Proceedings of 30th International Business Research Conference
20 - 22 April 2015, Flora Grand Hotel, Dubai, UAE, ISBN: 978-1-922069-74-0
The Law and Regulation of Margin Accounts used in Futures
and Cleared Swaps Transactions
Christian Chamorro-Courtland*
My research describes some US legal developments for the protection of customer assets in
futures and cleared swaps transactions after the global financial crisis. It considers the
changes made by the Dodd-Frank Act and the effects of the US Bankruptcy Code. It considers
whether the changes have sufficiently increased the protection of customer assets in the event
of a Futures Commission Merchant (FCM) becoming bankrupt.
It provides a detailed analysis of the laws and regulations that apply to margin accounts that
are used to enter into transactions on the futures markets, including standardized swaps that
require mandatory clearing after the G20 Summit in Pittsburgh. It also considers the rights that
the various participants have in the margin they post for futures and cleared swaps
transactions; these rights will be affected by bankruptcy laws and/or the Central Counterparty’s
(CCP) clearing rules upon the insolvency of a customer, a clearing member, the CCP, or any
combination of all three.
My findings suggest that there still remains legal uncertainty. The law in the US is in a state of
disarray, since there are a multitude of overlapping laws and regulatory authorities dealing with
the various relationships of the market participants. I recommend that a private form of
insurance, rather than a public form, would increase the level of customer protection and
confidence as it has in the securities markets.
The securities markets in the US currently provide a public form of insurance with the
Securities Investors Protection Corporation (SIPC) against any losses suffered by customers
due operational risks or a broker’s fraud. Private insurance, however, is preferable in order to
ensure that taxpayer money is not used to reimburse consumers that have decided to
speculate or hedge in the futures and swaps markets.
Overall, this article attempts to explain the legal ambiguities of customer rights in margin
accounts in order to minimize any legal uncertainty for regulators, government officials
(including the Federal Reserve), and the courts, as they will need to respond quickly to
allocate losses and return assets to customers during the next financial crisis.
Field of Research: Business Law
*
Dr. Christian Chamorro-Courtland is an Assistant Professor in Business Law & Ethics at Zayed University
(College of Business), United Arab Emirates. LLB, LLM (King’s College London, UK), PhD (Osgoode Hall
Law School, York University, Canada). Email: christian.chamorro-courtland@zu.ac.ae