The Commodity Futures Trading Commission’s Division of Clearing and Intermediary Oversight (DCIO) has issued an Interpretation confirming that certain corporate debt securities guaranteed by the Federal Deposit Insurance Corporation under its Temporary Liquidity Guarantee Program (TLGP) are permitted investments for customer segregated or secured amount funds. Under the Interpretation, in order for a TLGP security to qualify as a permitted investment for customer segregated funds held by a futures commission merchant (FCM), the security must satisfy all of the requirements of CFTC Regulation 1.25, and, in addition: (a) must be part of an issuance of greater than $1 billion, (b) must be denominated in U.S. dollars, and (c) must be guaranteed for its entire term. TLGP securities satisfying these requirements also would be permitted investments of customer secured amount funds under CFTC Regulation 30.7. For purposes of applying the rating, concentration and other requirements of Regulation 1.25, DCIO indicated that TLGP securities should be treated as corporate notes or bonds (and not as U.S. government securities), but that, for purposes of applying the FCM net capital “haircuts” pursuant to CFTC Regulation 1.17, TLGP securities would be subject to the haircuts specified in Securities and Exchange Commission Rule 15c3-1(c)(2)(vi)(A) for securities guaranteed by the United States or a federal agency.
The DCIO Interpretation is available here.