CFTC Rule to Require DCOs to Report Member Firm Client Positions Daily

Just some resources as I investigate this rule change and the impact to back-offices from which the reports must be made.

DCOs are derivative clearing organizations, aka clearinghouses.
FCMs are futures commission merchants, aka DCO clearing member firms.
FIA is Futures Industry Association, a futures industry trade group of which Needham Consulting is a member.

FIA has created a small committee of interested parties from DCOs, FCMs and industry consultants to review these rules and determine the best way for DCOs and FCMs to meet the new requirements. I am privileged to be a member of that committee.

CFTC Rule from the Federal Register: Federal Register

Text:

(1) Gross margin for customer accounts.

Proposed Sec. 39.13(g)(8)(i) would require a DCO to collect

initial margin on a gross basis for each clearing member’s customer

account equal to the sum of the initial margin amounts that would be

required by the DCO for each individual customer within that account if

each individual customer were a clearing member. A DCO would not be

permitted to net positions of different customers against one another,

but it could collect initial margin for its clearing members’ house

accounts on a net basis.

The Commission recognizes that gross margining of customer accounts

would be a change from current margin practices at certain DCOs.

However, the Commission believes that gross margining of customer

accounts would more appropriately address the risks posed to a DCO by

its clearing members’ customers than margining all of a particular

clearing member’s customer accounts on a net basis. Gross margining

would increase the financial resources available to a DCO in the event

of a customer default. Moreover, with respect to cleared swaps, the

requirement for gross margining of customers’ portfolios supports the

requirement in proposed Sec. 39.13(g)(2)(iii) that a DCO would have to

margin each swap portfolio at a minimum 99% confidence level.

The Commission recently proposed a new Sec. 39.19(c)(1)(iv) under

which a DCO would be required, on a daily basis, to report the end-of-

day positions for each clearing member, by origin.\43\ In connection

with the proposed Sec. 39.13(g)(8)(i) requirement for DCOs to collect

initial margin for customer accounts on a gross basis, the Commission

is proposing to amend proposed Sec. 39.19(c)(1)(iv) to additionally

require a DCO, for the customer origin, to report the gross positions

of each beneficial owner.

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