January 17, 2024

Submitted electronically via the CFTC Comments Portal

Mr. Christopher J. Kirkpatrick
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581

Re: Comments to Proposed Amendments to CFTC Regulation 1.25 (RIN 3038-AF24)

Dear Mr. Kirkpatrick:

The members of the Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”)1 2 appreciate the opportunity to provide comments to the Commodity Futures Trading Commission (the “CFTC” or the “Commission”) on the proposed amendments to CFTC Regulation 1.25 (the “Proposal”).3

Under the Proposal, the Commission would (i) expand the scope of permissible investments of Customer Funds (defined below) to include U.S. Treasury exchange-traded funds (“U.S. Treasury ETFs”) and certain foreign sovereign debt; (ii) limit the scope of money market fund (“MMF”) interests that qualify as permitted investments; (iii) replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) as a permitted benchmark for variable and floating interest rates for securities that qualify as permitted investments; (iv) clarify that derivatives clearing organizations (“DCOs”) are responsible for losses resulting from investments of cleared swap customer collateral in permitted investments; (v) eliminate provisions that require futures commission merchants (“FCMs”) to deposit Customer Funds with depositories that agree to provide Market Participants Division staff with direct, read-only electronic access to accounts holding Customer Funds; and (vi) make other changes in connection with the new categories of proposed permitted investments.

I. Executive Summary

SIFMA AMG supports the Proposal and the updating of CFTC Regulation 1.25 to include foreign sovereign debt and U.S. Treasury ETFs as permitted investments of Customer Funds. The Proposal, however, could be enhanced with some modifications set out below:

• FCMs and DCOs should be permitted to use a third-party authorized participant (“AP”)4 as their agent to purchase and redeem shares of U.S. Treasury ETFs or to purchase such shares on the secondary market, in each case, on a delivery-versus-payment basis.
• Redemptions in-kind of U.S. Treasury ETF shares should be allowed.
• The limitation of U.S. Treasury ETFs to those that a DCO accepts as performance bond risks importing criteria for this permitted investment that go beyond the CFTC’s objectives of liquidity and safety. The limitation should therefore be removed.
• The proposed concentration limits for U.S. Treasury ETFs and for permissible MMFs should be less restrictive to avoid unnecessary operational burdens on FCMs and DCOs investing Customer Funds.
• The Commission should consider necessary changes to CFTC Regulation 1.25 in light of the Securities and Exchange Commission (“SEC”) Treasury Clearing Rules.

SIFMA AMG believes the above modifications will ensure liquidity, ease of convertibility of the permitted investments into cash and operational flexibility without affecting principal preservation. Thus, the modifications that SIFMA AMG is proposing would be consistent with the CFTC’s stated goals for investments permitted under CFTC Regulation 1.25.

1 SIFMA AMG brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.

2 SIFMA AMG appreciates the advice and drafting assistance provided by Penny Christophorou, Sarah Riddell, and Michael Philipp of Morgan, Lewis & Bockius.

3 Investment of Customer Funds by Futures Commission Merchants and Derivatives Clearing Organizations, 88 Fed. Reg. 81,236 (Nov. 21, 2023).