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FIA Seeks Clarity from the CFTC on Permissible Market Practices for Margining Separate Accounts

FIA Seeks Clarity from the CFTC on Permissible Market Practices for Margining Separate Accounts

22 January 2020 9:15pm EST

Washington, DC—Today, FIA formally petitioned the Commodity Futures Trading Commission (CFTC) to amend its rules to clarify the margin treatment of separate customer accounts.  In two related petitions, FIA seeks codification of no-action relief issued by the CFTC, which governs the disbursement of customer margin to separate accounts of a common beneficial owner, and requests the CFTC to clarify its position on allocated asset recourse for separate accounts.  Allocated asset recourse arrangements allow Futures Commission Merchant (FCM) clearing members to carry managed accounts for institutional customers by designating the customer assets under management as the assets to which the FCM will have recourse in the event of a customer’s default. Both petitions ask the CFTC to conduct a rulemaking and seek public comment on these important issues.

The requested rulemaking is essential to provide both FCMs and their customers legal certainty and to preserve the proper functioning of derivatives markets. Seeking public input and then updating the rules will allow numerous market participants – including pension and retirement funds, mutual funds, and commercial firms – to continue to hedge and manage risk through FCM management of separate accounts.  Commercial firms, for example, rely on these practices to procure financing from lenders.  Pension funds and mutual funds often need this resource for regulatory or contractual reasons to allocate specified assets to specific investment managers pursuant to trading strategies that are independent of other trading strategies, even for the same beneficial owner.

FIA thanks the CFTC for its consideration of this issue to date and requests that it take action to provide the critical legal certainty as to permissible market practice.

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Attachments

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Petition for Rulemaking - Proposed Amendments to Commission Rule 1.11 and 1.56.pdf (321.35 KB)
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Petition for Rulemaking - Codification of No-Action Position under CFTC Letter No. 19-17.pdf (340.51 KB)

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