Financial Requirements

SECTION 16. FCM FINANCIAL PRACTICES AND EXCESS SEGREGATED FUNDS/SECURED AMOUNT/CLEARED SWAPS CUSTOMER COLLATERAL DISBURSEMENTS.

[Adopted Effective September 1, 2012. Effective dates of amendments: July 1, 2013; January 14, 2016; and March 29, 2017.]

(a) Each Member FCM must maintain written policies and procedures regarding the maintenance of the FCM's residual interest in its customer segregated funds account(s) as identified in CFTC Regulation 1.20, in its foreign futures and foreign options customer secured amount funds account(s) as identified in CFTC Regulation 30.7 and in its cleared swaps customer collateral account(s) as identified in CFTC Regulation 22.2. The written policies and procedures must establish a target amount (either by percentage or dollars) that the FCM seeks to maintain as its residual interest in customer segregated funds, in its foreign futures and foreign options customer secured amount funds and in its cleared swaps customer collateral, and those policies and procedures must be designed to reasonably ensure the FCM maintains each of these target amounts. The FCM's Board of Directors or similar governing body ¹, must approve in writing the FCM's targeted residual amount, any change(s) thereto, and any material change(s) in the FCM's written policies and procedures regarding the maintenance of the FCM's residual interest in either the customer segregated funds account(s), the foreign futures and foreign options customer secured amount funds account(s), or the cleared swaps customer collateral accounts.

(b) No Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse funds (disbursement) from any customer segregated funds account(s) as identified under CFTC Regulation 1.20 that exceed twenty-five percent (25%) of the FCM's residual interest in customer segregated funds based upon the daily segregated funds calculation CFTC Regulation 1.32 unless:

(i) The FCM has prepared the daily segregation calculation required by Regulation 1.32 as of the close of business on the previous business day;

(ii) The FCM's CEO, CFO or other senior official who holds a position with knowledge of the FCM's financial requirements and financial position and is listed as a principal on the firm's Form 7-R (for purposes of this Section only, a "Financial Principal") pre-approves in writing the segregated funds disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (b) above; and

(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the disbursement in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (b) above, which includes the following:

(1) Notification that the FCM has made or intends to make a disbursement(s) from segregated funds that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in customer segregated funds based upon the daily segregated funds calculation required by CFTC Regulation 1.32 computed as of the close of business the previous business day;

(2) A description of the reason(s) for and the name and the amount provided to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;

(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and

(4) The current estimate of the FCM's remaining total residual interest in the customer segregated funds account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the segregation requirements after the disbursement.

(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any segregated funds disbursement(s) that is made to or for the benefit of commodity and option customers.

(v) After making a disbursement that requires the approval and notice filing described in subsections (b)(ii) and (b)(iii) above, and until such time that the FCM completes its next daily segregated funds calculation required by CFTC Regulation 1.32, no Member FCM may make any subsequent disbursement(s) in any amount from any customer segregated funds accounts (except to or for the benefit of commodity and option customers) without for each disbursement obtaining the pre-approval required in subsection (b)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the customer segregated funds account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the segregation requirements after the disbursement.

(c) No Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse funds (disbursement) from foreign futures and foreign options customer secured amount funds account(s) as identified under CFTC Regulation 30.7 that exceed twenty-five percent (25%) of the FCM's residual interest in foreign futures and foreign option customer secured amount funds based upon the daily secured amount funds calculation required by CFTC Regulation 30.7 unless:

(i) The FCM has prepared the daily segregation calculation required by Regulation 30.7 as of the close of business on the previous business day;

(ii) The FCM's CEO, CFO or Financial Principal pre-approves in writing the secured amount funds disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (c) above; and

(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the withdrawal in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (c) above, which includes the following:

(1) Notification that the FCM has made or intends to make a disbursement(s) from secured amount funds that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in secured amount funds based upon the daily secured amount funds calculation performed required by CFTC Regulation 30.7 computed as of the close of business on the previous business day;

(2) A description of the reason(s) for and the name and amounts provide to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;

(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and

(4) The current estimate of the FCM's remaining total residual interest in the secured amount funds account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the secured amount requirements after the disbursement.

(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any secured amount funds disbursement(s) that is made to or for the benefit of foreign futures and foreign options customers.

(v) After making a disbursement that requires the approval and notice filing described in subsections (c)(ii) and (c)(iii) above, and until such time that the FCM completes its next daily secured amount funds calculation required by CFTC Regulation 30.7, no Member FCM may make any subsequent disbursement(s) in any amount from any customer secured amount funds accounts (except to or for the benefit of foreign futures and foreign option customers) without for each disbursement obtaining the pre-approval required in subsection (c)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the customer secured amount funds account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the secured amount requirements after the disbursement.

(d) Unless acting pursuant to relief granted by the Commission in CFTC Letter No. 17-03,² no Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse collateral (disbursement) from any cleared swaps customer collateral account(s) as identified under CFTC Regulation 22.2 that exceed twenty-five percent (25%) of the FCM's residual interest in the cleared swaps customer collateral based upon the daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g) unless:

(i) The FCM has prepared the daily segregation calculation required by Regulation 22.2(g) as of the close of business on the previous business day;

(ii) The FCM's CEO, CFO or Financial Principal pre-approves in writing the cleared swaps customer collateral disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (d) above; and

(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the withdrawal in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (d) above, which includes the following:

(1) Notification that the FCM has made or intends to make a disbursement(s) from cleared swaps customer collateral that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in cleared swaps customer collateral based upon the daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g) computed as of the close of business on the previous business day;

(2) A description of the reason(s) for and the name and the amount provided to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;

(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and

(4) The current estimate of the FCM's remaining total residual interest in the cleared swaps customer collateral account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the cleared swaps customer collateral requirements after the disbursement.

(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any cleared swap customer collateral disbursement(s) that is made to or for the benefit of cleared swap collateral customers.

(v) After making a disbursement that requires the approval and notice filing described in subsections (d)(ii) and (d)(iii) above, and until such time that the FCM completes its next daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g), no Member FCM may make any subsequent disbursement(s) in any amount from any cleared swaps customer accounts (except to or for the benefit of cleared swap customer collateral customers) without for each disbursement obtaining the pre-approval required in subsection (d)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the cleared swaps customer collateral account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the cleared swaps customer collateral requirements after the disbursement.

(e) Each Member FCM must report the following financial and operational information to NFA in the form and manner prescribed by NFA and in accordance with the respective time periods specified:

(i) On a monthly basis, within 17 business days after the end of each month, the following information as of the close of business on the last business day of the month:

(1) Adjusted net capital, minimum net capital, and excess net capital (listed in U.S. dollar figures); and

(2) The firm's measure of leverage (i.e., total balance sheet assets, less any instruments guaranteed by the U.S. government and held as an asset or to collateralize an asset (e.g., a reverse repo) divided by total capital (the sum of stockholder’s equity and subordinated debt)) all computed in accordance with U.S. GAAP.

(ii) By 11:59 P.M. Eastern time on the business day following the 15th and the last business day of each month, the following information as of the close of business on the 15th (or the following business day if the 15th falls on a weekend) and the last business day of each month:

(1) The identity and location of each depository holding customer segregated funds and the dollar amount held at each depository;

(2) The dollar amount of customer segregated funds held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (1) above;

(3) The identity and location of each depository holding foreign futures and foreign options customer secured amount funds and the dollar amount held at each depository;

(4) The dollar amount of foreign futures and foreign options customer funds held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (3) above;

(5) The identity and location of each depository holding cleared swaps customer collateral and the dollar amount held at each depository;

(6) The dollar amount of cleared swaps customer collateral held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (5) above; and

(7) The identity of each depository that held customer segregated funds, foreign futures and foreign options customer secured amount funds or cleared swaps customer collateral during the reporting period that is an affiliate of the FCM.

(iii) By noon of each business day, the daily segregated funds computation, the daily secured amount funds computation and the daily cleared swaps customer collateral calculation as of the close of the preceding business day.

(iv) The FCM's CEO, CFO or other individual designated by the CEO or CFO to file on his/her behalf, or where applicable, a person described in CFTC Regulation 1.10(d)(4)(ii), must submit the information required by subsections (i)-(iii) above, and by submitting the information the CEO or CFO certifies that to the best of his/her knowledge and belief the information is true, correct and complete.

(v) Any information filed after its due date shall be accompanied by a fee of $1,000 for each business day that it is late. Payment and acceptance of the fee does not preclude NFA from filing a disciplinary action under the Compliance Rules for failure to comply with the deadlines imposed by NFA Financial Requirements.

¹ Governing Body means proprietor if FCM is a sole proprietorship; general partner if the FCM is a partnership; board of directors if the FCM is a corporation; Member(s) vested with management authority if the FCM is a LLC or LLP.

² See CFTC Letter No. 17-03 – No-Action Positon Regarding Regulation 22.17(b) Withdrawals of Residual Interest (January 26, 2017).