Derivatives Clearing Organization Risk Management Regulations To Account for the Treatment of Separate Accounts by Futures Commission Merchants

Following the announcement of a proposed rule amendment to 17 CFR Part 39, §39.13 to implement previously issued no-action relief as regards the „Treatment of Separate Accounts of a Single Customer by Clearing Members“ with respect to initial margin withdrawals (§39.13 (g) 8 iii), the U.S. Commodity Futures Trading Commission, CFTC, has now published its proposal in the Federal Register.
To recall, currently, the rule requires Derivatives Clearing Organizations (DCOs) to ascertain that clearing members (future commission merchants or FCMs) ensure that customers do not withdraw any funds from their accounts exceeding the initial margin requirements for „all products and swap portfolios held in such customer’s account which are cleared by the derivatives clearing organization.“ Previously, no-action relief provided relief to clearing members (and DCOs) in that they could treat separate accounts of one and the same customer as if those accounts were held by different entities for purposes of the initial margin maintenance requirement, if internal controls and procedures of the clearing member require it to do so.
The new amendment would now allow a DCO to permanently permit a clearing member to treat accounts separately for purposes of regulation § 39.13(g)(8)(iii), provided that
(1) the clearing member carries out such separate account treatment „in a consistent and documented manner“;
(2) the clearing member monitors customer accounts both on a separate and combined basis;
(3) the clearing member closely monitors its own financial operations and potential „distress“. If the situation so requires, it must terminate the separate account treatment;
(4) the clearing member provides adequate disclosures to its customers as regards the separate account treatment; and
(5) the clearing member informs its Designated Self-Regulatory Organization of the separate account treatment and of any cessation of this treatment, if the situation it so requires.