The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted no-action relief to futures commission merchants ("FCMs") and introducing brokers ("IBs") concerning certain loans received under the Paycheck Protection Program. The DSIO indicated that the relief was intended to align with similar capital relief recently granted by FINRA and consistent with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").
In the no-action letter, the DSIO provided regulatory relief regarding the net capital treatment of covered loans received under the PPP by allowing FCMs and IBs to add back to their capital the eligible "Forgivable Expense Amount" (i.e., the amount that can be forgiven under the PPP terms). The relief is subject to a number of conditions, including that (i) the FCM/IB treats the loan as a liability for balance sheet purposes, (ii) the FCM/IB documents the basis for the "add-back" and for the computation of the "Forgivable Expense Amount," (iii) the add-back amount does not exceed the balance sheet liability for the covered loan expected to be forgiven and (iv) certain specified reporting terms are met.
The DSIO also granted further relief consistent with a FINRA FAQ concerning the net capital treatment of loans under the CARES Act. The FAQ permits small firms to add the total accrued and unpaid annual assessment fees from FINRA back to their net capital. The CFTC provided such relief to FCMs and IBs that are - among other conditions - registered with both the SEC and CFTC.
Primary Sources
CFTC No-Action Letter 20-15: Position for Futures
Commission Merchants and Introducing Brokers to Address Net Capital
Treatment of Covered Loans under the CARES Act- FINRA FAQ: Net Capital Treatment of Covered Loans under the CARES Act
Originally published April 23, 2020.
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