"These requirements are intended to prevent FCMs from being induced to cover one customer’s margin shortfall with another customer’s excess margin, and allow DSROs to verify that FCMs are not in fact doing so."
This is allowed by CFTC today and requires a rule to stop!? Sounds like a PONZI SCHEME!!
Source: https://www.reddit.com/r/Superstonk/comments/12kqjbs/cftc_alert_open_for_comment_cftc_proposing_to/
The FCM must also assure its DSRO that when it meets a margin call for customer positions, it never uses value provided by one customer to meet another customer’s obligation.
These requirements are intended to prevent FCMs from being induced to cover one customer’s margin shortfall with another customer’s excess margin, and allow DSROs to verify that FCMs are not in fact doing so.
Post with more information: https://www.reddit.com/r/Superstonk/comments/12kqjbs/cftc_alert_open_for_comment_cftc_proposing_to/Summary:
- The Commodity Futures Trading Commission (Commission or CFTC) is proposing to amend its derivatives clearing organization (DCO) risk management regulations adopted under the Commodity Exchange Act (CEA) to permit futures commission merchants (FCMs) that are clearing members (clearing FCMs) to treat the separate accounts of a single customer as accounts of separate entities for purposes of certain Commission regulations.
- The proposed amendments would establish the conditions under which a DCO may permit such separate account treatment.
Proposed Regulation § 39.13(j)(5)-(10) (STOPS THIS):
- Proposes to adopt those conditions in CFTC Letter No. 19-17 designed to provide for consistent treatment of separate accounts.
- Proposed regulation § 39.13(j)(5)-(10) requires a separate account of a customer to be treated separately from other separate accounts of the same customer for purposes of certain existing computational and recordkeeping requirements, which would otherwise be met by treating accounts of the same customer on a combined basis.
How to Comment:
- Comments must be received on or before 60 days from 4/14
You may submit comments, identified by RIN 3038–AF21, by any of the following methods:
- CFTC Comments Portal: https://comments.cftc.gov. Select the “Submit Comments” link for this rulemaking and follow the instructions on the Public Comment Form
- Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581
- Hand Delivery/Courier: Follow the same instructions as for Mail, above.
- Submissions through the CFTC Comments Portal are encouraged.
- All comments must be submitted in English, or if not, accompanied by an English translation.
- Comments will be posted as received to https://comments.cftc.gov.
- You should submit only information that you wish to make available publicly
TLDRS:
- CFTC proposing to amend its derivatives clearing organization (DCO) risk management regulations to permit futures commission merchants that are clearing members to treat the separate accounts of a single customer as accounts of separate entities for regulation purposes
- Section 4d(a)(2) of the CEA and Commission regulations §§ 1.20 and 1.22 effectively require an FCM to add its own funds into segregation in an amount equal to the sum of all customer deficits to prevent the FCM from being induced to use one customer’s funds to margin or carry another customer’s trades or contracts.
- Regulation § 39.13(g)(8)(iii) was designed to mitigate the risk that a clearing member fails to hold, from a customer, funds sufficient to cover the required initial margin for the customer’s cleared positions, and, in light of the use of omnibus margin accounts, mitigate the likelihood that the clearing member will effectively cover one customer’s margin shortfall using another customer’s funds.
- The Commission noted that while designated self-regulatory organizations (DSROs) reviewed FCMs to determine whether they appropriately prohibited their customers from withdrawing funds from their futures accounts, it was unclear to what extent that requirement applied to cleared swap accounts when such swaps were executed on a designated contract market that participated in the Joint Audit Committee (JAC).
- Regulation § 39.13(g)(8)(iii) Applies to margin in a customer’s account with respect to all products and swap portfolios held in such customer’s account which are 14 cleared by the derivatives clearing organization (emphasis added).
- Additionally, because the requirements of proposed regulation § 39.13(j) are an alternative means to achieve the risk management goals of regulation § 39.13(g)(8)(iii), the requirements of proposed regulation § 39.13(j) would apply to a DCO with respect to the clearing of futures, swaps, or foreign futures or foreign options subject to regulation § 30.7, to the extent the DCO permits separate account treatment and clears those specific types of products in a customer account subject to separate account treatment.
The FCM must also assure its DSRO that when it meets a margin call for customer positions, it never uses value provided by one customer to meet another customer’s obligation.
- These requirements are intended to prevent FCMs from being induced to cover one customer’s margin shortfall with another customer’s excess margin, and allow DSROs to verify that FCMs are not in fact doing so.
