In order to introduce a new account class for customers’ cleared-only over-the-counter (OTC) derivatives, the Commodity Futures Trading Commission (CFTC) has amended its Part 190 bankruptcy rules. This new category is for positions and funds that are not in the futures account class pursuant to a CFTC 4d Order.
To date, CME Group has launched a number of cleared-only OTC derivative products, and has relied on utilization of 30.7 accounts for the purposes of providing regulatory underpinning for customer protection.
It has been and continues to be CME Group’s general plan to petition the CFTC for 4d treatment (i.e., customer segregation) for cleared-only OTC derivatives products that are currently subject to 30.7 treatment. Please also note that the CFTC’s OTC account class rule making has no effect on any existing, pending 4d requests submitted by CME Group to the CFTC. As stated in the CFTC’s release on the new OTC account class, “the Commission will continue to review petitions for Section 4d Orders and will approve such petitions in appropriate cases.”
Clearing firms can anticipate the following course of action from CME Group in response to the CFTC’s OTC account class initiative: CME Group will, in coordination with the industry, work to establish an approach towards supporting the OTC account class. Select products, currently covered by 30.7 treatment, will be transitioned from 30.7 account treatment to OTC account treatment, if the CFTC has not already issued a 4d order for the product in question. It is CME Group’s intention to pursue an orderly approach towards ceasing the use of 30.7 accounts for cleared-only OTC derivative products.
Further information will be available in the days ahead, outlining particulars of the approach CME Group intends to utilize towards the adoption of the OTC account class.