(a) Definitions. These following definitions apply only for purposes of this section, except to the extent explicitly noted:

Account means a futures account as defined in § 1.3, a Cleared Swaps Customer Account as defined in § 1.3, or a 30.7 account as defined in § 30.1 of this chapter.

Business day has the meaning set forth in § 1.3, with the clarification that “holiday” has the meaning defined in paragraph (a) of this section.

Holiday means Federal holidays as established by 5 U.S.C. 6103.

One business day margin call means a margin call that is issued and met in accordance with the requirements of paragraph (f) of this section.

Ordinary course of business means the operation of the futures commission merchant's business relationship with its separate account customer absent the occurrence of one or more of the events specified in paragraph (e) of this section.

Separate account means any one of multiple accounts of the same separate account customer that are carried by the same futures commission merchant.

Separate account customer means a customer for which the futures commission merchant has made the election set forth in paragraph (d) of this section.

Undermargined amount for an account means the amount, if any, by which the customer margin requirements with respect to all products held in that account exceed the net liquidating value plus the margin deposits currently remaining in that account. For purposes of this definition, “margin requirements” shall mean the level of maintenance margin or performance bond required for the positions in the account by the applicable exchanges or clearing organizations. Market risk collateral haircuts based on Rule 15c3-1 of the Securities and Exchange Commission (17 CFR 240.15c3-1) and § 1.17(c)(5) shall be applied to the value of the margin deposits held by a futures commission merchant. With respect to positions for which maintenance margin is not specified, “margin requirements” shall refer to the clearing organization margin requirements applicable to such positions.

(b) Ensuring adequacy of customer initial margin. (1) A futures commission merchant shall ensure that a customer does not withdraw funds from its accounts with such futures commission merchant unless the net liquidating value (calculated as of the close of business on the previous business day) plus the margin deposits remaining in the customer's account after such withdrawal are sufficient to meet the customer initial margin requirements with respect to all products held in such customer's account, except as provided in paragraph (c) of this section.

(2) For the purposes of paragraph (b)(1) of this section, where the previous day (excluding Saturdays and Sundays) is a holiday, as defined in paragraph (a) of this section, where any designated contract market or other board of trade on which the futures commission merchant trades is open for trading, and where an account of any of the futures commission merchant's customers includes positions traded on such a market, the net liquidating value for such an account should instead be calculated as of the close of business on such holiday.

(c) Separate account treatment with respect to withdrawal of customer initial margin. A futures commission merchant may, only during the “ordinary course of business” as that term is defined in this section, treat the separate accounts of a separate account customer as accounts of separate entities for purposes of paragraph (b) of this section if such futures commission merchant elects to do so as specified in paragraph (d) of this section. A futures commission merchant that has made such an election shall comply with the requirements set forth in this section, and maintain written internal controls and procedures designed to ensure such compliance.

(d) Election to treat a customer's accounts as separate accounts. (1) To elect to treat the separate accounts of a customer as accounts of separate entities for purposes of paragraph (b) of this section, the futures commission merchant shall include the customer on a list of separate account customers maintained in its books and records. This list shall include the identity of each separate account customer, identify each separate account of such customer, and be kept current.

(2) The first time that the futures commission merchant includes a customer on the list of separate account customers, it shall, within one business day, provide notification of the election to allow separate account treatment for customers to its designated self-regulatory organization and to the Commission. The notice shall be provided in accordance with the process specified in § 1.12(n)(3).

(e) Events inconsistent with the ordinary course of business. (1) The following events are inconsistent with the ordinary course of business with respect to the separate accounts of a particular separate account customer, and the occurrence of any such event would require the futures commission merchant to cease permitting disbursements on a separate account basis with respect to all accounts of the relevant separate account customer:

(i) The separate account customer, including any separate account of such customer, fails to deposit initial margin or maintain maintenance margin or make payment of variation margin or option premium as specified in paragraph (f) of this section.

(ii) The occurrence and declaration by the futures commission merchant of an event of default as defined in the account documentation executed between the futures commission merchant and the separate account customer.

(iii) A good faith determination by the futures commission merchant's chief compliance officer, one of its senior risk managers, or other senior manager, following such futures commission merchant's own internal escalation procedures, that the separate account customer is in financial distress, or there is significant and bona fide risk that the separate account customer will be unable promptly to perform its financial obligations to the futures commission merchant, whether due to operational reasons or otherwise.

(iv) The insolvency or bankruptcy of the separate account customer or a parent company of such customer.

(v) The futures commission merchant receives notification that a board of trade, a derivatives clearing organization, a self-regulatory organization as defined in § 1.3 or section 3(a)(26) of the Securities Exchange Act of 1934, the Commission, or another regulator with jurisdiction over the separate account customer, has initiated an action with respect to such customer based on an allegation that the customer is in financial distress.

(vi) The futures commission merchant is directed to cease permitting disbursements on a separate account basis, with respect to the separate account customer, by a board of trade, a derivatives clearing organization, a self-regulatory organization, the Commission, or another regulator with jurisdiction over the futures commission merchant, pursuant to, as applicable, board of trade, derivatives clearing organization or self-regulatory organization rules, government regulations, or law.

(2) The following events are inconsistent with the ordinary course of business with respect to the separate accounts of all separate account customers of the futures commission merchant, and the occurrence of any such event would require the futures commission merchant to cease permitting disbursements on a separate account basis with respect to any of its customers:

(i) The futures commission merchant is notified by a board of trade, a derivatives clearing organization, a self-regulatory organization, the Commission, or another regulator with jurisdiction over the futures commission merchant, that the board of trade, the derivatives clearing organization, the self-regulatory organization, the Commission, or other regulator, as applicable, believes the futures commission merchant is in financial or other distress.

(ii) The futures commission merchant is under financial or other distress as determined in good faith by its chief compliance officer, senior risk managers, or other senior management.

(iii) The insolvency or bankruptcy of the futures commission merchant or a parent company of the futures commission merchant.

(3) The futures commission merchant must provide notice to its designated self-regulatory organization and to the Commission of the occurrence of any of the events enumerated in paragraph (e)(1) or (2) of this section. The notice must identify the event and (if applicable) the customer, and be provided promptly in writing, and in any case no later than the next business day following the date on which the futures commission merchant identifies or has been informed that such event has occurred. Such notice must be provided in accordance with the process specified in § 1.12(n)(3).

(4) A futures commission merchant that has ceased permitting disbursements on a separate account basis to a separate account customer due to the occurrence of any of the events enumerated in paragraph (e)(1) of this section with respect to a specific separate account customer (or in paragraph (e)(2) with respect to all of its separate account customers) may resume permitting disbursements on a separate account basis to that customer (or, respectively, all customers) if such futures commission merchant reasonably believes, based on new information, that those circumstances have been cured, and such futures commission merchant documents in writing the factual basis and rationale for that conclusion. If the circumstances triggering cessation of disbursements on a separate account basis were an action or direction by one of the entities described in paragraph (e)(1)(v) or (vi) or (e)(2)(i) of this section, then the cure of those circumstances would require the withdrawal or other appropriate termination of such action or direction by that entity.

(f) Requirements: One business day margin call. Each separate account must be on a one business day margin call. The following provisions apply solely for purposes of this paragraph (f):

(1) Except as explicitly provided in this paragraph (f), if, as a result of market movements or changes in positions on the previous business day, a separate account is undermargined (i.e., the undermargined amount for that account is greater than zero), the futures commission merchant shall issue a margin call for the separate account for at least the amount necessary for the separate account to meet the initial margin required by the applicable exchanges or clearing organizations (including, as appropriate, the equity component or premium for long or short option positions) for the positions in the separate account, and that call must be met by the applicable separate account customer no later than the close of the Fedwire Funds Service on the same business day.

(2) Payment of margin in currencies listed in appendix A to this part shall be considered in compliance with the requirements of this paragraph (f) if received by the applicable futures commission merchant no later than the end of the second business day after the day on which the margin call is issued.

(3) Payment of margin in fiat currencies other than U.S. Dollars, Canadian Dollars, or currencies listed in Appendix A to this part shall be considered in compliance with the requirements of this paragraph (f) if received by the applicable futures commission merchant no later than the end of the business day after the day on which the margin call is issued.

(4) The relevant deadline for payment of margin in fiat currencies other than U.S. Dollars may be extended to the next business day following any banking holiday in the jurisdiction of issue of the currency, and still be considered in compliance with the requirements of this paragraph (f) if payment is delayed due to such banking holiday.

(5) A failure with respect to a specific separate account to deposit, maintain, or pay margin or option premium that was called pursuant to this paragraph (f), due to administrative error or operational constraints, does not constitute a failure to comply with the requirements of this paragraph (f). For these purposes, a futures commission merchant's determination that the failure to deposit, maintain, or pay margin or option premium is due to such administrative error or operational constraints must be based on the futures commission merchant's reasonable belief in light of information known to the futures commission merchant at the time the futures commission merchant learns of the relevant administrative error or operational constraint.

(6) A futures commission merchant would not be in compliance with the requirements of this paragraph (f) if it contractually agrees to provide separate account customers with periods of time to meet margin calls that extend beyond the time periods specified in this paragraph (f), or engages in practices that are designed to circumvent this paragraph (f).

(7) In the case of a holiday where any designated contract market or other board of trade on which the futures commission merchant trades is open for trading, or any derivatives clearing organization that clears the Cleared Swaps of such futures commission merchant's Cleared Swaps Customers is open for clearing such swaps, and where a separate account of any of the futures commission merchant's separate account customers includes positions traded on such a market or cleared at such a derivatives clearing organization, then for any such separate account:

(i) If, as a result of market movements or changes in positions on the business day before the holiday, a separate account is undermargined, the futures commission merchant shall issue a margin call for the separate account for at least the undermargined amount, and that call must be met by the applicable separate account customer no later than the close of the Fedwire Funds Service on the next business day after the holiday, and,

(ii) If, as a result of market movements or changes in positions on the holiday, a separate account is undermargined by an amount greater than the amount it was undermargined as a result of market movements or changes in positions on the business day before the holiday, the futures commission merchant shall issue a margin call for the separate account for at least the incremental undermargined amount, and that call must be met by the applicable separate account customer no later than the close of the Fedwire Funds Service on the next business day after the holiday.

(8) Any person may submit to the Commission any currency that such person proposes should be added to or removed from appendix A to this part.

(i) A submission pursuant to this paragraph (f)(8) shall include:

(A) A statement that margin payments in the relevant currency cannot, in the case of a proposed addition, or can, in the case of a proposed removal, practicably be received by the futures commission merchant issuing a margin call no later than the end of the first business day after the day on which the margin call is issued;

(B) Documentation or other information sufficient to support the statement contemplated by paragraph (f)(8)(i)(A) of this section; and

(C) Any additional information specifically requested by the Commission.

(ii) A submitter pursuant to paragraph (f)(8)(i) of this section that wishes to request confidential treatment for portions of its submission may do so in accordance with the procedures set out in § 145.9(d).

(iii) The Commission shall review a submission made pursuant to this paragraph (f)(8) and determine whether to propose to add the relevant currency to, or remove the relevant currency from, appendix A to this part.

(iv) If the Commission proposes to add a currency to or remove a currency from appendix A to this part, the Commission shall issue such determination through notice and comment rulemaking, and shall provide a public comment period of no less than thirty days.

(v) The Commission may, of its own accord and absent a submission pursuant to this paragraph (f)(8), propose to issue a determination to add a currency to or remove a currency from appendix A to this part pursuant to the procedure set forth in paragraph (f)(8)(iv) of this section.

(g) Requirements: Calculations for capital, risk management, and segregation. (1) The futures commission merchant's internal risk management policies and procedures shall provide for stress testing and credit limits as set forth in § 1.73 for separate account customers. Such stress testing must be performed, and the credit limits must be applied, both on an individual separate account and on a combined account basis.

(2) A futures commission merchant shall calculate the margin requirement for each separate account of a separate account customer independently from such margin requirement for all other separate accounts of the same customer with no offsets or spreads recognized across the separate accounts.

(3) A futures commission merchant shall, in computing its adjusted net capital for purposes of § 1.17, record each separate account of a separate account customer in the books and records of the futures commission merchant as a distinct account of a customer. This includes recording each separate account with a net debit balance or a deficit as a receivable from the separate account customer, with no offsets between the other separate accounts of the same separate account customer.

(4) A futures commission merchant shall, in calculating the amount of its own funds it is required to maintain in segregated accounts to cover deficits or debit ledger balances pursuant to § 1.20(i), § 22.2(f), or § 30.7(f)(2) of this chapter in any futures customer accounts, Cleared Swaps Customer Accounts, or 30.7 accounts, respectively, include any deficits or debit ledger balances of any separate accounts as if the accounts are accounts of separate entities.

(5) For purposes of its residual interest and legally segregated operationally commingled compliance calculations, as applicable under §§ 1.22(c), 22.2(f)(6), and 30.7(f)(1)(ii) of this chapter, a futures commission merchant shall treat the separate accounts of a separate account customer as if the accounts were accounts of separate entities and include the undermargined amount of each separate account, and cover such undermargined amount with its own funds.

(6) In determining its residual interest target for purposes of §§ 1.11(e)(3)(i)(D) and 1.23(c), the futures commission merchant must consider the impact of calculating customer receivables for separate account customers on a separate account basis.

(h) Requirements: information and disclosures. (1) A futures commission merchant shall obtain from each separate account customer or, as applicable, the manager of a separate account, information sufficient for the futures commission merchant to:

(i) Assess the value of the assets dedicated to such separate account; and

(ii) Identify the direct or indirect parent company of the separate account customer, as applicable, if such customer has a direct or indirect parent company.

(2) Where a separate account customer has appointed a third-party as the primary contact to the futures commission merchant, the futures commission merchant must obtain and maintain current contact information of an authorized representative of the customer, and take reasonable steps to verify that such contact information is and remains accurate, and that the person is in fact an authorized representative of the customer.

(3) A futures commission merchant must provide each separate account customer a disclosure that, pursuant to part 190 of the Commission's regulations (17 CFR part 190), all separate accounts of the customer in each account class will be combined in the event of the futures commission merchant's bankruptcy.

(i) The disclosure statement required by this paragraph (h)(3) must be delivered directly to the customer via electronic means, in writing or in such other manner as the futures commission merchant customarily delivers disclosures pursuant to applicable Commission regulations, and as permissible under the futures commission merchant's customer documentation.

(ii) The futures commission merchant must maintain documentation demonstrating that the disclosure statement required by this paragraph (h)(3) was delivered directly to the customer.

(iii) The futures commission merchant must include the disclosure statement required by this paragraph (h)(3) on its website or within its Disclosure Document required by paragraph 1.55(i).

(4) A futures commission merchant that has made an election pursuant to paragraph (d) of this section shall disclose in the Disclosure Document required under § 1.55(i) that it permits the separate treatment of accounts for the same customer pursuant to the requirements of this section and that, in the event that separate account treatment for some customers were to contribute to a loss that exceeds the futures commission merchant's ability to cover, that loss may affect the segregated funds of all of the futures commission merchant's customers in one or more account classes.

(i) A futures commission merchant that applies separate account treatment pursuant to this section shall apply such treatment in a consistent manner over time.

[90 FR 7934, Jan. 22, 2025]