Acknowledgment Letters for Customer Funds and Secured Amount Funds, 7838-7843 [E9-3551]
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Federal Register / Vol. 74, No. 33 / Friday, February 20, 2009 / Proposed Rules
2. Is not a ‘‘significant rule’’ under the
DOT Regulatory Policies and Procedures
(44 FR 11034, February 26, 1979); and
3. Will not have a significant
economic impact, positive or negative,
on a substantial number of small entities
under the criteria of the Regulatory
Flexibility Act.
We prepared a regulatory evaluation
of the estimated costs to comply with
this proposed AD and placed it in the
AD docket.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation
safety, Safety.
The Proposed Amendment
Accordingly, under the authority
delegated to me by the Administrator,
the FAA proposes to amend 14 CFR part
39 as follows:
PART 39—AIRWORTHINESS
DIRECTIVES
1. The authority citation for part 39
continues to read as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701.
§ 39.13
[Amended]
2. The FAA amends § 39.13 by adding
the following new AD:
Pratt & Whitney Canada Corp.: Docket No.
FAA–2009–0046; Directorate Identifier
2008–NE–05–AD.
Comments Due Date
(a) We must receive comments by March
23, 2009.
Affected Airworthiness Directives (ADs)
(b) None.
Applicability
(c) This AD applies to Pratt & Whitney
Canada Corp. (P&WC) Models PW305A and
PW305B turbofan engines with high pressure
compressor (HPC) drum rotor assemblies,
post P&WC Service Bulletin (SB) PW300–72–
24287 but without P&WC SB PW300–72–
24376, installed. These engines are installed
on, but not limited to, Bombardier Learjet
M60 and Hawker Beechcraft 1000 series
airplanes.
Reason
(d) P&WC has determined that the PostService Bulletin (SB) PW300–72–24287 High
Pressure Compressor (HPC) drum rotor
assemblies P/N 30B2478 and 30B2542 on
PW305A and 305B engines with single stage
coated labyrinth seals, are susceptible to
developing significant cracks in the region of
the labyrinth seal.
We are issuing this AD to detect cracks in the
HPC drum rotor assembly, which could lead
to an uncontained failure of the drum rotor
assembly and damage to the airplane.
Actions and Compliance
(e) Unless already done, do the following
actions.
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(1) Within 500 flight hours after effective
date of this directive, borescope-inspect the
interiors of affected HPC rotor assemblies for
cracks. If a crack is found, remove the engine
before next flight for HPC drum rotor
replacement. Pratt & Whitney Maintenance
Manual, Chapter 72–00–00, contains
information about borescope inspection.
Credit for Previous Inspections
(2) Inspection of affected HPC drum rotor
assembly per P&WC SB PW300–72–24462
and or SB PW305 MM 05–20–00 inspection
requirements prior to the effective date of
this directive satisfies the requirements of
paragraph (e)(1) of this AD.
(3) Repeat borescope inspection per
paragraph (e)(1) of this AD, at intervals not
exceeding 1,350 flight cycles. If a crack is
found, remove the engine before next flight
for HPC rotor drum replacement.
Optional Terminating Action
(4) Replacement of the affected HPC rotor
assembly P/N 30B2478 or 30B2542 with PostSB PW300–72–24376 assembly P/N
31B6325–01 or later superseding P/N, will
constitute terminating action for the
inspection requirements of the above
paragraphs (e)(1) and (e)(2) of the corrective
action requirements of this AD.
Other FAA AD Provisions
(f) Alternative Methods of Compliance
(AMOCs): The Manager, Engine Certification
Office, FAA, has the authority to approve
AMOCs for this AD, if requested using the
procedures found in 14 CFR 39.19.
Related Information
(g) Refer to Canadian Airworthiness
Directive CF–2007–25R1, dated February 13,
2008, and P&WC SB PW300–72–24462, dated
December 13, 1999, for related information.
Contact Pratt & Whitney Canada Corp., 1000
Marie-Victorin, Longueuil, Quebec, Canada
J4G 1A1, telephone: (800) 268–8000, for a
copy of this service information.
(h) Contact Ian Dargin, Aerospace
Engineer, Engine Certification Office, FAA,
Engine & Propeller Directorate, 12 New
England Executive Park, Burlington, MA
01803; e-mail: ian.dargin@faa.gov; telephone
(781) 238–7178; fax (781) 238–7199, for more
information about this AD.
Issued in Burlington, Massachusetts, on
February 13, 2009.
Peter A. White,
Assistant Manager, Engine and Propeller
Directorate, Aircraft Certification Service.
[FR Doc. E9–3622 Filed 2–19–09; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 1, 30, and 140
RIN 3038–AC72
Acknowledgment Letters for Customer
Funds and Secured Amount Funds
Commodity Futures Trading
Commission.
AGENCY:
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ACTION:
Notice of proposed rulemaking.
SUMMARY: The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is proposing to amend its
regulations regarding the required
content of the acknowledgment letter
that a registrant must obtain from any
depository holding its segregated
customer funds or funds of foreign
futures or foreign options customers,
and certain technical changes.
DATES: Submit comments on or before
March 23, 2009.
ADDRESSES: You may submit comments,
identified by RIN number, by any of the
following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web Site: https://
www.cftc.gov. Follow the instructions
for submitting comments on the Web
site.
• E-mail: secretary@cftc.gov. Include
the RIN number in the subject line of
the message.
• Fax: 202–418–5521.
• Mail: David A. Stawick, Secretary of
the Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW.,
Washington, DC 20581.
• Hand Delivery/Courier: Same as
mail above.
FOR FURTHER INFORMATION CONTACT:
Eileen A. Donovan, Special Counsel,
202–418–5096, edonovan@cftc.gov;
Division of Clearing and Intermediary
Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. Background
Regulation 1.20 (17 CFR 1.20) requires
futures commission merchants (FCMs)
that accept customer funds and
derivatives clearing organizations
(DCOs) that accept customer funds from
FCMs to segregate and separately
account for those funds.1 Currently,
Regulation 1.20 requires such FCMs and
DCOs to obtain from the bank, trust
company, FCM or DCO holding
customer funds in the capacity of a
depository (each, a ‘‘Depository’’) a
written acknowledgment that the
Depository was informed that the
customer funds deposited therein are
those of commodity or option customers
and are being held in accordance with
the provisions of the Commodity
Exchange Act (Act) 2 and CFTC
1 See 17 CFR 1.3(gg) (defining the term ‘‘customer
funds’’).
2 7 U.S.C. 1 et seq.
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Federal Register / Vol. 74, No. 33 / Friday, February 20, 2009 / Proposed Rules
regulations.3 Regulation 1.26 (17 CFR
1.26), which requires FCMs and DCOs
to segregate and separately account for
instruments purchased with customer
funds, repeats the requirement to obtain
an acknowledgment letter. FCMs also
must obtain a similar written
acknowledgment from Depositories
holding ‘‘secured amount’’ funds 4
required under Regulation 30.7 (17 CFR
30.7), which governs the treatment of
money, securities, and property held for
or on behalf of the FCM’s foreign futures
and foreign options customers.
The proposed amendments to
Regulations 1.20, 1.26, and 30.7 set out
specific representations that would be
required in these acknowledgment
letters in order to reaffirm and clarify
the obligations Depositories incur when
accepting customer funds or secured
amount funds. The Commission also is
proposing several technical changes to
Regulations 1.20, 1.26, 30.7, and 140.91.
The Commission invites public
comment on all aspects of the proposed
regulations.
II. Discussion of the Proposed
Regulations
A. Regulations 1.20 and 1.26
The Commission is proposing to add
paragraphs (d) and (e) to Regulation 1.20
to set out specific representations that
Depositories would have to include in
the acknowledgment letter required by
paragraphs (a) and (b) of the regulation.
Proposed paragraph (d) concerns the
letter required by paragraph (a), which
applies to customer funds being held for
an FCM by a bank, trust company, DCO
or another FCM. Proposed paragraph (e)
concerns the letter required by
paragraph (b), which applies to
customer funds being held for a DCO by
a bank or trust company.
Proposed paragraphs (d)(1)(i) and
(e)(1)(i) require the Depository to
acknowledge that the FCM or DCO,
respectively, has established the
account for the purpose of depositing
customer funds. The FCM or DCO may
have other accounts, in addition to the
customer account, with the same
Depository, and therefore the Depository
must recognize that the funds being
deposited in this particular account
belong not to the FCM or DCO, but to
customers.
Proposed paragraphs (d)(1)(ii) and
(e)(1)(ii) require the Depository to
acknowledge that the customer funds
deposited therein are those of
commodity or option customers of the
FCM, or clearing members of the DCO,
3 17
CFR Parts 1–199.
4 See 17 CFR 1.3(rr) (defining the term ‘‘foreign
futures or foreign options secured amount’’).
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respectively, and that those funds are to
be segregated in accordance with the
provisions of the Act and Part 1 of the
CFTC regulations. These provisions
would reaffirm the Depository’s
obligation to segregate customer funds
from any other funds that the
Depository may hold on behalf of the
FCM or DCO.
Proposed paragraphs (d)(1)(iii) and
(e)(1)(iii) require the Depository to
acknowledge that the customer funds
shall not be subject to any right of offset,
or lien, for or on account of any
indebtedness, obligations or liabilities
owed by the FCM or DCO, respectively.
The FCM or DCO may hold other noncustomer funds with the Depository that
do not carry such restrictions.
Proposed paragraphs (d)(1)(iv) and
(e)(1)(iv) require the Depository to
acknowledge that it must treat the
customer funds in accordance with the
Act and CFTC regulations. These
provisions restate requirements
currently included in paragraphs (a) and
(b), respectively.
Proposed paragraphs (d)(1)(v) and
(e)(1)(v) require the Depository to
acknowledge that it must immediately
release the customer funds upon proper
notice and instruction from the FCM or
DCO, respectively, or from the
Commission. The Commission is not
proposing specific standards for what
constitutes ‘‘proper notice.’’ This is
because reasonable actions could vary,
depending on the situation. For
example, in certain circumstances, it
may not be possible to expeditiously
provide written notice, and a telephone
call would be sufficient and even
preferable. The Commission recognizes
that the release of funds may be delayed
by practical considerations—for
example, electronic transfers may not be
possible if the Fedwire is unavailable.
But the Depository must make every
effort to execute the transfer as soon as
possible. The transfer of customer funds
from a segregated account cannot be
delayed due to concerns about the
financial status of the FCM or DCO that
deposited the funds.
Proposed paragraphs (d)(1)(vi) and
(e)(1)(vi) require the Depository to
acknowledge that the FCM or DCO has
informed the Depository that the FCM
or DCO will provide the Commission
with a copy of the written
acknowledgment.
Proposed paragraphs (d)(2) and (e)(2)
require the written acknowledgment to
include the account number for each
account covered by the
acknowledgment. If multiple accounts
are covered by a single written
acknowledgment, the account numbers
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may be listed on an attachment to the
written acknowledgment.
Proposed paragraphs (d)(3) and (e)(3)
require that a copy of the written
acknowledgment be filed with the
regional office of the Commission with
jurisdiction over the state in which the
FCM’s or DCO’s principal place of
business is located.
The proposed changes to Regulation
1.26 would affirm that the written
acknowledgment required for
instruments in which customer funds
are invested is identical to the written
acknowledgment required under
Regulation 1.20 and therefore must meet
the requirements set out in Regulation
1.20.
B. Regulation 30.7
The Commission is proposing to
amend Regulation 30.7 to set out
specific representations that
Depositories holding secured amount
funds would have to include in the
acknowledgment letter required by the
regulation.5
Proposed paragraph (c)(2)(i)(A)
requires the Depository to affirm that it
meets the requirement set out in
Regulation 30.7(c)(1). Regulation
30.7(c)(1) lists the types of depositories
that may accept secured amount funds.
Proposed paragraph (c)(2)(i)(B)
requires the Depository to acknowledge
that the FCM has established the
account for the purpose of depositing
money, securities, or property for or on
behalf of customers that include, but are
not limited to, foreign futures and
foreign options customers. The FCM
may have other accounts, in addition to
the secured amount account, with the
same Depository, and therefore the
Depository must recognize that the
funds being deposited in this particular
account are obligated not to the FCM
but to the FCM’s foreign futures and
foreign options customers.
Proposed paragraph (c)(2)(i)(C)
requires the Depository to acknowledge
that the money, securities, or property
deposited therein are held on behalf of
foreign futures and foreign options
customers of the FCM and may not be
commingled with the FCM’s own funds
or any other funds that the Depository
may hold, in accordance with the
provisions of the Act and Part 30 of the
CFTC regulations. This provision would
reaffirm the Depository’s obligation to
keep the money, securities, or property
held for the FCM’s foreign futures and
options customers separate from any
5 The Commission has issued an interpretative
statement with respect to the secured amount
requirement set forth in Regulation 30.7. See 17
CFR Part 30, App. B.
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Federal Register / Vol. 74, No. 33 / Friday, February 20, 2009 / Proposed Rules
other funds that the Depository may
hold on behalf of the FCM, including
those customer funds required to be
separately accounted for and segregated
under Section 4d of the Act.6
Proposed paragraph (c)(2)(i)(D)
requires the Depository to acknowledge
that the money, securities, or property
shall not be subject to any right of offset,
or lien, for or on account of any
indebtedness, obligations or liabilities
owed by the FCM. The FCM may hold
other funds with the Depository that do
not carry such restrictions.
Proposed paragraph (c)(2)(i)(E)
requires the Depository to acknowledge
that it must treat the money, securities,
or property in accordance with the
provisions of the Act and CFTC
regulations. Under this provision, the
Depository must recognize not only the
prohibition against commingling
referenced in proposed paragraph
(c)(2)(ii), but all of its legal obligations
as a holder of customer money,
securities, or property.
Proposed paragraph (c)(2)(i)(F)
requires the Depository to acknowledge
that it must release immediately, subject
to requirements of applicable foreign
law,7 the money, securities, or property
upon proper notice and instruction from
the FCM or the Commission. The
Commission is not proposing specific
standards for what constitutes ‘‘proper
notice.’’ This is because reasonable
actions could vary, depending on the
situation. For example, in certain
circumstances, it may not be possible to
expeditiously provide written notice,
and a telephone call would be sufficient
and even preferable. The Commission
recognizes that the release of money,
securities, or property may be delayed
by practical considerations—for
example, electronic transfers may not be
possible if the Fedwire is unavailable.
But the Depository must make every
effort to execute the transfer as soon as
possible. The transfer cannot be delayed
due to concerns about the financial
6 See
17 CFR 30.7(d).
7 The Commission notes that under the laws of
some foreign countries, immediate release of
customer funds may not always be possible.
Regulation 30.6(a) (17 CFR 30.6(a)) requires FCMs
to furnish customers with a separate written
disclosure statement containing the language set
forth in Regulation 1.55(b) (17 CFR 1.55(b)).
Regulation 1.55(b)(7) states in relevant part:
No domestic organization regulates the activities
of a foreign exchange * * * and no domestic
regulator has the power to compel enforcement of
the rules of the foreign exchange or the laws of the
foreign country. Moreover, such laws or regulations
will vary depending on the foreign country in
which the transaction occurs. * * * [F]unds
received from customers to margin foreign futures
transactions may not be provided the same
protections as funds received to margin futures
transactions on domestic exchanges.
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status of the FCM that deposited the
money, securities, or property.
Proposed paragraph (c)(2)(i)(G)
requires the Depository to acknowledge
that the FCM has informed the
Depository that the FCM will provide
the Commission with a copy of the
written acknowledgment.
Proposed paragraph (c)(2)(ii) requires
the written acknowledgment to include
the account number for each account
covered by the acknowledgment. If
multiple accounts are covered by a
single written acknowledgment, the
account numbers may be listed on an
attachment to the written
acknowledgment.
Proposed paragraph (c)(2)(iii) requires
the FCM to file a copy of the written
acknowledgment with the regional
office of the Commission with
jurisdiction over the state in which the
FCM’s principal place of business is
located.
C. Technical Amendments
Regulation 1.20(a) imposes upon
‘‘[e]ach registrant’’ the requirement to
obtain and retain a written
acknowledgment when customer funds
are deposited with ‘‘any bank, trust
company, clearing organization, or
another futures commission merchant.’’
Regulation 1.20(a) applies to FCMs, as
distinguished from Regulation 1.20(b),
which applies to DCOs. Therefore, the
Commission proposes to substitute the
term ‘‘futures commission merchant’’
for the term ‘‘registrant’’ to more
accurately reflect the intent and
meaning of Regulation 1.20(a). In
connection with this, the Commission
further proposes to insert the word
‘‘other’’ before the term ‘‘futures
commission merchant’’ that appears
subsequently in the same sentence, to
distinguish between the FCM holding
the funds of its own customers and an
FCM holding customer funds of another
FCM.
Regulations 1.20, 1.26, and 30.7
currently require that acknowledgment
letters be retained for the period
specified in Regulation 1.31, which
applies to all recordkeeping required by
the Act and CFTC regulations.
Regulation 1.31 requires records to be
kept for five years and to be readily
accessible for the first two years of that
five-year period. The proposed revisions
would make clear that an
acknowledgment letter is to be kept
readily accessible for as long as the
account remains open and that the
retention requirements that would
otherwise apply under Regulation 1.31
would only take effect once the account
has been closed. For example, if the
account remains open for ten years, the
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letter must be kept readily accessible for
twelve years (the ten years during which
the account is open plus the two years
required by Regulation 1.31) and then
for an additional three years, also as
required by Regulation 1.31.
Regulations 1.20 and 1.26 use the
term ‘‘clearing organization’’ to describe
an entity that performs clearing
functions. The Act, as amended by the
Commodity Futures Modernization Act
of 2000,8 now provides that a clearing
organization for a contract market must
register as a ‘‘derivatives clearing
organization.’’ 9 To be consistent with
the Act and other CFTC regulations, the
Commission proposes to replace the
term ‘‘clearing organization,’’ wherever
it appears in Regulations 1.20 and 1.26,
with the term ‘‘derivatives clearing
organization.’’
Finally, the Commission also is
proposing technical amendments to
Regulation 140.91 to explicitly delegate
to the Director of the Division of
Clearing and Intermediary Oversight the
authority to perform certain functions
that are reserved to the Commission
under the proposed changes to
Regulations 1.20 and 30.7. Thus, for
example, the Director of the Division of
Clearing and Intermediary Oversight
would have delegated authority to
instruct the Depository to release
customer funds or secured amount
funds.
D. Proposed Effective Date
FCMs and DCOs will need to obtain
new acknowledgment letters that
comply with the proposed regulations
before the final regulations take effect.
The Commission recognizes the need for
time to obtain the letters; therefore, the
proposed effective date of the
amendments to Regulations 1.20, 1.26,
and 30.7 is 180 days from the date of
publication of the final regulations in
the Federal Register.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) 10 requires Federal agencies, in
promulgating regulations, to consider
the impact of those regulations on small
businesses. The amendments adopted
herein will affect FCMs and DCOs. The
Commission has previously established
certain definitions of ‘‘small entities’’ to
be used by the Commission in
8 Appendix E of Public Law 106–554, 114 Stat.
2763 (2000).
9 See Section 5b of the Act, 7 U.S.C. 7a–1. See
also Section 1a(9) of the Act, 7 U.S.C. 1a(9)
(defining the term ‘‘derivatives clearing
organization’’).
10 5 U.S.C. 601 et seq.
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Federal Register / Vol. 74, No. 33 / Friday, February 20, 2009 / Proposed Rules
evaluating the impact of its regulations
on small entities in accordance with the
RFA.11 The Commission has previously
determined that FCMs 12 and DCOs 13
are not small entities for the purpose of
the RFA. Accordingly, pursuant to 5
U.S.C. 605(b), the Acting Chairman, on
behalf of the Commission, certifies that
the proposed regulations will not have
a significant economic impact on a
substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act
(‘‘PRA’’) 14 imposes certain
requirements on Federal agencies in
connection with their conducting or
sponsoring any collection of
information as defined by the PRA. The
regulations to be amended under this
proposal are part of an approved
collection of information (OMB Control
No. 3038–0024). The proposed
amendments would not result in any
material modification to this approved
collection. Accordingly, for purposes of
the PRA, the Commission certifies that
these proposed amendments, if
promulgated in final form, would not
impose any new reporting or
recordkeeping requirements.
C. Cost-Benefit Analysis
Section 15(a) of the Act requires that
the Commission, before promulgating a
regulation under the Act or issuing an
order, consider the costs and benefits of
its action. By its terms, Section 15(a)
does not require the Commission to
quantify the costs and benefits of a new
regulation or determine whether the
benefits of the regulation outweigh its
costs. Rather, Section 15(a) simply
requires the Commission to ‘‘consider
the costs and benefits’’ of its action.
Section 15(a) further specifies that
costs and benefits shall be evaluated in
light of the following considerations: (1)
Protection of market participants and
the public; (2) efficiency,
competitiveness, and financial integrity
of futures markets; (3) price discovery;
(4) sound risk management practices;
and (5) other public interest
considerations. Accordingly, the
Commission could, in its discretion,
give greater weight to any one of the five
considerations and could, in its
discretion, determine that,
notwithstanding its costs, a particular
regulation was necessary or appropriate
to protect the public interest or to
effectuate any of the provisions or to
11 47
FR 18618 (Apr. 30, 1982).
at 18619.
13 66 FR 45604, 45609 (Aug. 29, 2001).
14 44 U.S.C. 3501 et seq.
12 Id.
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accomplish any of the purposes of the
Act.
The Commission has evaluated the
costs and benefits of the proposed
regulations in light of the specific
considerations identified in Section
15(a) of the Act, as follows:
1. Protection of market participants
and the public. The proposed
regulations would benefit FCMs and
DCOs, as well as customers of the
futures and options markets, by
reaffirming the legal obligation of
Depositories holding customer funds or
secured amount funds to treat those
funds in accordance with the
requirements of the Act and CFTC
regulations.
2. Efficiency and competition. The
proposed regulations are not expected to
have an effect on efficiency or
competition.
3. Financial integrity of futures
markets and price discovery. The
proposed regulations would enhance
and strengthen the protection of
customer funds and secured amount
funds, thus contributing to the financial
integrity of the futures and options
markets as a whole. This, in turn, would
further support the price discovery and
risk transfer functions of such markets.
4. Sound risk management practices.
The proposed regulations would
reinforce the sound risk management
practices already required of FCMs and
DCOs holding customer funds or
secured amount funds.
5. Other public considerations.
Requiring specific representations in a
Depository’s written acknowledgment
would reduce the likelihood that the
Depository would misinterpret its
obligations in connection with the
safekeeping and administration of
customer funds and secured amount
funds.
Accordingly, after considering the five
factors enumerated in the Act, the
Commission has determined to propose
the regulations set forth below.
List of Subjects
17 CFR Parts 1 and 30
Commodity futures, Consumer
protection.
17 CFR Part 140
Authority delegations (Government
agencies), Conflict of interests,
Organization and functions
(Government agencies).
For the reasons stated in the
preamble, the Commission proposes to
amend 17 CFR parts 1, 30, and 140 as
follows:
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PART 1—GENERAL REGULATIONS
1. The authority citation for part 1
continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o,
6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a–1,
16, 16a, 19, 21, 23, and 24, as amended by
the Commodity Futures Modernization Act of
2000, Appendix E of Pub. L. 106–554, 114
Stat. 2763 (2000).
2. Revise § 1.20 to read as follows:
§ 1.20 Customer funds to be segregated
and separately accounted for.
(a) All customer funds shall be
separately accounted for and segregated
as belonging to commodity or option
customers. Such customer funds when
deposited with any bank, trust
company, derivatives clearing
organization or another futures
commission merchant shall be
deposited under an account name
which clearly identifies them as such
and shows that they are segregated as
required by the Act and this part. Each
futures commission merchant shall
obtain and maintain readily accessible
in its files, for as long as the account
remains open, and thereafter for the
period provided in § 1.31, a written
acknowledgment from such bank, trust
company, derivatives clearing
organization, or other futures
commission merchant, in accordance
with the requirements of paragraph (d)
of this section: Provided, however, that
an acknowledgment need not be
obtained from a derivatives clearing
organization that has adopted and
submitted to the Commission rules that
provide for the segregation as customer
funds, in accordance with all relevant
provisions of the Act and the rules and
orders promulgated thereunder, of all
funds held on behalf of customers.
Under no circumstances shall any
portion of customer funds be obligated
to a derivatives clearing organization,
any member of a contract market, a
futures commission merchant, or any
depository except to purchase, margin,
guarantee, secure, transfer, adjust or
settle trades, contracts or commodity
option transactions of commodity or
option customers. No person, including
any derivatives clearing organization or
any depository, that has received
customer funds for deposit in a
segregated account, as provided in this
section, may hold, dispose of, or use any
such funds as belonging to any person
other than the option or commodity
customers of the futures commission
merchant which deposited such funds.
(b) All customer funds received by a
derivatives clearing organization from a
member of the derivatives clearing
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organization to purchase, margin,
guarantee, secure or settle the trades,
contracts or commodity options of the
clearing member’s commodity or option
customers and all money accruing to
such commodity or option customers as
the result of trades, contracts or
commodity options so carried shall be
separately accounted for and segregated
as belonging to such commodity or
option customers, and a derivatives
clearing organization shall not hold, use
or dispose of such customer funds
except as belonging to such commodity
or option customers. Such customer
funds when deposited in a bank or trust
company shall be deposited under an
account name which clearly shows that
they are the customer funds of the
commodity or option customers of
clearing members, segregated as
required by the Act and these
regulations. The derivatives clearing
organization shall obtain and maintain
readily accessible in its files, for as long
as the account remains open, and
thereafter for the period provided in
§ 1.31, a written acknowledgment from
such bank or trust company, in
accordance with the requirements of
paragraph (e) of this section.
(c) Each futures commission merchant
shall treat and deal with the customer
funds of a commodity customer or of an
option customer as belonging to such
commodity or option customer. All
customer funds shall be separately
accounted for, and shall not be
commingled with the money, securities
or property of a futures commission
merchant or of any other person, or be
used to secure or guarantee the trades,
contracts or commodity options, or to
secure or extend the credit, of any
person other than the one for whom the
same are held: Provided, however, That
customer funds treated as belonging to
the commodity or option customers of a
futures commission merchant may for
convenience be commingled and
deposited in the same account or
accounts with any bank or trust
company, with another person
registered as a futures commission
merchant, or with a derivatives clearing
organization, and that such share
thereof as in the normal course of
business is necessary to purchase,
margin, guarantee, secure, transfer,
adjust, or settle the trades, contracts or
commodity options of such commodity
or option customers or resulting market
positions, with the derivatives clearing
organization or with any other person
registered as a futures commission
merchant, may be withdrawn and
applied to such purposes, including the
payment of premiums to option
VerDate Nov<24>2008
17:28 Feb 19, 2009
Jkt 217001
grantors, commissions, brokerage,
interest, taxes, storage and other fees
and charges, lawfully accruing in
connection with such trades, contracts
or commodity options: Provided,
further, That customer funds may be
invested in instruments described in
§ 1.25.
(d)(1) The written acknowledgment
made by a bank, trust company,
derivatives clearing organization or
other futures commission merchant, as
required under paragraph (a) of this
section, shall include the following
representations:
(i) That the futures commission
merchant has established the account
for the purpose of depositing customer
funds;
(ii) That the customer funds deposited
therein are those of commodity or
option customers of the futures
commission merchant and shall be
segregated from the futures commission
merchant’s own funds in accordance
with the provisions of the Act and this
part;
(iii) That the customer funds shall not
be subject to any right of offset, or lien,
for or on account of any indebtedness,
obligations or liabilities owed by the
futures commission merchant;
(iv) That the customer funds shall be
treated in accordance with the
provisions of the Act and Commission
regulations;
(v) That the customer funds shall be
released immediately upon proper
notice and instruction from the futures
commission merchant or the
Commission; and
(vi) That the futures commission
merchant has informed the bank, trust
company, derivatives clearing
organization, or other futures
commission merchant that the futures
commission merchant will provide the
Commission with a copy of the written
acknowledgment.
(2) The written acknowledgment shall
include the account number for each
account covered by the
acknowledgment.
(3) The futures commission merchant
shall file a copy of the written
acknowledgment with the regional
office of the Commission with
jurisdiction over the state in which the
futures commission merchant’s
principal place of business is located.
(e)(1) The written acknowledgment
made by a bank or trust company, as
required under paragraph (b) of this
section, shall include the following
representations:
(i) That the derivatives clearing
organization has established the account
for the purpose of depositing customer
funds;
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
(ii) That the customer funds deposited
therein are those of commodity or
option customers of clearing members
and shall be segregated from the
derivatives clearing organization’s own
funds in accordance with the provisions
of the Act and this part;
(iii) That the customer funds shall not
be subject to any right of offset, or lien,
for or on account of any indebtedness,
obligations or liabilities owed by the
derivatives clearing organization;
(iv) That the customer funds shall be
treated in accordance with the
provisions of the Act and Commission
regulations;
(v) That the customer funds shall be
released immediately upon proper
notice and instruction from the
derivatives clearing organization or the
Commission; and
(vi) That the derivatives clearing
organization has informed the bank or
trust company that it will provide the
Commission with a copy of the written
acknowledgment.
(2) The written acknowledgment shall
include the account number for each
account covered by the
acknowledgment.
(3) The derivatives clearing
organization shall file a copy of the
written acknowledgment with the
regional office of the Commission with
jurisdiction over the state in which the
derivatives clearing organization’s
principal place of business is located.
3. Revise § 1.26 to read as follows:
§ 1.26 Deposit of instruments purchased
with customer funds.
(a) Each futures commission merchant
who invests customer funds in
instruments described in § 1.25 shall
separately account for such instruments
and segregate such instruments as
belonging to such commodity or option
customers. Such instruments, when
deposited with a bank, trust company,
derivatives clearing organization or
another futures commission merchant,
shall be deposited under an account
name which clearly shows that they
belong to commodity or option
customers and are segregated as
required by the Act and this part. Each
futures commission merchant upon
opening such an account shall obtain
and maintain readily accessible in its
files, for as long as the account remains
open, and thereafter for the period
provided in § 1.31, a written
acknowledgment from such bank, trust
company, derivatives clearing
organization or other futures
commission merchant, in accordance
with the requirements of paragraph (d)
of § 1.20: Provided, however, that an
acknowledgment need not be obtained
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Federal Register / Vol. 74, No. 33 / Friday, February 20, 2009 / Proposed Rules
from a derivatives clearing organization
that has adopted and submitted to the
Commission rules that provide for the
segregation as customer funds, in
accordance with all relevant provisions
of the Act and the rules and orders
promulgated thereunder, of all funds
held on behalf of customers and all
instruments purchased with customer
funds. Such bank, trust company,
derivatives clearing organization or
other futures commission merchant
shall allow inspection of such
instruments at any reasonable time by
representatives of the Commission.
(b) Each derivatives clearing
organization which invests money
belonging or accruing to commodity or
option customers of its clearing
members in instruments described in
§ 1.25 shall separately account for such
instruments and segregate such
instruments as belonging to such
commodity or option customers. Such
instruments, when deposited with a
bank or trust company, shall be
deposited under an account name
which will clearly show that they
belong to commodity or option
customers and are segregated as
required by the Act and this part. Each
derivatives clearing organization upon
opening such an account shall obtain
and maintain readily accessible in its
files, for as long as the account remains
open, and thereafter for the period
provided in § 1.31, a written
acknowledgment from such bank or
trust company, in accordance with the
requirements of paragraph (e) of § 1.20.
Such bank or trust company shall allow
inspection of such instruments at any
reasonable time by representatives of
the Commission.
PART 30—FOREIGN FUTURES AND
OPTIONS TRANSACTIONS
4. The authority citation for part 30
continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a,
unless otherwise noted.
5. Revise paragraph (c)(2) of § 30.7 to
read as follows:
§ 30.7 Treatment of foreign futures or
foreign options secured amount.
*
*
*
*
*
(c) * * *
(2)(i) Each futures commission
merchant must obtain and maintain
readily accessible in its files, for as long
as the account remains open, and
thereafter for the period provided in
§ 1.31, a written acknowledgment from
such depository that shall include the
following representations:
(A) That the depository meets the
requirement set out in § 30.7(c)(1);
VerDate Nov<24>2008
17:28 Feb 19, 2009
Jkt 217001
(B) That the futures commission
merchant has established the account
for the purpose of depositing money,
securities, or property for or on behalf
of customers that include, but are not
limited to, foreign futures and foreign
options customers;
(C) That the money, securities, or
property deposited therein are held for
or on behalf of customers that include,
but are not limited to, foreign futures
and foreign options customers of the
futures commission merchant and may
not be commingled with the futures
commission merchant’s own funds or
any other funds that the depository may
hold, in accordance with the provisions
of the Act and this part;
(D) That the money, securities, or
property shall not be subject to any right
of offset, or lien, for or on account of
any indebtedness, obligations or
liabilities owed by the futures
commission merchant;
(E) That the money, securities, or
property shall be treated in accordance
with the provisions of the Act and
Commission regulations;
(F) That the money, securities, or
property shall be released immediately,
subject to requirements of applicable
foreign law, upon proper notice and
instruction from the futures commission
merchant or the Commission; and
(G) That the futures commission
merchant has informed the depository
that the futures commission merchant
will provide the Commission with a
copy of the written acknowledgment.
(ii) The written acknowledgment shall
include the account number for each
account covered by the
acknowledgment.
(iii) The futures commission merchant
shall file a copy of the written
acknowledgment with the regional
office of the Commission with
jurisdiction over the state in which the
futures commission merchant’s
principal place of business is located.
*
*
*
*
*
PART 140—ORGANIZATION,
FUNCTIONS, AND PROCEDURES OF
THE COMMISSION
6. The authority citation for part 140
continues to read as follows:
Authority: 7 U.S.C. 2 and 12a.
7. In § 140.91, redesignate paragraph
(a)(8) as paragraph (a)(10) and paragraph
(a)(7) as paragraph (a)(8); and add new
paragraphs (a)(7) and (a)(9) to read as
follows:
§ 140.91 Delegation of authority to the
Director of the Division of Clearing and
Intermediary Oversight.
(a) * * *
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
7843
(7) All functions reserved to the
Commission in § 1.20 of this chapter.
*
*
*
*
*
(9) All functions reserved to the
Commission in § 30.7 of this chapter.
*
*
*
*
*
Issued in Washington, DC, on February 13,
2009 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9–3551 Filed 2–19–09; 8:45 am]
BILLING CODE 6351–01–P
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION
29 CFR Part 1612
Government in the Sunshine Act
Regulations
AGENCY: Equal Employment
Opportunity Commission.
ACTION: Notice of proposed rulemaking
(NPRM).
SUMMARY: The Equal Employment
Opportunity Commission is proposing
to revise the method of public
announcement of agency meetings
subject to the Government in the
Sunshine Act.
DATES: The agency must receive
comments on or before April 21, 2009.
ADDRESSES: Written comments should
be submitted to Stephen Llewellyn,
Executive Officer, Executive Secretariat,
Equal Employment Opportunity
Commission, Room 6NE03F, 131 M
Street, NE., Washington, DC 20507. As
a convenience to commentators, the
Executive Secretariat will accept
comments totaling six or fewer pages by
facsimile (‘‘FAX’’) machine. This
limitation is necessary to assure access
to the equipment. The telephone
number of the FAX receiver is (202)
663–4114. (This is not a toll-free
number.) Receipt of FAX transmittals
will not be acknowledged, except that
the sender may request confirmation of
receipt by calling the Executive
Secretariat staff at (202) 663–4070
(voice) or (202) 663–4074 (TTD). (These
are not toll-free telephone numbers.)
You may also submit comments and
attachments electronically at https://
www.regulations.gov, which is the
Federal eRulemaking Portal. Follow the
instructions online for submitting
comments. Copies of comments
submitted by the public can be reviewed
at https://www.regulations.gov or by
appointment at the Commission’s
library, 131 M Street, NE., Washington,
DC 20507 between the hours of 9:30
a.m. and 5 p.m. (call 202–663–4630
E:\FR\FM\20FEP1.SGM
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]]>Agencies
[Federal Register Volume 74, Number 33 (Friday, February 20, 2009)]
[Proposed Rules]
[Pages 7838-7843]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-3551]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 30, and 140
RIN 3038-AC72
Acknowledgment Letters for Customer Funds and Secured Amount
Funds
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing to amend its regulations regarding the required
content of the acknowledgment letter that a registrant must obtain from
any depository holding its segregated customer funds or funds of
foreign futures or foreign options customers, and certain technical
changes.
DATES: Submit comments on or before March 23, 2009.
ADDRESSES: You may submit comments, identified by RIN number, by any of
the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web Site: https://www.cftc.gov. Follow the
instructions for submitting comments on the Web site.
E-mail: secretary@cftc.gov. Include the RIN number in the
subject line of the message.
Fax: 202-418-5521.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Special Counsel,
202-418-5096, edonovan@cftc.gov; Division of Clearing and Intermediary
Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Regulation 1.20 (17 CFR 1.20) requires futures commission merchants
(FCMs) that accept customer funds and derivatives clearing
organizations (DCOs) that accept customer funds from FCMs to segregate
and separately account for those funds.\1\ Currently, Regulation 1.20
requires such FCMs and DCOs to obtain from the bank, trust company, FCM
or DCO holding customer funds in the capacity of a depository (each, a
``Depository'') a written acknowledgment that the Depository was
informed that the customer funds deposited therein are those of
commodity or option customers and are being held in accordance with the
provisions of the Commodity Exchange Act (Act) \2\ and CFTC
[[Page 7839]]
regulations.\3\ Regulation 1.26 (17 CFR 1.26), which requires FCMs and
DCOs to segregate and separately account for instruments purchased with
customer funds, repeats the requirement to obtain an acknowledgment
letter. FCMs also must obtain a similar written acknowledgment from
Depositories holding ``secured amount'' funds \4\ required under
Regulation 30.7 (17 CFR 30.7), which governs the treatment of money,
securities, and property held for or on behalf of the FCM's foreign
futures and foreign options customers.
---------------------------------------------------------------------------
\1\ See 17 CFR 1.3(gg) (defining the term ``customer funds'').
\2\ 7 U.S.C. 1 et seq.
\3\ 17 CFR Parts 1-199.
\4\ See 17 CFR 1.3(rr) (defining the term ``foreign futures or
foreign options secured amount'').
---------------------------------------------------------------------------
The proposed amendments to Regulations 1.20, 1.26, and 30.7 set out
specific representations that would be required in these acknowledgment
letters in order to reaffirm and clarify the obligations Depositories
incur when accepting customer funds or secured amount funds. The
Commission also is proposing several technical changes to Regulations
1.20, 1.26, 30.7, and 140.91. The Commission invites public comment on
all aspects of the proposed regulations.
II. Discussion of the Proposed Regulations
A. Regulations 1.20 and 1.26
The Commission is proposing to add paragraphs (d) and (e) to
Regulation 1.20 to set out specific representations that Depositories
would have to include in the acknowledgment letter required by
paragraphs (a) and (b) of the regulation. Proposed paragraph (d)
concerns the letter required by paragraph (a), which applies to
customer funds being held for an FCM by a bank, trust company, DCO or
another FCM. Proposed paragraph (e) concerns the letter required by
paragraph (b), which applies to customer funds being held for a DCO by
a bank or trust company.
Proposed paragraphs (d)(1)(i) and (e)(1)(i) require the Depository
to acknowledge that the FCM or DCO, respectively, has established the
account for the purpose of depositing customer funds. The FCM or DCO
may have other accounts, in addition to the customer account, with the
same Depository, and therefore the Depository must recognize that the
funds being deposited in this particular account belong not to the FCM
or DCO, but to customers.
Proposed paragraphs (d)(1)(ii) and (e)(1)(ii) require the
Depository to acknowledge that the customer funds deposited therein are
those of commodity or option customers of the FCM, or clearing members
of the DCO, respectively, and that those funds are to be segregated in
accordance with the provisions of the Act and Part 1 of the CFTC
regulations. These provisions would reaffirm the Depository's
obligation to segregate customer funds from any other funds that the
Depository may hold on behalf of the FCM or DCO.
Proposed paragraphs (d)(1)(iii) and (e)(1)(iii) require the
Depository to acknowledge that the customer funds shall not be subject
to any right of offset, or lien, for or on account of any indebtedness,
obligations or liabilities owed by the FCM or DCO, respectively. The
FCM or DCO may hold other non-customer funds with the Depository that
do not carry such restrictions.
Proposed paragraphs (d)(1)(iv) and (e)(1)(iv) require the
Depository to acknowledge that it must treat the customer funds in
accordance with the Act and CFTC regulations. These provisions restate
requirements currently included in paragraphs (a) and (b),
respectively.
Proposed paragraphs (d)(1)(v) and (e)(1)(v) require the Depository
to acknowledge that it must immediately release the customer funds upon
proper notice and instruction from the FCM or DCO, respectively, or
from the Commission. The Commission is not proposing specific standards
for what constitutes ``proper notice.'' This is because reasonable
actions could vary, depending on the situation. For example, in certain
circumstances, it may not be possible to expeditiously provide written
notice, and a telephone call would be sufficient and even preferable.
The Commission recognizes that the release of funds may be delayed by
practical considerations--for example, electronic transfers may not be
possible if the Fedwire is unavailable. But the Depository must make
every effort to execute the transfer as soon as possible. The transfer
of customer funds from a segregated account cannot be delayed due to
concerns about the financial status of the FCM or DCO that deposited
the funds.
Proposed paragraphs (d)(1)(vi) and (e)(1)(vi) require the
Depository to acknowledge that the FCM or DCO has informed the
Depository that the FCM or DCO will provide the Commission with a copy
of the written acknowledgment.
Proposed paragraphs (d)(2) and (e)(2) require the written
acknowledgment to include the account number for each account covered
by the acknowledgment. If multiple accounts are covered by a single
written acknowledgment, the account numbers may be listed on an
attachment to the written acknowledgment.
Proposed paragraphs (d)(3) and (e)(3) require that a copy of the
written acknowledgment be filed with the regional office of the
Commission with jurisdiction over the state in which the FCM's or DCO's
principal place of business is located.
The proposed changes to Regulation 1.26 would affirm that the
written acknowledgment required for instruments in which customer funds
are invested is identical to the written acknowledgment required under
Regulation 1.20 and therefore must meet the requirements set out in
Regulation 1.20.
B. Regulation 30.7
The Commission is proposing to amend Regulation 30.7 to set out
specific representations that Depositories holding secured amount funds
would have to include in the acknowledgment letter required by the
regulation.\5\
---------------------------------------------------------------------------
\5\ The Commission has issued an interpretative statement with
respect to the secured amount requirement set forth in Regulation
30.7. See 17 CFR Part 30, App. B.
---------------------------------------------------------------------------
Proposed paragraph (c)(2)(i)(A) requires the Depository to affirm
that it meets the requirement set out in Regulation 30.7(c)(1).
Regulation 30.7(c)(1) lists the types of depositories that may accept
secured amount funds.
Proposed paragraph (c)(2)(i)(B) requires the Depository to
acknowledge that the FCM has established the account for the purpose of
depositing money, securities, or property for or on behalf of customers
that include, but are not limited to, foreign futures and foreign
options customers. The FCM may have other accounts, in addition to the
secured amount account, with the same Depository, and therefore the
Depository must recognize that the funds being deposited in this
particular account are obligated not to the FCM but to the FCM's
foreign futures and foreign options customers.
Proposed paragraph (c)(2)(i)(C) requires the Depository to
acknowledge that the money, securities, or property deposited therein
are held on behalf of foreign futures and foreign options customers of
the FCM and may not be commingled with the FCM's own funds or any other
funds that the Depository may hold, in accordance with the provisions
of the Act and Part 30 of the CFTC regulations. This provision would
reaffirm the Depository's obligation to keep the money, securities, or
property held for the FCM's foreign futures and options customers
separate from any
[[Page 7840]]
other funds that the Depository may hold on behalf of the FCM,
including those customer funds required to be separately accounted for
and segregated under Section 4d of the Act.\6\
---------------------------------------------------------------------------
\6\ See 17 CFR 30.7(d).
---------------------------------------------------------------------------
Proposed paragraph (c)(2)(i)(D) requires the Depository to
acknowledge that the money, securities, or property shall not be
subject to any right of offset, or lien, for or on account of any
indebtedness, obligations or liabilities owed by the FCM. The FCM may
hold other funds with the Depository that do not carry such
restrictions.
Proposed paragraph (c)(2)(i)(E) requires the Depository to
acknowledge that it must treat the money, securities, or property in
accordance with the provisions of the Act and CFTC regulations. Under
this provision, the Depository must recognize not only the prohibition
against commingling referenced in proposed paragraph (c)(2)(ii), but
all of its legal obligations as a holder of customer money, securities,
or property.
Proposed paragraph (c)(2)(i)(F) requires the Depository to
acknowledge that it must release immediately, subject to requirements
of applicable foreign law,\7\ the money, securities, or property upon
proper notice and instruction from the FCM or the Commission. The
Commission is not proposing specific standards for what constitutes
``proper notice.'' This is because reasonable actions could vary,
depending on the situation. For example, in certain circumstances, it
may not be possible to expeditiously provide written notice, and a
telephone call would be sufficient and even preferable. The Commission
recognizes that the release of money, securities, or property may be
delayed by practical considerations--for example, electronic transfers
may not be possible if the Fedwire is unavailable. But the Depository
must make every effort to execute the transfer as soon as possible. The
transfer cannot be delayed due to concerns about the financial status
of the FCM that deposited the money, securities, or property.
---------------------------------------------------------------------------
\7\ The Commission notes that under the laws of some foreign
countries, immediate release of customer funds may not always be
possible. Regulation 30.6(a) (17 CFR 30.6(a)) requires FCMs to
furnish customers with a separate written disclosure statement
containing the language set forth in Regulation 1.55(b) (17 CFR
1.55(b)). Regulation 1.55(b)(7) states in relevant part:
No domestic organization regulates the activities of a foreign
exchange * * * and no domestic regulator has the power to compel
enforcement of the rules of the foreign exchange or the laws of the
foreign country. Moreover, such laws or regulations will vary
depending on the foreign country in which the transaction occurs. *
* * [F]unds received from customers to margin foreign futures
transactions may not be provided the same protections as funds
received to margin futures transactions on domestic exchanges.
---------------------------------------------------------------------------
Proposed paragraph (c)(2)(i)(G) requires the Depository to
acknowledge that the FCM has informed the Depository that the FCM will
provide the Commission with a copy of the written acknowledgment.
Proposed paragraph (c)(2)(ii) requires the written acknowledgment
to include the account number for each account covered by the
acknowledgment. If multiple accounts are covered by a single written
acknowledgment, the account numbers may be listed on an attachment to
the written acknowledgment.
Proposed paragraph (c)(2)(iii) requires the FCM to file a copy of
the written acknowledgment with the regional office of the Commission
with jurisdiction over the state in which the FCM's principal place of
business is located.
C. Technical Amendments
Regulation 1.20(a) imposes upon ``[e]ach registrant'' the
requirement to obtain and retain a written acknowledgment when customer
funds are deposited with ``any bank, trust company, clearing
organization, or another futures commission merchant.'' Regulation
1.20(a) applies to FCMs, as distinguished from Regulation 1.20(b),
which applies to DCOs. Therefore, the Commission proposes to substitute
the term ``futures commission merchant'' for the term ``registrant'' to
more accurately reflect the intent and meaning of Regulation 1.20(a).
In connection with this, the Commission further proposes to insert the
word ``other'' before the term ``futures commission merchant'' that
appears subsequently in the same sentence, to distinguish between the
FCM holding the funds of its own customers and an FCM holding customer
funds of another FCM.
Regulations 1.20, 1.26, and 30.7 currently require that
acknowledgment letters be retained for the period specified in
Regulation 1.31, which applies to all recordkeeping required by the Act
and CFTC regulations. Regulation 1.31 requires records to be kept for
five years and to be readily accessible for the first two years of that
five-year period. The proposed revisions would make clear that an
acknowledgment letter is to be kept readily accessible for as long as
the account remains open and that the retention requirements that would
otherwise apply under Regulation 1.31 would only take effect once the
account has been closed. For example, if the account remains open for
ten years, the letter must be kept readily accessible for twelve years
(the ten years during which the account is open plus the two years
required by Regulation 1.31) and then for an additional three years,
also as required by Regulation 1.31.
Regulations 1.20 and 1.26 use the term ``clearing organization'' to
describe an entity that performs clearing functions. The Act, as
amended by the Commodity Futures Modernization Act of 2000,\8\ now
provides that a clearing organization for a contract market must
register as a ``derivatives clearing organization.'' \9\ To be
consistent with the Act and other CFTC regulations, the Commission
proposes to replace the term ``clearing organization,'' wherever it
appears in Regulations 1.20 and 1.26, with the term ``derivatives
clearing organization.''
---------------------------------------------------------------------------
\8\ Appendix E of Public Law 106-554, 114 Stat. 2763 (2000).
\9\ See Section 5b of the Act, 7 U.S.C. 7a-1. See also Section
1a(9) of the Act, 7 U.S.C. 1a(9) (defining the term ``derivatives
clearing organization'').
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Finally, the Commission also is proposing technical amendments to
Regulation 140.91 to explicitly delegate to the Director of the
Division of Clearing and Intermediary Oversight the authority to
perform certain functions that are reserved to the Commission under the
proposed changes to Regulations 1.20 and 30.7. Thus, for example, the
Director of the Division of Clearing and Intermediary Oversight would
have delegated authority to instruct the Depository to release customer
funds or secured amount funds.
D. Proposed Effective Date
FCMs and DCOs will need to obtain new acknowledgment letters that
comply with the proposed regulations before the final regulations take
effect. The Commission recognizes the need for time to obtain the
letters; therefore, the proposed effective date of the amendments to
Regulations 1.20, 1.26, and 30.7 is 180 days from the date of
publication of the final regulations in the Federal Register.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \10\ requires Federal
agencies, in promulgating regulations, to consider the impact of those
regulations on small businesses. The amendments adopted herein will
affect FCMs and DCOs. The Commission has previously established certain
definitions of ``small entities'' to be used by the Commission in
[[Page 7841]]
evaluating the impact of its regulations on small entities in
accordance with the RFA.\11\ The Commission has previously determined
that FCMs \12\ and DCOs \13\ are not small entities for the purpose of
the RFA. Accordingly, pursuant to 5 U.S.C. 605(b), the Acting Chairman,
on behalf of the Commission, certifies that the proposed regulations
will not have a significant economic impact on a substantial number of
small entities.
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\10\ 5 U.S.C. 601 et seq.
\11\ 47 FR 18618 (Apr. 30, 1982).
\12\ Id. at 18619.
\13\ 66 FR 45604, 45609 (Aug. 29, 2001).
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B. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \14\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. The
regulations to be amended under this proposal are part of an approved
collection of information (OMB Control No. 3038-0024). The proposed
amendments would not result in any material modification to this
approved collection. Accordingly, for purposes of the PRA, the
Commission certifies that these proposed amendments, if promulgated in
final form, would not impose any new reporting or recordkeeping
requirements.
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\14\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis
Section 15(a) of the Act requires that the Commission, before
promulgating a regulation under the Act or issuing an order, consider
the costs and benefits of its action. By its terms, Section 15(a) does
not require the Commission to quantify the costs and benefits of a new
regulation or determine whether the benefits of the regulation outweigh
its costs. Rather, Section 15(a) simply requires the Commission to
``consider the costs and benefits'' of its action.
Section 15(a) further specifies that costs and benefits shall be
evaluated in light of the following considerations: (1) Protection of
market participants and the public; (2) efficiency, competitiveness,
and financial integrity of futures markets; (3) price discovery; (4)
sound risk management practices; and (5) other public interest
considerations. Accordingly, the Commission could, in its discretion,
give greater weight to any one of the five considerations and could, in
its discretion, determine that, notwithstanding its costs, a particular
regulation was necessary or appropriate to protect the public interest
or to effectuate any of the provisions or to accomplish any of the
purposes of the Act.
The Commission has evaluated the costs and benefits of the proposed
regulations in light of the specific considerations identified in
Section 15(a) of the Act, as follows:
1. Protection of market participants and the public. The proposed
regulations would benefit FCMs and DCOs, as well as customers of the
futures and options markets, by reaffirming the legal obligation of
Depositories holding customer funds or secured amount funds to treat
those funds in accordance with the requirements of the Act and CFTC
regulations.
2. Efficiency and competition. The proposed regulations are not
expected to have an effect on efficiency or competition.
3. Financial integrity of futures markets and price discovery. The
proposed regulations would enhance and strengthen the protection of
customer funds and secured amount funds, thus contributing to the
financial integrity of the futures and options markets as a whole.
This, in turn, would further support the price discovery and risk
transfer functions of such markets.
4. Sound risk management practices. The proposed regulations would
reinforce the sound risk management practices already required of FCMs
and DCOs holding customer funds or secured amount funds.
5. Other public considerations. Requiring specific representations
in a Depository's written acknowledgment would reduce the likelihood
that the Depository would misinterpret its obligations in connection
with the safekeeping and administration of customer funds and secured
amount funds.
Accordingly, after considering the five factors enumerated in the
Act, the Commission has determined to propose the regulations set forth
below.
List of Subjects
17 CFR Parts 1 and 30
Commodity futures, Consumer protection.
17 CFR Part 140
Authority delegations (Government agencies), Conflict of interests,
Organization and functions (Government agencies).
For the reasons stated in the preamble, the Commission proposes to
amend 17 CFR parts 1, 30, and 140 as follows:
PART 1--GENERAL REGULATIONS
1. The authority citation for part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,
6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,
13a-1, 16, 16a, 19, 21, 23, and 24, as amended by the Commodity
Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554,
114 Stat. 2763 (2000).
2. Revise Sec. 1.20 to read as follows:
Sec. 1.20 Customer funds to be segregated and separately accounted
for.
(a) All customer funds shall be separately accounted for and
segregated as belonging to commodity or option customers. Such customer
funds when deposited with any bank, trust company, derivatives clearing
organization or another futures commission merchant shall be deposited
under an account name which clearly identifies them as such and shows
that they are segregated as required by the Act and this part. Each
futures commission merchant shall obtain and maintain readily
accessible in its files, for as long as the account remains open, and
thereafter for the period provided in Sec. 1.31, a written
acknowledgment from such bank, trust company, derivatives clearing
organization, or other futures commission merchant, in accordance with
the requirements of paragraph (d) of this section: Provided, however,
that an acknowledgment need not be obtained from a derivatives clearing
organization that has adopted and submitted to the Commission rules
that provide for the segregation as customer funds, in accordance with
all relevant provisions of the Act and the rules and orders promulgated
thereunder, of all funds held on behalf of customers. Under no
circumstances shall any portion of customer funds be obligated to a
derivatives clearing organization, any member of a contract market, a
futures commission merchant, or any depository except to purchase,
margin, guarantee, secure, transfer, adjust or settle trades, contracts
or commodity option transactions of commodity or option customers. No
person, including any derivatives clearing organization or any
depository, that has received customer funds for deposit in a
segregated account, as provided in this section, may hold, dispose of,
or use any such funds as belonging to any person other than the option
or commodity customers of the futures commission merchant which
deposited such funds.
(b) All customer funds received by a derivatives clearing
organization from a member of the derivatives clearing
[[Page 7842]]
organization to purchase, margin, guarantee, secure or settle the
trades, contracts or commodity options of the clearing member's
commodity or option customers and all money accruing to such commodity
or option customers as the result of trades, contracts or commodity
options so carried shall be separately accounted for and segregated as
belonging to such commodity or option customers, and a derivatives
clearing organization shall not hold, use or dispose of such customer
funds except as belonging to such commodity or option customers. Such
customer funds when deposited in a bank or trust company shall be
deposited under an account name which clearly shows that they are the
customer funds of the commodity or option customers of clearing
members, segregated as required by the Act and these regulations. The
derivatives clearing organization shall obtain and maintain readily
accessible in its files, for as long as the account remains open, and
thereafter for the period provided in Sec. 1.31, a written
acknowledgment from such bank or trust company, in accordance with the
requirements of paragraph (e) of this section.
(c) Each futures commission merchant shall treat and deal with the
customer funds of a commodity customer or of an option customer as
belonging to such commodity or option customer. All customer funds
shall be separately accounted for, and shall not be commingled with the
money, securities or property of a futures commission merchant or of
any other person, or be used to secure or guarantee the trades,
contracts or commodity options, or to secure or extend the credit, of
any person other than the one for whom the same are held: Provided,
however, That customer funds treated as belonging to the commodity or
option customers of a futures commission merchant may for convenience
be commingled and deposited in the same account or accounts with any
bank or trust company, with another person registered as a futures
commission merchant, or with a derivatives clearing organization, and
that such share thereof as in the normal course of business is
necessary to purchase, margin, guarantee, secure, transfer, adjust, or
settle the trades, contracts or commodity options of such commodity or
option customers or resulting market positions, with the derivatives
clearing organization or with any other person registered as a futures
commission merchant, may be withdrawn and applied to such purposes,
including the payment of premiums to option grantors, commissions,
brokerage, interest, taxes, storage and other fees and charges,
lawfully accruing in connection with such trades, contracts or
commodity options: Provided, further, That customer funds may be
invested in instruments described in Sec. 1.25.
(d)(1) The written acknowledgment made by a bank, trust company,
derivatives clearing organization or other futures commission merchant,
as required under paragraph (a) of this section, shall include the
following representations:
(i) That the futures commission merchant has established the
account for the purpose of depositing customer funds;
(ii) That the customer funds deposited therein are those of
commodity or option customers of the futures commission merchant and
shall be segregated from the futures commission merchant's own funds in
accordance with the provisions of the Act and this part;
(iii) That the customer funds shall not be subject to any right of
offset, or lien, for or on account of any indebtedness, obligations or
liabilities owed by the futures commission merchant;
(iv) That the customer funds shall be treated in accordance with
the provisions of the Act and Commission regulations;
(v) That the customer funds shall be released immediately upon
proper notice and instruction from the futures commission merchant or
the Commission; and
(vi) That the futures commission merchant has informed the bank,
trust company, derivatives clearing organization, or other futures
commission merchant that the futures commission merchant will provide
the Commission with a copy of the written acknowledgment.
(2) The written acknowledgment shall include the account number for
each account covered by the acknowledgment.
(3) The futures commission merchant shall file a copy of the
written acknowledgment with the regional office of the Commission with
jurisdiction over the state in which the futures commission merchant's
principal place of business is located.
(e)(1) The written acknowledgment made by a bank or trust company,
as required under paragraph (b) of this section, shall include the
following representations:
(i) That the derivatives clearing organization has established the
account for the purpose of depositing customer funds;
(ii) That the customer funds deposited therein are those of
commodity or option customers of clearing members and shall be
segregated from the derivatives clearing organization's own funds in
accordance with the provisions of the Act and this part;
(iii) That the customer funds shall not be subject to any right of
offset, or lien, for or on account of any indebtedness, obligations or
liabilities owed by the derivatives clearing organization;
(iv) That the customer funds shall be treated in accordance with
the provisions of the Act and Commission regulations;
(v) That the customer funds shall be released immediately upon
proper notice and instruction from the derivatives clearing
organization or the Commission; and
(vi) That the derivatives clearing organization has informed the
bank or trust company that it will provide the Commission with a copy
of the written acknowledgment.
(2) The written acknowledgment shall include the account number for
each account covered by the acknowledgment.
(3) The derivatives clearing organization shall file a copy of the
written acknowledgment with the regional office of the Commission with
jurisdiction over the state in which the derivatives clearing
organization's principal place of business is located.
3. Revise Sec. 1.26 to read as follows:
Sec. 1.26 Deposit of instruments purchased with customer funds.
(a) Each futures commission merchant who invests customer funds in
instruments described in Sec. 1.25 shall separately account for such
instruments and segregate such instruments as belonging to such
commodity or option customers. Such instruments, when deposited with a
bank, trust company, derivatives clearing organization or another
futures commission merchant, shall be deposited under an account name
which clearly shows that they belong to commodity or option customers
and are segregated as required by the Act and this part. Each futures
commission merchant upon opening such an account shall obtain and
maintain readily accessible in its files, for as long as the account
remains open, and thereafter for the period provided in Sec. 1.31, a
written acknowledgment from such bank, trust company, derivatives
clearing organization or other futures commission merchant, in
accordance with the requirements of paragraph (d) of Sec. 1.20:
Provided, however, that an acknowledgment need not be obtained
[[Page 7843]]
from a derivatives clearing organization that has adopted and submitted
to the Commission rules that provide for the segregation as customer
funds, in accordance with all relevant provisions of the Act and the
rules and orders promulgated thereunder, of all funds held on behalf of
customers and all instruments purchased with customer funds. Such bank,
trust company, derivatives clearing organization or other futures
commission merchant shall allow inspection of such instruments at any
reasonable time by representatives of the Commission.
(b) Each derivatives clearing organization which invests money
belonging or accruing to commodity or option customers of its clearing
members in instruments described in Sec. 1.25 shall separately account
for such instruments and segregate such instruments as belonging to
such commodity or option customers. Such instruments, when deposited
with a bank or trust company, shall be deposited under an account name
which will clearly show that they belong to commodity or option
customers and are segregated as required by the Act and this part. Each
derivatives clearing organization upon opening such an account shall
obtain and maintain readily accessible in its files, for as long as the
account remains open, and thereafter for the period provided in Sec.
1.31, a written acknowledgment from such bank or trust company, in
accordance with the requirements of paragraph (e) of Sec. 1.20. Such
bank or trust company shall allow inspection of such instruments at any
reasonable time by representatives of the Commission.
PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS
4. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise
noted.
5. Revise paragraph (c)(2) of Sec. 30.7 to read as follows:
Sec. 30.7 Treatment of foreign futures or foreign options secured
amount.
* * * * *
(c) * * *
(2)(i) Each futures commission merchant must obtain and maintain
readily accessible in its files, for as long as the account remains
open, and thereafter for the period provided in Sec. 1.31, a written
acknowledgment from such depository that shall include the following
representations:
(A) That the depository meets the requirement set out in Sec.
30.7(c)(1);
(B) That the futures commission merchant has established the
account for the purpose of depositing money, securities, or property
for or on behalf of customers that include, but are not limited to,
foreign futures and foreign options customers;
(C) That the money, securities, or property deposited therein are
held for or on behalf of customers that include, but are not limited
to, foreign futures and foreign options customers of the futures
commission merchant and may not be commingled with the futures
commission merchant's own funds or any other funds that the depository
may hold, in accordance with the provisions of the Act and this part;
(D) That the money, securities, or property shall not be subject to
any right of offset, or lien, for or on account of any indebtedness,
obligations or liabilities owed by the futures commission merchant;
(E) That the money, securities, or property shall be treated in
accordance with the provisions of the Act and Commission regulations;
(F) That the money, securities, or property shall be released
immediately, subject to requirements of applicable foreign law, upon
proper notice and instruction from the futures commission merchant or
the Commission; and
(G) That the futures commission merchant has informed the
depository that the futures commission merchant will provide the
Commission with a copy of the written acknowledgment.
(ii) The written acknowledgment shall include the account number
for each account covered by the acknowledgment.
(iii) The futures commission merchant shall file a copy of the
written acknowledgment with the regional office of the Commission with
jurisdiction over the state in which the futures commission merchant's
principal place of business is located.
* * * * *
PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION
6. The authority citation for part 140 continues to read as
follows:
Authority: 7 U.S.C. 2 and 12a.
7. In Sec. 140.91, redesignate paragraph (a)(8) as paragraph
(a)(10) and paragraph (a)(7) as paragraph (a)(8); and add new
paragraphs (a)(7) and (a)(9) to read as follows:
Sec. 140.91 Delegation of authority to the Director of the Division
of Clearing and Intermediary Oversight.
(a) * * *
(7) All functions reserved to the Commission in Sec. 1.20 of this
chapter.
* * * * *
(9) All functions reserved to the Commission in Sec. 30.7 of this
chapter.
* * * * *
Issued in Washington, DC, on February 13, 2009 by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-3551 Filed 2-19-09; 8:45 am]
BILLING CODE 6351-01-P
