United States

CFTC passes rule affecting investing of futures customer funds

INVESTMENT INDUSTRY INSIGHTS  | 

On Dec. 6, 2011, the CFTC unanimously approved long-delayed changes to the segregation rule (Rule 1.25). Proposed in October 2010, and now referred to by many as the "MF Rule" or "MF Global Rule," the changes impose new restrictions on the investment of customer funds by FCMs.

The two primary changes are:

  • the prohibition of "in-house repurchase agreements" (an exchange of cash or permitted investments for customer funds)
  • the prohibition of investments of customer funds in foreign sovereign debt.

Permitted investments will continue to include U.S. Treasury securities, municipal securities, U.S. agency obligations, commercial paper and corporate notes guaranteed by the Temporary Liquidity Guarantee Program, and money-market mutual funds. With all but the U.S. Treasury securities, there are limitations. Exemptive relief by petition for investments of customer funds in foreign sovereign debt is contemplated. These changes are to be effective 60 days after publication in the Federal Register.

John T. Hague, partner, national financial services industry leader, RSM US LLP, 312.634.3354