On August 8, 2016, the CFTC’s Division of Clearing and Risk issued an interpretative letter where CFTC staff stated that it would be inconsistent with CFTC regulations for a DCO to accept or hold initial margin in the form of, or to invest funds belonging to the DCO, its clearing members or clearing members’ customers in, certain prime and government money market funds that have authority to suspend redemptions. However, government MMFs that do not adopt such redemption restrictions would remain acceptable for margin collateral and investments.
The CFTC’s Division of Swap Dealer and Intermediary Oversight issued a related no-action letter. Although an FCM will generally not be permitted to invest segregated customer funds (including an FCM’s own funds held in a segregated account) in such prime and government MMFs, the letter allows such investments if they are limited to the amount of funds the FCM holds in excess of the firm’s targeted residual interest. The letter also addresses the treatment of permitted MMF investments by an FCM under Rule 1.25.
The CFTC press release, which includes links to the interpretative letter and no-action letter, is available at: http://www.cftc.gov/PressRoom/PressReleases/pr7421-16.