Commodity Futures Trading Commission staff issued guidance authorizing a futures commission merchant to credit a customer’s account for a margin payment as soon as it initiates a withdrawal from the customer’s bank account using the Automated Clearing House transaction system. The customer must previously have authorized in writing the proposed transaction. This is an important development for FCMs to avoid having to take a capital charge for certain unmet customer margin calls, among other reasons. Apparently, according to the Commission’s staff, many non-institutional customers, including farmers and ranchers, use the ACH system to make margin payments. Staff also provided guidance regarding the relevant date by when an FCM must infuse its own funds (residual interest) into each category of customer account origin to cover the total value of its under margined customer amounts because of a banking holiday in the US or abroad (new CFTC requirements regarding residual interest are effective November 14; see Compliance Weeds below). The three types of customer accounts are segregated 1.22 accounts in connection with domestically traded futures and related options; secured 30.7 accounts in connection with foreign-traded futures and related options; and 22.2 cleared swaps accounts. (Click here for more detailed information about this interpretive guidance in the article “CFTC Issues Interpretation Regarding Accounting for Customer Margin Payments Using Automated Clearing House Payment Processing,” in the October 24 edition of Corporate & Financial Weekly Digest by Katten Muchin Rosenman LLP.)
Compliance Weeds: As of November 14, new CFTC rules will require FCMs by 6 pm each business day to maintain in each of their customer segregated 1.22 and secured 30.7 accounts sufficient residual interest to cover the aggregate of all customer undermargined amounts for the prior trade date. An equivalent requirement already exists for customer segregated 22.2 cleared swaps accounts. (Click here for details regarding these new rules in the article "CFTC Adopts More Stringent Customer Funds' Protection Rules" in the October 30, 2013 edition of what is now Between Bridges.) Now is a good time for FCMs to double check their policies and procedures to ensure they are fully compliant with the CFTC's new requirements and that staff is fully trained.