Tag: CFTC

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CFTC’s GMAC: Bank Capital Proposals Will Harm Cleared Derivatives Markets and Improvements Needed to Variation Margin Processes in Non-Cleared Markets

Andrew P. Cross —

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The Global Markets Advisory Committee (“GMAC”) of the U.S. Commodity Futures Trading Commission (“CFTC”) issued on June 4, 2024, a report on cleared derivatives and recommendations for non-cleared derivatives that will be of interest to all derivatives markets participants (i.e., dealers and buy-side firms).

The report focused on the potential adverse impact of two recent bank regulatory proposals on the cleared derivatives markets, while the recommendations related to improvements to the efficiency of variation margin post-trade processes in the non-centrally cleared derivatives markets.

Continue reading “CFTC’s GMAC: Bank Capital Proposals Will Harm Cleared Derivatives Markets and Improvements Needed to Variation Margin Processes in Non-Cleared Markets”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 12: Amendments to Other CFTC Regulations to Account for Proposed Regulation §1.44

Andrew P. Cross —

This post is the final installment of our multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

This post provides an overview of proposed changes to other CFTC regulations that will be made if the Proposed Rule is adopted.

Continue reading “Part 12: Amendments to Other CFTC Regulations to Account for Proposed Regulation §1.44”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 11: Information and Disclosure Requirements in the Separate Account Context

Andrew P. Cross —

This post is the next installment of multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

This post will summarize information and disclosure requirements under proposed CFTC Regulation §1.44(h) that, if adopted, will apply in the separate account context.

Continue reading “Part 11: Information and Disclosure Requirements in the Separate Account Context”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 10: Capital, Risk Management, and Segregation Calculations by FCMs

Andrew P. Cross —

This post is the next installment of a multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

Sub-paragraph (g) of CFTC Regulation §1.44 permits a futures commission merchant (“FCM”) to treat each separate account as a distinct account from all other accounts of the same customer for purposes of the FCM’s capital, risk management, and segregation calculations.

Absent the relief for separate accounts afforded by this sub-paragraph, an FCM would have to combine all of the accounts of a single customer for purposes of complying with these regulatory requirements.

Continue reading “Part 10: Capital, Risk Management, and Segregation Calculations by FCMs”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 9: The One Business Day Margin Call Requirement—Miscellaneous Considerations

Andrew P. Cross —

This post is the next in our multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

The previous post in this series focused on the relationship between international payment systems and timing considerations in the “one business day margin call requirement” that applies to separate account customers under the Proposed Rule.

This post explores four miscellaneous considerations related to this requirement. They are:

Continue reading “Part 9: The One Business Day Margin Call Requirement—Miscellaneous Considerations”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 8: The One Business Day Margin Call Requirement under CFTC Regulation §1.44

Andrew P. Cross —

This post is an overview of the “one business day margin call requirement” that applies to separate account customers under CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

The Proposed Rule seeks to balance the risk mitigation benefits of margin calls with practical limitations resulting from what the CFTC’s proposing release describes as “the mechanics of international payment systems (e.g., time zones and schedules of correspondent banks).”

Continue reading “Part 8: The One Business Day Margin Call Requirement under CFTC Regulation §1.44”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 7: The Ordinary Course of Business and the Separate Account Election

Andrew P. Cross —

This post is the next installment in a multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

The previous installment explained that a futures commission merchant (an “FCM”) can elect to treat separate accounts of a separate account customer as separate entities for purposes of the Margin Adequacy Requirement (the “Separate Account Election”) if three conditions are met.

This post will focus on one of those conditions—the requirement that the Separate Account Election can only be made during the “ordinary course of business.”

Continue reading “Part 7: The Ordinary Course of Business and the Separate Account Election”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 6: The Treatment of Separate Accounts—General Conditions

Andrew P. Cross —

This post is the next installment in a multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).

The previous installment discussed the Proposed Rule’s Margin Adequacy Requirement, the keystone of the Proposed Rule from a policy perspective.

In short, the Margin Adequacy Requirement is a regulatory mechanism that (i) is intended to prevent a customer of any futures commission merchant (an “FCM”) (both clearing and non-clearing FCMs) (ii) from withdrawing funds from that customer’s account that (iii) would render the post-withdrawal value of the account insufficient to meet the customer’s initial margin requirements with respect to all products held in that customer’s account.

This post considers the application of the Margin Adequacy Requirement to separate account customers in the ordinary course of business, which can be described as a “qualified exception” to the Margin Adequacy Requirement.

In sum, an FCM can treat separate accounts of a separate account customer as separate entities for purposes of the Margin Adequacy Requirement, as long as three key conditions are met.

Continue reading “Part 6: The Treatment of Separate Accounts—General Conditions”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 5: The Margin Adequacy Requirement of Proposed CFTC Regulation §1.44

Andrew P. Cross —

This post continues our multi-part series on proposed CFTC Regulation §1.44 (the “Proposed Rule”).

If adopted, the Proposed Rule will require every futures commission merchant (“FCM”) to ensure that a customer does not withdraw funds from its account with the FCM if the post-withdrawal balance of that account would be insufficient to meet the initial margin requirements applicable to that customer. The proposing release published by the U.S. Commodity Futures Trading Commission (the “CFTC”) refers to this requirement as a “Margin Adequacy Requirement.”

This post will provide additional information about this requirement, which arguably is the keystone of the proposal.

Continue reading “Part 5: The Margin Adequacy Requirement of Proposed CFTC Regulation §1.44”
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Commodity Pool Operators Commodity Trading Advisors Futures Commission Merchants Mutual Funds and Investment Advisers

Part 4: CFTC Regulation 1.44—Key Definitions

Andrew P. Cross —

The previous post in this series discussed how different market participants hold different views of the relationship between an investment manager and its clients, particularly in the separate account context. That post concluded our discussion of background considerations in respect of proposed CFTC Regulation §1.44 (the “Proposed Rule”) and the related Margin Adequacy Requirement in respect of separate accounts.

This part begins a consideration of the provisions and conditions in the Proposed Rule, and related comments made by the U.S. Commodity Futures Trading Commission (“CFTC”).

This post will focus on two key definitions in the Proposed Rule:

  • “Account;” and
  • “Separate account.”

Other parts of this series will address other defined terms in the context of the specific provisions of the Proposed Rule in which those terms are used.

Continue reading “Part 4: CFTC Regulation 1.44—Key Definitions”
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