CFTC Rule 1.22 Garners Final Approval – FCMs

In what is seen as a victory for FCMs and its customers, the CFTC approved a final rule addressing the Residual Interest Deadline.  Rule 1.22 requires an FCM to compute the aggregated amount by which any of its customer accounts are undermargined as of the close of each business day and for the FCM to make up the difference from its own funds.  This customer protection was enacted following the collapse of MF Global.

Initially, the rule required the FCM to maintain or deposit a sufficient amount of its own funds in the customer segregated account to offset the difference by the deadline of 6:00 p.m. (EST) the following business day.  Under the phased-in compliance schedule, the deadline would have automatically terminated on December 31, 2018 moving the deadline to earlier in the day as of the time of settlement.

The final rule was a response to critics pointing out that moving the Residual Interest Deadline to earlier than 6:00 p.m. on the settlement date would result in requiring the pre-funding of margin and therefore, increasing costs for its customers.

The CFTC removed the automatic termination date of December 31, 2018 and specified that the Residual Interest Deadline may only be adjusted upon further action of the CFTC.