New Rules Dictate Safe Bets for Your Trading Funds
Published Date: 1/22/2025
Rule
Summary
Starting February 21, 2025, futures commission merchants and derivatives clearing organizations must follow new rules on how they invest customer funds. These changes update what investments are allowed, set new limits to keep money safe, and change reporting requirements to the government. The goal? Protect your money better while keeping the market strong and transparent.
Analyzed Economic Effects
10 provisions identified: 6 benefits, 1 costs, 3 mixed.
Add specified foreign sovereign debt
The rule expands the list of allowed investments to include specified foreign sovereign debt from Canada, France, Germany, Japan, and the United Kingdom as a potential place for futures commission merchants (FCMs) and derivatives clearing organizations (DCOs) to invest customer funds. The change was proposed and the Commission is adopting the proposed amendments to add these "Specified Foreign Sovereign Debt" instruments under conditions described in the rulemaking.
Limit money market funds to government MMFs
The rule narrows which money market funds (MMFs) qualify as permitted investments for customer funds to "government money market funds" as defined in SEC Rule 2a-7. A Government MMF is one that invests 99.5% or more of its assets in cash, government securities, and/or repurchase agreements collateralized by cash or government securities, and must make its net asset value available by 9 a.m. on the business day following each business day.
Remove commercial paper and corporate debt
The proposal (and adopted amendments) remove corporate notes, corporate bonds, and commercial paper from the list of Permitted Investments that FCMs and DCOs may use for customer segregated funds. Those instruments were proposed to be eliminated to tighten permissible investments for customer money.
Tighten concentration limit rules
The rule revises asset-based and issuer-based concentration limits that cap how much of customer segregated funds FCMs and DCOs may invest in any one asset class or from any single issuer. These limits are intended to limit concentration risk in customer portfolios.
DCOs bear responsibility for investment losses
The Commission clarifies that derivatives clearing organizations (DCOs) shall bear sole financial responsibility for any losses resulting from the investment of customer collateral and may not allocate such investment losses to customers. The final rule includes a clarifying amendment to ensure DCOs are responsible for investment losses.
Allow U.S. Treasury ETFs for customer funds
The Commission adds certain exchange-traded funds (ETFs) that invest primarily in short-term U.S. Treasury securities (called U.S. Treasury ETFs) to the list of investments that FCMs and DCOs may use for customer funds. The change is intended to give firms an indirect, operationally simpler way to invest customer money in high-quality short-term U.S. government obligations.
FCMs must apply market-risk capital charges
Futures commission merchants must take specified market risk capital charges when they add new permitted investments to customer fund portfolios and when computing the firm's adjusted net capital. This means firms must hold additional capital against certain investments of customer funds.
Expanded reporting on depositories and investments
FCMs must report to the CFTC and to their designated self-regulatory organization the name, location, and amount of customer funds held by each depository, including any investments of customer funds held by that depository. This increases transparency about where customer segregated funds are held and invested.
Remove read-only access requirement for depositories
The Commission eliminated the prior requirement that a depository holding customer funds must provide the Commission with read-only electronic access to such accounts for an FCM to treat the funds as customer segregated funds. Depositories will no longer have that read-only access obligation under the amended rules.
Replace LIBOR with SOFR benchmark
The regulation replaces LIBOR with the Secured Overnight Financing Rate (SOFR) as the permitted benchmark for adjustable-rate securities that qualify as permitted investments for customer funds. This aligns the allowed benchmark for adjustable-rate instruments with prior staff guidance and market practice.
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Key Dates
Department and Agencies
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