The SEC's exemptive order allows dually-registered broker-dealers that are also futures commission merchants with the CFTC to offer cross-margining to certain customers in futures accounts, provided the broker-dealer is a joint clearing member of both a registered clearing agency and derivatives clearing organization. The order provides an exemption from the broker-dealer customer protection rule specifically for this cross-margining activity.
The agency simultaneously approved a proposed rule change filed by the Fixed Income Clearing Corporation (FICC) to enter into a Third Amended and Restated Cross-Margining Agreement with Chicago Mercantile Exchange Inc. (CME). The agreement extends cross-margining availability to positions cleared and carried for customers by dually registered entities that are common members of both FICC and CME, incorporating the agreement into FICC's Government Securities Division rules.
Prior to this action, only clearing members could cross-margin futures positions in U.S. Treasury securities cleared at CME with cash market positions in U.S. Treasury securities cleared at FICC. The new framework expands this capability to customer positions.
According to the SEC, Commissioner Mark T. Uyeda, who has been leading the SEC's efforts in this area, said: "Today's issuance of orders completes another step in the implementation of Treasury clearing. It advances the goal of both the SEC and the CFTC to unlock additional liquidity and helps ensure the market for U.S. Treasury securities remains resilient."
A related CFTC exemptive order will complement the SEC's action. The SEC exemptive order and the FICC rule change approval will be available on SEC.gov before publication in the Federal Register.