The Commission amended regulations concerning the protection of investment of customer funds by futures commission merchants (FCMs) and derivatives clearing organizations (DCOs).
The updates primarily revise the list of permitted investments under CFTC Regulation 1.25. The publication of the new rule finalized changes to investor safeguard regulations that were proposed in November 2023.
According to the CFTC, the amendments were intended to provide increased flexibility to FCMs and DCOs, and accommodates shifts in global markets and regulations since Regulation 1.25 was last amended in 2011.
Key changes to Regulation 1.25
- The amendment updates CFTC Regulation 1.25 to permit investments in sovereign debt instruments issued by Canada, France, Germany, Japan, and the UK, and short-term U.S. Treasury exchange-traded funds (ETFs).
- London Interbank Offered Rate (LIBOR) has been replaced by the risk-free Secured Overnight Financing Rate (SOFR) as the benchmark for permitted adjustable-rate investments. This is intended to facilitate the final transition away from LIBOR, which was phased out in 2023 due to manipulation and reliability concerns.
- The requirement for FCMs and DCOs to grant the CFTC read-only electronic access to customer fund accounts has been eliminated. CFTC Commissioner Kristin N. Johnson reported that the rule created significant resource drains for agencies and depositories alike, referring to it as “dated.”
- Corporate notes, corporate bonds, and commercial paper were eliminated from the list of permissible investments, reflecting their unavailability since 2012 under the Temporary Liquidity Guarantee Program.
Other changes
- Capital charges, counterparty requirements, and concentration limits for permitted investments have been tweaked.
- Reporting requirements and templates, such as the Segregation Investment Detail Reports (SIDR) and customer risk disclosures, have been updated to accommodate changes in permitted investments under Regulation 1.25.
- DCOs are now explicitly financially responsible for losses from investments of cleared swaps customer collateral.
Compliance with the new rules is required 30 days after publication. The SIDR and disclosure requirements will become effective on March 31, 2025.
