CFTC Staff Letter 18-26: No-Action Position on FCM Deposit of Customer Securities as Margin with Foreign Broker

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5000
Facsimile: (202) 418-5521 www.cftc.gov
Division of Swap Dealer and
Intermediary Oversight
CFTC Letter No. 18-26
No-Action
Division of Swap Dealer and Intermediary Oversight Re: Commission Regulation 30.7 – Staff No-Action Position Regarding Futures Commission Merchant’s Deposit of Customer-Owned Securities as Margin with a Foreign Broker Dear ______ :
This is in response to your letter dated August 13, 2018 to the Division of Swap Dealer and Intermediary Oversight (“Division” or “DSIO”) of the Commodity Futures Trading Commission (“Commission” or “CFTC”). You submitted your letter on behalf of “X”1 and its affiliate, “Y”. 2 By your letter, you notified the Division of a material change in the laws and regulations that impact how “Y” may hold customer-owned securities deposited by “X” for its customers trading foreign futures and foreign options transactions on contract markets and cleared by clearing organizations located in the UK. The notification was provided in satisfaction of conditions contained in a 2016 DSIO no-action letter issued to “X” and “Y”. 3 Regulatory Background Commission Regulation 30.7 sets forth requirements governing the treatment of customer funds held by an FCM to trade foreign futures or foreign options contracts.4 Regulation 30.7(b) includes requirements that an FCM must deposit customer funds under an account name that 1 “X” is registered with the Commission as a futures commission merchant (“FCM”) and is a member of the principal Commission-registered derivatives clearing organizations (“DCOs”). 2 “Y” is incorporated under the laws of England and Wales, and maintains its principal place of business in London, United Kingdom (“UK”). “Y” is authorized as an investment firm with the UK’s Financial Conduct Authority (“FCA”) and is a member of the principal central counterparties (“CCPs”) authorized under the European Market Infrastructure Regulation (“EMIR”). Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives central counterparties and trade repositories, available at http://eur￾lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32012R0648&from=EN. “X” maintains a customer omnibus account with “Y” to hold “X”’s customers’ foreign futures and foreign option transactions. 3 Letter from Eileen T. Flaherty, Director, Division of Swap Dealer and Intermediary Oversight, to ____________, December 9, 2016. This letter is published in redacted form as CFTC Letter No. 16-88 (“Letter 16-88”) and is available at http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/16-88.pdf. 4 Commission regulations are set forth in Chapter 17 of the Code of Federal Regulations, 17 CFR Chapter I.