Under the 2024 Regulation 1.25 amendments, what dollar-weighted average maturity standard applies to the overall portfolio of customer segregated funds, and which investment types are excluded from that calculation?
The model reproduced the 24-month ceiling correctly but appended a cross-regulatory methodology reference — SEC Rule 2a-7's WAM computation standard — that does not appear in the CFTC rule. This is a training-side cross-contamination: SEC Rule 2a-7's WAM methodology is a highly prominent concept in money market fund regulation, and the model appears to have grafted it onto the CFTC's maturity limit as a plausible-sounding elaboration. The CFTC rule specifies its own computation scope via exclusions; it does not incorporate 2a-7 by reference.
This finding implicates cross-regulator concept conflation in the training data. The model correctly retrieved the 24-month WAM ceiling but appended SEC Rule 2a-7's computation methodology as an elaboration — a cross-contamination that occurs when two regulators' frameworks share vocabulary and are trained in close proximity without independence annotations. The error is in the generation layer: the model added a plausible-sounding methodology reference not present in the retrieved CFTC rule text.
The AI correctly identified the 24-month dollar-weighted average maturity ceiling but omitted the exclusion clause that removes government money market funds, Treasury ETFs, and foreign sovereign debt from the calculation entirely. For a Compliance function building or reviewing the FCM's WAM methodology, this is a structural error: a firm that includes these instrument types in its WAM calculation will apply the 24-month constraint to a broader pool than the regulation requires, distorting the metric and potentially prompting unnecessary portfolio adjustments.
More critically, if the oversight runs the other way and the firm's investment team is not told these instruments are excluded, the WAM compliance monitoring MI is built on a miscalculated denominator — producing a control that cannot surface a genuine breach of the maturity limit on the in-scope instruments. The CFTC's examination review of segregation investment practices will test methodology, not just outcomes.
Each finding has a stable Citation ID (RLB-F-… for aggregated case-study findings, RLB-H-… for raw per-model hallucinations) — like a DOI, the ID always resolves to the canonical finding even if URLs change.
RegLeg Specialist Panel (2026). "Finding#2 — Portfolio WAM exclusions for money market funds and foreign sovereign debt — Corporate Banking × Compliance — United States." Citation ID: RLB-F-US-CFTC-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-Q002. RegLegBrief AI Hallucination Research, published 2026-06-04. https://reglegbrief.com/regulators/j3/us/cftc/fcm-dco-customer-funds-investments-reg-1-25-2024/sectors/corporate_banking/compliance/finding/US-CFTC-US-001-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-v1-002/
RegLeg Specialist Panel. (2026). Finding#2 — Portfolio WAM exclusions for money market funds and foreign sovereign debt [Hallucination finding RLB-F-US-CFTC-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-Q002]. RegLegBrief AI Hallucination Research. https://reglegbrief.com/regulators/j3/us/cftc/fcm-dco-customer-funds-investments-reg-1-25-2024/sectors/corporate_banking/compliance/finding/US-CFTC-US-001-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-v1-002/
RegLeg Specialist Panel, Finding#2 — Portfolio WAM exclusions for money market funds and foreign sovereign debt [RLB-F-US-CFTC-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-Q002], RegLegBrief AI Hallucination Research (June 04, 2026), https://reglegbrief.com/regulators/j3/us/cftc/fcm-dco-customer-funds-investments-reg-1-25-2024/sectors/corporate_banking/compliance/finding/US-CFTC-US-001-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-v1-002/.
@misc{reglegbrief_RLB_F_US_CFTC_FCM_DCO_CUSTOMER_FUNDS_INVESTMENTS_REG_1_25_2024_Q002,
author = {RegLeg Specialist Panel},
title = {Finding#2 — Portfolio WAM exclusions for money market funds and foreign sovereign debt},
year = {2026},
publisher = {RegLegBrief AI Hallucination Research},
note = {Hallucination finding Citation ID: RLB-F-US-CFTC-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-Q002},
url = {https://reglegbrief.com/regulators/j3/us/cftc/fcm-dco-customer-funds-investments-reg-1-25-2024/sectors/corporate_banking/compliance/finding/US-CFTC-US-001-FCM-DCO-CUSTOMER-FUNDS-INVESTMENTS-REG-1-25-2024-v1-002/}
}