Part 1: The Margin Adequacy Requirement under CFTC Rule 1.44 Generally
The BR Derivatives Report
On February 20, 2024, the U.S. Commodity Futures Trading Commission (the “CFTC”) proposed regulations under the Commodity Exchange Act (the “CEA”) that will be of particular interest to futures commission merchants (“FCMs”) and their customers, including institutional investors and their investment managers.
If adopted as proposed, these regulations will:
- require every FCM to ensure that a customer does not withdraw funds from its account with the FCM if the post-withdrawal balance of that account would be insufficient to meet the initial margin requirements applicable to that customer (the “Margin Adequacy Requirement”); and
- permit an FCM to treat the separate accounts of a single customer as accounts of separate entities, subject to the satisfaction of risk-mitigation conditions.
To implement the Margin Adequacy Requirement in the separate account context, the CFTC has proposed the promulgation of new CFTC Regulation §1.44 (the “Proposed Rule”) and related amendments to various other existing CFTC regulations.
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