Written Acknowledgment of Customer Funds From Federal Reserve Banks, 53266-53268 [2016-19211]
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53266
Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations
Environmental Review
The FAA has determined that this
action qualifies for categorical exclusion
under the National Environmental
Policy Act in accordance with FAA
Order 1050.1F, ‘‘Environmental
Impacts: Policies and Procedures,’’
paragraph 5–6.5a. This airspace action
is not expected to cause any potentially
significant environmental impacts, and
no extraordinary circumstances exists
that warrant preparation of an
environmental assessment.
Lists of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the
Federal Aviation Administration
amends 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120, E.O. 10854, 24 FR 9565, 3 CFR,
1959–1963 Comp., p. 389.
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of FAA Order 7400.9Z,
Airspace Designations and Reporting
Points, dated August 6, 2015, effective
September 15, 2015, is amended as
follows:
■
Paragraph 6006
Airspace Areas.
En Route Domestic
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AGL ND E6 Harvey, ND [New]
Harvey Municipal Airport, ND
(Lat. 47°47′28″ N., long. 099°55′54″ W.)
That airspace extending upward from
1,200 feet above the surface within a 100mile radius of Harvey Municipal Airport,
excluding that airspace within Canada.
ehiers on DSK5VPTVN1PROD with RULES
Issued in Fort Worth, TX, on August 3,
2016.
Vonnie L. Royal,
Acting Manager, Operations Support Group,
ATO Central Service Center.
[FR Doc. 2016–19006 Filed 8–11–16; 8:45 am]
BILLING CODE 4910–13–P
VerDate Sep<11>2014
14:21 Aug 11, 2016
17 CFR Part 1
RIN 3038–AE48
Written Acknowledgment of Customer
Funds From Federal Reserve Banks
Commodity Futures Trading
Commission.
ACTION: Final rule.
AGENCY:
The Commodity Futures
Trading Commission (‘‘CFTC’’ or
‘‘Commission’’) is amending its
regulations to revise or repeal certain
provisions related to the requirement
that a derivatives clearing organization
(‘‘DCO’’) obtain from a Federal Reserve
Bank acting as a depository for customer
funds a written acknowledgment that
the Federal Reserve Bank was informed
that the customer funds deposited
therein are those of customers and are
being held in accordance with Section
4d of the Commodity Exchange Act
(‘‘CEA’’).
SUMMARY:
DATES:
Effective August 12, 2016.
FOR FURTHER INFORMATION CONTACT:
1. The authority citation for Part 71
continues to read as follows:
■
§ 71.1
COMMODITY FUTURES TRADING
COMMISSION
Eileen A. Donovan, Deputy Director,
202–418–5096, edonovan@cftc.gov; M.
Laura Astrada, Associate Director, 202–
418–7622, lastrada@cftc.gov; or Parisa
Abadi, Attorney-Advisor, 202–418–
6620, pabadi@cftc.gov, in each case, at
the Division of Clearing and Risk,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION: On June 2,
2016, the Commission published for
public comment in the Federal Register
a proposed order that would exempt
Federal Reserve Banks that provide
customer accounts and other services to
certain designated financial market
utilities registered with the Commission
from Sections 4d and 22 of the CEA.1
The proposed order would permit
Federal Reserve Banks to hold money,
securities, and property deposited into a
customer account by certain designated
financial market utilities in accordance
with the standards to which Federal
Reserve Banks are held.
In response to the request for public
comment, CME Group Inc. noted that
the proposed order would be
inconsistent with Regulation
1 Notice of Proposed Order and Request for
Comment on Proposal to Exempt, Pursuant to the
Authority in Section 4(c) of the Commodity
Exchange Act, the Federal Reserve Banks from
Sections 4d and 22 of the Commodity Exchange
Act, 81 FR 35337 (June 2, 2016).
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1.20(g)(4)(ii).2 Commission Regulation
1.20(g)(4)(ii) requires that a DCO obtain
from a Federal Reserve Bank acting as
a depository for customer funds a
written acknowledgment that the
customer funds deposited therein are
being held in accordance with Section
4d of the CEA; however, pursuant to the
terms of the proposed order, the Federal
Reserve Banks would be exempt from
Section 4d. The Commission
subsequently issued a final exemptive
order that is substantively similar to the
proposed order. In the Federal Register
notice issuing the final exemptive order,
the Commission noted that, in light of
the comment, it had determined to
repeal the written acknowledgment
requirement with respect to customer
accounts held with a Federal Reserve
Bank 3 in a separate Federal Register
notice. The final exemptive order will
render these provisions inapplicable, as
the Federal Reserve Banks will not be
held to the requirements of Section 4d
of the CEA. Therefore, the Commission
is amending Regulation 1.20 to remove
the acknowledgment letter requirement
for customer funds deposited by a DCO
with a Federal Reserve Bank. The
Commission welcomes any comments
and/or questions regarding this
amendment.
List of Subjects in 17 CFR Part 1
Brokers, Commodity futures,
Consumer protection, Reporting and
recordkeeping requirements.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission amends 17 CFR
part 1 as follows:
PART 1—GENERAL REGULATIONS
UNDER THE COMMODITY EXCHANGE
ACT
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, 6k, 6l, 6m, 6n, 6o, 6p,
6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12,
12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and
24 (2012).
2 17 CFR 1.20(g)(4)(ii). Regulation 1.20(g)(4)(ii)
provides that a DCO shall obtain from a Federal
Reserve Bank only a written acknowledgment that:
(A) The Federal Reserve Bank was informed that the
customer funds deposited therein are those of
customers and are being held in accordance with
the provisions of section 4d of the Act and
Commission regulations thereunder; and (B) The
Federal Reserve Bank agrees to reply promptly and
directly to any request from Commission staff for
confirmation of account balances or provision of
any other information regarding or related to an
account. Id.
3 Specifically, the Commission is revising
paragraphs (g)(4)(i) and (g)(4)(ii) of Regulation 1.20,
and repealing paragraphs (g)(4)(ii)(A) and
(g)(4)(ii)(B) of Regulation 1.20.
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Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations
2. Amend § 1.20 by revising
paragraphs (g)(4)(i) and (ii) to read as
follows:
■
§ 1.20 Futures customer funds to be
segregated and separately accounted for.
*
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*
*
*
(g) * * *
(4) * * *
(i) A derivatives clearing organization
must obtain a written acknowledgment
from each depository prior to or
contemporaneously with the opening of
a futures customer funds account;
provided, however, that a derivatives
clearing organization is not required to
obtain a written acknowledgment from
a Federal Reserve Bank with which it
has opened a futures customer funds
account.
(ii) The written acknowledgment must
be in the form as set out in appendix B
to this part.
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Issued in Washington, DC, on August 8,
2016, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendices will not
appear in the Code of Federal Regulations.
Appendices to Written
Acknowledgment of Customer Funds
From Federal Reserve Banks—
Commission Voting Summary,
Chairman’s Statement, and
Commissioner’s Statement
Appendix 1—Commission Voting
Summary
On this matter, Chairman Massad and
Commissioners Bowen and Giancarlo voted
in the affirmative. No Commissioner voted in
the negative.
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Appendix 2—Statement of Chairman
Timothy G. Massad
Today, the Commission continues its work
to ensure the resiliency of clearinghouses and
protect customers in our markets. To provide
the necessary context for these efforts, it is
useful to look back at recent history.
Most participants in our markets will recall
what happened at the beginning of the
financial crisis in September 2008, when the
Reserve Fund—a money market fund—
‘‘broke the buck’’ following the bankruptcy of
Lehman Brothers. Redemptions were
suspended and investors were not able to
make withdrawals. As a result, many futures
commission merchants (FCMs) were not able
to access customer funds invested in the
Reserve Fund. Absent relief by the CFTC,
many would have been undercapitalized,
potentially ending up in bankruptcy. In
addition, clearinghouses could not liquidate
investments in the Reserve Fund. And there
could have easily been a widespread run on
money market funds, but for the emergency
actions taken by the U.S. government.
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As a result of the crisis, as well as the
collapse of MF Global, the CFTC and our selfregulatory organizations took a number of
actions to better protect customer funds. We
required customer funds to be strictly
segregated and limited the ways they can be
invested. We enhanced accounting and
auditing procedures at FCMs, including by
requiring daily verification from depositories
of the amounts deposited by FCMs.
Today, CFTC rules require that customer
funds be invested in highly liquid assets and
be convertible into cash within one business
day without a material discount in value. Our
rules also require that clearinghouses invest
initial margin deposits in a manner that
allows them to promptly liquidate any such
investment.
Over the last few years, the Securities and
Exchange Commission (SEC) has also taken
action in response to the lessons of the
financial crisis, by adopting a number of
measures to address the potential
vulnerabilities of money market funds. One
such recent reform, which takes effect in
October of this year, sets forth the
circumstances where prime money market
funds are permitted, or in some
circumstances required, to suspend
redemptions in order to prevent the risk of
investor runs.
While we recognize the benefit of the SEC’s
new rule in preventing investor runs, a
suspension of redemptions by a money
market fund would mean investments in
such funds are not accessible and cannot be
promptly liquidated. Such an event could
result in customers, FCMs, and
clearinghouses being unable to access the
funds necessary to satisfy margin obligations.
Therefore, CFTC staff is today providing
guidance making clear that Commission rules
prohibit a clearing member from investing
customer funds, or a clearinghouse from
investing amounts deposited as initial
margin, in such money market funds.
Some industry participants have suggested
we should interpret or revise our rules to
permit investments of at least some customer
monies in such money market funds unless
and until redemptions are suspended. We
have declined to do so, as it would be too late
to protect customers at that point. Moreover,
there are alternatives to prime funds,
including certain government money markets
funds or Treasury securities. In fact,
investments in prime money market funds
represent a relatively small portion of the
total customer funds on deposit and the total
initial margin deposits at clearinghouses.
Some of our clearinghouses and FCMs do not
have any investments in prime funds.
Staff has been careful not to be overly
restrictive, and therefore has issued no-action
relief to allow FCMs to invest certain
‘‘excess’’ proprietary funds held in customer
accounts in these money market funds. That
is, our existing rules require FCMs to deposit
their own funds (i.e., targeted residual
interest) into customer accounts to make sure
that there are sufficient funds in the
segregated customer accounts to cover all
obligations due to customers. FCMs
frequently deposit an amount of their own
funds that is in excess of the targeted residual
interest amount required under our rules,
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53267
and that excess amount can be withdrawn at
any time. Indeed, if an FCM should default,
customers—and the system as a whole—are
better off if excess funds are on deposit, and
we do not wish to incentivize FCMs to
withdraw such excess funds from the
segregated account. Therefore, the no action
relief makes clear that FCMs can continue to
invest their own funds in excess of their
targeted residual interest in such money
market funds, even though they cannot invest
the customer funds—or any proprietary
funds they are required to deposit—in this
manner.
Finally, the Commission is taking action
today that will further ensure the safety of
customer funds. We are issuing an order that
will help make it possible for systemically
important clearinghouses to deposit customer
funds at Federal Reserve Banks. Our order
makes clear that a Federal Reserve Bank that
opens such an account would be subject to
the same standards of liability that generally
apply to it as a depository, rather than any
potentially conflicting standard under the
commodity laws.
Although Federal Reserve accounts for
customer funds held by systemically
important clearinghouses do not exist today,
they are allowed under the Dodd-Frank Act,
and we have been working with the Board of
Governors to facilitate them. The two
clearinghouses designated as systemically
important in our markets have been approved
to open Federal Reserve Bank accounts for
their proprietary funds. We hope that with
today’s action, accounts for customer funds
can be opened soon. Doing so will help
protect customer funds and enhance the
resiliency of clearinghouses.
I thank the dedicated CFTC staff and my
fellow Commissioners for their work on these
matters.
Appendix 3—Concurring Statement of
Commissioner Sharon Y. Bowen
I am pleased to concur with the two
Commission actions: the ‘‘Order Exempting
the Federal Reserve Banks from Sections 4d
and 22 of the Commodity Exchange Act’’ and
‘‘Written Acknowledgment of Customer
Funds from Federal Reserve Banks.’’ I have
long believed that, in order to protect
customer funds, we need to keep that money
at our central bank. In the event of a major
market event, I, and I believe the rest of the
American people, would feel much better
knowing that investors’ money is at the
Federal Reserve instead of at multiple central
counterparties. I am glad that our agency and
the Federal Reserve have come to an
agreement on an effective way to accomplish
this.
I am similarly pleased with the Division of
Clearing and Risk’s (DCR) ‘‘Staff
Interpretation Regarding CFTC Part 39 In
Light Of Revised SEC Rule 2a–7,’’ which
clearly outlines the staff’s understanding
that, given the limitations that the Securities
and Exchange Commission (SEC) has
imposed on redemptions for prime money
market funds, that they are no longer
considered Rule 1.25 assets. This is the
correct interpretation. The key feature in a
Rule 1.25 asset is that it must be available
quickly in times of crisis or illiquidity. And
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Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations
we know that funds are more likely to close
the gates on redemptions when market
dislocation happens. That is just the time
when futures commission merchants (FCMs)
and customers would need access to their
money, and a multi-day delay can mean
catastrophe for some businesses.
For that very reason, I have concerns about
the Division of Swap Dealer and
Intermediary Oversight’s (DSIO) ‘‘No-Action
Relief With Respect to CFTC Regulation 1.25
Regarding Money Market Funds.’’ While the
4(c) exemption and the DCR interpretation
are clearly customer protection initiatives,
the DSIO no action letter is not. This no
action letter would allow FCMs to keep
money in segregated customer accounts that
actually would not be readily available in a
crisis. Thus, while it may appear that an FCM
had considerable funds available to settle
customer accounts during a market
dislocation, in fact that would be only be an
illusion; a portion of those funds could be
locked down behind the prime money market
funds’ gates and therefore not actually be
available when needed.
I do not think that the staff of the
Commission should be supporting this kind
of ‘‘window dressing’’—giving the
impression of greater security than there
actually is. If the funds are not suitable
investments for customer funds, then they
are not suitable for the additional capital that
the FCMs put in those accounts to protect
against potential shortfalls. Having lived
through bankruptcies, such as MF Global and
Peregrine, I have a healthy respect for the
importance of having strong clearing
members with a large cushion of funds that
can be accessed when needed. This no action
letter undermines that effort. Given the
importance of this topic to the general public,
we should at least have asked for comments
or even held a roundtable before making this
change. I therefore hope to reexamine this
subject in the near future.
[FR Doc. 2016–19211 Filed 8–11–16; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF LABOR
Occupational Safety and Health
Administration
[Docket No. OSHA–2007–0026]
RIN 1218–AB47
Confined Spaces in Construction;
Approval of Collections of Information
Occupational Safety and Health
Administration (OSHA), Department of
Labor.
ACTION: Final rule.
ehiers on DSK5VPTVN1PROD with RULES
AGENCY:
This rule is a technical
amendment revising OSHA’s
regulations to reflect the approval by the
Office of Management and Budget
(OMB) of the collections of information
SUMMARY:
14:21 Aug 11, 2016
Todd Owen, OSHA, Directorate of
Standards and Guidance, Room N–3609,
U.S. Department of Labor, 200
Constitution Avenue NW., Washington,
DC 20210; telephone (202) 693–2222.
For the reasons stated in the preamble
in this document, the Occupational
Safety and Health Administration
amends 29 CFR part 1926 as follows:
DATES:
Effective August 12, 2016.
OSHA
published a final rule for Confined
Spaces in Construction on May 4, 2015
(80 FR 25365) to provide new
protections to employees working in
confined spaces in construction. This
new subpart replaced OSHA’s general
training requirement for work in
confined spaces (29 CFR 1926.21(b)(6))
with a comprehensive standard. The
new standard includes a permit program
designed to protect employees from
exposure to many hazards associated
with work in confined spaces, including
atmospheric and physical hazards.
Those requirements contained
collections of information approved by
OMB under control number 1218–0258,
which OSHA publicized in the Federal
Register document announcing the new
rule (see 80 FR 22514–22517). This
technical amendment codifies the OMB
control number for the Confined Spaces
in Construction standard into § 1926.5,
which is the central section in which
OSHA displays its approved collections
under the Paperwork Reduction Act.
Additional opportunity for public
comment on this rule is unnecessary
because the public has already had the
opportunity to comment on the
collections of information and OMB has
approved them. This revision of
§ 1926.5 is a purely technical step to
increase public awareness of OMB’s
approval of the collections of
information.
SUPPLEMENTARY INFORMATION:
Authority and Signature
29 CFR Part 1926
VerDate Sep<11>2014
FOR FURTHER INFORMATION CONTACT:
Signed at Washington, DC, on August 2,
2016.
David Michaels,
Assistant Secretary of Labor for Occupational
Safety and Health.
contained in OSHA’s standard for
Confined Spaces in Construction.
Jkt 238001
David Michaels, Ph.D., MPH,
Assistant Secretary of Labor for
Occupational Safety and Health,
directed the preparation of this notice.
The authority for this notice is the
Paperwork Reduction Act of 1995 (44
U.S.C. 3506 et seq.) and Secretary of
Labor’s Order 1–2012 (77 FR 3912 (1/
25/2012)).
List of Subjects in 29 CFR Part 1926
PART 1926—SAFETY AND HEALTH
REGULATIONS FOR CONSTRUCTION
Subpart A—General
1. The authority citation for part 1926,
subpart A, continues to read as follows:
■
Authority: 40 U.S.C. 3701 et seq.; 29
U.S.C. 653, 655, 657; Secretary of Labor’s
Order No. 12–71 (36 FR 8754), 8–76 (41 FR
25059), 9–83 (48 FR 35736), 1–90 (55 FR
9033), 6–96 (62 FR 111), 3–2000 (65 FR
50017), 5–2002 (67 FR 65008), or 5–2007 (72
FR 31160), 5–2007 (72 FR 31160), 4–2010 (75
FR 55355), or 1–2012 (77 FR 3912), as
applicable; and 29 CFR part 1911.
2. Amend § 1926.5 by adding to the
table, in the proper numerical sequence,
the entries for ‘‘1926.1203,’’
‘‘1926.1204,’’ ‘‘1926.1205,’’
‘‘1926.1206,’’ ‘‘1926.1207,’’
‘‘1926.1208,’’ ‘‘1926.1209,’’
‘‘1926.1210,’’ ‘‘1926.1211,’’
‘‘1926.1212,’’ and ‘‘1926.1213’’ to read
as follows:
■
§ 1926.5 OMB control numbers under the
Paperwork Reduction Act.
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OMB
Control No.
29 CFR Citation
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1926.1203
1926.1204
1926.1205
1926.1206
1926.1207
1926.1208
1926.1209
1926.1210
1926.1211
1926.1212
1926.1213
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1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
1218–0258
*
[FR Doc. 2016–18965 Filed 8–11–16; 8:45 am]
BILLING CODE 4510–26–P
Occupational safety and health,
Reporting and recordkeeping
requirements.
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]]>Agencies
[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Rules and Regulations]
[Pages 53266-53268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19211]
=======================================================================
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
RIN 3038-AE48
Written Acknowledgment of Customer Funds From Federal Reserve
Banks
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is amending its regulations to revise or repeal certain
provisions related to the requirement that a derivatives clearing
organization (``DCO'') obtain from a Federal Reserve Bank acting as a
depository for customer funds a written acknowledgment that the Federal
Reserve Bank was informed that the customer funds deposited therein are
those of customers and are being held in accordance with Section 4d of
the Commodity Exchange Act (``CEA'').
DATES: Effective August 12, 2016.
FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Deputy Director,
202-418-5096, edonovan@cftc.gov; M. Laura Astrada, Associate Director,
202-418-7622, lastrada@cftc.gov; or Parisa Abadi, Attorney-Advisor,
202-418-6620, pabadi@cftc.gov, in each case, at the Division of
Clearing and Risk, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION: On June 2, 2016, the Commission published
for public comment in the Federal Register a proposed order that would
exempt Federal Reserve Banks that provide customer accounts and other
services to certain designated financial market utilities registered
with the Commission from Sections 4d and 22 of the CEA.\1\ The proposed
order would permit Federal Reserve Banks to hold money, securities, and
property deposited into a customer account by certain designated
financial market utilities in accordance with the standards to which
Federal Reserve Banks are held.
---------------------------------------------------------------------------
\1\ Notice of Proposed Order and Request for Comment on Proposal
to Exempt, Pursuant to the Authority in Section 4(c) of the
Commodity Exchange Act, the Federal Reserve Banks from Sections 4d
and 22 of the Commodity Exchange Act, 81 FR 35337 (June 2, 2016).
---------------------------------------------------------------------------
In response to the request for public comment, CME Group Inc. noted
that the proposed order would be inconsistent with Regulation
1.20(g)(4)(ii).\2\ Commission Regulation 1.20(g)(4)(ii) requires that a
DCO obtain from a Federal Reserve Bank acting as a depository for
customer funds a written acknowledgment that the customer funds
deposited therein are being held in accordance with Section 4d of the
CEA; however, pursuant to the terms of the proposed order, the Federal
Reserve Banks would be exempt from Section 4d. The Commission
subsequently issued a final exemptive order that is substantively
similar to the proposed order. In the Federal Register notice issuing
the final exemptive order, the Commission noted that, in light of the
comment, it had determined to repeal the written acknowledgment
requirement with respect to customer accounts held with a Federal
Reserve Bank \3\ in a separate Federal Register notice. The final
exemptive order will render these provisions inapplicable, as the
Federal Reserve Banks will not be held to the requirements of Section
4d of the CEA. Therefore, the Commission is amending Regulation 1.20 to
remove the acknowledgment letter requirement for customer funds
deposited by a DCO with a Federal Reserve Bank. The Commission welcomes
any comments and/or questions regarding this amendment.
---------------------------------------------------------------------------
\2\ 17 CFR 1.20(g)(4)(ii). Regulation 1.20(g)(4)(ii) provides
that a DCO shall obtain from a Federal Reserve Bank only a written
acknowledgment that: (A) The Federal Reserve Bank was informed that
the customer funds deposited therein are those of customers and are
being held in accordance with the provisions of section 4d of the
Act and Commission regulations thereunder; and (B) The Federal
Reserve Bank agrees to reply promptly and directly to any request
from Commission staff for confirmation of account balances or
provision of any other information regarding or related to an
account. Id.
\3\ Specifically, the Commission is revising paragraphs
(g)(4)(i) and (g)(4)(ii) of Regulation 1.20, and repealing
paragraphs (g)(4)(ii)(A) and (g)(4)(ii)(B) of Regulation 1.20.
---------------------------------------------------------------------------
List of Subjects in 17 CFR Part 1
Brokers, Commodity futures, Consumer protection, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 1 as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
0
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, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8,
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24
(2012).
[[Page 53267]]
0
2. Amend Sec. 1.20 by revising paragraphs (g)(4)(i) and (ii) to read
as follows:
Sec. 1.20 Futures customer funds to be segregated and separately
accounted for.
* * * * *
(g) * * *
(4) * * *
(i) A derivatives clearing organization must obtain a written
acknowledgment from each depository prior to or contemporaneously with
the opening of a futures customer funds account; provided, however,
that a derivatives clearing organization is not required to obtain a
written acknowledgment from a Federal Reserve Bank with which it has
opened a futures customer funds account.
(ii) The written acknowledgment must be in the form as set out in
appendix B to this part.
* * * * *
Issued in Washington, DC, on August 8, 2016, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Written Acknowledgment of Customer Funds From Federal
Reserve Banks--Commission Voting Summary, Chairman's Statement, and
Commissioner's Statement
Appendix 1--Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and
Giancarlo voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2--Statement of Chairman Timothy G. Massad
Today, the Commission continues its work to ensure the
resiliency of clearinghouses and protect customers in our markets.
To provide the necessary context for these efforts, it is useful to
look back at recent history.
Most participants in our markets will recall what happened at
the beginning of the financial crisis in September 2008, when the
Reserve Fund--a money market fund--``broke the buck'' following the
bankruptcy of Lehman Brothers. Redemptions were suspended and
investors were not able to make withdrawals. As a result, many
futures commission merchants (FCMs) were not able to access customer
funds invested in the Reserve Fund. Absent relief by the CFTC, many
would have been undercapitalized, potentially ending up in
bankruptcy. In addition, clearinghouses could not liquidate
investments in the Reserve Fund. And there could have easily been a
widespread run on money market funds, but for the emergency actions
taken by the U.S. government.
As a result of the crisis, as well as the collapse of MF Global,
the CFTC and our self-regulatory organizations took a number of
actions to better protect customer funds. We required customer funds
to be strictly segregated and limited the ways they can be invested.
We enhanced accounting and auditing procedures at FCMs, including by
requiring daily verification from depositories of the amounts
deposited by FCMs.
Today, CFTC rules require that customer funds be invested in
highly liquid assets and be convertible into cash within one
business day without a material discount in value. Our rules also
require that clearinghouses invest initial margin deposits in a
manner that allows them to promptly liquidate any such investment.
Over the last few years, the Securities and Exchange Commission
(SEC) has also taken action in response to the lessons of the
financial crisis, by adopting a number of measures to address the
potential vulnerabilities of money market funds. One such recent
reform, which takes effect in October of this year, sets forth the
circumstances where prime money market funds are permitted, or in
some circumstances required, to suspend redemptions in order to
prevent the risk of investor runs.
While we recognize the benefit of the SEC's new rule in
preventing investor runs, a suspension of redemptions by a money
market fund would mean investments in such funds are not accessible
and cannot be promptly liquidated. Such an event could result in
customers, FCMs, and clearinghouses being unable to access the funds
necessary to satisfy margin obligations.
Therefore, CFTC staff is today providing guidance making clear
that Commission rules prohibit a clearing member from investing
customer funds, or a clearinghouse from investing amounts deposited
as initial margin, in such money market funds.
Some industry participants have suggested we should interpret or
revise our rules to permit investments of at least some customer
monies in such money market funds unless and until redemptions are
suspended. We have declined to do so, as it would be too late to
protect customers at that point. Moreover, there are alternatives to
prime funds, including certain government money markets funds or
Treasury securities. In fact, investments in prime money market
funds represent a relatively small portion of the total customer
funds on deposit and the total initial margin deposits at
clearinghouses. Some of our clearinghouses and FCMs do not have any
investments in prime funds.
Staff has been careful not to be overly restrictive, and
therefore has issued no-action relief to allow FCMs to invest
certain ``excess'' proprietary funds held in customer accounts in
these money market funds. That is, our existing rules require FCMs
to deposit their own funds (i.e., targeted residual interest) into
customer accounts to make sure that there are sufficient funds in
the segregated customer accounts to cover all obligations due to
customers. FCMs frequently deposit an amount of their own funds that
is in excess of the targeted residual interest amount required under
our rules, and that excess amount can be withdrawn at any time.
Indeed, if an FCM should default, customers--and the system as a
whole--are better off if excess funds are on deposit, and we do not
wish to incentivize FCMs to withdraw such excess funds from the
segregated account. Therefore, the no action relief makes clear that
FCMs can continue to invest their own funds in excess of their
targeted residual interest in such money market funds, even though
they cannot invest the customer funds--or any proprietary funds they
are required to deposit--in this manner.
Finally, the Commission is taking action today that will further
ensure the safety of customer funds. We are issuing an order that
will help make it possible for systemically important clearinghouses
to deposit customer funds at Federal Reserve Banks. Our order makes
clear that a Federal Reserve Bank that opens such an account would
be subject to the same standards of liability that generally apply
to it as a depository, rather than any potentially conflicting
standard under the commodity laws.
Although Federal Reserve accounts for customer funds held by
systemically important clearinghouses do not exist today, they are
allowed under the Dodd-Frank Act, and we have been working with the
Board of Governors to facilitate them. The two clearinghouses
designated as systemically important in our markets have been
approved to open Federal Reserve Bank accounts for their proprietary
funds. We hope that with today's action, accounts for customer funds
can be opened soon. Doing so will help protect customer funds and
enhance the resiliency of clearinghouses.
I thank the dedicated CFTC staff and my fellow Commissioners for
their work on these matters.
Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen
I am pleased to concur with the two Commission actions: the
``Order Exempting the Federal Reserve Banks from Sections 4d and 22
of the Commodity Exchange Act'' and ``Written Acknowledgment of
Customer Funds from Federal Reserve Banks.'' I have long believed
that, in order to protect customer funds, we need to keep that money
at our central bank. In the event of a major market event, I, and I
believe the rest of the American people, would feel much better
knowing that investors' money is at the Federal Reserve instead of
at multiple central counterparties. I am glad that our agency and
the Federal Reserve have come to an agreement on an effective way to
accomplish this.
I am similarly pleased with the Division of Clearing and Risk's
(DCR) ``Staff Interpretation Regarding CFTC Part 39 In Light Of
Revised SEC Rule 2a-7,'' which clearly outlines the staff's
understanding that, given the limitations that the Securities and
Exchange Commission (SEC) has imposed on redemptions for prime money
market funds, that they are no longer considered Rule 1.25 assets.
This is the correct interpretation. The key feature in a Rule 1.25
asset is that it must be available quickly in times of crisis or
illiquidity. And
[[Page 53268]]
we know that funds are more likely to close the gates on redemptions
when market dislocation happens. That is just the time when futures
commission merchants (FCMs) and customers would need access to their
money, and a multi-day delay can mean catastrophe for some
businesses.
For that very reason, I have concerns about the Division of Swap
Dealer and Intermediary Oversight's (DSIO) ``No-Action Relief With
Respect to CFTC Regulation 1.25 Regarding Money Market Funds.''
While the 4(c) exemption and the DCR interpretation are clearly
customer protection initiatives, the DSIO no action letter is not.
This no action letter would allow FCMs to keep money in segregated
customer accounts that actually would not be readily available in a
crisis. Thus, while it may appear that an FCM had considerable funds
available to settle customer accounts during a market dislocation,
in fact that would be only be an illusion; a portion of those funds
could be locked down behind the prime money market funds' gates and
therefore not actually be available when needed.
I do not think that the staff of the Commission should be
supporting this kind of ``window dressing''--giving the impression
of greater security than there actually is. If the funds are not
suitable investments for customer funds, then they are not suitable
for the additional capital that the FCMs put in those accounts to
protect against potential shortfalls. Having lived through
bankruptcies, such as MF Global and Peregrine, I have a healthy
respect for the importance of having strong clearing members with a
large cushion of funds that can be accessed when needed. This no
action letter undermines that effort. Given the importance of this
topic to the general public, we should at least have asked for
comments or even held a roundtable before making this change. I
therefore hope to reexamine this subject in the near future.
[FR Doc. 2016-19211 Filed 8-11-16; 8:45 am]
BILLING CODE 6351-01-P
