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LSOC, or "legally separated; operationally commingled" is the model by which customer collateral is segregated from the property of a futures commission merchant for cleared swaps transactions. In other words, under LSOC, client funds are removed from the default management waterfall.[1]

The basic goal of LSOC is to make sure no cleared over-the-counter (OTC) customer account is put at risk from a failure of another customer.[2] By contrast, in the typical futures segregation model, if a broker were to suffer a loss well in excess of its available capital, pooled funds held customer segregation would be at risk.

On January 11, 2012, the CFTC approved its final rule on the protection of cleared swaps customer contracts and collateral. Under the final rule, cleared swaps customer collateral will be segregated from the FCM’s own property, but cleared swaps collateral of all FCM cleared swaps customers will be permitted to be kept together pre-bankruptcy in one account. The compliance date for LSOC was originally set at November 8, 2012. On November 1, 2012, the CFTC Division of Clearing and Risk issue a no-action letter to delay the compliance date until November 13, 2012. The delay was to allow FCMs additional time to focus on business continuity and disaster recovery after a hurricane swept the U.S. East Coast in late October.[3]

For more information, visit the page on the final LSOC rule.


  1. Industry addresses customer confidence at Expo. Futures Magazine.
  2. What will clearing cost?.
  3. CFTC’s Division of Clearing and Risk Issues Temporary Compliance Delay Due to Hurricane Sandy. CFTC.