The Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk issued a no action letter covering derivatives clearing organizations (DCOs) that use trust companies for daily settlements with clearing members. The division will not recommend enforcement action against any DCO for that use if it treats the trust company as a settlement bank for compliance with Regulations 39.14(c) and (d). This includes applying requirements for evaluating and monitoring settlement banks to the trust company. The relief responds to a request from Nodal Clear, LLC, concerning Regulation 39.14’s definition of a settlement bank, which refers to a bank but does not explicitly include trust companies. By contrast, the CFTC’s customer protection framework permits customer funds to be held with banks or trust companies. Nodal argued that allowing trust companies to conduct daily settlements could facilitate DCOs’ acceptance of digital assets as margin collateral by integrating those assets into existing daily collateral movement workflows.
CFTC staff provides conditional no action relief for daily settlements through trust companies
The Commodity Futures Trading Commission’s clearing division will not recommend enforcement action against derivatives clearing organizations that use trust companies for daily settlements with clearing members, provided they apply the settlement bank requirements in Regulations 39.14(c) and (d). The relief follows a request from Nodal Clear, which argued that using trust companies could help integrate digital assets accepted as margin collateral into daily collateral movement workflows.