In response to recent client questions regarding the various considerations and options for holding short-term funds, we have prepared a reference chart comparing certain key characteristics of demand deposits with government securities, money market funds, and other short-term cash management instruments. Please note that this information is not provided as investment advice. 

Please contact your Perkins Coie lawyer or email with questions or for assistance.

View the reference guide.

On February 28, 2023, the National Futures Association (NFA) submitted the proposed adoption of NFA Compliance Rule 2-51 to the Commodity Futures Trading Commission (CFTC). The new compliance rule will apply to NFA members, including commodity pool operators (CPOs) and commodity trading advisors (CTAs), engaged in activities involving digital asset commodities. For purposes of the new compliance rule, the term digital asset commodity means Bitcoin and ether.

Upon adoption, the new compliance rule will:

1) Impose anti-fraud, just and equitable principles of trade, and supervision requirements on NFA Members and Associates that engage in digital asset commodity activities, including spot or cash market activities; and

2) Require NFA Members, including CPOs and CTAs, to make disclosures required by NFA’s Interpretive Notice 9073, Disclosure Requirements for NFA Members Engaged in Virtual Currency Activities.

In the Explanation of the Proposed Rule, NFA indicated that the proposed compliance rule was intended to fill an existing gap in the oversight of digital asset markets by NFA. Specifically, NFA explained that:

Well over 100 NFA Member firms have reported to NFA that they engage in business activities related to digital assets, both in commodity interest and spot markets. However, with the exception of NFA’s Interpretive Notice 9073, which sets forth limited disclosure requirements, NFA does not have any rules that specifically address its Members’ digital asset activities in the spot markets.

Explanation of Proposed Rule, P. 3 of NFA Submission to CFTC Dated February 28, 2023

In its submission, NFA indicated that it plans to make this compliance rule effective as early as ten days after receipt of the submission by the CFTC unless the CFTC notifies NFA that the CFTC has determined to review the proposal for approval.

Good day. Good to know? DR2

According to Newsweek, Punxsutawney Phil saw his shadow on February 2, 2023, signaling 6 more weeks of winter. And, on February 24, 2023, the Financial Institution Regulatory Authority (FINRA) submitted a filing to the SEC that, in effect, will defer implementation of revisions to FINRA Rule 4210 mandating so-called “TBA margining” (technically, margin requirements in respect of Covered Agency Transactions) by another 6 month period .

The “new” effective date for the implementation of revisions to FINRA Rule 4210 that mandate the margining of Covered Agency Transaction is (as of now) October 25, 2023.


Hardly – in fact the two events are not related at all….To quote that wise video game character Mario (of Super Mario Bros. fame), “Here we go again.”

Good day. Good delay (again)? DR2

While working out the possible impact of the SEC’s proposal to require central clearing of triparty repurchase agreements, we realized that we short-changed the analysis of multilateral netting in our last post. Our explanation of the SEC’s example focused on just the cash side of the trades, which is to say the amounts to be paid. To appreciate multilateral netting fully, we need to consider the security side of the trades, what is to be delivered, as well. This post seeks to rectify our oversight.

Continue Reading Treasury Clearing Proposal:  More on Multilateral Netting

Our previous post explained the SEC’s proposal (the Proposal) to require central clearing of all “eligible secondary market transactions” with a participant in the Fixed Income Clearing Corporation (FICC). In this post we review the benefits of central clearing cited by the SEC to justify its Proposal. We also discuss “hybrid clearing” and “multilateral netting.” Continue Reading Central Clearing of Treasury Trades—What the SEC Hopes to Accomplish

In March 2020, we published a post entitled Master Agreements and Volatile Markets: Decline in Net Asset Value Provisions.

We believe that the March 2020 post is particularly relevant in light of the cascading nature of stock market declines over the past year, and on-going market commentary and debates about the likelihood and extent of a recession. Regardless of the ultimate outcome of these debates, increased market volatility presents buy-side firms with the opportunity to re-familiarize themselves with the key terms and conditions of their derivatives trading documentation, including decline in net asset value (“NAV”) provisions.

In short, everything that we mentioned about decline in NAV provisions in March 2020 continues to be true today, although we are taking this opportunity to supplement the March 2020 post with the following considerations:

  • In addition to inventorying the terms of decline in NAV provisions, we recommend that investment managers review and analyze their trading agreements for provisions that may effectively import a close-out event from one trading agreement into another (or even every other) trading agreement.
  • For example, it is possible that a Master Securities Forward Trading Agreement (“MSFTA“) with a broker-dealer (“Party A“) may include a provision that could result in the early termination of all transactions under that MSFTA if a default or early termination occurs under any other trading agreement with Party A or any of its affiliates.
  • So, by way of further example, the forward transactions under the MSFTA could be subject to early termination by Party A, if a Decline in NAV event with respect to the investment manager’s client is triggered under an ISDA Master Agreement with an affiliate of Party A.

The March 2020 article is available here.

Good day. Good, as we mentioned in March 2020, to be especially mindful of “the basics”. DR2

On September 14, 2022, the SEC proposed amendments (the Proposal) to regulations for clearing agencies under the Securities Exchange Act of 1934 (the Exchange Act). The Proposal would increase the central clearing of U.S. Treasury securities, to be defined as “any security issued by the U.S. Department of the Treasury.” According to the SEC’s press release, “the proposal would require that clearing agencies in the U.S. Treasury market adopt policies and procedures designed to require their members to submit for clearing certain specified secondary market transactions.”

FICC: The Covered Clearing Agency

The proposal would amend Rule 17Ad-22 under the Exchange Act regarding any clearing agency registered with the SEC that (a) acts as a central counterparty or central securities depository (a covered clearing agency or CCA) and (b) provides central counterparty (CCP) services for U.S. Treasury securities. “The Commission defines a CCP as a clearing agency that interposes itself between the counterparties to securities transactions, acting functionally as the buyer to every seller and the seller to every buyer.” A CCP accomplishes this through the process of “novation,” in the sense of “replacing a party to an agreement with a new party.” Effectively, the trade between the buyer and seller is replaced by two trades, one in which the clearing agency agrees to sell the Treasury security to the buyer and the other in which the clearing agency agrees to buy that Treasury security from the seller. After novation, the seller and buyer no longer have delivery obligations to one another.

Currently, only one registered clearing agency, the Fixed Income Clearing Corporation (‘FICC’), provides CCP services for U.S. Treasury securities transactions.” Given the FICC’s unique position, we will refer to the FICC, rather than to a “CCA that provides CCP services,” when discussing the proposed changes to Rule 17Ad-22.

Additional Central Clearing Requirements

Although not required by Rule 17Ad-22, “FICC’s current rules generally require that FICC direct participants submit for clearing all trades with other FICC direct participants.” The Proposal would codify and expand this to “[r]equire that any direct participant … submit for clearance and settlement all of the eligible secondary market transactions to which such direct participant is a counterparty.” The FICC would have to monitor the submission of transactions by its participants and have rules to address a failure to submit transactions. The FICC would also have to ensure that it has the capacity to clear and settle all eligible secondary market transactions.

Eligible Secondary Market Transactions

The “eligible secondary market transactions” that the Proposal would require direct participants of the FICC to submit for clearance and settlement are:

  • all repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by a participant;
  • all purchase and sale transactions for U.S. Treasury securities entered into by a participant that is an interdealer broker; and
  • all purchase and sale transactions for U.S. Treasury securities entered into between a participant and either a registered broker-dealer, a government securities broker, a government securities dealer, a hedge fund, or a particular type of leveraged account.

Transactions with a central bank, a sovereign entity, an international financial institution, or a natural person would be excluded. We will discuss the scope of transactions covered by the Proposal in more detail in later posts.

Margin Requirements

Rule 17Ad-22(e)(6) currently requires CCAs to collect daily margin from participants “commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.” As the Proposal will require the FICC to novate transactions with a participant’s customers, the FICC participants engaged in these transactions will need to post margin on their customers’ behalf. The Proposal would amend Rule 17Ad-22(e)(6)(i) to require the FICC to calculate and hold margin for a participant’s proprietary positions separately from margin held for the participant’s customers. In its sponsored member repo program, the FICC already holds margin amounts for its sponsoring members separately from their sponsored members.

The formula for determining customer and proprietary account reserve requirements would have a corresponding amendment allowing a broker-dealer to deduct FICC margin held for its customers from its reserve requirement. This would prevent a broker-dealer from having to maintain reserves in addition to the FICC margin for an eligible secondary market transaction.

Our next post will examine what the SEC intends to accomplish with the Proposal.

This post will bring to a close, for now, our survey of the requirements of new Rule 18f-4, which investment companies must comply with by August 19, 2022. This post considers whether a Chief Compliance or Risk Officer should seek to treat some or all of their funds as Limited Derivatives Users and how that choice, in turn, relates to the decision about whether to treat reverse repurchase agreements as derivatives transactions. But first, we review the compliance procedures required by Rule 18f-4 for (nearly) every fund. We also provide links to compliance checklists provided in earlier posts.

Continue to the full blog post at The Asset Management ADVocate

The release adopting Rule 18f-4 (the “Adopting Release”) devotes an entire section to discussing how “a fund that invests in other registered investment companies (‘underlying funds’)” should comply with the value-at-risk (“VaR”) requirements of the rule. This post considers three circumstances in which a fund investing in underlying funds:

  1. Does not invest in any derivatives transactions (a “Non-User Fund-of-Funds”);
  2. Allows its derivatives exposure to exceed 10% of its net assets (a “VaR Fund-of-Funds”) ; and
  3. Limits its derivatives exposure to 10% of its net assets (a “Limited Derivatives User Fund-of-Funds”).

We use the term “Fund-of-Funds” for convenience, meaning to include funds that hold both direct investments and underlying funds in compliance with Rule 12d1-4 or other exemptions.

Continue to the full blog post at The Asset Management ADVocate.