CFTC Regulation 1.25 Amendment Failures: Schema Substitution

Schema substitution across all three pillars of the customer fund rule

The CFTC's 2024 Regulation 1.25 amendments rest on three operative pillars. Both models failed on all three, dropping triggers, inverting exclusions, and drifting off compliance dates.

📅 Published 7 Jun 2026⚙️ Methodology v2.3🏛 CFTC · Regulation 1.25 · FCM/DCO

Pillar 1

50% Concentration Limit

Asset-size and management-company-size triggers dropped. Models applied the ceiling without the conditions that activate it.

Pillar 2

DWAM Limit & Carve-Outs

Exclusion set inverted — carved-out asset classes swapped for unrelated instruments the rule does not carve out.

Pillar 3

SIDR Compliance Date

March 31, 2025 date drifted to a generic "six to twelve months after enactment" — unusable for compliance calendar planning.

📰Read the public briefing for this regulation→

Pillar 1 — Concentration limit

The trigger that both models dropped

Regulation 1.25's 50 per cent concentration limit on government money market funds and qualified Treasury ETFs is a size-triggered ceiling. It only applies when specific asset-size and management-company-size thresholds are crossed. Both models reproduced the 50% ceiling but omitted the triggers that activate it, giving compliance teams a rule that reads as universally applicable when it's conditionally applicable.

Model output

"FCMs may not hold more than 50% of customer funds in any single government MMF or qualified Treasury ETF."

Regulation 1.25 text

"[50% ceiling applies only where fund exceeds $X in assets under management AND management company exceeds $Y in total AUM — size triggers activate the restriction]"

All three operative pillars of the 2024 Regulation 1.25 amendments failed in distinct ways. Schema substitution is the common thread.

For AI lab teams

Customer segregated funds: no room for schema drift

Customer segregated fund investment rules exist precisely because FCM and DCO failures have cascading effects on customer assets. A compliance team that uses AI to populate an investment policy statement for customer funds with a Regulation 1.25 description that drops the concentration-limit triggers or inverts the DWAM carve-out set is working from a wrong rule. The March 31, 2025 SIDR date is a hard deadline, "six to twelve months after enactment" doesn't help anyone plan a compliance calendar.

Full hub: FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024 →