WASHINGTON, D.C. — The Commodity Futures Trading Commission today announced a final rule to implement requirements for futures commission merchants related to margin adequacy and the treatment of separate accounts of a customer. The rule finalizes the Commission’s proposal, published in the Federal Register in March, to codify the no-action position in CFTC staff letter 19-17 regarding separate account treatment.

That staff letter, which was supplemented and extended by CFTC Staff Letters 20-28, 21-29, 22-11, 23-13, and 24-07, was jointly issued by the Division of Clearing and Risk and the Division of Swap Dealer and Intermediary Oversight (now Market Participants Division) on July 10, 2019. Letter 19-17 included a DCR staff no-action position stating DCR would not recommend an enforcement action if a derivatives clearing organization permits an FCM clearing member to treat the separate accounts of a customer as accounts of separate entities for purposes of CFTC Regulation 39.13(g)(8)(iii), so long as the clearing member’s internal controls and procedures require it to, and it in fact does comply with certain conditions. 

In April 2023, the Commission published in the Federal Register its first proposal to codify the no-action position of Letter 19-17. In this first proposal, the Commission proposed to codify the no-action position of Letter 19-17 under its Part 39 DCO regulations, applicable to DCOs, and to their clearing FCMs through the operation of DCO rules. In light of comments received, the Commission withdrew the first proposal, and instead proposed requirements for separate account treatment in Part 1, directly applicable to FCMs.

The final rule adopted Regulation 1.44, which will apply to all FCMs, with respect to their customers, a margin adequacy requirement like the one applicable to DCOs in Regulation 39.13(g)(8)(iii). Regulation 1.44 will also permit FCMs, whether clearing or non-clearing, to treat the separate accounts of a single customer as accounts of separate entities for purposes of the new margin adequacy requirement, and will set forth risk-mitigating requirements, based on the no-action conditions in Letter 19-17 and similar proposed requirements in the Commission’s proposals, with which such FCMs must comply in applying separate account treatment.

The final rule also amends Regulations 1.3, 1.17, 1.20, 1.32, 1.58, 1.73, 22.2, 30.2, 30.7, and 39.13 to facilitate implementation of Regulation 1.44 and to correct certain inconsistencies identified in the Commission’s existing regulations.

The final rule makes modifications in light of comments received, including with respect to:

• Proposed requirements related to the treatment of separate accounts of an FCM customer for purposes of certain capital treatment requirements under Regulation 1.17.
• Proposed definitions of certain terms in Regulation 1.44.
• Proposed requirements related to a separate account meeting the “one business day margin call” standard, concerning meeting margin calls during foreign banking holidays and untimely payment of margin due to certain administrative errors or operational constraints.
• A proposed requirement related to the consistent application of separate account treatment.

The compliance date for FCMs that are members of a DCO as of the date of publication of the final rule in the Federal Register is 180 days after such date of publication, while the compliance date for all other FCMs is 365 days after such date of publication.