On November 5, the CFTC’s Division of Clearing and Risk issued a no-action letter stating that it will not recommend enforcement action against any derivatives clearing organization (DCO) for using a trust company to conduct daily settlements with clearing members, provided the DCO treats the trust company “as if it were a settlement bank” for purposes of compliance with Regulations 39.14(c) and (d). The letter responded to an October 29 request from a clearing organization and, based on the requester’s representations, noted that Regulation 39.14 defines “settlement bank,” in relevant part, as “a bank” and does not reference trust companies, while Section 4d of the Commodity Exchange Act (CEA) and parts 1 and 22 of the CFTC’s regulations require that customer funds be held with a “bank or trust company.”

In support, the requester represented that: (i) trust companies are subject to comprehensive state oversight, including in New York, where, according to the requester, NYDFS applies the “same level of scrutiny” to banks and trust companies and charters both under the same provisions of state banking law; (ii) such supervision is substantially similar to that of banks, aside from general limits on consumer deposits and lending that can result in different capital requirements; (iii) state-regulated trust companies are leading digital asset custodians, and the relief would help DCOs accept such assets as margin collateral; and (iv) the customer protection benefits of using a trust company are “consistent with and equivalent to” those of using a bank. The requester further argued that because Regulation 39.14 imposes requirements on DCOs rather than directly on settlement banks, those requirements can apply equally to daily settlements with trust companies, which DCOs can evaluate and monitor under Regulation 39.14(c) using existing procedures. According to the letter, the position reflects only the Division’s views, is not binding on the Commission, addresses enforcement action rather than reaching a legal conclusion, does not excuse compliance with other applicable requirements, and rests on the requester’s representations, such that different, changed, or omitted material facts could require a different conclusion or render the letter void. The Division also retains authority to condition, modify, suspend, or terminate the relief.