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June 02, 2020
Regulatory Reminder Regarding Obligations Guaranteed by FCMs, FDMs and IBs
On May 27, 2020, the Joint Audit Committee issued a Regulatory Alert to FCMs addressing the net capital treatment of guaranteed obligations and liabilities of subsidiaries or affiliates. Certain CFTC Regulations require the reporting of guaranteed obligations and liabilities of subsidiaries or affiliates in the computation of adjusted net capital. NFA is issuing this Notice to remind Members that these requirements also apply to RFEDs (i.e., FDMs) and IBs.
CFTC Regulations provide that FCMs, RFEDs (i.e., FDMs) and IBs shall not guarantee, endorse, or assume directly or indirectly any obligation or liability of a subsidiary or affiliate unless the obligation or liability is reflected in the computation of adjusted net capital pursuant to CFTC Regulation 1.17(f)(4). 1
Any guaranteed obligation or liability of a subsidiary or affiliate which is not reported through consolidation of the subsidiary or affiliate must be reflected in the computation of adjusted net capital for the FCM, RFED (i.e., FDM) or IB, as applicable. CFTC Regulations require the full amount of the guaranteed obligation or liability to be reflected in the computation of adjusted net capital.
If you have any questions on this Notice, please contact Dale Spoljaric, Managing Director, Compliance (firstname.lastname@example.org).
1CFTC Regulation 5.7 provides that the provisions of Section 1.17 (including subsection (f)(4)) apply to RFEDs for the purposes of determining adjusted net capital under the Regulation.