Part 6: The Treatment of Separate Accounts—General Conditions
This post is the next installment in a multi-part series on CFTC Regulation §1.44, as proposed by the U.S. Commodity Futures Trading Commission (the “CFTC”) on February 20, 2024 (the “Proposed Rule”).
The previous installment discussed the Proposed Rule’s Margin Adequacy Requirement, the keystone of the Proposed Rule from a policy perspective.
In short, the Margin Adequacy Requirement is a regulatory mechanism that (i) is intended to prevent a customer of any futures commission merchant (an “FCM”) (both clearing and non-clearing FCMs) (ii) from withdrawing funds from that customer’s account that (iii) would render the post-withdrawal value of the account insufficient to meet the customer’s initial margin requirements with respect to all products held in that customer’s account.
This post considers the application of the Margin Adequacy Requirement to separate account customers in the ordinary course of business, which can be described as a “qualified exception” to the Margin Adequacy Requirement.
In sum, an FCM can treat separate accounts of a separate account customer as separate entities for purposes of the Margin Adequacy Requirement, as long as three key conditions are met.
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