Amendment of Interpretation, 24768-24771 [05-9386]
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24768
Federal Register / Vol. 70, No. 90 / Wednesday, May 11, 2005 / Notices
CITA also hereby designates such
yarns as eligible under HTSUS
subheading 9821.11.10, if used in
women’s and girls’ knit apparel articles
sewn or otherwise assembled in an
eligible ATPDEA beneficiary country
from U.S. formed fabric containing such
yarns. Such apparel containing such
yarns shall be eligible to enter free of
quotas and duties under this
subheading, provided all other yarns
used in the referenced apparel articles
are U.S. formed and all other fabrics
used in the referenced apparel articles
are U.S. formed from yarns wholly
formed in the United States, subject to
the special rules for findings and
trimmings, certain interlinings and de
minimis fibers and yarns under section
204(b)(3)(B)(vi) of the ATPDEA, and that
such articles are imported directly into
the customs territory of the United
States from an eligible ATPDEA
beneficiary country.
An ‘‘eligible beneficiary sub Saharan
African country’’ means a country
which the President has designated as a
beneficiary sub Saharan African country
under section 506A of the Trade Act of
1974 (19 U.S.C. 2466a), and which has
been the subject of a finding, published
in the Federal Register, that the country
has satisfied the requirements of section
113 of the AGOA (19 U.S.C. 3722),
resulting in the enumeration of such
country in U.S. note 1 to subchapter XIX
of chapter 98 of the HTSUS.
An ‘‘eligible ATPDEA beneficiary
country’’ means a country which the
President has designated as an ATPDEA
beneficiary country under section
203(a)(1) of the Andean Trade
Preference Act (ATPA) (19 U.S.C.
3202(a)(1)), and which has been the
subject of a finding, published in the
Federal Register, that the country has
satisfied the requirements of section
203(c) and (d) of the ATPA (19 U.S.C.
3202(c) and (d)), resulting in the
enumeration of such country in U.S.
note 1 to subchapter XXI of Chapter 98
of the HTSUS.
An ‘‘eligible CBTPA beneficiary
country’’ means a country which the
President has designated as a CBTPA
beneficiary country under section
213(b)(5)(B) of the Caribbean Basin
Recovery Act (CBERA) (19 U.S.C.
2703(b)(5)(B)), and which has been the
subject of a finding, published in the
Federal Register, that the country has
satisfied the requirements of section
213(b)(4)(A)(ii) of the CBERA (19 U.S.C.
2703(b)(4)(A)(ii)), resulting in the
enumeration of such country in U.S.
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note 1 to subchapter XX of Chapter 98
of the HTSUS.
D. Michael Hutchinson,
Acting Chairman, Committee for the
Implementation of Textile Agreements.
[FR Doc. 05–9412 Filed 5–10–05; 8:45 am]
BILLING CODE 3510–DS–S
COMMODITY FUTURES TRADING
COMMISSION
Amendment of Interpretation
SUMMARY: Section 4d(a)(2) of the
Commodity Exchange Act (‘‘CEA’’) and
related Commission regulations
(hereinafter collectively referred to as
‘‘segregation requirements’’) require that
all funds received by a futures
commission merchant (‘‘FCM’’) from a
customer to margin, guarantee, or secure
futures or commodity options
transactions and all accruals thereon be
accounted for separately, and not be
commingled with the FCM’s own funds
or used to margin the trades of or two
extend credit to any other person.1
Further, Section 4d(a)(2) has been
construed to require that customer
funds, when deposited with any bank,
trust company, clearing organization or
another FCM, be available to the FCM
carrying the customer account upon
demand.2
In Financial and Segregation
Interpretation No. 10, the Division of
Trading and Markets (predecessor to the
Division of Clearing and Intermediary
Oversight (‘‘Division’’)) first addressed
the issue of whether customer funds
may be deposited at a bank in a
safekeeping or custodial account
(otherwise known as ‘‘safekeeping
account’’ or ‘‘third-party custodial
account’’), in lieu of posting such funds
directly with an FCM, without being
deemed to violate the segregation
requirements.3 Because Section 17(f) of
the Investment Company Act of 1940,4
at the time, was interpreted by
Securities and Exchange Commission
(‘‘SEC’’) staff to generally bar registered
investment companies (‘‘RICs’’) from
using FCMs and futures clearinghouses
as custodians of fund assets, it was
decided that the use of third-party
note 7, infra.
note 8, infra.
3 Financial and Segregation Interpretation No. 10,
Treatment of Funds Deposited in Safekeeping
Accounts, Comm. Fut. L. Rep. (CCH) ¶ 7120 (May
23, 1984) (‘‘Interpretation No. 10’’). While
specifically directed to third-party accounts of
pension plans and registered investment
companies, the views expressed in the
interpretation applied equally to any other
customer of an FCM (e.g., an insurance company).
4 See note 12, infra.
PO 00000
1 See
2 See
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custodial accounts should not be
banned altogether and that Section
4d(a)(2) should be interpreted to permit
customer funds to be held in such
accounts, subject to standards designed
to ensure the carrying FCM’s right of
immediate access to customer funds.
Since the issuance of Interpretation No.
10, a change in the law governing the
custody of fund assets now allows RICs,
with a limited exception, to post
customer funds with an FCM.5 Because
it is no longer necessary for most RICs
to use third-party custodial accounts to
engage in futures transactions, coupled
with evidence of significant risks that
may impair immediate and unfettered
access by FCMs, the use of third-party
custodial accounts is no longer justified
or appropriate, except in the limited
case where the FCM is precluded from
holding RIC assets.6 Accordingly,
Interpretation No. 10 is being amended
and FCMs will not be viewed as being
in compliance with the requirements of
Section 4d(a)(2) if they deposit, hold, or
maintain margin funds for customer
accounts in third-party custodial
accounts, except that those FCMs not
eligible to hold the assets of their RIC
customers (i.e., due to their affiliation
with the RIC or its adviser) may use
such accounts under conditions
specified herein.
DATES: Effective Date: February 13,
2006.
FOR FURTHER INFORMATION CONTACT:
Carlene S. Kim, Senior Special Counsel,
Division of Clearing and Intermediary
Oversight, Commodity Futures Trading
Commission, 1155 21st Street, NW.,
Washington, DC 20581, telephone: (202)
418–5613.
SUPPLEMENTARY INFORMATION:
I. Background: Section 4d and
Interpretation No. 10
Section 4d(a)(2) of the CEA and
related Commission regulations require
that all funds received by an FCM from
5 SEC Rule 17f–6, adopted 1996, permits RICs to
deposit customer margin directly with FCMs and
futures clearing houses. See Rule 17f–6, 17 CFR
270.17f–6, under the Investment Company Act, 15
U.S.C. 80a.
6 In February 2005, a notice was published in the
Federal Register soliciting comments on a
withdrawal of Interpretation No. 10 (‘‘Notice of
Proposed Withdrawal’’). See 70 FR 5417 (February
2, 2005). In response thereto, the Commission
received comments from the following entities:
Investment Company Institute (‘‘ICI’’); National
Futures Association (‘‘NFA’’); The Joint Audit
Committee (‘‘JAC’’); Futures Industry Association
(‘‘FIA’’); and AIG Series Trust (‘‘AIG’’). ICI and AIG
opposed a withdrawal of Interpretation No. 10;
NFA, JAC, and FIA supported a withdrawal of
Interpretation No. 10 and an outright prohibition of
third-party custodial accounts. The comment letters
are available on the Internet at https://www.cftc.gov/
files/foia/comments05.
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Federal Register / Vol. 70, No. 90 / Wednesday, May 11, 2005 / Notices
a customer to margin, guarantee, or
secure futures or commodity options
transactions and all accruals thereon be
accounted for separately, and not be
commingled with the FCM’s own funds
or used to margin the trades of or to
extend credit to any other person.7
Further, Section 4d(a)(2) has been
generally construed to require that
customer funds, when deposited at a
bank or other depository (i.e., trust
company, clearing organization, another
FCM), be placed in an account subject
to withdrawal upon demand by the
FCM carrying the customer account.8
Thus, any impediments or restrictions
on the FCM’s ability to obtain
immediate and unfettered access to
customer funds are not permitted. The
immediate and unfettered access
requirements is intended to prevent
potential delay or interruption in
securing required margin payments that,
in times of significant market
disruption, could magnify the impact of
such market disruption and impair the
liquidity of other FCMS and
clearinghouses.9
Interpretation No. 10 addressed the
issue of whether customer funds may be
deposited at a bank in a third-party
safekeeping account, in lieu of posting
such funds directly with an FCM,
without being deemed in violation of
Section 4d(a)(2).10 As was stated in
Interpretation No. 10, the segregated
customer funds account system,
whereby customer funds are posted
directly with the carrying FCM and held
by the FCM on behalf of its customers,
satisfies the essential requirements of
Section 4d(a)(2) and is
7 U.S.C. 6d(a)(2). The Commission segregation
requirements are set forth in Regulations 1.20–1.30,
1.32 and 1.36, 17 CFR 1.20–1.30, 1.32 and 1.36.
8 E.g., Administrative Determination No. 29 of the
Commodity Exchange Authority (Sept. 28, 1937)
deposit of customers’ funds ‘‘under conditions
whereby such funds would not be subject to
withdrawal upon demand would be repugnant to
the spirit and purpose of the Commodity Exchange
Act’’); Financial and Segregation Interpretation No.
9—Money Market Deposit Accounts and NOW
Accounts,’’ 1 Comm. Fut. L. Rep. (CCH) ¶ 7119
(November 23, 1983) (at 7091–3) (‘‘it has always
been the Division’s [Division of Trading and
Markets] position that customer funds deposited in
a bank cannot be restricted in any way, that such
funds must be held for the benefit of customers and
must be available to the customer and the FCM
immediately upon demand’’).
9 See, e.g., Interpretation No. 10, Comm. Fut. L.
Rep. (CCH) ¶ 7120, at 7133 (‘‘[t]he free flow of
required margin payments and the required
deposits is absolutely essential to the proper
functioning of the commodity exchanges. No
customer, especially one who may maintain
relatively large positions, can be permitted to
interrupt that flow, or there will be the potential for
serious adverse consequences to other market
participants and the marketplace itself’’).
10 See Interpretation No. 10, Comm. Fut. L. Rep.
(CCH) ¶ 7120.
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‘‘administratively the most efficient way
to treat such funds.’’ 11 At the time,
however, RICs were generally precluded
from using FCMs and futures
clearinghouses as custodians of fund
assets and third-party custodial
accounts were the only permissible
means available to RJCs to participate in
the futures market.12 In view of this
legal restriction on RICs’ custodial
arrangements, the decision was made to
permit the use of third-party custodial
accounts to hold margin funds, without
being deemed to violate Section
4d(a)(2), subject to standards designed
to ensure FCMs’ immediate and
unfettered access to the funds in such
accounts.13
II. Basis for Amended Interpretation
Developments since the issuance of
Interpretation No. 10 require
reconsideration of the permissibility of
third-party accounts by FCMs to deposit
or hold margin funds for customer
accounts. First, in 1996, the SEC
adopted Rule 17f–6, which permitted
RJCs, with limited exception, to deposit,
hold, and maintain their assets with
FCMs and certain other entities in
connection with futures transactions
effected on U.S. and foreign
exchanges.14 With the elimination of the
requirement that fund assets be held in
a bank custodial account, the new rule
allowed RJCs to participate in futures
trading generally in the same manner as
other futures customers by depositing
margin funds with FCMs and clearing
organizations.
Second, the practical and operational
factors that may impair the carrying
FCM’s right of immediate and
unfettered access to customer funds,
notwithstanding any terms and
conditions stipulated in a third-party
custodial agreement, have come to light.
Interpretation No. 10, Comm. Fut. L. Rep.
(CCH) ¶ 7120, at 7135.
12 See Section 17(f) of the Investment Company
Act, 15 U.S.C. 80a–17(f). At that time (but no
longer), under Section 17(f) and related rules RICs
were generally permitted to maintain their assets
only in the custody of a bank, a member of a
national securities exchange, or a national securities
depository. FCMs and futures clearinghouses did
not come within one of these categories.
13 Specifically, it was explained that ‘‘[i]n view of
the embryonic state of the law and regulatory
requirements which may affect the ability of other
institutions to participate in the commodity
markets, [it] does not now wish to ban altogether
the use of safekeeping accounts.’’ See Interpretation
No. 10, Comm. Fut. L. Rep. (CCH) ¶ 7120, at 7131.
14 Investment Company Act Rule 17f–6(b)(3), 17
CFR 270.17f–6(b)(3). Under the rule, a RJC is not
permitted to deposit fund assets with an FCM that
is an affiliate of the RJC or its adviser. Other
conditions in the rule provide that the manner in
which the FCM maintains fund assets must be
governed by a written contract and any gains on
fund transactions must be maintained with the FCM
only in de minimis amounts.
PO 00000
11 See
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24769
According to the comment letter of the
FIA, under the tripartite agreements,
customers rather than FCMs have the
client relationship with custodian
banks. As a result, customer funds held
in third-party accounts are not as
readily accessible to FCMs as they
would be in a segregated customer
account context and in fact, these
arguments have failed to prevent the
release or customer funds held in thirdparty accounts, without the knowledge
or awareness of the carrying FCMs.15
Regulatory examinations also have
found instances of releases of customer
funds from third-party custodial
accounts. Specifically, Commission
audit staff have discovered instances of
significant amounts being released from
third-party custodial accounts without
the knowledge or permission of the
FCMs. The Joint Audit Committee,
which includes the key self-regulatory
organizations that perform front-line
supervision of the FCMs, has reported
similar instances of unauthorized
withdrawals, noting that is such cases,
the FCMs may not become aware of the
asset release until reconciliation is
performed.16 These findings
demonstrate a real and significant risk
associated with third-party safekeeping
arrangements that are at odds with the
immediate and unfettered access
standards of Section 4d(a)(2).
Third, third-party custodial accounts
pose potential systemic liquidity risks
by diverting FCM capital to cover
customer margin obligations which
would otherwise be available to prevent
defaults from affecting the broader
marketplace. These risks may be
heightened in times of significant
15 FIA states that ‘‘[d]ue to the tripartite nature of
these arrangements, commodity customer funds
held in third-party accounts are not accessible to
the FCMs in the same manner as commodity
customer funds deposited in ordinary segregated
bank accounts * * * In this regard, a third party
account typically is maintained at the registered
investment company’s regular custodian, so that the
registered investment company rather than the FCM
has the client relationship with the custodian bank.
Similarly, the FCM’s back office personnel do not
have the same regular, ongoing communications
and interface with custodian bank personnel, as
they do with bank personnel * * *’’ See Comment
Letter of FIA (April 4, 2005), supra, note 6.
16 See Comment Letter of JAC (April 4, 2005),
supra, note 6. As a result, FCMs may be unaware
of market exposure assumed on the undermargined
customers’ positions. Similarly, FIA noted that the
release of customer funds without the knowledge of
the FCM could lead to erroneous daily computation
of the total amount of customer funds on deposit
in segregated accounts, which could then lead to
errors in financial reporting statements filed by the
FCM with the Commission and self-regulatory
organizations (‘‘SROs’’). See Id.
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Federal Register / Vol. 70, No. 90 / Wednesday, May 11, 2005 / Notices
market volatility when liquidity is most
critical.17
Finally, there remains concern over
the parity of treatment between
customers with segregated accounts of
Regulation 30.7 accounts18 and
customers using third-party custodial
accounts in the context of an FCM
bankruptcy proceeding.19 The
Division’s position is that third-party
custodial accounts are subject to the
U.S. Bankruptcy Code and applicable
provisions in the CEA, which provide
that customer’s pro rata share of the
available customer property.20
Nevertheless, the Division is aware that
third-party custodial account
arrangements may create unnecessary
confusion on the part of the customer
and create the potential risk that thirdparty custodial accounts might receive
priority or preference over other
customers in an FCM’s bankruptcy
proceeding, or at least cause additional
administrative expenses to be incurred,
in a manner inconsistent with the
Commission regulations and regulatory
objectives.21
Under Interpretation No. 10, FCMs
were permitted to hold margin funds in
third-party custodial accounts in order
to avoid precluding participation by
RICs in the futures market. The
conflicting restriction concerning the
custody of fund assets no longer exists,
with a minor exception. Together with
concerns regarding the risks to the
general marketplace and market users,
this is persuasive that third-party
custodial accounts are no longer
necessary or appropriate, except in the
limited case where an FCM is precluded
from holding RIC assets due to
affiliation with a RIC or its adviser.
Findings by both Commission audit staff
and the SROs of actual releases of
customer funds, without the required
knowledge or approval of the FCMs,
further demonstrate that the risks
associated with third-party custodial
17 In addition, initial margin requirements
typically rise during such periods, creating
additional stress on FCM resources. FIA states that
the amount of funds in third-party accounts is
substantial and that these accounts are heavily
concentrated in a small number of FCMs and banks,
which factors further exacerbate the systemic
liquidity risks. See Comment Letter of FIA, note 6,
supra.
18 17 CFR 30.7.
19 In Interpretation No. 10, the Division voiced
the same concern regarding FCM bankruptcy but
concluded that the interest of facilitating
institutional participation in the futures market
supported the use of third-party custodial accounts.
See Interpretation No. 10, Comm. Fut. L. Rep. (CCH)
¶ 7120, at 7134.
20 11 U.S.C. 766; Commission regulation 190.18,
17 CFR 190.08. However, this issue has not been
judicially determined.
21 See Interpretation No. 10, Comm. Fut. L. Rep.
(CCH) ¶ 7120, at 7134
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accounts are real and material, not
merely theoretical, and that the public
policy benefits of ensuring the financial
integrity of the clearing system
outweigh any costs or inconvenience to
users of third-party custodial
accounts.22 Accordingly, Interpretation
No. 10 is being amended to provide that,
with the exception noted below, FCMs
may not deposit, hold, or maintain
customer margin in a third-party
account, without being deemed to
violate Section 4D(a)(2) of the CEA.23
The limited case where the use of
third-party custodial accounts will be
permitted, described at Section III
below, encompasses an FCM that is
affiliated with a RIC or its adviser. This
exception is appropriate because the
relief provided by SEC rule 17f–6 from
the restriction against using FCMs as the
direct custodians of fund assets not
available to RICs that use affiliate FCMs
to clear their futures transactions. For
these RICs, and without SEC action to
remedy the situation, the inability to use
third-party custodial accounts would
result in potentially undue disruption
and cost. In addition, it appears that the
overwhelming majority of the instances
of the current use of a third-patty
custodial accounts would not
encompass this situation.
It should be noted that this amended
interpretation regarding the use of thirdparty custodial accounts for purposes of
Section 4d(a)(2) extends equally to
secured amount funds held for foreign
futures and foreign options customers in
third-party accounts pursuant to
Regulation 30.7. As a result, FCMs may
not deposit, hold, or maintain secured
amount funds held for foreign futures
and foreign options customers in thirdparty accounts funds held for foreign
futures and foreign options customers in
third-party accounts under Regulation
30.7
22 Both ICI and AIG noted the operational
efficiencies stemming from the use of a single bank
custodian to manage fund assets. Further, ICI stated
that the disruption and financial cost associated
with restructuring of existing custodial
relationships would outweigh any ‘‘theoretical’’
benefits. See Comment Letter of ICI (April 4, 2005)
and Comment Letter of AIG (April 12, 2005), supra,
note 6.
23 Interpretation No. 10 is hereby withdrawn.
Further, the views relating to third-party custodial
accounts, set forth in related publications are also
hereby withdrawn, except that an FCM that is not
eligible to rely on SEC rule 17f–6 may rely on them
to the extent applicable and relevant. See CFTC
Advisory No. 37–96 (Responsibilities of Futures
Commission Merchants and Relevant Depositories
with Respect to Third Party Custodial Accounts),
Comm. Fut. L. Rep. (CCH) ¶ 26,765 (July 25, 1996)
and Interpretive Letters, specifically, CFTC
Interpretive Letters No. 85–6 (Comm. Fut. L. Rep.
(CCH) ¶ 22,579), No. 89–1 (Comm. Fut. L. Rep.
(CCH) ¶ 24,404), and No. 90–1 (Comm. Fut. L. Rep.
(CCH) ¶ 24,579).
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III. Conditional Exception for FCMs Not
Eligible for SEC Rule 17f–6
An FCM that is not eligible to rely on
SEC Rule 17f–6 due to an affiliation
with a RIC or its advisor may use a
third-party custodial account for
purposes of holding margin fund for
such a customer, without being deemed
to be in violation of Section 4d(a)(2) or
Regulation 30.7, if the following
conditions are and continue to be met.24
First, the account must be maintained
in the name of the FCM, for the benefit
of the customer. Examples of acceptable
titles are ‘‘[Names of FCM] Customer
Funds for the Benefit of X Investment
Company.’’ On the other hand, a thirdparty custodial account may not be
maintained in the name of the RIC
customer or its adviser.25
Second, the FCM must have the
ability to liquidate open positions in an
account which goes into deficit or
becomes under margined within getting
clearance from any third-party
custodian of the account of the
customer.
Third, the FCM must have the right of
withdraw funds from the third-party
custodial account with no right of the
customer (or its fiduciary) to stop,
interrupt or otherwise interfere with
such withdrawal. An FCM which is
forced to await pre-clearance for margin
withdrawals has neither possession nor
control of he funds which may be
needed for margin purposes. Also, the
customer (and its fiduciary) may not
withdraw or otherwise have access to
the funds in the account except through
the FCM. Although provision in a thirdparty custodial account agreement for a
notice to the customer (or to its
fiduciary) would not necessarily be
inconsistent with the FCM’s right of
access, a requirement that a customer
pre-approve margin withdrawals by the
FCM would be deemed insistent with
the FCM’s right of access.26 Finally,
24 These conditions are generally consistent with
those set forth in Interpretation No. 10.
25 The FCM also must comply with all applicable
requirements in Section 4d(a)(2) and related
Commission regulations, including Regulation
1.20(a) which provides that an FCM must obtain
and retain an acknowledgement from the depository
that it was informed that the customer funds
deposited therein are those of FCM customers and
are being held on accordance with the provisions
of the CEA and Commission regulations. See 17
CFR 1.20(a)
26 Similarly, the FCM could agree in a third-party
custodial agreement that before it directs the
custodian of a third-party custodial account to
dispose of customer funds held therein, the FCM
will state that all conditions precedent to its right
to direct disposition of customer funds in the
account have been met, provided that the only
condition which an FCM must satisfy in order to
have access to the funds in the account is to state
that there has been a default by the customer in
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third-party custodial accounts will be
considered subject to the customary
provisions in a commodity customer
account agreement to the effect that all
money, securities or property in the
customer’s account, or held for the
customer by the FCM or by any clearing
organization for a contract market upon
which trades of the customer are
executed, are pledged with the FCM and
the subject to a security. Interest in the
FCM’s favor to secure any indebtedness
at any time owed by the customer to the
FCM.
Fourth, a third-party custodial
account may not be located at an
affiliate of the customer or a fiduciary
thereof. Thus, for example, a fund may
not maintain a third-party custodial
account at a bank with which the fund
has other relationships that make the
bank an affiliate or fiduciary of the fund.
These conditions are designed to
ensure, among other things, that the
FCM has free and ready access to
margin funds held in a third-party
custodial account, with the customer
restricted from access to such funds
except through the FCM. If the
conditions are met, and only in the case
of an affiliate FCM for so long as SEC
prohibitions exist, a third-party
custodial account for a RIC will be
deemed to be a segregated account of
the FCM within the meaning of Section
4d(a)(2) of the CEA or permissible under
Regulation 30.7, as the case may be, and
the FCM may include the funds in such
account in the calculation of the total
amount of customer funds on deposit in
segregated accounts or Regulation 30.7
accounts, as the case may be.
IV. Transition Period
In order to ensure that impacted
parties, including the FCMs and RICs,
are provided with adequate time to
make necessary adjustments to their
existing custodial arrangements, the
amendment to Interpretation No. 10 will
not be made effective until nine months
following publication in the Federal
Register.27
Issued in Washington, DC on May 5, 2005,
by the Division of Clearing and Intermediary
Oversight.
James L. Carley,
Director.
[FR Doc. 05–9386 Filed 5–10–05; 8:45 am]
BILLING CODE 6351–01–M
making a margin payment or any other required
deposit.
27 ICI requested that in the event that
Interpretation No. 10 is withdrawn, such
withdrawal should be made effective no less than
nine months following the publication of a final
notice. See Comment Letter of ICI, note 6, supra.
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DEPARTMENT OF DEFENSE
Office of the Secretary
Revision of the Department of Defense
6055.9-Standard, Department of
Defense Ammunition and Explosives
Safety Standards
Department of Defense.
Notice of change.
AGENCY:
ACTION:
SUMMARY: The Department of Defense
Explosives Safety Board (DDESB) is
announcing several changes to
Department of Defense 6055.9-Standard,
dated July 1999. The DDESB is
republishing the Standard dated 5
October 2004 with all changes adopted
by the Board since the 1999 edition.
The DDESB is taking this action
pursuant to its statutory authority as set
forth in Title 10, United States Code,
Section 172 (10 U.S.C. 172) and DoD
Directive 6055.9, ‘‘DoD Explosives
Safety Board (DDESB) and DoD
Component Explosives Safety
Responsibilities,’’ 29 Jul 1996. The
Standard to the Office of the Secretary
of Defense, the Military Departments
(including the Army and Air Force
National Guards), the Defense Threat
Reduction Agency, the Defense Logistics
Agency, the Defense Contract
Management Agency, the Coast Guard
(when under DoD control), and other
parties who produce or manage
ammunition and explosives under
contract to the DoD. Through DoD
6055.9-STD the DDESB establishes
minimum explosives safety
requirements for storing and handling
ammunition and explosives.
ADDRESSES: Copies of this Standard may
be downloaded from the DDESB Web
page: https://www.ddesb.pentagon.mil/.
FOR FURTHER INFORMATION CONTACT: For
more detailed information on specific
aspects of this Standard, contact Dr.
Jerry M. Ward, phone: (703) 325–2525;
e-mail: Jerry.Ward@ddesb.osd.mil
DDESB, 2461 Eisenhower Avenue,
Room 856C, Alexandria, VA 22331–
0600.
SUPPLEMENTARY INFORMATION: Dating
back to 1928 when Congress directed
the Secretaries of the military
departments to establish a joint board of
officers to ‘‘keep informed on stored
supplies of ammunition and
components thereof * * *, with
particular regard to keeping those
supplies properly dispersed and stored
and to preventing hazardous conditions
from arising to endanger life and
property inside or outside of storage
reservations,’’ the DDESB (formerly
known as the Ammunition Safety
Board) has periodically revised or
PO 00000
Frm 00007
Fmt 4703
Sfmt 4703
24771
updated the Standard based on new
scientific or technical information and
explosives safety experience. The
implementation of a change to DoD
6055.9-STD depends on a formal
publication of a change to DoD 6055.9STD. In order to ensure compliance, the
Services and Defense Agencies modify
their Service or Agency implementing
procedures and standards accordingly.
This revision to the July 1999 version
of DoD 6055.9-STD incorporates
decisions made by the DDESB at the 31
6th meeting held on 20 August 1998 up
to and including the 326th meeting held
on 3 March 2004 and votes by DDESB
votes by correspondence memoranda
dated 3 December 1998, 5 July 2000, 2
November 2000, 28 December 2001, 26
March 2002, 21 November 2002, 27
February 2003, 9 June 2003, and 25
September 2003. Although the decisions
adopted by the Board up through the 31
7th meeting held on 25 February 1998
pre-date the July 1999 version, the
Standard was in the publication
process, and those changes were not
included.
The changes included herein address
the following:
• Rewrites the Standard in Plain
English, expands the glossary to include
additional terms used in the Standard,
reorganizes the content of the chapters
with no changes in explosives safety
criteria, incorporates both metric and
English units, and provides equations
(forward and back calculations) for all
tabulated variables.
• Completely revises the Hazard
Division (HD) 1.2 quantity-distance (Q–
D) criteria and related HD 1.1 minimum
hazardous fragment distance criteria as
well as incorporates editorial changes
taking into account new hazard subdivisions (HD) 1.2.1, and HD 1.2.2).
(Corresponding changes were made to
HD 1.2.1 and HD 1.2.2 criteria in
NATO).
• Redefines ‘‘Unit Risk HD 1.2’’
munitions as ‘‘HD 1.2.3,’’ and expands
and clarifies the criteria for HD 1.2.3
munitions.
• Replaces Chapter 10 ‘‘Theater of
Operations’’ with completely revised
Chapter 10 ‘‘Military Operations Other
than War, Contingency, and Combat,’’
includes new Q–D criteria for asset
preservation, provides site planning
process for subject operations, defines
field storage and handling areas and
associated Q–D criteria, expands
Glossary to include new terms included
in the revised chapter.
• Clarifies that hardened aircraft
shelter criteria in chapter 10 are
applicable to peacetime operations as
well as contingency and combat.
E:\FR\FM\11MYN1.SGM
11MYN1
Agencies
[Federal Register Volume 70, Number 90 (Wednesday, May 11, 2005)]
[Notices]
[Pages 24768-24771]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-9386]
=======================================================================
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COMMODITY FUTURES TRADING COMMISSION
Amendment of Interpretation
SUMMARY: Section 4d(a)(2) of the Commodity Exchange Act (``CEA'') and
related Commission regulations (hereinafter collectively referred to as
``segregation requirements'') require that all funds received by a
futures commission merchant (``FCM'') from a customer to margin,
guarantee, or secure futures or commodity options transactions and all
accruals thereon be accounted for separately, and not be commingled
with the FCM's own funds or used to margin the trades of or two extend
credit to any other person.\1\ Further, Section 4d(a)(2) has been
construed to require that customer funds, when deposited with any bank,
trust company, clearing organization or another FCM, be available to
the FCM carrying the customer account upon demand.\2\
---------------------------------------------------------------------------
\1\ See note 7, infra.
\2\ See note 8, infra.
---------------------------------------------------------------------------
In Financial and Segregation Interpretation No. 10, the Division of
Trading and Markets (predecessor to the Division of Clearing and
Intermediary Oversight (``Division'')) first addressed the issue of
whether customer funds may be deposited at a bank in a safekeeping or
custodial account (otherwise known as ``safekeeping account'' or
``third-party custodial account''), in lieu of posting such funds
directly with an FCM, without being deemed to violate the segregation
requirements.\3\ Because Section 17(f) of the Investment Company Act of
1940,\4\ at the time, was interpreted by Securities and Exchange
Commission (``SEC'') staff to generally bar registered investment
companies (``RICs'') from using FCMs and futures clearinghouses as
custodians of fund assets, it was decided that the use of third-party
custodial accounts should not be banned altogether and that Section
4d(a)(2) should be interpreted to permit customer funds to be held in
such accounts, subject to standards designed to ensure the carrying
FCM's right of immediate access to customer funds. Since the issuance
of Interpretation No. 10, a change in the law governing the custody of
fund assets now allows RICs, with a limited exception, to post customer
funds with an FCM.\5\ Because it is no longer necessary for most RICs
to use third-party custodial accounts to engage in futures
transactions, coupled with evidence of significant risks that may
impair immediate and unfettered access by FCMs, the use of third-party
custodial accounts is no longer justified or appropriate, except in the
limited case where the FCM is precluded from holding RIC assets.\6\
Accordingly, Interpretation No. 10 is being amended and FCMs will not
be viewed as being in compliance with the requirements of Section
4d(a)(2) if they deposit, hold, or maintain margin funds for customer
accounts in third-party custodial accounts, except that those FCMs not
eligible to hold the assets of their RIC customers (i.e., due to their
affiliation with the RIC or its adviser) may use such accounts under
conditions specified herein.
---------------------------------------------------------------------------
\3\ Financial and Segregation Interpretation No. 10, Treatment
of Funds Deposited in Safekeeping Accounts, Comm. Fut. L. Rep. (CCH)
] 7120 (May 23, 1984) (``Interpretation No. 10''). While
specifically directed to third-party accounts of pension plans and
registered investment companies, the views expressed in the
interpretation applied equally to any other customer of an FCM
(e.g., an insurance company).
\4\ See note 12, infra.
\5\ SEC Rule 17f-6, adopted 1996, permits RICs to deposit
customer margin directly with FCMs and futures clearing houses. See
Rule 17f-6, 17 CFR 270.17f-6, under the Investment Company Act, 15
U.S.C. 80a.
\6\ In February 2005, a notice was published in the Federal
Register soliciting comments on a withdrawal of Interpretation No.
10 (``Notice of Proposed Withdrawal''). See 70 FR 5417 (February 2,
2005). In response thereto, the Commission received comments from
the following entities: Investment Company Institute (``ICI'');
National Futures Association (``NFA''); The Joint Audit Committee
(``JAC''); Futures Industry Association (``FIA''); and AIG Series
Trust (``AIG''). ICI and AIG opposed a withdrawal of Interpretation
No. 10; NFA, JAC, and FIA supported a withdrawal of Interpretation
No. 10 and an outright prohibition of third-party custodial
accounts. The comment letters are available on the Internet at
https://www.cftc.gov/files/foia/comments05.
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DATES: Effective Date: February 13, 2006.
FOR FURTHER INFORMATION CONTACT: Carlene S. Kim, Senior Special
Counsel, Division of Clearing and Intermediary Oversight, Commodity
Futures Trading Commission, 1155 21st Street, NW., Washington, DC
20581, telephone: (202) 418-5613.
SUPPLEMENTARY INFORMATION:
I. Background: Section 4d and Interpretation No. 10
Section 4d(a)(2) of the CEA and related Commission regulations
require that all funds received by an FCM from
[[Page 24769]]
a customer to margin, guarantee, or secure futures or commodity options
transactions and all accruals thereon be accounted for separately, and
not be commingled with the FCM's own funds or used to margin the trades
of or to extend credit to any other person.\7\ Further, Section
4d(a)(2) has been generally construed to require that customer funds,
when deposited at a bank or other depository (i.e., trust company,
clearing organization, another FCM), be placed in an account subject to
withdrawal upon demand by the FCM carrying the customer account.\8\
Thus, any impediments or restrictions on the FCM's ability to obtain
immediate and unfettered access to customer funds are not permitted.
The immediate and unfettered access requirements is intended to prevent
potential delay or interruption in securing required margin payments
that, in times of significant market disruption, could magnify the
impact of such market disruption and impair the liquidity of other FCMS
and clearinghouses.\9\
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\7\ U.S.C. 6d(a)(2). The Commission segregation requirements are
set forth in Regulations 1.20-1.30, 1.32 and 1.36, 17 CFR 1.20-1.30,
1.32 and 1.36.
\8\ E.g., Administrative Determination No. 29 of the Commodity
Exchange Authority (Sept. 28, 1937) deposit of customers' funds
``under conditions whereby such funds would not be subject to
withdrawal upon demand would be repugnant to the spirit and purpose
of the Commodity Exchange Act''); Financial and Segregation
Interpretation No. 9--Money Market Deposit Accounts and NOW
Accounts,'' 1 Comm. Fut. L. Rep. (CCH) ] 7119 (November 23, 1983)
(at 7091-3) (``it has always been the Division's [Division of
Trading and Markets] position that customer funds deposited in a
bank cannot be restricted in any way, that such funds must be held
for the benefit of customers and must be available to the customer
and the FCM immediately upon demand'').
\9\ See, e.g., Interpretation No. 10, Comm. Fut. L. Rep. (CCH) ]
7120, at 7133 (``[t]he free flow of required margin payments and the
required deposits is absolutely essential to the proper functioning
of the commodity exchanges. No customer, especially one who may
maintain relatively large positions, can be permitted to interrupt
that flow, or there will be the potential for serious adverse
consequences to other market participants and the marketplace
itself'').
---------------------------------------------------------------------------
Interpretation No. 10 addressed the issue of whether customer funds
may be deposited at a bank in a third-party safekeeping account, in
lieu of posting such funds directly with an FCM, without being deemed
in violation of Section 4d(a)(2).\10\ As was stated in Interpretation
No. 10, the segregated customer funds account system, whereby customer
funds are posted directly with the carrying FCM and held by the FCM on
behalf of its customers, satisfies the essential requirements of
Section 4d(a)(2) and is ``administratively the most efficient way to
treat such funds.'' \11\ At the time, however, RICs were generally
precluded from using FCMs and futures clearinghouses as custodians of
fund assets and third-party custodial accounts were the only
permissible means available to RJCs to participate in the futures
market.\12\ In view of this legal restriction on RICs' custodial
arrangements, the decision was made to permit the use of third-party
custodial accounts to hold margin funds, without being deemed to
violate Section 4d(a)(2), subject to standards designed to ensure FCMs'
immediate and unfettered access to the funds in such accounts.\13\
---------------------------------------------------------------------------
\10\ See Interpretation No. 10, Comm. Fut. L. Rep. (CCH) ] 7120.
\11\ See Interpretation No. 10, Comm. Fut. L. Rep. (CCH) ] 7120,
at 7135.
\12\ See Section 17(f) of the Investment Company Act, 15 U.S.C.
80a-17(f). At that time (but no longer), under Section 17(f) and
related rules RICs were generally permitted to maintain their assets
only in the custody of a bank, a member of a national securities
exchange, or a national securities depository. FCMs and futures
clearinghouses did not come within one of these categories.
\13\ Specifically, it was explained that ``[i]n view of the
embryonic state of the law and regulatory requirements which may
affect the ability of other institutions to participate in the
commodity markets, [it] does not now wish to ban altogether the use
of safekeeping accounts.'' See Interpretation No. 10, Comm. Fut. L.
Rep. (CCH) ] 7120, at 7131.
---------------------------------------------------------------------------
II. Basis for Amended Interpretation
Developments since the issuance of Interpretation No. 10 require
reconsideration of the permissibility of third-party accounts by FCMs
to deposit or hold margin funds for customer accounts. First, in 1996,
the SEC adopted Rule 17f-6, which permitted RJCs, with limited
exception, to deposit, hold, and maintain their assets with FCMs and
certain other entities in connection with futures transactions effected
on U.S. and foreign exchanges.\14\ With the elimination of the
requirement that fund assets be held in a bank custodial account, the
new rule allowed RJCs to participate in futures trading generally in
the same manner as other futures customers by depositing margin funds
with FCMs and clearing organizations.
---------------------------------------------------------------------------
\14\ Investment Company Act Rule 17f-6(b)(3), 17 CFR 270.17f-
6(b)(3). Under the rule, a RJC is not permitted to deposit fund
assets with an FCM that is an affiliate of the RJC or its adviser.
Other conditions in the rule provide that the manner in which the
FCM maintains fund assets must be governed by a written contract and
any gains on fund transactions must be maintained with the FCM only
in de minimis amounts.
---------------------------------------------------------------------------
Second, the practical and operational factors that may impair the
carrying FCM's right of immediate and unfettered access to customer
funds, notwithstanding any terms and conditions stipulated in a third-
party custodial agreement, have come to light. According to the comment
letter of the FIA, under the tripartite agreements, customers rather
than FCMs have the client relationship with custodian banks. As a
result, customer funds held in third-party accounts are not as readily
accessible to FCMs as they would be in a segregated customer account
context and in fact, these arguments have failed to prevent the release
or customer funds held in third-party accounts, without the knowledge
or awareness of the carrying FCMs.\15\
---------------------------------------------------------------------------
\15\ FIA states that ``[d]ue to the tripartite nature of these
arrangements, commodity customer funds held in third-party accounts
are not accessible to the FCMs in the same manner as commodity
customer funds deposited in ordinary segregated bank accounts * * *
In this regard, a third party account typically is maintained at the
registered investment company's regular custodian, so that the
registered investment company rather than the FCM has the client
relationship with the custodian bank. Similarly, the FCM's back
office personnel do not have the same regular, ongoing
communications and interface with custodian bank personnel, as they
do with bank personnel * * *'' See Comment Letter of FIA (April 4,
2005), supra, note 6.
---------------------------------------------------------------------------
Regulatory examinations also have found instances of releases of
customer funds from third-party custodial accounts. Specifically,
Commission audit staff have discovered instances of significant amounts
being released from third-party custodial accounts without the
knowledge or permission of the FCMs. The Joint Audit Committee, which
includes the key self-regulatory organizations that perform front-line
supervision of the FCMs, has reported similar instances of unauthorized
withdrawals, noting that is such cases, the FCMs may not become aware
of the asset release until reconciliation is performed.\16\ These
findings demonstrate a real and significant risk associated with third-
party safekeeping arrangements that are at odds with the immediate and
unfettered access standards of Section 4d(a)(2).
---------------------------------------------------------------------------
\16\ See Comment Letter of JAC (April 4, 2005), supra, note 6.
As a result, FCMs may be unaware of market exposure assumed on the
undermargined customers' positions. Similarly, FIA noted that the
release of customer funds without the knowledge of the FCM could
lead to erroneous daily computation of the total amount of customer
funds on deposit in segregated accounts, which could then lead to
errors in financial reporting statements filed by the FCM with the
Commission and self-regulatory organizations (``SROs''). See Id.
---------------------------------------------------------------------------
Third, third-party custodial accounts pose potential systemic
liquidity risks by diverting FCM capital to cover customer margin
obligations which would otherwise be available to prevent defaults from
affecting the broader marketplace. These risks may be heightened in
times of significant
[[Page 24770]]
market volatility when liquidity is most critical.\17\
---------------------------------------------------------------------------
\17\ In addition, initial margin requirements typically rise
during such periods, creating additional stress on FCM resources.
FIA states that the amount of funds in third-party accounts is
substantial and that these accounts are heavily concentrated in a
small number of FCMs and banks, which factors further exacerbate the
systemic liquidity risks. See Comment Letter of FIA, note 6, supra.
---------------------------------------------------------------------------
Finally, there remains concern over the parity of treatment between
customers with segregated accounts of Regulation 30.7 accounts\18\ and
customers using third-party custodial accounts in the context of an FCM
bankruptcy proceeding.\19\ The Division's position is that third-party
custodial accounts are subject to the U.S. Bankruptcy Code and
applicable provisions in the CEA, which provide that customer's pro
rata share of the available customer property.\20\ Nevertheless, the
Division is aware that third-party custodial account arrangements may
create unnecessary confusion on the part of the customer and create the
potential risk that third-party custodial accounts might receive
priority or preference over other customers in an FCM's bankruptcy
proceeding, or at least cause additional administrative expenses to be
incurred, in a manner inconsistent with the Commission regulations and
regulatory objectives.\21\
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\18\ 17 CFR 30.7.
\19\ In Interpretation No. 10, the Division voiced the same
concern regarding FCM bankruptcy but concluded that the interest of
facilitating institutional participation in the futures market
supported the use of third-party custodial accounts. See
Interpretation No. 10, Comm. Fut. L. Rep. (CCH) ] 7120, at 7134.
\20\ 11 U.S.C. 766; Commission regulation 190.18, 17 CFR 190.08.
However, this issue has not been judicially determined.
\21\ See Interpretation No. 10, Comm. Fut. L. Rep. (CCH) ] 7120,
at 7134
---------------------------------------------------------------------------
Under Interpretation No. 10, FCMs were permitted to hold margin
funds in third-party custodial accounts in order to avoid precluding
participation by RICs in the futures market. The conflicting
restriction concerning the custody of fund assets no longer exists,
with a minor exception. Together with concerns regarding the risks to
the general marketplace and market users, this is persuasive that
third-party custodial accounts are no longer necessary or appropriate,
except in the limited case where an FCM is precluded from holding RIC
assets due to affiliation with a RIC or its adviser. Findings by both
Commission audit staff and the SROs of actual releases of customer
funds, without the required knowledge or approval of the FCMs, further
demonstrate that the risks associated with third-party custodial
accounts are real and material, not merely theoretical, and that the
public policy benefits of ensuring the financial integrity of the
clearing system outweigh any costs or inconvenience to users of third-
party custodial accounts.\22\ Accordingly, Interpretation No. 10 is
being amended to provide that, with the exception noted below, FCMs may
not deposit, hold, or maintain customer margin in a third-party
account, without being deemed to violate Section 4D(a)(2) of the
CEA.\23\
---------------------------------------------------------------------------
\22\ Both ICI and AIG noted the operational efficiencies
stemming from the use of a single bank custodian to manage fund
assets. Further, ICI stated that the disruption and financial cost
associated with restructuring of existing custodial relationships
would outweigh any ``theoretical'' benefits. See Comment Letter of
ICI (April 4, 2005) and Comment Letter of AIG (April 12, 2005),
supra, note 6.
\23\ Interpretation No. 10 is hereby withdrawn. Further, the
views relating to third-party custodial accounts, set forth in
related publications are also hereby withdrawn, except that an FCM
that is not eligible to rely on SEC rule 17f-6 may rely on them to
the extent applicable and relevant. See CFTC Advisory No. 37-96
(Responsibilities of Futures Commission Merchants and Relevant
Depositories with Respect to Third Party Custodial Accounts), Comm.
Fut. L. Rep. (CCH) ] 26,765 (July 25, 1996) and Interpretive
Letters, specifically, CFTC Interpretive Letters No. 85-6 (Comm.
Fut. L. Rep. (CCH) ] 22,579), No. 89-1 (Comm. Fut. L. Rep. (CCH) ]
24,404), and No. 90-1 (Comm. Fut. L. Rep. (CCH) ] 24,579).
---------------------------------------------------------------------------
The limited case where the use of third-party custodial accounts
will be permitted, described at Section III below, encompasses an FCM
that is affiliated with a RIC or its adviser. This exception is
appropriate because the relief provided by SEC rule 17f-6 from the
restriction against using FCMs as the direct custodians of fund assets
not available to RICs that use affiliate FCMs to clear their futures
transactions. For these RICs, and without SEC action to remedy the
situation, the inability to use third-party custodial accounts would
result in potentially undue disruption and cost. In addition, it
appears that the overwhelming majority of the instances of the current
use of a third-patty custodial accounts would not encompass this
situation.
It should be noted that this amended interpretation regarding the
use of third-party custodial accounts for purposes of Section 4d(a)(2)
extends equally to secured amount funds held for foreign futures and
foreign options customers in third-party accounts pursuant to
Regulation 30.7. As a result, FCMs may not deposit, hold, or maintain
secured amount funds held for foreign futures and foreign options
customers in third-party accounts funds held for foreign futures and
foreign options customers in third-party accounts under Regulation 30.7
III. Conditional Exception for FCMs Not Eligible for SEC Rule 17f-6
An FCM that is not eligible to rely on SEC Rule 17f-6 due to an
affiliation with a RIC or its advisor may use a third-party custodial
account for purposes of holding margin fund for such a customer,
without being deemed to be in violation of Section 4d(a)(2) or
Regulation 30.7, if the following conditions are and continue to be
met.\24\
---------------------------------------------------------------------------
\24\ These conditions are generally consistent with those set
forth in Interpretation No. 10.
---------------------------------------------------------------------------
First, the account must be maintained in the name of the FCM, for
the benefit of the customer. Examples of acceptable titles are ``[Names
of FCM] Customer Funds for the Benefit of X Investment Company.'' On
the other hand, a third-party custodial account may not be maintained
in the name of the RIC customer or its adviser.\25\
---------------------------------------------------------------------------
\25\ The FCM also must comply with all applicable requirements
in Section 4d(a)(2) and related Commission regulations, including
Regulation 1.20(a) which provides that an FCM must obtain and retain
an acknowledgement from the depository that it was informed that the
customer funds deposited therein are those of FCM customers and are
being held on accordance with the provisions of the CEA and
Commission regulations. See 17 CFR 1.20(a)
---------------------------------------------------------------------------
Second, the FCM must have the ability to liquidate open positions
in an account which goes into deficit or becomes under margined within
getting clearance from any third-party custodian of the account of the
customer.
Third, the FCM must have the right of withdraw funds from the
third-party custodial account with no right of the customer (or its
fiduciary) to stop, interrupt or otherwise interfere with such
withdrawal. An FCM which is forced to await pre-clearance for margin
withdrawals has neither possession nor control of he funds which may be
needed for margin purposes. Also, the customer (and its fiduciary) may
not withdraw or otherwise have access to the funds in the account
except through the FCM. Although provision in a third-party custodial
account agreement for a notice to the customer (or to its fiduciary)
would not necessarily be inconsistent with the FCM's right of access, a
requirement that a customer pre-approve margin withdrawals by the FCM
would be deemed insistent with the FCM's right of access.\26\ Finally,
[[Page 24771]]
third-party custodial accounts will be considered subject to the
customary provisions in a commodity customer account agreement to the
effect that all money, securities or property in the customer's
account, or held for the customer by the FCM or by any clearing
organization for a contract market upon which trades of the customer
are executed, are pledged with the FCM and the subject to a security.
Interest in the FCM's favor to secure any indebtedness at any time owed
by the customer to the FCM.
---------------------------------------------------------------------------
\26\ Similarly, the FCM could agree in a third-party custodial
agreement that before it directs the custodian of a third-party
custodial account to dispose of customer funds held therein, the FCM
will state that all conditions precedent to its right to direct
disposition of customer funds in the account have been met, provided
that the only condition which an FCM must satisfy in order to have
access to the funds in the account is to state that there has been a
default by the customer in making a margin payment or any other
required deposit.
---------------------------------------------------------------------------
Fourth, a third-party custodial account may not be located at an
affiliate of the customer or a fiduciary thereof. Thus, for example, a
fund may not maintain a third-party custodial account at a bank with
which the fund has other relationships that make the bank an affiliate
or fiduciary of the fund.
These conditions are designed to ensure, among other things, that
the FCM has free and ready access to margin funds held in a third-party
custodial account, with the customer restricted from access to such
funds except through the FCM. If the conditions are met, and only in
the case of an affiliate FCM for so long as SEC prohibitions exist, a
third-party custodial account for a RIC will be deemed to be a
segregated account of the FCM within the meaning of Section 4d(a)(2) of
the CEA or permissible under Regulation 30.7, as the case may be, and
the FCM may include the funds in such account in the calculation of the
total amount of customer funds on deposit in segregated accounts or
Regulation 30.7 accounts, as the case may be.
IV. Transition Period
In order to ensure that impacted parties, including the FCMs and
RICs, are provided with adequate time to make necessary adjustments to
their existing custodial arrangements, the amendment to Interpretation
No. 10 will not be made effective until nine months following
publication in the Federal Register.\27\
---------------------------------------------------------------------------
\27\ ICI requested that in the event that Interpretation No. 10
is withdrawn, such withdrawal should be made effective no less than
nine months following the publication of a final notice. See Comment
Letter of ICI, note 6, supra.
Issued in Washington, DC on May 5, 2005, by the Division of
Clearing and Intermediary Oversight.
James L. Carley,
Director.
[FR Doc. 05-9386 Filed 5-10-05; 8:45 am]
BILLING CODE 6351-01-M