Broader guidance for our market emerged in the Division of Clearing and Risk’s letter 21-08 about the CFTC’s regulation 39.13(g)(8)(ii). Referring back to its own interpretive letter 12-08, the Division of Clearing and Risk pointed out that the CFTC had adopted many of the staff’s 2012 interpretations regarding futures commission merchants’ initial margin requirements for clearing customers in a revised regulation 39.13 that took effect in January, 2021. In keeping with the CFTC’s regulations and CFTC staff guidance, derivatives clearing organizations have required futures commission merchants to gather initial margin for cleared trades from customers that at least meets the derivatives clearing organization’s initial margin requirements for each cleared trade. That baseline initial margin amount is sometimes referred to as “clearing initial margin”, and could have been the only initial margin collected when a futures commission merchant was convinced that the customer was using the cleared trade as a hedge. Futures commission merchants could, and under the CFTC’s updated regulations and Division of Clearing and Risk’s interpretive letter 21-08 still can, require added initial margin from customers with a heightened risk profile. And now derivatives clearing organizations considering what their futures commission merchant clients are collecting from their customers will look at those underlying customers’ “heightened risk profile” under regulation 39.13(g)(8)(ii) rather than “non-hedge” trades. In interpretive letter 21-08, the Division of Clearing and Risk staff clearly states that futures commission merchants may only recharacterize a customer previously designated “non-hedge” as non-heighted risk profile under the revised regulation if the futures commission merchant “can demonstrate that it is warranted based on the risk profile of the customer”. Designated clearing organizations must continue to review members’ policies and procedures “to ensure that they are reasonably designed to determine which categories of customers have heightened risk profiles, and that they result in clearing members collecting customer initial margin commensurate with the risk presented to the [futures commission merchant].” In short, if you were compliant before, keep it up.

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