On October 18, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (Division) released an interpretive advisory for futures commission merchants (FCMs) that addressed implementation of a recent no-action letter regarding investments in money market funds (MMFs).
Recent changes to Securities and Exchange Commission rules would have prohibited FCMs from investing customer funds in MMFs that invest primarily in corporate debt securities (Prime MMFs), or MMFs that invest primarily in US government securities and that voluntarily elect to be subject to liquidity fees or redemption restrictions (Electing Government MMFs). In CFTC Letter No. 16-68 (discussed in the August 12 edition of the Corporate & Weekly Financial Digest), the Division granted no-action relief permitting an FCM to invest the amount of funds held in segregated accounts, secured accounts and cleared swaps accounts in excess of the firm’s targeted residual interest in Prime MMFs and Electing Government MMFs under certain conditions.
In the advisory, the Division explains that good-faith, inadvertent, over-investments beyond the residual interest target excess will not necessarily violate the no-action letter if the FCM acts promptly to: 1) move proprietary money into the segregated account; or 2) initiate liquidation of the Prime or Electing Government MMF to come into compliance. The Division also explains how asset-based and issuer-based concentration limits are applied.
The full advisory is available here.