Oct 31, 2025 In December of 2024 the CFTC established a new regulation which does not happen frequently. Regulation 1.44 was put in place to allow clearing and non-clearing FCMs a pathway to treat separate accounts of a single beneficial owner as accounts of different legal entities. Regulation 1.44 lays out how FCMs must approach margin adequacy concepts. Regulation 1.44 was established as of March 24, 2025 and had a compliance date effective as of July 21, 2025 for clearing FCMs. The compliance date for all other FCMs will be January 22, 2026. Turnkey is publishing this information as it has noticed many non-clearing FCMs have not updated policies and procedures or considered the changes put in place by regulation 1.44. How Does Regulation 1.44 Work? Regulation 1.44 allows an FCM to elect to treat a single customer’s multiple accounts as if they belonged to separate legal entities. This treatment is for the specific purpose of initial margin withdrawals. Turnkey has reviewed the new regulation and has summarized below what an FCM must do to apply the concepts available under the new regulation. Traditionally a customer has not been permitted to withdraw funds from any of their accounts if the net liquidating value (previous day’s close) plus the remaining margin across all of their accounts combined is not enough to meet the total initial margin required for all their positions held with the FCM. This treats the customer as a single entity. After the implementation of regulation 1.44 the FCM may make an election for separate account treatment. If this election is made an FCM can choose to allow withdrawals on an account-by-account basis. This is a significant operational benefit, as it means a well-margined account is not restricted by a temporary shortfall in another account owned by the same customer. To exercise the above election an FCM must document the customer on a “separate account list.” After this the FCM must notify its Designated Self-Regulatory Organization (DSRO), usually CME Group for clearing FCMs and National Futures Association for non-clearing FCMS, as well as the CFTC. This notification must occur within one business day of its decision to separately margin an account. FCMs should be aware that being permitted the flexibility of separate account treatment comes with strict, mandated risk controls. These controls are primarily intended to prevent a customer default from impacting the FCM’s segregated futures, cleared swap, or secured customer asset funds. If an FCM makes this election other policies and procedures, as well as disclosures, must also be updated. We have summarized these obligations below as well. New Customer Disclosures An FCM must provide its customers with a mandatory disclosure informing them that, in the event of the FCM’s bankruptcy or insolvency, all customer separate accounts will be combined (aggregated) for the liquidation process. The FCM must also disclose that allowing separate account treatment may potentially contribute to a loss that could impact the segregated funds of all customers. Liquidity and Risk Management Requirements For an account to qualify for separate account treatment, each separate account must be on a one business day margin call. This is the most critical risk control for liquidity. Standard Requirement: If an account is under margined from the previous day’s market movements, the margin call must be met by the close of the Fedwire Funds Service on the same business day. A one day grace period is permitted due to an administrative error or other operational constraint. Foreign Currencies: Different deadlines apply for certain foreign currencies, extending the time slightly to account for settlement times. This generally would be one additional business day. No Contractual Extensions: FCMs cannot offer a contractual grace period longer than what is specified in the rule. FCMs must also treat each separate account as a distinct entity for capital and deficit purposes. This is intended to reduce the chance of risk contagion whereby one account impacts other accounts or the FCMs segregated or secured funds asset pools. To accomplish this the CFTC is requiring the following additional restrictions: No Offsets: FCMs cannot offset a debit (shortfall) in one separate account against a credit (excess) in another separate account of the same customer when calculating Adjusted Net Capital or margin requirements. FCM Funds Required: Any deficit in a separate account must be covered by the FCM’s own funds, taken out of its residual interest total on deposit within customer segregated, secured funds. Risk Modeling: The FCM’s internal risk management program must stress test and apply credit limits on both an individual separate account and a combined account basis. Stress test limits and results should be factored into tolerance and breach threshold reporting levels. The CFTC went further and described when an FCM can choose to use the Traditional approach of the Separate Treatment method when determining margin adequacy. Regulation 1.44 defines terms such as “Business Day”, “Holiday”, and the concept of “Ordinary Course of Business”. Using these definitions the Separate Treatment method is only permitted during the Ordinary Course of Business. Examples of events which would violate the Ordinary Course of Business concept can be applied at either the Customer or FCM level. Below are examples of events which would disallow the use of the Separate Treatment method for individual customer accounts or across the entire FCM if they were to occur: Customer Specific Distress: Failure to meet the one-day margin call obligation Declaration of an event of default as defined by customer account documentation or agreements Good faith determination by the FCM’s senior risk/compliance staff Insolvency or bankruptcy of the customer or its parent company FCM Or Market Wide Distress Events: The FCM is notified by a regulator that it is in financial or other distress FCMs management makes a good faith determination that the FCM is in financial or other distress Insolvency or bankruptcy of the FCM or its parent company In the event of a cessation event requiring the FCM to cease utilizing the Separate Treatment method the FCM must promptly, within one business day, notify both its DSRO and the CFTC of the circumstances related to the cessation event. Potential Benefits and Business Opportunities? Turnkey believes that a potential significant benefit of Regulation 1.44 will come for customers of FCMs that are investment funds, pension plans, insurance companies, or large commercial entities. Other industry commentaries on regulation 1.44 agree with this assessment. Benefits should also be seen for certain industry allocators who place investments with various trading advisors in separately managed account structures. Regulation 1.44 allows FCMs and their customers to choose to individually margin accounts rather than net them for the same beneficial owner. This ensures that margin adequacy is determined on an account-by-account basis rather than a customer-by-customer basis. Firms with a focus on managed futures and third party account controllers could see gains in flexibility if they are willing to work within the new regulation to accommodate allocators. If you have any questions about CFTC Regulation 1.44 and how it may impact your operations please contact us today. Turnkey offers Customer Protection Training as required under CFTC Regulation 1.11 for Risk Management Programs. We have covered this new obligation, as well as other segregated fund accounting and risk management concepts further within this course work.