Commodity Futures Trading Commission (CFTC) CFTC Adopts Rules Regarding the Protection of Collateral and Treatment of Securities in a Portfolio Margining Account in a Bankruptcy
On October 30, the Commodity Futures Trading Commission adopted final rules regarding (i) the protection of collateral and (ii) the treatment of securities in a portfolio margining account in a commodity broker bankruptcy. The protection of collateral rules were adopted to codify Section 746(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires swaps dealers and major swap participants in connection with uncleared swaps to inform their counterparties that they have the right to require their initial margins to be held by an independent custodian. Under the final rule, if a counterparty elects segregation for its initial margin, the account must be held by an independent custodian pursuant to a written custody agreement that fulfills certain minimum criteria. The final rule related to portfolio margining clarifies that securities held in a futures or cleared swaps customer account that is subject to portfolio margining are customer property under the Bankruptcy Code.
The final rules will be effective 60 days after publication in the Federal Register. Swap dealers and major swap participants must comply with the notification requirements set forth in the final rules no later 180 days after publication for uncleared swap transactions with new counterparties and no later than 360 days after publication for uncleared swap transactions with existing counterparties.
The final rules are available here.