FCM 1.20 Account Segregation – Operations Cons

FIA Segregation Sub-committee m

Washington, 1
Agenda

♦ Introduction & Overview 2:00 - 2:♦ Key areas of consideration (1) 2:10 – 2

– Account Structures– Omnibus accounts– Reconciliations

♦ Key areas of consideration (2) 2:45 – 3

– Cash Flows with Clearing House– Cash Flows with Customers

♦ Summary Considerations – Operations and Systemic Risk 3:20 – 3♦ Current Financial Safeguards 3:35 – 3♦ Wrap Up 3:45 – 4
Direct Accounts: Current State

Clearing House

US FCM

1 

Bank 

Account

Investment 

Account

Collateral 

Account

Assets Liabilities

P/L Account

Commission

& Fees

FCM 

Settlement 

Account

Assets Held

Externally

FCM Agents

Trust 

Account

Reconciliations

Fed & DTCC 

Box

FCM Omni 

Client Clearing 

Account (Margin 

& Positions)

Clearing House Omni

Securities

1 custome

Number of ReconcIncremental per cusIncremental per CC

3 custome

Number of Reconc

Bank 

Account

Customer 

Seg Account

FCM Overall Segregation Environment

Cash

Positions

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment
Clearing House

Customer A/c 

by CCP 

(positions & 

Customer cash)

Bank 

Account

Customer 

Investment 

Account

Customer 

Collateral 

Account

Assets

Liabilities

P/L Account

Commission

& Fees

Customer 

Seg A/c

Assets Held

Externally

FCM Agents

FCM 

DTCC Box

FCM Overall Segregation Environment

Reconciliations

FCM 

Fed Box

1 custome

Customer 

Commission 

A/c

Customer 

Margin A/C

Customer A/c’s

Customer 

Trust A/c

FCM 

Settlement 

Account

FCM 

Investment 

Account

FCM Bank 

Account

FCM 

Investment 

Account

FCM 

Collateral 

Account

Customer 

DTCC Box

Customer 

Fed Box

Clearing House

FCM Agents

FCM 

Clearing A/C

FCM Clearing Account

Number of ReconcIncremental per cusIncremental per CC

3 custome

Number of Reconc

Direct Accounts – CCP & FCM Segregation: Possi

FCM customer Segregation Environment

Clearing House Omni

Securities

Cash

Positions

Customer 

Clearing A/C 

(Margin & 

Positions)

Securities

Cash

Positions

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment

Assets
Clearing House

US FCM

Customer A/c 

by CCP 

(positions & 

cash)

Assets Liabilities

P/L Account

Commission

& Fees

Assets Held

Externally

FCM 

DTCC Box

FCM Overall Segregation Environment

Reconciliations

FCM 

Fed Box

1 custome

Customer 

Commission 

A/c

Customer 

Margin A/C

Customer A/c’s

FCM 

Settlement 

Account

FCM 

Investment 

Account

FCM Bank 

Account

FCM 

Investment 

Account

FCM 

Collateral 

Account

Clearing House

FCM Agents

FCM 

Clearing A/C

FCM 

Clearing 

Account

Number of ReconcIncremental per cusIncremental per CC

3 custom

Number of Reconc

FCM customer Segregation Environment

Clearing House Omni

Securities

Cash

Positions

Customer 

Clearing A/C 

(Margin & 

Positions)

Direct Accounts – CCP Segregation Only: Possible 

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment
Omnibus Accounts: Current State

Clearing House

US FCM

Non member 

Customer Omni 

(Non member 

FCM)

Non member 

FCM Omni

Bank 

Account

Investment 

Account

Collateral 

Account

Assets Liabilities

P/L Account

Commission

& Fees

Customer 

Seg

Assets Held

Externally

FCM Agents

Trust 

Account

Reconciliations

Fed & DTCC 

Box

FCM 

Clearing

•Legal Relationsbetween non meFCM and custom

•Legal Relationship 

between FCM and non 

member FCM

•No look through to 

underlying customers

Bank 

Account

FCM 

Settlement 

Account

1 custome

Number of ReconcIncremental per omIncremental per omIncremental per CC

3 omnibus cu

Number of Reconc

FCM Overall Segregation Environment

Clearing House Omni

Securities

Cash

Positions

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment
Non me

Broker Omni

Liabilities

P/L Account

Commission& Fees

Assets Held Externally

Reconciliations

1 Omni A/c 

1 Omni A/c w

Number of Re

Omni / 3A 

Positions A/c by 

CCP

Omni Commission 

A/c

Omni/ 3A Customer 

Margin A/C

Liabilities

Omni / 3B 

Positions A/c by 

CCP

Omni/ 3B Customer 

Margin A/C

Liabilities

Omni / 3C 

Positions A/c by 

CCP

Omni/ 3C Customer 

Margin A/C

Customer3A Bank 

Account

Customer 3A Investment 

Account

Customer 3A Collateral 

Account

Assets

Customer Bank 3A 

Account

Bank Accounts

FCM Fed Box FCM DTCC Box

Customer3A Clearing 

A/C Customer 3A Clearing 

Account

Customer 3A 

Investment Account

FCM Bank Account FCM Investment 

Account

FCM Bank Account

FCM Investment 

Account

FCM Collateral 

Account

Customer 3A DTCC 

Box

Customer 3A Fed 

Box

Clearing House

Bank Accounts

FCM Clearing A/C

FCM Clearing 

Account

Clearing House

Customer 3B Bank 

Account

Bank Accounts

Customer 3B 

Clearing A/C

Customer 3B 

Investment Account

Customer 3B DTCC 

Box

Customer 3B Fed 

Box

Clearing House

Customer3C Bank 

Account

Bank Accounts

Customer 3C 

Clearing A/C

Customer 3C 

Investment Account

Customer3C DTCC 

Box

Customer 3C Fed 

Box

Clearing House

Customer3B Bank 

Account

Customer 3B Investment 

Account

Customer 3B Collateral 

Account

Customer 3B Clearing 

Account

Customer3C Bank 

Account

Customer 3C Investment 

Account

Customer 3C Collateral 

Account

Customer 3C Clearing 

Account

Liabilities

Re

F

FCM customer 3A 

Segregation Environment

FCM customer 3B 

Segregation Environment

FCM customer 3C 

Segregation Environment

FCM Overall Segregation Environment

Recs *3

Omnibus Accounts – CCP & FCM Segregation: Pos

Number of ReIncremental pIncremental pIncremental p

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment

US FCM
Start of Day Margin Processing Timelines - Today

05:00 07:00 12:00 15:00 18:00 eod

T+1

05:00 07:00 

T

CCPs call 

margin from 

FCM

FCM Pays margin to 

CCP A for both 

customers

FCM Pays margin to 

CCP B for both 

customers

FCMs verify calls 

with customers

Customer 1 pays single 

margin amount for both 

CCPs

FCM advances own funds to cover customer exposure

FCM advances own funds to cover customer exposure

Managed at CCP level across customers

Managed at customer level across CCPs

Scenario: Two customers, two CCPs, customer 1 pays on T+1, cust

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment

Note: This diagram shows the funding flows to the client following the CCP call on T+1. The first CCP margin funding run to the FCM is 
Scenario: Two customers, two CCPs, each call is $50, customer 1 pays on 

pays on T+2

05:00 07:00 12:00 15:00 18:00 eod

T+1

05:00 07:00 

T

CCPs call 

margin from 

FCM

FCM Pays margin to 

CCP A for both 

customers

FCM Pays margin to 

CCP B for both 

customers

FCMs verify calls 

with customers

Customer 1 pays 

margin amount for 

CCP A

FCM advances own funds to cover customer exposure

FCM advances own funds to cover customer exposure

Customer 1 pays 

margin amount for 

CCP B

CCP records:

CCP A, customer 1 = +$50CCP A, customer 2 = +$50CCP B, customer 1 = +$50CCP B, customer 2 = +$50

Total seg amount A = $100Total seg amount B = $100

FCM records:

CCP A, customer 1 = $0CCP A, customer 2 = $0CCP B, customer 1 = $0CCP B, customer 2 = $0

Total seg amount A = $0Total seg amount B = $0Total FCM own assets = $200

CCP records:

CCP A, customer 1 = +$50CCP A, customer 2 = +$50CCP B, customer 1 = +$50CCP B, customer 2 = +$50

Total seg amount A = $100Total seg amount B = $100

FCM re

CCP ACCP ACCP BCCP B

Total seTotal seTotal FC

Start of Day Processing Timelines – Possible Futur

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment

Note: This diagram shows the funding flows to the client following the CCP call on T+1. The first CCP margin funding run to the FCM is 
Scenario: Two customers, two CCPs, each call is $50, customer 1 pays on 

securities, customer 2 pays on T+2 and covers in cash

05:00 12:00 18:00 eod

T+1 T+2

CCPs call 

margin from 

FCM

FCM Pays margin to 

CCP A for both 

customers

FCM Pays margin to 

CCP B for both 

customers

customer 1 deposits 

securities for CCP A

customer 1 deposits 

securities for CCP B

customer 2 pays 

margin amount for 

CCP A

customer 2 pays 

margin amount for 

CCP B

CCP records:

CCP A, customer 1 = +$50CCP A, customer 2 = +$50CCP B, customer 1 = +$50CCP B, customer 2 = +$50

Total seg amount A = $100Total seg amount B = $100

FCM records:

CCP A, customer 1 = TBills@ $50CCP A, customer 2 = $0CCP B, customer 1 = TBills@ $50CCP B, customer 2 = +$0

Total seg amount A = +$50Total seg amount B = +$50Total FCM own assets = $100

CCP records:

CCP A, customer 1 = +$50CCP A, customer 2 = +$50CCP B, customer 1 = +$50CCP B, customer 2 = +$50

Total seg amount A = $100Total seg amount B = $100

FCM 

CCCCCCCC

Total Total Total 

FCMs verify calls 

with customers

FCMs calls 

customer 1 for top 

up of $20

05:00 12:00 18:00 eod 05:00 

Start of Day Processing Timelines – Possible Futu

Diagrams are meant to show key flows and accounts only and are not an exhaustive representation of the clearing environment

Note: This diagram shows the funding flows to the client following the CCP call on T+1. The first CCP margin funding run to the FCM is 
Current Financial Safeguards

♦ Performance Bonds/Concentration Performance Bonds. Performance bond requirements cov

of at least 95% to 99% over varying time-frames. Concentration performance bond requirements clearing firm’s potential exposure becomes large relative to its financial resources.

♦ Settlement Cycles. Two full settlement cycles are performed daily, marking open positions to ma

payment variation margin, and resetting performance bond coverage.

♦ Capital Requirements. Clearing members have significant minimum capital requirements (OTC 

members’ capital requirements are substantially higher). Institutional customers generally require capital well in excess of the CFTC/SRO requirements.– The top 10 FCMs (ranked by adjusted net capital) have excess net capital ranging from slightly 

slightly less than $4 billion. The next ten have excess net capital ranging from slightly more tha

than $1 billion.

♦ Stress Tests. Daily stress tests are performed on clearing member positions on a portfolio basis 

accounts of the clearing member’s large traders; the clearing member may be required to increase requirements or reduce or transfer positions.

♦ Reporting Requirements. FCMs calculate daily their segregation requirements and capital and r

their DSRO as required.

♦ Early Warning Requirements. FCMs and clearing organizations are subject to certain early war