CFTC To Allow Certain DCOs To Invest Customer Funds In French And German Sovereign Debt

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Cadwalader, Wickersham & Taft LLP

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The CFTC issued an order to allow certain registered derivatives clearing organizations ("DCOs") to invest futures and swap customer funds in French and German sovereign debt.
United States Finance and Banking

The CFTC issued an order to allow certain registered derivatives clearing organizations ("DCOs") to invest futures and swap customer funds in French and German sovereign debt.

The relief, according to the CFTC, will reduce risk by allowing DCOs to invest customer euro cash in "high-quality European sovereign debt" rather than hold the funds at commercial banks, as is currently done. The French and German debt that qualifies for this relief was determined to (i) have credit, liquidity and volatility characteristics that are at a similar standard as investments in U.S. Government Securities and (ii) maintain principal and the liquidity of customer funds.

Additionally, the CFTC granted a limited exemption under certain CEA regulations that will allow registered DCOs to (i) "use customer funds to enter into repurchase agreements for Designated Foreign Sovereign Debt with foreign banks and foreign securities brokers or dealers" and (ii) "hold Designated Foreign Sovereign Debt purchased under a repurchase agreement in a safekeeping account at a foreign bank."

The DCOs that qualify for the proposed relief are ICE Clear Credit LLC, ICE Clear US, Inc. and ICE Clear Europe Limited.

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