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6351-01-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 22, and 30

RIN 3038-AF24

Investment of Customer Funds by Futures Commission Merchants and Derivatives 

Clearing Organizations

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Commodity Futures Trading Commission (“Commission” or 

“CFTC”) is proposing to amend its regulations governing the types of investments that 

futures commission merchants (“FCMs”) and derivatives clearing organizations may 

make with funds held for the benefit of customers trading futures, foreign futures, and 

cleared swap transactions. The Commission is also specifying market risk capital 

charges that an FCM would be required to take on the revised permitted investments in 

computing the firm’s adjusted net capital. The proposed amendments would also amend 

regulations that require each FCM to report to the Commission and to the firm’s 

designated self-regulatory organization the name, location, and amount of customer funds 

held by each depository, including any investments of customer funds held by the 

depository. Lastly, the Commission is proposing to revise its regulations to eliminate the 

requirement that a depository holding customer funds must provide the Commission with 

read-only electronic access to such accounts for the FCM to treat the funds held in the 

accounts as customer segregated fund accounts.

DATES: Comments must be received on or before January 17, 2024.
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ADDRESSES: You may submit comments, identified by RIN 3038-AF24, by any of the 

following methods:

• CFTC Comments Portal: https://comments.cftc.gov. Select the “Submit 

Comments” link for this rulemaking and follow the instructions on the Public Comment 

Form.

• Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, 

Commodity Futures Trading Commission, Three Lafayette Center, 1155 21st Street, NW, 

Washington, DC 20581.

• Hand Delivery/Courier: Follow the same instructions as for Mail, above.

Please submit your comments using only one of these methods. Submissions 

through the CFTC Comments Portal are encouraged.

All comments must be submitted in English, or if not, accompanied by an English 

translation. Comments will be posted as received to https://comments.cftc.gov. You 

should submit only information that you wish to make available publicly. If you wish the 

Commission to consider information that you believe is exempt from disclosure under the 

Freedom of Information Act (“FOIA”), a petition for confidential treatment of the exempt 

information may be submitted according to the procedures established in § 145.9 of the 

Commission’s regulations.1

The Commission reserves the right, but shall have no obligation, to review, prescreen, filter, redact, refuse or remove any or all of your submission from 

https://comments.cftc.gov that it may deem to be inappropriate for publication, such as 

 1 17 CFR 145.9. Commission Regulations referred to herein are found at 17 CFR Chapter I, and are 

accessible on the Commission’s website: 

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
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obscene language. All submissions that have been redacted or removed that contain 

comments on the merits of the rulemaking will be retained in the public comment file and 

will be considered as required under the Administrative Procedure Act and other 

applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, (202) 

418-5213, aolear@cftc.gov; Thomas J. Smith, Deputy Director, 202-418-5495, 

tsmith@cftc.gov; Warren Gorlick, Associate Director, 202-418-5195, wgorlick@cftc.gov;

Liliya Bozhanova, Special Counsel, 202-418-6232, lbozhanova@cftc.gov; Joo Hong, 

Risk Analyst, (202) 418-6221, jhong@cftc.gov, Market Participants Division, or Lihong 

McPhail, Research Economist, (202) 418–5722, lmcphail@cftc.gov, Office of the Chief 

Economist, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 

Street NW, Washington, DC 20581; Scott Sloan, Special Counsel, 312-596-0708, 

ssloan@cftc.gov, Division of Clearing and Risk, Commodity Futures Trading 

Commission, 77 West Jackson Boulevard, Suite 800, Chicago, Illinois 60604.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

A. Background and Statutory Authority

1. Segregation of Customer Funds by Futures Commission Merchants and 

Derivatives Clearing Organizations

2. Authority for Futures Commission Merchants and Derivatives Clearing 

Organizations to Invest Customer Funds

II. Requests for Amendments to the List of Permitted Investments

III. Proposal

A. Investment of Customer Funds

1. Foreign Sovereign Debt

2. Interests in Money Market Funds

3. Interests in U.S. Treasury Exchange-Traded Funds

4. Investments in Commercial Paper and Corporate Notes or Bonds

5. Investments in Permitted Investments with Adjustable Rates of Interest

6. Investments in Certificates of Deposit Issued by Banks
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B. Asset-based and Issuer-based Concentration Limits for Permitted Investments

C. Futures Commission Merchant Capital Charges on Permitted Investments

D. Segregation Investment Detail Report

E. Read-only Electronic Access to Customer Funds Accounts Maintained by Futures 

Commission Merchants

F. Proposed Conforming Amendments

IV. Section 4(c) of the Act

V. Administrative Compliance

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

a. Foreign Sovereign Debt, Interests in Exchange-Traded Funds, and Associated 

Capital Charges

b. Government Money Market Funds, Commercial Paper and Corporate Notes or 

Bonds, and Certificates of Deposit Issued by Banks

c. SOFR as a Permitted Benchmark

d. Revision of the Read-only Access Provisions

D. Antitrust Laws

I. Introduction

A. Background and Statutory Authority

1. Segregation of Customer Funds by Futures Commission Merchants and 

Derivatives Clearing Organizations

A primary objective of the Commodity Exchange Act (“Act”)2 and Commission 

regulations is the establishment of a framework to safeguard funds of customers engaging

in CFTC-regulated derivative transactions. A core component of the framework is the 

requirement for a futures commission merchant (“FCM”) or a derivatives clearing 

organization (“DCO”) to treat customer funds as belonging to the customers and not as 

the property of the FCM or DCO, and for the FCM or DCO to segregate customer funds 

from its own funds by holding the funds in specially designated customer accounts 

maintained at banks, trust companies, FCMs, or DCOs, as applicable. The segregation of 

 2 7 U.S.C. 1 et seq.
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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.

Customer funds are classified into one of three distinct regulatory frameworks 

that are based on the derivatives markets on which the customers are transacting. 

Specifically, customer funds are classified as either: (i) “futures customer funds;” (ii) 

“Cleared Swaps Customer Collateral;” or (iii) “30.7 customer funds.”3 The term “futures 

customer funds” is defined by Regulation 1.3 to mean, in relevant part, all money, 

securities, and property received by an FCM or a DCO from, for, or on behalf of “futures 

customers”4 to margin, guarantee, or secure futures and options on futures transactions

traded on a CFTC-designated contract market, and all money accruing to futures 

customers as a result of trading futures and options on futures. Section 4d(a)(2) of the 

Act requires an FCM to treat and deal with futures customer funds received to margin, 

guarantee, or secure trades or contracts of any futures customer, or accruing to a futures 

customer as the result of such trades or contracts, as belonging to the futures customer.

5

Section 4d(a)(2) further provides that an FCM may not commingle futures customer 

funds of a futures customer with the FCM’s own funds, provided, however, that the FCM 

 3 See 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).

4 The term “futures customer” is defined by Regulation 1.3 to mean, in relevant part, any person who uses 

an FCM as an agent in connection with trading in any contract for the purchase or sale of a commodity for 

future delivery or any option on such contract. 17 CFR 1.3. 

5 7 U.S.C. 6d(a)(2).
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may commingle the futures customer funds of two or more futures customers and deposit 

the funds with any bank, trust company, DCO, or other FCM.

6

 

Section 4d(b) of the Act addresses the duties imposed on DCOs and other 

depositories receiving futures customer funds from FCMs pursuant to Section 4d(a)(2) of 

the Act.7

 Section 4d(b) provides that it is unlawful for any person, including a DCO, that 

has received futures customer funds to hold, dispose of, or use the funds as belonging to 

the depositing FCM or any person other than the futures customers of the FCM.8

 The 

Commission adopted Regulations 1.20 through 1.30, and Regulations 1.32 and 1.49, to 

implement the segregation requirements for futures customer funds mandated by Sections

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

9

The term “Cleared Swaps Customer Collateral” is defined by Regulations 1.3 and 

22.110 to mean, in relevant part, all money, securities, or other property received by an 

FCM or a DCO from, for, or on behalf of, a “Cleared Swaps Customer” to margin, 

guarantee, or secure “Cleared Swap” positions.

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

an FCM to treat Cleared Swaps Customer Collateral received from a Cleared Swaps 

Customer, or accruing to a Cleared Swaps Customer as a result of Cleared Swap 

positions, as belonging to the Cleared Swaps Customer.

12 Section 4d(f)(2)(B) of the Act 

provides that an FCM may not commingle Cleared Swaps Customer Collateral of a 

 6 Id.

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

9 17 CFR 1.20 through 17 CFR 1.30, 17 CFR 1.32, and 17 CFR 1.49.

10 17 CFR 22.1. 11 The term “Cleared Swaps Customer” is defined by Regulation 22.1 to mean, in relevant part, any 

customer entering into a Cleared Swap. The term “Cleared Swap” is defined to mean any swap that is, 

directly or indirectly, submitted to and cleared by a DCO registered with the Commission. See 7 U.S.C. 

1a(7) and 17 CFR 22.1.

12 7 U.S.C. 6d(f)(2)(A).
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Cleared Swaps Customer with the FCM’s own funds,13 provided, however, that the FCM 

may commingle Cleared Swaps Customer Collateral of two or more Cleared Swap 

Customers and deposit the funds in any bank, trust company, DCO, or other FCM.

14 

Section 4d(f)(6) of the Act provides that it is unlawful for any person, including a DCO 

and any depository institution, that has received Cleared Swaps Customer Collateral to 

hold, dispose of, or use the Cleared Swaps Customer Collateral as belonging to the 

depositing FCM or any person other than the Cleared Swaps Customer of the FCM.15 

The Commission adopted Regulations 22.2 through 22.13, and Regulations 22.15 through 

22.17, to implement the segregation requirements for Cleared Swaps Customer Collateral 

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

16

The term “30.7 customer funds” is defined by Regulation 30.1 to mean any 

money, securities, or other property received by an FCM from, for, or on behalf of a U.S. 

person or foreign-domiciled person (a “30.7 customer”)17 to margin, guarantee, or secure 

futures or options on futures positions executed on foreign boards of trade (“foreign 

futures”).18 Section 4(b)(2)(A) of the Act authorizes the Commission to adopt 

regulations imposing requirements on FCMs regarding the safeguarding of 30.7 customer 

funds deposited by 30.7 customers for trading on foreign boards of trade.19 The 

Commission adopted Regulation 30.7 pursuant to Section 4(b)(2)(A) of the Act.

20

 13 7 U.S.C. 6d(f)(2)(B). 14 7 U.S.C. 6d(f)(3)(A)(i). 15 7 U.S.C. 6d(f)(6). 16 17 CFR 22.2 through 17 CFR 22.13, 17 CFR 22.15 through 17 CFR 22.17. 17 The term “30.7 customer” is defined by Regulation 30.1 to mean any person located in the U.S., its 

territories or possessions, as well as any foreign-domiciled person, who trades in foreign futures or foreign 

options. 17 CFR 30.1.

18 17 CFR 30.1. 19 7 U.S.C. 6(b)(2)(A). 20 17 CFR 30.7.
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Regulation 30.7(e)(2) requires an FCM to segregate 30.7 customer funds from the FCM’s 

own funds, and Regulation 30.7(b) provides that an FCM may hold 30.7 customer funds 

with designated depositories, including banks, trust companies, DCOs, foreign brokers, 

and clearing organizations of foreign boards of trade.21

Throughout this release, the terms “futures customer funds,” “Cleared Swaps 

Customer Collateral,” and “30.7 customer funds” are collectively referred to as 

“Customer Funds,” unless otherwise stated.

2. Authority for Futures Commission Merchants and Derivatives Clearing 

Organizations to Invest Customer Funds

Section 4d(a)(2) of the Act authorizes FCMs to invest futures customer funds in: 

(i) obligations of the U.S.; (ii) obligations fully guaranteed as to principal and interest by 

the U.S.; and (iii) general obligations of any State or of any political subdivision of a 

State.22 Regulation 1.25 was initially adopted to implement Section 4d(a)(2), and 

authorized FCMs and DCOs to invest futures customer funds in the instruments set forth 

in Section 4d(a)(2) of the Act (the “Permitted Investments”).23

The Commission, in 2000, expanded the Permitted Investments beyond the 

investments specifically stated in Section 4d(a)(2) of the Act to include certificates of 

deposit, commercial paper, corporate notes, foreign sovereign debt, and interests in 

 21 17 CFR 30.7(b) and 17 CFR 30.7(e)(2). 22 7 U.S.C. 6d(a)(2). 23 See Title 17 – Commodity and Securities Exchanges, 33 FR 14454 (Sept. 26, 1968), amending 

Regulation 1.25 and providing that FCMs and clearing organizations may invest customer funds in 

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

obligations fully guaranteed as to principal and interest by the U.S. 
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money market funds.

24 In addition, the Commission authorized an FCM or a DCO to 

buy the Permitted Investments under agreements to resell the securities (“reverse

repurchase agreements”) and to sell the Permitted Investments under agreements to 

repurchase the securities (“repurchase agreements”).25 To minimize credit risk, market 

risk, and liquidity risk, the Commission also imposed conditions that Permitted 

Investments were required to meet, including a restriction on the dollar-weighted average 

of the time-to-maturity of securities held in the segregated portfolio, asset-based and 

issuer-based concentration limits, and prohibitions on certain investments containing 

embedded derivatives.

26 More generally, Regulation 1.25 requires all Permitted 

Investments to be “consistent with the objectives of preserving principal and maintaining 

liquidity.”27 The 2000 Permitted Investments Amendment was adopted under the 

authority of Section 4(c) of the Act.28 In adopting the amendment, the Commission 

stated that the expanded list of Permitted Investments would enhance the yield available 

to FCMs, DCOs, and their customers without compromising the safety of futures 

customer funds.29

 24 See Rules Relating to Intermediaries of Commodity Interest Transactions, 65 FR 77993 (Dec. 13, 2000) 

(publishing final rules); and Investment of Customer Funds, 65 FR 82270 (Dec. 28, 2000) (making 

technical corrections and accelerating the effective date of the final rules from February 12, 2001 to 

December 28, 2000) (collectively, the “2000 Permitted Investments Amendment”).

25 Id. Reverse repurchase agreements and repurchase agreements are collectively referred to as 

“Repurchase Transactions” in the Proposal.

26 17 CFR 1.25(b). 27 Id. 28 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. The Commission may grant such an exemption by rule, regulation, or order, after notice and 

opportunity for hearing, and may do so on application of any person or on its own initiative. See 7 U.S.C. 

6(c). A further discussion of Section 4(c)(1) of the Act is set forth in Section IV of this Federal Register 

release.

29 See 2000 Permitted Investments Amendment at 78007.
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Following the 2000 Permitted Investments Amendment, the list of Permitted 

Investments has undergone several revisions.30 In its current form, Regulation 1.25 lists 

seven categories of investments that qualify as Permitted Investments: (i) obligations of 

the U.S. and obligations fully guaranteed as to principal and interest by the U.S. (“U.S. 

government securities”); (ii) general obligations of any State or political subdivision of a 

State (“municipal securities”); (iii) obligations of any U.S. government corporation or 

enterprise sponsored by the U.S. (“U.S. agency obligations”); (iv) certificates of deposit 

issued by a bank; (v) commercial paper fully guaranteed by the U.S. under the Temporary 

Liquidity Guarantee Program (“TLGP”) as administered by the Federal Deposit 

Insurance Corporation (“FDIC”) (“commercial paper”); (vi) corporate notes and bonds 

fully guaranteed as to principal and interest by the U.S. under the TLGP (“corporate notes 

and bonds”); and (vii) interests in money market mutual funds.31 In addition, Regulation 

1.25(a)(2) permits FCMs and DCOs to buy and sell the Permitted Investments under 

Repurchase Transactions.

32

Section 4(b)(2)(A) of the Act grants the Commission the plenary authority to 

adopt rules and regulations regarding an FCM’s safeguarding of 30.7 customer funds.

33 

Prior to 2011, an FCM was not subject to restrictions on the investments that it could 

enter into with 30.7 customer funds.

34 In 2011, the Commission extended the 

 30 See Investment of Customer Funds and Record of Investments, 70 FR 28190 (May 17, 2005) (“2005 

Permitted Investments Amendment”), and Investment of Customer Funds and Funds Held in an Account 

for Foreign Futures and Foreign Options Transactions,76 FR 78776 (Dec. 19, 2011) (“2011 Permitted 

Investments Amendment”).

31 17 CFR 1.25(a)(1). 32 17 CFR 1.25(a)(2). 33 7 U.S.C. 6(b)(2)(A). 34 2011 Permitted Investments Amendment at 78777, providing that because Congress did not expressly 

apply the investment limitations set forth in Section 4d of the Act to 30.7 customer funds, the Commission 

historically has not subjected such funds to the investment limitations applicable to futures customer funds. 
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requirements of Regulation 1.25 to an FCM’s investment of 30.7 customer funds for 

trading foreign futures positions. Specifically, the Commission amended Regulation 30.7 

to provide that to the extent an FCM invested 30.7 customer funds, it must invest such 

funds subject to, and in compliance with, the terms and conditions of Regulation 1.25.35 

The Commission exercised its plenary authority under Section 4(b) of the Act to adopt 

Regulation 30.7.

The Commission also extended the requirements of Regulation 1.25 to FCMs and 

DCOs investing Cleared Swaps Customer Collateral.36 Regulations 22.2 and 22.3 were 

adopted in 2012 under the authority of Section 4d(f)(4) of the Act,

37 which provides that 

Cleared Swaps Customer Collateral may be invested by an FCM or a DCO in: (i) 

obligations of the U.S.; (ii) general obligations of any State or of any political subdivision 

of a State; (iii) obligations fully guaranteed as to principal and interest by the U.S.; and, 

(iv) any other investment that the Commission may by rule or regulation prescribe.38 

Section 4d(f)(4) of the Act further provides that the investments must be made in 

accordance with the rules and regulations, and subject to any conditions, as the 

Commission prescribes.39

In addition to setting forth the Permitted Investments that FCMs and DCOs may 

enter into with Customer Funds, Regulation 1.25 also includes several conditions on the 

 35 See 17 CFR 30.7. The Commission stated that it was appropriate to align the investment standards of 

Regulation 30.7 with those of Regulation 1.25 as many of the same prudential concerns arise with respect 

to both futures customer funds and 30.7 customer funds. See 2011 Permitted Investment Amendment at 

78791.

36 See 17 CFR 22.2(e)(1) and 17 CFR 22.3(d). 37 7 U.S.C. 6d(f). 38 See Protection of Cleared Swaps Customer Contracts and Collateral; Conforming Amendments to the 

Commodity Amendments to the Commodity Broker Bankruptcy Provisions, 77 FR 6336 (Feb. 7, 2012). 39 See 7 U.S.C. 6d(f)(4).
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investment of Customer Funds. Regulation 1.25(b)(3) contains both asset-based and 

issuer-based concentration limits applicable to Permitted Investments. The asset-based 

concentration limit restricts the total amount of Customer Funds that an FCM or a DCO 

may invest in a particular Permitted Investment to a defined percentage of the total funds 

held in segregation by the FCM or DCO.40 The issuer-based concentration limit caps the 

total amount of Customer Funds that may be invested in instruments offered by, or 

managed by, a particular issuer to a defined percentage of the total funds held in 

segregation by the FCM or DCO.

41

Consistent with the objective of limiting customer risk, Commission regulations 

also provide that FCMs and DCOs are financially responsible for any losses resulting 

from Permitted Investments, and are explicitly prohibited from allocating investment 

losses to customers or clearing FCMs, respectively.42

The Commission has previously noted the importance of conducting periodic 

reassessments of Regulation 1.25 “and, as necessary, revising regulatory policies to 

 40 17 CFR 1.25(b)(3)(i). 41 17 CFR 1.25(b)(3)(ii). 42 Regulation 1.29 provides that FCMs or DCOs, as applicable, shall bear sole responsibility for any losses 

resulting from the investment of futures customer funds, and further provides that no investment losses 

shall be borne or otherwise allocated to FCM customers or to FCMs clearing customer accounts at DCOs. 

17 CFR 1.29(b).

Regulation 22.2(e)(1) provides that an FCM shall bear sole responsibility for any losses resulting from the 

investment of Cleared Swaps Customer Collateral and may not allocate investment losses to Cleared Swaps 

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

Regulation 30.7(i) provides that an FCM shall bear sole financial responsibility for any losses resulting 

from the investment of 30.7 customer funds, and further provides that no investment losses may be 

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

In addition, Regulation 22.3(d) provides that DCOs may invest Cleared Swaps Customer Collateral in 

Permitted Investments set forth in Regulation 1.25. The regulation, however, does not provide that a DCO 

is responsible for investment losses. The Commission is proposing to amend Regulation 22.3(d) to 

explicitly provide that a DCO shall bear sole responsibility for any losses resulting from the investment of 

Cleared Swaps Customer Collateral, and may not allocate such losses to Cleared Swaps Customers. See

Section III.C. below. 17 CFR 22.3(d).
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strengthen safeguards designed to minimize risk while retaining an appropriate degree of 

investment flexibility and opportunities for capital efficiency for DCOs and FCMs 

investing customer segregated funds.”43 In furtherance of these objectives and in 

consideration of the requests for amendments to Regulation 1.25 discussed in Section II

below, the Commission is proposing to amend the list of Permitted Investments in 

Regulation 1.25 to: (i) add two new asset classes (i.e., specified foreign sovereign debt 

instruments and certain exchange-traded funds (“ETFs”)), subject to certain conditions,

(ii) limit the scope of money market funds (“MMFs”) whose interests qualify as 

Permitted Investments, and (iii) remove corporate notes, corporate bonds, and 

commercial paper. In connection with the proposed amendments to the list of Permitted 

Investments, the Commission is further proposing changes to the counterparty and 

depository requirements of Regulation 1.25(d)(2) and (7) and revisions to the 

concentration limits for Permitted Investments set forth in Regulation 1.25(b)(3), and is 

specifying the capital charges that would apply to the proposed new categories of 

Permitted Investments. Additionally, the Commission is proposing an amendment to 

Regulation 22.3(d) to clarify that DCOs are financially responsible for any losses 

resulting from investments of Cleared Swap Customer Collateral in Permitted 

Investments, consistent with Regulation 1.29, which addresses financial responsibility for 

losses resulting from investment of futures customer funds. The proposed amendment

reflects the Commission’s original intent to permit investments of Cleared Swaps 

Customer Collateral within the parameters applicable to investments of futures customer 

 43 2011 Permitted Investments Amendment at 78777.
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funds.

44 The Commission is also proposing to replace the London Interbank Offered 

Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) as a permitted 

benchmark for variable and floating interest rates for securities that qualify as Permitted 

Investments. Each of the proposed amendments is discussed below.

II. Requests for Amendments to the List of Permitted Investments 

The Futures Industry Association (“FIA) and CME Group Inc. (“CME”) 

(collectively, the “Petitioners”) submitted a joint petition requesting the Commission to 

issue an order under Section 4(c) of the Act, or to take such other action as the

Commission deems appropriate, to expand investments that FCMs and DCOs may enter 

into with Customer Funds.45 The Petitioners request that the Commission take action to 

permit FCMs and DCOs to invest Customer Funds in the foreign sovereign debt of 

Canada, France, Germany, Japan, and the United Kingdom (“Specified Foreign 

Sovereign Debt”), subject to the condition that the investment in the foreign sovereign 

debt is limited to balances owed by FCMs and DCOs to customers and FCM clearing 

firms, respectively, denominated in the applicable currency of Canada, France, Germany, 

Japan, or the United Kingdom.46 The Petitioners further request that the Commission 

exempt FCMs and DCOs from the provisions of Regulation 1.25(d)(2) to authorize 

 44 See Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 78 FR 68506 (Nov. 14, 2013) (“2013 Protections of 

Customer Funds”) at 68556.

45 Petition for Order under Section 4(c) of the Commodity Exchange Act, dated May 24, 2023 (the “Joint 

Petition”). On September 22, 2023, the Petitioners submitted updated data in support of the Joint Petition 

and corrected an inadvertent transposition of data items in the Joint Petition. Supplement to Petition for 

Order under Section 4(c) of the Commodity Exchange Act (“Supplement to Joint Petition”). The Joint 

Petition and the Supplement to Joint Petition are available on the Commission’s website,

https://www.cftc.gov/media/9531/FIA_CMEPetition_Regulation125_052423/download and

https://www.cftc.gov/media/9536/FIALetterSupplementing_Regulation125_092223/download. 46 Joint Petition at p. 4.
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FCMs and DCOs to enter into Repurchase Transactions involving Specified Foreign 

Sovereign Debt with foreign banks and foreign securities brokers or dealers and to hold 

Specified Foreign Sovereign Debt in safekeeping accounts at foreign banks.47

In support of the request, the Petitioners note that the Commission issued an order 

in 2018 pursuant to Section 4(c) of the Act providing a limited exemption to Section 4d 

of the Act and Regulation 1.25 to permit DCOs to invest futures customer funds and 

Cleared Swaps Customer Collateral in the foreign sovereign debt of France and 

Germany.48 The exemption for DCOs to invest in French and German sovereign debt is 

subject to conditions, including that: (i) investment in French or German sovereign debt 

is limited to investments made with euro-denominated balances owed to the futures 

customers and Cleared Swaps Customers of FCM clearing members; (ii) the dollarweighted average of the remaining time-to-maturity of a DCO’s portfolio of investments

in each of French and German sovereign debt may not exceed 60 days; and (iii) a DCO 

may not make a direct investment in any sovereign debt instrument of France or Germany 

that has a remaining time-to-maturity in excess of 180 calendar days.49 The 2018 Order 

also provides that if the two-year credit default spread of the French or German sovereign 

debt exceeds 45 basis points (“BPS”), the DCO may not make any new direct 

investments in the relevant sovereign debt using futures customer funds or Cleared Swaps 

Customer Collateral, and must discontinue investing futures customer funds and Cleared 

 47 Joint Petition at p. 5. 48 Order Granting Exemption from Certain Provisions of the Commodity Exchange Act Regarding 

Investment of Customer Funds and from Certain Related Commission Regulations, 83 FR 35241 (Jul. 25, 

2018) (“2018 Order”). The 2018 Order provides an exemption only to DCOs. FCMs are not subject to the 

2018 Order, and currently may not invest Customer Funds in any foreign sovereign debt.

49 Conditions (3)(a), 3(c), and 3(d) of the 2018 Order at 35245.
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Swaps Customer Collateral in the relevant debt through Repurchase Transactions as soon 

as practicable under the circumstances.50

The 2018 Order also grants an exemption from Regulation 1.25(d)(2) to permit 

DCOs to enter into Repurchase Transactions involving French or German sovereign debt 

with foreign banks and foreign securities brokers or dealers as counterparties.

51 A DCO 

may enter into Repurchase Transactions with a foreign bank or foreign securities broker 

or dealer provided that the such firm qualifies as a permitted depository under Regulation 

1.49(d)(3) and is located in a money center country or in another jurisdiction that has 

adopted the euro as its currency.52 The 2018 Order further grants an exemption from the 

requirement in Regulation 1.25(d)(7) that securities transferred to an FCM or a DCO 

under reverse repurchase agreements must be held in safekeeping accounts with certain 

U.S.-domiciled banks, a Federal Reserve Bank, a DCO, or the Depository Trust 

Company,53 to permit DCOs to hold French or German sovereign debt received under 

 50 Condition (3)(b) of the 2018 Order at 35245. 51 As noted above, Regulation 1.25(d)(2) provides that an FCM or a DCO may enter into Repurchase

Transactions only with the following counterparties: (i) a bank as defined in Section 3(a)(6) of the 

Securities Exchange Act of 1934; (ii) a domestic branch of a foreign bank insured by the FDIC; (iii) an 

SEC-registered securities broker or dealer; or (iv) an SEC-registered government securities broker or 

dealer. Section 3(a)(6) of the Securities Exchange Act of 1934 defines the term “bank” to mean: (i) a 

banking institution organized under the laws of the U.S. or a Federal savings association; (ii) a member 

bank of the Federal Reserve System; (iii) any other banking institution or savings association doing 

business under the laws of any State or the U.S., a substantial portion of the business of which consists of 

receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the 

authority of the Comptroller of the Currency, and which is supervised and examined by a State or Federal 

authority having supervision over banks or savings associations; and (iv) a receiver, conservator, or other 

liquidating agent of any institution or firm included in clauses (i), (ii), or (iii) above (“Section 3(a)(6) 

bank”). 15 U.S.C. 78 et seq. Foreign-domiciled banks and foreign securities brokers or dealers are not 

authorized counterparties for Repurchase Transactions under Regulation 1.25(d)(2). 52 Regulation 1.49(d)(3) provides that a foreign depository must be a bank or trust company that has in 

excess of $1 billion in regulatory capital, a registered FCM, or a DCO in order to be a qualified 

counterparty to Repurchase Transactions. 

53 Specifically, Regulation 1.25(d)(7) provides that securities transferred to an FCM or a DCO under a 

reverse repurchase agreement must be held in a safekeeping account only with the following depositories: 

(i) a Section 3(a)(6) bank; (ii) a domestic branch of a foreign bank insured by the FDIC; (iii) a Federal 
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reverse repurchase agreements in a safekeeping account with foreign banks that qualify

as depositories for Customer Funds under Regulation 1.49(d)(3).

The Petitioners further request that FCMs and DCOs be permitted to invest 

Customer Funds in certain ETFs that invest primarily in short-term U.S. Treasury 

securities (“U.S. Treasury ETFs”).

54 In support of their request, the Petitioners state that

U.S. Treasury ETFs have characteristics that may be consistent with those of other

Permitted Investments and may provide FCMs and DCOs with an opportunity to 

diversify further their investments of customer funds.55

The Commission also received a petition from Invesco Capital Management LLC 

(“Invesco”), which serves as a sponsor of various ETFs, advocating for the addition of

U.S. Treasury ETF securities to the list of Permitted Investments.

56 Invesco states that 

U.S. Treasury ETFs will provide FCMs and DCOs with additional investment choices for 

customer funds, promote operational efficiencies and offer potentially better investment 

returns for FCMs, DCOs, and their customers, and facilitate financial market 

innovation.

57 Invesco further states that permitting investments of U.S. Treasury ETFs 

would be consistent with, and promote, the public interest goals enumerated in the Act.58

Invesco further notes that U.S. Treasury ETFs invest in a sub-set of the same high-quality 

 Reserve Bank; (iv) a DCO; or (v) the Depository Trust Company. A foreign-domiciled bank is currently 

not an authorized depository for securities transferred to an FCM or a DCO under Regulation 1.25(d)(7). 54 Joint Petition at pp. 8-9. 55 Id. 56 Letter from Anna Paglia, Chief Executive Officer, Invesco Capital Management LLC, dated September 

28, 2023 (“Invesco Petition”). See

https://www.cftc.gov/media/9541/Invesco_CFTCPetition_Regulation125_092823/download. Invesco is a 

registered with the Commission as a commodity pool operator and commodity trading advisor, and is 

registered with the Securities and Exchange Commission (“SEC”) as an investment adviser.

57 Invesco Petition at p. 1. 58 Id.
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liquid instruments that are Permitted Investments under Regulation 1.25 (i.e., U.S. 

government securities), and as such, the ETFs offer an indirect, possibly simpler, and 

more cost-efficient way for FCMs and DCOs to invest Customer Funds in U.S. Treasury

securities and obligations fully guaranteed as to principal and interest by the U.S. as the 

ETFs eliminate the need for FCMs and DCOs to administer investments in individual 

U.S. government securities.59

Finally, the Petitioners also request that the Commission amend its regulations 

consistent with CFTC Staff Letter 21-02 and CFTC Staff Letter 22-21,60 to permit FCMs 

and DCOs to invest Customer Funds in qualifying Permitted Investments that have 

adjustable rates of interest that correlate closely to SOFR.61

III. Proposal

As part of its periodic assessment of Regulation 1.25 and in consideration of the 

information set forth in the Joint Petition and the Invesco Petition, the Commission is 

proposing to amend the list of Permitted Investments, subject to certain terms and 

conditions, as discussed in detail below. In connection with the proposed amendments to 

the list of Permitted Investments, the Commission is further proposing changes to the 

counterparty and depository requirements of Regulation 1.25(d)(2) and (7), and revisions 

to the concentration limits for Permitted Investments set forth in Regulation 1.25(b)(3).

Separately, the Commission is specifying capital charges that FCMs would apply to the 

 59 See Invesco Petition at p. 2. 60 CFTC Staff Letter 21-02 – CFTC Regulation 1.25 – Investment of Customer Funds – Time-Limited NoAction Position for Investments in Securities with an Adjustable Rate of Interest Benchmarked to the 

Secured Overnight Financing Rate, issued January 4, 2021 (“Staff Letter 21-02”); CFTC Staff Letter 22-21 

– CFTC Regulation 1.25 – Investment of Customer Funds in Securities with an Adjustable Rate of Interest 

Benchmarked to the Secured Overnight Financing Rate – Extension of Time-Limited No-Action Position 

Concerning Investments by Futures Commission Merchants and No-Action Position Concerning 

Investments by Derivatives Clearing Organizations, issued December 23, 2022 (“Staff Letter 22-21”). 61 See Joint Petition at p. 4.
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revised list of Permitted Investments as proposed, and is proposing a clarifying 

amendment to Regulation 22.3(d) to specify that DCOs bear the financial responsibility 

for losses resulting from Permitted Investments. The Commission is also proposing to 

replace LIBOR with SOFR as a permitted benchmark for the interest rate of adjustable 

rate securities that qualify as Permitted Investments. Lastly, the Commission is

proposing to revise its regulations to eliminate the requirement that a depository holding 

customer funds must provide the Commission with read-only electronic access to such 

accounts for the FCM to treat the accounts as customer segregated fund accounts. 

Collectively, the proposed revisions and amendments are referred to as the “Proposal.”

A. Investment of Customer Funds

1. Interests in Money Market Funds 

Regulation 1.25(a)(1)(vii) currently provides that FCMs and DCOs may invest 

Customer Funds in interests in MMFs, subject to specified terms and conditions.62 To 

qualify as a Permitted Investment, a MMF must: (i) be an investment company that is 

registered with the SEC under the Investment Company Act of 194063 and hold itself out 

to investors as a MMF in accordance with SEC Rule 2a-7;64 (ii) be sponsored by a 

federally-regulated financial institution, a Section 3(a)(6) bank,65 an investment adviser 

registered under the Investment Advisers Act of 1940,66 or a domestic branch of a foreign 

bank insured by the FDIC; and (iii) compute the net asset value (“NAV”) of the fund by 9 

 62 17 CFR 1.25(a)(vii). 63 15 U.S.C. 80a-1 – 80a-64. 64 17 CFR 270.2a-7. 65 For a definition of Section 3(a)(6) bank, see supra note 51. 66 15 U.S.C. 80b-1 – 80b-21.
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a.m. of the business day following each business day and make the NAV available to 

MMF shareholders by that time.67

The Commission is proposing to amend Regulation 1.25(a)(1)(vii) to limit the 

scope of MMFs whose interests qualify as Permitted Investments to “government money 

market funds,” as defined in SEC Rule 2a-7, in response to two sets of amendments that 

the SEC adopted to its rules governing MMFs discussed below.

68 A Government MMF

is defined in SEC Rule 2a-7 as a fund that invests 99.5 percent or more of its total assets 

in cash, “government securities,” and/or Repurchase Transactions that are collateralized 

fully by cash or “government securities.”69 A “government security” is defined as “any 

security issued or guaranteed as to principal or interest by the United States, or by a 

person controlled or supervised by and acting as instrumentality of the Government of the 

United States pursuant to authority granted by the Congress of the United States; or any 

certificate of deposit of any of the foregoing.”70 Therefore, a “government security” 

encompasses “U.S. government securities” and “U.S. agency obligations” as defined 

under Regulation 1.25(a)(1)(i) and (iii), respectively.71

As noted above, the Commission is proposing to amend Regulation 1.25 to limit 

the scope of MMFs that qualify as Permitted Investments in response to SEC revisions to 

 67 17 CFR 1.25(c). 68 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. 69 17 CFR 270.2a-7(a)(14). 70 15 U.S.C. 80a-2(a)(16). 71 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.
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its MMF rules. In that regard, in 2014, the SEC amended Rule 2a-7 to permit an MMF to 

impose liquidity fees on participant redemptions or to temporarily suspend participant 

redemptions if the MMF’s investment portfolio triggered certain liquidity thresholds.72 

The 2014 SEC MMF Final Rule was adopted to mitigate the adverse effects on fund 

liquidity resulting from increased participant redemptions during times of financial 

stress.73

The 2014 SEC MMF Final Rule provides that a MMF that invests less than 30 

percent of its total assets in instruments defined as “weekly liquid assets”74 may impose a 

liquidity fee of up to two percent of the value of any shares redeemed, or may

temporarily suspend participants’ redemptions for up to 10 business days in a 90-day 

period, if the MMF’s board of directors determines that imposing the liquidity fee or 

suspending redemptions is in the best interest of the MMF.

75 In addition, if a MMF 

invests less than 10 percent of its total assets in weekly liquid assets, the MMF must 

impose a liquidity fee of at least one percent, and not more than two percent, on the value 

of any shares redeemed, unless the MMF’s board of directors determines that the fee is 

not in the best interest of the MMF.

76 The SEC Redemption Provisions are directly 

 72 Money Market Fund Reform; Amendments to Form PF, 79 FR 47736 (Aug. 14, 2014) (“2014 SEC MMF 

Final Rule”). See 17 CFR 270.2a-7(c)(2). 73 2014 SEC MMF Final Rule at 47747. 74 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). 75 17 CFR 270.2a-7(c)(2)(i). 76 17 CFR 270.2a-7(c)(2)(ii). (The liquidity fees and suspension of redemptions provisions of SEC Rule 

2a-7(c)(2) are referred to as the “SEC Redemption Provisions” in this document.)
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applicable to Prime MMFs, and Government MMFs may voluntarily elect to impose such 

provisions (“Electing Government MMFs”).77

Commission staff subsequently received inquiries from market participants 

concerning the permissibility of investing Customer Funds in MMF interests under 

Regulation 1.25 in light of the SEC Redemption Provisions. The Commission’s Division

of Swap Dealer and Intermediary Oversight (“DSIO”), currently known as the Market 

Participants Division (“MPD”) issued CFTC Staff Letter 16-6878 and the Commission’s 

Division of Clearing and Risk (“DCR”) issued CFTC Staff Letter 16-6979 addressing the 

SEC Redemption Provisions and the investment of Customer Funds in MMFs by FCMs 

and DCOs, respectively. Staff Letter 16-6880 expressed DSIO staff’s view that the SEC 

Redemption Provisions conflict with paragraphs (b)(1)81 and (c)(5)(i)82 of Regulation 

1.25, as the Redemption Provisions have the effect of potentially reducing the liquidity of 

Prime MMFs and Electing Government MMFs. Therefore, in connection with the no-

 77 17 CFR 270.2a-7(c)(2)(iii). 78 CFTC Letter No. 16-68, No-Action Relief with Respect to CFTC Regulation 1.25 Regarding Money 

Market Funds (Aug. 8, 2016) (“Staff Letter 16-68”). CFTC Staff Letters are available at the Commission’s 

website, www.cftc.gov. 

As noted above, Staff Letter 16-68 was issued by DSIO, which was subsequently renamed MPD. For 

purposes of clarity, the Commission notes that the formal division name change is not reflected in the 

proposed amendments to existing Commission regulations and appendices discussed in this Proposal, as the 

Commission plans to address the name change in a separate Commission rulemaking. The new division 

name, however, appears in the newly introduced proposed appendices H and I to Part 1 and Appendix G to 

Part 30, as these appendices do not currently exist in Commission’s regulations and would not be addressed 

in the above-referenced separate rulemaking. 79 CFTC Letter No. 16-69, Staff Interpretation Regarding CFTC Part 39 In Light Of Revised SEC Rule 2a7 (Aug. 8, 2016) (“Staff Letter 16-69”). 80 See also CFTC Staff Advisory No. 16-75, Practical Application of No-Action Letter No. 16-68 

Regarding the Investments in Money Market Mutual Funds (Oct. 18, 2016) (“Staff Letter 16-75”) 

(discussing the practical applicability and effect of Staff Letter 16-68). 81 17 CFR 1.25(b)(1) (providing that investments of customer funds must be highly liquid such that the 

investments must have the ability to be liquidated and converted into cash within one business day without 

material discount in value). 82 17 CFR 1.25(c)(5)(i) (providing that to qualify as a Permitted Investment an MMF must be legally 

obligated to pay a fund investor (including an FCM) by the close of business on the day following a 

redemption request).
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action position taken in the staff letter, DSIO indicated that FCMs may no longer invest 

Customer Funds in such MMFs.83

Staff Letter 16-69 set forth DCR staff’s interpretation that Regulations 39.15(c) 

and (e)84 prohibit a DCO from holding funds belonging to clearing members or their 

customers in Prime MMFs or Electing Government MMFs. DCR staff stated that the 

SEC Redemption Provisions were not consistent with Regulation 39.15(c), which 

requires a DCO to hold funds and assets belonging to clearing members and their 

customers in a manner that minimizes the risk of loss or of delay in the access by the 

DCO to such funds and assets. DCR staff further stated that the SEC Redemption 

Provisions were inconsistent with Regulation 39.15(e), which limits a DCO to investing 

funds and assets belonging to clearing members and their customer in instruments with 

minimal credit, market, and liquidity risk. Therefore, FCMs and DCOs have not invested 

customer funds in Prime MMFs or Electing Government MMFs since the issuance of the 

aforementioned Staff Letters in 2016.

The SEC has recently adopted additional amendments to its MMF rules, including 

amendments revising the SEC Redemption Provisions discussed above.

85 The SEC 

MMF Reforms are intended to address issues observed by the SEC with MMFs in 

connection with the economic shock from the onset of the COVID-19 pandemic. 

Specifically, the SEC stated in March 2020, that concerns about the impact of COVID-19 

pandemic led investors to reallocate their assets into cash and short-term government 

 83 Staff Letter 16-68 at p. 2. 84 17 CFR 39.15(c) and (e). 85 Money Market Fund Reforms; Form PF Reporting Requirements for Large Liquidity Fund Advisers, 

Technical Amendments to Form N-CSR and Form N-1A, 88 FR 51404 (Aug. 3, 2023) (“SEC MMF 

Reforms”). The SEC MMF Reforms have an effective date of October 2, 2023.
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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.86 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.87 Further, according to the SEC, the presence of a liquidity threshold for 

consideration of fees and gates appears to have affected fund managers’ behavior, 

encouraging the sale of long-term portfolio assets to maintain weekly liquid assets above 

the 30 percent threshold. The SEC also cited to evidence suggesting that investors are

particularly sensitive to the potential imposition of redemption gates, which fully inhibit 

the redeemability of MMF shares for the duration of the gate.88 In the SEC’s view, 

generally supported by commenters’ feedback, the gates and liquidity fees associated 

with predictable weekly liquid asset triggers proved counterproductive in stemming 

heavy redemptions from certain MMFs.

89 As such, the SEC concluded that MMFs 

needed better functioning tools for managing through stress while mitigating harm to 

shareholders.90

 86 As noted in the SEC MMF Reforms’ adopting release, to support the short-term funding markets, on 

March 18, 2020, the Federal Reserve, with the approval of the Department of the Treasury, established the 

Money Market Mutual Fund Liquidity Facility. The facility provided loans to financial institutions on 

advantageous terms to purchase securities from MMFs that were raising liquidity. See SEC MMF Reforms 

at 51408. 

87 SEC MMF Reforms at 51407. 88 Id. at 51409. 89 Id. 90 Id. at 51408.
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Accordingly, in an effort to improve the resilience of MMFs and address the issue 

of preemptive investor redemption behavior, particularly in times of stress, the SEC 

adopted changes to the fee and gate provisions in SEC Rule 2a-7. The SEC MMF 

Reforms, among other things, amend the SEC Redemption Provisions by removing a 

Prime MMF’s ability to temporarily suspend participant redemptions and by removing an 

Electing Government MMF’s ability to voluntarily retain authority to suspend participant 

redemptions. The SEC MMF Reforms will also require Prime MMFs to impose a 

liquidity fee when the fund experiences net redemptions that exceed 5 percent of the 

fund’s net assets, and will permit Prime MMFs to impose a discretionary liquidity fee if 

the fund’s board of directors determines that a fee is in the best interest of the fund.91 

Government MMFs will not be required to implement the mandatory liquidity fee but,

consistent with the current SEC Redemption Provisions, may choose to rely on the ability 

to impose discretionary liquidity fees.92 Such fees, however, are no longer tied to the 

weekly liquid asset threshold.93

The SEC’s liquidity fee mechanism is designated to address shareholder dilution 

and the potential for first-mover advantage by allocating liquidity costs to redeeming 

investors. Although the mechanism may contribute to decreasing outflows from certain 

 91 17 CFR 270.2a-7(c)(2)(i) and (ii) (as amended by the SEC MMF Reforms). In describing the different 

types of MMFs, the SEC distinguishes between Prime MMFs, Government MMFs, and tax-exempt (or 

municipal) MMFs. See SEC MMF Reforms at 51406. Tax-exempt MMFs primarily hold obligations of 

state and local governments and their instrumentalities, and pay interest that is generally exempt from 

Federal income tax for individual taxpayers. Within the category of Prime and tax-exempt MMFs, the SEC 

also treats retail and institutional funds separately. The new mandatory liquidity fee framework will apply 

to institutional Prime and institutional tax-exempt MMFs. Tax-exempt MMFs are not specifically 

discussed in this Proposal, though the Commission notes that these funds would be subject to the same 

restrictions as those proposed with respect to Prime MMFs. Retail MMFs are held only by natural persons, 

and as such, are not discussed in this Proposal either.

92 17 CFR 270.2a-7(c)(2)(i)(B) (as amended by the SEC MMF Reforms). 93 17 CFR 270.2a-7(c)(2)(i) (as amended by the SEC MMF Reforms).
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MMFs, the Commission preliminarily believes that the potential imposition of a fee will 

nonetheless have the effect of reducing the liquidity of such funds and will reduce the 

principal of an FCM’s or DCO’s investment in MMF shares. Therefore, consistent with 

the positions taken in Staff Letter 16-68 and Staff Letter 16-69, the Commission is 

preliminarily of the view that FCMs and DCOs should be allowed to invest Customer 

Funds only in MMFs that will not be subject to a liquidity fee (i.e., Government MMFs 

that do not elect to apply a discretionary liquidity fee). Thus, the proposed amendments 

would remove Prime MMFs and Electing Government MMFs, as participants in such 

funds may be subject to liquidity fees in certain circumstances. Therefore, the 

Commission is proposing amendments to Regulation 1.25(a)(1)(vii) that would limit the 

scope of MMFs whose interests qualify as Permitted Investments to Government MMFs

that are not Electing Government MMFs (“Permitted Government MMFs”).94 To qualify 

as a Permitted Government MMF, at least 99.5 percent of the fund’s investment portfolio 

must be comprised of cash, government securities (i.e., U.S. Treasury securities, 

securities fully-guaranteed as to principal and interest by the U.S. Government, and U.S. 

agency obligations), and/or Repurchase Transactions that are fully collateralized by 

government securities as set forth in SEC Rule 2a-7. The Commission preliminarily 

believes that the proposed amendment would ensure that FCMs and DCOs invest 

Customer Funds in instruments that are consistent with the objectives of Regulation 1.25 

of preserving principal and maintaining liquidity of the investments.

 94 See proposed paragraph (a)(1)(iv) of Regulation 1.25. As discussed in Section III.A, the Commission is 

proposing to renumber paragraph (a)(1) of Regulation 1.25 to reflect proposed revisions to the list of 

Permitted Investments. The proposed revisions would result in the renumbering of current paragraph 

(a)(1)(vii) to paragraph (a)(1)(v) of Regulation 1.25.
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The Commission also notes that the proposed amendments to remove from the 

scope of Permitted Investments the interests in MMFs whose redemptions may be subject 

to a liquidity fee would prohibit an FCM from depositing proprietary interests in such 

MMFs into Customer Funds accounts. Regulations 1.23(a)(1), 22.2(e)(3)(i), and 

30.7(g)(1) permit FCMs to deposit proprietary cash and unencumbered securities into the 

accounts of futures customers, Cleared Swaps Customers, and 30.7 customers, 

respectively, to help ensure that at all times the accounts maintain sufficient funds to 

cover the amounts due to all customers and prevent the accounts from becoming 

undersegregated.95 The securities deposited by FCMs, however, must be Permitted 

Investments as set forth in Regulation 1.25.

96 Therefore, with respect to MMFs, FCMs 

would only be permitted to deposit proprietary interest in Permitted Government MMFs 

in the accounts of futures customers, Cleared Swaps Customers, and 30.7 customers 

under the Proposal.

To eliminate MMFs whose redemptions may be subject to a liquidity fee from the 

scope of Permitted Investments under Regulation 1.25, the Commission proposes to 

revise Regulation 1.25(a)(1)(vii), which would be redesignated Regulation 1.25(a)(1)(v) 

to accommodate other amendments to Regulation 1.25(a) discussed in this Proposal, by 

replacing the term “money market mutual fund” with the term “government money 

market funds as defined in § 270.2a-7 of this title, provided that the funds do not elect to 

be subject to liquidity fees in accordance with § 270.2a-7 of this title (government money 

market fund).” The Commission also proposes to make further conforming changes 

 95 17 CFR 1.23(a)(1), 22.2(e)(3)(i), and 30.7(g)(1). 96 Id.
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throughout Regulation 1.25 and the Appendix to Regulation 1.25 by replacing all 

references to “money market mutual fund” with “government money market fund.” In 

addition, the Appendix to Regulation 1.25 would be redesignated as Appendix E to Part 1 

to address a change in the rules of the Office of the Federal Register regarding the 

structure of regulatory text to be codified in the Code of Federal Regulations. 

Request for comment: The Commission seeks comment on all aspects of the 

Proposal to limit the scope of MMFs whose interests qualify as Permitted Investments to 

certain Government MMFs to address changes to SEC rules governing MMFs as 

described above, including: 

1. Other than concentration limits that are discussed further below, should any other 

safeguards be considered for Government MMFs whose interests qualify as Permitted 

Investments under the Proposal to ensure that the credit, liquidity, and market risk of 

those investments is maintained at an acceptable level, particularly in light of the 

history of runs in the Prime MMF markets and the potential for contagion? 

2. Regulation 1.25(b)(5)(ii) currently provides that an FCM or a DCO may invest 

Customer Funds in a fund affiliated with that FCM or DCO. Should the Commission 

revise Regulation 1.25(b)(5)(ii) to prohibit an FCM or a DCO from investing 

Customer Funds in affiliated funds? Are there other Commission or SEC rules that 

mitigate any potential conflicts of interest that may arise from an FCM or a DCO 

investing Customer Funds in affiliated funds? 

2. Foreign Sovereign Debt

Regulation 1.25(a)(1) currently permits FCMs and DCOs to invest in the 

sovereign debt of the U.S. only. Regulation 1.25 previously permitted FCMs and DCOs 
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to invest Customer Funds in the foreign sovereign debt of any country, provided that the 

investments were limited to balances owed by FCMs or DCOs to customers denominated 

in the currency of the applicable foreign sovereign debt.97 The Commission subsequently 

eliminated all foreign sovereign debt as a Permitted Investment in 2011, citing an interest 

in both simplifying the regulation and safeguarding Customer Funds in light of economic 

crises experienced by a number of foreign sovereigns.98 The Commission, however, also 

stated that it recognized that the safety of sovereign debt issuances of one country may 

vary greatly from the sovereign debt issuances of another country, and that investment in 

certain sovereign debt may be consistent with Regulation 1.25’s objective of preserving 

principal and maintaining liquidity of investments.99 The Commission further stated that 

it was amenable to considering requests for Section 4(c) exemptions to permit FCMs and 

DCOs to invest Customer Funds in foreign sovereign debt. Specifically, the Commission 

stated that it would consider permitting Customer Funds to be invested in the foreign 

sovereign debt of a country to the extent that: (i) FCMs or DCOs held balances in 

segregated accounts owed to customers denominated in that country’s currency; and (ii) 

the foreign sovereign debt serves to preserve principal and maintain liquidity of Customer 

Funds as required for all other investments of Customer Funds under Regulation 1.25.100

As discussed in Section II above, the Commission subsequently issued the 2018 

Order pursuant to Section 4(c) of the Act granting DCOs a limited exemption from the 

provisions of Regulation 1.25(a) to authorize the investment of euro-denominated futures 

 97 Regulation 1.25(a)(1) (2005). 98 2011 Permitted Investments Amendment at 78781. 99 Id. at 78782. 100 Id.
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customer funds and Cleared Swaps Customer Collateral in euro-denominated sovereign 

debt issued by France or Germany subject to specified terms and conditions.101 The 2018 

Order also provides an exemption from Regulation 1.25(d) to permit DCOs to enter into 

Repurchase Transactions involving French or German sovereign debt with: (i) the 

European Central Bank; (ii) the Deutsche Bundesbank; (iii) the Banque de France; (iv) a 

foreign bank located in a country that has adopted the euro as its currency and maintains 

in excess of $1 billion in regulatory capital; and (v) a foreign dealer located in a country 

that has adopted the euro as its currency and is subject to regulation by a national 

financial regulator.102 The 2018 Order also permits DCOs to hold German or French 

foreign sovereign debt purchased under reverse repurchase agreements with depositories 

located in a country that has adopted the euro as its currency and that maintain in excess 

of $1 billion in regulatory capital, provided that the DCOs separately account for the 

securities purchased as futures customer funds or Cleared Swaps Customer Collateral, as 

applicable.103

The 2018 Order also contains certain conditions regarding the investment of 

futures customer funds or Cleared Swaps Customer Collateral in French or German 

sovereign debt. Specifically, the 2018 Order provides that the dollar-weighted average 

time-to-maturity of a DCO’s portfolio of investments in either French or German 

sovereign debt may not exceed 60 days.104 In addition, the 2018 Order provides that a 

 101 2018 Order at 35244-35245. The 2018 Order does not address 30.7 customer funds. 102 Condition 3(e) of the 2018 Order at 35245. 103 Condition 3(f) of the 2018 Order at 35245. 104 Condition 3(c) of the 2018 Order at 35245.
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DCO may not make a direct investment in any French or German debt instrument with a 

remaining time-to-maturity of greater than 180 calendar days.105

For the reasons stated below, the Commission is proposing to amend Regulation 

1.25 to add Specified Foreign Sovereign Debt to the list of Permitted Investments. The 

proposed addition of Specified Foreign Sovereign Debt would be subject to certain 

conditions that are consistent with the criteria specified in the 2011 Permitted 

Investments Amendment106 and the conditions specified in the 2018 Order discussed 

above. The proposed conditions are also consistent with the general objectives set forth 

in Regulation 1.25 of preserving principal and maintaining liquidity of Permitted 

Investments.107

The proposed amendments would expand the exemptive relief provided in the 

2018 Order by adding the debt of Canada, Japan, and the United Kingdom, in addition to 

that of France and Germany, to the list of Permitted Investments under Regulation 1.25, 

and by allowing FCMs, in addition to DCOs, to invest in the foreign sovereign debt.108

FCMs collectively held an aggregate of a U.S. dollar equivalent of $51 billion of 

Customer Funds denominated in Canadian dollars (“CAD”), euros (“EUR”), Japanese 

yen (“JPY”), and Great British pounds (“GBP”) on August 15, 2023. The $51 billion 

 105 Condition 3(d) of the 2018 Order at 35245. 106 See 2011 Permitted Investments Amendment at 78782 (stating that the Commission would consider 

permitting foreign sovereign debt investments to the extent that: (i) the petitioner has balances in 

segregated accounts owed to customers or clearing member FCMs in that country’s currency; and (ii) the 

sovereign debt serves to preserve principal and maintain liquidity of customer funds as required for all 

other investments of customer funds under Regulation 1.25).

107 17 CFR 1.25(b). 108 Proposed Regulation 1.25(a)(1)(vi).
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represented approximately 10 percent of the total $490 billion of Customer Funds held by 

FCMs in segregated accounts on August 15, 2023.109

Having considered the Joint Petition and analyzing the instruments’ 

characteristics, the Commission believes that including Specified Foreign Sovereign Debt 

as a Permitted Investment would be consistent with the overall objectives set forth in 

Regulation 1.25 of preserving principal and maintaining liquidity of Customer Funds. 

The Joint Petition states that the Specified Foreign Sovereign Debt has credit and 

liquidity characteristics that are comparable to the credit and liquidity characteristics of 

U.S. Treasury securities. Specifically, the Joint Petition states that the credit default 

swaps of Canada, France, Germany, Japan, and the United Kingdom have relatively 

narrow spreads similar to the credit default spread of the United States.110 With respect 

to liquidity, the Joint Petition states that there were substantial amounts of outstanding 

marketable Canadian, French, German, Japanese, and United Kingdom debt and provided 

data on the amount of outstanding debt in instruments with time-to-maturity of two years 

or less issued by each relevant jurisdiction.111

 109 The $490 billion represents the U.S. dollar equivalent of the total value of margin assets held by FCMs 

for futures customers, Cleared Swaps Customers, and 30.7 customers as reported to CME as of August 15, 

2023. The breakdown by currency was as follows: CAD 14 billion; EUR 18 billion; GBP 3 billion; and 

JPY 16 billion. Some of these funds may have been posted by the FCMs to DCOs as margin collateral.

110 See Joint Petition at pp. 6-7. 111 See Appendix A to Joint Petition and Supplement to Joint Petition at p. 1 (indicating 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). See also Bank of International Settlements’ Debt Securities Statistics (including data as of the 

end of 2021), available here: https://www.bis.org/statistics/secstats.htm?m=2615 and 2021 Survey on 

Liquidity in Government Bond Secondary Markets, Organization for Economic Co-operation and 

Development, available here: https://www.oecd-ilibrary.org/sites/b2d85ea7-

en/1/4/2/index.html?itemId=/content/publication/b2d85ea7-

en&_csp_=e3b7b0a57d02c41c597306342c85c8b6&itemIGO=oecd&itemContentType=book (confirming 

that Specified Foreign Sovereign Debt instruments presented good liquidity characteristics in 2021).
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The Commission also analyzed the volatility of the Specified Foreign Sovereign 

Debt and observed, based on the available data, that the price risk of the relevant foreign 

sovereign debt is comparable to that of U.S. Treasury securities. Specifically, using oneyear sovereign debt instruments yield data for the period September 21, 2018 to 

September 20, 2023, the Commission notes that the standard deviation of daily yield 

change for one-year U.S. Treasury bills was 9 BPS, whereas the same measure for 

Canadian, French, German, Japanese, and United Kingdom one-year debt instruments 

ranged from 1 to 7 BPS.112 The Commission also notes that holding high-quality foreign 

sovereign debt may pose less risk to Customer Funds than the credit risk of commercial 

banks through unsecured bank demand deposit accounts.113

Furthermore, the Commission believes that the proposed amendments would 

provide FCMs and DCOs with an investment option to manage the potential foreign 

exchange risk that may arise in their administration and investment of Customer Funds. 

Specifically, the Commission notes that absent the ability to invest Customer Funds in 

identically-denominated sovereign debt securities, an FCM or a DCO seeking to invest 

customer foreign currency deposits would need to convert the currencies to a U.S. dollardenominated asset, which would introduce potential foreign currency fluctuation risk to 

the FCMs and DCOs.114

 112 The 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. 

113 The Commission discussed the preferability from a risk management perspective of investing foreign 

currency in high quality foreign sovereign debt relative to the credit risk posed by unsecured demand 

deposit accounts at commercial banks in issuing the 2018 Order permitting DCOs to invest futures 

customer funds and Cleared Swaps Customer Collateral in French and German sovereign debt. See 2018 

Order at 35245-35246. 114 To reach this conclusion, the Commission considered, among other factors, the daily volatility of 

exchange rates of the relevant currency pairs. Specifically, based on data from the Federal Reserve Bank of 
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Based on these considerations, the Commission proposes to expand the list of 

Permitted Investments to include Specified Foreign Sovereign Debt. To ensure that 

investments in Specified Foreign Sovereign Debt remain consistent with Regulation 

1.25’s general objectives of preserving principal and maintaining liquidity, and with the 

criteria specified in the 2011 Permitted Investments Amendment for adding foreign 

sovereign debt as a Permitted Investment, the Commission is proposing to permit the 

investment of Customer Funds in such debt subject to specified conditions, which are 

discussed below.

First, under the Proposal, an FCM or a DCO would be permitted to invest in the 

foreign sovereign debt of only Canada, France, Germany, Japan, and the United 

Kingdom.115 The five jurisdictions are among the seven largest economies in the 

International Monetary Fund’s classification of advanced economies.116 Each country is 

also a member of the Group of 7 (“G7”), which represents the world’s largest industrial 

democracies, and qualifies as a “money center country” as the term is defined in 

Regulation 1.49(a)(1).117 Additionally, the currencies of the five jurisdictions represent a 

 St. Louis’ FRED database, the Commission notes that for the period from September 2018 to September 

2023, the standard deviation of the daily percentage change of exchange rate between the relevant currency 

pairs was 0.45 percent for the CAD/USD pair, 0.46 percent for the EUR/USD pair, 0.61 percent for the 

GBP/USD pair, and 0.55 percent for the JPY/USD pair, indicating a currency fluctuation that is an 

additional risk factor with respect to the return on investment of customer foreign currency deposits in U.S. 

dollar-denominated assets. The Commission also recognized foreign currency fluctuation risk in the 2000 

Permitted Investments Amendment, which added foreign sovereign debt to the list of Permitted 

Investments for the first time. See 2000 Permitted Investments Amendment at 78003. 115 Proposed Regulation 1.25(a)(1)(vii). 116 See 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-outlookapril-2023. 117 17 CFR 1.49(a). In the absence of customer instructions to the contrary, Regulation 1.49(c) limits 

permissible locations of depositories of Customer Funds to the U.S., the country of origin of the currency, 

and a “money center country.” The concept of “money center country” is defined to mean Canada, France, 

Italy, Germany, Japan, and the United Kingdom, and is intended to correspond, together with the U.S., to 
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material portion of the total amount of non-U.S. dollar-denominated obligations that

FCMs owe to customers, and amount to approximately 10 percent of the total Customer 

Funds held by FCMs and DCOs.

118

Second, an FCM or a DCO would be permitted to invest in the Specified Foreign 

Sovereign Debt of a country only to the extent that the FCM or a DCO has balances in 

accounts owed to customers denominated in the country’s currency.119 Prior to the 2011 

Permitted Investments Amendment, when Regulation 1.25 permitted the investment of 

Customer Funds in foreign sovereign debt, the regulation included a similar restriction.120 

As noted above, the Commission explained that an FCM or a DCO seeking to invest 

deposits of foreign currencies, absent the ability to invest in 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.121 The Commission believes the restriction is appropriate as it 

balances the need to ensure the safety of Customer Funds with the Commission’s desire 

to provide a degree of investment flexibility to FCMs and DCOs.122

 the list of G7 countries. See Denomination of Customer Funds and Location of Depositories, 68 FR 5551 

(Feb. 4, 2003) at 5546.

118 Based on data contained in the Segregation Investment Detail Reports filed by FCMs with the 

Commission as of August 15, 2023. The reports contain detailed listings of the Permitted Investments held 

by each FCM. See 17 CFR 1.32(f), 17 CFR 22.2(g)(5), and 17 CFR 30.7(l)(5). 119 Proposed Regulation 1.25(a)(1)(vii)(A) and (B). 120 See 2000 Permitted Investments Amendment at 65 FR 78010, which provided in paragraph (a)(1)(vii) of 

Regulation 1.25 that an FCM or a DCO could invest in debt of a foreign sovereign subject to certain 

conditions, including that the FCM or DCO had balances owed to customers denominated in that country’s 

currency.

121 Id. at 78003. 122 As discussed supra, prior to 2011, the Commission permitted an FCM or a DCO to invest Customer 

Funds in foreign sovereign debt subject to the condition that the FCM or DCO held balances owed to 

customers denominated in the currency of the foreign country. In the wake of the 2008 financial crisis, the 

Commission eliminated foreign sovereign debt from the list of permitted investments noting at the time that 

“in many cases, the potential volatility of foreign sovereign debt in the current economic environment and 

the varying degrees of financial stability of different issuers make foreign sovereign debt inappropriate for 
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Third, the Commission is proposing to permit FCMs and DCOs to invest in 

Specified Foreign Sovereign Debt provided that the two-year credit default spread of the 

issuing sovereign is 45 BPS or less.123 This condition is consistent with the 45 BPS twoyear credit default spread limit specified by the Commission in the 2018 Order permitting 

DCOs to invest futures customer funds and Cleared Swaps Customer Collateral in French 

and German sovereign debt.124 The Commission set the cap of 45 BPS in the 2018 Order 

based on a historical analysis of the two-year credit default spread of the U.S. (“U.S. 

Spread”).125 Forty-five BPS was, at the time, approximately two standard deviations 

above the mean U.S. Spread over the preceding eight years.126

The Commission observed that over that eight-year period of July 3, 2009 to July 

3, 2017, the U.S. Spread was 45 BPS or less approximately 95 percent of the time and 

exceeded 45 BPS approximately 5 percent of the time. During the same period, the twoyear German spread exceeded 45 BPS approximately 6 percent of the time and the twoyear French spread exceeded 45 BPS approximately 25 percent of the time, with all 

 hedging foreign currency risk.” 2011 Permitted Investments Amendment at 78781. Yet it recognized that 

“the safety of sovereign debt issuances of one country may vary greatly from those of another, and that 

investment in certain sovereign debt might be consistent with the objectives of preserving principal and 

maintaining liquidity, as required by Regulation 1.25.” Id. at 78782. For the reasons discussed above, the 

Commission is proposing to reinstate certain foreign sovereign debt consistent with the Commission’s 

expressed statement in the 2011 Permitted Investments Amendment that it would consider permitting such 

investments provided that the investments: (i) are limited to balances owed to customers denominated in 

the currency of the applicable foreign sovereign, and (ii) serve to preserve the principal and maintain the 

liquidity of Customer Funds. See id. at 78782. The Proposal is also consistent with the Commission’s 

approach in the 2018 Order of permitting DCOs to invest in the sovereign debt of France and Germany to 

the extent such foreign sovereign debt satisfies specific criteria demonstrating consistency with the credit, 

liquidity, and volatility of short-term U.S. Treasury securities. 123 Proposed Regulation 1.25(f)(3). 124 Condition 3(b) of the 2018 Order at 35245. 125 See 2018 Order at 35243. 126 In 2018, the Commission reviewed the daily U.S. Spread from July 3, 2009 to July 3, 2017. Over that 

time period, the U.S. Spread had a mean of approximately 26.5 BPS and a standard deviation of 

approximately 9.72 BPS. Forty-five BPS were approximately two standard deviations above the 26.5 

mean. 
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exceedances occurring between July 2009 and September 2012, in the aftermath of the 

2008 financial crisis and the European sovereign debt crisis.127

During the more recent period of September 21, 2018 to September 20, 2023, the 

U.S. Spread had a mean of approximately 16.4 BPS,128 which was lower than the mean 

spread of 26.5 BPS for the July 3, 2009 to July 3, 2017 period. In that same time period, 

the two-year credit default swap spread of the sovereigns issuing the Specified Foreign 

Sovereign Debt did not exceed 45 BPS. Based on these more recent U.S. Spread and 

Foreign Sovereign Debt data, the Commission preliminarily believes that the cap of 45 

BPS established in the 2018 Order continues to be set at an appropriate level.129

Under the Proposal, if the credit default spread of a subject country were to 

exceed the 45 BPS cap, FCMs and DCOs would not be permitted to make new 

investments in the country’s Specified Foreign Sovereign Debt.130 In addition, if the 

credit default spread exceeded the 45 BPS cap, FCMs and DCOs would be required to 

discontinue investing Customer Funds in that sovereign’s debt through Repurchase 

Transactions as soon as practicable under the circumstances.131 The FCMs or DCOs 

would not, however, be required to immediately divest their current investments in 

Specified Foreign Sovereign Debt, given the risks associated with selling assets into a 

 127 See 2018 Order at 35243. 128 Based on an assessment conducted by CFTC staff on September 20, 2023. 129 Using the daily U.S. Spread data from July 3, 2009 to July 3, 2017 and assuming the two-year credit 

default spread follows a normal distribution, the Commission estimated that there was less than 2.5 percent 

likelihood that the U.S. credit default spread would exceed 45 BPS over a two-year period. In addition, the 

Commission’s estimate, based on the daily U.S. Spread data from September 21, 2018 to September 20, 

2023, indicates that there is less than 1 percent likelihood, under both normal and empirical distributions, 

that the two-year credit default swap spread of the sovereigns issuing Specified Foreign Sovereign Debt 

would exceed 45 BPS. Therefore, the Commission preliminarily believes that 45 BPS represents an 

appropriate threshold for countries whose debt may qualify as a Permitted Investment under Regulation 

1.25.

130 Proposed Regulation 1.25(f)(3)(i). 131 Proposed Regulation 1.25(f)(3)(ii).
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potentially volatile market or having to immediately locate depositories for funds that had 

been invested in a Repurchase Transaction with limited notice. The prohibition on new 

investments would reduce the exposure to Customer Funds by avoiding the risk of default 

on the Specified Foreign Sovereign Debt. In situations where the 45 BPS cap is 

exceeded, the Commission preliminarily believes that it would be more appropriate for 

FCMs and DCOs to hold Customer Funds denominated in foreign currency in cash or 

invest the foreign currency in U.S. dollar-denominated Permitted Investments instead of 

Specified Foreign Sovereign Debt. In addition, the length to maturity condition discussed 

immediately below would mitigate price risks to the Customer Funds that might arise 

from a country’s two-year credit default spread exceeding the 45 BPS limit. 

Fourth, the Commission is proposing to limit the time-to-maturity of investments 

in Specified Foreign Sovereign Debt. Specifically, under the Proposal, an FCM or a

DCO would be required to ensure that the dollar-weighted average time-to-maturity of its 

portfolio of investments in the Specified Foreign Sovereign Debt, as the average is 

computed under Rule 2a-7 under the Investment Company Act of 1940 (“SEC Rule 2a7”)132 on a country-by-country basis, does not exceed 60 calendar days.133 Consistent 

with the position taken in the 2018 Order,134 if the portfolio includes Specified Foreign 

Sovereign Debt instruments that have been acquired under a reverse repurchase 

agreement, the FCM or DCO would be permitted to use the maturity of the reverse 

repurchase agreement to compute the dollar-weighted average time-to-maturity of the 

 132 17 CFR 270.2a-7. 133 Proposed Regulation 1.25(f)(1). Under the Proposal, the dollar-weighted average of the time-tomaturity would be computed pursuant to SEC Rule 2a-7 (17 CFR 270.2a-7), consistent with the general 

time-to-maturity provision in Regulation 1.25(b)(4)(i). 134 2018 Order at 35244.
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portfolio.135 This approach takes into account the expected resale of the instruments, 

which would be scheduled to occur within one business day or on demand as required by 

Regulation 1.25(d)(6).136 Conversely, if the FCM or DCO sells Specified Foreign 

Sovereign Debt instruments under a repurchase agreement, the FCM or DCO would be 

required to include the instruments in the calculation of the dollar-weighted average 

based on the remaining time-to-maturity of each instrument sold, to account for the 

expected repurchase of such instruments.137 In addition, an FCM or a DCO would not be 

permitted to make direct investments in any Specified Foreign Sovereign Debt instrument 

that had a remaining maturity greater than 180 calendar days.138

Arguing that these restrictions, which are analogous to the restrictions in the 2018 

Order, would be too limiting, the Petitioners requested that the Commission revise the 

regulations to provide a six-month dollar-weighted average time-to-maturity for the 

portfolio of foreign sovereign debt, and a maximum two-year remaining time-to-maturity 

for each foreign sovereign debt instrument.139 The Commission, however, notes that the 

proposed restrictions are intended to ensure that an FCM’s or DCO’s portfolio of 

Specified Foreign Sovereign Debt is comprised of sovereign debt instruments that mature 

within a relatively short period of time. The short time-to-maturity requirement is 

expected to assist FCMs and DCOs in managing and mitigating potential market and/or 

credit risk by providing FCMs and DCOs with the option of holding the debt instruments 

 135 Consistent with SEC Rule 2a-7(i)(6), the reverse repurchase agreement would be deemed to have a 

maturity equal to the period remaining until the date on which the resale of the underlying instruments is 

scheduled to occur, or, where the agreement is subject to demand, the notice period applicable to a demand 

for the resale of the instruments. See proposed Regulation 1.25(f)(1). 136 17 CFR 1.25(d)(6). 137 Proposed Regulation 1.25(f)(1). 138 Proposed Regulation 1.25(f)(2). 139 Joint Petition at pp. 5-6 (asserting that the new issuance supply of the Specified Foreign Sovereign Debt 

meeting the restrictions is limited and would be thinly traded/quoted).
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to maturity during periods of market stress and price volatility rather than selling the debt 

instruments at potentially significant discounts. This option may be particularly valuable 

in periods of significant interest rate movements, which could exacerbate market risk in 

sovereign debt markets. In that regard, the Commission preliminarily views the relatively 

short time-to-maturity as an essential risk-managing feature in the context of investments 

in Specified Foreign Sovereign Debt and preliminarily believes that the 60-day dollarweighted average time-to-maturity restriction and the 180-day remaining maturity 

restriction are more appropriate than the six months and two years respective limits 

requested in the Joint Petition.

The Commission also believes that the proposed time-to-maturity requirements 

would not be as limiting as asserted in the Joint Petition given that the new issuance 

supply of the Specified Foreign Sovereign Debt meeting the proposed restrictions appears 

adequate to satisfy the demand for the investment of Customer Funds in the relevant 

instruments.140 In addition, the use of the maturity of reverse repurchase agreements in 

the calculation of the dollar-weighted average of the portfolio of investments in Specified 

Foreign Sovereign Debt would reduce the average time-to-maturity of the portfolio as a 

 140 Data made available by the Bank of Canada, l’Agence France Trésor (the French Finance Agency), the 

Bundesrepublik Deutschland Finanzagentur (the German Finance Agency), the Japan Ministry of Finance, 

and the United Kingdom Debt Management Office indicate that the five jurisdictions issue a sizable 

amount of debt securities with time-to-maturity of less than 180 days on a frequent basis. Specifically, in 

July 2023, Canada auctioned approximately USD 22 billion, France auctioned approximately USD 18 

billion, Germany auctioned approximately USD 10 billion, Japan auctioned approximately USD 15 billion, 

and the United Kingdom auctioned approximately USD 34 billion in debt instruments with time-tomaturity of six months or less (see Canadian Treasury bills auction results at 

https://www.bankofcanada.ca/markets/government-securities-auctions/calls-for-tenders-andresults/regular-treasury-bills/; French BTF auction history at https://www.aft.gouv.fr/en/dernieresadjudications); German Bubills issuance results at https://www.deutsche-finanzagentur.de/en/federalsecurities/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/).
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whole. As noted in the request for comment below, the Commission is explicitly seeking 

comment on its preliminary analysis.

The Commission is also proposing to amend Regulation 1.25(b)(4)(i), which 

provides that except for investments in MMFs, the dollar-weighted average time-tomaturity of an FCM’s or a DCO’s portfolio of Permitted Investments, as computed under 

SEC Rule 2a-7, may not exceed 24 months. The proposed amendment would revise 

Regulation 1.25(b)(4)(i) to exclude Specified Foreign Sovereign Debt from the 

calculation of the dollar-weighted average time-to-maturity of the portfolio.141 The 

Commission is proposing this amendment as Specified Foreign Sovereign Debt would be 

subject to its own dollar-weighted average time-to-maturity limit of 60 calendar days, 

which is substantially shorter than the two-year dollar-weighted average time-to-maturity 

requirement for the overall portfolio required by Regulation 1.25(b)(4)(i).

To allow Regulation 1.25(a)(2) to effectively incorporate Specified Foreign 

Sovereign Debt as a Permitted Investment that FCMs and DCOs would be able to buy or 

sell pursuant to Repurchase Transactions, the Commission also proposes to expand the

permissible counterparties and depositories under Regulation 1.25(d)(2) and (7) to 

include certain foreign entities. Regulation 1.25(d)(2) limits counterparties with which 

an FCM or a DCO may enter into a Repurchase Transaction to a Section 3(a)(6)142 bank, 

a domestic branch of a foreign bank insured by the FDIC, a securities broker or dealer, or 

a government securities dealer registered with the SEC or which has filed a notice 

pursuant to Section 15C(a) of the Government Securities Act of 1986.143 Regulation 

 141 Proposed revised Regulation 1.25(b)(4)(i). 142 For a definition of Section 3(a)(6) bank, see supra note 51. 143 Pub. L. 99–571, 100 Stat. 3208 (Oct. 28, 1986).
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1.25(d)(7) further requires an FCM and a DCO to hold the securities transferred to the 

FCM or DCO under a reverse repurchase agreement, in a safekeeping account held with a 

bank as referred to in Regulation 1.25(d)(2), a Federal Reserve Bank, a DCO, or the 

Depository Trust Company.

As a practical matter, absent amendment to these counterparty and depository 

provisions, an FCMs’ and DCOs’ ability to buy and sell Specified Foreign Sovereign 

Debt pursuant to Repurchase Transactions would be restricted given that participants in 

the foreign sovereign debt Repurchase Transactions market are predominantly non-U.S. 

entities. The Commission therefore proposes to add foreign banks and foreign brokers or 

dealers meeting certain requirements, as well as the European Central Bank and the 

central banks of Canada, France, Germany, Japan, and the United Kingdom, to the list of 

permitted counterparties.144 To be deemed a permitted counterparty, a foreign bank 

would have to qualify as a depository under Regulation 1.49(d)(3) by holding regulatory 

capital in excess of $1 billion, and would also have to be located in a money center 

country as defined in Regulation 1.49(a)(1) (i.e., Canada, France, Italy, Germany, Japan, 

and the United Kingdom) or in another jurisdiction that has adopted the currency of the 

permitted foreign sovereign debt. Similarly, a foreign broker or dealer would have to be 

located in a money center country and be regulated by a foreign financial regulator. The 

proposed provisions are designed to ensure that the counterparties would be regulated 

entities comparable to those counterparties already permitted under Regulation 

 144 Proposed Regulation 1.25(d)(2).
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1.25(d)(2), and are consistent with the counterparty conditions set forth in the 2018 

Order.145

With respect to permitted depositories, the Commission proposes to permit 

Specified Foreign Sovereign Debt instruments transferred to an FCM or a DCO under a 

reverse repurchase agreement to be held with a foreign bank that qualifies as a permitted 

depository under Regulation 1.49.146 The proposed provision is designed to ensure that 

any additional depositories would be comparable to those already permitted under 

Regulation 1.25(d)(7), and subject to the conditions for depositories in the 2018 Order.147 

The Commission notes that mandating the safekeeping of foreign securities purchased 

through reverse repurchase agreements with a U.S. custodian as required under the 

current regulation may be inefficient or impractical.

Request for Comment. The Commission seeks comment on all aspects of the 

Proposal relating to the expansion of the list of Permitted Investments to include 

Specified Foreign Sovereign Debt, including: 

3. Under the Proposal, the list of Permitted Investments set forth in Regulation 1.25(a) 

would be expanded to include sovereign debt issued by Canada, France, Germany, 

Japan, and the United Kingdom, subject to specified conditions. Although these 

Specified Foreign Sovereign Debt instruments present credit and liquidity 

characteristics that are similar to those of currently Permitted Investments, such debt 

may also be less liquid than U.S. government securities. Do investments in Specified 

 145 See 2018 Order, Condition (e) at 35245. 146 Proposed Regulation 1.25(d)(7). 147 See 2018 Order, Condition (f) at 35245.
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Foreign Sovereign Debt raise any liquidity issues or concerns? If so, please explain 

your responses and provide data if possible.

4. The Proposal would prohibit investments of Customer Funds in Specified Foreign 

Sovereign Debt if the two-year credit default swap spread of the issuing sovereign 

exceeds 45 BPS. Should the Commission consider a higher or lower credit default 

spread limit? If so, please specify the appropriate credit default spread and explain 

why it is necessary and appropriate. Should the investment prohibition be contingent 

on the breach of the 45 BPS threshold occurring a certain number of times within a 

specified time period or for a particular duration within a specified time period? 

Should there be a “cooling-off” period before the Specified Foreign Sovereign Debt 

may be used again as a Permitted Investment under Regulation 1.25? For instance, 

should the Specified Foreign Sovereign Debt be subject to a requirement that the 

CDS spread be below 45 BPS for a minimum period of time (e.g., 3 months) before it 

could be reinstated as an eligible Permitted Investment? 

5. The Proposal would limit the time-to-maturity of investments in Specified Foreign 

Sovereign Debt to a 60-day maximum dollar-weighted average time-to-maturity of 

the portfolio of investments and a 180-day maximum remaining time-to-maturity of 

individual direct investments. The Petitioners requested that the limits be set at six 

months and two years, respectively. Should the Commission consider extending the 

time-to-maturity limits as requested? If yes, please provide analysis and appropriate 

market data supporting the extension.
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3. Interests in U.S. Treasury Exchange-Traded Funds

ETFs are collective investment vehicles that issue redeemable securities that are 

also traded at the market price on national securities exchanges.148 The Commission 

proposes to add interests in ETFs to the list of Permitted Investments under Regulation

1.25, subject to specified proposed conditions discussed below.

The SEC adopted Rule 6c-11149 under the Investment Company Act of 1940 in 

2019, creating a regulatory framework that allows ETFs meeting certain requirements to 

operate as investment companies under the Investment Company Act of 1940 without 

having to obtain an exemptive order from the SEC as previously required.150 Like other 

investment companies, an ETF pools the assets of multiple investors and invests those 

assets according to a set investment objective and principal investment strategies.

151 

Each share of an ETF represents an undivided fractional interest in the underlying assets 

of the ETF.152 Similar to indexed mutual funds, many ETFs are designed to passively 

track a particular market index, investing in all or a representative sample of the 

instruments included in the index and aiming to achieve the same return as the tracked

index.153 Other ETFs are actively managed, with portfolio managers buying and selling

stocks in accordance with an investment strategy rather than passively tracking an 

index.

154

 148 Invesco Petition at p. 5. See also, Exchange-Traded Funds, 84 FR 57162 (Oct. 24, 2019) (“SEC ETFs 

Release”) at 57164.

149 17 CFR 270.6c-11 (“SEC Rule 6c-11”). 150 See generally SEC ETFs Release. 151 Invesco Petition at p. 5. See also, SEC ETFs Release at 57164. 152 Id. 153 See “Exchange-Traded Funds,” publication by FINRA, available at: 

https://www.finra.org/investors/learn-to-invest/types-investments/investment-funds/exchange-traded-fund. 154 Id.
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As an open-end management company,155 similar to a mutual fund,156 an ETF

continuously offers its shares for sale. Unlike mutual funds, however, ETFs do not sell 

shares to, or redeem shares from, investors directly. Instead, ETFs issue (and redeem) 

shares to (and from) “authorized participants” – market intermediaries that have a 

contractual arrangement with the ETF (or its distributor) and are members or participants 

of a clearing agency registered with the SEC – in blocks called “creation units.”157

Authorized participants play a key role for ETF shares as they are the only investors that 

are allowed to transact directly with the ETF.158 Authorized participants must: (i) be an 

SEC-registered broker or dealer or other securities market participant (such as a bank or 

other financial institution that is not required to register as a broker or dealer to engage in 

securities transactions); (ii) be a full participating member of the National Securities 

Clearing Corporation and the Depository Trust Company; and (iii) have entered into an 

authorized participant agreement with the ETF (and potentially other parties, such as the 

ETF’s sponsor, distributor or transfer agent).159

An authorized participant may act as a principal for its own account or as an agent 

for others when purchasing or redeeming creation units.160 Purchases and redemptions of 

ETF shares by an authorized participant are referred to as “primary market transactions” 

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

and SPDR® Dow Jones Industrial Average ETF Trust. The regulatory framework set forth by SEC Rule 

6c-11, however, applies only to ETFs that are organized as open-end management investment companies. 

See 17 CFR 270.6c-11. 156 A “mutual fund” is a type of open-end management company, meaning that investors can purchase and 

redeem shares in the fund on a daily basis based on the NAV of their shares. Mutual funds pool the money 

of many investors to purchase a range of securities to meet specified investment objectives. 157 See 17 CFR 270.6c-11 (defining “exchange-traded fund”). 158 Invesco Petition at p. 5. 159 Id. 160 See SEC ETFs Release at 57164; see also David Abner, The ETF Handbook: How to Value and Trade 

Exchange-Traded Funds, 2nd ed. (2016).
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and occur at the next-calculated NAV. As noted above, ETF shares can also be 

purchased and sold in the secondary market at market prices that may reflect a discount 

or premium to the ETF’s NAV.

As part of its periodic reassessment of the list of Permitted Investments of 

Customer Funds and in consideration of industry input provided by the Joint Petition and 

the Invesco Petition, the Commission is proposing to include shares in U.S. Treasury 

ETFs to the list of Permitted Investments under Regulation 1.25. More specifically, in 

assessing the potential expansion of the list of Permitted Investments, the Commission 

has considered statements emphasizing the liquidity of U.S. Treasury ETF shares and the 

diversification opportunity that such ETFs provide for Customer Funds. In particular, as 

discussed in other parts of the Proposal, the Petitioners note that U.S. Treasury ETFs 

have characteristics that may be consistent with those of Permitted Investments and may 

provide FCMs and DCOs with an opportunity to further diversify their investments of 

Customer Funds.

161 Similarly, the Invesco Petition focused on the fact that U.S. Treasury 

ETFs invest in a sub-set of the same high-quality liquid instruments that are Permitted 

Investments under Regulation 1.25 (i.e., U.S. government securities).162 The Invesco 

Petition also notes that ETFs, as registered investment companies whose shares are 

registered under the Securities Act and Exchange Act, must comply with a number of 

SEC financial reporting requirements and liquidity risk management program 

requirements.163 Finally, the Invesco Petition asserts that the design and characteristics

 161 See Joint Petition at pp. 8-9. 162 Invesco Petition at p. 2. 163 Id. at pp. 6-7. Financial requirements include: (i) annual shareholder report, including audited financial 

statements (17 CFR 270.30e-1); (ii) semi-annual shareholder report, including unaudited financial 

statements (17 CFR 270.30e-1); (iii) monthly portfolio statistics and holdings filed quarterly (17 CFR 
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such as price and investment transparency, and intra-day trading and liquidity, are 

additional features that help make interests in U.S. Treasury ETFs a safe and efficient 

vehicle for investment of Customer Funds.164

Further, the Commission has taken into consideration the limited range of 

investments that meet the requirements of Regulation 1.25. In that regard, the 

Commission notes that as a result of various regulatory reforms, discussed in this Federal 

Register release, several asset classes included in Regulation 1.25 no longer qualify as 

Permitted Investments. In particular, as discussed in Section III.A.2. above, the range of 

MMFs whose securities qualify as Permitted Investments has contracted, as only interests 

in Permitted Government MMFs currently meet the eligibility criteria of Regulation 1.25. 

In addition, as discussed in Section III.A.4. below, commercial paper and corporate notes 

and bonds no longer qualify as Permitted Investments with the expiration of the TLGP.

Also, due to certain regulatory reforms, there has been an increased demand for 

high quality collateral, including for assets that currently qualify as Permitted 

Investments under Regulation 1.25. For example, in the aftermath of the 2008 financial 

crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection 

Act,165 which set forth a regulatory framework for swaps, requiring, among other things, 

the clearing of certain swaps or the margining of certain uncleared swaps. As a result, 

 270.30b1-9); (iv) annual census report containing financial-related information (17 CFR 270.30a-1); and 

(v) periodic reports with respect to portfolio liquidity and derivatives use (17 CFR 270.30b1-10). With 

respect to liquidity risk management, SEC regulations require open-ended management investment 

companies, including ETFs, to adopt and implement a liquidity risk management program that is 

reasonably designed to assess and manage liquidity risk, which is defined to mean the risk that the fund 

could not meet redemption requests to redeem shares issued by the fund without significant dilution of 

remaining investors’ interests in the fund (17 CFR 270.22e-4). 164 Invesco Petition at p. 2. 165 The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub. L. 111-203, H.R. 

4173).
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market participants dealing in swaps may be required to post to clearinghouses, or post 

and collect with swap counterparties, specified forms of liquid collateral, driving 

increased demand for assets that currently qualify as Permitted Investments.

The Commission believes expanding the range of available Permitted Investments 

to include interests in ETFs that meet specified conditions, as discussed below, would 

provide FCMs and DCOs with greater flexibility and opportunities for capital efficiency 

in the investment of Customer Funds, without unacceptably increasing risk to customers. 

Consistent with the existing regulations limiting customer risk associated with the 

investment of Customer Funds by FCMs and DCOs, under the terms of the Proposal, 

FCMs and DCOs would be financially responsible for bearing any loss on an investment 

of Customer Funds in an ETF in the same manner as FCMs and DCOs are financially

responsible for losses incurred from the investment of Customer Funds in Permitted 

Investments.166

The Commission also believes that the proposed addition of interests in ETFs as 

Permitted Investments under Regulation 1.25(a) would foster innovation and promote 

competition in the ETF market and the financial services industry more generally, as the 

Proposal would permit the flow of Customer Funds into a new type of financial 

instrument that previously had been prohibited and, as discussed below, would offer the 

possibility for market participants to purchase a type of collateral that is already a

 166 See Regulation 1.29(b) (providing that an FCM or a DCO, as applicable, shall bear sole responsibility 

for any losses resulting from the investment of futures customer funds in Permitted Investments) and 

Regulations 22.2(e)(1) and 30.7(i) (providing that an FCM shall bear sole responsibility for any losses 

resulting from the investment of Cleared Swaps Customer Collateral and 30.7 funds, respectively, in 

Permitted Investments). As further discussed in Section III.C. below, the Commission is also proposing an 

amendment to Regulation 22.3(d) to clarify that DCOs are financially responsible for investments of 

Cleared Swaps Customer Collateral in Permitted Investments. 
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Permitted Investment without having to purchase the securities directly or through a 

MMF.

As noted above, industry representatives and other market participants have also 

expressed interest in U.S. Treasury ETFs as Permitted Investments.

167 Both the 

Petitioners and Invesco highlight the similarity in characteristics between U.S. Treasury 

ETF securities and other instruments that qualify as Permitted Investments under 

Regulation 1.25.

168 Invesco further notes that ETFs investing in U.S. Treasury securities 

offer an indirect, yet simpler and more cost-efficient way, for FCMs to invest Customer 

Funds in such instruments, eliminating the need to identify, invest in, and administer 

investments in individual U.S. Treasury securities.169

The Commission also notes that CME accepts shares of short-term U.S. Treasury 

ETFs as performance bond from clearing members to margin customer and house 

trades.170 The Commission believes that this represents an important consideration in 

determining whether to add interests of U.S. Treasury ETFs to the list of Permitted 

Investments given that interests in U.S. Treasury ETFs that qualify as a Permitted 

Investment under the Proposal could ultimately be accepted by DCOs, such as CME, as 

performance bond, and pledged by FCMs as margin collateral.

 167 They generally refer to short-term U.S. Treasury ETFs that invest at least 80 percent of their assets in 

U.S. Treasury securities with a remaining term to final maturity of 12 months or less. 168 See Joint Petition at pp. 8-9 and Invesco Petition at pp. 9-10. 169 Invesco Petition at p. 11. Invesco states that an ETF would allow FCMs and DCOs to gain exposure to 

short-term U.S. Treasury securities without buying and selling Treasury securities on a periodic basis, such 

as each quarter, eliminating the costs associated with trading Treasury securities.

170 CME Advisory Notice, Modifications to Schedule of Acceptable Performance Bond – Addition of ShortTerm U.S. Treasury ETFs (Aug. 2, 2022) (“2022 CME Advisory Notice”), available at 

https://www.cmegroup.com/notices/clearing/2022/08/Chadv22-293.pdf (providing that acceptable ETFs 

must track a U.S. Treasury index and must have a minimum 80 percent investment in U.S. Treasury 

securities with a time to maturity of 1 year or less).
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To ensure consistency with the requirements applicable to other Permitted 

Investments and the general objectives of Regulation 1.25 of preserving principal and 

maintaining liquidity of Permitted Investments, the Commission is proposing to impose 

the conditions discussed below on ETFs for their interests to qualify as a Permitted 

Investment. The Commission preliminarily believes that to the extent ETFs meet the 

proposed conditions, the ETFs would be comparable to Permitted Government MMFs 

whose interests currently qualify as Permitted Investments under Regulation 1.25(a).171 

The Commission also notes that by allowing FCMs and DCOs to invest Customer Funds

in ETFs that meet the specified proposed conditions, it would provide FCMs and DCOs 

with a means for investing indirectly in Permitted Investments – U.S. Treasury securities, 

while allowing FCMs and DCOs to dispense with the expense and resources required to 

manage individual investments in such instruments.

One rationale for adding ETFs investing primarily in short-term U.S. Treasury 

securities to the list of Permitted Investments is the similarity of the ETFs to MMFs 

whose interests qualify as Permitted Investments under Regulation 1.25(a). As such, the 

Commission preliminarily believes that it is appropriate to propose to impose all pertinent 

requirements applicable to MMFs under Regulation 1.25 to such ETFs, subject to certain 

modification to address the unique characteristics of the ETFs. Therefore, under the 

 171 The Commission notes that SEC Rule 2a-7, which applies to MMFs, restricts the types of investments in 

which MMFs can invest their assets, limits the terms of the investments, and imposes liquidity 

requirements with respect to the investments, among other things. See 17 CFR 270.2a-7(d)(2) (providing 

that MMFs must limit their portfolio investments to U.S. dollar-dominated securities that at the time of 

acquisition are eligible securities), 17 CFR 270.2a-7(d)(1) (limiting the terms of maturity of MMFs’ 

investments), and 17 CFR 270.2a-7(d)(4) (providing that MMFs must hold securities that are sufficiently 

liquid to meet reasonably foreseeable shareholder redemptions and setting forth other liquidity 

requirements). Although SEC Rule 2a-7 does not apply to ETFs, as described below, this Proposal would 

admit as a Permitted Investment only ETFs providing investors with substantial protections that are 

comparable, though not identical, to those afforded to MMF investors.
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terms of the Proposal, an ETF would be required to satisfy specified requirements, as 

discussed below, to be a qualified ETF (“Qualified ETF”) whose interests qualify as a 

Permitted Investment.

Consistent with Regulation 1.25(c), which sets forth provisions for MMFs whose 

interests qualify as Permitted Investments, a Qualified ETF would be required to be an 

investment company that is registered under the Investment Company Act of 1940 with 

the SEC and that holds itself out to investors as an ETF under SEC Rule 6c-11.172 The 

ETF would also be required to be sponsored by a federally regulated financial institution, 

a Section 3(a)(6) bank,

173 an investment adviser registered under the Investment Advisers

Act of 1940, or a domestic branch of a foreign bank insured by the FDIC.

174

In addition, the Commission is proposing to limit Qualified ETFs to funds that are 

passively managed and seek to replicate the performance of a published short-term U.S. 

Treasury security index.

175 For purposes of the Proposal, short-term US. Treasury 

securities are bonds, notes, and bills with a remaining maturity of 12 months or less, 

issued by, or unconditionally guaranteed as to the timely payment of principal and 

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

176 Consistent with this condition, the 

Commission is further proposing to require that the eligible U.S. Treasury securities 

represent at least 95 percent of the ETF’s investment portfolio. In that regard, the 

 172 Proposed Regulation 1.25(c)(1). 173 For a definition of Section 3(a)(6) bank, see supra note 51. 174 Proposed Regulation 1.25(c)(2), as applying to Qualified ETFs per proposed revised introductory text of 

paragraph (c) of Regulation 1.25. 

175 Proposed revised Regulation 1.25(a)(1)(vi). 176 Id.
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Commission notes that pursuant to SEC requirements,

177 certain registered investment 

companies, including ETFs, must adopt a policy to invest at least 80 percent of the value 

of their assets in accordance with the investment focus suggested by the fund’s name.

178 

The Commission, however, preliminarily believes that a stricter standard is 

necessary to help ensure that FCMs and DCOs invest Customer Funds in accordance with 

Regulation 1.25’s general objectives of preserving principal and maintaining liquidity. 

The Commission’s preliminary analysis indicates that short-term U.S. Treasury ETFs 

generally invest at least 95 percent of their assets in securities comprising the U.S. 

Treasury securities index whose performance the funds seek to replicate. As such, the 

Commission preliminarily believes that mandating that a Qualified ETF invest a 

minimum of 95 percent of its assets in eligible U.S. Treasury securities would not be 

overly restrictive. 179 To ensure compliance with the proposed condition, FCMs and 

DCOs would be required to monitor the Qualified ETF’s portfolio. If the portion of the

ETF’s assets invested in eligible U.S. Treasury securities falls below 95 percent of the 

fund’s total assets, the FCM or DCO would not be permitted to make additional 

investments of Customer Funds in the ETF. The FCM or DCO would also be expected to

 177 SEC 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. 178 Proposed Regulation 1.25(c)(8)(ii). 179 The Commission considered proposing to require that Qualified ETFs invest at least 99.5 percent of 

their assets in eligible U.S. Treasury securities to reflect an analogous condition in SEC Rule 2a-7 requiring 

that government MMFs invest at least 99.5 percent of their assets in government securities. The 

Commission, however, preliminarily believes that such threshold would be more restrictive in the context 

of Qualified ETFs, given that an eligible U.S. Treasury security would be defined as a bond, note, or bill 

with a remaining maturity of 12 months or less, issued or unconditionally guaranteed by the U.S. 

Department of the Treasury, whereas a government security is broadly defined in SEC Rule 2a-7 (by 

reference to 15 U.S.C. 80a-2(a)(16)) to include U.S. government securities and U.S. agency obligations. 
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take reasonable actions to divest interests in the fund, while managing Customer Funds in

a manner consistent with Regulation 1.25’s general objectives of preserving principal and 

maintaining liquidity. Depending on the market conditions, such actions may include 

taking steps to progressively reduce the amount of Customer Funds invested in ETFs 

instead of immediately divesting the investments in a potentially volatile market.

The Commission preliminarily believes that limiting the investments of Qualified 

ETFs as proposed would increase the safety and resilience of the ETFs 180 and allow the 

funds to more closely match the risk profile of Permitted Investments, including 

Permitted Government MMFs. Also, Qualified ETFs that maintain portfolios primarily 

comprised of high-quality and liquid investments are better able to redeem interests 

without placing excessive downward pressure on the NAVs.

In addition, the agreement pursuant to which an FCM or a DCO acquires and 

holds its interest in the Qualified ETF would be prohibited from containing provisions 

that would prevent the pledging of the Qualified ETF’s shares.181 FCMs and DCOs 

would be required to maintain confirmations relating to their purchase of interests in a 

Qualified ETF in their records in accordance with Regulation 1.31 and note the 

ownership of the interests (by book-entry or otherwise) in the FCMs’ and DCOs’ custody 

 180 The Commission notes that a preliminary analysis of ETFs investing primarily in short-term U.S. 

Treasury securities indicates that the funds have a risk profile and volatility characteristics that are 

comparable to that of the underlying U.S. Treasury security investments. Specifically, using data available 

on Bloomberg, the Commission notes that for the period June 2020-September 2023, the Invesco Collateral 

Treasury ETF, as well as four other short-term U.S. Treasury ETFs that CME accepts as performance 

bond—SPDR® Bloomberg 1-3 Month T-Bill ETF, Goldman Sachs Access Treasury 0-1 Year ETF, iShares 

0-3 Month Treasury Bond ETF, and iShares Short Treasury Bond ETF—had a standard deviation for a 

two-day period of risk of approximately 6 BPS, whereas the one-year U.S. Treasury securities had a 

standard deviation of 8 BPS for the same period.

181 Paragraph (c)(6) of Regulation 1.25 as applying to Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Regulation 1.25.
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account in accordance with Regulation 1.26.182 FCMs and DCOs would be required to 

obtain the acknowledgment letter required by Regulation 1.26 from an entity that has 

substantial control over the ETF interests purchased with Customer Funds and that has 

the knowledge and authority to facilitate redemption and payment or transfer of the 

Customer Funds. Such entity may be the sponsor of the Qualified ETF or a depository 

acting as custodian for the ETF interests. 

Also, the NAV for the Qualified ETF would be required to be computed by 9 a.m. 

of the business day following each business day and made available to FCMs or DCOs, 

as applicable, by that time.183 The Commission notes that this proposed requirement is 

intended to allow for the valuation of the Qualified ETF’s investment portfolio to be 

available by 9 a.m. the business day following an investment in the ETF, so that the 

valuation is available in time for FCMs to perform their daily segregation calculations, 

which are required to be completed by noon each business day, reflecting balances as of 

the close of business on the previous business day.184

Further, the Qualified ETF would be required to be legally obligated to redeem its 

interests and make payment in satisfaction of the interests by the business day following a 

redemption request.

185 FCMs or DCOs, as applicable, would be required to retain 

documentation demonstrating compliance with this requirement.186 Regulation 

1.25(c)(5)(ii) currently provides an exception to the next-day redemption obligation for 

 182 Paragraph (c)(3) of Regulation 1.25 as applying to Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Regulation 1.25.

183 Paragraph (c)(4) of Regulation 1.25 as applying to Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Regulation 1.25.

184 2000 Permitted Investments Amendment at 78003. 185 Paragraph (c)(5)(i) of Regulation 1.25 as applying to Qualified ETFs per proposed revised introductory 

text of paragraph (c) of Regulation 1.25.

186 Id.
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MMFs for defined extraordinary circumstances, such as the non-routine closures of the 

Fedwire or applicable Federal Reserve Banks, and any period during which the SEC by 

order restricts redemptions for the protection of security holders in the fund. Regulation 

1.25(c)(5)(ii) was adopted by the Commission to be consistent with Section 22(e) of the 

Investment Company Act of 1940187 and SEC Rule 22e-3,188 which provides exceptions 

to MMFs for next-day redemptions.189 The Commission is not proposing to adopt nextday redemption exceptions for Qualified ETFs as no comparable provisions are provided 

under the rules of the SEC, and in recognition that the redemption process for ETFs 

involves the exchange of ETF share for cash by authorized participants. As noted below, 

the Commission is seeking comment on the potential existence of extraordinary

circumstances that may warrant an exception to the proposed next-day redemption 

requirement. 

The Commission preliminarily believes that limiting, as discussed above,

Qualified ETFs to funds that track the performance of a published short-term U.S. 

Treasury security index would contribute to facilitating redemptions of Qualified ETFs’ 

 187 15 U.S.C. 80a-22(e). 188 17 CFR 270.22e-3. 189 Regulation 1.25(c)(5)(ii) was originally adopted in 2005. See 2005 Permitted Investments Amendment 

at 28196. It codified a 2001 letter issued by the Commission’s Division of Trading and Markets in 

response to an industry inquiry, stating that the division would raise no issue in connection with MMFs that 

provide for certain exceptions to the next-day redemption requirement. Id. As specified in the 2001 letter, 

the circumstances in which the next-day redemption could be excused overlapped to a certain extent with 

those contained in Section 22(e) of the Investment Company Act of 1940. See CFTC Staff Letter No. 01-

31, [2000-2002 Transfer Binder] Comm. Fut. L. Rep. (CCH)] 28,521 (Apr. 2, 2001). In 2011, the 

Commission revised Regulation 1.25(c)(5)(ii) to more closely align the language of that regulation with 

Section 22(e) and to expressly incorporate SEC Rule 22e-3. See 2011 Permitted Investments Amendment at 

78789. 
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shares to be completed within one business day consistent with Regulations 1.25(c)(5)(i)

and 1.25(b)(1).

190

As previously discussed, ETFs issue and redeem their shares with authorized 

participants in primary market transactions in blocks of shares or “creation units” at the 

NAV per share. Redemptions may be in cash or in kind. Authorized participants and the 

general public can also purchase and sell ETF shares in the secondary market at the 

market price per share. The Commission preliminarily believes that FCMs and DCOs are 

likely to purchase and redeem the shares of a Qualified ETF through primary market 

transactions intermediated by authorized participants rather than purchasing and selling 

the ETF shares in the secondary market, because the price of the shares in the secondary 

market may differ from the NAV, and the sale of the shares in the secondary market may 

delay the liquidation of the instruments. 

The Commission notes that an FCM’s or a DCO’s purchase or redemption of 

Qualified ETF shares through intermediated transactions with authorized participants

raises two concerns. First, if an FCM or a DCO invests Customer Funds in shares of a

Qualified ETF by purchasing the shares through an authorized participant, the FCM or 

DCO would need to take Customer Funds out of the segregated account maintained in 

compliance with Section 4d of the Act and/or Part 30 of the Commission’s regulations to 

purchase the ETF shares.191 As a result, customer segregated accounts may not be fully 

 190 See 17 CFR 1.25(c)(5) (providing that MMFs must be legally obligated to redeem their interests and to 

make payment in satisfaction of the interests by the business day following a redemption request) and 17 

CFR 1.25(b)(1) (providing that Permitted Investments must be “highly liquid” such that the investments 

have the ability to be converted into cash within one business day without material discount in value). 191 See 7 U.S.C. 6d (setting forth segregation requirements for FCMs’ futures customer funds); see also 17 

CFR 1.20(a) (providing that FCMs must separately account for futures customer funds and segregate such 

funds as belonging to their futures customers) and 17 CFR 1.20(g) (providing that DCOs must separately 
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funded, thus potentially violating Commission regulations that require FCMs to maintain, 

at all times, in the segregated account, money, securities and property in an amount that is 

at least sufficient in the aggregate to cover their total obligations to all customers.192 

Also, the transfer of Customer Funds to the authorized participant may be in 

contravention of Commission regulations that provide that Customer Funds may only be 

deposited with a bank or trust company, a DCO, or another FCM.193 Second, if an FCM 

or a DCO uses an unaffiliated authorized participant to redeem its Qualified ETF shares, 

the redemption of the ETF shares may be protracted, preventing the redemption and 

liquidation of the shares to occur within one business day, as required by Regulation

1.25.

To address these two concerns, the Commission proposes to require an FCM or a

DCO that invests Customer Funds in the shares of a Qualified ETF to be an authorized 

participant of the ETF.

194 The Commission believes that this approach would permit 

Customer Funds to be maintained in a segregated account in accordance with Section 4d 

or Part 30, as applicable, with a permitted depository (i.e., a bank, trust company, DCO, 

or another FCM), given that the Customer Funds would not need to be transferred to an 

authorized participant unaffiliated with the FCM or DCO. In addition, because an FCM 

or a DCO acting as an authorized participant would be able to redeem the shares without 

 account for and segregate futures customer funds as belonging to futures customers); 17 CFR 22.2 

(providing that FCMs must segregate Cleared Customer Collateral) and 17 CFR 22.3 (requiring that DCOs 

segregate Cleared Customer Collateral); and 17 CFR 30.7(b) (providing that FCMs must deposit 30.7 funds 

under an account name that clearly identifies the funds as belonging to 30.7 customers). 

192 17 CFR 1.20(a), 17 CFR 22.2(f), and 17 CFR 30.7(a). 193 17 CFR 1.20(b), 17 CFR 22.2(b) and 17 CFR 30.7(b). With respect to 30.7 customer funds, Regulation 

30.7(b) also permits funds to be deposited with the clearing organization of any foreign board of trade, a 

member of any foreign board of trade, or such member’s or clearing organization’s designated depositories. 

17 CFR 30.7(b).

194 Proposed paragraph (c)(8) of Regulation 1.25.
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relying on a separate authorized participant, the Commission believes that the FCM or 

DCO would be able to better manage completing the redemption and liquidation of the 

Qualified ETFs shares within one business day, as required by Regulation 1.25.

The Commission, however, understands that FCMs and DCOs may have access to 

other means of purchasing or liquidating interest in ETFs. For instance, an FCM or a 

DCO may be able to acquire interests in an ETF on a delivery-versus-payment basis 

through a securities broker or dealer at price equal to the next calculated NAV amount

per share or another agreed-upon price that approximates the last calculated NAV. 

Similarly, an FCM or a DCO may be able to sell Qualified ETF shares to a broker or 

dealer willing to buy them at a price corresponding to the NAV amount per share and 

later redeem them from the fund. To be able to assess the feasibility of such 

arrangements and the potential associated risks, the Commission requests additional 

information on the availability and functioning of alternative mechanisms of purchasing 

and liquidating Qualified ETF interests in a manner compliant with Regulation 1.25 and 

compliant with the segregation requirements for Customer Funds.

The Commission is also proposing that Qualified ETFs be required to redeem 

their shares in cash.195 The Commission understands that ETFs typically redeem 

interests in kind, although they may also redeem in cash or both in kind and in cash. The 

Commission also notes that CME, in announcing its acceptance of short-term U.S. 

Treasury ETFs as performance bond, stated that it would accept short-term U.S. Treasury 

ETFs that redeem their shares in cash or in kind.196 As discussed above, the Commission 

 195 Proposed Regulation 1.25(c)(8)(i). 196 2022 CME Advisory Notice at 1.
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is requiring that Qualified ETFs redeem their shares within one business day following 

the submission of the redemption request, consistent with the time limit for redemptions 

applicable to MMFs under Regulation 1.25(c)(5). In addition, under Regulation

1.25(c)(1), the shares of Qualified ETFs, as a Permitted Investment, would be required to 

be convertible into cash within one business day without material discount in value. As 

such, given these time limits for the redemption and liquidation of Qualified ETF shares, 

the Commission is proposing to require Qualified ETFs to redeem their shares in cash 

because in-cash redemptions may allow for a more expeditious liquidation of the shares 

than in-kind redemptions.

In this regard, the Commission notes that in-kind redemptions may introduce a 

time lag between the redemption of the ETF shares and the ultimate liquidation of the 

shares, as the assets received in in-kind redemptions would need to be sold or otherwise 

converted into cash to complete the liquidation of the ETF shares, hindering the ability to 

liquidate the ETF shares within one business day, as required by Regulation 1.25(b)(1). 

As such, the Commission is proposing to require that Qualified ETFs redeem their shares 

only in cash. The Commission, however, is requesting information on the availability 

and functioning of potential mechanisms or arrangements that may allow FCMs and 

DCOs to liquidate a Qualified ETF’s shares in a manner compliant with Regulation 1.25 

and the segregation requirements if the fund’s interests were redeemed in kind.

The Commission is also proposing to require, as a condition for qualification as a 

Permitted Investment, that Qualified ETFs be acceptable by a DCO as performance bond 

from clearing members to margin customer trades.

197 Although qualification as 

 197 Proposed Regulation 1.25(c)(8)(iii).
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acceptable collateral by a DCO is not determinative of qualification as a Permitted 

Investment, the Commission preliminarily believes that limiting Qualified ETFs to funds

that have met a DCO’s criteria of eligibility as performance bond represents an additional 

safeguard. In addition, as noted above, the possibility that ETF shares could be pledged 

by an FCM as margin collateral is an important consideration for the Commission in 

determining whether to add the interests of ETFs to the list of Permitted Investments. 

In order to add the interests of Qualified ETFs to the list of Permitted Investments 

under Regulation 1.25, the Commission is proposing to add paragraph (vi) to Regulation

1.25(a)(1), as redesignated to accommodate other amendments to the list of Permitted 

Investments pursuant to this Proposal. Paragraph (vi) would identify interests in U.S. 

Treasury exchange-traded funds as a Permitted Investment. The Commission also

proposes further conforming changes throughout Regulation 1.25. Section III.A.2. above 

provides for the replacement of “money market mutual fund” or “money market mutual 

funds” with “government money market fund” or “government money market funds” 

throughout Regulation 1.25. The Commission proposes, unless otherwise discussed 

below, to insert next to the term “government money market fund” or “government 

money market funds,” the term “U.S. Treasury exchange-traded fund” or “U.S. Treasury 

exchange-traded funds,” as appropriate, preceded by an appropriate conjunction (i.e., 

“or” or “and”), as necessary.

To incorporate the condition that a Qualified ETF must be an investment 

company that is registered under the Investment Company Act of 1940 with the SEC and 

holds itself out to investors as an ETF under SEC Rule 6c-11, the Commission proposes 

to revise Regulation 1.25(c)(1) to provide that, “The fund must be an investment 
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company that is registered under the Investment Company Act of 1940 with the 

Securities and Exchange Commission and that holds itself out to investors as a 

government money market fund, in accordance with 270.2a-7 of this title, or an 

exchange-traded fund, in accordance with 270.6c-11 of this title.” 

Moreover, to incorporate the requirement that an FCM or a DCO investing in a 

Qualified ETF must be an authorized participant, the Commission proposes to revise 

Regulation 1.25(c) to add paragraph (8), which would provide, “Interests in U.S. 

Treasury exchange-traded funds will qualify as a Permitted Investment under Regulation

1.25(a) if the interests are redeemable in cash by a futures commission merchant or 

derivatives clearing organization in its capacity as an authorized participant pursuant to 

an authorized participant agreement, as defined in §270.6c–11, at a price based on the net 

asset value in accordance with the Investment Company Act of 1940 and regulations 

thereunder, and on a delivery versus payment basis.”

To account for the possibility that, as part of their investment strategy and within 

the limits of applicable SEC rules, Qualified ETFs may engage in derivatives 

transactions, the Commission is also proposing to amend Regulation 1.25(b)(2)(i) to 

indicate that the prohibition of investments containing embedded derivatives would not 

apply to Qualified ETFs. 

Finally, the Commission is proposing to amend Regulation 1.25(b)(4)(i), which 

provides that except for investments in MMFs, the dollar-weighted average time-tomaturity of an FCM’s or a DCO’s portfolio of Permitted Investments, as computed under 

SEC Rule 2a-7, may not exceed 24 months. The proposed amendment would revise 

Regulation 1.25(b)(4)(i) to exclude Qualified ETFs from the calculation of the dollar-
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weighted average time-to-maturity of the portfolio of Permitted Investments.198 The 

Commission is proposing this amendment as interests in Qualified ETFs do not have 

maturity dates, as the Qualified ETF manages the rolling of maturing U.S. Treasury 

securities into new investments.

Request for Comment: The Commission seeks comment on all aspects of the 

Proposal relating to the expansion of the list of Permitted Investments to include interests 

in ETFs subject to the specified conditions discussed above, including:

6. For the interests of ETFs to be deemed a Permitted Investment, the ETFs would have 

to satisfy requirements similar to the requirements that apply to Government MMFs 

whose interests qualify as Permitted Investments. Is it appropriate to apply the 

regulatory framework that applies to Government MMFs to ETFs for determining 

whether an ETF would be deemed a Qualified ETF and interests in the ETF be 

deemed a Permitted Investment? To the extent some aspects of the regulatory 

framework applicable to MMFs is not appropriate for ETFs, please specify and 

explain why.

7. The Proposal to add interests in Qualified ETFs to the list of Permitted Investments 

provides that only the interests of ETFs that are passively managed and seek to 

replicate the performance of a published short-term U.S. Treasury security index by 

investing in a limited set of instruments would qualify as Permitted Investments. The 

Commission notes that the types of investments in which Qualified ETFs and

Permitted Government MMFs would be permitted to invest under the Proposal would 

differ in that Qualified ETFs’ investments would be determined by its investment 

 198 Proposed revised Regulation 1.25(b)(4)(i).
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strategy seeking to replicate the performance of a public short-term U.S. Treasury 

index and a requirement that the Qualified ETFs invest 95 percent or more of their 

assets in U.S. Treasury securities that are components of the index, whereas

government MMFs would be required to invest 99.5 percent or more of their assets in 

cash, government securities (defined in 15 U.S.C. 80a-2(a)(16) to broadly include 

U.S. Treasury securities and U.S. agency securities), and/or Repurchase Transactions 

that must be collateralized fully, consistent with the definition of government money 

market funds under SEC Rule 2a-7. Should the Commission further limit the types of 

underlying instruments in which a Qualified ETF would be permitted to invest? If so, 

what criteria should be applied to determine the appropriate limitations? Should the 

Commission permit Qualified ETFs to invest a lower or higher percentage of their 

assets in short-term U.S. Treasury securities that are components of the index than the 

proposed 95 percent? If so, what percentage should the Commission consider and 

why? Also, should the Commission reconcile the types of investments in which 

Qualified ETFs and Permitted Government MMFs would be permitted to invest by 

allowing Qualified ETFs to invest in the same investments as Permitted Government 

MMFs?

8. Under the Proposal, Qualified ETFs would not be precluded from undertaking

Repurchase Transactions. Does an ETF engaging in Repurchase Transactions with 

fund assets have the potential to adversely impact an authorized participant’s ability 

to redeem interest in the fund in exchange for cash? Does an ETF engaging in 

Repurchase Transactions present other issues that would delay the ability of an 

authorized participant to redeem interest in the fund in cash? Could the potential 
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delay prevent completing redemptions and liquidation of the ETF shares within one 

business day, as required by Regulation 1.25? Should Qualified ETFs be prohibited 

from undertaking Repurchase Transactions given the possible risk of delay in 

redemptions? 

9. The Proposal would require that FCMs or DCOs that invest Customer Funds in 

interests of Qualified ETFs be authorized participants in order to address concerns

that during purchase or redemption of ETF shares, Customer Funds might be moved 

to an account not held by an appropriate depository of customer segregated funds

(i.e., a bank, trust company, DCO or FCM) without a contemporaneous deposit of 

ETF shares or cash in customer segregated accounts, resulting in the FCM or DCO 

being undersegregated. Are there alternative approaches other than requiring FCMs 

or DCOs to be authorized participants that could address or mitigate the 

Commission’s concerns? Can DCOs be authorized participants of Qualified ETFs? 

If not, are there alternatives that would permit DCOs to invest Customer Funds in 

Qualified ETFs consistent with the requirements of Regulation 1.25 and the 

Commission’s segregation requirements?

10. The Commission understands that interests in short-term U.S. Treasury ETFs may be

redeemed in cash or in kind. The Commission is proposing to require that the shares 

of a Qualified ETF be redeemable only in cash given the concern that in-kind 

redemptions may not permit the liquidation of the ETF shares within one business 

day, as required by Regulation 1.25(b)(1). If the Commission were to allow shares of 

Qualified ETFs to be redeemable in kind, would the Qualified ETF’s interests have 

the ability to be liquidated within one business day as required by Regulation 
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1.25(b)(1)? What mechanisms or arrangements exist that may allow FCMs and 

DCOs to convert Qualified ETF shares into cash within one business day without 

material discount in value if redemptions occur in kind? Are there any potential risks 

associated with such mechanisms and arrangements that the Commission should 

consider? Is there an alternative approach to address the Commission’s concerns that 

would permit the use of in-kind redemptions and also provide FCMs and DCOs with 

access to cash for the redemptions within one business day? Does the proposed 

requirement that the Qualified ETF invest 95 percent or more of its total assets in 

short-term U.S. Treasury securities help ensure that FCMs and DCOs will be able to 

liquidate securities received from an in-kind redemption within one business day? 

Does the proposed requirement that an FCM or a DCO must be an authorized 

participant help ensure that the FCM or DCO has the internal operational capability 

and resources to liquidate in-kind redemptions in a manner and time-frame compliant 

with Regulation 1.25 requirements?

11. As noted, the Commission is proposing to require that interests in Qualified ETFs be 

redeemable in cash within one business day. Are there any extraordinary

circumstances, similar to the events listed in Regulation 1.25(c)(5)(ii) with respect to 

MMFs, that may justify an exception to the proposed next-day redemption 

requirement? If so, please specify what redemption exceptions are necessary, and

explain why the exceptions are necessary. Also address potential impacts to 

customers if Qualified ETFs do not redeem within one business if exceptions were 

provided.
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12. Does the Proposal to add Qualified ETFs to the list of Permitted Investments under 

Regulation 1.25, along with the continued inclusion of MMFs, have the potential to 

reduce the availability of funds from the banking system in a manner that would raise 

any financial stability concerns? Could the use of Repurchase Transactions by MMFs 

and ETFs exacerbate any financial stability issues that may exist?

13. The Proposal would require that a Qualified ETF must be a passively managed fund 

that seeks to replicate the performance of a published short-term U.S. Treasury 

security index composed of bonds, notes, and bills with a remaining maturity of 12 

months or less, issued by, or unconditionally guaranteed as to the timely payment of 

principal and interest by, the U.S. Department of the Treasury. Should the 

Commission impose conditions or requirements that a publisher of an ETF index 

must meet or satisfy in order for the ETF to be a Qualified ETF? If so, what 

conditions or requirements should the Commission impose, and why?

14. Regulation 1.25(b)(5)(ii) currently provides that an FCM or a DCO may invest 

Customer Funds in a fund affiliated with that FCM or DCO. Should the Commission 

revise Regulation 1.25(b)(5)(ii) to prohibit an FCM or a DCO from investing 

Customer Funds in affiliated funds? Are there other Commission or SEC rules that 

mitigate any potential conflicts of interest that may arise from an FCM or a DCO 

investing Customer Funds in affiliated funds?
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4. Investments in Commercial Paper and Corporate Notes or Bonds

The Commission originally approved commercial paper and corporate notes as 

Permitted Investments for FCMs and DCOs in 2000.

199 The Commission subsequently 

revised the list of Permitted Investments in 2005 to include corporate bonds.200

In 2007, the Commission’s Division of Clearing and Intermediary Oversight 

conducted a review of the use of Permitted Investments by FCMs and DCOs.

201 The

review indicated that commercial paper and corporate notes and bonds were not widely 

used by FCMs and DCOs. In 2011, in an effort to simplify Regulation 1.25 by 

eliminating rarely-used instruments and in consideration of the Commission’s concerns 

that corporate debt securities posed credit, liquidity and market risks, the Commission 

revised Regulation 1.25 to provide that an FCM or a DCO may invest Customer Funds in 

commercial paper and corporate notes and corporate bonds only if the debt instruments 

were guaranteed by the TLGP.202

The TLGP expired in 2012, and, therefore, commercial paper, corporate notes,

and corporate bonds are no longer Permitted Investments under the terms of Regulation 

1.25.

203 Accordingly, the Commission is proposing to remove commercial paper,

corporate notes, and corporate bonds from the list of Permitted Investments.

 199 See 2000 Permitted Investments Amendment at 78010. 200 See 2005 Permitted Investments Amendment at 28200. 201 2011 Permitted Investments Amendment at 78776. 202 Id. at 78779. 203 Temporary 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.”).
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5. Investments in Permitted Investments with Adjustable Rates of Interest

Regulation 1.25(b)(2)(iv)(A) provides that Permitted Investments may contain 

variable or floating rates of interest provided, among other things, that: (i) the interest 

payments on variable rate securities correlate closely, and on an unleveraged basis, to a 

benchmark of either the Federal Funds target or effective rate, the prime rate, the threemonth Treasury Bill rate, the one-month or three-month LIBOR, or the interest rate of 

any fixed rate instrument that is a listed Permitted Investment under Regulation 

1.25(a);204 and (ii) the interest rate, in any period, on floating rate securities is determined 

solely by reference, on an unleveraged basis, to a benchmark of either the Federal Funds 

target or effective rate, the prime rate, the three-month Treasury Bill rate, the one-month 

or three-month LIBOR,205 or the interest rate of any fixed rate instrument that is a listed 

Permitted Investment under Regulation 1.25(a).206

LIBOR has been used extensively as a reference rate in various commercial and 

financial contracts, including corporate and municipal bonds, commercial loans, floating 

rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other 

derivatives.207 The U.K. Financial Conduct Authority, however, announced on March 5, 

2021 that LIBOR would cease to be published and would effectively be discontinued.208 

 204 17 CFR 1.25(b)(2)(iv)(A)(1). 205 For simplicity, subsequent references to “one-month or three-month LIBOR rate” will be referred to as 

LIBOR unless otherwise required by the context of the discussion.

206 17 CFR 1.25(b)(2)(iv)(A)(2). 207 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/public-statement/libor-transition. 208 See 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”), 

(More specifically, the U.K. Financial Conduct Authority, 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 USD LIBOR settings, 
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This announcement had been anticipated given the loss of confidence in LIBOR as a 

reliable benchmark following a number of enforcement actions concerning attempts to 

manipulate the benchmark.209

The Federal Reserve Bank of New York convened the Alternative Reference Rate 

Committee (“ARRC”) in 2014 to identify best practices for U.S. alternative reference 

rates and best practices for contract robustness, to develop an adoption plan, and to create 

an implementation plan with metrics of success and a timeline.210 In June 2017, the 

ARRC identified SOFR, a broad Treasury repurchase agreements financing rate, as the 

preferred alternative benchmark to USD LIBOR for certain new USD derivatives and 

financial contracts.211 SOFR is a broad measure of the cost of borrowing cash overnight 

collateralized by U.S. Treasury securities in the Repurchase Transaction market used by 

financial institutions, governments, and corporations.212 SOFR is calculated as a volumeweighted median of transaction-level triparty repo data collected from the Bank of New 

York Mellon as well as data on bilateral U.S. Treasury Repurchase Transactions cleared 

through the Fixed Income Clearing Corporation.213 The Federal Reserve Bank of New 

 immediately after December 31, 2021, and for all other USD LIBOR settings immediately after June 30, 

2023). As noted supra, CFTC Staff Letters are available at the Commission’s website, www.cftc.gov. 209 See 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). 210 Staff Letter 21-26 at p. 3. 211 ARRC, “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/ARRC-pressrelease-Jun-22-2017.pdf. 212 See Secured Overnight Financing Rate Data, published by the Federal Reserve Bank of New York 

(“FRBNY”) and available at https://apps.newyorkfed.org/markets/autorates/sof. 213 Id. 
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York, in cooperation with the U.S. Office of Financial Research, publishes SOFR by 8:00 

a.m. each business day.214

In response to the anticipated termination of the publication of LIBOR and the 

increasing acceptance and use of SOFR as a benchmark interest rate, MPD issued Staff 

Letter 21-02 on January 4, 2021.

215 Staff Letter 21-02 provides that MPD would not 

recommend enforcement action to the Commission if an FCM invested Customer Funds 

in Permitted Investments that contain adjustable rates of interest benchmarked to SOFR. 

Staff Letter 21-02 was a time-limited no-action position that was to expire on December 

31, 2022. MPD and DCR, however, subsequently issued a joint letter, Staff Letter 22-21, 

extending the effective date of the no-action position to December 31, 2024, and 

expanding the scope of the no-action position to include Permitted Investments made by 

DCOs.

216

Given the discontinuation of the publishing of LIBOR and the increasing use of 

SOFR, the Commission is proposing to amend Regulation 1.25(b)(2)(iv)(A) by replacing 

LIBOR with SOFR as a permitted benchmark for Permitted Investments that contain an 

adjustable rate of interest. To give effect to this revision, paragraphs (b)(2)(iv)(A)(1) and 

(2) of Regulation 1.25 would be amended to replace the phrase “one-month or threemonth LIBOR rate” with the phrase “SOFR rate.” These proposed amendments would 

be consistent with the Commission’s intent of providing FCMs and DCOs with a certain 

degree of flexibility in selecting Permitted Investments with adjustable rates of interest, 

 214 See 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. 215 See supra note 60. 216 See id.
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while also recognizing changes in the market.217 The Commission preliminarily believes 

that the replacement of LIBOR with SOFR advances the objective of Regulation 1.25 of 

preserving principal and maintaining liquidity by requiring the use of reliable 

benchmarks in the qualification as Permitted Investments.

Request for Comment: The Commission seeks comment on all aspects of the 

Proposal to eliminate LIBOR as a permitted benchmark, including: 

15. The ARRC has identified SOFR as a preferred alternative reference interest rate to 

LIBOR. Should the Commission consider other additional interest rates beyond 

SOFR as permitted benchmarks for adjustable rate securities under Regulation 1.25? 

If so, please explain why such interest rates would be appropriate benchmarks.

16. The Commission is proposing to amend Regulation 1.25(b)(2)(iv) to permit SOFR as 

a benchmark for interest payments on variable rate securities or floating rate 

securities that are otherwise Permitted Investments under Regulation 1.25. Should 

the Commission reference a particular SOFR rate to provide greater certainty and 

clarity as to the acceptable benchmark? For instance, should the reference be to the 

overnight SOFR rate published by the Federal Reserve Bank of New York, to a CME 

Term SOFR Rate, or to another published SOFR rate? Please explain your answer.

6. Investments in Certificates of Deposit Issued by Banks

Regulation 1.25(a)(1)(iv) permits FCMs and DCOs to invest Customer Funds in 

certificates of deposit (“CDs”) issued by a Section 3(a)(6) bank or a domestic branch of a 

 217 See 2005 Permitted Investments Amendment at 28192, where the Commission stated that it is 

appropriate to afford latitude in establishing benchmarks for Permitted Investments to enable FCMs and 

DCOs to more readily respond to changes in the market.
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foreign bank that carries deposits insured by the FDIC (“bank CDs”). To qualify as a 

Permitted Investment under Regulation 1.25, a bank CD must be redeemable at the 

issuing bank within one business day, with any penalty for early withdrawal limited to 

accrued interest earned according to the written terms of the CD agreement.218

The Commission’s experience has been, however, that FCMs and DCOs do not 

select bank CDs as an investment option. In addition to the Commission’s general 

experience in overseeing DCOs and FCMs, Commission staff also reviewed Segregation 

Investment Detail Reports (“SIDR Reports”) filed by FCMs for the period September 15, 

2022 through February 15, 2023 and noted no FCMs reporting investment of Customer 

Funds in bank CDs.

219

The Commission believes that bank CDs are consistent with the overall objective 

of Regulation 1.25 that all Permitted Investments must preserve principal and maintain 

liquidity of the Customer Funds. In this regard, and as noted above, Regulation 

1.25(b)(2)(v) provides that in order to qualify as a Permitted Investment, a CD must be 

redeemable at the issuing bank within one business day, with any penalty for early 

withdrawal limited to any accrued interest earned according to its written terms.220

 218 Regulation 1.25(b)(2)(v); 17 CFR 1.25(b)(2)(v). 219 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 self-regulatory organization (“DSRO”) listing the names of all 

banks, trust companies, FCMs, DCOs, and any other depositories or custodians holding futures customer 

funds, Cleared Swaps Customer Collateral, or 30.7 customer funds, respectively. FCMs are required to 

submit the SIDR Report as of the 15th day of each month (or the next business day if the 15th day of the 

month is not a business day) and the last business day of the month. 17 CFR 1.32(f), 17 CFR 22.2(g)(5), 

and 17 CFR 30.7(l)(5). Proposed amendments to the SIDR Report to reflect the proposed revisions to the 

list of Permitted Investments discussed in this Proposal are discussed in Section III.D. below.

With respect to an FCM, a DSRO is the self-regulatory organization that has been delegated the 

responsibility under a formal plan approved by the Commission pursuant to Regulation 1.52 to monitor and 

examine the FCM for compliance with Commission and self-regulatory organization minimum financial 

and related financial reporting requirements. 17 CFR 1.52. 

220 17 CFR 1.25(b)(2)(v).
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Request for Comment: Notwithstanding that bank CDs currently qualify as 

Permitted Investments, the Commission is seeking comment on whether Regulation 1.25 

should be amended to remove bank CDs from the list of Permitted Investments. As noted 

above, the Commission’s experience and the staff’s review of the SIDR reports indicate

that FCMs and DCOs generally have not invested Customer Funds in bank CDs. 

Specifically, the Commission seeks comment on the following issues:

17. Notwithstanding the Commission’s experience and staff’s review of the SIDR 

Reports discussed above, do FCMs and/or DCOs invest Customer Funds in bank 

CDs? If so, would the elimination of bank CDs as a Permitted Investment have a 

material adverse impact on FCMs’ and DCOs’ ability to invest Customer Funds 

pursuant to the proposed revisions to Regulation 1.25?

18. Are there provisions contained in current Regulation 1.25 or other regulations of the 

Commission that hinder or prevent FCMs or DCOs from investing Customer Funds in 

bank CDs? If so, please identify which provisions of Regulation 1.25 are at issue and 

explain why.

19. Are there legal or operational issues associated with bank CDs that hinder or prevent 

FCMs or DCOs from investing Customer Funds in such instruments? If so, please 

identify the legal or operational issues, and explain how such issues hinder or prevent 

the investment in bank CDs. 

20. Would FCMs or DCOs elect to invest Customer Funds in bank CDs with the current 

rising interest rate environment? Are there other factors that may lead FCMs or 

DCOs to increase their use of bank CDs as Permitted Investments?
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21. What factors should the Commission consider before removing bank CDs from the 

list of Permitted Investments?

Based on comments received and the Commission’s further consideration of this 

issue, the Commission may determine to revise the Permitted Investments by removing 

bank CDs in the final rulemaking. If the Commission were to remove bank CDs from the 

list of Permitted Investments, the Commission would delete paragraph (a)(1)(iv) of 

Regulation 1.25 and redesignate the paragraphs of Regulation 1.25(a)(1) as appropriate to 

reflect the revised list of Permitted Investments. In addition, the Commission would 

delete paragraph (b)(2)(v) of Regulation 1.25, which sets forth restrictions on the features 

of permitted bank CDs, and revise and/or delete, as appropriate in light of other 

amendments, paragraphs (b)(3)(i)(C) and (b)(3)(ii)(B) of Regulation 1.25, which set forth 

asset-based and issuer-based concentration limits for certain instruments currently 

included in the list of Permitted Investments, to reflect the elimination of bank CDs from 

that list. The Commission would also make conforming amendments to Regulations

1.32(f), 22.2(g)(5), and 30.7(l)(5), which define the content of the SIDR Reports

described in Section III.D. below, to reflect the removal of bank CDs from the list of 

Permitted Investments in Regulation 1.25. Specifically, the Commission would delete 

the requirement for an FCM to report the balances invested in bank CDs in the SIDR 

Report.

B. Asset-based and Issuer-based Concentration Limits for Permitted Investments

Regulation 1.25 establishes asset-based and issuer-based concentration limits for

an FCM’s and a DCO’s investment of Customer Funds in Permitted Investments.

221 The

 221 17 CFR 1.25(b)(3).
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asset-based and issuer-based concentration limits are set at the same levels for 

investments of futures customer funds, Cleared Swaps Customer Collateral, and 30.7 

customer funds.222 An FCM or a DCO is also required to calculate the asset-based and 

issuer-based concentration limits separately for futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer funds based on the total amount of funds held by 

the FCM or DCO in each respective segregation classification.223

An FCM or a DCO is currently permitted to directly invest futures customer 

funds, Cleared Swaps Customer Collateral, and 30.7 customer funds in each of the 

Permitted Investments up to the following 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.

224

With respect to MMFs, an FCM or a DCO may invest up to 100 percent of the 

total futures customer funds, Cleared Swaps Customer Collateral, and 30.7 customer 

funds that it holds in MMFs that invest only in U.S. government securities, provided that 

the size of the funds’ portfolio is at least $1 billion and the funds’ management company 

 222 The asset-based and issuer-based concentration limits for futures customer funds are set forth in 

Regulation 1.25(b)(3). 17 CFR 1.25(b)(3). With respect to 30.7 customer funds, Regulation 30.7(h)(1) 

provides that an FCM may invest 30.7 customer funds subject to, and in compliance with the terms and 

conditions of Regulation 1.25, which includes the asset-based and issuer-based concentration limits. 17 

CFR 30.7(h)(1). With respect to Cleared Swaps Customer Collateral, Regulations 22.2(e)(1) and 22.3(d) 

provide that an FCM or a DCO, respectively, may invest Cleared Swaps Customer Collateral in accordance 

with Regulation 1.25, which includes the asset-based and issuer-based concentration limits. 17 CFR 

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

223 See 2011 Permitted Investments Amendment at 78787, where the Commission stated that concentration 

limits are to be calculated on a fund-by-fund basis (i.e., based on separate segregation classifications). 224 Regulation 1.25(b)(3)(i)(A) – (D); 17 CFR 1.25(b)(3)(i)(A) – (D). U.S. government securities refers to 

general obligations of the U.S. and obligations fully guaranteed as to principal and interest by the U.S. See

17 CFR 1.25(a)(1)(i). 
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has at least $25 billion of assets under management.

225 If a fund has less than $1 billion 

of assets under management, or if the manager of the fund has less than $25 billion of 

assets under management, the FCM or DCO may invest up to 10 percent of its total 

futures customer funds, Cleared Swaps Customer Collateral, and 30.7 customer funds in 

the fund.226 For Prime MMFs, an FCM or a DCO may invest up to 50 percent of the total

futures customer funds, Cleared Swaps Customer Collateral, and 30.7 customer funds in 

such MMFs; however, the asset-based concentration is limited to 10 percent if a fund has 

less than $1 billion in assets under management or if the fund’s manager has less than 

$25 billion of assets under management.227

With respect to issuer-based concentration limits, an FCM or a DCO is permitted 

to invest up to 100 percent of the total futures customer funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds that it holds in U.S. government securities.228 An 

FCM or a DCO also may invest futures customer funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds directly in qualifying Permitted Investments, other 

than U.S. government securities, subject to the following issuer-based concentration 

limits: (i) obligations of any single issuer of U.S. agency obligations – 25 percent; (ii) 

obligations of any single issuer of municipal securities, bank CDs, commercial paper, or 

corporate notes or bonds – 5 percent.229 

 225 17 CFR 1.25(b)(3)(i)(E). 226 17 CFR 1.25(b)(3)(i)(G). 227 17 CFR 1.25(b)(3)(i)(F) and (G). 228 See 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. 229 17 CFR 1.25(b)(3)(ii)(A) and (B).
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With respect to MMFs, an FCM or a DCO may invest up to 100 percent of the 

total futures customer funds, Cleared Swaps Customer Collateral, and 30.7 customer 

funds in a single MMF that invests only in U.S. government securities.230 With respect to 

MMFs that maintain investment portfolios that hold instruments other than U.S. 

government securities, an FCM or a DCO is subject to the following issuer-based 

concentration limits: (i) interest in any single MMF family may not exceed 25 percent of 

customer funds held; and (ii) interest in any individual MMF may not exceed 10 percent 

of customer funds held.231

The Commission is proposing to amend the asset-based and issuer-based 

concentration limits in Regulation 1.25(b)(3) to reflect the proposed revisions to the list 

of Permitted Investments discussed in this Proposal and to adjust the limits based on the 

Commission’s experience administering Regulation 1.25. In that regard, as discussed in 

Section III.A.2. above, the Commission is proposing to limit the scope of MMFs whose 

interests qualify as Permitted Investments to Permitted Government MMFs. A Permitted 

Government MMF would be defined by reference to SEC Rule 2a-7 as an MMF that 

invests at least 99.5 percent or more of its total assets in cash, government securities, 

and/or Repurchase Transactions that are collateralized fully.232 The Commission notes 

that the scope of underlying instruments in which a Permitted Government MMF would 

be allowed to invest is broader than that of the MMFs currently excluded from the 

concentration limits of Regulation 1.25(c) (i.e., MMFs investing solely in U.S. 

government securities). To account for the potential increase in risk associated with such 

 230 See 17 CFR 1.25(b)(3)(ii) which excludes MMFs that invest only in U.S. government securities from the 

issuer-based concentration limits. 231 17 CFR 1.25(b)(3)(ii)(C) and (D). 232 See supra notes 120 and 121.
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broader scope and in the interest of imposing a simple and consistent approach to 

concentration limits, the Commission is proposing to establish a single concentration 

limit of 50 percent for all Permitted Government MMFs of a certain size, without 

distinguishing between funds investing solely in U.S. government securities and those 

whose portfolio may also include U.S. agencies securities and/or other instruments within 

the limits of SEC Rule 2a-7. 

More precisely, under the Proposal, an FCM’s or a DCO’s investment of 

Customer Funds in interests in Permitted Government MMFs with at least $1 billion in 

assets and whose management company manages at least $25 billion in assets would be 

limited to no more than 50 percent of the total Customer Funds computed separately for 

each of the segregated funds classifications of futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer funds.233 The proposed asset-based 

concentration limits are consistent with the concentration limits applicable to U.S. agency 

obligations, which along with U.S. Treasury securities, are a permitted underlying 

instrument for Permitted Government MMFs.234

More generally, the Commission is proposing these asset-based concentration 

limits for Permitted Government MMFs to ensure that Customer Funds are invested in a 

manner that limits risks arising from a high concentration in any particular Permitted 

Investment asset class. In particular, based on its experience administering the CFTC’s 

customer protection rules, the Commission preliminarily believes that it is not prudent to 

allow FCMs and DCOs to invest up to 100 percent of segregated Customer Funds in any 

 233 Proposed revised Regulation 1.25(c)(3)(i)(E). 234 17 CFR 1.25(b)(3)(i)(B).
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category of MMFs. For the reasons discussed below in connection with the proposed 

issuer-based concentration limits, the Commission is of the view that holding U.S. 

government securities through an MMF gives rise to risks that are different from those 

associated with holding U.S. government securities directly, including operational and 

cybersecurity risks. As such, the Commission preliminarily believes that even large 

MMFs that invest solely in U.S. government securities should be subject to a 

concentration limit. The Commission is also proposing to maintain the current 10 percent 

asset-based concentration limit on investments in MMFs that hold less than $1 billion in 

assets or have a management company with less than $25 billion in assets under 

management.

235 For purposes of clarity, the Commission is proposing to delete the 

conjunction “and” in that provision to indicate that the fund size threshold and the 

management company size threshold are to be construed as alternative prongs triggering 

the 10 percent limit.

In addition, to mitigate the potential risks arising from concentration in any 

particular fund or family of funds, the Commission is proposing issuer-based 

concentration limits for investments in Permitted Government MMFs. Specifically, the 

Commission is proposing to limit investments of Customer Funds in any single family of 

Permitted Government MMFs to 25 percent and investments of Customer Funds in any 

single issuer of Permitted Government MMFs to 5 percent of the total assets held in each 

of the segregated classifications of futures customer funds, Cleared Swaps Customer 

Collateral, and 30.7 customer funds.236

 235 Proposed Regulation 1.25(c)(3)(i)(F). 236 Proposed Regulations 1.25(c)(3)(ii)(C) and (D), respectively. 
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In adopting the 2011 Permitted Investment Amendment, the Commission decided 

not to introduce concentration limits for MMFs of a certain size investing solely in U.S. 

government securities. This determination was made in consideration of comments 

received from the public, including in particular a comment asserting that if FCMs and 

DCOs are permitted to invest all customer segregated funds in U.S. government securities 

directly, an FCM or a DCO should be able to make the same investment indirectly via an 

MMF.237 Based on its experience administrating CFTC’s customer protection rules and 

in consideration of certain recent marketplace events, however, the Commission 

preliminarily believes that introducing concentration limits for Permitted Government 

MMFs is warranted. In particular, the Commission is concerned that MMFs, like any 

institution relying on electronic communications, are susceptible to cyber-attacks and 

operational incidents that may adversely impact their normal operating capabilities, 

including delaying or otherwise preventing them from processing redemption requests of 

FCMs and DCOs in a timely manner.

238 FCMs and DCOs may need to redeem their 

interest in Permitted Government MMFs to provide customers with cash that is needed to 

meet, for example, margin calls at other FCMs or DCOs, or variation or initial margin 

requirements for uncleared swap transactions, or to cover cash market losses or 

purchases. More generally, the concentration of Customer Funds in any single MMF 

 237 2011 Permitted Investments Amendment at 78787. 238 The cyber-attack against ION Cleared Derivatives, a third-party provider of cleared derivatives order 

management, order execution, trading, and trade processing, demonstrated that an incident affecting a 

single entity may disrupt the operations of other market participants and have ripple effects across the 

industry. The incident impacted certain FCMs’ operations, including by preventing such FCMs from 

submitting timely and accurate positions data to the CFTC. See CFTC Statement on ION and the Impact 

on the Derivatives Markets, available here: 

https://www.cftc.gov/PressRoom/SpeechesTestimony/cftcstatement020223.
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creates vulnerabilities that may affect FCMs’ and DCOs’ ability to meet their regulatory 

obligations, including providing customers with prompt access to their funds.

239

Although cyber-attacks and other operational incidents may impact transactions in 

any Permitted Investment, including U.S. government securities, the Commission 

believes that the potential risk of Customer Funds becoming unavailable is elevated when 

access to such funds depends on the operations of a third party such as an MMF. For 

instance, to the extent a fund experiences an operational issue, such incident may result in 

a redemption suspension for all participants in the fund. Thus, by imposing issuer-based 

concentration limits, the Commission intends to facilitate the preservation of principal 

and maintenance of liquidity of Customer Funds through sound diversification standards 

and to mitigate the potential risk of access to a large portion of Customer Funds 

becoming unavailable due to cybersecurity or operational incidents, among other events. 

Given the large number of SEC-registered Government MMFs available on the market 

and likely to meet the Permitted Investments’ eligibility criteria, the Commission 

preliminarily believes that diversifying an FCM’s or DCO’s portfolio of MMF 

investments would not be burdensome.240 

 239 For instance, as discussed in the 2011 Permitted Investments Amendment, the Reserve Primary Fund’s 

“breaking the buck,” in September 2008, called attention to the risk to principal and potential lack of 

sufficient liquidity of Prime MMF investments. See 2011 Permitted Investments Amendment at 78785. In 

connection with the events affecting the Reserve Primary Fund, staff of the CFTC’s Division of Clearing 

and Intermediary Oversight, intervened and issued guidance indicating that FCMs holding shares of the 

fund, either as a proprietary investment or as an investment of customer segregated funds, could include 

these investments in the calculations required for purposes of compliance with capital, segregation, and 

secured amount reporting requirements (with the condition that the NAV be reduced appropriately) even 

though the fund had suspended redemptions. See CFTC Staff Letter No. 08-17, available here: 

https://www.cftc.gov/csl/08-17/download. 240 As of August 17, 2023, there are 183 government MMFs registered with the SEC (of which 49 are 

“Treasury-only” MMFs). See U.S. Securities and Exchange Commission, Money Market Funds Statistics, 

available here: https://www.sec.gov/divisions/investment/mmf-statistics. The government MMFs currently 

registered with the SEC generally do not elect to apply liquidity fees and/or redemption gates. 
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In addition, as part of the proposed amendments to the concentration limits in 

Regulation 1.25,

241 the Commission is proposing to revise the asset-based and issuerbased concentration limits set forth in paragraphs (b)(3)(i)(F) and (b)(3)(ii)(C) and (D), 

respectively, to reflect the removal of Prime MMFs from the list of Permitted 

Investments.

As discussed in Section III.A.3 above, the Commission is also proposing to 

permit FCMs and DCOs to invest Customer Funds in Qualified ETFs.

242 The 

Commission is proposing to impose conditions on Qualified ETFs that are similar to the 

conditions that are imposed on Permitted Government MMFs whose interests qualify as 

Permitted Investments. 243 Among other things, similar to Government MMFs, which 

can invest in a limited set of instruments, including government securities and cash, 

Qualified ETFs would be required to limit their investments to instruments that are 

consistent with their investment strategy of seeking to replicate the performance of a 

public short-term U.S. Treasury security index.244 For purposes of the Proposal, shortterm U.S. Treasury securities are bonds, notes, and bills with a remaining maturity of 12 

months or less, issued by, or unconditionally guaranteed as to the timely payment of 

principal and interest by, the U.S. Department of the Treasury. Consistent with this 

condition, the Commission is also proposing to require that the eligible U.S. Treasury 

securities represent at least 95 percent of the ETF’s investment portfolio. Given the 

similarity of the terms that would apply to Permitted Government MMFs and Qualified 

ETFs under the Proposal, and the comparable credit, market, and liquidity risk associated 

 241 See discussion in Section III.A.2 above. 242 Proposed Regulation 1.25(a)(1)(vi). 243 See Section III.A.3. above. 244 Proposed Regulation 1.25(a)(1)(vi).
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with these types of funds comprising instruments generally recognized as safe and highly 

liquid, the Commission preliminarily believes that it is appropriate for Qualified ETFs to 

have the same asset-based and issuer-based concentration limits as those proposed for

Permitted Government MMFs. Specifically, under the Proposal, an FCM’s or a DCO’s 

investment of Customer Funds in Qualified ETFs with at least $1 billion in assets and 

whose management company manages at least $25 billion in assets would be limited to 

an asset-based concentration limit of 50 percent of total funds held in each of the 

segregated classifications of futures customer funds, Cleared Swaps Customer Collateral, 

and 30.7 customer funds.245 The current 10 percent 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 would also be 

extended to Qualified ETFs. In addition, for the reasons described supra in connection 

with Permitted Government MMFs, the Commission is proposing to limit investments of 

Customer Funds in any single family of Qualified ETFs to 25 percent and investments of 

Customer Funds in any single issuer of Qualified ETFs to 5 percent of the total assets 

held in each of the segregated classifications of futures customer funds, Cleared Swaps 

Customer Collateral, and 30.7 customer funds.246 Given that there may be at least five

U.S. Treasury ETFs that could potentially qualify as Permitted Investments, the 

Commission preliminarily believes that the proposed issuer-based concentration limits 

would not be overly restrictive.

247

 245 Proposed Regulation 1.25(b)(3)(i)(E). 246 Proposed Regulations 1.25(b)(3)(ii)(C) and (D). 247 See 2022 CME Advisory Notice, supra note 170 (announcing that CME has added five Short-Term U.S. 

Treasury ETFs to the list of accepted margin collateral). The five ETFs would meet the proposed condition 

of being accepted as performance bond by a DCO. For purposes of clarity, the Commission notes, 
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The Commission is also proposing revisions to the asset-based and issuer-based 

concentration limits to remove commercial paper, and corporate notes and bonds from 

the limits.248 As noted in Section III.A.4. above, the Commission is proposing to remove 

commercial paper and corporate notes and bonds from the list of Permitted Investments 

due to the termination of the TLGP by the FDIC in 2012, which resulted in such 

investments no longer qualifying as Permitted Investments. In addition, as discussed in 

Section III.A.6. above, the Commission is requesting public comment on the elimination 

of bank CDs as a Permitted Investment due to the apparent lack of interest by FCMs and 

DCOs in such instruments. Therefore, if bank CDs are removed from the list of 

Permitted Investments in a final rulemaking after considering comments, specifying 

asset-based and issuer-based concentration limits on investments in commercial paper,

corporate notes and bonds, and bank CDs would no longer be necessary and would be 

removed from Regulation 1.25.

Finally, as noted in Section III.A.1., the Commission is proposing to expand the 

types of investments that would qualify as Permitted Investments to include Specified 

Foreign Sovereign Debt. The Commission, however, is not proposing to impose assetbased or issuer-based concentration limits on FCM or DCO investments in Specified 

Foreign Sovereign Debt.

Not imposing concentration limits on the Specified Foreign Sovereign Debt 

would be consistent with the current exclusion of U.S. government securities from the 

 however, that should the Commission proceed with adding Qualified ETFs to the list of Permitted 

Investments, FCMs and DCOs would need to assess ETFs’ eligibility in light of all applicable conditions. 248 See proposed Regulation 1.25(b)(3)(i)(C) removing commercial paper and corporate notes and bonds 

from the 25 percent asset-based concentration limit and proposed Regulation 1.25(b)(3)(ii)(B) removing 

commercial paper and corporate notes and bonds from the 5 percent issuer-based concentration limit.
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asset-based and issuer-based concentration limits. As discussed in Section III.A.1. above,

the relative strength of the economies and limited default risk of Canada, France, 

Germany, Japan, and the United Kingdom are demonstrated by such countries being 

ranked among the seven largest economies in the International Monetary Fund’s 

classification of advanced economies,

249 and by the countries being members of the G7, 

which represents the world’s largest industrial democracies. In addition, as discussed in 

Section III.A.1. above, the Commission has preliminarily determined that the two-year 

debt instruments that would qualify as Specified Foreign Sovereign Debt have credit, 

liquidity, and volatility characteristics that are consistent with two-year U.S. Treasury 

securities. Furthermore, the proposed condition in Regulation 1.25(a)(1)(vii) that permits 

an FCM or a DCO to invest Customer Funds in Specified Foreign Sovereign Debt only to 

the extent that the DCO or FCM has balances owed to customers denominated in the 

currency of the applicable country is expected to effectively limit the amount of 

Customer Funds that an FCM or a DCO may invest in the Specified Foreign Sovereign 

debt.250 The proposed condition that an FCM or a DCO must stop making direct 

investments, or engaging in reverse repurchase agreements, involving the Specified 

Foreign Sovereign Debt of a country whose credit default spread on two-year debt 

instruments exceeds 45 BPS would be expected to further preserve the principal of 

customers’ foreign currency deposits held by FCMs and DCOs.

251 Lastly, not imposing 

asset-based or issuer-based concentration limits on an FCM’s or a DCO’s investments in 

 249 See 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-outlookapril-2023. 250 Proposed Regulation 1.25(a)(1)(vii). 251 Proposed Regulation 1.25(f)(3)
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Specified Foreign Sovereign Debt is consistent with the Commission’s 2018 Order, 

which did not impose concentration limits on a DCO’s investment of futures customer 

funds or Cleared Swaps Customer Collateral in the sovereign debt of France or Germany. 

Accordingly, based on the above, the Commission preliminarily believes that asset-based 

and issuer-based concentration limits are not necessary for investments in Specified 

Foreign Sovereign Debt.

The Commission also notes that the concentration limits in Regulation 1.25 are 

minimum requirements. Pursuant to Regulation 1.11, an FCM is required to monitor and 

manage market, credit, liquidity, foreign currency, legal, operational, settlement, 

segregation, capital, and any other applicable risks associated with its activity, as part of 

the FCM’s risk management program.252 If, based on its independent risk assessment, an 

FCM determines that stricter concentration limits with respect to Permitted Investments

of Customer Funds are appropriate, the FCM is required to implement such stricter limits, 

in accordance with Regulation 1.11. Similarly, Regulation 39.13(g)(10) requires a DCO 

to limit the assets it accepts as initial margin to those that have minimal credit, market, 

and liquidity risks, while Regulation 39.13(g)(13) requires the DCO to apply appropriate 

limitations or charges on the concentration of assets posted as initial margin, as 

necessary, in order to ensure its ability to liquidate such assets quickly with minimal 

adverse price effects.

In addition, if as a result of market events or extraneous circumstances, such as a 

change in an MMF’s size, the FCM or DCO inadvertently breaches the concentration 

thresholds, the FCM or DCO would be expected to undertake prompt actions to restore 

 252 17 CFR 1.11.
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compliance with the concentration limits, while managing the investments of Customer 

Funds in a manner consistent with the general objectives of preserving principal and 

maintaining liquidity. Depending on the market conditions, such actions may include 

taking steps to progressively reduce the amount of Customer Funds invested in a 

particular asset class instead of immediately divesting the investments in a potentially 

volatile market. 

The foregoing discussion of concentration limits can be summarized as follows:

Instrument Size Current 

Concentration Limits

Proposed 

Concentration Limits

AssetbasedIssuerbasedAssetbasedIssuerbased

U.S. 

government 

securities

N/A No limit No limit No limit No limit 

Municipal

Securities

N/A 10% 5% 10% 5%

U.S. agency 

obligations

N/A 50% 25% 50% 25%

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

Government 

MMFs 

investing solely 

in U.S. 

government 

securities (i.e., 

securities issued 

or fully 

guaranteed by 

the U.S. 

government)

>$1B assets 

and/or 

management 

company with 

>25B in assets

No limit No limit 50%

25% per 

family

5% per 

fund 

<$1B assets 

and/or 

management 

company with 

< $25B in 

assets

10% 10% 

(de facto

limit based 

on assetbased 

limit)

10%

Government 

MMFs as 

defined in SEC 

Rule 2a-7

(including 

MMFs whose 

portfolio 

includes U.S. 

>$1B assets 

and/or 

management 

company with 

>25B in assets

50%

25% per 

family

10% per 

fund 

50%

<$1B assets 

and/or 

management 

10% 10%
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agency 

obligations and 

other 

instruments)

company with 

< $25B in 

assets

Qualified ETFs

>$1B assets 

and/or 

management 

company with 

>25B in assets

N/A N/A 50%

25% per 

family

5% per 

fund 

<$1B assets 

and/or 

management 

company with 

< $25B in 

assets

N/A N/A 10%

Request for Comment: The Commission requests comment on all aspects of its 

Proposal relating to concentration limits, including the proposed asset-based and issuerbased concentration limits for Permitted Government MMFs and Qualified ETFs. The 

Commission requests specific comment with respect to the following: 

22. Should the Commission adopt different asset-based and issuer-based concentration 

limits for Permitted Government MMFs and/or Qualified ETFs than the limits 

proposed? Are the proposed limits sufficiently conservative to ensure that Customer 

Funds are adequately protected and liquid? 

23. Should the Commission revise any of the asset-based concentration limits that are not 

proposed to be revised as part of this Proposal? For instance, FCMs and DCOs are 

permitted to invest up to 50 percent of their Customer Funds in U.S. agency 

obligations and up to 10 percent in municipal securities. Should the Commission 

consider revising these or other asset-based concentration limits? If so, how should 

the asset-based concentration limits be revised? Please explain, and provide data if 

possible. 
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24. Should the Commission revise any of the issuer-based concentration limits that are 

not proposed to be revised as part of this Proposal? For instance, FCMs and DCOs 

are permitted in invest up to 25 percent of their Customer Funds in obligations of a 

single issuer of U.S. agency obligations and up to 5 percent in obligations of any 

single issuer of municipal securities. Should the Commission consider revising these 

or other issuer-based concentration limits? If so, how should the issuer-based 

concentration limits be revised? Please explain, and provide data to support your 

comment, if possible. 

25. Should the Commission impose asset-based and/or issuer-based concentration limits 

on Specified Foreign Sovereign Debt? If so, please explain why such concentration 

limits are necessary. Please provide data to support your comment, if possible.

26. Given the similarities between Permitted Government MMFs and Qualified ETFs 

discussed above, the Commission is proposing to apply the same asset-based and 

issuer-based concentration limits to both asset classes. Is there any reason to 

distinguish between Permitted Government MMFs and Qualified ETFs with respect 

to the application of concentration limits? If so, please explain.

C. Futures Commission Merchant Capital Charges on Permitted Investments

Although FCMs and DCOs may invest Customer Funds in Permitted Investments, 

as discussed supra, Commission regulations provide that FCMs and DCOs are also

financially responsible for any losses resulting from such investments, and are explicitly 

prohibited from allocating investment losses to customers or clearing FCMs, respectively. 

Specifically, Regulation 1.29 provides that FCMs or DCOs, as applicable, shall bear sole 

responsibility for any losses resulting from the investment of futures customer funds, and 
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further provides that no investment losses shall be borne or otherwise allocated to FCM 

customers or to FCMs clearing customer accounts at DCOs.253 In addition, Regulation 

22.2(e)(1)254 provides that an FCM shall bear sole responsibility for any losses resulting 

from the investment of Cleared Swaps Customer Collateral and may not allocate 

investment losses to Cleared Swaps Customers of the FCM and Regulation 30.7(i) 

provides that an FCM shall bear sole financial responsibility for any losses resulting from 

the investment of 30.7 customer funds, and further provides that no investment losses 

may be allocated to the 30.7 customers of the FCM.

255 Additionally, the Commission is 

proposing an amendment to Regulation 22.3(d) to clarify that DCOs are financially 

responsible for any losses resulting from investments of Cleared Swap Customer 

Collateral in Permitted Investments, consistent with Regulation 1.29, which addresses 

financial responsibility for losses resulting from investment of futures customer funds, 

and the Commission’s original intent to permit investments of Cleared Swaps Customer 

Collateral within the parameters applicable to investments of futures customer funds.

256 

To reserve liquidity for potential losses resulting from investments of Customer 

Funds, Regulation 1.17(c)(5)(v) requires an FCM to take capital charges in computing the 

firm’s regulatory capital.

257 The capital charges are designed to reflect potential market 

risk associated with the FCM’s holding of Permitted Investments, and to ensure that the 

 253 17 CFR 1.29(b). 254 17 CFR 22(e)(1). 255 17 CFR 30.7(i). 256 See supra note 42. 257 17 CFR 1.17(c)(5). Although capital charges do not apply to DCOs, a DCO is required under 

Regulation 39.11(a)(2) to maintain financial resources sufficient to enable it to cover its operating costs for 

a period of at least one year, calculated on a rolling basis. Investment losses would be included in the 

DCO’s operating costs.
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firm has sufficient liquid financial resources to cover potential investment losses.

Regulation 1.17(c)(5)(v) further provides that an FCM must apply the capital charges set 

forth in Rule 15c3-1 under the Securities Exchange Act (“SEC Rule 15c3-1”)258 and 

Appendix A to SEC Rule 15c3-1259 to the Permitted Investments.

As discussed in Section III.A.1. above, the Commission is proposing to revise the 

Permitted Investments to include Specified Foreign Sovereign Debt (i.e., the sovereign 

debt of Canada, France, Germany, Japan, and the United Kingdom). Under the Proposal, 

each Specified Foreign Sovereign Debt instrument must have a remaining time-tomaturity of 180 calendar days or less. Given the proposed remaining time-to-maturity 

limit of 180 calendar days for each Specified Foreign Sovereign Debt instrument, an 

FCM investing Customer Funds in qualifying sovereign debt of Canada would have no 

capital charge for instruments with a remaining time to maturity of less than 3 months 

and a capital charge of 0.5 percent of the market value for instruments with a remaining 

time to maturity of 3 to 6 months under SEC Rule 15c3-1.

260 The capital charge for the 

sovereign debt of France, Germany, Japan, and the United Kingdom, is determined under 

SEC rules by reference to nonconvertible debt securities with a fixed interest rate, fixed 

maturity date, and minimal credit risk. Such nonconvertible debt securities that have a 

 258 17 CFR 240.15c3-1. 259 17 CFR 240.15c3-1a. 260 SEC 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.
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remaining time to maturity of one year or less are subject to a capital charge of 2 percent 

of the market value of the security under SEC Rule 15c3-1(c)(2)(F)(1).261

With respect to Qualified ETFs, neither SEC Rule 15c3-1 nor Appendix A to SEC 

Rule 15c3-1 explicitly addresses capital charges for ETFs primarily comprised of U.S. 

Treasury securities. SEC Rule 15c3-1(c)(2)(vi)(D)(1) does specify a 2 percent capital 

charge for a broker-dealer’s net position in redeemable securities of a Prime MMF or a 

Permitted Government MMF.

SEC staff, however, has provided guidance to registered securities brokers or 

dealers stating that staff would not recommend an enforcement action to its Commission 

if a broker or dealer applied a capital charge of 2 percent of the market value of ETFs 

shares held in the size of a creation units.262 The SEC staff’s guidance was applicable to 

a U.S. Treasury ETF that: (i) is an open-ended management company registered with the 

SEC under the Investment Company Act of 1940 that issues securities redeemable at the 

net asset value; and (ii) invests solely in cash and government securities that are eligible 

securities under paragraph (a)(11) of Rule 2a-7, limited to U.S. Treasury floating and 

fixed rate bills, notes, and bonds with a remaining term to final maturity of 12 months or 

less, government money market funds as defined in Rule 2a-7, and/or Repurchase 

Transactions with a remaining term to final maturity of 12 months or less collateralized 

 261 SEC Rule 15c3-1(c)(2)(F)(1) specifies the capital charges for nonconvertible debt securities with a fixed 

interest rate, fixed maturity date, and minimal credit risk, which includes the sovereign debt of France, 

Germany, Japan, and the United Kingdom. The capital charge for the sovereign debt of these countries that 

have a remaining time-to-maturity of no more than one year is 2 percent of the market value of debt 

instrument.

262 See 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/finra060222-15c3-1.pdf.
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by U.S. Treasury securities or other government securities with a remaining term to final 

maturity of 12 months or less. The SEC staff position was subject to the following 

conditions: (i) the broker or dealer is not aware of any substantial operational problem 

that the U.S. Treasury ETF may be experiencing; (ii) the U.S. Treasury ETF shares can 

be redeemed by a broker or dealer through an authorized participant, the redemption of 

the U.S. Treasury ETF’s shares can be settled in exchange for a basket of the ETF’s 

underlying securities and/or cash by T+1, and the U.S. Treasury ETF has committed in its 

registration statement to permit shareholders, except in extraordinary circumstances, to 

settle transactions within that timeframe; and (iii) the U.S. Treasury ETF’s shares are 

listed for trading on a national securities exchange and trades of such shares are settled in 

accordance with the standard cycle prescribed by SEC Rule 15c6-1263 under the 

Securities Exchange Act of 1934.

Based on the SEC’s guidance regarding the capital charges for U.S. Treasury 

ETFs, the Commission is specifying that FCMs would be required to apply a capital 

charge equal to 2 percent of the fair market value of the shares of a Qualified ETF that 

invests in the instruments specified in the SEC ETF Letter.

Request for Comment:

27. The Commission requests comment on the proposed capital charges for Specified 

Foreign Sovereign Debt and Qualified ETFs.

28. The Proposal would apply a 2 percent capital charge on the value of Qualified ETF 

shares that invests solely in cash and government securities that are eligible securities 

under paragraph (a)(11) of SEC Rule 2a-7, limited to U.S. Treasury floating and fixed 

 263 17 CFR 240.15c6-1.
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rate bills, notes, and bonds with a remaining term to final maturity of 12 months or 

less, government money market funds as defined in SEC Rule 2a-7, and/or 

Repurchase Transactions with a remaining term to final maturity of 12 months or less 

collateralized by U.S. Treasury securities or other government securities with a 

remaining term to final maturity of 12 months or less. Does the limitation on the 

investments that the Qualified ETF may hold in order to apply the 2 percent capital 

charge raise any issues for FCMs investing in Qualified ETFs? Would Qualified 

ETFs hold investments not covered by the SEC ETF Letter? If so, what different 

investments could a Qualified ETF hold? How would such additional investments 

impact the capital charge that should be applied to Qualified ETFs? 

D. Segregation Investment Detail Report 

Regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5) require each FCM to submit a 

SIDR Report to the Commission and the FCM’s DSRO listing the names of all banks, 

trust companies, FCMs, DCOs, and other depositories or custodians holding futures 

customer funds, Cleared Swaps Customer Collateral, or 30.7 customer funds. The FCM 

is further required to identify in the SIDR Report the amount of futures customer funds, 

Cleared Swaps Customer Collateral, or 30.7 customer funds invested in each of the 

following categories of Permitted Investments: (i) U.S. Treasury securities; (ii) municipal 

securities; (iii) government sponsored enterprise securities (i.e., U.S. agency obligations); 

(iv) bank CDs; (v) commercial paper; (vi) corporate notes or bonds; and (vii) interests in 

MMFs. The SIDR Report is required to be filed twice each month with the Commission 

and the firm’s DSRO, with balances reported as of the fifteenth day of each month, or the 
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first business day thereafter if the fifteenth day of the month is not a business day, and as 

of the last business day of each month.

The Commission is proposing to amend Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5), which define the content of the SIDR Report, by deleting the requirement for 

an FCM to report the balances invested in commercial paper and corporate notes and

bonds as such investments would no longer be Permitted Investments under the Proposal, 

for the reasons articulated supra.

264

The Commission is also proposing to amend Regulations 1.32(f), 22.2(g)(5), and 

30.7(l)(5) to require each FCM to report the total amount of futures customer funds, 

Cleared Swaps Customer Collateral, and 30.7 customer funds invested in Specified 

Foreign Sovereign Debt of each country that is included within the Specified Foreign 

Sovereign Debt (i.e., individual reporting for Canada, France, Germany, Japan, and the 

United Kingdom). The Commission is also proposing to amend Regulations 1.32(f), 

22.2(g)(5), and 30.7(l)(5) to require an FCM to include in the SIDR Report the total 

amount of futures customer funds, Cleared Swaps Customer Collateral, and 30.7 

customer funds invested in Qualified ETFs as such investments would be Permitted 

Investments under the Proposal. In addition, the Commission is proposing to amend the 

above regulations by revising the requirement to report balances invested in interests in 

MMFs to reflect that such investments are limited to interests in Government MMFs

consistent with the Proposal.

 264 As discussed in Section III.A.6. above, the Commission notes that no FCMs or DCOs currently invest 

Customer Funds in bank CDs and has requested public comment regarding the elimination of bank CDs 

from the list of Permitted Investments. If the Commission were to eliminate bank CDs in the final 

rulemaking, the Commission would also amend Regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5) to remove 

references to bank CDs.
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Request for Comment: 

29. The Commission requests comment on the proposed amendments to Regulations 

1.32(f), 22.2(g)(5), and 30.7(l)(5) and the proposed revisions to the SIDR Reports, 

including whether additional revisions would be necessary.

E. Read-only Electronic Access to Customer Funds Accounts Maintained by Futures 

Commission Merchants

Commission regulations require depositories holding Customer Funds for FCMs 

to provide the Commission with direct, read-only electronic access to the Customer Fund 

accounts (“Read-only Access Provisions”). The Read-only Access Provisions are set 

forth in Regulation 1.20, Appendix A to Regulation 1.20, and Appendix A to Regulation

1.26, for futures customer funds; Regulation 22.5 for Cleared Swaps Customer Collateral; 

and, Regulation 30.7 and appendices E and F to Part 30 of the Commission’s regulations

for 30.7 customer funds.

The Commission adopted the Read-only Access Provisions in 2013 as part of a 

regulatory reform seeking to enhance the CFTC’s customer protection regime.265 In 

particular, the Commission sought to strengthen the customer fund protections in 

response to the failure of two FCMs that violated customer fund segregation laws, which 

resulted in shortfalls in Customer Funds balances.

266 The Commission noted that the 

FCM failures raised questions concerning the adequate functioning and capacity of the 

oversight system to monitor FCM activities, verify Customer Funds balances, and detect 

fraud.267

 265 See generally 2013 Protections of Customer Funds Release. 266 Id. at 68509. 267 Id. at 68510.
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By adopting the Read-only Access Provisions, the Commission sought to 

establish, among other measures, a mechanism that would enable Commission staff to 

review and identify discrepancies between an FCM’s daily segregation reports268 and 

customer fund balances on deposit at various depositories.269 To that effect, the 

Commission amended Regulations 1.20 and 30.7 to include provisions requiring FCMs to 

deposit Customer Funds only with depositories that agree to provide the Commission 

with direct, read-only electronic access to allow Commission staff to review account 

balance information and transactions.

The Commission also adopted template acknowledgment letters set forth in 

Appendix A to Regulation 1.20 and Appendix E to Part 30 of the Commission’s 

regulations to require, among other things,270 that the depository acknowledge and agree, 

pursuant to authorization granted by the FCM, to provide the appropriate Commission 

staff with “the technological connectivity, which may include provision of hardware, 

software, and related technology and protocol support, to facilitate direct, read-only 

electronic access to transaction and account balance information.”271 The template 

acknowledgment letters set forth in Appendix A to Regulation 1.26 and Appendix F to 

 268 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 for the FCM to 

demonstrate compliance with its obligation to hold a sufficient amount of funds in segregated accounts to 

pay the full account balance of each customer.

269 See 2013 Protections of Customer Funds Release at 68537 and 68580. 270 These appendices are intended to be used by depositories that accept Customer Funds from FCMs to 

acknowledge that the funds belong to the FCM customer and cannot be used to offset obligations of the 

FCM.

271 17 CFR Appendix A to 1.20, 17 CFR Appendix E to Part 30.
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Part 30 contain similar provisions with respect to MMF accounts in which FCMs hold 

customer segregated funds.272

In adopting the Read-only Access Provisions, the Commission noted that it did 

not anticipate that staff would access FCM accounts on a regular basis to monitor account 

activity, but, rather, that staff would make use of the Read-only Access Provision only 

when necessary to obtain account balances and other information that staff could not 

obtain via the CME and NFA automated daily segregation confirmation system or 

otherwise directly from the depositories.273 Specifically, the Commission explained that 

CME and NFA had adopted rules requiring FCMs to instruct each depository holding 

Customer Funds to report balances on a daily basis to CME or NFA, respectively.274

In practice, CME and NFA receive account information from all depositories 

holding Customer Funds on a daily basis pursuant to CME Rule 971.C. and NFA 

Financial Requirements Section 4, respectively. Furthermore, CME and NFA have 

developed programs that compare the daily balances reported by each of the depositories 

with balances reported by the FCMs in their daily segregation reports that are filed with 

 272 17 CFR Appendix A to 1.26, 17 CFR Appendix F to Part 30. 273 2013 Protections of Customer Funds Release at 68537 and 68592 (noting in footnote 662 that the 

Commission generally expected that it would seek to obtain account information from the CME and NFA 

automated daily segregation confirmation system and/or from depositories directly prior to requesting a 

depository to activate electronic access).

274 Id., at 68512. CME Rule 971.C. provides that in order for an FCM clearing member’s account held at a 

depository to qualify as a segregated account for Customer Funds, the FCM clearing member must provide 

CME with access to account information, in a form and manner prescribed by CME, and the depository 

must allow the FCM clearing member to provide CME with access to the account information, in a form 

and manner prescribed by CME. NFA Financial Requirements Section 4, paragraph (b), provides that each 

member FCM must instruct each depository, as required by 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.
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CME and/or NFA.

275 Under these programs, an alert is generated for discrepancies that 

exceed defined thresholds. In the event of such alerts, CME/NFA staff conduct 

appropriate analysis and follow-up actions, which may involve communications with an 

FCM to clarify or remedy the situation, and document the outcome.

The Commission’s experience with overseeing the administration of the CME and 

NFA daily segregation confirmation and verification processes for several years has 

afforded sufficient assurances that the system provides adequate access to relevant 

information and is capable of detecting discrepancies in account balances in a timely 

manner. Moreover, the establishment of an efficient method for obtaining and verifying 

FCM balances of Customer Funds at each depository supports the Commission’s initial 

expectation that the direct, read-only electronic access would not be the Commission’s 

principal tool for obtaining account information at depositories.276 The Commission also 

is retaining the current requirement that FCMs deposit Customer Funds only with 

depositories that agree that accounts may be examined by Commission or DRSO staff at 

any reasonable time, and that further agree to reply promptly and directly to any request 

from Commission or DSRO staff for confirmation of account balances or provision of 

 275 At the time the Commission issued the 2013 Protections of Customer Funds Release, CME and NFA 

had just recently launched the programs. See 2013 Protections of Customer Funds Release at 68512. The 

verification programs have been further developed in the years that followed. FCMs report on the daily 

segregation records total funds held in segregation with banks, clearing organizations, and net equities with 

other FCMs in addition to other balances.

276 See 2013 Protections of Customer Funds Release at 68537 (noting that the Commission anticipated that 

the combination of receipt of daily account balances reported by depositories to CME and NFA, and the 

Commission’s ability to confirm account balances and transactions directly with depositories via direct 

communications would diminish the need to rely upon direct electronic access to account information at 

depositories).
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any other information regarding or related to an account, in order to ensure that staff have 

timely access information concerning Customer Funds from depositories.

277

In addition, in implementing the Read-only Access Provisions, the Commission 

has encountered various practical challenges. Specifically, given the number of 

depositories with which FCMs establish relationships and the total number of accounts 

that FCMs maintain with various depository institutions, the Commission must obtain 

and keep a current log of credentials to access the depository accounts, and in some 

instances, must obtain and store physical devices required as part of a multi-factor 

authentication process, for thousands of different depository accounts.278 Frequently, 

Commission staff must be trained to navigate the various account access systems and 

work regularly with depositories’ technology staff to ensure that the systems’ security 

features do not prevent the Commission’s access to the accounts.279 Furthermore, due to 

lack of appropriate infrastructure, some foreign depository institutions are unable to 

 277 See Regulations 1.20(d)(5) and (6), 1.26(b), 22.5(a) and (b), and 30.7(d)(5) and (6). 17 CFR 1.20(d), 

1.26(b), 22.5, and 30.7(d). For example, Regulation 1.20(d)(5) provides that an FCM must deposit futures 

customer funds only with a depository that agrees that accounts may be examined at any reasonable time by 

specified Commission or DSRO staff. Regulation 1.20(d)(6) provides that an FCM must deposit futures 

customer funds only with a depository that agrees to reply promptly and directly to any request from 

specified Commission staff or DSRO staff for confirmation of account balances or provision of any other 

information regarding or related to the FCM’s account. Regulation 1.20(d)(5) and (6) further provide that 

the written acknowledgment required from the depository must contain the FCM’s authorization to the 

depository to reply promptly and directly to the Commission or DSRO without further notice to or consent 

from the FCM. Regulation 22.5 provides that an FCM must obtain a written acknowledgment letter in 

accordance with Regulation 1.20 and Regulation 1.26 from each depository holding Cleared Swaps 

Customer Collateral, except an acknowledgment letter is not required of a DCO that has adopted rules 

providing for the segregation of Cleared Swaps Customer Collateral. 

278 Based 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 broker-dealers, foreign 

exchanges, and DCOs.

279 In this regard, depositories often require Commission staff to revise user-ids and passwords on a regular 

basis otherwise the access is interrupted and must be reset by the depositories. Some depositories also 

require the use of additional security devices beyond user-IDs and passwords, including key fobs or other 

forms of multi-factor authentication.
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provide direct electronic access to the customer segregated accounts, offering instead to 

send end-of-day accounts statements by email. These operational challenges put an 

undue burden on the Commission’s resources, particularly considering that the 

Commission contemplated that the use of real-time access would be limited, and prevent 

Commission staff from using the Read-only Access Provisions as intended.280

Thus, in light of the practical challenges of maintaining direct read-only access to 

depository accounts and the availability of efficient alternative methods for verifying 

customer segregated account balances, the Commission is proposing to eliminate the 

Read-only Access Provisions in Regulations 1.20 and 30.7, and Appendix A to 

Regulation 1.20, Appendix A to Regulation 1.26, and appendices E and F to Part 30 of 

the Commission’s regulations.281

The Commission notes that under the Proposal, FCMs would not need to obtain 

new acknowledgment letters for existing accounts at depositories holding Customer 

Funds. Should the Commission proceed with the proposed amendments after notice and 

comment, the revised acknowledgment letters would have to be obtained for accounts 

opened following the effective date of the revisions or in the event the FCM is required to 

obtain a new acknowledgment letter for reasons unrelated to the elimination of the Readonly Access Provisions. For the avoidance of doubt, the Commission confirms that even 

 280 Commission staff has not had a regulatory need to attempt to use read-only access for any FCM’s 

depository accounts in the approximately 10 years since the Regulation was implemented.

281 If adopted, the proposed amendments would extend to Regulation 22.5, which requires FCMs to obtain 

an acknowledgment letter from depositories before depositing Cleared Swaps Customer Collateral with a 

depository, in accordance with Regulations 1.20 and 1.26. 17 CFR 22.5(a). Regulation 22.5(b) further 

requires FCMs to adhere to all requirements specified in Regulation 1.20 and 1.26 regarding retaining, 

permitting access to filing, or amending the written acknowledgment letters. 17 CFR 22.5. 

Separately, the Commission is proposing to redesignate appendices A and B to Regulation 1.20 as 

appendices C and D to Part 1, and appendices A and B to Regulation 1.26 as appendices F and G to Part 1, 

to address a change in the rules of the Office of the Federal Register regarding the structure of regulatory 

text to be codified in the Code of Federal Regulations. 
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if an FCM had not obtained revised acknowledgment letters for accounts existing prior to 

the effective date of the proposed revisions, but keeps instead such letters in the currently 

applicable template form, the depositories would not be required to provide direct, readonly access to accounts holding Customer Funds.

Request for Comment: The Commission seeks comment on all aspects of the 

Proposal relating to the elimination of the Read-only Access Provisions, including:

30. The existing Read-only Access Provisions currently afford the Commission with 

direct access to depository accounts holding Customer Funds. Given the challenges 

depositories and Commission staff are encountering in implementing and 

administrating the provisions and the availability of alternative means of obtaining 

transaction and account balance information, what practical implications should the 

Commission consider prior to deciding whether to eliminate the requirement for 

depositories to provide Commission’s staff with direct, read-only electronic access?

F. Proposed Conforming Amendments

Regulation 1.26 requires each FCM or DCO that invests futures customer funds in 

financial instruments that are Permitted Investments, including qualifying MMFs, to 

separately account for such instruments and to segregate the instruments from its own 

funds. The FCM or DCO also must obtain and retain in its files a written 

acknowledgment from the depository holding the instruments stating that the depository 

was informed that the instruments belong to futures customers and are being held in 

accordance with the provisions of the Act and Commission regulations. Regulation 1.26 
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also specifies how direct investments in MMFs must be held and sets forth the template 

acknowledgement letter to be used with respect to direct investments in MMFs.282

To account for the proposed change in the scope of MMFs that qualify as 

Permitted Investments and the proposed addition of Qualified ETFs to the list of 

Permitted Investments, the Commission proposes revisions to subparagraphs (a) and (b) 

of Regulation 1.26 to replace the term “money market mutual fund” with “government 

money market fund and U.S. Treasury exchange-traded fund” or “government money 

market fund or U.S. Treasury exchange-traded fund,” as appropriate. To address the 

adoption of appendices H and I, as discussed below, subparagraph (b) of Regulation 1.26 

would be further revised to replace the reference to “appendix A or B to this section” 

with “appendix F, G, H or I to this part.”283

The Commission also proposes to amend Appendices A and B to Regulation 1.26 

(to be redesignated appendices F and G to Part 1) to replace the term “Money Market 

Mutual Fund” with “Government Money Market Fund.” 

To account for the proposed addition of Qualified ETFs to the list of Permitted 

investments, the Commission also proposes to adopt new appendices H and I to Part 1. 

The appendices would set forth template acknowledgment letters for Qualified ETFs and 

would be modeled on appendices A and B to Regulation 1.26 (to be redesignated 

appendices F and G to Part 1), which currently address money market mutual funds. 

 282 For purposes of clarification, an FCM or a DCO that holds shares of an MMF in a custodial account at a 

depository (not directly with the MMF or its affiliate) is required to execute the template acknowledgement 

letter set forth in Appendix A or B of Regulation 1.20 (to be redesignated Appendix C and Appendix D to 

Part 1), as applicable. 17 CFR 1.20. 

283 Regulation 1.26 currently refers to “appendix A or B to this section.” As noted supra, Appendix A and 

Appendix B to Regulation 1.26 would be redesignated Appendix F and Appendix G to Part 1 to address a 

change in the rules of the Office of the Federal Register regarding the structure of regulatory text to be 

codified in the Code of Federal Regulations.
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Appendices H and I to Part 1 would mostly replicate appendices A and B to Regulation 

1.26, except that the term “money market mutual fund” would be replaced with “U.S. 

Treasury exchange-traded fund;” condition (1) will read “To qualify as a Permitted 

Investment, interests in U.S. Treasury exchange-traded funds must be redeemable in cash 

by a futures commission merchant or derivatives clearing organization in its capacity as 

an authorized participant pursuant to an authorized participant agreement, as defined in

§270.6c–11 of this title, at a price based on the net asset value in accordance with the 

Investment Company Act of 1940 and regulations thereunder, and on a delivery versus 

payment basis;” and references relating to money market mutual funds would be 

eliminated. 

In addition, Regulation 30.7(d) requires that FCMs obtain written 

acknowledgment letters from each depository with which they maintain 30.7 customer 

funds. Appendices E and F to Part 30 of the Commission’s regulations set forth the 

template acknowledgment letters. The Commission is proposing conforming changes to 

Regulation 30.7(d)(2) to replace the term “money market mutual fund” with “government 

money market fund and U.S. Treasury exchange-traded fund” or “government money 

market fund or U.S. Treasury exchange-traded fund,” as appropriate. The Commission is 

also proposing changes to Appendix F to Part 30, to replace the term “money market 

mutual fund” with “government money market fund.” In addition, the Commission is 

also proposing to revise Regulation 30.7(d)(2) to add “or Appendix G to this part, 

respectively” after “Appendix F to this part” to address the adoption of new Appendix G

to Part 30, which would set forth a template acknowledgment letter modeled on proposed 

Appendix C to Regulation 1.26 but addressing 30.7 customer funds. 
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Request for Comment: The Commission seeks comment on all aspects of the 

Proposal relating to the conforming amendments. The Commission also invites

comments on any other aspect of the Proposal. The Commission also specifically 

requests comment on the following question:

31. Are there any risks associated with the Proposal that the Commission has not 

considered? What measures could the Commission take to mitigate such risks?

IV. Section 4(c) of the Act 

With respect to investment of futures customer funds, the proposed amendments 

to Regulation 1.25 would be promulgated under Section 4d(a)(2) of the Act.

284 Section 

4d(a)(2) provides that customer money may be invested in U.S. government securities 

and municipal securities. It further provides that such investments must be made in 

accordance with such rules and regulations and subject to such conditions as the 

Commission may prescribe.

Pursuant to its authority under Section 4(c) of the Act, the Commission proposes 

to expand the range of instruments in which FCMs and DCOs may invest futures 

customer funds beyond those listed in Section 4d(a)(2) of the Act to enhance the yield 

available to FCMs, DCOs and their customers, without compromising the safety of 

futures customer funds.

Section 4(c)(1) of the Act empowers the Commission to “promote responsible 

economic or financial innovation and fair competition” by exempting any transaction or 

class of transactions (including any person or class of persons offering, entering into, 

 284 7 U.S.C. 6(c).
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rendering advice or rendering other services with respect to, the agreement, contract, or 

transaction), from any of the provisions of the Act, subject to certain exceptions.285 The 

Commission’s authority under Section 4(c) extends to transactions covered by Section 

4d(a)(2) and to FCMs and DCOs that offer, enter into, render advice, or render other 

services with respect to such transactions. In enacting Section 4(c), Congress noted that 

its goal “is to give the Commission a means of providing certainty and stability to 

existing and emerging markets so that financial innovation and market development can 

proceed in an effective and competitive manner.”286 The Commission may grant such an 

exemption by rule, regulation, or order, after notice and opportunity for hearing, and may 

do so on application of any person or on its own initiative.

Section 4(c)(2) of the Act provides that the Commission may grant exemptions

under Section 4(c)(1) only when it determines that the requirements for which an 

exemption is being provided should not be applied to the agreements, contracts, or 

transactions at issue; that the exemption is consistent with the public interest and the 

purposes of the Act; that the agreements, contracts, or transactions will be entered into 

solely between appropriate persons; and that the exemption will not have a material 

adverse effect on the ability of the Commission or any contract market to discharge its 

regulatory or self-regulatory responsibilities under the Act. The Proposal would provide 

FCMs and DCOs with a limited exemption from the restrictions in Section 4d(a) and (b) 

of the CEA pertaining to the safeguarding and investment of Customer Funds. As such, 

the Commission’s preliminary analysis below focuses on how the proposed expansion of 

 285 7 U.S.C. 6(c)(1). 286 House Conf. Report No. 102–978, 1992 U.S.C.C.A.N. 3179, 3213.
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the list of Permitted Investments meets the conditions in Section 4(c)(2)(A) as they apply 

to an exemption with respect to an FCM or a DCO. More specifically, the discussion 

below describes how the proposed expansion is, in the Commission’s view, consistent 

with the public interest and the purposes of the CEA.287 In that regard, the Commission 

notes that when Section 4(c) was enacted, the Conference Report accompanying the 

Futures Trading Practices Act of 1992288 stated that the “public interest” in this context 

would “include the national public interests noted in the Act, the prevention of fraud and 

the preservation of the financial integrity of the markets, as well as the promotion of 

responsible economic or financial innovation and fair competition.”289

To qualify as Permitted Investments, the instruments subject to this Proposal 

would need to meet strict conditions to ensure that investments of futures customer funds 

in these instruments are consistent with the objective of preserving principal and 

maintaining liquidity, as provided by Regulation 1.25. The Commission’s preliminary 

analysis, presented above, indicates that the instruments proposed herein to be included 

as Permitted Investments meeting the specified proposed conditions present credit and 

volatility characteristics that are comparable to instruments that already qualify as 

Permitted Investments. As such, the Commission is of the view that the proposed 

expansion of the list of Permitted Investments would provide FCMs and DCOs with an 

opportunity to diversify their investments of Customer Funds, mitigating the risks that 

 287 The analysis does not include a discussion of Section 4(c)(2)(B)’s conditions because the exemption in 

this instance does not implicate or affect a futures agreement, contract, or transaction.

288 Pub. L. No. 102–546, 106 Stat. 3590 (1992). 289 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.” Id.
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can arise from concentrating Customer Funds in a smaller set of Permitted Investments,

without compromising the safety of such investments.

The expanded selection of Permitted Investments is expected to also permit FCMs 

and DCOs to remain competitive globally and domestically and maintain safeguards 

against systemic risk. A wider range of alternatives to invest futures customer funds may 

provide more profitable investment options, allowing FCMs and DCOs to generate more 

income for themselves and their customers. This, in turn, may motivate FCMs and DCOs 

to increase their presence in the futures market and other relevant markets, thus 

increasing competition. Increased revenue to FCMs and DCOs from the investment of 

Customer Funds also may benefit customers in the form of lower commission charges or 

direct interest payments on funds on deposit with the FCM or DCO, which may lead to 

greater market participation by customers and increased market liquidity. In light of the 

foregoing, the Commission believes that the adoption of the proposed amendments would 

promote responsible economic and financial innovation and fair competition, and would 

be consistent with the objective of Regulation 1.25 and with the “public interest,” as that 

term is used in Section 4(c) of the Act. Specifically, permitting FCMs and DCOs to 

invest Customer Funds in Specified Foreign Sovereign Debt to the extent they hold 

balances owed to customers denominated in the applicable currency reduces potential 

currency risk to DCOs, FCMs, and customers that would result from investing such 

foreign currencies in U.S.-dollar denominated assets. In addition, permitting investments 

in Qualified ETFs, subject to the proposed conditions, including that the ETF is passively 

managed with the investment objective of replicating the performance of a published 

short-term U.S. Treasury security index composed of U.S. Treasury bonds, notes, and 
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bills with a remaining maturity of 12 months or less, provides an opportunity for greater 

diversification of the types of investment options that FCMs and DCO may use to 

manage the risk of holding Customer Funds. Proposed Qualified ETFs also provide 

potential benefits to FCMs, particularly smaller FCMs, that don’t have the internal 

operations and resources to effectively manage direct investments in other Permitted 

Investments, such as U.S. government securities, U.S. agency obligations, and municipal 

securities. Both Specified Foreign Sovereign Debt and Qualified ETFs have the potential 

to reduce costs to FCMs, DCOs, and customers while remaining consistent with the 

requirement in Regulation 1.25 for the preservation of principal and liquidity of 

Permitted Investments. The Commission solicits public comment on whether the 

Proposal satisfies the requirements for exemption under Section 4(c) of the Act. 

The Commission notes that with respect to investments of Cleared Swaps 

Customer Collateral and 30.7 customer funds, the Commission would be acting pursuant 

to its plenary authority under Sections 4d(f)290 and 4(b)291 of the Act, respectively, and 

would not need to apply Section 4(c) to effectuate the proposed amendments.

V. Administrative Compliance

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (“RFA”) requires Federal agencies to consider 

whether the rules they propose will have a significant economic impact on a substantial 

 290 7 U.S.C. 6d(f)(4) (providing that Cleared Swaps Customer Collateral may be invested in certain 

specified investments and “in any other investment that the Commission may by rule or Regulation 

prescribe, and such investments shall be made in accordance with such rules and Regulations and subject to 

such conditions as the Commission may prescribe.”)

291 7 U.S.C. 6(b)(2)(A) (providing that the Commission may adopt rules and Regulations requiring, among 

other things, the safeguarding of customer’s funds, by any person located in the U.S. who engages in 

foreign futures trading). 
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number of small entities and, if so, provide a regulatory flexibility analysis respecting the 

impact.

292 Whenever an agency publishes a general notice of proposed rulemaking for 

any rule, pursuant to the notice-and-comment provisions of the Administrative Procedure 

Act,293 a regulatory flexibility analysis or certification typically is required.294 The 

Commission has previously determined that registered FCMs and DCOs are not small 

entities for purposes of the RFA.295 Accordingly, the Chairman, on behalf of the 

Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have 

a significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (“PRA”)296 imposes certain requirements 

on Federal agencies in connection with their conducting or sponsoring any collection of 

information as defined by the PRA. Under the PRA, an agency may not conduct or 

sponsor, and a person is not required to respond to, a collection of information unless it 

displays a currently valid control number from the Office of Management and Budget 

(“OMB”).297 The PRA is intended, in part, to minimize the paperwork burden created for 

individuals, businesses, and other persons as a result of the collection of information by 

federal agencies, and to ensure the greatest possible benefit and utility of information 

created, collected, maintained, used, shared, and disseminated by or for the Federal 

Government.298 The PRA applies to all information, regardless of form or format, 

 292 5 U.S.C. 601 et seq. 293 5 U.S.C. 553. The Administrative Procedure Act is found at 5 U.S.C. 500 et seq. 294 See 5 U.S.C. 601(2), 603, 604, and 605. 295 See 47 FR 18618, 18619 (Apr. 30, 1982) and 66 FR 45604, 45609 (Aug. 29, 2001). 296 44 U.S.C. 3501 et seq. 297 See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3). 298 See 44 U.S.C. 3501.
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whenever the Federal Government is obtaining, causing to be obtained, or soliciting 

information, and includes required disclosure to third parties or the public, of facts or 

opinions, when the information collection calls for answers to identical questions posed 

to, or identical reporting or recordkeeping requirements imposed on, ten or more 

persons.299

The regulation to be amended under this proposal contains a collection of 

information for which the Commission has previously received control numbers from 

OMB. The titles for this collection of information are OMB Control No. 3038–0024, 

Regulations and Forms Pertaining to Financial Integrity of the Market Place; Margin 

Requirements for SDs/MSPs and OMB Control No. 3038-0091, Disclosure and Retention 

of Certain Information Relating to Cleared Swaps Customer Collateral.

300

As discussed in Section III.D. above, among other reporting items, FCMs are 

required to report in the SIDR Reports the amount of futures customer funds, Cleared 

Swaps Customer Collateral, and 30.7 customer funds invested in each of the current 

categories of Permitted Investments. The Commission is proposing to amend 

Regulations 1.32(f), 22.2(g)(5), and 30.7(l)(5), which define the content of the SIDR 

Report, by deleting the requirement for an FCM to report the balances invested in 

commercial paper and corporate notes and bonds as such investments would no longer be 

Permitted Investments under the Proposal; to require each FCM to report the total amount 

of futures customer funds, Cleared Swaps Customer Collateral, and 30.7 customer funds 

 299 See 44 U.S.C. 3502(3). 300 For the previously approved PRA estimates under OMB Control No. 3038-0024, see ICR Reference No. 

202101-3038-001, at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202207-3038-001. For 

previously approved PRA estimated under OMB Control No. 3038-0091, see ICR Reference No. 202009-

3038-007, at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202009-3038-007. 
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invested in Specified Foreign Sovereign Debt of each country that is included within the 

Specified Foreign Sovereign Debt; and to require an FCM to include in the SIDR Report 

the total amount of futures customer funds, Cleared Swaps Customer Collateral, and 30.7 

customer funds invested in Qualified ETFs as such investments would be Permitted 

Investments under the Proposal. As such, the proposed changes to the content of the 

SIDR Reports would reflect the proposed revisions to the list of Permitted Investments

discussed in Section III.A. of the Proposal. The Commission does not expect these

proposed changes to result in an increase in the number of burden hours required for the 

completion of the reports. Accordingly, the Commission is retaining its existing burden 

estimates associated with this collection of information.301

In addition, the Commission is proposing to revise Regulation 1.26, which 

requires each FCM or DCO investing futures customer funds in MMFs that are Permitted 

Investments to obtain and retain in its files a written acknowledgment from the 

depository holding the funds stating that the depository was informed that the funds

belong to customers and are being held in accordance with the provisions of the Act and 

Commission regulations. Regulation 1.26 also specifies the form of the written 

acknowledgment letter that each FCM or DCO must obtain from an MMF, in the event 

futures customer funds are held directly with the MMF. Regulations 22.5 and 30.7(d) set 

forth similar requirements with respect to Cleared Swaps Customer Collateral and 30.7 

customer funds. The proposed amendments to Regulation 1.26 would require FCMs and 

 301 The Commission has previously estimated that compliance with the requirements under Regulations 

1.32(f) and 1.32(g) to file SIDR reports requires 59 covered FCMs to expend 2,832 burden hours annually. 

The Commission has estimated that each FCM will file 24 reports per year requiring approximately 48 

burden hours per respondent. This yields a total of 2,832 burden hours annually (59 FCM respondents × 48 

burden hours annually = 2,832 hours).
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DCOs segregating Customer Funds in a Permitted Government MMF or Qualified ETF

account to obtain and maintain in their files an acknowledgment letter from the fund in 

which Customer Funds are held and to file such acknowledgment letter electronically 

with the Commission. The Commission is proposing an analogous amendment to 

Regulation 30.7(d)(2) with respect to investments of 30.7 customer funds by FCMs.302 

The Commission notes that the proposed revisions to Regulations 1.26 and 30.7(d) would 

reduce the scope of MMFs from which FCMs and DCOs, as applicable, would be 

required to obtain an acknowledgment letter by limiting the requirement to Permitted 

Government MMFs, a smaller set of MMFs. The proposed revisions to Regulations 1.26 

and 30.7(d) would also impose a new requirement on FCMs and DCOs, as applicable, to 

obtain an acknowledgment letter from Qualified ETFs. The requirement would also 

apply under Regulation 22.5, which cross-references Regulation 1.26. To the extent that 

the new collection requirement would apply only to FCMs and DCOs that are APs and 

invest in Qualified ETFs in such capacity, the Commission estimates that the proposed 

requirement would affect no more than 15 registrants (i.e., approximately 10 FCMs and 

five DCOs). Using the Commission’s prior estimates of the number of burden hours 

necessary to comply with the requirement to obtain an acknowledgment letter pursuant to 

Regulations 1.26 and 30.7(d) (i.e., 0.75 burden hours per response), the Commission 

estimates that the new requirement would result in 0.75 annual burden hours per 

registrant per category of Customer Funds, as applicable, assuming that a registrant 

 302 The Commission notes that an amendment to Regulation 22.5 would not be necessary as this regulation 

cross-references Regulation 1.26. 
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would obtain one acknowledgement letter per year from a Qualified ETF with which it 

holds Customer Funds.

303 

The Commission also notes that, in connection with the proposed revisions related 

to the elimination of the Read-only Access Provisions, an FCM would need to obtain the 

revised acknowledgment letter only for accounts opened following the effective date of 

the proposed revisions or if the FCM is required to obtain a new acknowledgment letter 

for reasons unrelated to the elimination of the Read-only Access Provisions. The opening

of a new depository account triggers a requirement to obtain an acknowledgment letter in 

all circumstances, regardless of the proposed revisions related to the elimination of the 

Read-only Access Provisions. For these reasons, the Commission is retaining its existing 

estimate of the burden that covered FCMs and DCOs incur to obtain, maintain, and 

electronically file the acknowledgment letters with the Commission, as currently 

provided in the approved collection of information.

304 

 303 The Commission has previously estimated that an FCM or a DCO, as applicable, spends 0.75 hours per 

acknowledgement letter required under Regulation 1.26 or Regulation 30.7(d). See ICR Reference No. 

202101-3038-001, at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202207-3038-001. The

Commission therefore estimates that to obtain an acknowledgement letter from Qualified ETFs, 15 

registrants would have to extend 30 burden hours annually. Specifically, the Commission estimates that 

FCMs would have to spend a total of 22.5 hours (10 FCMs × 1 report × 0.75 burden hours × 3 categories of 

Customer Funds = 22.5 hours) and DCOs would have to spend a total of 7.5 hours (5 DCOs × 1 report × 

0.75 burden hours × 2 categories of Customer Funds = 7.5 hours). The Commission notes that investments 

by DCOs are only relevant with respect to futures customer funds and Cleared Swaps Customer Collateral. 304 The Commission has estimated that 36 covered FCMs incur an estimated 216 burden hours annually to 

file required acknowledgment letters pursuant to Regulation 1.20(d). The Commission has estimated that 

each respondent will file 3 reports per year requiring an estimated 2 burden hours per report, for a total of 6 

burden hours per respondent. This yields a total of 216 burden hours annually (36 respondents × 6 burden 

hours annually = 216 burden hours). Under Regulation 1.26, the Commission has estimated that 74 

covered respondents incur an estimated 111 burden hours annually to obtain and maintain required 

acknowledgement forms (74 respondents × 1.5 hours annually = 111 burden hours). Under Regulation 

30.7, the Commission has estimated that 42 covered respondents incur an estimated 252 burden hours 

annually (42 respondents × 6 burden hours annually = 252 burden hours) and under Regulation 22.5, the 

Commission has estimated that 78 covered respondents incur an estimated 390 burden hours annually (78 

respondents × 5 burden hours annually = 390 burden hours) to obtain and maintain the required 

acknowledgment letters.
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The Commission welcomes public comment on all aspects of its analysis of the 

PRA requirements. In particular, the Commission invites comment on its estimates of 

additional burden hours in connection with the proposed requirement for FCMs and 

DCOs that invest Customer Funds in Qualified ETFs to obtain an acknowledgment letter 

from such ETFs. 

C. Cost-Benefit Considerations 

Section 15(a) of the Act requires the Commission to consider the costs and 

benefits of its actions before promulgating a regulation under the Act.

305 Section 15(a) 

further specifies that the costs and benefits shall be evaluated in light of the following 

five broad areas of market and public concern: (1) protection of market participants and 

the public; (2) efficiency, competitiveness and financial integrity of futures markets; (3) 

price discovery; (4) sound risk management practices; and (5) other public interest 

considerations. The Commission considers the costs and benefits resulting from its 

discretionary determinations with respect to the Section 15(a) considerations, and seeks 

comments from interested persons regarding the nature and extent of such costs and 

benefits.

As described in more detail above, the Commission is proposing to revise the list 

of Permitted Investments in Regulation 1.25(a) to: (i) add the foreign sovereign debt of 

certain jurisdictions and interests in certain ETFs that invest primarily in short-term U.S. 

Treasury securities; (ii) limit the scope of MMFs whose interests qualify as Permitted 

Investments to certain Government MMFs; and (iii) eliminate commercial paper,

corporate notes or bonds. The Commission is further specifying the capital charges that 

 305 7 U.S.C. 19(a).
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FCMs would be required to take on investments of Customer Funds in foreign sovereign 

debt and ETFs. The Commission is also proposing to replace LIBOR with SOFR as a 

permitted benchmark under Regulation 1.25(b)(2)(iv)(A)(1) and (2), as well as to adopt 

certain conforming changes consistent with the proposed amendments, and is requesting 

public comment on the possible removal of bank CDs from the list of Permitted 

Investments. Finally, the Commission is proposing to revise relevant provisions in Parts 

1 and 30 of the Commission’s regulations to eliminate the requirement for depositories to 

provide read-only electronic access to accounts maintained by FCMs that hold Customer 

Funds.

The baseline for consideration of the benefits and costs associated with the 

Proposal are the benefits and costs that FCMs, DCOs, and the public would realize if the 

Commission does not proceed with the proposed amendments, or in other words, the 

status quo. 

The Commission notes that the consideration of costs and benefits below is based 

on the understanding that the markets function internationally, with many transactions 

involving U.S. firms taking place across international boundaries; with some Commission 

registrants being organized outside of the United States; with leading industry members 

typically conducting operations both within and outside the United States; and with 

industry members commonly following substantially similar business practices wherever 

located. Where the Commission does not specifically refer to matters of location, the 

below discussion of costs and benefits refers to the effects of these proposed amendments 

on all activity subject to the proposed amended regulations, whether by virtue of the 
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activity’s physical location in the United States or by virtue of the activity’s connection 

with activities in, or effect on, U.S. commerce under Section 2(i) of the Act.

306

The Commission recognizes that the Proposal may result in some additional,

incremental costs for FCMs and DCOs. However, the Commission lacks the data

necessary to reasonably quantify all of the costs and benefits considered below. 

Additionally, any initial and recurring compliance costs for any particular FCM or DCO

will depend on its size, existing infrastructure, practices, and cost structures. The

Commission welcomes comments on any such incremental costs, especially by DCOs

and FCMs, who may be better able to provide quantitative costs data or estimates, based

on their respective experiences relating to Commission’s regulations governing the

investment of Customer Funds and related requirements.

The Commission is also including a number of questions for the purpose of 

eliciting cost and benefit estimates from public commenters wherever possible. 

Quantifying other costs and benefits, such as the effects of potential changes in the 

behavior of FCMs and DCOs resulting from the proposed amendments are inherently 

harder to measure. Thus, the Commission is similarly requesting comment through 

questions to help it better quantify these impacts. Due to these quantification difficulties, 

for this NPRM, the Commission offers the following qualitative discussion of its costs 

and benefits.

 306 7 U.S.C. 2(i).
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a. Foreign Sovereign Debt, Interests in Exchange-Traded Funds, and Associated 

Capital Charges

The Proposal would expand the list of Permitted Investments to add two new 

categories of instruments. Specifically, the Proposal would add: (i) the sovereign debt of 

Canada, France, Germany, Japan, and the United Kingdom, and (ii) interests in certain 

ETFs that invest in primarily short-term U.S. Treasury securities, to the list of Permitted 

Investments in which FCMs and DCOs may invest customer segregated funds pursuant to 

Regulation 1.25. The Proposal would also require an FCM to apply capital charges on 

any investments of Customer Funds in the Specified Foreign Sovereign Debt and 

Qualified ETFs to account for potential market risk associated with such investments. 

The Proposal would further expand the universe of permitted counterparties and 

depositories that can be used to buy and sell permitted foreign sovereign debt pursuant to 

Repurchase Transactions to include certain non-U.S. entities. 

1. Benefits

The Commission preliminarily believes that expanding the list of Permitted 

Investments to include Specified Foreign Sovereign Debt and interests in Qualified ETFs 

would provide FCMs and DCOs with a wider range of alternatives to invest Customer 

Funds, and as a result, FCMs and DCOs might have more investment options, some of 

which might be more profitable than the existing Permitted Investments, such that FCMs 

and DCOs may be able to generate more income for themselves and their customers. 

This may motivate FCMs or DCOs to increase their presence in the futures market and 

other relevant markets, thereby increasing competition, which might lead to a reduction 

in charges to customers and an increase trading activity and liquidity.
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Also, the ability to use Specified Foreign Sovereign Debt as a Permitted 

Investment would facilitate FCMs’ and DCOs’ management of foreign currencies that 

customers deposit to margin their trades and enable FCMs and DCOs to avoid certain 

risks and practical challenges in the handling of foreign currencies. For example, 

providing FCMs and DCOs with the opportunity to invest customer foreign currencies in 

identically-denominated assets would help manage the foreign currency risk that FCMs 

and DCOs face if they seek to invest foreign currencies in the currently permitted, U.S. 

dollar-denominated investments. In addition, in their Joint Petition, the Petitioners

asserted that as a matter of risk management policy, or due to regulatory requirements,

many clearing organizations located outside of the United States impose strict cut-off 

times for cash withdrawal by clearing members, while allowing later cut-off times for 

withdrawal of other types of collateral.307 Also, for reasons such as capital requirements 

and balance sheet management, banks may not accept foreign currencies at all or may 

place limits on the accepted amount. Banks may also charge higher rates for holding 

foreign currencies. As such, FCM customers depositing foreign currencies might 

potentially absorb those costs. The Petitioners also argued that it may be preferable to 

hold foreign currencies in the form of high-quality sovereign debt than keeping the funds 

in unsecured bank demand deposit accounts that might expose the funds to the credit risk 

of commercial banks. 

 307 Joint Petition at p. 3 (citing, as an example of regulatory requirements, Article 45 of the regulatory 

technical standards on requirements for central counterparties (Commission Delegated Regulation (EU) 

No. 153/2013) (“CCP RTS”), which supplements provisions in the EU Market Infrastructure Regulation 

(Regulation (EU) No 648/2012) (“EMIR”) governing the investment policies of EU central counterparties. 

Per Article 45(2) of the CCP RTS, not less than 95 percent of cash deposited other than with a central bank 

and maintained overnight must be deposited through arrangements that ensure its collateralization with 

highly liquid financial instruments).
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Similarly, for reasons related to balance sheet management, custodian institutions 

may impose higher fees for accepting cash deposits denominated in USD or limit the 

amounts of USD cash that they are willing to safeguard. 

Expanding the list of Permitted Investments to instruments that meet the overall 

required standards of preserving principal and maintaining liquidity, while also providing 

the potential for greater diversification or higher returns for FCMs, DCOs and customers, 

would give FCMs and DCOs more flexibility in the management of Customer Funds. 

This might be particularly important given the narrower range of assets that currently 

qualify as Permitted Investments under Regulation 1.25. 

In addition, Qualified ETFs, in particular, may offer an opportunity to invest in 

U.S. Treasury securities, which qualify as a Permitted Investment, without devoting the 

resources required to purchase, monitor, and roll over such securities when they mature.

The Commission also preliminarily believes that requiring an FCM to apply

capital charges on investments of Customer Funds in Specified Foreign Sovereign Debt 

and Qualified ETFs helps ensure that the FCM maintains a sufficient level of readily 

available liquid funds that would be available to transfer into the FCM’s futures accounts, 

Cleared Swaps Customer Accounts, and/or 30.7 accounts to cover decreases in value of 

the investments to help ensure continue compliance with Customer Funds segregation 

requirements.

308 Requiring an FCM to maintain regulatory capital to cover potential 

decreases in the value of the Permitted Investments benefits the FCM by helping to 

ensure that such firms have sufficient, liquid financial resources to meet 100 percent of 

 308 The terms “futures account,” “Cleared Swap Customer Account,” and “30.7 account” are defined in 

Regulations 1.3, 22.1, and 30.1, respectively. 17 CFR 1.3, 17 CFR 22.1, and 17 CFR 30.1. 
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their obligations to futures customers, Cleared Swaps Customers, and 30.7 customers at 

all times as required by Regulations 1.20, 22.2, and 30.7. Capital charges on Permitted 

Investments also benefit FCM customers as the charges help ensure an FCM maintains 

capital in an amount sufficient to cover investment losses and to prevent such losses from 

being passed on to customers in violation of Regulations 1.29(b), 22.2(e)(1), and 30.7(i). 

In addition, the Commission also notes that the proposed amendment to 

Regulation 22.3(d), seeking to clarify that DCOs are responsible for losses resulting from 

their investments of Customer Funds, would provide legal certainty with respect to the 

Commission’s customer protection regulations. 

2. Costs

Although the Proposal would increase the range of permissible investments in 

which DCOs and FCMs may invest customers funds, facilitating their management of 

investments and capital, the Proposal may result in customer segregated funds being 

invested in instruments that may be less liquid and have increased exposure to credit and 

market risks than those currently permitted under Regulation 1.25. Such risks could 

result in an increased exposure for FCMs and DCOs, who pursuant to Regulations 

1.29(b), 22.2(e)(1), 22.3(d), and 30.7(i), as applicable, are responsible for losses resulting 

from investments of Customer Funds. A heightened risk exposure may also indirectly 

impact customers if the losses compromise the FCM’s or DCO’s ability to return

Customer Funds. 

To account for these potential risks and ensure that the proposed Permitted 

Investments are consistent with the general objectives of Regulation 1.25 of preserving 

principal and maintaining liquidity, the Commission is proposing several conditions for 
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foreign sovereign debt and interests in U.S. Treasury ETFs to qualify as Permitted 

Investments. Specifically, for the Specified Foreign Sovereign Debt, the proposed 

conditions include a cap of 45 BPS on the two-year credit default spread of the issuing 

sovereign, a 60-day limit on the 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, and a 180-day limit on the time-to-maturity of any individual Specified Foreign 

Sovereign Debt instrument. For interests in Qualified ETFs to be deemed Permitted 

Investments, the Commission proposes to require, among other conditions, that the ETF

is passively managed and seeks to replicate the performance of a published short-term 

U.S. Treasury security index. For purposes of the Proposal, short-term U.S. Treasury 

securities are bonds, notes, and bills with a remaining maturity of 12 months or less,

issued by, or unconditionally guaranteed as to the timely payment of principal and 

interest by, the U.S. Department of the Treasury. Under the Proposal, the eligible U.S. 

Treasury securities must represent at least 95 percent of the Qualified ETF’s investment 

portfolio. In addition, to be able invest in a Qualified ETF, an FCM or a DCO would 

have to qualify as an authorized participant such that it would be able to redeem interests 

in the ETF directly from the fund. Moreover, as discussed above, the Proposal would 

require FCMs to take capital charges based on the current market value of the Specified 

Foreign Sovereign Debt and Qualified ETFs to address potential market risk of such 

investments. The capital charges are intended to ensure that an FCM has sufficient 

financial resources in the form of cash and other readily marketable collateral to 

adequately cover potential market risk of the investments, consistent with the FCM’s 

obligation to bear any losses resulting from such investments.
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Requiring an FCM to apply capital charges in connection with the proposed new 

categories of Permitted Investments would result in costs associated with reserving 

capital. The FCM may not be able to use the amounts reserved as capital to maximize the 

profit of its business operations, thus potentially reducing its income. The Commission 

notes, however, that capital requirements are an essential risk-management feature of the 

FCM’s regulatory regime and the amounts reserved as capital would be necessary and 

expected costs associated with operating a business as an FCM. 

In addition, the Commission preliminarily believes that the proposed clarifying 

amendment to Regulation 22.3(d) would not result in increased costs for DCOs. The

proposed amendment seeks to expressly state a regulatory obligation that is consistent 

with the Commission’s original intent to permit DCOs to invest Cleared Swaps Customer 

Collateral within the parameters applicable to investments of futures customer funds.

309 

As such, the Commission preliminarily believes that DCOs already reserve financial 

resources to account for their responsibility for such investments. 

Finally, as discussed above, the Commission has slightly adjusted its existing 

burden estimates associated with the approved collection of information. As such, the 

Commission preliminarily believes that FCMs and DCOs would not incur material costs 

relating to the collection of information as a result of this Proposal.

3. Section 15(a) Considerations

In light of the foregoing, the Commission has evaluated the costs and benefits of 

the Proposal pursuant to the five considerations identified in Section 15(a) of the Act as 

follows:

 309 See supra note 42. 
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(a) Protection of Market Participants and the Public

The Proposal would expand the list of permitted instruments set forth in 

Regulation 1.25(a) to include instruments that may be less liquid and may be more 

exposed to credit and market risks than some of the currently Permitted Investments 

under Regulation 1.25, resulting in Customer Funds being invested in potentially illiquid 

and risky instruments. To address these potential risks with respect to Specified Foreign 

Sovereign Debt and Qualified ETFs, the Proposal would include strict conditions for the

relevant instruments to qualify as Permitted Investments, and would require FCMs to 

reserve regulatory capital to cover potential decreases in the market value of the 

Specified Foreign Sovereign Debt and Qualified ETFs and not pass such losses on to 

customers. The Commission’s preliminary analysis indicates that instruments meeting 

the specified conditions present credit and volatility characteristics that are comparable to 

those of instruments that already qualify as Permitted Investments.310 As such, the 

Commission believes that the current level of protection provided to Customer Funds 

would be maintained under the terms of the proposal.

(b) Efficiency, Competitiveness, and Financial Integrity of Markets

Having a greater selection of Permitted Investments may provide FCMs or DCOs 

with the ability to generate more income from their investment of Customer Funds. This 

may motivate FCMs or DCOs to increase their presence in the futures and other relevant 

markets increasing competition, which might lead to lower charges for customers. The 

 310 See supra note 77 (using one-year sovereign debt instruments yield data to demonstrate that the price 

risk of the Specified Foreign Sovereign Debt instruments is comparable to that of U.S. government 

securities), Section III.A.1 and note 94 (using credit default swap data to demonstrate that the Specified 

Foreign Sovereign Debt instruments have a risk profile comparable to that of U.S. government securities) 

and note 180 (using yield data to demonstrate that five ETFs currently available on the market, which 

invest in short-term U.S. Treasury securities, are at least as stable as one-year U.S. Treasury securities). 
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increase in revenue may also increase earnings to customers as DCOs and FCMs often 

pay a return on customer deposited funds, and FCMs may otherwise share some or all of 

the income to customers.

The increased range of Permitted Investments is expected to provide investment 

flexibility to FCMs and DCOs and an opportunity to realize cost savings. More 

specifically, by being able to invest in Specified Foreign Sovereign Debt, FCMs and 

DCOs may be able to avoid practical challenges, such as having to meet clearing 

organizations’ strict cut-off times for cash withdrawal, or the additional fees for holding 

foreign currencies, imposed by some institutions. In addition, investing in Specified 

Foreign Sovereign Debt could be a safer alternative than holding cash at a commercial 

bank. It may also help avoid the foreign currency risk to which FCMs and DCOs may be 

exposed absent the ability to invest customer foreign currencies in identicallydenominated assets.

In addition, Qualified ETFs may provide a simpler and cost-efficient way of 

investing in U.S. Treasury securities, saving the resources that would otherwise be 

required to roll over such securities at their maturity. 

(c) Price Discovery

The Proposal would increase the selection of Permitted Investments and may lead 

FCMs and DCO to generate more income from their investments of Customer Funds. 

This might lead to a reduction in charges for customers, or provide customers with 

additional revenue, and potentially motivate customers to increase their trading in the 

futures market and other relevant markets, which might increase liquidity in those 

markets and enhance price discovery. 
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(d) Sound Risk Management

Increasing the range of Permitted Investments would provide FCMs and DCOs 

with a broader selection of investment options to invest Customer Funds, enabling FCMs 

and DCOs to have more diversified portfolios and reduce the potential concentration in a 

few instruments. Providing safe alternative investment options may be particularly 

beneficial for FCMs and DCOs in light of the limited range of instruments that meet the 

eligibility criteria of Regulation 1.25 and the competing demand for high quality forms of 

collateral driven by the regulatory reforms implementing the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010. 

By making available Specified Foreign Sovereign Debt as a Permitted 

Investment, the Commission would provide FCMs and DCOs with an opportunity to 

better manage risks associated with holding foreign currencies deposited by customers. 

As noted above, the Commission recognizes that investing customer segregated funds in 

Specified Foreign Sovereign Debt provides an alternative to taking on the exposure of

holding cash at a commercial bank. The Commission notes also that absent the ability to 

invest Customer Funds in identically-denominated sovereign debt securities, an FCM or a 

DCO seeking to invest customer foreign currency deposits would need to convert the 

currencies to a U.S. dollar-denominated asset, which would increase the potential foreign 

currency risk. In addition, by limiting the investment of foreign currency to foreign 

sovereign debt that meets certain requirements, the Proposal is expected to further 

promote sound risk management. Lastly, requiring an FCM to reserve capital to cover 

potential decreases in the value of the Specified Foreign Sovereign Debt and Qualified 
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ETFs would help ensure that an FCM has the financial resources to meet its regulatory 

obligations of bearing 100 percent of the losses on the investment of Customer Funds. 

(e) Other Public Interest Considerations

Although the four factors mentioned above are considered to be the primary costbenefit considerations, other public interest considerations may also be relevant. For 

instance, in addition to the potential benefits that may accrue to FCMs, DCOs, and 

customers, benefits associated with the addition of Qualified ETFs to the list of Permitted 

Investments may also accrue to the general public, as allowing FCMs and DCOs to invest 

Customer Funds in such instruments may contribute to a more vibrant and robust market 

for ETFs. In addition, the expansion of Permitted Investments to include Specified 

Foreign Sovereign Debt may ease access to futures and cleared swaps markets for entities 

domiciled in non-U.S. jurisdictions that can now more easily transaction in foreign 

currency with potentially lower costs and risk. This may provide additional hedging 

opportunities for entities and enhance market liquidity.

b. Government Money Market Funds, Commercial Paper and Corporate Notes or 

Bonds, and Certificates of Deposit Issued by Banks

The Proposal would limit the scope of MMFs whose interests qualify as Permitted 

Investments to certain Government MMFs as defined by SEC Rule 2a-7, revise the assetbased concentration limits applicable to such funds, and add issuer-based concentration 

limits. The Proposal would also remove from the list of Permitted Investments 

commercial paper and corporate notes or bonds guaranteed as to principal and interest by 

the United States under the TLGP. The Proposal would also request public comment as 
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to whether bank CDs should be removed from the list of Permitted Investments due to a 

lack of use by FCMs and DCOs.

1. Benefits 

The Proposal would remove interests in certain MMFs, including Prime MMFs 

and Electing Government MMFs, from the list of Permitted Investments set forth in 

Regulation 1.25, limiting the scope of MMFs whose interests qualify as Permitted 

Investments to Permitted Government MMFs, as further discussed above. The 

Commission believes that interests in Prime MMFs and Electing Government MMFs are 

unsuitable as Permitted Investments under Regulation 1.25 because such MMFs are 

subject to the SEC MMF Reforms pursuant to which liquidity fees to stem redemptions 

may be imposed, which could hinder the liquidity of the MMFs and adversely impact 

customers’ access to their funds, which may be needed to meet margin calls on open 

positions or cash market transaction. The Proposal would therefore prevent investments

of Customer Funds in MMFs that might pose unacceptable levels of liquidity risk. 

The Proposal would impose asset-based concentration limits according to the size 

of the Permitted Government MMFs and their management companies. A 50 percent

concentration limits would apply to Government MMFs with at least $1 billion in assets 

and with management companies with more than $25 billion in assets under 

management. The current 10 percent concentration limit for MMFs with less than $1 

billion in assets and/or which have a management company managing less than $25 

billion in assets would be maintained. These concentration limits recognize that larger 

Government MMFs may be a safer investment alternative given that they may be better 

positioned to withstand times of significant financial stress and to manage high levels of 
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redemptions. As such, the concentration limits, as proposed, ensure that FCMs’ and 

DCOs’ investments in Permitted Government MMFs account for the level of liquidity, 

market, and credit risk posed by a fund in light of its capital base, portfolio of holdings, 

and capacity to handle market stress.

The proposed concentration limits would promote investments of Customer Funds

in Permitted Government MMFs of different sizes subject to different concentration 

limits, leading to diversification in FCMs’ and DCO’s portfolios, while encouraging 

investments in safer larger Government MMFs. The proposed concentration limits might 

also reduce the potential concentration in certain Permitted Government MMFs, fostering 

competition across the funds, which might lead to better terms and reduced costs for 

FCMs and DCOs. In addition, the Commission is proposing 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 an operational incident 

affecting the fund. Specifically, the Commission is proposing to limit investments of 

Customer Funds in any single family of Government MMFs to 25 percent and 

investments of Customer Funds in any single issuer of Government MMFs to 5 percent of 

the total assets held in each of the segregated classifications of futures customer funds, 

Cleared Swaps Customer Collateral, and 30.7 customer funds. In establishing these 

concentration limits, the Commission acknowledges that there are no precise limits that 

can guarantee absolute protection against market volatility. The Commission’s 

preliminary assessment indicates, however, that these proposed limits represent a

practical approach that effectively balances the need to support the viability of FCMs’
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and DCOs’ business model while safeguarding the principal and liquidity of the 

Customer Funds.

The Proposal would also eliminate commercial paper and corporate notes or 

bonds guaranteed under the TLGP as Permitted Investments given that the TLGP expired 

in 2012. This proposed rule amendment will streamline the CFTC rules, facilitating their 

implementation and administration, and is consistent with the Commission’s earlier 

determination that commercial paper and corporate notes or bonds are rarely used and 

pose unacceptable levels of credit, liquidity, and market risk.311 The Proposal is also 

requesting public comment on whether to remove bank CDs from the list of Permitted 

Investments, in light of the Commission’s experience that FCMs and DCOs do not invest 

Customer Funds in these instruments.312

2. Costs

As the Proposal would limit the scope of MMFs whose interests qualify as 

Permitted Investments to Permitted Government MMFs, the Proposal may lead to less 

diversification in the investment of Customer Funds by FCMs and DCOs. FCMs’ and 

DCOs’ portfolios may be concentrated in the Permitted Government MMFs, increasing 

exposure to risks associated with the funds, which might heighten the risk of loss of 

Customer Funds. Also, given that fewer MMFs would be available as Permitted 

Investments, FCMs and DCOs would have less flexibility in investing Customer Funds. 

 311 Investment of Customer Funds and Funds Held in an Account for Foreign Futures and Foreign Options 

Transactions, 75 FR 67642, 67644 (Nov. 3, 2010).

312 In addition to the Commission’s general experience in overseeing DCOs and FCMs, Commission staff 

also reviewed how FCMs invested customer funds as reported in the SIDR Report for the period September 

15, 2022 to February 15, 2023 and noted that no FCMs reported investing customer funds in bank CDs.
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FCMs and DCOs might thus generate less income and may pass on additional operational 

costs to customers by increasing their fees.

The Commission notes, however, that the potential risk of concentration of 

investments in Permitted Government MMFs would be mitigated by the proposed assetbased and issuer-based concentration limits, which are designed to promote 

diversification among different categories of Permitted Investments and among different 

individual Permitted Government MMFs.

To meet the proposed concentration limits, FCMs and DCOs may be required to 

liquidate Government MMFs held in their portfolios and might incur losses. The 

Commission notes that the risk of loss is likely to be mitigated given that the Government 

MMFs in which FCMs and DCOs have been permitted to invest Customer Funds since 

the issuance of Staff Letter 16-68 and Staff Letter 16-69 are presumably highly liquid.

313

In the Commission’s view, the elimination of commercial paper and corporate 

notes or bonds guaranteed under the TLGP would not result in any costs as the 

instruments have not been available as Permitted Investments since the 2012 when the 

TLGP expired. Similarly, the Commission believes that were it to remove banks CDs at 

a later time, there would be no immediate potential cost because in the Commission’s 

experience FCMs and DCOs do not currently invest Customer Funds in this type of

instrument. Eliminating this investment option, however, may lead to potential long-term 

costs if this option becomes valuable. 

3. Section 15(a) Considerations

 313 See 17 CFR 1.25(b)(1). 
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In light of the foregoing, the Commission has evaluated the costs and benefits of 

the Proposal pursuant to the five considerations identified in Section 15(a) of the Act as 

follows:

(a) Protection of Market Participants and the Public

The Proposal would remove from the list of Permitted Investments interests in 

MMFs whose redemptions may be subject to liquidity fees, including Prime MMFs and 

Electing Government MMFs. In the Commission’s view, the imposition of a liquidity fee 

is in conflict with provisions in Regulation 1.25 that are designed to reduce Customer 

Funds’ exposure to liquidity risk and to preserve the principal of investments purchased 

with Customer Funds. As a result, by preventing investments in instruments that pose 

unacceptable levels of liquidity risk, the Proposal would provide greater protection to 

customer segregated funds and promote the efficient and safe investment of Customer 

Funds by FCMs and DCOs. 

The Proposal would limit the scope of MMFs whose interests qualify as Permitted 

Investments to Government MMFs as defined by SEC Rule 2a-7. The Commission notes 

that these types of funds are less susceptible to runs and have seen inflows during periods 

of market instability.

314 As such, the Proposal, by limiting the scope of eligible MMFs to 

Government MMFs, would reduce the potential that funds in which Customer Funds are 

invested may be impacted by run risk and other associated risks. However, given that 

 314 See SEC MMF Reforms at 51417 (noting that investors typically view government MMFs, in contrast to 

Prime MMFs, as a relatively safe investment during times of market turmoil). See also Money Market 

Fund Reforms, 87 FR 7248 (Feb. 8, 2022) (“SEC MMF Reforms Proposing Release”) at 7250 (recounting 

that during the 2008 financial crisis there was a run primarily on institutional Prime MMFs after an MMF 

“broke the buck” and suspended redemptions, which motivated many fund sponsors to step in and provide 

financial support to their funds. The events led to general turbulence in the financial markets and 

contributed to severe dislocations in short-term credit markets.
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there would be fewer MMFs available as Permitted Investments, FCMs’ and DCOs’ 

investments may be concentrated in fewer MMFs and the investments may be more 

susceptible to risk associated with the fewer available funds. 

The proposed asset-based concentration limits for Government MMFs would 

ascribe limits according to the size of the funds, with larger funds being subject to a 50

percent limit and smaller funds to a 10 percent limit. These limits recognize that larger 

funds have capital bases better capable of handling a high volume of redemptions in 

times of stress. Accordingly, the concentration limits would promote investments in 

larger funds, which represent a safer investment alternative, while providing for 

diversification by permitting investments in smaller Government MMFs subject to 

concentration limits to ensure the safety of Customer Funds. In addition, the proposed 

issuer-based concentration limits would promote diversification among different 

individual Government MMFs, thus mitigating the potential risks associated with 

concentrating investments of Customer Funds with a single fund or family of funds. 

The implementation of the proposed concentration limits may require FCMs and 

DCOs to liquidate their fund holdings, which could lead to losses. The Commission 

believe that the potential for losses would be mitigated because since the issuance in 2016 

of Staff Letter 16-68 and Staff Letter 16-69, FCMs and DCOs have been allowed to 

invest only in Government MMFs meeting the liquidity standards of Regulation 1.25. 

By removing commercial paper and corporate notes or bonds guaranteed under 

the TLGP from the list of Permitted Investments under Regulation 1.25, the Proposal 

would eliminate instruments that are no longer available given the expiration of the 

TLGP in 2012. This would streamline the CFTC rules and facilitate their 
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implementation, removing a potential source of confusion and allowing FCMs and DCOs 

to focus their efforts on more immediate regulatory concerns. If the Commission were to 

proceed with the removal of bank CDs, a type of instruments that is not used by FCMs 

and DCOs as an investment of Customer Funds, the elimination would similarly 

contribute to the effort of streamlining Commission’s regulations. 

(b) Efficiency, Competitiveness, and Financial Integrity of Markets

By eliminating interests in Prime MMFs and Electing Government MMFs from 

the list of Permitted Investments, the Proposal would prevent investments of Customer 

Funds in instruments that might be less liquid in light of the SEC MMF Reforms, thus 

advancing the objectives of Regulation 1.25 of preserving principal and maintaining 

liquidity. 

As discussed earlier, the elimination of commercial paper and corporate notes or 

bonds guaranteed under the TLGP would remove instruments that are either no longer 

available given the expiration of the program or not used as an investment of Customer 

Funds, allowing FCMs and DCOs to more efficiently allocate their resources and address 

more immediate regulatory concerns.

(c) Price Discovery

The Proposal, by reducing the selection of Permitted Investments, would lead to 

fewer investment options available to FCMs and DCOs. As such, FCMs and DCOs 

might generate less income from their investment of Customer Funds and might pass 

onto customers the costs of operations by increasing fees. Facing increased costs, 

customers might cut back on their trading, reducing liquidity, which might hinder price 

discovery. 
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(d) Sound Risk Management 

By eliminating from the list of Permitted Investments interests in Prime MMFs 

and Electing Government MMFs, the Proposal would prevent investments of customers 

funds in certain MMFs, which might be susceptible to increased liquidity risk in light the 

SEC MMF Reforms, thus promoting sound risk management. Also, the concentration 

limits that would apply to the Permitted Government MMFs would foster adequate 

diversification in FCMs’ and DCOs’ portfolios by encouraging investments of Customer 

Funds in larger funds expected to have the capacity to withstand significant market stress

and increasing redemptions, while making available smaller funds subject to specified 

concentration limits.

(e) Other Public Interest Considerations

The Commission believes that the relevant cost-benefit considerations are 

captured in the four factors above. 

c. SOFR as a Permitted Benchmark 

In March 2021, the U.K. Financial Conduct Authority announced that LIBOR 

would be effectively discontinued.315 The Commission is therefore proposing to replace 

LIBOR with SOFR as a permitted benchmark for variable and floating rate securities that 

qualify as Permitted Investments under Regulation 1.25. 

1. Benefits 

Under Regulation 1.25(b)(2)(iv)(A), variable and floating securities qualify as 

Permitted Investments if, among other things, the interest payments on the securities 

 

315 Staff Letter 21-26 at p. 1. 
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correlate to specified benchmarks, including LIBOR.316 As discussed in more detail 

above, a number of enforcement actions concerning attempts to manipulate the LIBOR 

benchmark led to a loss of confidence in the reliability and robustness of LIBOR and to 

the benchmark’s discontinuation. The Commission therefore proposes to remove LIBOR 

as a permitted benchmark and replace it with SOFR. The Commission believes that the 

unreliability of LIBOR could undermine the value of variable and floating rate securities 

that reference the benchmark. Accordingly, the replacement of LIBOR with SOFR, 

which has been identified as a preferred benchmark alternative by the ARRC,317 would 

ensure that Customer Funds are invested in securities that reference a reliable and robust 

benchmark providing greater protection to Customer Funds.

2. Costs

The Commission notes that given the widespread use of LIBOR as a benchmark, 

FCMs and DCOs that invest Customer Funds in variable and fixed rate securities might 

incur costs as a result of the transition to SOFR. To the extent that FCMs and DCOs 

already invest in variable and fixed rate securities benchmarked to LIBOR, they would 

need to amend the terms of their agreements to incorporate the new benchmark. FCMs 

and DCOs may also need to adjust their systems and processes to implement and 

recognize SOFR as a benchmark. However, the Commission believes that transitioning 

to a more reliable benchmark offsets these associated costs by enhancing security for 

Customer Funds and removing a potential source of risk to the financial system overall.

3. Section 15(a) Considerations

 316 17 CFR 1.25(b)(2)(iv)(A). 317 See Staff Letter 21-26 at p. 3.
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In light of the foregoing, the Commission has evaluated the costs and benefits of 

the Proposal pursuant to the five considerations identified in Section 15(a) of the Act as 

follows:

(a) Protection of Market Participants and the Public

As previously discussed, LIBOR is no longer deemed a reliable and robust 

benchmark. As such, it could negatively impact the value of variable and floating rate 

securities that reference the benchmark. By eliminating LIBOR as a permitted 

benchmark, the Proposal would prevent investments of Customer Funds in securities 

referencing an unreliable benchmark and would promote the use of a safer benchmark 

alternative. 

(b) Efficiency, Competitiveness, and Financial Integrity of Markets

By formalizing the use of SOFR as a permitted benchmark for Permitted 

Investments in which Customer Funds may be invested, the Proposal would promote the 

transition to SOFR and facilitate the phasing out of LIBOR, a widely used benchmark 

that is now deemed to be unreliable, removing a potential source of risk to the financial 

system.318

In addition, SOFR is an essential benchmark that helps ensure the stability and 

integrity of financial markets. As such, formalizing the use of SOFR as a permitted 

benchmark for permitted investments may enhance the financial integrity of markets.

 318 The replacement of LIBOR as a benchmark for Permitted Investments represents another step in the 

Commission’s efforts to facilitate the transition away from LIBOR, as illustrated by a recent amendment to 

the clearing requirements. See Clearing Requirement Determination Under Section 2(h) of the Commodity 

Exchange Act for Interest Rate Swaps to Account for the Transition from LIBOR and Other IBORs to 

Alternative Reference Rates, 87 FR 52182 (Aug. 24, 2022) (replacing the requirement to clear interest rate 

swaps referencing LIBOR and certain other interbank offered rates with the requirement to clear interest 

rate swaps referencing overnight, nearly risk-free reference rates).
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(c) Price Discovery

The proposed amendment to replace LIBOR with SOFR as a permitted 

benchmark would have no negative impact on price discovery. Permitting SOFR as a 

benchmark for Customer Funds investments would benefit FCMs and DCOs and their 

customers. This might increase liquidity in the futures markets and enhance the process 

of price discovery. 

(d) Sound Risk Management 

By eliminating LIBOR as a permitted benchmark and replacing it with SOFR, the 

Proposal would ensure that to the extent FCMs and DCOs select variable and floating 

rate securities as Permitted Investments to invest Customer Funds, these instruments 

would reference benchmarks that are, in the Commission’s view, sound and reliable, thus 

fostering sound risk management.

(e) Other Public Interest Considerations

The Commission believes that the relevant cost-benefit considerations are 

captured in the four factors above. 

d. Revision of the Read-only Access Provisions

The Proposal would eliminate the Read-only Access Provisions in parts 1 and 30 

of the Commission’s regulations,319 which require depositories to provide the 

 

319 More specifically, the relevant provisions appear in Regulation 1.20, Appendix A to Regulation 1.20, 

Appendix A to Regulation 1.26, Regulation 30.7 and appendices E and F to Part 30 of CFTC’s Regulations. 

If adopted, the proposed amendments would extend to Regulation 22.5, which requires FCMs and DCOs, 

before depositing Cleared Swaps Customer Collateral with a depository, to obtain an acknowledgment 

letter from each depository in accordance with Regulations 1.20 and 1.26. 17 CFR 22.5(a). Regulation 

22.5 further requires FCMs and DCOs to adhere to all requirements specified in Regulation 1.20 and 1.26 

regarding retaining, permitting access to filing, or amending the written acknowledgment letters. 17 CFR 

22.5(a). 
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Commission with direct, read-only electronic access to accounts maintained by FCMs 

that hold Customer Funds. 

1. Benefits

Eliminating the Read-only Access Provisions would streamline the CFTC rules, 

facilitating their implementation and administration, and is consistent with the 

Commission’s anticipation that the existence of alternative methods for obtaining and 

verifying account balance information would diminish the need to rely on the direct readonly access to accounts. More specifically, by relying on the CME’s and NFA’s daily 

segregation confirmation and verification process, the Commission would be able to 

allocate resources to focus on more immediate regulatory concerns within its 

jurisdictional purview. In that regard, the Commission notes, as discussed above, that it

has encountered numerous practical challenges in the administration of direct access to 

depository accounts, which unduly burden the Commission’s resources, particularly 

considering that the Commission contemplated that the use of real-time access would be 

limited, and prevent Commission staff from using the Read-only Access Provisions as 

intended. 

In addition, eliminating the requirement to provide the Commission with direct, 

read-only access to accounts maintained by FCMs, would reduce costs for depositories, 

which may motivate these institutions to more readily take FCM Customer Funds on 

deposit. The Proposal may thus foster competition in the futures market and ultimately 

reduce costs for FCMs and their customers. 

Furthermore, the deletion of the Read-only Access Provisions would eliminate the 

need for the Commission to keep a log of access credentials and physical authentication 
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devices, thereby reducing the potential cybersecurity risk associated with the 

maintenance of such credentials and devices.

2. Costs

Withdrawing the requirement that depositories provide the Commission with 

direct, read-only electronic access to depository accounts holding Customer Funds would 

deprive the Commission from ongoing, instantaneous access to the accounts for purposes 

of identifying potential discrepancies between the account balance information reported 

by the FCMs and the account balance information available directly from the 

depositories. 

The Commission believes, however, that more efficient means for identifying 

discrepancies in the account balance information exist, namely by obtaining account 

balance and transaction information through the CME’s and NFA’s automated daily 

segregation confirmation system or by requesting the information directly from the 

depositories. 

3. Section 15(a) Considerations 

In light of the foregoing, the Commission has evaluated the costs and benefits of 

the Proposal pursuant to the five considerations identified in Section 15(a) of the Act as 

follows:

(a) Protection of Market Participants and the Public

As previously noted, if the Commission is no longer required to administer the 

direct, read-only access to depository accounts, the Commission would eliminate the 

potential cybersecurity risk associated with the maintenance of access credentials and 

authentication devices, thus limiting risk for market participants and the public. 
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The Commission further notes that the CME’s and NFA’s automated daily 

segregation confirmation system provides an efficient and effective method for verifying 

customer accounts balances, which, in conjunction with the Commission’s right to 

request information from the depositories, would ensure an adequate degree of protection 

for market participants and the public.

(b) Efficiency, Competitiveness, and Financial Integrity of Markets

By eliminating the Read-only Access Provisions, the Commission would dispense 

with a method for verifying account balance information that imposes technological 

challenges in its implementation and administration, allowing for Commission staff to 

direct its efforts to more effective alternative means for verifying the information.

In addition, as noted, the elimination of the requirement to provide the 

Commission with direct, read-only access to accounts maintained by FCMs would reduce 

costs for depositories, which may motivate them to more readily take FCM Customer 

Funds on deposit, potentially fostering competition in the futures market and ultimately 

reducing costs for FCMs.

(c) Price Discovery

The Proposal, by eliminating the requirement for depositories to provide the 

Commission with read-only access to accounts maintained by FCMs, may reduce 

operational costs for depositories, which may ultimately lead to cost reductions that 

benefit both depositories and FCMs. The FCMs may, in turn, pass those benefits to 

customers via reduced charges. 

(d) Sound Risk Management
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As previously noted, CME and NFA have developed a sophisticated system – the 

automated daily segregation confirmation system – which provides DSROs and the 

Commission with an efficient tool for detection of potential discrepancies between 

FCMs’ reports and the balances on deposit at various depositories. If the Commission 

proceeds with the proposed amendment to delete the Read-only Access Provisions, the 

Commission would continue to rely on CME’s and NFA’s automated system for 

oversight purposes. As such, the Commission believes that the proposed amendment 

would not be detrimental to sound risk management practices. 

Furthermore, as noted above, the deletion of the Read-only Access Provisions 

would eliminate a potential cybersecurity risk associated with the maintenance by the 

Commission of periodically updated access credentials and physical authentication 

devices, thus promoting sound risk management. 

(e) Other Public Interest Considerations

The Commission believes that the relevant cost-benefit considerations are 

captured in the four factors above. 

Request for Comments on Cost-Benefit Considerations 

The Commission invites public comment on its cost-benefit considerations, including the 

Section 15(a) factors described above. Commenters are also invited to submit any data or 

other information they may have quantifying or qualifying the costs and benefits of the 

proposed amendments. In particular, the Commission seeks specific comment on the 

following: 

1. Has the Commission accurately identified all the benefits of this Proposal? Are there 

other benefits to the Commission, market participants, and/or the public that may 
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result from the adoption of this Proposal that the Commission should consider? 

Please provide specific examples and explanations of any such benefits.

2. Has the Commission accurately identified all the costs of this Proposal? Are there 

additional costs to the Commission, market participants and/or the public that may 

result from the adoption of this Proposal that the Commission should consider? 

Please provide specific examples and explanations of any such costs.

3. Are the regulatory safeguards that are included in the Proposal adequate to address 

the potential risks that may arise from the Proposal? Are there other regulatory 

safeguards that the Commission should consider?

4. Does this Proposal impact the Section 15(a) factors in any way that is not described 

above? Please provide specific examples and explanations of any such impact.

D. Antitrust Laws

Section 15(b) of the Act requires the Commission to “take into consideration the 

public interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the purposes of this Act, in issuing any order or 

adopting any Commission rule or regulation (including any exemption under Section 4(c) 

or 4c(b)), or in requiring or approving any bylaw, rule or regulation of a contract market 

or registered futures association established pursuant to Section 17 of this Act.”320

The Commission believes that the public interest to be protected by the antitrust 

laws is generally to protect competition. The Commission requests comment on whether 

the Proposal implicates any other specific public interest to be protected by the antitrust 

laws.

 320 7 U.S.C. 19(b).
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The Commission has considered the Proposal to determine whether it is 

anticompetitive, and has preliminarily identified no anticompetitive effects. The 

Commission requests comment on whether the Proposal is anticompetitive and, if it is, 

what the anticompetitive effects are.

Because the Commission has preliminarily determined that the Proposal is not 

anticompetitive and has no anticompetitive effects,321 the Commission has not identified 

any less competitive means of achieving the purposes of the Act. The Commission 

requests comment on whether there are less anticompetitive means of achieving the 

relevant purposes of the Act that would otherwise be served by adopting the proposed 

amendments.

List of Subjects

17 CFR Part 1

Brokers, Commodity futures, Consumer protection, Reporting and recordkeeping 

requirements.

17 CFR Part 22

Brokers, Clearing, Consumer protection, Reporting and recordkeeping, Swaps.

17 CFR Part 30

Consumer protection.

 321 In this regard, the Commission has considered whether the proposed concentration limits might have an 

anti-competitive effect. The Commission is preliminarily of the view that, on balance, issuer-based 

concentration limits enhance competition by preventing any one MMF or ETF from having too great 

market power, and thereby fostering competition. Although the asset-based concentration limits might 

theoretically have an anti-competitive impact, the limits are set at a relatively high level and therefore the 

Commission preliminarily believes that they are unlikely to have a significant market impact. The 

Commission invites comments on this analysis.
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For the reasons stated in the preamble, the Commodity Futures Trading 

Commission proposes to amend 17 CFR chapter I as follows:

PART 1 – GENERAL REGULATIONS UNDER THE COMMODITY 

EXCHANGE ACT

1. The authority citation for Part 1 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 

6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 

23 and 24 (2012).

§ 1.20 [Amended]

2. Amend § 1.20 as follows:

a. In paragraph (d)(2), revise the cross-reference to “appendix A to this part” to 

read “Appendix C to this part”;

b. Remove and reserve paragraph (d)(3);

c. In paragraph (g)(4)(ii), revise the cross-reference to “appendix B to this part” 

to read “Appendix D to this part”;

d. Redesignate Appendix A to § 1.20 as Appendix C to Part 1; and

e. Redesignate Appendix B to § 1.20 as Appendix D to Part 1.

3. Amend § 1.25 as follows:

a. Republish the paragraph (a) heading and the introductory text of paragraph 

(a)(1);

b. Remove paragraphs (a)(1)(v) and (vi);

c. Redesignate paragraph (a)(1)(vii) as paragraph (a)(1)(v);

d. Revise newly redesignated paragraph (a)(1)(v);

e. Add new paragraphs (a)(1)(vi) and (a)(1)(vii);
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f. Republish the introductory text of paragraph (b) and the paragraph (b)(2) 

heading;

g. Revise paragraph (b)(2)(i) introductory text;

h. Republish paragraph (b)(2)(iv)(A);

i. Revise paragraphs (b)(2)(iv)(A)(1) and (2);

j. Remove paragraph (b)(2)(vi);

k. Republish paragraph (b)(3) heading;

l. Revise paragraphs (b)(3)(i)(C) and (E);

m. Remove paragraph (b)(3)(i)(F);

n. Redesignate paragraph (b)(3)(i)(G) as (b)(3)(i)(F);

o. Revise newly redesignated paragraph (b)(3)(i)(F), paragraphs (b)(3)(ii)(B) 

through (E) and (b)(4)(i), paragraph (c) introductory text, paragraph (c)(1), and paragraph 

(c)(5)(ii) introductory text;

p. In paragraph (c)(7), revise the cross-reference to “The appendix to this 

section” to read “Appendix E to this part”;

q. Add paragraph (c)(8);

r. Republish the introductory text of paragraph (d);

s. Revise paragraphs (d)(2) and (d)(7);

t. Add paragraph (f); and

u. Redesignate the Appendix to § 1.25 as Appendix E to Part 1.

The republications, revisions, and additions read as follows:

§ 1.25 Investment of customer funds.
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(a) Permitted investments. (1) Subject to the terms and conditions set forth in this 

section, a futures commission merchant or a derivatives clearing organization may invest 

customer money in the following instruments (permitted investments):

* * * * *

(v) Interests in government money market funds as defined in § 270.2a-7 of this 

title, provided that the government money market funds do not choose to rely on the 

ability to impose discretionary liquidity fees consistent with the requirements of §

270.2a-7(c)(2)(i) of this title (government money market fund);

(vi) Interests in exchange-traded funds, as defined in § 270.6c-11 of this title, 

which seek to replicate the performance of a published short-term U.S. Treasury security 

index composed of bonds, notes, and bills with a remaining maturity of 12 months or 

less, issued by, or unconditionally guaranteed as to the timely payment of principal and 

interest by, the U.S. Department of the Treasury (U.S. Treasury exchange-traded fund); 

and

(vii) General obligations of Canada, France, Germany, Japan, and the United 

Kingdom (permitted foreign sovereign debt), subject to the following:

(A) A futures commission merchant may invest in the permitted foreign sovereign 

debt of a country to the extent it has balances in segregated accounts owed to its 

customers denominated in that country’s currency; and

(B) A derivatives clearing organization may invest in the permitted foreign 

sovereign debt of a country to the extent it has balances in segregated accounts owed to 

its clearing members that are futures commission merchants denominated in that 

country’s currency.
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* * * * *

(b) General terms and conditions. A futures commission merchant or a 

derivatives clearing organization is required to manage the permitted investments 

consistent with the objectives of preserving principal and maintaining liquidity and 

according to the following specific requirements:

* * * * *

(2) Restrictions on instrument features. (i) With the exception of government 

money market funds and U.S. Treasury exchange-traded funds, no permitted investment

may contain an embedded derivative of any kind, except as follows:

* * * * *

(iv)(A) Adjustable rate securities are permitted, subject to the following 

requirements:

(1) The interest payments on variable rate securities must correlate closely and on 

an unleveraged basis to a benchmark of either the Federal Funds target or effective rate, 

the prime rate, the three-month Treasury Bill rate, the Secured Overnight Financing Rate, 

or the interest rate of any fixed rate instrument that is a permitted investment listed in 

paragraph (a)(1) of this section;

(2) The interest payment, in any period, on floating rate securities must be 

determined solely by reference, on an unleveraged basis, to a benchmark of either the 

Federal Funds target or effective rate, the prime rate, the three-month Treasury Bill rate, 

the Secured Overnight Financing Rate, or the interest rate of any fixed rate instrument 

that is a permitted investment listed in paragraph (a)(1) of this section;

* * * * *
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(3) Concentration—

(i) * * *

(C) Investments in certificates of deposit may not exceed 25 percent of the total 

assets held in segregation by the futures commission merchant or derivatives clearing 

organization.

* * * * *

(E) Investments in government money market funds or U.S. Treasury exchangetraded funds with $1 billion or more in assets and whose management company manages

$25 billion or more in assets may not exceed 50 percent of the total assets held in 

segregation by the futures commission merchant or derivatives clearing organization.

(F) Investments in government money market funds or U.S. Treasury exchangetraded funds with less than $1 billion in assets or which have a management company 

managing less than $25 billion in assets, may not exceed 10 percent of the total assets 

held in segregation by the futures commission merchant or derivatives clearing 

organization.

(ii) * * *

(B) Securities of any single issuer of municipal securities or certificates of deposit 

held by a futures commission merchant or derivatives clearing organization may not 

exceed 5 percent of the total assets held in segregation by the futures commission 

merchant or derivatives clearing organization.

(C) Interests in any single family of government money market funds or U.S. 

Treasury exchange-traded funds may not exceed 25 percent of the total assets held in 

segregation by the futures commission merchant or derivatives clearing organization.
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(D) Interests in any individual government money market fund or U.S. Treasury 

exchange-traded fund may not exceed 5 percent of the total assets held in segregation by 

the futures commission merchant or derivatives clearing organization.

(E) For purposes of determining compliance with the issuer-based concentration 

limits set forth in this section, securities issued by entities that are affiliated, as defined in 

paragraph (b)(5) of this section, shall be aggregated and deemed the securities of a single 

issuer. An interest in a permitted government money market fund or U.S. Treasury 

exchange-traded fund is not deemed to be a security issued by its sponsoring entity.

* * * * *

(4) Time-to-maturity. (i) Except for investments in government money market 

funds, U.S. Treasury exchange-traded funds, and permitted foreign sovereign debt subject 

to the requirements of paragraph (f) of this section, the dollar-weighted average of the 

time-to-maturity of the portfolio, as that average is computed pursuant to § 270.2a-7 of 

this title, may not exceed 24 months.

* * * * *

(c) Government money market funds and U.S. Treasury exchange-traded funds. 

The following provisions will apply to the investment of customer funds in government 

money market funds or U.S. Treasury exchange-traded funds (the fund).

(1) The fund must be an investment company that is registered under the 

Investment Company Act of 1940 with the Securities and Exchange Commission and that 

holds itself out to investors as a government money market fund, in accordance with § 

270.2a-7 of this title, or an exchange-traded fund, in accordance with § 270.6c-11 of this 

title.
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* * * * *

(5) * * *

(ii) Exception. A government money market fund may provide for the 

postponement of redemption and payment due to any of the following circumstances:

* * * * *

(8) Interests in U.S. Treasury exchange-traded funds will qualify as permitted 

investments under paragraph (a) of this section if:

(i) The interests are redeemable in cash by a futures commission merchant or a 

derivatives clearing organization in its capacity of an authorized participant pursuant to 

an authorized participant agreement, as defined in § 270.6c–11 of this title, at a price 

based on the net asset value in accordance with the Investment Company Act of 1940 and 

regulations thereunder, and on a delivery versus payment basis;

(ii) The U.S. Treasury exchange-traded fund invests at least 95 percent of its 

assets in securities comprising the short-term U.S. Treasury index whose performance the 

fund seeks to replicate; and

(iii) The interests are acceptable as performance bond by a derivatives clearing 

organization.

(d) Repurchase and reverse repurchase agreements. A futures commission 

merchant or derivatives clearing organization may buy and sell the permitted investments 

listed in paragraphs (a)(1)(i) through (vii) of this section pursuant to agreements for 

resale or repurchase of the securities (agreements for repurchase or resell), provided the 

agreements to repurchase or resell conform to the following requirements:

* * * * *
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(2) Permitted counterparties are limited to a bank as defined in section 3(a)(6) of 

the Securities Exchange Act of 1934, a domestic branch of a foreign bank insured by the 

Federal Deposit Insurance Corporation, a securities broker or dealer, a government 

securities dealer registered with the Securities and Exchange Commission or which has 

filed notice pursuant to section 15C(a) of the Government Securities Act of 1986. In 

addition, with respect to agreements to repurchase or resell permitted foreign sovereign 

debt, the following entities are also permitted counterparties: a foreign bank that qualifies 

as a depository under § 1.49(d)(3) and that is located in a money center country as the 

term is defined in § 1.49(a)(1) or in another jurisdiction that has adopted the currency in 

which the permitted foreign sovereign debt is denominated as its currency; a securities 

broker or dealer located in a money center country as the term is defined in § 1.49(a)(1)

and that is regulated by a national financial regulator; and the Bank of Canada, the Bank 

of England, the Banque de France, the Central Bank of Japan, the Deutsche Bundesbank,

or the European Central Bank.

* * * * *

(7) Securities transferred to the futures commission merchant or derivatives 

clearing organization under the agreement are held in a safekeeping account with a bank 

as referred to in paragraph (d)(2) of this section, a Federal Reserve Bank, a derivatives 

clearing organization, or the Depository Trust Company in an account that complies with 

the requirements of § 1.26. Securities transferred to the futures commission merchant or 

derivatives clearing organization under an agreement related to permitted foreign 

sovereign debt may also be held in a safekeeping account that complies with the 
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requirements of § 1.26 at a foreign bank that meets the location and qualification 

requirements in § 1.49(c) and (d).

* * * * *

(f) Permitted foreign sovereign debt. The following provisions will apply to 

investments of customer funds in permitted foreign sovereign debt.

(1) The dollar-weighted average of the remaining time-to-maturity of the portfolio 

of investments in permitted foreign sovereign debt, as that average is computed pursuant 

to § 270.2a-7 of this title on a country-by-country basis, may not exceed 60 calendar 

days. Permitted foreign sovereign debt instruments acquired under an agreement to resell 

shall be deemed to have a maturity equal to the period remaining until the date on which 

the resale of the underlying instruments is scheduled to occur, or, where the agreement is 

subject to demand, the notice period applicable to a demand for the resale of the 

securities. Permitted foreign sovereign debt instruments sold under an agreement to 

repurchase shall be included in the calculation of the dollar-weighted average based on 

the remaining time-to-maturity of each instrument sold.

(2) A futures commission merchant or a derivatives clearing organization may not 

invest customer funds in any permitted foreign sovereign debt that has a remaining

maturity greater than 180 calendar days.

(3) If the two-year credit default spread of an issuing sovereign of permitted 

foreign sovereign debt is greater than 45 basis points:

(i) The futures commission merchant or derivatives clearing organization shall not 

make any new investments in that sovereign’s debt using customer funds.
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(ii) The futures commission merchant or derivatives clearing organization must 

discontinue investing customer funds in that sovereign’s debt through agreements to 

resell as soon as practicable under the circumstances.

§ 1.26 [Amended]

4. Amend § 1.26 as follows:

a. Redesignate Appendix A to § 1.26 as Appendix F to Part 1 and Appendix B to 

§ 1.26 as Appendix G to Part 1; and

b. In the table below, for each paragraph indicated in the left column, remove the 

words indicated in the middle column from wherever they appear in the paragraph, and 

add the words indicated in the right column:

Paragraph Remove Add

(a) “money market mutual funds” “government money market funds and 

U.S. Treasury exchange-traded funds”

(b) “the money market mutual fund” “the government money market fund or 

U.S. Treasury exchange-traded fund”

(b) “appendix A or B to this section” “Appendix F, G, H or I to this part”

(b) “appendix A or B to § 1.20” “appendix C or D to this part”

5. Revise newly redesignated Appendix C to part 1 to read as follows:

Appendix C to Part 1—Futures Commission Merchant Acknowledgment Letter for 

CFTC Regulation 1.20 Customer Segregated Account

[Date]

[Name and Address of Bank, Trust Company, Derivatives Clearing Organization or 

Futures Commission Merchant]
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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 
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not be used by us to secure or obtain credit from you. You further acknowledge and agree 

that the Funds in the Account(s) shall not be subject to any right of offset or lien for or on 

account of any indebtedness, obligations or liabilities we may now or in the future have 

owing to you. This prohibition does not affect your right to recover funds advanced in the 

form of cash transfers, lines of credit, repurchase agreements or other similar liquidity 

arrangements you make in lieu of liquidating non-cash assets held in the Account(s) or in 

lieu of converting cash held in the Account(s) to cash in a different currency.

In addition, you agree that the Account(s) may be examined at any reasonable 

time by the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor

divisions, or such directors’ designees, or an appropriate officer, agent or employee of 

our designated self-regulatory organization (“DSRO”), [Name of DSRO], and this letter 

constitutes the authorization and direction of the undersigned on our behalf to permit any 

such examination to take place without further notice to or consent from us.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other information regarding or related to the 

Account(s) from the director of the Division of Swap Dealer and Intermediary Oversight

of the CFTC or the director of the Division of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its capacity as our DSRO, and this letter 

constitutes the authorization and direction of the undersigned on our behalf to release the 

requested information without further notice to or consent from us.
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The parties agree that all actions on your part to respond to the above information 

request will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s). We will not hold you 

responsible for acting pursuant to any information request from the director of the 

Division of Swap Dealer and Intermediary Oversight of the CFTC or the director of the 

Division of Clearing and Risk of the CFTC, or any successor divisions, or such directors’

designees, or an appropriate officer, agent, or employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have relied after having taken measures in 

accordance with your applicable policies and procedures to assure that such request was 

provided to you by an individual authorized to make such a request.

In the event that we become subject to either a voluntary or involuntary petition 

for relief under the U.S. Bankruptcy Code, we acknowledge that you will have no 

obligation to release the Funds held in the Account(s), except upon instruction of the 

Trustee in Bankruptcy or pursuant to the Order of the respective U.S. Bankruptcy Court.

Notwithstanding anything in the foregoing to the contrary, nothing contained 

herein shall be construed as limiting your right to assert any right of offset or lien on 

assets that are not Funds maintained in the Account(s), or to impose such charges against 

us or any proprietary account maintained by us with you. Further, it is understood that 

amounts represented by checks, drafts or other items shall not be considered to be part of 

the Account(s) until finally collected. Accordingly, checks, drafts and other items 
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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 
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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:
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[Name of Bank, Trust Company, Derivatives Clearing Organization or Futures 

Commission Merchant]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

6. Revise the heading of newly redesignated Appendix E to part 1 to read as 

follows:

Appendix E to Part 1—Government Money Market Fund Prospectus Provisions 

Acceptable for Compliance with § 1.25(c)(5)

* * * * *

7. Revise newly redesignated Appendix F to part 1 to read as follows:

Appendix F to Part 1—Futures Commission Merchant Acknowledgment Letter for 

CFTC Regulation § 1.26 Customer Segregated Government Money Market Fund 

Account

[Date]

[Name and Address of Government Money Market Fund]

We propose to invest funds held by [Name of Futures Commission Merchant] 

(“we” or “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
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Market Fund Account under Sections 4d(a) and 4d(b) of the Commodity Exchange Act 

[and, if applicable, “, Abbreviated as [short title reflected in the depository's electronic 

system]”]

Account Number(s): [ ]

(collectively, the “Account(s)”).

You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade commodities, options, swaps and other products (“Commodity 

Customers”), as required by Commodity Futures Trading Commission (“CFTC”) 

Regulation § 1.26, as amended; that the Shares held by you, hereafter deposited in the 

Account(s) or accruing to the credit of the Account(s), will be separately accounted for 

and segregated on your books from our own funds and from any other funds or accounts 

held by us in accordance with the provisions of the Commodity Exchange Act, as 

amended (the “Act”), and part 1 of the CFTC's regulations, as amended; and that the 

Shares must otherwise be treated in accordance with the provisions of Section 4d of the 

Act and CFTC regulations thereunder.

Furthermore, you acknowledge and agree that such Shares may not be used by 

you or by us to secure or guarantee any obligations that we might owe to you, and they 

may not be used by us to secure or obtain credit from you. You further acknowledge and 

agree that the Shares in the Account(s) shall not be subject to any right of offset or lien 

for or on account of any indebtedness, obligations or liabilities we may now or in the 

future have owing to you.
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In addition, you agree that the Account(s) may be examined at any reasonable 

time by the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor 

divisions, or such directors’ designees, or an appropriate officer, agent or employee of 

our designated self-regulatory organization (“DSRO”), [Name of DSRO], and this letter 

constitutes the authorization and direction of the undersigned on our behalf to permit any 

such examination to take place without further notice to or consent from us.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other account information regarding or related to the 

Account(s) from the director of the Division of Swap Dealer and Intermediary Oversight

of the CFTC or the director of the Division of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its capacity as our DSRO, and this letter 

constitutes the authorization and direction of the undersigned on our behalf to release the 

requested information without further notice to or consent from us.

The parties agree that all actions on your part to respond to the above information 

request will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the director of the Division of Swap Dealer and Intermediary Oversight of the 
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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 
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(subject to technical corrections required by the Office of the Federal Register)

165

any further inquiry, provided that, in the ordinary course of your business as a depository, 

you have no notice of or actual knowledge of a potential violation by us of any provision 

of the Act or the CFTC regulations that relates to the segregation of customer funds; and 

you shall not in any manner not expressly agreed to herein be responsible to us for 

ensuring compliance by us with such provisions of the Act and CFTC regulations; 

however, the aforementioned presumption does not affect any obligation you may 

otherwise have under the Act or CFTC regulations.

You may, and are hereby authorized to, obey the order, judgment, decree or levy 

of any court of competent jurisdiction or any governmental agency with jurisdiction, 

which order, judgment, decree or levy relates in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to any other person, firm, association or 

corporation even if thereafter any such order, decree, judgment or levy shall be reversed, 

modified, set aside or vacated.

We are permitted to invest customers' funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, among 

others, with respect to any investment in a government money market fund:

(1) The net asset value of the fund must be computed by 9:00 a.m. of the business 

day following each business day and be made available to us by that time;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request except as otherwise specified in CFTC Regulation

§ 1.25(c)(5)(ii); and,
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166

(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:
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167

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:

8. Revise newly redesignated Appendix G to part 1 to read as follows:

Appendix G to Part 1—Derivatives Clearing Organization Acknowledgment Letter 

for CFTC Regulation § 1.26 Customer Segregated Government Money Market 

Fund Account

[Date]

[Name and Address of Government Money Market Fund]

We propose to invest funds held by [Name of Derivatives Clearing Organization] 

(“we” or “our”) on behalf of customers in shares of [Name of Government Money 

Market Fund] (“you” or “your”) under account(s) entitled (or shares issued to):

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 

Account, CFTC Regulation § 1.26 Customer Segregated Government Money Market 

Fund Account under Sections 4d(a) and 4d(b) of the Commodity Exchange Act [and, if 

applicable, “, Abbreviated as [short title reflected in the depository's electronic system]”]

Account Number(s): [ ]
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168

(collectively, the “Account(s)”).

You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade commodities, options, swaps and other products, as required by 

Commodity Futures Trading Commission (“CFTC”) Regulation § 1.26, as amended; that 

the Shares held by you, hereafter deposited in the Account(s) or accruing to the credit of 

the Account(s), will be separately accounted for and segregated on your books from our 

own funds and from any other funds or accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, as amended (the “Act”), and part 1 of the 

CFTC's regulations, as amended; and that the Shares must otherwise be treated in 

accordance with the provisions of Section 4d of the Act and CFTC regulations 

thereunder.

Furthermore, you acknowledge and agree that such Shares may not be used by 

you or by us to secure or guarantee any obligations that we might owe to you, and they 

may not be used by us to secure or obtain credit from you. You further acknowledge and 

agree that the Shares in the Account(s) shall not be subject to any right of offset or lien 

for or on account of any indebtedness, obligations or liabilities we may now or in the 

future have owing to you.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other information regarding or related to the 

Account(s) from the director of the Division of Clearing and Risk of the CFTC or the 

director of the Division of Swap Dealer and Intermediary Oversight of the CFTC, or any 

successor divisions, or such directors’ designees, and this letter constitutes the 
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169

authorization and direction of the undersigned on our behalf to release the requested 

information without further notice to or consent from us.

The parties agree that all actions on your part to respond to the above information 

requests will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the director of the Division of Clearing and Risk of the CFTC or the director of the 

Division of Swap Dealer and Intermediary Oversight of the CFTC, or any successor 

divisions, or such directors’ designees, upon which you have relied after having taken 

measures in accordance with your applicable policies and procedures to assure that such 

request was provided to you by an individual authorized to make such a request.

In the event that we become subject to either a voluntary or involuntary petition 

for relief under the U.S. Bankruptcy Code, we acknowledge that you will have no 

obligation to release the Shares held in the Account(s), except upon instruction of the 

Trustee in Bankruptcy or pursuant to the Order of the respective U.S. Bankruptcy Court.

Notwithstanding anything in the foregoing to the contrary, nothing contained 

herein shall be construed as limiting your right to assert any right of offset or lien on 

assets that are not Shares maintained in the Account(s), or to impose such charges against 

us or any proprietary account maintained by us with you. Further, it is understood that 

amounts represented by checks, drafts or other items shall not be considered to be part of 
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(subject to technical corrections required by the Office of the Federal Register)

170

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.
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171

We are permitted to invest customers’ funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, among 

others, with respect to any investment in a government money market fund:

(1) The net asset value of the fund must be computed by 9:00 a.m. of the business 

day following each business day and be made available to us by that time;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request except as otherwise specified in CFTC Regulation

§ 1.25(c)(5)(ii); and,

(3) The agreement under which we invest customers’ funds must not contain any 

provision that would prevent us from pledging or transferring fund shares.

The terms of this letter agreement shall remain binding upon the parties, their 

successors and assigns and, for the avoidance of doubt, regardless of a change in the 

name of either party. This letter agreement supersedes and replaces any prior agreement 

between the parties in connection with the Account(s), including but not limited to any 

prior acknowledgment letter agreement, to the extent that such prior agreement is 

inconsistent with the terms hereof. In the event of any conflict between this letter 

agreement and any other agreement between the parties in connection with the 

Account(s), this letter agreement shall govern with respect to matters specific to Section 

4d of the Act and the CFTC's regulations thereunder, as amended.

This letter agreement shall be governed by and construed in accordance with the 

laws of [Insert governing law] without regard to the principles of choice of law.
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(subject to technical corrections required by the Office of the Federal Register)

172

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:

9. Add Appendix H to part 1 to read as follows:

Appendix H to Part 1—Futures Commission Merchant Acknowledgment Letter for 

CFTC Regulation § 1.26 Customer Segregated U.S. Treasury Exchange-Traded 

Fund Account
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173

[Date]

[Name and Address of U.S. Treasury Exchange-Traded Fund]

We propose to invest funds held by [Name of Futures Commission Merchant] 

(“we” or “our”) on behalf of our customers in shares of [Name of U.S. Treasury 

Exchange-Traded Fund] (“you” or “your”) under account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant] [if applicable, add “FCM Customer 

Omnibus Account”] CFTC Regulation § 1.26 Customer Segregated U.S. Treasury 

Exchange-Traded Fund Account under Sections 4d(a) and 4d(b) of the Commodity 

Exchange Act [and, if applicable, “, Abbreviated as [short title reflected in the 

depository's electronic system]”]

Account Number(s): [ ]

(collectively, the “Account(s)”).

You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade commodities, options, swaps and other products (“Commodity 

Customers”), as required by Commodity Futures Trading Commission (“CFTC”) 

Regulation § 1.26, as amended; that the Shares held by you, hereafter deposited in the 

Account(s) or accruing to the credit of the Account(s), will be separately accounted for 

and segregated on your books from our own funds and from any other funds or accounts 

held by us in accordance with the provisions of the Commodity Exchange Act, as 

amended (the “Act”), and part 1 of the CFTC's regulations, as amended; and that the 

Shares must otherwise be treated in accordance with the provisions of Section 4d of the 

Act and CFTC regulations thereunder.
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174

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 selfregulatory 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 
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(subject to technical corrections required by the Office of the Federal Register)

175

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 
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(subject to technical corrections required by the Office of the Federal Register)

176

claims of alteration or forgery, may be charged back to the Account(s), and we shall be 

responsible to you as a general endorser of all such items whether or not actually so 

endorsed.

You may conclusively presume that any withdrawal from the Account(s) and the 

balances maintained therein are in conformity with the Act and CFTC regulations without 

any further inquiry, provided that, in the ordinary course of your business as a depository, 

you have no notice of or actual knowledge of a potential violation by us of any provision 

of the Act or the CFTC regulations that relates to the segregation of customer funds; and 

you shall not in any manner not expressly agreed to herein be responsible to us for 

ensuring compliance by us with such provisions of the Act and CFTC regulations; 

however, the aforementioned presumption does not affect any obligation you may 

otherwise have under the Act or CFTC regulations.

You may, and are hereby authorized to, obey the order, judgment, decree or levy 

of any court of competent jurisdiction or any governmental agency with jurisdiction, 

which order, judgment, decree or levy relates in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to any other person, firm, association or 

corporation even if thereafter any such order, decree, judgment or levy shall be reversed, 

modified, set aside or vacated.

We are permitted to invest customers’ funds in U.S. Treasury exchange-traded 

funds pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, 

among others, with respect to any investment in a U.S. Treasury exchange-traded fund:
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177

(1) To qualify as a permitted investment, interests in U.S. Treasury exchangetraded must be redeemable in cash by a futures commission merchant or derivatives 

clearing organization in its capacity as an authorized participant pursuant to an authorized 

participant agreement, as defined in § 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset value in accordance with the Investment 

Company Act of 1940 and regulations thereunder, and on a delivery versus payment 

basis;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request; and,

(3) The agreement under which we invest customers' funds must not contain any 

provision that would prevent us from pledging or transferring fund shares.

The terms of this letter agreement shall remain binding upon the parties, their 

successors and assigns, and for the avoidance of doubt, regardless of a change in the 

name of either party. This letter agreement supersedes and replaces any prior agreement 

between the parties in connection with the Account(s), including but not limited to any 

prior acknowledgment letter agreement, to the extent that such prior agreement is 

inconsistent with the terms hereof. In the event of any conflict between this letter 

agreement and any other agreement between the parties in connection with the 

Account(s), this letter agreement shall govern with respect to matters specific to Section 

4d of the Act and the CFTC's regulations thereunder, as amended.

This letter agreement shall be governed by and construed in accordance with the 

laws of [Insert governing law] without regard to the principles of choice of law.
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(subject to technical corrections required by the Office of the Federal Register)

178

Please acknowledge that you agree to abide by the requirements and conditions 

set forth above by signing and returning to us the enclosed copy of this letter agreement, 

and that you further agree to provide a copy of this fully executed letter agreement 

directly to the CFTC (via electronic means in a format and manner determined by the 

CFTC) and to [Name of DSRO], acting in its capacity as our DSRO, in accordance with 

CFTC Regulation § 1.20. We hereby authorize and direct you to provide such copies 

without further notice to or consent from us, no later than three business days after 

opening the Account(s) or revising this letter agreement, as applicable.

[Name of Futures Commission Merchant]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

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

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

Date:

10. Add Appendix I to part 1 to read as follows:

Appendix I to Part 1—Derivatives Clearing Organization Acknowledgment Letter 

for CFTC Regulation § 1.26 Customer Segregated U.S. Treasury Exchange-Traded 

Fund Account
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179

[Date]

[Name and Address of U.S. Treasury Exchange-Traded Fund]

We propose to invest funds held by [Name of Derivatives Clearing Organization] 

(“we” or “our”) on behalf of customers in shares of [Name of U.S. Treasury ExchangeTraded Fund] (“you” or “your”) under account(s) entitled (or shares issued to):

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 

Account, CFTC Regulation § 1.26 Customer Segregated U.S. Treasury Exchange-Traded 

Fund Account under Sections 4d(a) and 4d(b) of the Commodity Exchange Act [and, if 

applicable, “, Abbreviated as [short title reflected in the depository's electronic system]”]

Account Number(s): [ ]

(collectively, the “Account(s)”).

You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade commodities, options, swaps and other products, as required by 

Commodity Futures Trading Commission (“CFTC”) Regulation § 1.26, as amended; that 

the Shares held by you, hereafter deposited in the Account(s) or accruing to the credit of 

the Account(s), will be separately accounted for and segregated on your books from our 

own funds and from any other funds or accounts held by us in accordance with the 

provisions of the Commodity Exchange Act, as amended (the “Act”), and part 1 of the 

CFTC's regulations, as amended; and that the Shares must otherwise be treated in 

accordance with the provisions of Section 4d of the Act and CFTC regulations 

thereunder.
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180

Furthermore, you acknowledge and agree that such Shares may not be used by 

you or by us to secure or guarantee any obligations that we might owe to you, and they 

may not be used by us to secure or obtain credit from you. You further acknowledge and 

agree that the Shares in the Account(s) shall not be subject to any right of offset or lien 

for or on account of any indebtedness, obligations or liabilities we may now or in the 

future have owing to you.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other information regarding or related to the 

Account(s) from the Director of the Division of Clearing and Risk of the CFTC or the 

Director of the Market Participants Division of the CFTC, or any successor divisions, or 

such Directors’ designees, and this letter constitutes the authorization and direction of the 

undersigned on our behalf to release the requested information without further notice to 

or consent from us.

The parties agree that all actions on your part to respond to the above information 

requests will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the Director of the Division of Clearing and Risk of the CFTC or the Director of the 

Market Participants Division of the CFTC, or any successor divisions, or such Directors’

designees, upon which you have relied after having taken measures in accordance with 
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(subject to technical corrections required by the Office of the Federal Register)

181

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 
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(subject to technical corrections required by the Office of the Federal Register)

182

ensuring compliance by us with such provisions of the Act and CFTC regulations; 

however, the aforementioned presumption does not affect any obligation you may 

otherwise have under the Act or CFTC regulations.

You may, and are hereby authorized to, obey the order, judgment, decree or levy 

of any court of competent jurisdiction or any governmental agency with jurisdiction, 

which order, judgment, decree or levy relates in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any action or omission to act pursuant to any 

such order, judgment, decree or levy, to us or to any other person, firm, association or 

corporation even if thereafter any such order, decree, judgment or levy shall be reversed, 

modified, set aside or vacated.

We are permitted to invest customers’ funds in U.S. Treasury exchange-traded

funds pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, 

among others, with respect to any investment in a U.S. Treasury exchange-traded fund:

(1) To qualify as a permitted investment, interests in U.S. Treasury exchangetraded must be redeemable in cash by a futures commission merchant or derivatives 

clearing organization in its capacity as an authorized participant pursuant to an authorized 

participant agreement, as defined in § 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset value in accordance with the Investment 

Company Act of 1940 and regulations thereunder, and on a delivery versus payment 

basis;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request; and,
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183

(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:
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184

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

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

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

11. In § 1.32, revise paragraphs (f)(3)(v), (vi), and (vii) to read as follows:

§ 1.32 Reporting of segregated account computation and details regarding the 

holding of futures customer funds.

* * * * *

(f) * * *

(3) * * *

(v) Permitted foreign sovereign debt by country:

(A) Canada;

(B) France;

(C) Germany;

(D) Japan;

(E) United Kingdom;

(vi) Interests in U.S. Treasury exchange-traded funds; and

(vii) Interests in government money market funds.
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* * * * *

PART 22—CLEARED SWAPS

12. The authority citation for part 22 continues to read as follows:

Authority: 7 U.S.C. 1a, 6d, 7a-1 as amended by Pub. L. 111-203, 124 Stat. 1376.

13. In § 22.2, revise paragraphs (g)(5)(iii)(E), (F), and (G) to read as follows:

§ 22.2 Futures Commission Merchants: Treatment of Cleared Swaps and Associated 

Cleared Swaps Customer Collateral.

* * * * *

(g) * * *

(5) * * *

(iii) * * *

(E) Permitted foreign sovereign debt by country:

(1) Canada;

(2) France;

(3) Germany;

(4) Japan;

(5) United Kingdom;

(F) Interests in U.S. Treasury exchange-traded funds; and

(G) Interests in government money market funds.

* * * * *

14. In § 22.3, revise paragraph (d) to read as follows:

§ 22.3 Derivatives clearing organizations: Treatment of cleared swaps customer 

collateral.
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* * * * *

(d) Exceptions; Permitted investments. Notwithstanding the foregoing and § 

22.15, a derivatives clearing organization may invest the money, securities, or other 

property constituting Cleared Swaps Customer Collateral in accordance with § 1.25 of 

this chapter. A derivative clearing organization shall bear sole responsibility for any 

losses resulting from the investment of Cleared Swaps Customer Collateral in 

instruments described in § 1.25 of this chapter. No investment losses shall be borne or 

otherwise allocated to a futures commission merchant.

PART 30—FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

15. The authority citation for part 30 continues to read as follows:

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

16. In § 30.7, revise paragraphs (d)(2) and (3) and (l)(5)(iii)(E) through (G) to 

read as follows:

§ 30.7 Treatment of foreign futures or foreign options secured amount.

* * * * *

(d) * * *

(2) The written acknowledgment must be in the form as set out in Appendix E to 

this part; Provided, however, that if the futures commission merchant invests funds set 

aside as the foreign futures or foreign options secured amount in government money 

market funds or U.S. Treasury exchange-traded funds as a permitted investment under 

paragraph (h) of this section and in accordance with the terms and conditions of § 1.25(c) 

of this chapter, the written acknowledgment with respect to such investment must be in 

the form as set out in Appendix F to this part or in Appendix G to this part, respectively.
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(3)(i) A futures commission merchant shall deposit 30.7 customer funds only with 

a depository that agrees to provide the director of the Division of Swap Dealer and

Intermediary Oversight, or any successor division, or such director’s designees, with 

account balance information for 30.7 customer accounts.

(ii) The written acknowledgment must contain the futures commission merchant’s 

authorization to the depository to provide account balance information to the director of 

the Division of Swap Dealer and Intermediary Oversight, or any successor division, or 

such director’s designees, without further notice to or consent from the futures 

commission merchant.

* * * * *

(l) * * *

(5) * * *

(iii) * * *

(E) Permitted foreign sovereign debt by country:

(1) Canada;

(2) France;

(3) Germany;

(4) Japan;

(5) United Kingdom;

(F) Interests in U.S. Treasury exchange-traded funds; and

(G) Interests in government money market funds.

* * * * *

17. Revise Appendix E to part 30 to read as follows:
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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 
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treated in accordance with the provisions of Section 4(b) of the Act and CFTC Regulation 

§ 30.7.

Furthermore, you acknowledge and agree that such Funds may not be used by you 

or by us to secure or guarantee any obligations that we might owe to you, and they may 

not be used by us to secure or obtain credit from you. You further acknowledge and agree 

that the Funds in the Account(s) shall not be subject to any right of offset or lien for or on 

account of any indebtedness, obligations or liabilities we may now or in the future have 

owing to you. This prohibition does not affect your right to recover funds advanced in the 

form of cash transfers, lines of credit, repurchase agreements or other similar liquidity 

arrangements you make in lieu of liquidating non-cash assets held in the Account(s) or in 

lieu of converting cash held in the Account(s) to cash in a different currency.

In addition, you agree that the Account(s) may be examined at any reasonable 

time by the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor 

divisions, or such directors’ designees, or an appropriate officer, agent or employee of 

our designated self-regulatory organization (“DSRO”), [Name of DSRO], and this letter 

constitutes the authorization and direction of the undersigned on our behalf to permit any 

such examination to take place without further notice or consent from us.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other information regarding or related to the 

Account(s) from the director of the Division of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ designees, or an appropriate officer, agent, or 
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employee of [Name of DSRO], acting in its capacity as our DSRO, and this letter 

constitutes the authorization and direction of the undersigned on our behalf to release the 

requested information without further notice to or consent from us.

The parties agree that all actions on your part to respond to the above information 

request will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor 

divisions, or such directors’ designees, or an appropriate officer, agent, or employee of 

[Name of DSRO], acting in its capacity as our DSRO, upon which you have relied after 

having taken measures in accordance with your applicable policies and procedures to 

assure that such request was provided to you by an individual authorized to make such a 

request.

In the event we become subject to either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we acknowledge that you will have no obligation 

to release the Funds held in the Account(s), except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the respective U.S. Bankruptcy Court.

Notwithstanding anything in the foregoing to the contrary, nothing contained 

herein shall be construed as limiting your right to assert any right of offset or lien on 
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assets that are not § 30.7 customer funds maintained in the Account(s), or to impose such 

charges against us or any proprietary account maintained by us with you. Further, it is 

understood that amounts represented by checks, drafts or other items shall not be 

considered to be part of the Account(s) until finally collected. Accordingly, checks, drafts 

and other items credited to the Account(s) and subsequently dishonored or otherwise 

returned to you or reversed, for any reason, and any claims relating thereto, including but 

not limited to claims of alteration or forgery, may be charged back to the Account(s), and 

we shall be responsible to you as a general endorser of all such items whether or not 

actually so endorsed.

You may conclusively presume that any withdrawal from the Account(s) and the 

balances maintained therein are in conformity with the Act and CFTC regulations without 

any further inquiry, provided that, in the ordinary course of your business as a depository, 

you have no notice of or actual knowledge of a potential violation by us of any provision 

of the Act or part 30 of the CFTC regulations that relates to the holding of customer 

funds; and you shall not in any manner not expressly agreed to herein be responsible to us 

for ensuring compliance by us with such provisions of the Act and CFTC regulations; 

however, the aforementioned presumption does not affect any obligation you may 

otherwise have under the Act or CFTC regulations.

You may, and are hereby authorized to, obey the order, judgment, decree or levy 

of any court of competent jurisdiction or any governmental agency with jurisdiction, 

which order, judgment, decree or levy relates in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any action or omission to act pursuant to any 

such order, judgment, decree or levy, to us or to any other person, firm, association or 
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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:
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Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Depository]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

18. Revise Appendix F to part 30 to read as follows:

Appendix F to Part 30—Acknowledgment Letter for CFTC Regulation § 30.7 

Customer Secured Government Money Market Fund Account

[Date]

[Name and Address of Government Money Market Fund]

We propose to invest funds held by [Name of Futures Commission Merchant] 

(“we” or “our”) on behalf of our customers in shares of [Name of Government Money 

Market Fund] (“you” or “your”) under account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant] [if applicable, add “FCM Customer 

Omnibus Account”] CFTC Regulation § 30.7 Customer Secured Government Money 

Market Fund Account under Section 4(b) of the Commodity Exchange Act [and, if 

applicable, “, Abbreviated as [short title reflected in the depository's electronic system]”]

Account Number(s): [ ]

(collectively, the “Account(s)”).
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You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade foreign futures and/or foreign options (as such terms are defined

in U.S. Commodity Futures Trading Commission (“CFTC”) Regulation § 30.1, as 

amended); that the Shares held by you, hereafter deposited in the Account(s) or accruing 

to the credit of the Account(s), will be kept separate and apart and separately accounted 

for on your books from our own funds and from any other funds or accounts held by us in 

accordance with the provisions of the Commodity Exchange Act, as amended (the 

“Act”), and part 30 of the CFTC's regulations, as amended; and that the Shares must 

otherwise be treated in accordance with the provisions of Section 4(b) of the Act and 

CFTC Regulations §§ 1.25 and 30.7.

Furthermore, you acknowledge and agree that such Shares may not be used by 

you or by us to secure or guarantee any obligations that we might owe to you, and they 

may not be used by us to secure or obtain credit from you. You further acknowledge and 

agree that the Shares in the Account(s) shall not be subject to any right of offset or lien 

for or on account of any indebtedness, obligations or liabilities we may now or in the 

future have owing to you.

In addition, you agree that the Account(s) may be examined at any reasonable 

time by the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor 

divisions, or such directors’ designees, or an appropriate officer, agent or employee of 

our designated self-regulatory organization (“DSRO”), [Name of DSRO], and this letter 
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constitutes the authorization and direction of the undersigned on our behalf to permit any 

such examination to take place without further notice to or consent from us.

You agree to reply promptly and directly to any request for confirmation of 

account balances or provision of any other information regarding or related to the 

Account(s) from the director of the Division of Swap Dealer and Intermediary Oversight 

of the CFTC or the director of the Division of Clearing and Risk of the CFTC, or any 

successor divisions, or such directors’ designees, or an appropriate officer, agent, or 

employee of [Name of DSRO], acting in its capacity as our DSRO, and this letter 

constitutes the authorization and direction of the undersigned on our behalf to release the 

requested information, without further notice to or consent from us.

The parties agree that all actions on your part to respond to the above information 

request will be made in accordance with, and subject to, such reasonable and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the director of the Division of Swap Dealer and Intermediary Oversight of the 

CFTC or the director of the Division of Clearing and Risk of the CFTC, or any successor 

divisions, or such directors’ designees, or an appropriate officer, agent, or employee of 

[Name of DSRO], acting in its capacity as our DSRO, upon which you have relied after 

having taken measures in accordance with your applicable policies and procedures to 
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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 
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for ensuring compliance by us with such provisions of the Act and CFTC regulations; 

however, the aforementioned presumption does not affect any obligation you may 

otherwise have under the Act or CFTC regulations.

You may, and are hereby authorized to, obey the order, judgment, decree or levy 

of any court of competent jurisdiction or any governmental agency with jurisdiction, 

which order, judgment, decree or levy relates in whole or in part to the Account(s). In any 

event, you shall not be liable by reason of any action or omission to act pursuant to any 

such order, judgment, decree or levy, to us or to any other person, firm, association or 

corporation even if thereafter any such order, decree, judgment or levy shall be reversed, 

modified, set aside or vacated.

We are permitted to invest customers' funds in government money market funds 

pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, among 

others, with respect to any investment in a government money market fund:

(1) The net asset value of the fund must be computed by 9:00 a.m. of the business 

day following each business day and be made available to us by that time;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request except as otherwise specified in CFTC Regulation 

§ 1.25(c)(5)(ii); and,

(3) The agreement under which we invest customers' funds must not contain any 

provision that would prevent us from pledging or transferring fund shares.

The terms of this letter agreement shall remain binding upon the parties, their 

successors and assigns and, for the avoidance of doubt, regardless of a change in the 
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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]
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By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

19. Add Appendix G to part 30 to read as follows:

Appendix G to Part 30—Acknowledgment Letter for CFTC Regulation § 30.7 

Customer Secured U.S. Treasury Exchange-Traded Fund Account

[Date]

[Name and Address of U.S. Treasury Exchange-Traded Fund]

We propose to invest funds held by [Name of Futures Commission Merchant] 

(“we” or “our”) on behalf of our customers in shares of [Name of U.S. Treasury 

Exchange-Traded Fund] (“you” or “your”) under account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant] [if applicable, add “FCM Customer 

Omnibus Account”] CFTC Regulation § 30.7 Customer Secured U.S. Treasury 

Exchange-Traded Fund Account under Section 4(b) of the Commodity Exchange Act 

[and, if applicable, “, Abbreviated as [short title reflected in the depository's electronic 

system]”]

Account Number(s): [ ]

(collectively, the “Account(s)”).

You acknowledge that we are holding these funds, including any shares issued 

and amounts accruing in connection therewith (collectively, the “Shares”), for the benefit 

of customers who trade foreign futures and/or foreign options (as such terms are defined 
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in U.S. Commodity Futures Trading Commission (“CFTC”) Regulation § 30.1, as 

amended); that the Shares held by you, hereafter deposited in the Account(s) or accruing 

to the credit of the Account(s), will be separately accounted for and segregated on your 

books from our own funds and from any other funds or accounts held by us in accordance 

with the provisions of the Commodity Exchange Act, as amended (the “Act”), and part 

30 of the CFTC's regulations, as amended; and that the Shares must otherwise be treated 

in accordance with the provisions of Section 4(b) of the Act and CFTC Regulations §§

1.25 and 30.7.

Furthermore, you acknowledge and agree that such Shares may not be used by 

you or by us to secure or guarantee any obligations that we might owe to you, and they 

may not be used by us to secure or obtain credit from you. You further acknowledge and 

agree that the Shares in the Account(s) shall not be subject to any right of offset or lien 

for or on account of any indebtedness, obligations or liabilities we may now or in the 

future have owing to you.

In addition, you agree that the Account(s) may be examined at any reasonable 

time by the Director of the Market Participants Division of the CFTC or the Director of 

the Division of Clearing and Risk of the CFTC, or any successor divisions, or such 

Directors’ designees, or an appropriate officer, agent or employee of our designated selfregulatory 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 
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Account(s) from the Director of the Market Participants Division of the CFTC or the 

Director of the Division of Clearing and Risk of the CFTC, or any successor divisions, or 

such Directors’ designees, or an appropriate officer, agent, or employee of [Name of 

DSRO], acting in its capacity as our DSRO, and this letter constitutes the authorization 

and direction of the undersigned on our behalf to release the requested information 

without further notice to or consent from us.

The parties agree that all actions on your part to respond to the above information 

requests will be made in accordance with, and subject to, such usual and customary 

authorization verification and authentication policies and procedures as may be employed 

by you to verify the authority of, and authenticate the identity of, the individual making 

any such information request, in order to provide for the secure transmission and delivery 

of the requested information to the appropriate recipient(s).

We will not hold you responsible for acting pursuant to any information request 

from the Director of the Market Participants Division of the CFTC or the Director of the 

Division of Clearing and Risk of the CFTC, or any successor divisions, or such Directors’

designees, or an appropriate officer, agent, or employee of [Name of DSRO], acting in its 

capacity as our DSRO, upon which you have relied after having taken measures in 

accordance with your applicable policies and procedures to assure that such request was 

provided to you by an individual authorized to make such a request.

In the event we become subject to either a voluntary or involuntary petition for 

relief under the U.S. Bankruptcy Code, we acknowledge that you will have no obligation 

to release the Shares held in the Account(s), except upon instruction of the Trustee in 

Bankruptcy or pursuant to the Order of the respective U.S. Bankruptcy Court.
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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 
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event, you shall not be liable by reason of any action or omission to act pursuant to such 

order, judgment, decree or levy, to us or to any other person, firm, association or 

corporation even if thereafter any such order, decree, judgment or levy shall be reversed, 

modified, set aside or vacated.

We are permitted to invest customers’ funds in U.S. Treasury exchange-traded 

funds pursuant to CFTC Regulation § 1.25. That rule sets forth the following conditions, 

among others, with respect to any investment in a U.S. Treasury exchange-traded fund:

(1) To qualify as a permitted investment, interests in U.S. Treasury exchangetraded must be redeemable in cash by a futures commission merchant or derivatives 

clearing organization in its capacity as an authorized participant pursuant to an authorized 

participant agreement, as defined in § 270.6c–11 of Title 17 of the Code of Federal 

Regulations, at a price based on the net asset value in accordance with the Investment 

Company Act of 1940 and regulations thereunder, and on a delivery versus payment 

basis;

(2) The fund must be legally obligated to redeem an interest in the fund and make 

payment in satisfaction thereof by the close of the business day following the day on 

which we make a redemption request; and,

(3) The agreement under which we invest customers' funds must not contain any 

provision that would prevent us from pledging or transferring fund shares.

The terms of this letter agreement shall remain binding upon the parties, their 

successors and assigns, and for the avoidance of doubt, regardless of a change in the 

name of either party. This letter agreement supersedes and replaces any prior agreement 

between the parties in connection with the Account(s), including but not limited to any 
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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 U.S. Treasury Exchange-Traded Fund]

By:

Print Name:
Pre-Print Version

(subject to technical corrections required by the Office of the Federal Register)

205

Title:

Contact Information: [Insert phone number and email address]

Date:

Issued in Washington, DC, on November 3, 2023, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.