Navigating the Extensions: The Latest on Form PF Amendments and Compliance Strategies

The U.S. Commodity Futures Trading Commission (CFTC) has finalized a long-awaited regulatory change that provides investment managers greater flexibility and operational efficiency in managing separate accounts. On December 20, 2024, the CFTC adopted Regulation 1.44, which formalizes the ability of futures commission merchants (FCMs) to treat separate accounts under the same beneficial owner as distinct entities for margin adequacy purposes.

This rule, which takes effect on March 24, 2025, is particularly significant for institutional investors, including hedge funds, sovereign wealth funds, pension funds, insurance companies, and corporate end users, that allocate assets across multiple accounts with different investment advisors. The new regulation codifies and refines prior no-action relief granted by the CFTC in 2019 and ensures that investment managers can continue to implement distinct trading strategies without the risk of margin obligations from one account affecting another.

For investment firms that rely on multiple trading accounts, this rule provides regulatory certainty and operational efficiencies. These benefits enhance risk management and strategic execution. While the regulation is permissive rather than mandatory, meaning that FCMs can elect whether to offer separate account treatment, investment managers must take proactive steps to ensure they benefit from this critical change.

Regulation 1.44 and Key Compliance Dates

The CFTC’s new margin rule represents the culmination of years of industry engagement and regulatory debate, addressing concerns raised by investment managers and market participants. Historically, FCMs faced uncertainty in treating separate accounts independently due to inconsistencies in regulatory interpretations. By codifying separate account treatment, the CFTC has provided a structured framework for ensuring margin adequacy while preserving portfolio independence.

The final rule introduces several important modifications to margin treatment and separate account structures:

• Independent Margin Treatment: The rule allows FCMs to treat separate accounts independently, meaning excess margin in one account cannot be used to offset margin deficits in another.
• One-Business-Day Margin Call Requirement: Each separate account must meet margin obligations within one business day, reinforcing best practices in margin settlement and risk management. Non-USD-denominated margin calls have limited exceptions, allowing an extra day for certain foreign currencies.
• Optional Adoption by FCMs: While FCMs can elect to offer separate account treatment, they are not required to do so, making it crucial for investment managers to confirm their FCM’s stance on the rule.
• Limits on Separate Account Disbursements: FCMs may cease separate account treatment if certain events occur, such as failure to meet margin requirements, insolvency, or regulatory intervention.

The rule takes effect on March 24, 2025, with staggered compliance deadlines for FCMs electing separate account treatment:

• July 21, 2025 – Compliance deadline for clearing FCMs that are members of a derivatives clearing organization (DCO).
• January 22, 2026 – Compliance deadline for non-clearing FCMs.

Why the New Rule is a Positive Development for Investment Managers

For investment managers, the ability to maintain separate accounts with distinct margin calculations is crucial. Without this rule, FCMs would be required to net all margin obligations across accounts, effectively eliminating the independence of distinct trading strategies. The new rule ensures that firms can continue executing diverse investment approaches across multiple accounts without undue operational constraints.

One of the most significant benefits of separate account treatment is the ability to prevent excess margin in one account from being used to offset margin deficits in another. This ensures that:

• Portfolio managers and trading advisors can operate independently without the risk that the performance of one strategy affects another.
• Hedge funds running multiple strategies can maintain clear track records, ensuring proper incentive alignment.
• Institutional investors allocating capital to external managers can ensure that each advisor’s trades remain siloed, preventing risk cross-contamination.

The regulation also enhances risk management by ensuring that margin calculations remain independent across accounts, reducing the likelihood of forced liquidations or unexpected capital movements.

Operational Considerations and Compliance Requirements

While the new rule offers significant benefits, it also introduces operational considerations that investment managers must address. One of the most critical provisions is the one-business-day margin call requirement. This rule reinforces best practices in margin management. Still, it also means that investment managers must ensure they have adequate liquidity management systems in place to meet margin calls on time.

Additionally, investment firms must carefully review their agreements with futures commission merchants (FCMs) to confirm whether the new rule will offer separate account treatment. Since FCMs have the discretion to opt in or out of providing separate account treatment, it is crucial for investment managers to engage in early discussions with their clearing firms to secure their preferred margin treatment. Firms should also implement robust account monitoring processes to ensure they meet margin deadlines and avoid potential disbursement suspensions that could disrupt trading strategies. Furthermore, investment managers must update fund documentation, including advisory and sub-advisory agreements, to align with the CFTC’s final rule and ensure compliance across all trading relationships.

Industry Implications and Regulatory Background

The finalization of Regulation 1.44 follows years of regulatory uncertainty and shifting interpretations by the Joint Audit Committee (JAC) and the CFTC. In 2019, the JAC issued Regulatory Alerts #19-02 and #19-03, which raised concerns about how separate accounts should be treated under existing CFTC regulations. These alerts questioned whether FCMs could continue to allow separate accounts to be treated independently and suggested that FCMs must retain the absolute right to look across accounts to determine margin adequacy.

These alerts sparked widespread industry concern, leading to a series of no-action relief measures, culminating in CFTC Letter No. 19-17, which temporarily preserved separate account treatment. The 2024 rule now formally codifies this relief, ensuring long-term regulatory certainty for investment managers and market participants.

The rule also provides clarity on the definition of “ordinary course of business”, a key factor in whether an FCM can offer separate account treatment. FCMs may cease separate account treatment if certain risk events occur, such as:

• A customer failing to meet margin obligations on time.
• The insolvency or bankruptcy of a customer or its parent company.
• A regulatory directive requiring disbursement restrictions.

Investment managers must remain vigilant in monitoring their trading relationships, ensuring that FCMs continue offering separate account treatment under the new rule.

How Investment Managers Should Prepare for the Transition

To fully leverage the benefits of separate account treatment, investment managers must take a proactive approach to compliance.

1. Engage with FCMs Immediately – Confirm whether your FCM will offer separate account treatment and negotiate contractual protections to prevent unexpected changes.
2. Enhance Liquidity and Margin Management – Ensure your firm’s operations and treasury teams can meet the one-business-day margin call requirement, especially for non-USD margin calls. Each separate account must meet initial and maintenance margin requirements independently. Failure to meet these requirements could result in the suspension of disbursements on a separate account basis, affecting liquidity and investment strategies across all the beneficial owner’s accounts.
3. Update Risk Management Frameworks – Establish internal monitoring systems to track margin exposure across separate accounts, ensuring compliance with the new rule’s requirements.
4. Align Fund Documentation and Advisory Agreements – Investment managers should update fund agreements, trading mandates, and advisory contracts to reflect the continued use of separate account treatment.
5. Stay Informed on Future Regulatory Developments – The CFTC may issue additional clarifications or interpretative guidance as firms begin implementing the rule. Managers should stay engaged with industry groups like the MFA to ensure they remain ahead of any regulatory updates.

The Bottom Line

The CFTC’s new margin rule is a milestone achievement for investment managers, reinforcing portfolio independence, risk mitigation, and operational efficiency. By permanently allowing separate accounts to be treated independently for margin purposes, the rule provides the regulatory certainty that investment managers have long sought.

However, preparation is key. Investment firms must work closely with their FCMs, review agreements, and update risk management processes to ensure a smooth transition to the new framework. With compliance deadlines approaching, now is the time to take action and secure the benefits of separate account treatment under the new CFTC regulation.

This rule is not just a regulatory change—it’s a strategic advantage that will allow investment managers to continue executing their strategies with clarity, confidence, and efficiency. Firms that act early and adapt to the new margin framework will be well-positioned to navigate the evolving regulatory landscape and maintain a competitive edge.

Contact Arootah today to learn more about our tailored advisory services to help you stay ahead.