CFTC Permits FCM To Provide Clearing Services To Covered Fund

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Subject to specified conditions, the CFTC Division of Swap Dealer and Intermediary Oversight granted no-action relief to a futures commission merchant ("FCM").
United States Finance and Banking

Subject to specified conditions, the CFTC Division of Swap Dealer and Intermediary Oversight granted no-action relief to a futures commission merchant ("FCM"). The relief provides "futures, options and swaps clearing services to customers that are 'covered funds'" under CFTC Rule 75.10(b) of the Volcker Rule, which prohibits banking entities from engaging in certain transactions with such funds.

The CFTC noted that the relief allowing the provision of clearing services routinely provided by FCMs would avoid the "need to transfer their accounts to other unaffiliated FCMs, which likely could result in a loss to the covered funds of tested clearing processes and systems, a loss of operational and risk management efficiencies, and potential exposure to higher credit risk." Similarly, the relief allowing for the guarantee of customer margin payments by the FCM would "serve[] as part of the system of protections" at the derivatives clearing organization ("DCO") in order to "ensure that the appropriate amount of funds are available for the continued operation of the DCO."

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