Staff of the Commodity Futures Trading Commission has issued an interpretive letter confirming that a futures commission merchant (FCM) was not required to exclude from its calculation of customer segregated funds certain investments of customer funds that did not comply with CFTC Rule 1.25.

The FCM had invested customer segregated funds in certificates of deposit (CDs) that were unrated and which exceeded the concentration limits set forth in Rule 1.25. Noting that the non-compliant investments had otherwise been segregated in accordance with CFTC requirements, the staff concluded that the FCM was not required to exclude the CDs from its calculation of customer segregated funds, and therefore would not be required to file an undersegregation notice with the CFTC and the FCM’s designated self-regulatory organization (DSRO).

The staff nonetheless stated that it expected the DSRO to pursue appropriate disciplinary action against the FCM for the violation of Rule 1.25 and that the FCM could be subject to CFTC enforcement action for such violation.

 http://www.cftc.gov/stellent/groups/public/@lrletter07/documents/letter/07-24.pdf