---
kind: "range"
citation: "17 C.F.R. §§ 1.20–1.30"
title: "17"
from: "1.20"
to: "1.30"
count: 11
url: "https://uscodex.org/cfr/17/1.20..1.30"
---

# §1.20. Futures customer funds to be segregated and separately accounted for.

- (a) **General.** A futures commission merchant must separately account for all futures customer funds and segregate such funds as belonging to its futures customers. A futures commission merchant shall deposit futures customer funds under an account name that clearly identifies them as futures customer funds and shows that such funds are segregated as required by sections 4d(a) and 4d(b) of the Act and by this part. A futures commission merchant must at all times maintain in the separate account or accounts money, securities and property in an amount at least sufficient in the aggregate to cover its total obligations to all futures customers as computed under [paragraph (i)](#i) of this section. The futures commission merchant must perform appropriate due diligence as required by [§ 1.11](/cfr/17/1.11.md) on any and all locations of futures customer funds, as specified in [paragraph (b)](#b) of this section, to ensure that the location in which the futures commission merchant has deposited such funds is a financially sound entity.
- (b) **Location of futures customer funds.** A futures commission merchant may deposit futures customer funds, subject to the risk management policies and procedures of the futures commission merchant required by [§ 1.11](/cfr/17/1.11.md), with the following depositories:
  - (1) A bank or trust company;
  - (2) A derivatives clearing organization; or
  - (3) **Another futures commission merchant.**
- (c) **Limitation on the holding of futures customer funds outside of the United States.** A futures commission merchant may hold futures customer funds with a depository outside of the United States only in accordance with [§ 1.49](/cfr/17/1.49.md).
- (d) **Written acknowledgment from depositories.**
  - (1) A futures commission merchant must obtain a written acknowledgment from each bank, trust company, derivatives clearing organization, or futures commission merchant prior to or contemporaneously with the opening of an account by the futures commission merchant with such depositories; provided, however, that a written acknowledgment need not be obtained from a derivatives clearing organization that has adopted and submitted to the Commission rules that provide for the segregation of futures customer funds in accordance with all relevant provisions of the Act and the rules in this chapter, and orders promulgated thereunder, and in such cases, the requirements set forth in [paragraphs (d)(3) through (6)](#d-3..d-6) of this section shall not apply to the futures commission merchant.
  - (2) The written acknowledgement must be in the form as set out in appendix C to this part.
  - (3) [Reserved]
  - (4) A futures commission merchant shall deposit futures customer funds only with a depository that agrees to provide the Commission and the futures commission merchant's designated self-regulatory organization with a copy of the executed written acknowledgment no later than three business days after the opening of the account or the execution of a new written acknowledgment for an existing account, as applicable. The Commission must receive the written acknowledgment from the depository via electronic means, in a format and manner determined by the Commission. The written acknowledgment must contain the futures commission merchant's authorization to the depository to provide the written acknowledgment to the Commission and to the futures commission merchant's designated self-regulatory organization without further notice to or consent from the futures commission merchant.
  - (5) A futures commission merchant shall deposit futures customer funds only with a depository that agrees that accounts containing customer funds may be examined at any reasonable time by the Director of the Market Participants Division or the Director of the Division of Clearing and Risk, or any successor divisions, or such Directors' designees, or an appropriate officer, agent or employee of the futures commission merchant's designated self-regulatory organization. The written acknowledgment must contain the futures commission merchant's authorization to the depository to permit any such examination to take place without further notice to or consent from the futures commission merchant.
  - (6) A futures commission merchant shall deposit futures customer funds only with a depository that agrees to reply promptly and directly to any request from the Director of the Market Participants Division or the Director of the Division of Clearing and Risk, or any successor divisions, or such Directors' designees, or an appropriate officer, agent or employee of the futures commission merchant's designated self-regulatory organization for confirmation of account balances or provision of any other information regarding or related to an account. The written acknowledgment must contain the futures commission merchant's authorization to the depository to reply promptly and directly as required by this paragraph without further notice to or consent from the futures commission merchant.
  - (7) Where a written acknowledgment is required, the futures commission merchant shall promptly file a copy of the written acknowledgment with the Commission in the format and manner specified by the Commission no later than three business days after the opening of the account or the execution of a new written acknowledgment for an existing account, as applicable.
  - (8) Where a written acknowledgment is required, a futures commission merchant shall obtain a new written acknowledgment within 120 days of any changes in the following:
    - (i) The name or business address of the futures commission merchant;
    - (ii) The name or business address of the bank, trust company, derivatives clearing organization or futures commission merchant receiving futures customer funds; or
    - (iii) **The account number(s) under which futures customer funds are held.**
  - (9) A futures commission merchant shall maintain each written acknowledgment readily accessible in its files in accordance with [§ 1.31](/cfr/17/1.31.md), for as long as the account remains open, and thereafter for the period provided in [§ 1.31](/cfr/17/1.31.md).
- (e) **Commingling.**
  - (1) A futures commission merchant may for convenience commingle the futures customer funds that it receives from, or on behalf of, multiple futures customers in a single account or multiple accounts with one or more of the depositories listed in [paragraph (b)](#b) of this section.
  - (2) A futures commission merchant shall not commingle futures customer funds with the money, securities or property of such futures commission merchant, or with any proprietary account of such futures commission merchant, or use such funds to secure or guarantee the obligation of, or extend credit to, such futures commission merchant or any proprietary account of such futures commission merchant; provided, however, a futures commission merchant may deposit proprietary funds in segregated accounts as permitted under [§ 1.23](/cfr/17/1.23.md).
  - (3) A futures commission merchant may not commingle futures customer funds with funds deposited by 30.7 customers as defined in [§ 30.1](/cfr/17/30.1.md) of this chapter and set aside in separate accounts as required by [part 30](/cfr/17/part30.md) of this chapter, or with funds deposited by Cleared Swaps Customers as defined in [§ 22.1](/cfr/17/22.1.md) of this chapter and held in segregated accounts pursuant to section 4d(f) of the Act; provided, however, that a futures commission merchant may commingle futures customer funds with funds deposited by 30.7 customers or Cleared Swaps Customers if expressly permitted by a Commission regulation or order, or by a derivatives clearing organization rule approved in accordance with [§ 39.15(b)(2)](/cfr/17/39.15.md?p=b-2) of this chapter.
- (f) **Limitation on use of futures customer funds.**
  - (1) A futures commission merchant shall treat and deal with the funds of a futures customer as belonging to such futures customer. A futures commission merchant shall not use the funds of a futures customer to secure or guarantee the commodity interests, or to secure or extend the credit, of any person other than the futures customer for whom the funds are held.
  - (2) A futures commission merchant shall obligate futures customer funds to a derivatives clearing organization, a futures commission merchant, or any depository solely to purchase, margin, guarantee, secure, transfer, adjust or settle trades, contracts or commodity option transactions of futures customers; provided, however, that a futures commission merchant is permitted to use the funds belonging to a futures customer that are necessary in the normal course of business to pay lawfully accruing fees or expenses on behalf of the futures customer's positions including commissions, brokerage, interest, taxes, storage and other fees and charges.
  - (3) No person, including any derivatives clearing organization or any depository, that has received futures customer funds for deposit in a segregated account, as provided in this section, may hold, dispose of, or use any such funds as belonging to any person other than the futures customers of the futures commission merchant which deposited such funds.
- (g) **Derivatives clearing organizations—**
  - (1) **General.** All futures customer funds received by a derivatives clearing organization from a member to purchase, margin, guarantee, secure or settle the trades, contracts or commodity options of the clearing member's futures customers and all money accruing to such futures customers as the result of trades, contracts or commodity options so carried shall be separately accounted for and segregated as belonging to such futures customers, and a derivatives clearing organization shall not hold, use or dispose of such futures customer funds except as belonging to such futures customers. A derivatives clearing organization shall deposit futures customer funds under an account name that clearly identifies them as futures customer funds and shows that such funds are segregated as required by sections 4d(a) and 4d(b) of the Act and by this part.
  - (2) **Location of futures customer funds.** A derivatives clearing organization may deposit futures customer funds with a bank or trust company, which may include a Federal Reserve Bank with respect to deposits of a derivatives clearing organization that is designated by the Financial Stability Oversight Council to be systemically important.
  - (3) **Limitation on the holding of futures customer funds outside of the United States.** A derivatives clearing organization may hold futures customer funds with a depository outside of the United States only in accordance with [§ 1.49](/cfr/17/1.49.md).
  - (4) **Written acknowledgment from depositories.**
    - (i) A derivatives clearing organization must obtain a written acknowledgment from each depository prior to or contemporaneously with the opening of a futures customer funds account; provided, however, that a derivatives clearing organization is not required to obtain a written acknowledgment from a Federal Reserve Bank with which it has opened a futures customer funds account.
    - (ii) The written acknowledgement must be in the form as set out in appendix D to this part.
    - (iii) A derivatives clearing organization shall deposit futures customer funds only with a depository that agrees to provide the Commission with a copy of the executed written acknowledgment no later than three business days after the opening of the account or the execution of a new written acknowledgment for an existing account, as applicable. The Commission must receive the written acknowledgment from the depository via electronic means, in a format and manner determined by the Commission. The written acknowledgment must contain the derivatives clearing organization's authorization to the depository to provide the written acknowledgment to the Commission without further notice to or consent from the derivatives clearing organization.
    - (iv) A derivatives clearing organization shall deposit futures customer funds only with a depository that agrees to reply promptly and directly to any request from the Director of the Division of Clearing and Risk or the Director of the Market Participants Division, or any successor divisions, or such Directors' designees, for confirmation of account balances or provision of any other information regarding or related to an account. The written acknowledgment must contain the derivatives clearing organization's authorization to the depository to reply promptly and directly as required by this paragraph without further notice to or consent from the derivatives clearing organization.
    - (v) A derivatives clearing organization shall promptly file a copy of the written acknowledgment with the Commission in the format and manner specified by the Commission no later than three business days after the opening of the account or the execution of a new written acknowledgment for an existing account, as applicable.
    - (vi) A derivatives clearing organization shall obtain a new written acknowledgment within 120 days of any changes in the following:
      - (A) The name or business address of the derivatives clearing organization;
      - (B) The name or business address of the depository receiving futures customer funds; or
      - (C) **The account number(s) under which futures customer funds are held.**
    - (vii) A derivatives clearing organization shall maintain each written acknowledgment readily accessible in its files in accordance with [§ 1.31](/cfr/17/1.31.md), for as long as the account remains open, and thereafter for the period provided in [§ 1.31](/cfr/17/1.31.md).
  - (5) **Commingling.**
    - (i) A derivatives clearing organization may for convenience commingle the futures customer funds that it receives from, or on behalf of, multiple futures commission merchants in a single account or multiple accounts with one or more of the depositories listed in [paragraph (g)(2)](#g-2) of this section.
    - (ii) A derivatives clearing organization shall not commingle futures customer funds with the money, securities or property of such derivatives clearing organization or with any proprietary account of any of its clearing members, or use such funds to secure or guarantee the obligations of, or extend credit to, such derivatives clearing organization or any proprietary account of any of its clearing members.
    - (iii) A derivatives clearing organization may not commingle funds held for futures customers with funds deposited by clearing members on behalf of their 30.7 customers as defined in [§ 30.1](/cfr/17/30.1.md) of this chapter and set aside in separate accounts as required by [part 30](/cfr/17/part30.md) of this chapter, or with funds deposited by clearing members on behalf of their Cleared Swaps Customers as defined in [§ 22.1](/cfr/17/22.1.md) of this chapter and held in segregated accounts pursuant section 4d(f) of the Act; provided, however, that a derivatives clearing organization may commingle futures customer funds with funds deposited by clearing members on behalf of their 30.7 customers or Cleared Swaps Customers if expressly permitted by a Commission regulation or order, or by a derivatives clearing organization rule approved in accordance with [§ 39.15(b)(2)](/cfr/17/39.15.md?p=b-2) of this chapter.
- (h) **Immediate availability of bank and trust company deposits.** All futures customer funds deposited by a futures commission merchant or a derivatives clearing organization with a bank or trust company must be immediately available for withdrawal upon the demand of the futures commission merchant or derivatives clearing organization.
- (i) **Requirements as to amount.**
  - (1) For purposes of this [paragraph (i)](#i), the term “account” shall mean the entries on the books and records of a futures commission merchant pertaining to the futures customer funds of a particular futures customer.
  - (2) The futures commission merchant must reflect in the account that it maintains for each futures customer the net liquidating equity for each such customer, calculated as follows: The market value of any futures customer funds that it receives from such customer, as adjusted by:
    - (i) Any uses permitted under [paragraph (f)](#f) of this section;
    - (ii) Any accruals on permitted investments of such collateral under [§ 1.25](/cfr/17/1.25.md) that, pursuant to the futures commission merchant's customer agreement with that customer, are creditable to such customer;
    - (iii) Any gains and losses with respect to contracts for the purchase or sale of a commodity for future delivery and any options on such contracts;
    - (iv) Any charges lawfully accruing to the futures customer, including any commission, brokerage fee, interest, tax, or storage fee; and
    - (v) **Any appropriately authorized distribution or transfer of such collateral.**
  - (3) If the market value of futures customer funds in the account of a futures customer is positive after adjustments, then that account has a credit balance. If the market value of futures customer funds in the account of a futures customer is negative after adjustments, then that account has a debit balance.
  - (4) The futures commission merchant must, at all times, maintain in segregation an amount equal to the sum of any credit and debit balances that the futures customers of the futures commission merchant have in their accounts. Notwithstanding the preceding sentence, a futures commission merchant must add back to the total amount of funds required to be maintained in segregation any futures customer accounts with debit balances in the amounts calculated in accordance with [paragraph (i)(5)](#i-5) of this section.
  - (5) The futures commission merchant, in calculating the total amount of funds required to be maintained in segregation pursuant to [paragraph (i)(4)](#i-4) of this section, must include any debit balance, as calculated pursuant to this [paragraph (i)(5)](#i-5), that a futures customer has in its account, to the extent that such debit balance is not secured by “readily marketable securities” that the particular futures customer deposited with the futures commission merchant.
    - (i) For purposes of calculating the amount of a futures account's debit balance that the futures commission merchant is required to include in its calculation of its total segregation requirement pursuant to this [paragraph (i)(5)](#i-5), the futures commission merchant shall calculate the net liquidating equity of each futures account in accordance with [paragraph (i)(2)](#i-2) of this section, except that the futures commission merchant shall exclude from the calculation any noncash collateral held in the futures customer account as margin collateral. The futures commission merchant may offset the debit balance computed under this [paragraph (i)(5)](#i-5) to the extent of any “readily marketable securities,” subject to percentage deductions (i.e., “securities haircuts”) as specified in paragraph (f)(5)(iv) of this section, held for the particular futures customer to secure its debit balance.
    - (ii) For purposes of this section, “readily marketable” shall be defined as having a “ready market” as such latter term is defined in [Rule 15c3-1(c)(11)](/cfr/17/15c3-1.md?p=c-11) of the Securities and Exchange Commission ([17 CFR 240.15c3-1(c)(11)](/cfr/17/240.15c3-1.md?p=c-11)).
    - (iii) In order for a debit balance to be deemed secured by “readily marketable securities,” the futures commission merchant must maintain a security interest in such securities, and must hold a written authorization to liquidate the securities at the discretion of the futures commission merchant.
    - (iv) To determine the amount of such debit balance secured by “readily marketable securities,” the futures commission merchant shall:
      - (A) Determine the market value of such securities; and
      - (B) Reduce such market value by applicable percentage deductions (i.e., “securities haircuts”) as set forth in [Rule 15c3-1(c)(2)(vi)](/cfr/17/15c3-1.md?p=c-2-vi) of the Securities and Exchange Commission ([17 CFR 240.15c3-1(c)(2)(vi)](/cfr/17/240.15c3-1.md?p=c-2-vi)). Futures commission merchants that establish and enforce written policies and procedures to assess the credit risk of commercial paper, convertible debt instruments, or nonconvertible debt instruments in accordance with [Rule 240.15c3-1(c)(2)(vi)](/cfr/17/240.15c3-1.md?p=c-2-vi) of the Securities and Exchange Commission ([17 CFR 240.15c3-1(c)(2)(vi)](/cfr/17/240.15c3-1.md?p=c-2-vi)) may apply the lower haircut percentages specified in [Rule 240.15c3-1(c)(2)(vi)](/cfr/17/240.15c3-1.md?p=c-2-vi) for such commercial paper, convertible debt instruments and nonconvertible debt instruments.

# §1.21. Care of money and equities accruing to futures customers.


All money received directly or indirectly by, and all money and equities accruing to, a futures commission merchant from any derivatives clearing organization or from any clearing member or from any member of a contract market incident to or resulting from any trade, contract or commodity option made by or through such futures commission merchant on behalf of any futures customer shall be considered as accruing to such futures customer within the meaning of the Act and these regulations. Such money and equities shall be treated and dealt with as belonging to such futures customer in accordance with the provisions of the Act and these regulations. Money and equities accruing in connection with futures customers' open trades, contracts, or commodity options need not be separately credited to individual accounts but may be treated and dealt with as belonging undivided to all futures customers having open trades, contracts, or commodity option positions which if closed would result in a credit to such futures customers.


# §1.22. Use of futures customer funds restricted.

- (a) No futures commission merchant shall use, or permit the use of, the futures customer funds of one futures customer to purchase, margin, or settle the trades, contracts, or commodity options of, or to secure or extend the credit of, any person other than such futures customer.
- (b) Futures customer funds shall not be used to carry trades or positions of the same futures customer other than in contracts for the purchase of sale of any commodity for future delivery or for options thereon traded through the facilities of a designated contract market.
- (c)
  - (1) **The undermargined amount for a futures customer's account is the amount, if any, by which—**
    - (i) The total amount of collateral required for that futures customer's positions in that account, at the time or times referred to in [paragraph (c)(2)](#c-2) of this section, exceeds
    - (ii) The value of the futures customer funds for that account, as calculated in [§ 1.20(i)(2)](/cfr/17/1.20.md?p=i-2).
  - (2) Each futures commission merchant must compute, based on the information available to the futures commission merchant as of the close of each business day,
    - (i) The undermargined amounts, based on the clearing initial margin that will be required to be maintained by that futures commission merchant for its futures customers, at each derivatives clearing organization of which the futures commission merchant is a member, at the point of the daily settlement (as described in [§ 39.14](/cfr/17/39.14.md) of this chapter) that will complete during the following business day for each such derivatives clearing organization less
    - (ii) Any debit balances referred to in [§ 1.20(i)(4)](/cfr/17/1.20.md?p=i-4) included in such undermargined amounts.
  - (3)
    - (i) Prior to the Residual Interest Deadline, such futures commission merchant must maintain residual interest in segregated funds that is at least equal to the computation set forth in [paragraph (c)(2)](#c-2) of this section. Where a futures commission merchant is subject to multiple Residual Interest Deadlines, prior to each Residual Interest Deadline, such futures commission merchant must maintain residual interest in segregated funds that is at least equal to the portion of the computation set forth in [paragraph (c)(2)](#c-2) of this section attributable to the clearing initial margin required by the derivatives clearing organization making such settlement.
    - (ii) A futures commission merchant may reduce the amount of residual interest required in [paragraph (c)(3)(i)](#c-3-i) of this section to account for payments received from or on behalf of undermargined futures customers (less the sum of any disbursements made to or on behalf of such customers) between the close of the previous business day and the Residual Interest Deadline.
  - (4) For purposes of [paragraph (c)(2)](#c-2) of this section, a futures commission merchant should include, as clearing initial margin, customer initial margin that the futures commission merchant will be required to maintain, for that futures commission merchant's futures customers, at another futures commission merchant.
  - (5) **Residual Interest Deadline defined.**
    - (i) Except as provided in [paragraph (c)(5)(ii)](#c-5-ii) of this section, the Residual Interest Deadline shall be the time of the settlement referenced in [paragraph (c)(2)(i)](#c-2-i) or, as appropriate, (c)(4), of this section.
    - (ii) Starting on November 14, 2014 and during the phase-in period described in [paragraph (c)(5)(iii)](#c-5-iii) of this section, the Residual Interest Deadline shall be 6:00 p.m. Eastern Time on the date of the settlement referenced in [paragraph (c)(2)(i)](#c-2-i) or, as appropriate, (c)(4), of this section.
    - (iii)
      - (A) No later than May 16, 2016, the staff of the Commission shall complete and publish for public comment a report addressing, to the extent information is practically available, the practicability (for both futures commission merchants and customers) of moving that deadline from 6:00 p.m. Eastern Time on the date of the settlement referenced in [paragraph (c)(2)(i)](#c-2-i) or, as appropriate, (c)(4), of this section to the time of that settlement (or to some other time of day), including whether and on what schedule it would be feasible to do so, and the costs and benefits of such potential requirements. Staff shall, using the Commission's Web site, solicit public comment and shall conduct a public roundtable regarding specific issues to be covered by such report.
      - (B) Nine months after publication of the report required by [paragraph (c)(5)(iii)(A)](#c-5-iii-A) of this section, the Commission may (but shall not be required to) do either of the following:

        (1) Terminate the phase-in period through rulemaking, in which case the phase-in period shall end as of a date established by a final rule published in the Federal Register, which date shall be no less than one year after the date such rule is published; or

        (2) Determine that it is necessary or appropriate in the public interest to propose through rulemaking a different Residual Interest Deadline. In that event, the Commission shall establish, if necessary, a phase-in schedule in the final rule published in the Federal Register.

      - (C) If the phase-in schedule has not been terminated or revised pursuant to [paragraph (c)(5)(iii)(B)](#c-5-iii-B) of this section, then the Residual Interest Deadline shall remain 6:00 p.m. Eastern Time on the date of the settlement referenced in [paragraph (c)(2)(i)](#c-2-i) or, as appropriate, (c)(4) of this section until such time that the Commission takes further action through rulemaking.

# §1.23. Interest of futures commission merchant in segregated futures customer funds; additions and withdrawals.

- (a)
  - (1) The provision in sections 4d(a)(2) and 4d(b) of the Act and the provision in [§ 1.20](/cfr/17/1.20.md) that prohibit the commingling of futures customer funds with the funds of a futures commission merchant, shall not be construed to prevent a futures commission merchant from having a residual financial interest in the futures customer funds segregated as required by the Act and the regulations in this part and set apart for the benefit of futures customers; nor shall such provisions be construed to prevent a futures commission merchant from adding to such segregated futures customer funds such amount or amounts of money, from its own funds or unencumbered securities from its own inventory, of the type set forth in [§ 1.25](/cfr/17/1.25.md) of this part, as it may deem necessary to ensure any and all futures customers' accounts from becoming undersegregated at any time.
  - (2) If a futures commission merchant discovers at any time that it is holding insufficient funds in segregated accounts to meet its obligations under §§ [1.20](/cfr/17/1.20.md) and [1.22](/cfr/17/1.22.md), the futures commission merchant shall immediately deposit sufficient funds into segregation to bring the account into compliance.
- (b) A futures commission merchant may not withdraw funds, except withdrawals that are made to or for the benefit of futures customers, from an account or accounts holding futures customer funds unless the futures commission merchant has prepared the daily segregation calculation required by [§ 1.32](/cfr/17/1.32.md) as of the close of business on the previous business day. A futures commission merchant that has completed its daily segregation calculation may make withdrawals, in addition to withdrawals that are made to or for the benefit of futures customers, to the extent of its actual residual financial interest in funds held in segregated futures accounts, adjusted to reflect market activity and other events that may have decreased the amount of the firm's residual financial interest since the close of business on the previous business day, including the withdrawal of securities held in segregated safekeeping accounts held by a bank, trust company, derivatives clearing organization or other futures commission merchant. Such withdrawal(s), however, shall not result in the funds of one futures customer being used to purchase, margin or carry the trades, contracts or commodity options, or extend the credit of any other futures customer or other person.
- (c) Notwithstanding paragraphs [(a)](#a) and [(b)](#b) of this section, each futures commission merchant shall establish a targeted residual interest (i.e., excess funds) that is in an amount that, when maintained as its residual interest in the segregated funds accounts, reasonably ensures that the futures commission merchant shall remain in compliance with the segregated funds requirements at all times. Each futures commission merchant shall establish policies and procedures designed to reasonably ensure that the futures commission merchant maintains the targeted residual amounts in segregated funds at all times. The futures commission merchant shall maintain sufficient capital and liquidity, and take such other appropriate steps as are necessary, to reasonably ensure that such amount of targeted residual interest is maintained as the futures commission merchant's residual interest in the segregated funds accounts at all times. In determining the amount of the targeted residual interest, the futures commission merchant shall analyze all relevant factors affecting the amounts in segregated funds from time to time, including without limitation various factors, as applicable, relating to the nature of the futures commission merchant's business including, but not limited to, the composition of the futures commission merchant's customer base, the general creditworthiness of the customer base, the general trading activity of the customers, the types of markets and products traded by the customers, the proprietary trading of the futures commission merchant, the general volatility and liquidity of the markets and products traded by customers, the futures commission merchant's own liquidity and capital needs, and the historical trends in customer segregated fund balances and debit balances in customers' and undermargined accounts. The analysis and calculation of the targeted amount of the future commission merchant's residual interest must be described in writing with the specificity necessary to allow the Commission and the futures commission merchant's designated self-regulatory organization to duplicate the analysis and calculation and test the assumptions made by the futures commission merchant. The adequacy of the targeted residual interest and the process for establishing the targeted residual interest must be reassessed periodically by the futures commission merchant and revised as necessary.
- (d) Notwithstanding any other paragraph of this section, a futures commission merchant may not withdraw funds, in a single transaction or a series of transactions, that are not made to or for the benefit of futures customers from futures accounts if such withdrawal(s) would exceed 25 percent of the futures commission merchant's residual interest in such accounts as reported on the daily segregation calculation required by [§ 1.32](/cfr/17/1.32.md) and computed as of the close of business on the previous business day, unless:
  - (1) The futures commission merchant's chief executive officer, chief finance officer or other senior official that is listed as a principal of the futures commission merchant on its Form 7-R and is knowledgeable about the futures commission merchant's financial requirements and financial position pre-approves in writing the withdrawal, or series of withdrawals;
  - (2) The futures commission merchant files written notice of the withdrawal or series of withdrawals, with the Commission and with its designated self-regulatory organization immediately after the chief executive officer, chief finance officer or other senior official as described in [paragraph (d)(1)](#d-1) of this section pre-approves the withdrawal or series of withdrawals. The written notice must:
    - (i) Be signed by the chief executive officer, chief finance officer or other senior official as described in [paragraph (d)(1)](#d-1) of this section that pre-approved the withdrawal, and give notice that the futures commission merchant has withdrawn or intends to withdraw more than 25 percent of its residual interest in segregated accounts holding futures customer funds;
    - (ii) Include a description of the reasons for the withdrawal or series of withdrawals;
    - (iii) List the amount of funds provided to each recipient and each recipient's name;
    - (iv) Include the current estimate of the amount of the futures commission merchant's residual interest in the futures accounts after the withdrawal;
    - (v) Contain a representation by the chief executive officer, chief finance officer or other senior official as described in [paragraph (d)(1)](#d-1) of this section that pre-approved the withdrawal, or series of withdrawals, that, after due diligence, to such person's knowledge and reasonable belief, the futures commission merchant remains in compliance with the segregation requirements after the withdrawal. The chief executive officer, chief finance officer or other senior official as described in [paragraph (d)(1)](#d-1) of this section must consider the daily segregation calculation as of the close of business on the previous business day and any other factors that may cause a material change in the futures commission merchant's residual interest since the close of business the previous business day, including known unsecured futures customer debits or deficits, current day market activity and any other withdrawals made from the futures accounts; and
    - (vi) Any such written notice filed with the Commission must be filed via electronic transmission using a form of user authentication assigned in accordance with procedures established by or approved by the Commission, and otherwise in accordance with instruction issued by or approved by the Commission. Any such electronic submission must clearly indicate the registrant on whose behalf such filing is made and the use of such user authentication in submitting such filing will constitute and become a substitute for the manual signature of the authorized signer. Any written notice filed must be followed up with direct communication to the Regional office of the Commission that has supervisory authority over the futures commission merchant whereby the Commission acknowledges receipt of the notice; and
  - (3) After making a withdrawal requiring the approval and notice required in paragraphs [(d)(1)](#d-1) and [(2)](#d-2) of this section, and before the completion of its next daily segregated funds calculation, no futures commission merchant may make any further withdrawals from accounts holding futures customer funds, except to or for the benefit of futures customers, without, for each withdrawal, obtaining the approval required under [paragraph (d)(1)](#d-1) of this section and filing a written notice in the manner specified under [paragraph (d)(2)](#d-2) of this section with the Commission and its designated self-regulatory organization signed by the chief executive officer, chief finance officer, or other senior official. The written notice must:
    - (i) List the amount of funds provided to each recipient and each recipient's name;
    - (ii) Disclose the reason for each withdrawal;
    - (iii) Confirm that the chief executive officer, chief finance officer, or other senior official (and identify of the person if different from the person who signed the notice) pre-approved the withdrawal in writing;
    - (iv) Disclose the current estimate of the futures commission merchant's remaining total residual interest in the segregated accounts holding futures customer funds after the withdrawal; and
    - (v) Include a representation that, after due diligence, to the best of the notice signatory's knowledge and reasonable belief the futures commission merchant remains in compliance with the segregation requirements after the withdrawal.
- (e) If a futures commission merchant withdraws funds from futures accounts that are not made to or for the benefit of futures customers, and the withdrawal causes the futures commission merchant to not hold sufficient funds in the futures accounts to meet its targeted residual interest, as required to be computed under [§ 1.11](/cfr/17/1.11.md), the futures commission merchant should deposit its own funds into the futures accounts to restore the account balance to the targeted residual interest amount by the close of business on the next business day, or, if appropriate, revise the futures commission merchant's targeted amount of residual interest pursuant to the policies and procedures required by [§ 1.11](/cfr/17/1.11.md). Notwithstanding the foregoing, if a the futures commission merchant's residual interest in customer accounts is less than the amount required by [§ 1.22](/cfr/17/1.22.md) at any particular point in time, the futures commission merchant must immediately restore the residual interest to exceed the sum of such amounts. Any proprietary funds deposited in the futures accounts must be unencumbered and otherwise compliant with [§ 1.25](/cfr/17/1.25.md), as applicable.

# §1.24. Segregated funds; exclusions therefrom.


Money held in a segregated account by a futures commission merchant shall not include: (a) Money invested in obligations or stocks of any derivatives clearing organization or in memberships in or obligations of any contract market; or

- (b) Money held by any derivatives clearing organization which it may use for any purpose other than to purchase, margin, guarantee, secure, transfer, adjust, or settle the contracts, trades, or commodity options of the futures customers of such futures commission merchant.

# §1.25. Investment of customer funds.

- (a) **Permitted investments.**
  - (1) Subject to the terms and conditions set forth in this section, a futures commission merchant or a derivatives clearing organization may invest customer money in the following instruments (permitted investments):
    - (i) Obligations of the United States and obligations fully guaranteed as to principal and interest by the United States (U.S. government securities);
    - (ii) General obligations of any State or of any political subdivision thereof (municipal securities);
    - (iii) Obligations of any United States government corporation or enterprise sponsored by the United States government (U.S. agency obligations);
    - (iv) Interests in government money market funds as defined in [§ 270.2a-7](/cfr/17/270.2a-7.md) of this title, provided that the government money market funds do not choose to rely on the ability to impose discretionary liquidity fees consistent with the requirements of [17 CFR 270.2a-7(c)(2)(i)](/cfr/17/270.2a-7.md?p=c-2-i)(government money market fund);
    - (v) Interests in exchange-traded funds, as defined in [17 CFR 270.6c-11](/cfr/17/270.6c-11.md), which seek to replicate the performance of a published short-term U.S. Treasury security index composed of bonds, notes, and bills with a remaining maturity of 12 months or less, issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, the U.S. Department of the Treasury (U.S. Treasury exchange-traded fund); and
    - (vi) General obligations of Canada, France, Germany, Japan, and the United Kingdom (permitted foreign sovereign debt), subject to the following:
      - (A) A futures commission merchant may invest in the permitted foreign sovereign debt of a country to the extent the futures commission merchant has balances in segregated accounts owed to its customers denominated in that country's currency; and
      - (B) A derivatives clearing organization may invest in the permitted foreign sovereign debt of a country to the extent the derivatives clearing organization has balances in segregated accounts owed to its clearing members that are futures commission merchants denominated in that country's currency.
  - (2)
    - (i) In addition, a futures commission merchant or derivatives clearing organization may buy and sell the permitted investments listed in [paragraphs (a)(1)(i) through (vii)](#a-1-i..a-1-vii) of this section pursuant to agreements for resale or repurchase of the instruments, in accordance with the provisions of [paragraph (d)](#d) of this section.
    - (ii) A futures commission merchant or a derivatives clearing organization may sell securities deposited by customers as margin pursuant to agreements to repurchase subject to the following:
      - (A) Securities subject to such repurchase agreements must be “highly liquid” as defined in [paragraph (b)(1)](#b-1) of this section.
      - (B) Securities subject to such repurchase agreements must not be “specifically identifiable property” as defined in [§ 190.01](/cfr/17/190.01.md) of this chapter.
      - (C) The terms and conditions of such an agreement to repurchase must be in accordance with the provisions of [paragraph (d)](#d) of this section.
      - (D) Upon the default by a counterparty to a repurchase agreement, the futures commission merchant or derivatives clearing organization shall act promptly to ensure that the default does not result in any direct or indirect cost or expense to the customer.
  - (3) Obligations issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Association are permitted while these entities operate under the conservatorship or receivership of the Federal Housing Finance Authority with capital support from the United States.
- (b) **General terms and conditions.** A futures commission merchant or a derivatives clearing organization is required to manage the permitted investments consistent with the objectives of preserving principal and maintaining liquidity and according to the following specific requirements:
  - (1) **Liquidity.** Investments must be “highly liquid” such that they have the ability to be converted into cash within one business day without material discount in value.
  - (2) **Restrictions on instrument features.**
    - (i) With the exception of government money market funds and U.S. Treasury exchange-traded funds, no permitted investment may contain an embedded derivative of any kind, except as follows:
      - (A) The issuer of an instrument otherwise permitted by this section may have an option to call, in whole or in part, at par, the principal amount of the instrument before its stated maturity date; or
      - (B) An instrument that meets the requirements of [paragraph (b)(2)(iv)](#b-2-iv) of this section may provide for a cap, floor, or collar on the interest paid; provided, however, that the terms of such instrument obligate the issuer to repay the principal amount of the instrument at not less than par value upon maturity.
    - (ii) No instrument may contain interest-only payment features.
    - (iii) No instrument may provide payments linked to a commodity, currency, reference instrument, index, or benchmark except as provided in [paragraph (b)(2)(iv)](#b-2-iv) of this section, and it may not otherwise constitute a derivative instrument.
    - (iv)
      - (A) **Adjustable rate securities are permitted, subject to the following requirements—** (1) The interest payments on variable rate securities must correlate closely and on an unleveraged basis to a benchmark of either the Federal Funds target or effective rate, the prime rate, the three-month Treasury Bill rate, a Secured Overnight Financing Rate published by the Federal Reserve Bank of New York or a CME Term SOFR Rate published by the CME Group Benchmark Administration Limited, or the interest rate of any fixed rate instrument that is a permitted investment listed in [paragraph (a)(1)](#a-1) of this section;

        (2) The interest payment, in any period, on floating rate securities must be determined solely by reference, on an unleveraged basis, to a benchmark of either the Federal Funds target or effective rate, the prime rate, the three-month Treasury Bill rate, a Secured Overnight Financing Rate published by the Federal Reserve Bank of New York or a CME Term SOFR Rate published by the CME Group Benchmark Administration Limited, or the interest rate of any fixed rate instrument that is a permitted investment listed in [paragraph (a)(1)](#a-1) of this section;

        (3) Benchmark rates must be expressed in the same currency as the adjustable rate securities that reference them; and

        (4) No interest payment on an adjustable rate security, in any period, can be a negative amount.

      - (B) For purposes of this paragraph, the following definitions shall apply:

        (1) The term adjustable rate security means, a floating rate security, a variable rate security, or both.

        (2) The term floating rate security means a security, the terms of which provide for the adjustment of its interest rate whenever a specified interest rate changes and that, at any time until the final maturity of the instrument or the period remaining until the principal amount can be recovered through demand, can reasonably be expected to have market value that approximates its amortized cost.

        (3) The term variable rate security means a security, the terms of which provide for the adjustment of its interest rate on set dates (such as the last day of a month or calendar quarter) and that, upon each adjustment until the final maturity of the instrument or the period remaining until the principal amount can be recovered through demand, can reasonably be expected to have a market value that approximates its amortized cost.

  - (3) **Concentration—**
    - (i) **Asset-based concentration limits for direct investments.**
      - (A) Investments in U.S. government securities shall not be subject to a concentration limit.
      - (B) Investments in U.S. agency obligations may not exceed 50 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (C) Investments in municipal securities may not exceed 10 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (D) Investments in government money market funds or U.S. Treasury exchange-traded funds with $1 billion or more in assets and whose management company manages $25 billion or more in assets may not exceed 50 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (E) Investments in government money market funds or U.S. Treasury exchange-traded funds with less than $1 billion in assets or which have a management company managing less than $25 billion in assets, may not exceed 10 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
    - (ii) **Issuer-based concentration limits for direct investments.**
      - (A) Securities of any single issuer of U.S. agency obligations held by a futures commission merchant or derivatives clearing organization may not exceed 25 percent of total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (B) Securities of any single issuer of municipal securities held by a futures commission merchant or derivatives clearing organization may not exceed 5 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (C) Interests in any single family of government money market funds or U.S. Treasury exchange-traded funds may not exceed 25 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (D) Interests in any individual government money market fund or U.S. Treasury exchange-traded fund may not exceed 10 percent of the total assets held in segregation by the futures commission merchant or derivatives clearing organization.
      - (E) For purposes of determining compliance with the issuer-based concentration limits set forth in this section, securities issued by entities that are affiliated, as defined in [paragraph (b)(5)](#b-5) of this section, shall be aggregated and deemed the securities of a single issuer. An interest in a permitted government money market fund or U.S. Treasury exchange-traded fund is not deemed to be a security issued by its sponsoring entity.
    - (iii) **Concentration limits for agreements to repurchase—**
      - (A) **Repurchase agreements.** For purposes of determining compliance with the asset-based and issuer-based concentration limits set forth in this section, securities sold by a futures commission merchant or derivatives clearing organization subject to agreements to repurchase shall be combined with securities held by the futures commission merchant or derivatives clearing organization as direct investments.
      - (B) **Reverse repurchase agreements.** For purposes of determining compliance with the asset-based and issuer-based concentration limits set forth in this section, securities purchased by a futures commission merchant or derivatives clearing organization subject to agreements to resell shall be combined with securities held by the futures commission merchant or derivatives clearing organization as direct investments.
    - (iv) **Treatment of customer-owned securities.** For purposes of determining compliance with the asset-based and issuer-based concentration limits set forth in this section, securities owned by the customers of a futures commission merchant and posted as margin collateral are not included in total assets held in segregation by the futures commission merchant, and securities posted by a futures commission merchant with a derivatives clearing organization are not included in total assets held in segregation by the derivatives clearing organization.
    - (v) **Counterparty concentration limits.** Securities purchased by a futures commission merchant or derivatives clearing organization from a single counterparty, or from one or more counterparties under common ownership or control, subject to an agreement to resell the securities to the counterparty or counterparties, shall not exceed 25 percent of total assets held in segregation or under [§ 30.7](/cfr/17/30.7.md) of this chapter by the futures commission merchant or derivatives clearing organization.
  - (4) **Time-to-maturity.**
    - (i) Except for investments in government money market funds, U.S. Treasury exchange-traded funds, and permitted foreign sovereign debt subject to the requirements of [paragraph (f)](#f) of this section, the dollar-weighted average of the time-to-maturity of the portfolio, as that average is computed pursuant to [17 CFR 270.2a-7](/cfr/17/270.2a-7.md), may not exceed 24 months.
    - (ii) For purposes of determining the time-to-maturity of the portfolio, an instrument that is set forth in [paragraphs (a)(1)(i) through (vii)](#a-1-i..a-1-vii) of this section may be treated as having a one-day time-to-maturity if the following terms and conditions are satisfied:
      - (A) The instrument is deposited solely on an overnight basis with a derivatives clearing organization pursuant to the terms and conditions of a collateral management program that has become effective in accordance with [§ 39.4](/cfr/17/39.4.md) of this chapter;
      - (B) The instrument is one that the futures commission merchant owns or has an unqualified right to pledge, is not subject to any lien, and is deposited by the futures commission merchant into a segregated account at a derivatives clearing organization;
      - (C) The derivatives clearing organization prices the instrument each day based on the current mark-to-market value; and
      - (D) The derivatives clearing organization reduces the assigned value of the instrument each day by a haircut of at least 2 percent.
  - (5) **Investments in instruments issued by affiliates.**
    - (i) A futures commission merchant shall not invest customer funds in obligations of an entity affiliated with the futures commission merchant, and a derivatives clearing organization shall not invest customer funds in obligations of an entity affiliated with the derivatives clearing organization. An affiliate includes parent companies, including all entities through the ultimate holding company, subsidiaries to the lowest level, and companies under common ownership of such parent company or affiliates.
    - (ii) A futures commission merchant or derivatives clearing organization may invest customer funds in a fund affiliated with that futures commission merchant or derivatives clearing organization.
- (c) **Government money market funds and U.S. Treasury exchange-traded funds.** The following provisions will apply to the investment of customer funds in government money market funds or U.S. Treasury exchange-traded funds (the fund).
  - (1) The fund must be an investment company that is registered under the Investment Company Act of 1940 with the Securities and Exchange Commission and that holds itself out to investors as a government money market fund, in accordance with [17 CFR 270.2a-7](/cfr/17/270.2a-7.md), or an exchange-traded fund, in accordance with [17 CFR 270.6c-11](/cfr/17/270.6c-11.md).
  - (2) The fund must be sponsored by a federally-regulated financial institution, a bank as defined in section 3(a)(6) of the Securities Exchange Act of 1934, an investment adviser registered under the Investment Advisers Act of 1940, or a domestic branch of a foreign bank insured by the Federal Deposit Insurance Corporation.
  - (3) A futures commission merchant or derivatives clearing organization shall maintain the confirmation relating to the purchase in its records in accordance with [§ 1.31](/cfr/17/1.31.md) and note the ownership of fund shares (by book-entry or otherwise) in a custody account of the futures commission merchant or derivatives clearing organization in accordance with [§ 1.26](/cfr/17/1.26.md). The futures commission merchant or the derivatives clearing organization shall obtain the acknowledgment letter required by [§ 1.26](/cfr/17/1.26.md) from an entity that has substantial control over the fund shares purchased with customer funds and has the knowledge and authority to facilitate redemption and payment or transfer of the customer funds. Such entity may include the fund sponsor or depository acting as custodian for fund shares.
  - (4) The net asset value of the fund must be computed by 9 a.m. of the business day following each business day and made available to the futures commission merchant or derivatives clearing organization by that time.
  - (5)
    - (i) **General requirement for redemption of interests.** A fund shall be legally obligated to redeem an interest and to make payment in satisfaction thereof by the business day following a redemption request, and the futures commission merchant or derivatives clearing organization shall retain documentation demonstrating compliance with this requirement.
    - (ii) **Exception.** A fund may provide for the postponement of redemption and payment due to any of the following circumstances:
      - (A) For any period during which there is a non-routine closure of the Fedwire or applicable Federal Reserve Banks;
      - (B) **For any period—** (1) During which the New York Stock Exchange is closed other than customary week-end and holiday closings; or

        (2) During which trading on the New York Stock Exchange is restricted;

      - (C) **For any period during which an emergency exists as a result of which—** (1) Disposal by the company of securities owned by it is not reasonably practicable; or

        (2) It is not reasonably practicable for such company fairly to determine the value of its net assets;

      - (D) For any period as the Securities and Exchange Commission may by order permit for the protection of security holders of the company;
      - (E) For any period during which the Securities and Exchange Commission has, by rule or regulation, deemed that:

        (1) Trading shall be restricted; or

        (2) An emergency exists; or

      - (F) For any period during which each of the conditions of [§ 270.22e-3(a)(1) through (3)](/cfr/17/270.22e-3.md?p=a-1..a-3) of this title are met.
  - (6) The agreement pursuant to which the futures commission merchant or derivatives clearing organization has acquired and is holding its interest in a fund must contain no provision that would prevent the pledging or transferring of shares.
  - (7) Appendix E to this part sets forth language that will satisfy the requirements of [paragraph (c)(5)](#c-5) of this section.
  - (8) A futures commission merchant or derivatives clearing organization may invest in interests in U.S. Treasury exchange-traded funds if:
    - (i) The U.S. Treasury exchange-traded fund invests at least 95 percent of its assets in securities comprising the short-term U.S. Treasury index whose performance the fund seeks to replicate and cash; and
    - (ii) **The purchase and liquidation of interests in the fund conform to the following requirements—**
      - (A) **Primary market transactions.** The futures commission merchant or derivatives clearing organization purchases or redeems interests in the fund on a delivery versus payment basis at a price based on the net asset value computed in accordance with the Investment Company Act of 1940 and regulations thereunder. A futures commission merchant or derivatives clearing organization that is an authorized participant of the fund may redeem interests in the fund in kind, provided that the futures commission merchant or derivatives clearing organization is able to convert the securities received pursuant to the in-kind redemption into cash within one business day of the redemption request. A futures commission merchant or derivatives clearing organization that transacts with the fund through an authorized participant acting as an agent for the futures commission merchant or derivatives clearing organization must have a contractual agreement obligating the authorized participant to pay the futures commission merchant's or derivatives clearing organization's redemption of interests in the fund in cash within one business day of the redemption request.
      - (B) **Secondary market transactions.** The futures commission merchant or derivatives clearing organization acquires or sells interests in the fund on a national securities exchange registered with the Securities and Exchange Commission under section 6 of the Securities Exchange Act of 1934.
- (d) **Repurchase and reverse repurchase agreements.** A futures commission merchant or derivatives clearing organization may buy and sell the permitted investments listed in [paragraphs (a)(1)(i) through (vii)](#a-1-i..a-1-vii) of this section pursuant to agreements for resale or repurchase of the securities (agreements to repurchase or resell), provided the agreements to repurchase or resell conform to the following requirements:
  - (1) The securities are specifically identified by coupon rate, par amount, market value, maturity date, and CUSIP or ISIN number.
  - (2) Permitted counterparties are limited to a bank as defined in section 3(a)(6) of the Securities Exchange Act of 1934, a domestic branch of a foreign bank insured by the Federal Deposit Insurance Corporation, a securities broker or dealer, or a government securities dealer registered with the Securities and Exchange Commission or which has filed notice pursuant to section 15C(a) of the Government Securities Act of 1986. In addition, with respect to agreements to repurchase or resell permitted foreign sovereign debt, the following entities are also permitted counterparties: a foreign bank that qualifies as a depository under [§ 1.49(d)(3)](/cfr/17/1.49.md?p=d-3) and that is located in a money center country as the term is defined in [§ 1.49(a)(1)](/cfr/17/1.49.md?p=a-1) or in another jurisdiction that has adopted the currency in which the permitted foreign sovereign debt is denominated as its currency; a securities broker or dealer located in a money center country as the term is defined in [§ 1.49(a)(1)](/cfr/17/1.49.md?p=a-1) and that is regulated by a national financial regulator or a provincial financial regulator with respect to a Canadian securities broker or dealer; and the Bank of Canada, the Bank of England, the Banque de France, the Bank of Japan, the Deutsche Bundesbank, or the European Central Bank.
  - (3) A futures commission merchant or derivatives clearing organization shall not enter into an agreement to repurchase or resell with a counterparty that is an affiliate of the futures commission merchant or derivatives clearing organization, respectively. An affiliate includes parent companies, including all entities through the ultimate holding company, subsidiaries to the lowest level, and companies under common ownership of such parent company or affiliates.
  - (4) The transaction is executed in compliance with the concentration limit requirements applicable to the securities transferred to the customer segregated custodial account in connection with the agreements to repurchase referred to in paragraphs [(b)(3)(iii)(A)](#b-3-iii-A) and [(B)](#b-3-iii-B) of this section.
  - (5) The transaction is made pursuant to a written agreement signed by the parties to the agreement, which is consistent with the conditions set forth in [paragraphs (d)(1) through (13)](#d-1..d-13) of this section and which states that the parties thereto intend the transaction to be treated as a purchase and sale of securities.
  - (6) The term of the agreement is no more than one business day, or reversal of the transaction is possible on demand.
  - (7) Securities transferred to the futures commission merchant or derivatives clearing organization under the agreement are held in a safekeeping account with a bank as referred to in [paragraph (d)(2)](#d-2) of this section, a Federal Reserve Bank, a derivatives clearing organization, or the Depository Trust Company in an account that complies with the requirements of [§ 1.26](/cfr/17/1.26.md). Securities transferred to the futures commission merchant or derivatives clearing organization under an agreement related to permitted foreign sovereign debt may also be held in a safekeeping account that complies with the requirements of [§ 1.26](/cfr/17/1.26.md) at a foreign bank that meets the location and qualification requirements in § [1.49(c)](/cfr/17/1.49.md?p=c) and [(d)](/cfr/17/1.49.md?p=d), or with the Bank of Canada, the Bank of England, the Banque de France, the Bank of Japan, the Deutsche Bundesbank, or the European Central Bank.
  - (8) The futures commission merchant or the derivatives clearing organization may not use securities received under the agreement in another similar transaction and may not otherwise hypothecate or pledge such securities, except securities may be pledged on behalf of customers at another futures commission merchant or derivatives clearing organization. Substitution of securities is allowed, provided, however, that:
    - (i) The qualifying securities being substituted and original securities are specifically identified by date of substitution, market values substituted, coupon rates, par amounts, maturity dates and CUSIP or ISIN numbers;
    - (ii) Substitution is made on a “delivery versus delivery” basis; and
    - (iii) **The market value of the substituted securities is at least equal to that of the original securities.**
  - (9) The transfer of securities to the customer segregated custodial account is made on a delivery versus payment basis in immediately available funds. The transfer of funds to the customer segregated cash account is made on a payment versus delivery basis. The transfer is not recognized as accomplished until the funds and/or securities are actually received by the custodian of the futures commission merchant's or derivatives clearing organization's customer funds or securities purchased on behalf of customers. The transfer or credit of securities covered by the agreement to the futures commission merchant's or derivatives clearing organization's customer segregated custodial account is made simultaneously with the disbursement of funds from the futures commission merchant's or derivatives clearing organization's customer segregated cash account at the custodian bank. On the sale or resale of securities, the futures commission merchant's or derivatives clearing organization's customer segregated cash account at the custodian bank must receive same-day funds credited to such segregated account simultaneously with the delivery or transfer of securities from the customer segregated custodial account.
  - (10) A written confirmation to the futures commission merchant or derivatives clearing organization specifying the terms of the agreement and a safekeeping receipt are issued immediately upon entering into the transaction and a confirmation to the futures commission merchant or derivatives clearing organization is issued once the transaction is reversed.
  - (11) The transactions effecting the agreement are recorded in the record required to be maintained under [§ 1.27](/cfr/17/1.27.md) of investments of customer funds, and the securities subject to such transactions are specifically identified in such record as described in [paragraph (d)(1)](#d-1) of this section and further identified in such record as being subject to repurchase and reverse repurchase agreements.
  - (12) An actual transfer of securities to the customer segregated custodial account by book entry is made consistent with Federal or State commercial law, as applicable. At all times, securities received subject to an agreement are reflected as “customer property.”
  - (13) The agreement makes clear that, in the event of the bankruptcy of the futures commission merchant or derivatives clearing organization, any securities purchased with customer funds that are subject to an agreement may be immediately transferred. The agreement also makes clear that, in the event of a futures commission merchant or derivatives clearing organization bankruptcy, the counterparty has no right to compel liquidation of securities subject to an agreement or to make a priority claim for the difference between current market value of the securities and the price agreed upon for resale of the securities to the counterparty, if the former exceeds the latter.
- (e) **Deposit of firm-owned securities into segregation.** A futures commission merchant may deposit unencumbered securities of the type specified in this section, which it owns for its own account, into a customer account. A futures commission merchant must include such securities, transfers of securities, and disposition of proceeds from the sale or maturity of such securities in the record of investments required to be maintained by [§ 1.27](/cfr/17/1.27.md). All such securities may be segregated in safekeeping only with a bank, trust company, derivatives clearing organization, or other registered futures commission merchant in accordance with the provisions of [§ 1.20](/cfr/17/1.20.md) part. For purposes of this section and §§ [1.27](/cfr/17/1.27.md), [1.28](/cfr/17/1.28.md), [1.29](/cfr/17/1.29.md), and [1.32](/cfr/17/1.32.md), securities of the type specified by this section that are owned by the futures commission merchant and deposited into a customer account shall be considered customer funds until such investments are withdrawn from segregation in accordance with the provisions of [§ 1.23](/cfr/17/1.23.md). Investments permitted by § 1.25 that are owned by the futures commission merchant and deposited into a futures customer account pursuant to [§ 1.26](/cfr/17/1.26.md) shall be considered futures customer funds until such investments are withdrawn from segregation in accordance with [§ 1.23](/cfr/17/1.23.md). Investments permitted by § 1.25 that are owned by the futures commission merchant and deposited into a Cleared Swaps Customer Account, as defined in [§ 22.1](/cfr/17/22.1.md) of this chapter, shall be considered Cleared Swaps Customer Collateral, as defined in [§ 22.1](/cfr/17/22.1.md) of this chapter, until such investments are withdrawn from segregation in accordance with [§ 22.17](/cfr/17/22.17.md) of this chapter.
- (f) **Permitted foreign sovereign debt.** The following provisions will apply to investments of customer funds in permitted foreign sovereign debt.
  - (1) The dollar-weighted average of the remaining time-to-maturity of the portfolio of investments in permitted foreign sovereign debt, as that average is computed pursuant to [17 CFR 270.2a-7](/cfr/17/270.2a-7.md) on a country-by-country basis, may not exceed 60 calendar days. Permitted foreign sovereign debt instruments acquired under an agreement to resell shall be deemed to have a maturity equal to the period remaining until the date on which the resale of the underlying instruments is scheduled to occur, or, where the agreement is subject to demand, the notice period applicable to a demand for the resale of the securities. Permitted foreign sovereign debt instruments sold under an agreement to repurchase shall be included in the calculation of the dollar-weighted average based on the remaining time-to-maturity of each instrument sold.
  - (2) A futures commission merchant or a derivatives clearing organization may not invest customer funds in any permitted foreign sovereign debt that has a remaining maturity greater than 180 calendar days.
  - (3) If the two-year credit default spread, computed as the average of the bid and ask prices between willing buyers and sellers, of an issuing sovereign of permitted foreign sovereign debt is greater than 45 basis points:
    - (i) The futures commission merchant or derivatives clearing organization shall not make any new investments in that sovereign's debt using customer funds.
    - (ii) The futures commission merchant or derivatives clearing organization must discontinue investing customer funds in that sovereign's debt through agreements to resell as soon as practicable under the circumstances.

# §1.26. Deposit of instruments purchased with futures customer funds.

- (a) Each futures commission merchant who invests futures customer funds in instruments described in [§ 1.25](/cfr/17/1.25.md), except for investments in government money market funds, shall separately account for such instruments as futures customer funds and segregate such instruments as funds belonging to such futures customers in accordance with the requirements of [§ 1.20](/cfr/17/1.20.md). Each derivatives clearing organization which invests money belonging or accruing to futures customers of its clearing members in instruments described in [§ 1.25](/cfr/17/1.25.md), except for investments in government money market funds, shall separately account for such instruments as customer funds and segregate such instruments as customer funds belonging to such futures customers in accordance with [§ 1.20](/cfr/17/1.20.md).
- (b) Each futures commission merchant or derivatives clearing organization which invests futures customer funds in government money market funds, as permitted by [§ 1.25](/cfr/17/1.25.md), shall separately account for such funds and segregate such funds as belonging to such futures customers. Such funds shall be deposited under an account name that clearly shows that they belong to futures customers and are segregated as required by sections 4d(a) and 4d(b) of the Act and by this part. Each futures commission merchant or derivatives clearing organization, upon opening such an account, shall obtain and maintain readily accessible in its files in accordance with [§ 1.31](/cfr/17/1.31.md), for as long as the account remains open, and thereafter for the period provided in [§ 1.31](/cfr/17/1.31.md), a written acknowledgment and shall file such acknowledgment in accordance with the requirements of [§ 1.20](/cfr/17/1.20.md). In the event such funds are held directly with the government money market fund or its affiliate, the written acknowledgment shall be in the form as set out in appendix F or G to this part. In the event such funds are held with a depository, the written acknowledgment shall be in the form as set out in appendix C or D to this part. In either case, the written acknowledgment shall be obtained, provided to the Commission and designated self-regulatory organizations, and retained as required under [§ 1.20](/cfr/17/1.20.md).

# §1.27. Record of investments.

- (a) Each futures commission merchant which invests customer funds, and each derivatives clearing organization which invests customer funds of its clearing members' customers, shall keep a record showing the following:
  - (1) The date on which such investments were made;
  - (2) The name of the person through whom such investments were made;
  - (3) The amount of money or current market value of securities so invested;
  - (4) A description of the instruments in which such investments were made, including the CUSIP or ISIN numbers;
  - (5) The identity of the depositories or other places where such instruments are segregated;
  - (6) The date on which such investments were liquidated or otherwise disposed of and the amount of money or current market value of securities received on such disposition, if any; and
  - (7) The name of the person to or through whom such investments were disposed of; and
  - (8) Daily valuation for each instrument and readily available documentation supporting the daily valuation for each instrument. Such supporting documentation must be sufficient to enable auditors to verify the valuations and the accuracy of any information from external sources used in those valuations.
- (b) Each derivatives clearing organization which receives documents from its clearing members representing investment of customer funds shall keep a record showing separately for each clearing member the following:
  - (1) The date on which such documents were received from the clearing member;
  - (2) A description of such documents, including the CUSIP or ISIN numbers; and
  - (3) The date on which such documents were returned to the clearing member or the details of disposition by other means.
- (c) Such records shall be retained in accordance with [§ 1.31](/cfr/17/1.31.md). No such investments shall be made except in instruments described in [§ 1.25](/cfr/17/1.25.md).

# §1.28. Appraisal of instruments purchased with customer funds.


Futures commission merchants who invest customer funds in instruments described in [§ 1.25](/cfr/17/1.25.md) of this part shall include such instruments in segregated account records and reports at values which at no time exceed current market value, determined as of the close of the market on the date for which such computation is made.


# §1.29. Gains and losses resulting from investment of customer funds.

- (a) The investment of customer funds in instruments described in [§ 1.25](/cfr/17/1.25.md) shall not prevent the futures commission merchant or derivatives clearing organization so investing such funds from receiving and retaining as its own any incremental income or interest income resulting therefrom.
- (b) The futures commission merchant or derivatives clearing organization, as applicable, shall bear sole responsibility for any losses resulting from the investment of customer funds in instruments described in [§ 1.25](/cfr/17/1.25.md). No investment losses shall be borne or otherwise allocated to the customers of the futures commission merchant and, if customer funds are invested by a derivatives clearing organization in its discretion, to the futures commission merchant.

# §1.30. Loans by futures commission merchants; treatment of proceeds.


Nothing in the regulations in this chapter shall prevent a futures commission merchant from lending its own funds to customers on securities and property pledged by such customers, or from repledging or selling such securities and property pursuant to specific written agreement with such customers. The proceeds of such loans used to purchase, margin, guarantee, or secure the trades, contracts, or commodity options of customers shall be treated and dealt with by a futures commission merchant as belonging to such customers, in accordance with and subject to the provisions of the Act and these regulations. A futures commission merchant may not loan funds on an unsecured basis to finance customers' trading, nor may a futures commission merchant loan funds to customers secured by the customer accounts of such customers.