funds with less than $1 

billion in assets or which have a 

management company managing less 

than $25 billion in assets, may not 

exceed 10 percent of the total assets 

held in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(ii) * * * 

(B) Securities of any single issuer of 

municipal securities held by a futures 

commission merchant or derivatives 

clearing organization may not exceed 5 

percent of the total assets held in 

segregation by the futures commission 

merchant or derivatives clearing 

organization. 

(C) Interests in any single family of 

government money market funds or U.S. 

Treasury exchange-traded funds may 

not exceed 25 percent of the total assets 

held in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(D) Interests in any individual 

government money market fund or U.S. 

Treasury exchange-traded fund may not 

exceed 10 percent of the total assets 

held in segregation by the futures 

commission merchant or derivatives 

clearing organization. 

(E) For purposes of determining 

compliance with the issuer-based 

concentration limits set forth in this 

section, securities issued by entities that 

are affiliated, as defined in paragraph 

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

and deemed the securities of a single 

issuer. An interest in a permitted 

government money market fund or U.S. 

Treasury exchange-traded fund is not 

deemed to be a security issued by its 

sponsoring entity. 

* * * * * 

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

investments in government money 

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

sovereign debt subject to the 

requirements of paragraph (f) of this 

section, the dollar-weighted average of 

the time-to-maturity of the portfolio, as 

that average is computed pursuant to 17 

CFR 270.2a–7, may not exceed 24 

months. 

* * * * * 

(c) Government money market funds 

and U.S. Treasury exchange-traded 

funds. The following provisions will 

apply to the investment of customer 

funds in government money market 

funds or U.S. Treasury exchange-traded 

funds (the fund). 

(1) The fund must be an investment 

company that is registered under the 

Investment Company Act of 1940 with 

the Securities and Exchange 

Commission and that holds itself out to 

investors as a government money 

market fund, in accordance with 17 CFR 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7869 

270.2a–7, or an exchange-traded fund, 

in accordance with 17 CFR 270.6c–11. 

* * * * * 

(8) A futures commission merchant or 

derivatives clearing organization may 

invest in interests in U.S. Treasury 

exchange-traded funds if: 

(i) The U.S. Treasury exchange-traded 

fund invests at least 95 percent of its 

assets in securities comprising the shortterm U.S. Treasury index whose 

performance the fund seeks to replicate 

and cash; and 

(ii) The purchase and liquidation of 

interests in the fund conform to the 

following requirements: 

(A) Primary market transactions. The 

futures commission merchant or 

derivatives clearing organization 

purchases or redeems interests in the 

fund on a delivery versus payment basis 

at a price based on the net asset value 

computed in accordance with the 

Investment Company Act of 1940 and 

regulations thereunder. A futures 

commission merchant or derivatives 

clearing organization that is an 

authorized participant of the fund may 

redeem interests in the fund in kind, 

provided that the futures commission 

merchant or derivatives clearing 

organization is able to convert the 

securities received pursuant to the inkind redemption into cash within one 

business day of the redemption request. 

A futures commission merchant or 

derivatives clearing organization that 

transacts with the fund through an 

authorized participant acting as an agent 

for the futures commission merchant or 

derivatives clearing organization must 

have a contractual agreement obligating 

the authorized participant to pay the 

futures commission merchant’s or 

derivatives clearing organization’s 

redemption of interests in the fund in 

cash within one business day of the 

redemption request. 

(B) Secondary market transactions. 

The futures commission merchant or 

derivatives clearing organization 

acquires or sells interests in the fund on 

a national securities exchange registered 

with the Securities and Exchange 

Commission under section 6 of the 

Securities Exchange Act of 1934. 

(d) Repurchase and reverse 

repurchase agreements. A futures 

commission merchant or derivatives 

clearing organization may buy and sell 

the permitted investments listed in 

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

section pursuant to agreements for 

resale or repurchase of the securities 

(agreements to repurchase or resell), 

provided the agreements to repurchase 

or resell conform to the following 

requirements: 

* * * * * 

(2) Permitted counterparties are 

limited to a bank as defined in section 

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

1934, a domestic branch of a foreign 

bank insured by the Federal Deposit 

Insurance Corporation, a securities 

broker or dealer, or a government 

securities dealer registered with the 

Securities and Exchange Commission or 

which has filed notice pursuant to 

section 15C(a) of the Government 

Securities Act of 1986. In addition, with 

respect to agreements to repurchase or 

resell permitted foreign sovereign debt, 

the following entities are also permitted 

counterparties: a foreign bank that 

qualifies as a depository under 

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

money center country as the term is 

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

jurisdiction that has adopted the 

currency in which the permitted foreign 

sovereign debt is denominated as its 

currency; a securities broker or dealer 

located in a money center country as the 

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

is regulated by a national financial 

regulator or a provincial financial 

regulator with respect to a Canadian 

securities broker or dealer; and the Bank 

of Canada, the Bank of England, the 

Banque de France, the Bank of Japan, 

the Deutsche Bundesbank, or the 

European Central Bank. 

* * * * * 

(7) Securities transferred to the 

futures commission merchant or 

derivatives clearing organization under 

the agreement are held in a safekeeping 

account with a bank as referred to in 

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

Federal Reserve Bank, a derivatives 

clearing organization, or the Depository 

Trust Company in an account that 

complies with the requirements of 

§ 1.26. Securities transferred to the 

futures commission merchant or 

derivatives clearing organization under 

an agreement related to permitted 

foreign sovereign debt may also be held 

in a safekeeping account that complies 

with the requirements of § 1.26 at a 

foreign bank that meets the location and 

qualification requirements in § 1.49(c) 

and (d), or with the Bank of Canada, the 

Bank of England, the Banque de France, 

the Bank of Japan, the Deutsche 

Bundesbank, or the European Central 

Bank. 

* * * * * 

(f) Permitted foreign sovereign debt. 

The following provisions will apply to 

investments of customer funds in 

permitted foreign sovereign debt. 

(1) The dollar-weighted average of the 

remaining time-to-maturity of the 

portfolio of investments in permitted 

foreign sovereign debt, as that average is 

computed pursuant to 17 CFR 270.2a– 

7 on a country-by-country basis, may 

not exceed 60 calendar days. Permitted 

foreign sovereign debt instruments 

acquired under an agreement to resell 

shall be deemed to have a maturity 

equal to the period remaining until the 

date on which the resale of the 

underlying instruments is scheduled to 

occur, or, where the agreement is 

subject to demand, the notice period 

applicable to a demand for the resale of 

the securities. Permitted foreign 

sovereign debt instruments sold under 

an agreement to repurchase shall be 

included in the calculation of the dollarweighted average based on the 

remaining time-to-maturity of each 

instrument sold. 

(2) A futures commission merchant or 

a derivatives clearing organization may 

not invest customer funds in any 

permitted foreign sovereign debt that 

has a remaining maturity greater than 

180 calendar days. 

(3) If the two-year credit default 

spread, computed as the average of the 

bid and ask prices between willing 

buyers and sellers, of an issuing 

sovereign of permitted foreign sovereign 

debt is greater than 45 basis points: 

(i) The futures commission merchant 

or derivatives clearing organization 

shall not make any new investments in 

that sovereign’s debt using customer 

funds. 

(ii) The futures commission merchant 

or derivatives clearing organization 

must discontinue investing customer 

funds in that sovereign’s debt through 

agreements to resell as soon as 

practicable under the circumstances. 

Appendix E to Part 1 

■ 5. Section 1.25 is further amended by 

redesignating the appendix to § 1.25 as 

appendix E to part 1. 

§ 1.26 [Amended] 

■ 6. Amend § 1.26 in the paragraphs 

designated in the left column of the 

following table by removing the words 

indicated in the middle column from 

wherever they appear in the paragraph 

and adding in their place the words 

indicated in the right column. 


lotter on DSK11XQN23PROD with RULES2
7870 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

Paragraph Remove Add 

(a) .................................................... ‘‘money market mutual funds’’ ................................... ‘‘government money market funds.’’ 

(b) .................................................... ‘‘money market mutual fund’’ .................................... ‘‘government money market fund.’’ 

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

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

Appendices F and G to Part 1 

■ 7. Section 1.26 is further amended by 

redesignating appendix A to § 1.26 as 

appendix F to part 1 and appendix B to 

§ 1.26 as appendix G to part 1. 

■ 8. Amend § 1.32 by: 

■ a. Removing paragraph (f)(3)(iv); 

■ b. Redesignating paragraphs (f)(3)(v) 

through (vii) as paragraphs (f)(3)(iv) 

through (vi); and 

■ c. Revising newly redesignated 

paragraphs (f)(3)(iv) through (vi). 

The revisions read as follows: 

§ 1.32 Reporting of segregated account 

computation and details regarding the 

holding of futures customer funds. 

* * * * * 

(f) * * * 

(3) * * * 

(iv) Permitted foreign sovereign debt 

by country: 

(A) Canada; 

(B) France; 

(C) Germany; 

(D) Japan; 

(E) United Kingdom; 

(v) Interests in U.S. Treasury 

exchange-traded funds; and 

(vi) Interests in government money 

market funds. 

* * * * * 

■ 9. Amend § 1.55 by revising paragraph 

(b)(6) to read as follows: 

§ 1.55 Public disclosures by futures 

commission merchants. 

* * * * * 

(b) * * * 

(6) The funds you deposit with a 

futures commission merchant may be 

invested by the futures commission 

merchant in certain types of financial 

instruments that have been approved by 

the Commission for the purpose of such 

investments. Permitted investments are 

listed in Commission Regulation 1.25 

(17 CFR 1.25) and include: U.S. 

government securities; municipal 

securities; certain money market funds; 

certain foreign sovereign debt; and U.S. 

Treasury exchange-traded funds. The 

futures commission merchant may 

retain the interest and other earnings 

realized from its investment of customer 

funds. You should be familiar with the 

types of financial instruments that a 

futures commission merchant may 

invest customer funds in. 

* * * * * 

■ 10. Revise newly redesignated 

appendix C to part 1 to read as follows: 

Appendix C to Part 1—Futures 

Commission Merchant 

Acknowledgment Letter for CFTC 

Regulation 1.20 Customer Segregated 

Account 

[Date] 

[Name and Address of Bank, Trust Company, 

Derivatives Clearing Organization or 

Futures Commission Merchant] 

We refer to the Segregated Account(s) 

which [Name of Futures Commission 

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

will open with [Name of Bank, Trust 

Company, Derivatives Clearing Organization 

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

‘‘your’’) entitled: 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation 1.20 Customer 

Segregated Account under sections 4d(a) and 

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

if applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we have opened or 

will open the above-referenced Account(s) 

for the purpose of depositing, as applicable, 

money, securities and other property 

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

trade commodities, options, swaps, and other 

products, as required by Commodity Futures 

Trading Commission (‘‘CFTC’’) Regulations, 

including Regulation 1.20, as amended; that 

the Funds held by you, hereafter deposited 

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

the Account(s), will be separately accounted 

for and segregated on your books from our 

own funds and from any other funds or 

accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, 

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

CFTC’s regulations, as amended; and that the 

Funds must otherwise be treated in 

accordance with the provisions of section 4d 

of the Act and CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that such Funds may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Funds in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. This prohibition does not 

affect your right to recover funds advanced 

in the form of cash transfers, lines of credit, 

repurchase agreements or other similar 

liquidity arrangements you make in lieu of 

liquidating non-cash assets held in the 

Account(s) or in lieu of converting cash held 

in the Account(s) to cash in a different 

currency. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

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

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). We will not hold 

you responsible for acting pursuant to any 

information request from the Director of the 

Market Participants Division of the CFTC or 

the Director of the Division of Clearing and 

Risk of the CFTC, or any successor divisions, 

or such Directors’ designees, or an 

appropriate officer, agent, or employee of 

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

DSRO, upon which you have relied after 

having taken measures in accordance with 

your applicable policies and procedures to 

assure that such request was provided to you 

by an individual authorized to make such a 

request. 

In the event that we become subject to 

either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

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

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7871 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Funds maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason, and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

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

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

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

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

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

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Bank, Trust Company, Derivatives 

Clearing Organization or Futures 

Commission Merchant] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 11. Revise the heading of newly 

redesignated appendix E to part 1 to 

read as follows: 

Appendix E to Part 1—Government 

Money Market Fund Prospectus 

Provisions Acceptable for Compliance 

with § 1.25(c)(5) 

* * * * * 

■ 12. Revise newly redesignated 

appendix F to part 1 to read as follows: 

Appendix F to Part 1—Futures 

Commission Merchant 

Acknowledgment Letter for CFTC 

Regulation 1.26 Customer Segregated 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

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

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

of [Name of Government Money Market 

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

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation 1.26 Customer 

Segregated Government Money Market Fund 

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

the Commodity Exchange Act [and, if 

applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

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

customers who trade commodities, options, 

swaps and other products (‘‘Commodity 

Customers’’), as required by Commodity 

Futures Trading Commission (‘‘CFTC’’) 

Regulation 1.26, as amended; that the Shares 

held by you, hereafter deposited in the 

Account(s) or accruing to the credit of the 

Account(s), will be separately accounted for 

and segregated on your books from our own 

funds and from any other funds or accounts 

held by us in accordance with the provisions 

of the Commodity Exchange Act, as amended 

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

regulations, as amended; and that the Shares 

must otherwise be treated in accordance with 

the provisions of section 4d of the Act and 

CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that the Shares are in a fund that holds itself 

out to investors as a government money 

market fund, in accordance with 17 CFR 

270.2a–7. In addition, you acknowledge and 

agree that the Shares are in a fund that does 

not choose to rely on the ability to impose 

discretionary liquidity fees consistent with 

the requirements of 17 CFR 270.2a–7(c)(2)(i). 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

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

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other account 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Market Participants Division 

of the CFTC or the Director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such Directors’ 


lotter on DSK11XQN23PROD with RULES2
7872 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

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

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

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

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

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

event, you shall not be liable by reason of any 

action or omission to act pursuant to such 

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

any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation 1.25. That rule 

sets forth the following conditions, among 

others, with respect to any investment in a 

government money market fund: 

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

computed by 9 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns, and for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

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

DSRO, in accordance with CFTC Regulation 

1.20. We hereby authorize and direct you to 

provide such copies without further notice to 

or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

Date: 

■ 13. Revise newly redesignated 

appendix G to part 1 to read as follows: 

Appendix G to Part 1—Derivatives 

Clearing Organization 

Acknowledgment Letter for CFTC 

Regulation 1.26 Customer Segregated 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

of Derivatives Clearing Organization] (‘‘we’’ 

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

[Name of Government Money Market Fund] 

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

(or shares issued to): 

[Name of Derivatives Clearing 

Organization] Futures Customer Omnibus 

Account, CFTC Regulation 1.26 Customer 

Segregated Government Money Market Fund 

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

the Commodity Exchange Act [and, if 

applicable, ‘‘, Abbreviated as [short title 

reflected in the depository’s electronic 

system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

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

customers who trade commodities, options, 

swaps and other products, as required by 

Commodity Futures Trading Commission 

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

the Shares held by you, hereafter deposited 

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

the Account(s), will be separately accounted 

for and segregated on your books from our 

own funds and from any other funds or 

accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, 

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

CFTC’s regulations, as amended; and that the 

Shares must otherwise be treated in 

accordance with the provisions of section 4d 

of the Act and CFTC regulations thereunder. 

Furthermore, you acknowledge and agree 

that the Shares are in a fund that holds itself 

out to investors as a government money 

market fund, in accordance with 17 CFR 

270.2a–7. In addition, you acknowledge and 

agree that the Shares are in a fund that does 

not choose to rely on the ability to impose 

discretionary liquidity fees consistent with 

the requirements of 17 CFR 270.2a–7(c)(2)(i). 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the Director of the Division 

of Clearing and Risk of the CFTC or the 

Director of the Market Participants Division 

of the CFTC, or any successor divisions, or 

such Directors’ designees, and this letter 

constitutes the authorization and direction of 

the undersigned on our behalf to release the 

requested information without further notice 

to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

requests will be made in accordance with, 

and subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7873 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Division of Clearing and Risk 

of the CFTC or the Director of the Market 

Participants Division of the CFTC, or any 

successor divisions, or such Directors’ 

designees, upon which you have relied after 

having taken measures in accordance with 

your applicable policies and procedures to 

assure that such request was provided to you 

by an individual authorized to make such a 

request. 

In the event that we become subject to 

either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

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

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason, and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

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

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or the CFTC regulations that relates to the 

segregation of customer funds; and you shall 

not in any manner not expressly agreed to 

herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

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

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation 1.25. That rule 

sets forth the following conditions, among 

others, with respect to any investment in a 

government money market fund: 

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

computed by 9 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to section 4d 

of the Act and the CFTC’s regulations 

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) in 

accordance with CFTC Regulation 1.20. We 

hereby authorize and direct you to provide 

such copy without further notice to or 

consent from us, no later than three business 

days after opening the Account(s) or revising 

this letter agreement, as applicable. 

[Name of Derivatives Clearing Organization] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

PART 22—CLEARED SWAPS 

■ 14. 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. 

■ 15. Amend § 22.2 by: 

■ a. Removing paragraph (g)(5)(iii)(D); 

■ b. Redesignating paragraphs 

(g)(5)(iii)(E) through (G) as paragraphs 

(g)(5)(iii)(D) through (F); and 

■ c. Revising newly redesignated 

paragraphs (g)(5)(iii)(D) through (F) to 

read as follows: 

§ 22.2 Futures Commission Merchants: 

Treatment of Cleared Swaps and 

Associated Cleared Swaps Customer 

Collateral. 

* * * * * 

(g) * * * 

(5) * * * 

(iii) * * * 

(D) Permitted foreign sovereign debt 

by country: 

(1) Canada; 

(2) France; 

(3) Germany; 

(4) Japan; 

(5) United Kingdom; 

(E) Interests in U.S. Treasury 

exchange-traded funds; and 

(F) Interests in government money 

market funds. 

* * * * * 

■ 16. Amend § 22.3 by revising 

paragraph (d) to read as follows: 

§ 22.3 Derivatives clearing organizations: 

Treatment of cleared swaps customer 

collateral. 

* * * * * 

(d) Exceptions; permitted investments. 

Notwithstanding the foregoing and 

§ 22.15, a derivatives clearing 

organization may invest the money, 

securities, or other property constituting 

Cleared Swaps Customer Collateral in 

accordance with § 1.25 of this chapter. 

A derivative clearing organization shall 

bear sole responsibility for any losses 

resulting from the investment of Cleared 

Swaps Customer Collateral in 

instruments described in § 1.25 of this 

chapter. No investment losses shall be 

borne or otherwise allocated to a futures 

commission merchant. 

PART 30—FOREIGN FUTURES AND 

FOREIGN OPTIONS TRANSACTIONS 

■ 17. 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. 

■ 18. Amend § 30.7 by: 

■ a. Revising paragraphs (d)(2) and (3); 

■ b. Removing paragraph (l)(5)(iii)(D); 

■ c. Redesignating paragraphs 

(l)(5)(iii)(E) through (G) as paragraphs 

(l)(5)(iii)(D) through (F); and 

■ d. Revising newly redesignated 

paragraphs (l)(5)(iii)(D) through (F). 


lotter on DSK11XQN23PROD with RULES2
7874 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

The revisions read as follows: 

§ 30.7 Treatment of foreign futures or 

foreign options secured amount. 

* * * * * 

(d) * * * 

(2) The written acknowledgment must 

be in the form as set out in appendix E 

to this part; Provided, however, that if 

the futures commission merchant 

invests funds set aside as the foreign 

futures or foreign options secured 

amount in government money market 

funds as a permitted investment under 

paragraph (h) of this section and in 

accordance with the terms and 

conditions of § 1.25(c) of this chapter, 

the written acknowledgment with 

respect to such investment must be in 

the form as set out in appendix F to this 

part. 

(3)(i) A futures commission merchant 

shall deposit 30.7 customer funds only 

with a depository that agrees to provide 

the Director of the Market Participants 

Division, or any successor division, or 

such Director’s designees, with account 

balance information for 30.7 customer 

accounts. 

(ii) The written acknowledgment must 

contain the futures commission 

merchant’s authorization to the 

depository to provide account balance 

information to the Director of the 

Market Participants Division, or any 

successor division, or such Director’s 

designees, without further notice to or 

consent from the futures commission 

merchant. 

* * * * * 

(l) * * * 

(5) * * * 

(iii) * * * 

(D) Permitted foreign sovereign debt 

by country: 

(1) Canada; 

(2) France; 

(3) Germany; 

(4) Japan; 

(5) United Kingdom; 

(E) Interests in U.S. Treasury 

exchange-traded funds; and 

(F) Interests in government money 

market funds. 

* * * * * 

■ 19. Revise appendix E to part 30 to 

read as follows: 

Appendix E to Part 30— 

Acknowledgment Letter for CFTC 

Regulation 30.7 Customer Secured 

Account 

[Date] 

[Name and Address of Depository] 

We refer to the Secured Amount 

Account(s) which [Name of Futures 

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

opened or will open with [Name of 

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

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation 30.7 Customer 

Secured Account under section 4(b) of the 

Commodity Exchange Act [and, if applicable, 

‘‘, Abbreviated as [short title reflected in the 

depository’s electronic system]’’] 

Account Number(s): [ ] (collectively, the 

‘‘Account(s)’’). 

You acknowledge that we have opened or 

will open the above-referenced Account(s) 

for the purpose of depositing, as applicable, 

money, securities and other property 

(collectively ‘‘Funds’’) of customers who 

trade foreign futures and/or foreign options 

(as such terms are defined in U.S. 

Commodity Futures Trading Commission 

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

the Funds held by you, hereafter deposited 

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

the Account(s), will be kept separate and 

apart and separately accounted for on your 

books from our own funds and from any 

other funds or accounts held by us, in 

accordance with the provisions of the 

Commodity Exchange Act, as amended (the 

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

as amended; that the Funds may not be 

commingled with our own funds in any 

proprietary account we maintain with you; 

and that the Funds must otherwise be treated 

in accordance with the provisions of section 

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

Furthermore, you acknowledge and agree 

that such Funds may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Funds in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. This prohibition does not 

affect your right to recover funds advanced 

in the form of cash transfers, lines of credit, 

repurchase agreements or other similar 

liquidity arrangements you make in lieu of 

liquidating non-cash assets held in the 

Account(s) or in lieu of converting cash held 

in the Account(s) to cash in a different 

currency. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

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

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such usual and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Market Participants Division 

of the CFTC or the Director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such Directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

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

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not 30.7 customer funds maintained in 

the Account(s), or to impose such charges 

against us or any proprietary account 

maintained by us with you. Further, it is 

understood that amounts represented by 

checks, drafts or other items shall not be 

considered to be part of the Account(s) until 

finally collected. Accordingly, checks, drafts 

and other items credited to the Account(s) 

and subsequently dishonored or otherwise 

returned to you or reversed, for any reason, 

and any claims relating thereto, including but 

not limited to claims of alteration or forgery, 

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

we shall be responsible to you as a general 

endorser of all such items whether or not 

actually so endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or part 30 of the CFTC regulations that relates 

to the holding of customer funds; and you 

shall not in any manner not expressly agreed 

to herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7875 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

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

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to section 

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

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

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

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Depository] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

■ 20. Revise appendix F to part 30 to 

read as follows: 

Appendix F to Part 30— 

Acknowledgment Letter for CFTC 

Regulation 30.7 Customer Secured 

Government Money Market Fund 

Account 

[Date] 

[Name and Address of Government Money 

Market Fund] 

We propose to invest funds held by [Name 

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

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

of [Name of Government Money Market 

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

entitled (or shares issued to): 

[Name of Futures Commission Merchant] 

[if applicable, add ‘‘FCM Customer Omnibus 

Account’’] CFTC Regulation 30.7 Customer 

Secured Government Money Market Fund 

Account under section 4(b) of the 

Commodity Exchange Act [and, if applicable, 

‘‘, Abbreviated as [short title reflected in the 

depository’s electronic system]’’] 

Account Number(s): [ ] 

(collectively, the ‘‘Account(s)’’). 

You acknowledge that we are holding these 

funds, including any shares issued and 

amounts accruing in connection therewith 

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

customers who trade foreign futures and/or 

foreign options (as such terms are defined in 

U.S. Commodity Futures Trading 

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

amended); that the Shares held by you, 

hereafter deposited in the Account(s) or 

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

be kept separate and apart and separately 

accounted for on your books from our own 

funds and from any other funds or accounts 

held by us in accordance with the provisions 

of the Commodity Exchange Act, as amended 

(the ‘‘Act’’), and this part, as amended; and 

that the Shares must otherwise be treated in 

accordance with the provisions of section 

4(b) of the Act and CFTC Regulations 1.25 

and 30.7. 

Furthermore, you acknowledge and agree 

that the Shares are in a fund that holds itself 

out to investors as a government money 

market fund, in accordance with 17 CFR 

270.2a–7. In addition, you acknowledge and 

agree that the Shares are in a fund that does 

not choose to rely on the ability to impose 

discretionary liquidity fees consistent with 

the requirements of 17 CFR 270.2a–7(c)(2)(i). 

Furthermore, you acknowledge and agree 

that such Shares may not be used by you or 

by us to secure or guarantee any obligations 

that we might owe to you, and they may not 

be used by us to secure or obtain credit from 

you. You further acknowledge and agree that 

the Shares in the Account(s) shall not be 

subject to any right of offset or lien for or on 

account of any indebtedness, obligations or 

liabilities we may now or in the future have 

owing to you. 

In addition, you agree that the Account(s) 

may be examined at any reasonable time by 

the Director of the Market Participants 

Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, 

or any successor divisions, or such Directors’ 

designees, or an appropriate officer, agent or 

employee of our designated self-regulatory 

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

this letter constitutes the authorization and 

direction of the undersigned on our behalf to 

permit any such examination to take place 

without further notice to or consent from us. 

You agree to reply promptly and directly 

to any request for confirmation of account 

balances or provision of any other 

information regarding or related to the 

Account(s) from the Director of the Market 

Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk 

of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate 

officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, 

and this letter constitutes the authorization 

and direction of the undersigned on our 

behalf to release the requested information, 

without further notice to or consent from us. 

The parties agree that all actions on your 

part to respond to the above information 

request will be made in accordance with, and 

subject to, such reasonable and customary 

authorization verification and authentication 

policies and procedures as may be employed 

by you to verify the authority of, and 

authenticate the identity of, the individual 

making any such information request, in 

order to provide for the secure transmission 

and delivery of the requested information to 

the appropriate recipient(s). 

We will not hold you responsible for acting 

pursuant to any information request from the 

Director of the Market Participants Division 

of the CFTC or the Director of the Division 

of Clearing and Risk of the CFTC, or any 

successor divisions, or such Directors’ 

designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have 

relied after having taken measures in 

accordance with your applicable policies and 

procedures to assure that such request was 

provided to you by an individual authorized 

to make such a request. 

In the event we become subject to either a 

voluntary or involuntary petition for relief 

under the U.S. Bankruptcy Code, we 

acknowledge that you will have no obligation 

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

except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the 

respective U.S. Bankruptcy Court. 

Notwithstanding anything in the foregoing 

to the contrary, nothing contained herein 

shall be construed as limiting your right to 

assert any right of offset or lien on assets that 

are not Shares maintained in the Account(s), 

or to impose such charges against us or any 

proprietary account maintained by us with 

you. Further, it is understood that amounts 

represented by checks, drafts or other items 

shall not be considered to be part of the 

Account(s) until finally collected. 

Accordingly, checks, drafts and other items 

credited to the Account(s) and subsequently 

dishonored or otherwise returned to you or 

reversed, for any reason and any claims 

relating thereto, including but not limited to 

claims of alteration or forgery, may be 

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

be responsible to you as a general endorser 

of all such items whether or not actually so 

endorsed. 

You may conclusively presume that any 

withdrawal from the Account(s) and the 

balances maintained therein are in 

conformity with the Act and CFTC 

regulations without any further inquiry, 

provided that, in the ordinary course of your 

business as a depository, you have no notice 

of or actual knowledge of a potential 

violation by us of any provision of the Act 

or part 30 of the CFTC regulations that relates 

to the holding of customer funds; and you 

shall not in any manner not expressly agreed 

to herein be responsible to us for ensuring 

compliance by us with such provisions of the 

Act and CFTC regulations; however, the 


lotter on DSK11XQN23PROD with RULES2
7876 Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 

1As explained in section IV.A.2.c. of the Final 

Rule preamble, over the last two decades, the 

number of FCMs has dropped by almost 64 percent, 

from 177 to 64. As further demonstrated by CFTC 

data, in 2004, there were 100 FCMs holding 

Customer Funds, whereas in September 2024, there 

were only 50, a decrease of 50 percent. This 

consolidation may be further illustrated by looking 

at the top ten firms, which hold 84 percent of 

Customer Funds. See CFTC, Financial Data for 

FCMs (last visited Dec. 6, 2024), https://

www.cftc.gov/MarketReports/financialfcmdata/ 

index.htm. 

aforementioned presumption does not affect 

any obligation you may otherwise have under 

the Act or CFTC regulations. 

You may, and are hereby authorized to, 

obey the order, judgment, decree or levy of 

any court of competent jurisdiction or any 

governmental agency with jurisdiction, 

which order, judgment, decree or levy relates 

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

event, you shall not be liable by reason of any 

action or omission to act pursuant to any 

such order, judgment, decree or levy, to us 

or to any other person, firm, association or 

corporation even if thereafter any such order, 

decree, judgment or levy shall be reversed, 

modified, set aside or vacated. 

We are permitted to invest customers’ 

funds in government money market funds 

pursuant to CFTC Regulation 1.25. That rule 

sets forth the following conditions, among 

others, with respect to any investment in a 

government money market fund: 

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

computed by 9 a.m. of the business day 

following each business day and be made 

available to us by that time; 

(2) The fund must be legally obligated to 

redeem an interest in the fund and make 

payment in satisfaction thereof by the close 

of the business day following the day on 

which we make a redemption request except 

as otherwise specified in CFTC Regulation 

1.25(c)(5)(ii); and, 

(3) The agreement under which we invest 

customers’ funds must not contain any 

provision that would prevent us from 

pledging or transferring fund shares. 

The terms of this letter agreement shall 

remain binding upon the parties, their 

successors and assigns and, for the avoidance 

of doubt, regardless of a change in the name 

of either party. This letter agreement 

supersedes and replaces any prior agreement 

between the parties in connection with the 

Account(s), including but not limited to any 

prior acknowledgment letter agreement, to 

the extent that such prior agreement is 

inconsistent with the terms hereof. In the 

event of any conflict between this letter 

agreement and any other agreement between 

the parties in connection with the 

Account(s), this letter agreement shall govern 

with respect to matters specific to section 

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

thereunder, as amended. 

This letter agreement shall be governed by 

and construed in accordance with the laws 

of [Insert governing law] without regard to 

the principles of choice of law. 

Please acknowledge that you agree to abide 

by the requirements and conditions set forth 

above by signing and returning to us the 

enclosed copy of this letter agreement, and 

that you further agree to provide a copy of 

this fully executed letter agreement directly 

to the CFTC (via electronic means in a format 

and manner determined by the CFTC) and to 

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

DSRO. We hereby authorize and direct you 

to provide such copies without further notice 

to or consent from us, no later than three 

business days after opening the Account(s) or 

revising this letter agreement, as applicable. 

[Name of Futures Commission Merchant] 

By: 

Print Name: 

Title: 

ACKNOWLEDGED AND AGREED: 

[Name of Government Money Market Fund] 

By: 

Print Name: 

Title: 

Contact Information: [Insert phone number 

and email address] 

DATE: 

Issued in Washington, DC, on December 

19, 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 Investment of Customer 

Funds by Futures Commission 

Merchants and Derivatives Clearing 

Organizations—Commission Voting 

Summary and Chairman’s Statement 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Behnam and 

Commissioners Mersinger and Pham voted in 

the affirmative. Commissioner Goldsmith 

Romero voted in the negative. Commissioner 

Johnson abstained. 

Appendix 2—Statement of Support of 

Chairman Rostin Behnam 

This final rule amending Commission 

regulations addressing the investment of 

Customer Funds (funds deposited by 

customers to margin futures, foreign futures, 

and cleared swap transactions) by futures 

commission merchants (FCMs) and 

derivatives clearing organizations (DCOs) 

(the ‘‘Final Rule’’) represents responsive and 

responsible government action. It preserves 

core regulatory objectives through practical 

application of time-tested standards 

developed over decades to promote market 

resiliency, risk mitigation, and customer 

protections. 

Financial regulation, unlike legislation, is 

designed to transition with and incorporate 

evolving market realities to preserve essential 

flexibilities in response to emerging market 

conditions, geopolitics, and economic policy. 

As with any principles-based regime, there 

are always concerns that our hands will 

provide no more than a feathery touch in the 

sway of prevailing winds. The response is, 

and always should be, that with our 

discretion embedded in statute, any rules or 

regulations we put forth are calibrated 

appropriately to the risks, embody principles 

and analyses above the highest levels of 

scrutiny, and incorporate prescriptive 

requirements as appropriate. The Final Rule 

is no departure. It further strengthens the 

Commission’s fundamental customer 

protection framework aimed at preserving 

principal and maintaining liquidity by 

addressing foreign currency, credit, 

insolvency, and operational risks and 

incentivizing growth and competition, 

particularly among FCMs, which may reduce 

concentration risk and provide greater and 

more diverse hedging opportunities for 

customers. On this latter point, the Final 

Rule addresses a longstanding public interest 

in encouraging FCM growth and innovation 

that can ultimately support competition and 

customer access with the added benefit of 

reducing concentration, and ultimately, 

systemic risk,1 I am especially pleased to 

support this Final Rule. 

Given the Final Rule’s detailed and 

responsive preamble, I see no need to further 

reiterate the way the Final Rule modernizes 

the list of permitted investments of Customer 

Funds and creates parity across CFTC 

registrants without undermining or 

weakening any of the safeguards the 

Commission has maintained for the 

protection of Customer Funds for over a 

decade. To the extent one could confuse and 

conflate the events and bad actors that—to 

any degree—colored the Commission’s 

consideration of prior rulemaking and 

policymaking, I would again suggest that 

they engage in a more thorough review of the 

Final Rule’s surgically directed limitations. 

Here, a periodic reassessment of 

Commission Regulation 1.25 and 

consideration of information submitted in 

two industry petitions supported the 

Commission’s proposal to amend its rules 

governing the safeguarding and investment of 

Customer Funds by, among other things, 

revising the list of permitted investments to 

add two new asset classes including certain 

foreign sovereign debt instruments issued by 

Canada, France, Germany, Japan, and the 

United Kingdom, and certain short-term 

Treasury exchange-traded funds (ETFs), 

subject to certain restrictions. By finalizing 

these amendments, our regulations will now 

permit FCMs and DCOs to invest Customer 

Funds in the same narrowly tailored set of 

foreign sovereign debt to the extent that 

FCMs and DCOs hold balances owed to 

customers in the currency of the issuing 

sovereign and subject to certain eligibility, 

credit, and time-to-maturity conditions. 

These additions to the list of permitted 

investments provide an efficient and effective 

means to minimize exposure to foreign 

currency risk fluctuations by eliminating the 

multi-step process exercised by FCMs and 

DCOs of converting the foreign currencies 

they accept from customers to U.S. dollars 

before investing in permitted investments 

(and converting them again when returning 

the margin deposits to customers). Permitting 

Customer Funds to be directly invested in 

foreign sovereign debt also eliminates the 

potential credit risk associated with holding 

Customer Funds in unsecured deposit 

accounts with commercial banks and the risk 

that such funds would be treated as 

unsecured claims in the event of a foreign 

depository facing insolvency. 

It would always be easier for a regulator to 

eschew its duties and leave in place policies 


lotter on DSK11XQN23PROD with RULES2
Federal Register / Vol. 90, No. 13 / Wednesday, January 22, 2025 / Rules and Regulations 7877 

and processes put in place during our most 

challenging eras under the guise that we can 

never be nimble enough should 

circumstances change abruptly. But, should 

we not always play to our strengths, rather 

than our weaknesses? Our duty as a financial 

market regulator is to ensure our ruleset 

effectuates our mission and supports and 

protects the markets and the individuals and 

entities who use them. And our strength is 

in the discretion we have been granted 

because we have the expertise and 

experience to be responsive to market 

developments within the larger U.S. and 

global financial systems, while always 

seeking to minimize risk. 

I appreciate that commenters reminded us 

that despite regulations and an effective 

enforcement program, there will always be 

bad actors whose conduct runs afoul of our 

expectations. As detailed in the Final Rule, 

the Commission has been thoughtful in 

evaluating such concerns related to historical 

events and the market and other conditions 

to which they have been ascribed, rightly or 

wrongly. The Final Rule reflects such 

consideration by, among other things, 

limiting newly added permitted investments 

through tightly circumscribed risk 

characteristics. To the extent that 

conclusions could be drawn in a manner that 

relies heavily on factors unrelated to the 

status of investments permitted under 

Commission regulations, it is critical that we 

focus on the correlations and causation 

supported by facts and analyses. 

I want to thank Abigail Knauff, and staff in 

the Market Participants Division, Division of 

Clearing and Risk, Office of the General 

Counsel, and the Office of the Chief 

Economist for their work on the Final Rule. 

[FR Doc. 2024–30927 Filed 1–14–25; 4:15 pm] 

BILLING CODE 6351–01–P 


lotter on DSK11XQN23PROD with RULES2