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CFTC Permits FCMs and Clearing Organizations to Invest in Money Market Funds

Washington, DC, January 16, 2001 - The Commodity Futures Trading Commission has adopted rule amendments to Commodity Exchange Act Rule 1.25, which, among other things, permits futures commission merchants (FCMs) and clearing organizations to invest customer funds in money market funds, subject to certain conditions. The Institute submitted a comment letter last year on the CFTC’s rule proposal. The rule amendments become effective on February 12, 2001.

In particular, the final rule:

  • eliminates the ratings requirement with respect to unrated money market funds, but imposes it for those funds that are already rated by an NRSRO;
  • does not prohibit an investment in a money market fund if the fund invested in any instrument issued by an FCM or clearing organization or an affiliate thereof;
  • clarifies that technically a fund should register with the SEC as an investment company and hold itself out to investors as a money market fund;
  • includes registered investment advisers to the list of permitted sponsors of money market funds;
  • requires the recording of fund ownership (by book-entry or otherwise) in a custody account of the FCM or clearing organization. The final rule also requires the FCM or clearing organization to maintain in its records the confirmation relating to the purchase of fund shares;
  • permits investment in a money market fund that computes its net asset value by 9:00 a.m. of the business day following each business day; and
  • requires that in order to invest in a money market fund, the fund must be able to provide for a one-day redemption of its shares. The CFTC explains in the adopting release that imposing a one-day liquidity requirement is necessary to ensure that FCMs will meet their funding requirements. The adopting release also provides that evidence of satisfaction of this condition may include "either an appropriate provision in the offering memorandum of the fund or a separate side agreement between the fund and an FCM or clearing organization."