Comparison Chart – Regulation 1.25, Current vs Proposed Changes

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on Investment of Customer Funds. The CFTC final rule was issued at its December 5, 2011 open meeting.
Dodd-Frank Timeline, Investment of Customer Funds
Final Rule Issue Effective Date Compliance Deadline
December 19, 2011 February 17, 2012 June 18, 2012

On October 26, 2010, the Commodity Futures Trading Commission (CFTC) held its third in the series of open meetings to consider the issuance of proposed rulemakings under the Dodd-Frank Act. One of the agenda items was a proposed rule regarding the the investment of customer funds and credit ratings.[1]

Background

Subsequent to the Commodity Futures Modernization Act of 2000, the commission modified Regulation 1.25 to allow customer funds to be invested in certain types of securities that were previously prohibited. The list of allowable investments was further expanded in 2004 and 2005. Prior to 2000, only U.S. government securities were allowed. The changes expanded the list to include:

  • obligations of government sponsored entities ("GSE debt"),
  • bank certificates of deposit (CDs),
  • commercial paper,
  • corporate notes,
  • general obligations of a sovereign nation, ("sovereign debt"), and
  • interests in money market mutual funds (MMMFs).[2]

Title I of the Dodd-Frank Act established the Financial Stability Oversight Council (FSOC) in order to promote financial stability by monitoring systemic risks. The CFTC, one of the regulators that comprise the FSOC, proposed concentration limits by asset type and issuer, and a removal of the reliance on credit ratings in determining the eligibility of a security. Of note:

  • CDs, commercial paper, and corporate securities would be subject to a concentration limit of 25 percent each.
  • GSEs would be subject to a concentration limit of 50 percent.
  • Foreign sovereign debt would no longer be considered suitable for the investment of customer funds.
  • Current limits on the placement of funds with a certain issuer would remain unchanged, except for money market mutual funds, which would be subject to a limit of 2 percent for any given family of funds.

A chart comparing the current and proposed limits can be found below.

References

  1. Open Meeting on Third Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on March 3, 2011.
  2. Title 17: Commodity and Securities Exchanges. Electronic Code of Federal Regulations. Retrieved on November 2, 2011.

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