CFTC Proposes New Regulations to Enhance Customer Protection

Following on proposals from the NFA, the CFTC has announced its proposals to amend regulations to enhance protections for customers

Following on proposals from the NFA, the CFTC has announced its proposals to amend regulations to enhance protections for customers with funds at FCMs and clearing organizations. The proposals will be open for comment for the next 60 days before a final amendment is decided. Proposals include:

• Amending Part 30 of the regulations to require FCMs to hold sufficient funds in secured accounts to meet their total obligations to both U.S.-domiciled and foreign-domiciled customers trading on foreign contract markets, computed under the net liquidating equity method;

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• Prohibiting FCMs from holding any positions in a Part 30 secured account other than customers’ foreign futures and option positions and associated margin collateral;

• Requiring FCMs to hold sufficient proprietary funds in segregated accounts and Part 30 secured accounts to reasonably ensure that the firms are properly segregated and secured at all times, and to cover margin deficiencies in customers’ trading accounts;

• Requiring FCMs to maintain written policies and procedures governing the maintenance of excess funds in customer segregated and Part 30 secured accounts, and requiring FCMs to obtain the pre-approval of management prior to the withdrawal of 25 percent or more of the excess funds held in segregated or secured accounts if the withdrawals were not for the benefit of the FCMs’ customers;

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• Requiring FCMs to provide the Commission and their respective designated self-regulatory organizations with daily reporting of the segregation and Part 30 secured amount computations, and semi-monthly reporting of the location of customer funds and how such funds are invested under Regulation 1.25;

• Requiring FCMs and DCOs to provide the Commission and designated self-regulatory organizations, as applicable, with read-only direct electronic access to bank and custodial accounts holding customer funds;

• Requiring FCMs to adopt policies and procedures on supervision and risk management of customer funds;

• Requiring FCMs to provide potential customers with additional disclosures addressing firm specific risks; and

• Enhancing the standards for the self-regulatory organizations’ examinations of member FCMs.

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