In advance of new customer funds protection measures effective November 14, the Joint Audit Committee issued two regulatory alerts that provide helpful guidance regarding FCMs’ new requirements to:

  • maintain an amount of their own funds (residual interest) in certain customer origin accounts by 6 p.m. Eastern time each business day at least equal to the sum of customer margin deficiencies incurred as a result of activity the prior business day; and  
  • take an undermargined capital charge for any customer, non-customer or omnibus account that fails to meet a margin call by close of business on T + 2 (where T = the day an account first becomes undermargined).

The JAC also clarified that an FCM may continue legally to accept orders that don’t solely reduce the risk of existing positions while an account is undermargined or in debit for a reasonable time period. A reasonable time is less than five business days for customer accounts and four business days for non-customer and omnibus accounts. An FCM, however, may impose stricter requirements.

The customer account origins impacted by the new residual interest requirement are those related to the trading of domestic futures and options (1.22 segregated environment) and those related to the trading of non-US futures and options (30.7 secured environment). A different customer funds protection regime for cleared swaps was inaugurated in November 2012 known as LSOC (legally segregated, operationally commingled). (Click here for a helpful guide to customer funds protection published by the Futures Industry Association, last updated in May 2014.)

As part of its guidance, the JAC reminded FCMs of their obligation to provide immediate notice to the Commodity Futures Trading Commission and their designated self-regulatory organization if the amount of their segregated or secured residual interest is less than their requirements at the 6 p.m. deadline. If an FCM is also a Securities and Exchange Commission registered broker-dealer, it must also provide notice to the SEC.

The JAC also provided guidance on when an FCM may consider that it has received a customer’s funds in connection with payments by check, Automated Clearing House processes or foreign currency transfers.