Regulatory Developments: CFTC Approves New Financial Rules Submitted by the NFA to Strengthen the Protection of Customer Funds Held by FCMs
On July 13, the CFTC approved new financial rules that enhance protections to customer funds held by futures commission merchants ("FCMs"). The new NFA rules require FCMs to strengthen their controls over the treatment and monitoring of funds held for customers trading on U.S. contract markets (segregated accounts) and for funds held for foreign futures and foreign option customers trading on foreign contract markets (Part 30 secured accounts).
The areas of reform included in the NFA rules are as follows:
FCMs must hold sufficient funds in Part 30 secured accounts to meet their total obligations to customers trading on foreign markets computed under the net liquidating equity method representing the total account balance owed to customers. FCMs will no longer be allowed to use the alternative method, which had allowed them to hold a lower amount of funds representing the margin on their foreign futures.
Controls on the use of Excess Segregated and Part 30 Secured Customer Funds
(1) FCMs must maintain written policies and procedures governing the maintenance of excess (i.e., proprietary or residual) funds in customer segregated accounts and Part 30 secured accounts;
(2) Any withdrawals that are in excess of 25 percent of the excess segregated or Part 30 secured funds that are not for the benefit of customers must be pre-approved in writing by senior management; and
(3) FCMs must file notice with NFA of any withdrawal of 25 percent or more of the excess segregated or Part 30 secured amount funds that are not for the benefit of customers.
Reporting and Recordkeeping
(1) FCMs must file segregation and Part 30 secured amount computations with the NFA on a daily basis;
(2) FCMs must file with the NFA detailed information regarding the depositories holding customer funds and the investments made with customer funds as of the 15th and last business day of each month; and
(3) FCMs must file with the NFA additional monthly net capital and leverage information.
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