Interpretative Statement Regarding Funds Related to Cleared-Only Contracts Determined To Be Included in a Customer's Net Equity, 65514-65516 [E8-26199]
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65514
Federal Register / Vol. 73, No. 214 / Tuesday, November 4, 2008 / Rules and Regulations
(h) On RB211–535E4–B engines:
(1) Ultrasonically inspect the fan blade
root, and if required, relubricate using one of
the methods in Table 4 of this AD.
(2) If the initial inspection is complete
prior to 18,800 CSN, then the next inspection
may be postponed until 20,000 CSN.
TABLE 4—RB211–535E4–B
Engine location
(i) On-wing ..............................
Initial
inspection
within
(CSN)
20,000
Type action
In accordance with MSB
(A) Root Probe inspect, OR ..
RB.211–72–C879
Revision
6,
3.A.(1)
through 3.A.(7), dated December 14, 2007.
RB.211–72–C879
Revision
6,
3.B.(1)
through 3.B.(7), dated December 14, 2007.
RB.211–72–C879
Revision
6,
3.C.(1)
through 3.C.(4), dated December 14, 2007.
(B) Wave Probe inspect .........
(ii) In shop ..............................
20,000
(i) For fan blades operated to any
combination of RB211–535E4 Flight Profile
A, –535E4 Flight Profile B, –535E4–B,
–535E4–B and –535E4–C engines:
(1) Calculate an equivalent CSN as defined
in the Time Limits Manual. See References
Section 1.G.(3), of MSB RB.211–72–C879,
Revision 6, dated December 14, 2007.
(2) For fan blades that are currently flying
in Profile A, inspect using paragraph (f) and
Table 2 of this AD using equivalent CSN.
(3) For fan blades that are currently flying
in Profile B, inspect using paragraph (g) and
Table 3 of this AD using equivalent CSN.
(4) For fan blades that are currently flying
in an RB211–535E4–B engine, inspect using
paragraph (h) and Table 4 of this AD using
equivalent CSN.
Optional Terminating Action
(j) Application of Metco 58 blade root
coating using RR SB No. RB.211–72–C946,
Revision 2, dated September 26, 2002,
constitutes terminating action to the
repetitive inspection requirements specified
in paragraphs (f), (g), (h), and (i) of this AD.
Alternative Methods of Compliance
(k) The Manager, Engine Certification
Office, has the authority to approve
alternative methods of compliance for this
AD if requested using the procedures found
in 14 CFR 39.19.
dwashington3 on PRODPC61 with RULES
Previous Credit
(l) Inspections and relubrication done
before the effective date of this AD that use
AD 2003–12–15 (Amendment 39–13200, 68
FR 37735, June 25, 2003), RR MSB No.
RB.211–72–C879, Revision 3, dated October
9, 2002, MSB No. RB.211–72–C879, Revision
4, dated April 2, 2004, or MSB No. RB.211–
72–C879, Revision 5, dated March 8, 2007,
comply with the requirements specified in
this AD.
Related Information
(m) United Kingdom Civil Aviation
Authority airworthiness directive AD 002–
01–2000, dated October 9, 2002, also
addresses the subject of this AD.
(n) Contact Ian Dargin, Aerospace
Engineer, Engine Certification Office, FAA,
Engine and Propeller Directorate, 12 New
England Executive Park, Burlington, MA
01803; e-mail: ian.dargin@faa.gov; telephone:
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15:01 Nov 03, 2008
Jkt 217001
Root Probe inspect. Relubricate if blade life is more
than 19,650 cycles.
(781) 238–7178; fax: (781) 238–7199, for
more information about this AD.
Material Incorporated by Reference
(o) You must use Rolls-Royce plc
Mandatory Service Bulletin No. RB.211–72–
C879, Revision 6, dated December 14, 2007
to perform the inspections and relubrication
required by this AD. The Director of the
Federal Register approved the incorporation
by reference of this service bulletin in
accordance with 5 U.S.C. 552(a) and 1 CFR
part 51. Contact Rolls-Royce plc, PO Box 31,
Derby, England, DE248BJ; telephone: 011–
44–1332–242424; fax: 011–44–1332–249936,
for a copy of this service information. You
may review copies at the FAA, New England
Region, 12 New England Executive Park,
Burlington, MA; or at the National Archives
and Records Administration (NARA). For
information on the availability of this
material at NARA, call 202–741–6030, or go
to: https://www.archives.gov/federal-register/
cfr/ibr-locations.html.
Issued in Burlington, Massachusetts, on
October 23, 2008.
Peter A. White,
Assistant Manager, Engine and Propeller
Directorate, Aircraft Certification Service.
[FR Doc. E8–25891 Filed 11–3–08; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 190
Interpretative Statement Regarding
Funds Related to Cleared-Only
Contracts Determined To Be Included
in a Customer’s Net Equity
Commodity Futures Trading
Commission.
ACTION: Interpretative Statement;
correction.
AGENCY:
This interpretation by the
Commodity Futures Trading
Commission (‘‘Commission’’) is issued
to clarify the appropriate treatment
under the commodity broker provisions
SUMMARY:
PO 00000
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Repeat
inspection
within (CSLI)
1,200
1,000
1,200
of the Bankruptcy Code and Part 190 of
the Commission’s Regulations of claims
arising from contracts (‘‘cleared-only
contracts’’) that, although not executed
or traded on a Designated Contract
Market or a Derivatives Transaction
Execution Facility, are subsequently
submitted for clearing through a Futures
Commission Merchant (‘‘FCM’’) to a
Derivatives Clearing Organization
(‘‘DCO’’). The Commission first
published this interpretation in the
Federal Register of October 2, 2008 (73
FR 57235). A statement of concurrence
on a different matter was printed at the
end of the interpretation, in error. The
Commission is republishing the
interpretation to clarify that the
statement of concurrence is not related
to the interpretation.
FOR FURTHER INFORMATION CONTACT:
Robert B. Wasserman, Associate
Director, rwasserman@cftc.gov, (202)
418–5092, or Amanda Olear, AttorneyAdvisor, Division of Clearing and
Intermediary Oversight, aolear@cftc.gov,
(202) 418–5283, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW.,
Washington, DC 20581.
Section 20 of the Commodity
Exchange Act 1 (Act) empowers the
Commission to provide how the net
equity of a customer is to be
determined:
The Commission may provide, with
respect to a commodity broker that is a
debtor under chapter 7 of title 11 of the
United States Code, by rule or regulation—
(1) that certain cash, securities, other
property, or commodity contracts are to be
included in or excluded from customer
property or member property; * * * and (5)
how the net equity of a customer is to be
determined.
Subchapter IV of Chapter 7 of the
Bankruptcy Code, governing commodity
brokers, has the same effect, explicitly
basing the definition of ‘‘net equity’’ on
17
U.S.C. 24.
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Federal Register / Vol. 73, No. 214 / Tuesday, November 4, 2008 / Rules and Regulations
‘‘such rules and regulations as the
Commission promulgates under the
Act.’’ 2
The Commission has exercised this
power in promulgating Part 190 of its
regulations.3 In particular, the term ‘‘net
equity’’ is defined by Commission
Regulation 190.07 4 as:
the Bankruptcy Code, which states, in
pertinent part:
The total claim of a customer against the
estate of the debtor based on the commodity
contracts held by the debtor for or on behalf
of such customer less any indebtedness of the
customer to the debtor.
This definition contains two elements:
(1) The nature of the contract; and (2)
the nature of the venue whose rules
govern the contract.
With regard to the first element, overthe-counter contracts that are clearedonly contracts are contracts for the
purchase or sale of a commodity for
future delivery within the meaning of
this section of the Bankruptcy Code.
When cleared, they are subject to
performance bond requirements, daily
variation settlement, the potential for
offset, and final settlement procedures
that are substantially similar, and often
identical, to those applicable to
exchange-traded products at the same
clearinghouse. Cf. 11 U.S.C. 761(4)(F).
Although the creation and trading of
these products is outside the
Commission’s jurisdiction, the clearing
of these products by FCMs and DCOs is
within the Commission’s jurisdiction.
With regard to the second element,
section 761(7) of the Bankruptcy Code
states that a ‘‘ ‘contract market’ means a
registered entity,’’ and section 761(8), in
turn, provides that a ‘‘ ‘registered entity’
* * * ha[s] the meaning[ ] assigned to
[that] term[ ] in the [Commodity
Exchange] Act.’’ 8 Section 1a(29)(C) of
the Act defines the term ‘‘registered
entity’’ as including ‘‘a derivatives
clearing organization registered under
section 5b’’ of the Act.9
Thus, when a contract is cleared
through a DCO, such a contract would
be considered a ‘‘commodity contract’’
under section 761(4) of the Bankruptcy
Code.10 Therefore, an entity with a
claim based on a cleared-only contract
would be a ‘‘customer’’ within the
meaning of section 761 of the
Bankruptcy Code. Further, because Part
190 of the Commission’s Regulations
defines ‘‘customer’’ as having the
meaning set forth in section 761, such
entity with a claim based on a clearedonly contract would also be a
‘‘customer’’ for the purposes of Part 190
of the Commission’s Regulations. Based
on the foregoing, such claims arising out
of cleared-only contracts are properly
Therefore, the determination of whether
claims relating to cleared-only contracts
in section 4d accounts are properly
includable within the meaning of ‘‘net
equity’’ is dependent upon whether an
entity holding such claims is properly
considered a ‘‘customer.’’ This, in turn,
as discussed below, requires an analysis
of whether such claims are derived from
‘‘commodity contracts.’’
Cleared-Only Transactions as
Commodity Contracts
Commission Regulation 190.01(k)
defines ‘‘customer’’ through
incorporation by reference of the
definition of the term appearing in
section 761(9) of the Bankruptcy Code,
which provides, in relevant part:
(9) ‘‘Customer’’ means—
(A) With respect to a futures commission
merchant—
(i) Entity for or with whom such futures
commission merchant deals and holds a
claim against such futures commission
merchant on account of a commodity
contract made, received, acquired, or held by
or through such futures commission
merchant in the ordinary course of such
future commission merchant’s business as a
futures commission merchant from or for the
commodity futures account of such entity; or
(ii) Entity that holds a claim against such
futures commission merchant arising out of—
(I) The making, liquidation, or change in
the value of a commodity contract of a kind
specified in clause (i) of this subparagraph;
(II) A deposit or payment of cash, a
security, or other property with such futures
commission merchant for the purpose of
making or margining such a commodity
contract; or
(III) The making or taking of delivery on
such a commodity contract [.] 5
dwashington3 on PRODPC61 with RULES
Therefore, for an entity to be considered
a ‘‘customer’’ of an FCM, such entity’s
claim must arise out of a ‘‘commodity
contract.’’ 6
A ‘‘commodity contract,’’ as the term
appears within the context of section
761(9), is defined in section 761(4) of
(4) ‘‘Commodity Contract’’ means—
(A) With respect to a futures commission
merchant, contract for the purchase or sale of
a commodity for future delivery on, or
subject to the rules of, a contract market or
board of trade[.] 7
7 11
2 11
U.S.C. 761(17).
3 17 CFR Part 190.
4 17 CFR 190.07.
5 11 U.S.C. 761(9) (emphasis added).
6 A similar analysis would apply to a customer of
a clearing organization (i.e., a clearing member).
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15:01 Nov 03, 2008
Jkt 217001
U.S.C. 761(4).
U.S.C. 761(7) and (8).
9 7 U.S.C. 1a(29)(C).
10 Cf. H.R. Rep. No. 109–31(I) (2005)
(emphasizing distinction between definitions for
purposes of Bankruptcy Code and for purposes of
other statutes).
8 11
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65515
included within the meaning of ‘‘net
equity’’ for the purposes of Subchapter
IV of the Bankruptcy Code and Part 190
of the Commission’s Regulations.
Portfolio Performance Bond as Net
Equity
There is an alternative path to reach
the same conclusion. In cases where
cleared-only contracts are held in a
commodity futures account at an FCM
and margined as a portfolio with
exchange-traded futures (i.e., where the
Commission has issued an order
pursuant to section 4d(a)(2) of the
Commodity Exchange Act), assets
margining that portfolio are likely to be
includable within ‘‘net equity’’ even if
cleared-only contracts were found not to
be ‘‘commodity contracts’’ within the
meaning of the Bankruptcy Code and
Part 190 of the Commission’s
Regulations.
Where the assets in an entity’s
account margin (i.e., collateralize) both
cleared-only contracts and exchangetraded futures, the entirety of those
assets serves as performance bond for
each of the exchange-traded futures and
the cleared-only contracts. Therefore, (a)
a claim for those assets constitutes a
claim ‘‘on account of a commodity
contract made, received, acquired, or
held by or through such futures
commission merchant in the ordinary
course of such future commission
merchant’s business as a futures
commission merchant from or for the
commodity futures account of such
entity;’’ 11 (b) the entity qualifies as a
‘‘customer’’ within the meaning of the
Bankruptcy Code as a result of that
claim; and (c) those margin assets are
properly included within that entity’s
net equity.
The dynamics of futures trading
render it unwise to distinguish between
an account that currently is portfolio
margined and one that was at one time
or is intended to be so in the future.
Indeed, Subchapter IV of the
Bankruptcy Code includes as customers
entities with certain claims arising out
of property that is not currently
margining a commodity contract.
Specifically, section 761(9)(A)(ii)
provides that an entity can qualify as a
‘‘customer’’ based on claims arising out
of any of the following: (I) The
‘‘liquidation, or change in the value of
a commodity contract;’’ (II) a deposit of
property ‘‘for the purpose of making or
margining * * * a commodity
contract;’’ or (III) ‘‘the making or taking
of delivery of a commodity contract.’’
11 Section 761(9)(A) of the Bankruptcy Code
provides that an entity holding such a claim is a
‘‘customer.’’ 11 U.S.C. 761(9)(A).
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Federal Register / Vol. 73, No. 214 / Tuesday, November 4, 2008 / Rules and Regulations
Accordingly, there is no requirement
that the customer’s assets be margining
commodity contracts on the day that the
bankruptcy petition is filed. Therefore,
all assets contained in such an account
are properly included within the
customer’s net equity.
Part 190 of the Commission’s
Regulations divides accounts into
several classes, specifically: Futures
accounts, foreign futures accounts,
leverage accounts, commodity option
accounts, and delivery accounts.12
In October 2004, the Commission
issued an interpretation regarding the
appropriate account class for funds
attributable to contracts traded on nondomestic boards of trade, and the assets
margining such contracts, that are
included in accounts segregated in
accordance with Section 4d of the Act
pursuant to Commission Order.13 In that
context, the Commission concluded that
the claim is properly against the Section
4d account class because customers
whose assets are deposited in such an
account pursuant to Commission Order
should benefit from that pool of assets.
The same rationale supports the
Commission’s conclusion that a claim
arising out of a cleared-only contract, or
the property margining such a contract,
would be includable in the futures
account class where, pursuant to
Commission Order, the contract or
property is included in an account
segregated in accordance with Section
4d of the Act.
*
*
*
*
*
Issued in Washington, DC, on September
26, 2008, by the Commodity Futures Trading
Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E8–26199 Filed 11–3–08; 8:45 am]
dwashington3 on PRODPC61 with RULES
BILLING CODE 6351–01–P
12 See
17 CFR 190.01.
Interpretative Statement Regarding Funds
Determined To Be Held in the Futures Account
Type of Customer Account Class, 69 FR 69510
(Nov. 30, 2004).
13 See
15:01 Nov 03, 2008
17 CFR Parts 232 and 270
[Release Nos. 33–8981; 34–58874; IC–28476
File No. S7–25–07]
RIN 3235–AJ81
Account Classes
VerDate Aug<31>2005
SECURITIES AND EXCHANGE
COMMISSION
Jkt 217001
Mandatory Electronic Submission of
Applications for Orders Under the
Investment Company Act and Filings
Made Pursuant to Regulation E
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
SUMMARY: We are adopting several
amendments to rules regarding our
Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. Specifically,
we are amending our rules to make
mandatory the electronic submission on
EDGAR of applications for orders under
any section of the Investment Company
Act of 1940 (‘‘Investment Company
Act’’) as well as Regulation E filings of
small business investment companies
and business development companies.
We also are amending the electronic
filing rules to make the temporary
hardship exemption unavailable for
submission of applications under the
Investment Company Act. Finally, we
are amending Rule 0–2 under the
Investment Company Act, eliminating
the requirement that certain documents
accompanying an application be
notarized and the requirement that
applicants submit a draft notice as an
exhibit to an application.
DATES: Effective Date: January 1, 2009.
FOR FURTHER INFORMATION CONTACT: If
you have questions about the rules,
please contact one of the following
members of our staff in the Division of
Investment Management, at the
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–0506: in the Office of Legal and
Disclosure, Ruth Armfield Sanders,
Senior Special Counsel (EDGAR), at
(202) 551–6989; in the Office of
Investment Company Regulation,
Michael W. Mundt, Assistant Director,
at (202) 551–6821; or, in the Office of
Insurance Products, Keith Carpenter,
Senior Special Counsel, at (202) 551–
6766; for technical questions relating to
the EDGAR system, in the Office of
Information Technology, Richard D.
Heroux, EDGAR Program Manager, at
(202) 551–8168.
SUPPLEMENTARY INFORMATION: The
Securities and Exchange Commission
(‘‘Commission’’) is adopting
amendments to Rules 101 and 201 of
PO 00000
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Regulation S–T 1 relating to electronic
filing on the EDGAR system and to Rule
0–2 2 under the Investment Company
Act.3
I. Background
In the last several years, we initiated
a series of amendments to keep EDGAR
current technologically and to make it
more useful to the investing public and
Commission staff.4 In April 2000, we
adopted rule and form amendments in
connection with the modernization of
EDGAR.5 In the Modernization
Proposing Release, we noted that, as the
use of electronic databases grows, it
becomes increasingly important for
members of the public to have
electronic access to our filings. We also
stated that we were contemplating
future rulemaking to require more of our
filings to be filed on EDGAR. In May
2002, we adopted rules requiring foreign
private issuers and foreign governments
to file most of their documents
electronically.6 In May 2003, we
adopted rules requiring electronic filing
of beneficial ownership reports filed by
officers, directors and principal security
holders under section 16(a) 7 of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’).8 In July 2005, we
adopted rules requiring certain openend management investment companies
and insurance companies separate
accounts to identify in their EDGAR
submissions information relating to
their series and classes (or contracts, in
the case of separate accounts) and
mandating that fidelity bonds filed
under section 17(g) 9 and sales literature
filed with us under section 24(b) 10 be
1 17
CFR 232.101 and 232.201.
CFR 270.0–2.
3 We proposed these amendments in November
2007. See Rulemaking for EDGAR System;
Mandatory Electronic Submission of Applications
for Orders under the Investment Company Act and
Filings Made Pursuant to Regulation E, Release No.
33–8859 (Nov. 1, 2007) [72 FR 63513 (Nov. 9, 2007)]
(‘‘Proposing Release’’).
4 We recently announced the successor to the
EDGAR Database. The new system is called IDEA,
short for Interactive Data Electronic Applications,
and will at first supplement and then eventually
replace the EDGAR system. See ‘‘SEC Announces
Successor to EDGAR Database; ‘‘IDEA’’ Will Make
Company and Fund Information Interactive,’’ Press
Release No. 2008–179, Aug. 19, 2008.
5 See Rulemaking for EDGAR System, Release No.
33–7855 (Apr. 27, 2000) [65 FR 24788] (the
‘‘Modernization Adopting Release’’). See also
Release No. 33–7803 (Mar. 3, 2000) [65 FR 11507]
(‘‘Modernization Proposing Release’’).
6 See Mandated EDGAR Filing for Foreign Issuers,
Release No. 33–8099 (May 14, 2002) [67 FR 36678].
7 15 U.S.C. 78p(a).
8 See Mandated EDGAR Filing and Web Site
Posting for Forms 3, 4 and 5, Release No. 33–8230
(May 7, 2003) [68 FR 25788] (the ‘‘EDGAR Section
16 Release’’).
9 15 U.S.C. 80a–17(g).
10 15 U.S.C. 80a–24(b).
2 17
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]]>Agencies
[Federal Register Volume 73, Number 214 (Tuesday, November 4, 2008)]
[Rules and Regulations]
[Pages 65514-65516]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26199]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 190
Interpretative Statement Regarding Funds Related to Cleared-Only
Contracts Determined To Be Included in a Customer's Net Equity
AGENCY: Commodity Futures Trading Commission.
ACTION: Interpretative Statement; correction.
-----------------------------------------------------------------------
SUMMARY: This interpretation by the Commodity Futures Trading
Commission (``Commission'') is issued to clarify the appropriate
treatment under the commodity broker provisions of the Bankruptcy Code
and Part 190 of the Commission's Regulations of claims arising from
contracts (``cleared-only contracts'') that, although not executed or
traded on a Designated Contract Market or a Derivatives Transaction
Execution Facility, are subsequently submitted for clearing through a
Futures Commission Merchant (``FCM'') to a Derivatives Clearing
Organization (``DCO''). The Commission first published this
interpretation in the Federal Register of October 2, 2008 (73 FR
57235). A statement of concurrence on a different matter was printed at
the end of the interpretation, in error. The Commission is republishing
the interpretation to clarify that the statement of concurrence is not
related to the interpretation.
FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate
Director, rwasserman@cftc.gov, (202) 418-5092, or Amanda Olear,
Attorney-Advisor, Division of Clearing and Intermediary Oversight,
aolear@cftc.gov, (202) 418-5283, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
Section 20 of the Commodity Exchange Act \1\ (Act) empowers the
Commission to provide how the net equity of a customer is to be
determined:
\1\ 7 U.S.C. 24.
---------------------------------------------------------------------------
The Commission may provide, with respect to a commodity broker
that is a debtor under chapter 7 of title 11 of the United States
Code, by rule or regulation--(1) that certain cash, securities,
other property, or commodity contracts are to be included in or
excluded from customer property or member property; * * * and (5)
how the net equity of a customer is to be determined.
Subchapter IV of Chapter 7 of the Bankruptcy Code, governing commodity
brokers, has the same effect, explicitly basing the definition of ``net
equity'' on
[[Page 65515]]
``such rules and regulations as the Commission promulgates under the
Act.'' \2\
---------------------------------------------------------------------------
\2\ 11 U.S.C. 761(17).
---------------------------------------------------------------------------
The Commission has exercised this power in promulgating Part 190 of
its regulations.\3\ In particular, the term ``net equity'' is defined
by Commission Regulation 190.07 \4\ as:
---------------------------------------------------------------------------
\3\ 17 CFR Part 190.
\4\ 17 CFR 190.07.
The total claim of a customer against the estate of the debtor
based on the commodity contracts held by the debtor for or on behalf
of such customer less any indebtedness of the customer to the
---------------------------------------------------------------------------
debtor.
Therefore, the determination of whether claims relating to cleared-only
contracts in section 4d accounts are properly includable within the
meaning of ``net equity'' is dependent upon whether an entity holding
such claims is properly considered a ``customer.'' This, in turn, as
discussed below, requires an analysis of whether such claims are
derived from ``commodity contracts.''
Cleared-Only Transactions as Commodity Contracts
Commission Regulation 190.01(k) defines ``customer'' through
incorporation by reference of the definition of the term appearing in
section 761(9) of the Bankruptcy Code, which provides, in relevant
part:
(9) ``Customer'' means--
(A) With respect to a futures commission merchant--
(i) Entity for or with whom such futures commission merchant
deals and holds a claim against such futures commission merchant on
account of a commodity contract made, received, acquired, or held by
or through such futures commission merchant in the ordinary course
of such future commission merchant's business as a futures
commission merchant from or for the commodity futures account of
such entity; or
(ii) Entity that holds a claim against such futures commission
merchant arising out of--
(I) The making, liquidation, or change in the value of a
commodity contract of a kind specified in clause (i) of this
subparagraph;
(II) A deposit or payment of cash, a security, or other property
with such futures commission merchant for the purpose of making or
margining such a commodity contract; or
(III) The making or taking of delivery on such a commodity
contract [.] \5\
---------------------------------------------------------------------------
\5\ 11 U.S.C. 761(9) (emphasis added).
Therefore, for an entity to be considered a ``customer'' of an FCM,
such entity's claim must arise out of a ``commodity contract.'' \6\
---------------------------------------------------------------------------
\6\ A similar analysis would apply to a customer of a clearing
organization (i.e., a clearing member).
---------------------------------------------------------------------------
A ``commodity contract,'' as the term appears within the context of
section 761(9), is defined in section 761(4) of the Bankruptcy Code,
which states, in pertinent part:
(4) ``Commodity Contract'' means--
(A) With respect to a futures commission merchant, contract for
the purchase or sale of a commodity for future delivery on, or
subject to the rules of, a contract market or board of trade[.] \7\
---------------------------------------------------------------------------
\7\ 11 U.S.C. 761(4).
This definition contains two elements: (1) The nature of the contract;
and (2) the nature of the venue whose rules govern the contract.
With regard to the first element, over-the-counter contracts that
are cleared-only contracts are contracts for the purchase or sale of a
commodity for future delivery within the meaning of this section of the
Bankruptcy Code. When cleared, they are subject to performance bond
requirements, daily variation settlement, the potential for offset, and
final settlement procedures that are substantially similar, and often
identical, to those applicable to exchange-traded products at the same
clearinghouse. Cf. 11 U.S.C. 761(4)(F). Although the creation and
trading of these products is outside the Commission's jurisdiction, the
clearing of these products by FCMs and DCOs is within the Commission's
jurisdiction.
With regard to the second element, section 761(7) of the Bankruptcy
Code states that a `` `contract market' means a registered entity,''
and section 761(8), in turn, provides that a `` `registered entity' * *
* ha[s] the meaning[ ] assigned to [that] term[ ] in the [Commodity
Exchange] Act.'' \8\ Section 1a(29)(C) of the Act defines the term
``registered entity'' as including ``a derivatives clearing
organization registered under section 5b'' of the Act.\9\
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\8\ 11 U.S.C. 761(7) and (8).
\9\ 7 U.S.C. 1a(29)(C).
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Thus, when a contract is cleared through a DCO, such a contract
would be considered a ``commodity contract'' under section 761(4) of
the Bankruptcy Code.\10\ Therefore, an entity with a claim based on a
cleared-only contract would be a ``customer'' within the meaning of
section 761 of the Bankruptcy Code. Further, because Part 190 of the
Commission's Regulations defines ``customer'' as having the meaning set
forth in section 761, such entity with a claim based on a cleared-only
contract would also be a ``customer'' for the purposes of Part 190 of
the Commission's Regulations. Based on the foregoing, such claims
arising out of cleared-only contracts are properly included within the
meaning of ``net equity'' for the purposes of Subchapter IV of the
Bankruptcy Code and Part 190 of the Commission's Regulations.
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\10\ Cf. H.R. Rep. No. 109-31(I) (2005) (emphasizing distinction
between definitions for purposes of Bankruptcy Code and for purposes
of other statutes).
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Portfolio Performance Bond as Net Equity
There is an alternative path to reach the same conclusion. In cases
where cleared-only contracts are held in a commodity futures account at
an FCM and margined as a portfolio with exchange-traded futures (i.e.,
where the Commission has issued an order pursuant to section 4d(a)(2)
of the Commodity Exchange Act), assets margining that portfolio are
likely to be includable within ``net equity'' even if cleared-only
contracts were found not to be ``commodity contracts'' within the
meaning of the Bankruptcy Code and Part 190 of the Commission's
Regulations.
Where the assets in an entity's account margin (i.e.,
collateralize) both cleared-only contracts and exchange-traded futures,
the entirety of those assets serves as performance bond for each of the
exchange-traded futures and the cleared-only contracts. Therefore, (a)
a claim for those assets constitutes a claim ``on account of a
commodity contract made, received, acquired, or held by or through such
futures commission merchant in the ordinary course of such future
commission merchant's business as a futures commission merchant from or
for the commodity futures account of such entity;'' \11\ (b) the entity
qualifies as a ``customer'' within the meaning of the Bankruptcy Code
as a result of that claim; and (c) those margin assets are properly
included within that entity's net equity.
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\11\ Section 761(9)(A) of the Bankruptcy Code provides that an
entity holding such a claim is a ``customer.'' 11 U.S.C. 761(9)(A).
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The dynamics of futures trading render it unwise to distinguish
between an account that currently is portfolio margined and one that
was at one time or is intended to be so in the future. Indeed,
Subchapter IV of the Bankruptcy Code includes as customers entities
with certain claims arising out of property that is not currently
margining a commodity contract. Specifically, section 761(9)(A)(ii)
provides that an entity can qualify as a ``customer'' based on claims
arising out of any of the following: (I) The ``liquidation, or change
in the value of a commodity contract;'' (II) a deposit of property
``for the purpose of making or margining * * * a commodity contract;''
or (III) ``the making or taking of delivery of a commodity contract.''
[[Page 65516]]
Accordingly, there is no requirement that the customer's assets be
margining commodity contracts on the day that the bankruptcy petition
is filed. Therefore, all assets contained in such an account are
properly included within the customer's net equity.
Account Classes
Part 190 of the Commission's Regulations divides accounts into
several classes, specifically: Futures accounts, foreign futures
accounts, leverage accounts, commodity option accounts, and delivery
accounts.\12\
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\12\ See 17 CFR 190.01.
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In October 2004, the Commission issued an interpretation regarding
the appropriate account class for funds attributable to contracts
traded on non-domestic boards of trade, and the assets margining such
contracts, that are included in accounts segregated in accordance with
Section 4d of the Act pursuant to Commission Order.\13\ In that
context, the Commission concluded that the claim is properly against
the Section 4d account class because customers whose assets are
deposited in such an account pursuant to Commission Order should
benefit from that pool of assets. The same rationale supports the
Commission's conclusion that a claim arising out of a cleared-only
contract, or the property margining such a contract, would be
includable in the futures account class where, pursuant to Commission
Order, the contract or property is included in an account segregated in
accordance with Section 4d of the Act.
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\13\ See Interpretative Statement Regarding Funds Determined To
Be Held in the Futures Account Type of Customer Account Class, 69 FR
69510 (Nov. 30, 2004).
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* * * * *
Issued in Washington, DC, on September 26, 2008, by the
Commodity Futures Trading Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E8-26199 Filed 11-3-08; 8:45 am]
BILLING CODE 6351-01-P
