The CFTC recently issued its report on the Residual Interest Deadline applicable to FCMs. In its report, the CFTC concludes that it would not be practicable for FCMs or their customers to move the Residual Interest Deadline from its current time of 6 p.m. (Eastern) on the date of settlement to an earlier time such as the time of settlement.
In 2013, in response to the collapse of MF Global, the CFTC amended various rules, including CFTC Rule 1.22, in order to enhance customer protections and to safeguard customer funds held at FCMs. As amended, CFTC Rule 1.22 requires an FCM to compute the aggregated amount by which any of its customer accounts are undermargined as of the close of each business day and for the FCM to make up the difference from its own funds. Under a previously proposed phased-in compliance schedule, CFTC Rule 1.22 required the FCM to maintain, or deposit if necessary, a sufficient amount of its own funds in its customer segregated account to offset the difference by the Residual Interest Deadline of 6:00 p.m. (Eastern) the next business day. Absent action by the CFTC, under the phased-in compliance schedule, the 6:00 p.m. deadline would have automatically terminated on December 31, 2018. Thereafter, the Residual Interest Deadline would have moved to earlier in the day as of the time of settlement. In its final Rule, the CFTC removed the automatic termination date of December 31, 2018 and instead, the Residual Interest Deadline may only be adjusted upon further action of the CFTC.
In response to the report, CFTC Chairman Massad noted that the report as well as a recent roundtable on the issue “illustrate [the CFTC’s] commitment to protecting customer funds while at the same time not imposing undue burdens on commercial end-users.” The report is open for public comments and comments must be received by June 13, 2016.