On October 30, the Commodity Futures Trading Commission adopted final rules designed to enhance customer protection. The rules expand the information provided to customers regarding the risks of trading generally and the potential risks of trading through a particular futures commission merchant (FCM). The rules require each FCM to post on its website, or otherwise make available to customers, a disclosure document, to be updated at least annually, describing the FCM’s business activities, product lines, risk profile and recent financial information. The final rule also requires FCMs to post certain financial information, including the daily segregation calculation, on their websites. In addition, FCMs must adopt written risk management policies and procedures that address the risks of their business. The final rule also expands the early warning notice requirements under CFTC Rule 1.12 and provides that such notices must be filed electronically with the CFTC and applicable self-regulatory organizations.
Perhaps the most controversial rule is the so-called “residual interest” rule. Beginning one year after publication in the Federal Register, FCMs will be required to use their own funds to cover any individual customer margin deficits outstanding as of 6:00 p.m. Eastern Time on the business day following the trade date. The final rule calls for the CFTC to complete within 30 months a study assessing the feasibility of reducing the time for residual interest calculations. Unless the CFTC takes further action no later than five years thereafter, FCMs will be required to calculate and fund their residual interest requirement prior to the time of daily settlement with each applicable derivatives clearing organization.
The customer protection rules will become effective 60 days after publication; however, certain provisions have alternative compliance dates as set forth in the final rules.
The final rules are available here.