Friday March 29 2019


News Source: Fund Regulation

Focus: General - Fund Regulation

Type: General

Country: US



On 28th March 2019, the Commodity Futures Trading Commission (CFTC) announced that it has unanimously approved two final rule amendments to simplify registrants’ obligations.

These final rule, both originated as proposal from the Project KISS initiative, intended to simplify and reduce burdens by revisiting rules based on staff implementation experience and public comment.

Regulation 23.700

The Commission unanimously approved amendments to Regulations 23.700 through 23.704.  These regulations govern the segregation of assets held as collateral in uncleared swap transactions.

The final amendments require that a swap dealer’s (SD) or major swap participant’s (MSP) counterparty be notified of its right to require segregation at the beginning of the swap trading relationship rather than prior to each swap transaction or no less than annually.  The final amendments also permit the notification to be provided to an appropriate person at the counterparty who can evaluate and act on it instead of specifying the job title of the person.  Additionally, the final amendments allow the parties to negotiate and agree to the terms pursuant to which margin will be segregated and to negotiate and agree as to the types of investments permitted for segregated margin. Finally, the final amendments eliminate the requirement to identify in advance the custodian who will hold segregated margin and permitting the parties to make that selection if the counterparty elects to segregate.

Regulation 1.52

The Commission unanimously approved amendments to Regulation 1.52.  This rule addresses a self-regulatory organization’s (SRO) financial surveillance program for futures commission merchants (FCMs).

SROs are required by Regulation 1.52 to routinely conduct examinations of FCMs and their compliance with minimum capital, customer fund protection, recordkeeping and reporting requirements.  The final amendments to Regulation 1.52 revise certain minimum standards that an SRO must maintain in its financial surveillance program over FCMs to ensure the FCM’s compliance with CFTC and SRO rules and regulations.

The final amendments revise certain standards, including the scope of a third-party expert’s evaluation of the SRO’s financial surveillance program to only encompass an assessment of the SRO’s FCM examination standards for consistency with auditing standards issued by the Public Company Accounting Oversight Board (PCAOB).  The amendments also require an SRO to promptly review and implement any material changes in the PCAOB auditing standards, as such standards would be applicable in the SRO’s examination of an FCM.  Finally, the amendments require an SRO to engage a third-party expert to assess any material changes in its FCM examination standards resulting from the PCAOB revising or issuing new audit standards, provided that a third-party expert must be engaged no less frequently than once every five years.

Entry into Force

The amendments to Regulation 23.700 and Regulation 1.52 will become effective 30 days after publication in the Federal Register.

Click on the above link for further information.