Home
gpo.gov
govinfo.gov

e-CFR Navigation Aids

Browse

Simple Search

Advanced Search

 — Boolean

 — Proximity

 

Search History

Search Tips

Corrections

Latest Updates

User Info

FAQs

Agency List

Incorporation By Reference

eCFR logo

Related Resources

Electronic Code of Federal Regulations

We invite you to try out our new beta eCFR site at https://ecfr.federalregister.gov. We have made big changes to make the eCFR easier to use. Be sure to leave feedback using the Help button on the bottom right of each page!

e-CFR data is current as of October 23, 2020

Amendment


17 CFR--PART 1

View Printed Federal Register page 85 FR 57544 in PDF format.

Amendment(s) published September 15, 2020, in 85 FR 57544

Effective Dates: Nov. 16, 2020

5. Amend §1.17 by:

a. Revising paragraphs (a)(1)(i)(A) and (B);

b. Adding paragraph (a)(1)(ii);

c. Revising paragraphs (b)(9) and (10) and adding paragraph (b)(11) ;

d. Revising paragraph (c)(1)(i);

e. Revising paragraph (c)(2)(i);

f. Revising paragraphs (c)(2)(ii)(B) and (D) and adding paragraph (c)(2)(ii)(G);

g. Adding paragraphs (c)(5)(iii), (iv), (xv), and (xvi);

h. Revising paragraphs (c)(5)(viii), (x), (ix) and (xiv);

i. Revising paragraph (c)(6)(i) and (iv)(A), and adding paragraph (c)(6)(v); and

j. Revising paragraph (g)(1).

The revisions and additions read as follows:

§1.17   Minimum financial requirements for futures commission merchants and introducing brokers.

(a)(1)(i) *  *  *

(A) $1,000,000, Provided, however, that if the futures commission merchant also is a swap dealer, the minimum amount shall be $20,000,000;

(B) The futures commission merchant's risk-based capital requirement, computed as the sum of:

(1) Eight percent of the total risk margin requirement (as defined in §1.17(b)(8) of this section) for positions carried by the futures commission merchant in customer accounts and noncustomer accounts; and

(2) For a futures commission merchant that is also a registered swap dealer, two percent of the total uncleared swap margin, as that term is defined in paragraph (b)(11) of this section.

*   *   *   *   *

(ii) A futures commission merchant that is registered as a swap dealer and has received approval to use internal models to compute market risk and credit risk charges for uncleared swaps must maintain net capital equal to or in excess of $100 million and adjusted net capital equal to or in excess of $20 million.

*   *   *   *   *

(b) *  *  *

(9) Cleared over the counter derivative positions means a swap cleared by a derivatives clearing organization or a clearing organization exempted by the Commission from registering as a derivatives clearing organization, and further includes positions cleared by any organization permitted to clear such positions under the laws of the relevant jurisdiction.

(10) Cleared over the counter customer means any person for whom the futures commission merchant carries on its books one or more accounts for the cleared over the counter derivative positions of such person, and such account or accounts are not proprietary accounts as defined in §1.3 of this part.

(11) Uncleared swap margin: This term means the amount of initial margin, computed in accordance with §23.154 of this chapter, that a dually-registered futures commission merchant and swap dealer would be required to collect from each counterparty for each outstanding swap position of the dually-registered futures commission merchant and swap dealer. A dually-registered futures commission merchant and swap dealer must include all swap positions in the calculation of the uncleared swap margin amount, including swaps that are exempt or excluded from the scope of the Commission's margin regulations for uncleared swaps pursuant to §23.150 of this chapter, exempt foreign exchange swaps or foreign exchange forwards, or netting set of swaps or foreign exchange swaps, for each counterparty, as if the counterparty was an unaffiliated swap dealer. Furthermore, in computing the uncleared swap margin amount, a dually-registered futures commission merchant and swap dealer may not exclude the initial margin threshold amount or the minimum transfer amount as such terms are defined in §23.151 of this chapter.

(c) *  *  *

(1) *  *  *

(i) Unrealized profits shall be added and unrealized losses shall be deducted in the accounts of the applicant or registrant, including unrealized profits and losses on fixed price commitments, uncleared swaps, uncleared security-based swaps, and forward contracts;

*   *   *   *   *

(2) *  *  *

(i) Exclude any unsecured commodity futures, options, cleared swaps, or other Commission regulated account containing a ledger balance and open trades, the combination of which liquidates to a deficit or containing a debit ledger balance only: Provided, however, deficits or debit ledger balances in unsecured customers', noncustomers', and proprietary accounts, which are the subject of calls for margin or other required deposits may be included in current assets until the close of business on the business day following the date on which such deficit or debit ledger balance originated providing that the account had timely satisfied, through the deposit of new funds, the previous day's debit or deficits, if any, in its entirety.

(ii) *  *  *

(B)(1) Interest receivable, floor brokerage receivable, commissions receivable from other brokers or dealers (other than syndicate profits), mutual fund concessions receivable and management fees receivable from registered investment companies and commodity pools that are not outstanding more than thirty (30) days from the date they are due;

(2) Dividends receivable that are not outstanding more than thirty (30) days from the payable date; and

(3) Commissions or fees receivable, including from other brokers or dealers, resulting from swap transactions that are not outstanding more than sixty (60) days from the month end accrual date provided they are billed promptly after the close of the month of their inception;

*   *   *   *   *

(D) Receivables from registered futures commission merchants or brokers, resulting from commodity futures, options, cleared swaps, foreign futures or foreign options transactions, except those specifically excluded under paragraph (c)(2)(i) of this section;

*   *   *   *   *

(G) Receivables from third-party custodians that maintain the futures commission merchant's initial margin deposits associated with uncleared swap and security-based swap transactions pursuant to the margin rules of the Commission, the Securities and Exchange Commission, a prudential regulator, as defined in section 1a(39) of the Act, or a foreign jurisdiction that has received a Comparability Determination under §23.160 of this chapter.

*   *   *   *   *

(5) *  *  *

(iii) Swaps:

(A) Uncleared swaps that are credit-default swaps referencing broad-based securities indices.(1) Short positions (selling protection). In the case of an uncleared short credit default swap that references a broad-based securities index, deducting the percentage of the notional amount based upon the current basis point spread of the credit default swap and the maturity of the credit default swap in accordance with the following table:

Table to §1.17(c)(5)(iii)(A)(1)—Market Risk Charges for Uncleared Credit Default Swaps

Length of time to maturity
of CDS contract
Basis point spread
(%)
100 or less101-300301-400401-500501-699700 or more
Less than 12 months0.671.333.335.006.6710.00
12 months but less than 24 months1.002.335.006.678.3311.67
24 months but less than 36 months1.333.336.678.3310.0013.33
36 months but less than 48 months2.004.008.3310.0011.6715.00
48 months but less than 60 months2.674.6710.0011.6713.3316.67
60 months but less than 72 months3.675.6711.6713.3315.0018.33
72 months but less than 84 months4.676.6713.3315.0016.6720.00
84 months but less than 120 months5.6710.0015.0016.6718.3326.67
120 months and longer6.6713.3316.6718.3320.0033.33

(2) Long positions (purchasing protection). In the case of an uncleared swap that is a long credit default swap referencing a broad-based security index, deducting 50 percent of the deduction that would be required by paragraph (c)(5)(iii)(A)(1) of this section if the swap was a short credit default swap, each such deduction not to exceed the current market value of the long position.

(3) Long and short positions. (i) Long and short uncleared credit default swaps referencing the same broad-based security index. In the case of uncleared swaps that are long and short credit default swaps referencing the same broad-based security index, have the same credit events which would trigger payment by the seller of protection, have the same basket of obligations which would determine the amount of payment by the seller of protection upon the occurrence of a credit event, that are in the same or adjacent spread category and have a maturity date within three months of the other maturity category, deducting the percentage of the notional amounts specified in the higher maturity category under paragraph (c)(5)(iii)(A)(1) or (c)(5)(iii)(A)(2) of this section on the excess of the long or short position.

(ii) Long basket of obligors and uncleared long credit default swap referencing a broad-based securities index. In the case of an uncleared swap that is a long credit default swap referencing a broad-based security index and the futures commission merchant is long a basket of debt securities comprising all of the components of the security index, deducting 50 percent of the amount specified in §240.15c3-1(c)(2)(vi) of this title for the component of securities, provided the futures commission merchant can deliver the component securities to satisfy the obligation of the futures commission merchant on the credit default swap.

(iii) Short basket of obligors and uncleared short credit default swap referencing a broad-based securities index. In the case of an uncleared swap that is a short credit default swap referencing a broad-based security index and the futures commission merchant is short a basket of debt securities comprising all of the components of the security index, deducting the amount specified in §240.15c3-1(c)(2)(vi) of this title for the component securities.

(B) Interest rate swaps. In the case of an uncleared interest rate swap, deducting the percentage deduction specified in §240.15c3-1(c)(2)(vi)(A) of this title based on the maturity of the interest rate swap, provided that the percentage deduction must be no less than one eighth of 1 percent of the amount of a long position that is netted against a short position in the case of an uncleared interest rate swap with a maturity of three months or more;

(C) All other uncleared swaps. (1) In the case of any uncleared swap that is not a credit default swap or interest rate swap, deducting the amount calculated by multiplying the notional value of the uncleared swap by:

(i) The percentage specified in §240.15c3-1 of this title applicable to the reference asset if §240.15c3-1 of this title specifies a percentage deduction for the type of asset and this section does not specify a percentage deduction;

(ii) Six percent in the case of a currency swap that references euros, British pounds, Canadian dollars, Japanese yen, or Swiss francs, and twenty percent in the case of currency swaps that reference any other foreign currencies; or

(iii) In the case of over-the-counter swap transactions involving commodities, 20 percent of the market value of the amount of the underlying commodities.

(D) Netting of Swap Market Risk Charges. The deductions under paragraphs (c)(5)(iii)(B) and (C) of this section may be reduced by an amount equal to any reduction recognized for a comparable long or short position in the reference asset or interest rate under this section or in §240.15c3-1 of this title.

(iv) Security-based Swaps: In the case of security-based swaps as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), the percentage as specified in §240.15c3-1 of this title.

*   *   *   *   *

(viii) In the case of a futures commission merchant, for undermargined customer accounts, the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin or other required deposits which are outstanding no more than one business day. If there are no such maintenance margin requirements or clearing organization margin requirements, then the amount of funds required to provide margin equal to the amount necessary, after application of calls for margin or other required deposits outstanding no more than one business day, to restore original margin when the original margin has been depleted by 50 percent or more: Provided, to the extent a deficit is excluded from current assets in accordance with paragraph (c)(2)(i) of this section such amount shall not also be deducted under this paragraph. In the event that an owner of a customer account has deposited an asset other than cash to margin, guarantee or secure his account, the value attributable to such asset for purposes of this subparagraph shall be the lesser of:

(A) The value attributable to the asset pursuant to the margin rules of the applicable board of trade, or

(B) The market value of the asset after application of the percentage deductions specified in paragraph (c)(5) of this section;

(ix) In the case of a futures commission merchant, for undermargined noncustomer and omnibus accounts the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or if there are no such maintenance margin requirements, clearing organization margin requirements applicable to such positions, after application of calls for margin or other required deposits which are outstanding no more than one business day. If there are no such maintenance margin requirements or clearing organization margin requirements, then the amount of funds required to provide margin equal to the amount necessary after application of calls for margin or other required deposits outstanding no more than one business day to restore original margin when the original margin has been depleted by 50 percent or more: Provided, to the extent a deficit is excluded from current assets in accordance with paragraph (c)(2)(i) of this section such amount shall not also be deducted under this paragraph. In the event that an owner of a noncustomer or omnibus account has deposited an asset other than cash to margin, guarantee or secure his account the value attributable to such asset for purposes of this paragraph shall be the lesser of the value attributable to such asset pursuant to the margin rules of the applicable board of trade, or the market value of such asset after application of the percentage deductions specified in paragraph (c)(5) of this section;

(x) In the case of open futures contracts, cleared swaps, and granted (sold) commodity options held in proprietary accounts carried by the applicant or registrant which are not covered by a position held by the applicant or registrant or which are not the result of a “changer trade” made in accordance with the rules of a contract market:

(A) For an applicant or registrant which is a clearing member of a clearing organization for the positions cleared by such member, the applicable margin requirement of the applicable clearing organization;

(B) For an applicant or registrant which is a member of a self-regulatory organization, 150 percent of the applicable maintenance margin requirement of the applicable board of trade, or clearing organization, whichever is greater;

(C) For all other applicants or registrants, 200 percent of the applicable maintenance margin requirements of the applicable board of trade or clearing organization, whichever is greater; or

(D) For open contracts or granted (sold) commodity options for which there are no applicable maintenance margin requirements, 200 percent of the applicable initial margin requirement: Provided, the equity in any such proprietary account shall reduce the deduction required by this paragraph (c)(5)(x) if such equity is not otherwise includable in adjusted net capital;

*   *   *   *   *

(xiv) For securities brokers and dealers, all other deductions specified in §240.15c3-1 of this title;

(xv) In the case of a futures commission merchant that is also a registered swap dealer, the amount of funds required from each swap counterparty and security-based swap counterparty to meet initial margin requirements of the Commission or Securities and Exchange Commission, as applicable, after application of calls for margin or other required deposits which are outstanding within the required time frame to collect margin or other required deposits;

(xvi) In the case of a futures commission merchant that is also a registered swap dealer, the amount of initial margin calculated pursuant to §23.154 of this chapter for the account of a swap counterparty that is subject to a margin exception or exemption under §23.150 of this chapter, less any margin posted on such account, and the amount of initial margin calculated pursuant to §240.18a-3(c)(1)(i)(B) of this title for the account of a security-based swap counterparty that is subject to a margin exception or exemption under the rules of the Securities and Exchange Commission, less any margin posted on such account.

(6)(i) Election of alternative capital deductions that have received approval of Securities and Exchange Commission pursuant to §240.15c3-1(a)(7) of this title. Any futures commission merchant that is also registered with the Securities and Exchange Commission as a securities broker or dealer, and who also satisfies the other requirements of this paragraph (c)(6), may elect to compute its adjusted net capital using the alternative capital deductions that, under §240.15c3-1(a)(7) of this title, the Securities and Exchange Commission has approved by written order in lieu of the deductions that would otherwise be required under this section.

*   *   *   *   *

(iv) *  *  *

(A) Information that the futures commission merchant files on a monthly basis with its designated examining authority or the Securities and Exchange Commission, whether by way of schedules to its FOCUS reports or by other filings, in satisfaction of §240.17a-5(a)(5) of this title;

*   *   *   *   *

(v) Election of alternative market risk and credit risk capital deductions for a futures commission merchant that is registered as a swap dealer and has received approval of the Commission or a registered futures association for which the futures commission merchant is a member. For purposes of this paragraph (c)(6)(v) only, all references to futures commission merchant means a futures commission merchant that is also registered as a swap dealer.

(A) A futures commission merchant may apply in writing to the Commission or a registered futures association of which it is a member for approval to compute deductions for market risk and credit risk using internal models in lieu of the standardized deductions otherwise required under this section; Provided however, that the Commission must issue a determination that the registered futures association's model requirements and review process are comparable to the Commission's requirements and review process in order for the registered futures association's model approval to be accepted as an alternative means of compliance with this section. The futures commission merchant must file the application in accordance with instructions approved by the Commission and specified on the website of the registered futures association.

(B) A futures commission merchant's application must include the information set forth in Appendix A to Subpart E of Part 23 and the market risk and credit risk charges must be computed in accordance with §23.102 of this chapter.

(C) The Commission or registered futures association upon obtaining the Commission's determination that its requirements and model approval process are comparable to the Commission's requirements and process, may approve or deny the application, in whole or in part, or approve or deny an amendment to the application, in whole or in part, subject to any conditions or limitations the Commission or registered futures association may require, if the Commission or registered futures association finds the approval to be appropriate in the public interest, after determining, among other things, whether the applicant has met the requirements of §23.102 of this chapter.

*   *   *   *   *

(g)(1) The Commission may by order restrict, for a period of up to twenty business days, any withdrawal by a futures commission merchant of equity capital, or any unsecured advance or loan to a stockholder, partner, limited liability company member, sole proprietor, employee or affiliate if the Commission, based on the facts and information available, concludes that any such withdrawal, advance or loan may be detrimental to the financial integrity of the futures commission merchant, or may unduly jeopardize its ability to meet customer obligations or other liabilities that may cause a significant impact on the markets.

*   *   *   *   *

Need assistance?