```

[Federal Register: August 9, 2010 (Volume 75, Number 152)]
[Proposed Rules]               
[Page 47738-47746]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au10-21]                         

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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.

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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 September 8, 2010.

ADDRESSES: You may submit comments, identified by RIN number, by any of 
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web Site: http://www.cftc.gov. Follow the 
instructions for submitting comments on the Web site.
     E-mail: acknowledgmentletter@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: Phyllis P. Dietz, Associate Director, 
202-418-5449, pdietz@cftc.gov, or 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 \2\ 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) \3\ and CFTC 
regulations.\4\ 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 \5\ 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.
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    \1\ See 17 CFR 1.3(gg) (defining the term ``customer funds'').
    \2\ Regulation 1.20(a) does not require a written acknowledgment 
to 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.''
    \3\ 7 U.S.C. 1 et seq.
    \4\ 17 CFR parts 1-199.
    \5\ See 17 CFR 1.3(rr) (defining the term ``foreign futures or 
foreign options secured amount'').
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    On February 20, 2009, the Commission published proposed amendments 
to Regulations 1.20, 1.26, and 30.7 for public comment.\6\ The proposed 
amendments set out specific representations that would be required in 
the acknowledgment letters in order to reaffirm and clarify the 
obligations that Depositories incur when accepting customer funds or 
secured amount funds. The Commission also proposed several technical 
changes.
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    \6\ 74 FR 7838 (February 20, 2009).
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    In response, the Commission received comment letters from the 
Futures Industry Association (``FIA''), Joint Audit Committee 
(``JAC''), National Futures Association (``NFA''), Managed Funds 
Association (``MFA''), and Katten Muchin Rosenman LLP (``Katten''), 
which are discussed below. In light of the comments received, the 
Commission has determined to re-propose the amendments to Regulations 
1.20, 1.26, and 30.7, with several changes made in response to the 
comments. In addition, the Commission is proposing standard template 
acknowledgment letters that would be required to be used. These are 
proposed for inclusion in a new Appendix A to each of Regulations 1.20, 
1.26, and 30.7. The Commission invites public comment on all aspects of 
the proposed regulations and the proposed letters.

II. Comments Received

    FIA generally supported the proposed regulations but requested that 
the effective date of the final rule be extended beyond the proposed 
date of 180 days from the date of publication in the Federal Register 
to allow FCMs, DCOs, and Depositories sufficient time to negotiate and 
put in place acknowledgment letters satisfying the proposed Commission 
regulations and also to allow them an opportunity to work together to 
develop a standard template acknowledgment letter that would satisfy 
the proposed regulations. In addition, FIA expressed interest in having 
its member Depositories work with the Commission on a standardized 
notice, authentication, and instruction protocol and encouraged the 
Commission to develop a system for electronic filing of the new 
acknowledgment letters.
    The JAC supported the proposed regulations but requested guidance 
regarding the circumstances that would necessitate updating 
acknowledgment letters (e.g., name change of FCM or depository, merger 
of FCM or depository, addition or deletion of account number) as well 
as acceptable timeframes for such updating. In addition, the JAC 
questioned the benefit of requiring submission of acknowledgment 
letters to the Commission without also requiring documentation 
necessary for verification. Finally, the JAC requested that the 
Commission amend Regulation 30.7 to provide relief, similar to that 
provided under Regulations 1.20 and 1.26, that would exempt DCOs from 
having to provide acknowledgment

[[Page 47739]]

letters if they follow the requirements of the CEA.
    NFA supported the proposed regulations but recommended that the 
Commission require that acknowledgment letters be filed with NFA as 
well as the Commission when NFA is the firm's designated self-
regulatory organization (``DSRO''), so that NFA has ready access to the 
same information that the Commission does. NFA also asked that the 
Commission clarify when acknowledgment letters should be amended for 
changes made after the effective date of the proposed regulations.
    Katten supported the purpose of the proposed regulations but 
suggested several revisions. First, Katten recommended that the 
Commission require an FCM, in opening an account with a Depository, to 
include in the account opening agreement an obligation on the 
Depository to release customer funds ``immediately upon proper notice 
and instruction'' from the FCM or the Commission (the same language 
that would be required in the acknowledgment letter under the proposed 
regulations). Katten expressed concern that a Depository would be 
exposed to potential liability to the FCM if the Depository were to 
honor an instruction from the Commission without the FCM's express 
consent. Second, Katten noted that the proposed regulations set no 
guidelines to be followed or conditions to be met before the Commission 
could issue an instruction to release customer funds. Third, Katten 
recommended that the Commission establish a reasonable means for a 
Depository to authenticate an instruction from the Commission. Fourth, 
Katten asked the Commission to confirm that, in the event that an FCM 
files for bankruptcy, a Depository will have no obligation to release 
customer funds except upon instruction from the bankruptcy trustee or 
pursuant to a court order. Fifth, Katten requested that the Commission 
provide additional guidance on a Depository's obligation to release 
customer funds ``immediately'' upon instruction from the Commission and 
suggested the use of the term ``promptly'' instead. Finally, Katten 
noted that Depositories frequently contract with an FCM depositor to 
advance monies to the FCM intraday, with the understanding that the FCM 
will deposit in the customer segregated account prior to the end of the 
business day (or by the start of the next business day), sums 
sufficient to repay the advance. Katten requested that the Commission 
confirm that, in the event that the FCM fails to repay the advance in a 
timely manner, or in the event of the FCM's bankruptcy, a Depository is 
entitled to recourse against the customer funds account for the amount 
of such funds advanced.
    MFA commended the Commission for the proposed rulemaking and stated 
that it believes the proposed rules would provide customers with 
greater clarity with respect to their deposited funds.
    The Commission's response to the comments received is discussed 
below.

III. Discussion of the Proposed Regulations

A. Regulation 1.20

    In its original proposal, the Commission set out specific 
representations that Depositories would have to include in the 
acknowledgment letter required under Regulation 1.20. The proposed 
changes to Regulation 1.20 would have required the Depository to 
acknowledge in the letter that: (1) The FCM or DCO has established the 
account for the purpose of depositing customer funds; (2) the customer 
funds deposited therein are those of commodity or option customers of 
the FCM, or clearing members of the DCO, and that those funds are to be 
segregated in accordance with the provisions of the Act and Part 1 of 
the CFTC regulations; (3) 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; (4) the Depository 
must treat the customer funds in accordance with the Act and CFTC 
regulations; and (5) the Depository must immediately release the 
customer funds upon proper notice and instruction from the FCM or DCO 
or from the Commission.
    As noted above, FIA recommended the development of a standard 
template acknowledgment letter that would satisfy the proposed 
regulations. The Commission agrees with this recommendation, and the 
specific representations that the Commission originally proposed for 
the letter have been incorporated into a standard template 
acknowledgment letter that would be adopted as Appendix A to Regulation 
1.20. An FCM or DCO would be required to use this letter to satisfy the 
requirements of Regulation 1.20.
    The Commission also has accepted the recommendation to develop a 
system for electronic filing of the acknowledgment letters. As 
initially proposed, paragraphs (d)(2) and (e)(2) of Regulation 1.20 
would have required that a copy of the acknowledgment letter be filed 
with the regional office of the Commission with jurisdiction over the 
state in which the FCM or DCO's principal place of business is located; 
to reflect the change to electronic filing, paragraphs (d)(2) and 
(e)(2) now require that a copy of the letter be filed ``with the 
Commission in the manner specified by the Commission.'' The Commission 
will offer guidance on electronic filing procedures for the 
acknowledgment letters before a final rule takes effect but expects 
that filing will be done through ``WinJammerTM,'' an 
application currently used by FCMs to file their financial reports with 
the Commission. The use of WinJammerTM will ensure that only 
those individuals authorized by an FCM to submit an acknowledgment 
letter on its behalf will be able to do so, and it also will allow NFA 
and other DSROs to have access to the acknowledgment letters.
    Regulation 1.20 currently does not address the circumstances under 
which an FCM or a DCO must amend an existing acknowledgment letter or 
the amount of time allowed for doing so. Proposed paragraphs (d)(3) and 
(e)(3) require the acknowledgment letter to be amended within 60 days 
of any changes in the following: the name of the FCM or DCO depositing 
the customer funds; the name of the bank, trust company, DCO or FCM 
receiving the customer funds; or the account number(s) under which the 
customer funds are held.
    The proposed standard template acknowledgment letter includes 
language that requires the Depository to acknowledge that it must 
``immediately'' release customer funds upon ``proper notice and 
instruction'' from the FCM or DCO or from the Commission. The 
Commission recognizes that the release of customer funds may be delayed 
by practical considerations (e.g., 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.
    The Commission is not proposing specific standards for what 
constitutes ``proper notice'' from the Commission to the Depository. 
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. However, the Commission would 
confirm the instruction in writing as soon as practicable.
    As noted above, the Commission received a comment letter expressing 
concern that a Depository would be exposed to potential liability to 
the FCM

[[Page 47740]]

if the Depository were to honor an instruction from the Commission 
without the FCM's express consent. The Commission believes that the 
acknowledgment letter and Regulation 1.20, as proposed, would provide 
sufficient legal basis for the Depository to act on any such 
instruction from the Commission. The letter, which must be agreed to 
and signed by both the FCM (or DCO) and the Depository, states: ``We 
will not hold you responsible for acting pursuant to any instruction 
from the CFTC upon which you have relied after having taken reasonable 
measures to assure that such instruction was provided to you by a duly 
authorized officer or employee of the CFTC.'' The Commission would 
issue such an instruction only when, in the judgment of the Commission, 
it is necessary to do so for the protection of customer funds. For 
example, the prospective insolvency of the FCM could prompt an 
instruction from the Commission to release the customer funds. However, 
the standard template acknowledgment letter does include language 
confirming that, in the event that the FCM becomes subject to a 
voluntary or involuntary petition for relief under the U.S. Bankruptcy 
Code, the Depository will have no obligation to release the customer 
funds except upon instruction from the bankruptcy trustee or pursuant 
to a court order.
    One of the comment letters also noted that Depositories frequently 
contract with an FCM depositor to advance monies to the FCM intraday, 
with the understanding that the FCM will deposit in the customer 
segregated account prior to the end of the business day (or by the 
start of the next business day), sums sufficient to repay the advance. 
The Commission was asked to confirm that, in the event that the FCM 
fails to repay the advance in a timely manner, or in the event of the 
FCM's bankruptcy, a Depository is entitled to recourse against the 
customer funds account for the amount of such funds advanced. The 
Commission believes that Section 4d of the Act \7\ does not permit such 
an arrangement because the advance is made to the FCM account holder 
and Section 4d expressly prohibits ``any person, including* * *any 
depository, that has received any money, securities, or property for 
deposit in a [customer segregated account], to hold, dispose of, or use 
any such money, securities, or property as belonging to the depositing 
futures commission merchant or any person other than the customers of 
such futures commission merchant.'' \8\
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    \7\ 7 U.S.C. 6d.
    \8\ See Section 4d(b) of the Act, 7 U.S.C. 6d(b). The 
arrangement outlined in the comment letter is distinguishable from 
other arrangements involving segregated funds that the Commission 
has previously allowed. For example, CFTC Interpretative Letter No. 
86-9 confirmed that, when there is sufficient aggregate value in the 
form of cash and securities, but insufficient cash, in the customer 
segregated account to meet a customer margin or variation call, a 
bank may allow an overdraft in the account in order to meet the call 
and may settle the overdraft by offsetting securities held in the 
customer segregated account. The letter allowed such offsetting only 
to meet the obligations of customers, not obligations of the FCM. 
Similarly, CFTC No-Action Letter No. 04-26 confirmed that an FCM 
that holds excess funds in segregation and has a residual interest 
in such funds may pay account service charges directly out of a 
customer segregated account as a reduction of such residual 
interest, subject to additional conditions set forth in the letter. 
Although the letter allowed the charges to be paid from the customer 
segregated account, the funds being used had to belong to the FCM 
and not to its customers.
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B. Regulation 1.26

    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. The Commission also is proposing a standard template 
acknowledgment letter to be used when customer funds are invested in 
money market mutual funds, which would be adopted as Appendix A to 
Regulation 1.26.\9\
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    \9\ Regulation 1.25(c) sets forth the requirements for 
investment of customer funds in money market mutual funds. Among 
them is the requirement that if the FCM or DCO ``holds its shares of 
the fund with the fund's shareholder servicing agent, the sponsor of 
the fund and the fund itself are required to provide the 
acknowledgement letter required by Sec.  1.26.'' See 17 CFR 
1.25(c)(3).
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C. Regulation 30.7

    In its original proposal, the Commission proposed 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.\10\ The proposed 
changes to Regulation 30.7 would have required the Depository to 
acknowledge in the letter that: (1) It meets the requirement set out in 
Regulation 30.7(c)(1), which lists the types of depositories that may 
accept secured amount funds; (2) 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; (3) 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; (4) 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; (5) the 
Depository must treat the money, securities, or property in accordance 
with the provisions of the Act and CFTC regulations; and (6) the 
Depository must release immediately, subject to requirements of 
applicable foreign law, the money, securities, or property upon proper 
notice and instruction from the FCM or the Commission.
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    \10\ 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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    As noted above, the Commission now is proposing a standard template 
acknowledgment letter under Regulations 1.20 and 1.26, and the 
Commission is doing the same for Regulation 30.7. The specific 
representations that the Commission originally proposed for the letter 
required under Regulation 30.7 have been incorporated into a standard 
template acknowledgment letter that would be adopted as Appendix A to 
Regulation 30.7.
    Also as noted above, the Commission has decided to develop a system 
for electronic filing of the acknowledgment letters. As initially 
proposed, paragraph (c)(2)(iii) of Regulation 30.7 would have required 
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; to reflect the change to 
electronic filing, paragraph (c)(2)(ii) now requires that a copy of the 
letter be filed ``with the Commission in the manner specified by the 
Commission.'' The Commission will offer guidance on electronic filing 
procedures for the acknowledgment letters before a final rule takes 
effect but expects that filing will be done through 
``WinJammerTM,'' an application currently used by FCMs to 
file their financial reports with the Commission. The use of 
WinJammerTM will ensure that only those individuals 
authorized by an FCM to submit an acknowledgment letter on its behalf 
will be able to do so, and it also will allow NFA and other DSROs to 
have access to the acknowledgment letters.
    Regulation 30.7 currently does not address the circumstances under 
which an FCM must amend an existing

[[Page 47741]]

acknowledgment letter or the amount of time allowed for doing so. 
Proposed paragraph (c)(2)(iii) requires the acknowledgment letter to be 
amended within 60 days of any changes in the following: the name of the 
FCM; the name of the Depository; \11\ or the account number(s) under 
which the secured amount funds are held.
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    \11\ Regulation 30.7(c)(1) (17 CFR 30.7(c)(1)) sets out certain 
requirements that an entity must meet to qualify as a depository 
that may accept from an FCM the money, securities, and property 
representing the foreign futures or foreign options secured amount.
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    The proposed standard template acknowledgment letter includes 
language that requires the Depository to acknowledge that it must 
``immediately'' release, subject to the requirements of U.S. or non-
U.S. law as applicable,\12\ secured amount funds upon ``proper notice 
and instruction'' from the FCM or from the Commission. The Commission 
recognizes that the release of secured amount funds may be delayed by 
practical considerations (e.g., 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 funds.
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    \12\ 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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    The Commission is not proposing specific standards for what 
constitutes ``proper notice'' from the Commission to the Depository. 
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. However, the Commission would 
confirm the instruction in writing as soon as practicable.

D. 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,\13\ now 
provides that a clearing organization for a contract market must 
register as a ``derivatives clearing organization.'' \14\ 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.''
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    \13\ Appendix E of Public Law 106-554, 114 Stat. 2763 (2000).
    \14\ 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, 1.26, and 30.7. Thus, for 
example, the Director of the Division of Clearing and Intermediary 
Oversight would have delegated authority to instruct a Depository to 
release customer funds or secured amount funds.

E. 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. However, the adoption of a standard template acknowledgment 
letter would eliminate the need for FCMs and Depositories to negotiate 
new acknowledgment letters that satisfy the proposed regulations. 
Therefore, the proposed effective date of the amendments to Regulations 
1.20, 1.26, and 30.7 is 90 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'') \15\ 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 
evaluating the impact of its regulations on small entities in 
accordance with the RFA.\16\ The Commission has previously determined 
that FCMs \17\ and DCOs \18\ are not small entities for the purpose of 
the RFA. Accordingly, pursuant to 5 U.S.C. 605(b), the 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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    \15\ 5 U.S.C. 601 et seq.
    \16\ 47 FR 18618 (Apr. 30, 1982).
    \17\ Id. at 18619.
    \18\ 66 FR 45604, 45609 (Aug. 29, 2001).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \19\ 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

[[Page 47742]]

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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    \19\ 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. The Commission recognizes that there are certain 
administrative costs associated with obtaining new acknowledgment 
letters. However, the Commission believes those costs are minimal and 
are outweighed by the benefits. For example, because a template letter 
is required, FCMs and DCOs will not have to expend resources to 
negotiate new letters with their Depositories.
    Accordingly, after considering the five factors enumerated in the 
Act, the Commission has determined to propose the regulations set forth 
below.

List of Subjects in 17 CFR Parts 1, 30, and 140

    Commodity futures, Consumer protection.

    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 in accordance with Sec.  1.31, 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 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 
in accordance with Sec.  1.31, for as long as the account remains open, 
and

[[Page 47743]]

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 required by paragraph (a) of this 
section is set out in Appendix A to this section.
    (2) The futures commission merchant shall file a copy of the 
written acknowledgment with the Commission in the manner specified by 
the Commission.
    (3) The written acknowledgment shall be amended within 60 days of 
any changes in the following:
    (i) The name of the futures commission merchant depositing customer 
funds;
    (ii) The name of the bank, trust company, derivatives clearing 
organization or futures commission merchant receiving customer funds; 
or
    (iii) The account number(s) under which customer funds are held.
    (e)(1) The language set forth in the written acknowledgment 
required under paragraph (b) of this section shall be as set out in 
Appendix A to this section.
    (2) The derivatives clearing organization shall file a copy of the 
written acknowledgment with the Commission in the manner specified by 
the Commission.
    (3) The written acknowledgment shall be amended within 60 days of 
any changes in the following:
    (i) The name of the derivatives clearing organization depositing 
customer funds;
    (ii) The name of the bank or trust company receiving customer 
funds; or
    (iii) The account number(s) under which customer funds are held.

Appendix Sec.  1.20--Acknowledgment Letter for CFTC Regulation 1.20 
Customer Segregated Account

[Date]

[Name and Address of Bank, Trust Company, Derivatives Clearing 
Organization or Futures Commission Merchant]

    We refer to the Segregated Account(s) which [Name of Futures 
Commission Merchant or Derivatives Clearing Organization] (``we'' or 
``our'') have opened or will open with [Name of Bank, Trust Company, 
Derivatives Clearing Organization or Futures Commission Merchant] 
(``you'' or ``your'') entitled:

[Name of Futures Commission Merchant or Derivatives Clearing 
Organization] CFTC Regulation 1.20 Customer Segregated Account
Account Number(s):
(collectively, the ``Account(s)'').

    You acknowledge and agree that we have opened or will open the 
above-referenced Account(s) for the purpose of depositing, as 
applicable, money, securities and other property (collectively the 
``Funds'') of our customers who trade commodities, options, cleared 
OTC derivatives products and other products, as required by 
Commodity Futures Trading Commission (``CFTC'') Regulation 1.20, as 
amended; that the Funds held by you, hereafter deposited in the 
Account(s) or accruing to the credit of the Accounts, will be 
separately accounted for and segregated on your books from our own 
Funds and all other accounts maintained by us in accordance with the 
provisions of the Commodity Exchange Act, as amended (the ``Act''), 
and Part 1 of the CFTC's regulations, as amended; and that the Funds 
must otherwise be treated in accordance with the provisions of the 
Act and CFTC regulations.
    Furthermore, you acknowledge and agree that such Funds may not 
be used by you or by us to secure or guarantee any obligations we 
may have owing to you, nor used by us to secure credit from you. You 
further acknowledge and agree that the Funds in the Account(s) shall 
not be subject to any right of offset or lien for or on account of 
any indebtedness, obligations or liabilities we may now or in the 
future have owing to you. This prohibition does not affect your 
right to recover funds advanced in the form of cash transfers you 
make in lieu of liquidating assets held in the Account(s) for 
purposes of variation settlement or posting original margin.
    In addition, you agree that the Account(s) may be examined at 
any reasonable time by an appropriate officer, agent or employee of 
the CFTC or a self-regulatory organization, and this letter 
constitutes the authorization and direction of the undersigned to 
permit any such examination or audit to take place.
    You acknowledge and agree that the Funds in the Account(s) shall 
be released immediately, subject to the requirements of U.S. or non-
U.S. law as applicable, upon proper notice and instruction from an 
appropriate officer or employee of us or of the CFTC. We will not 
hold you responsible for acting pursuant to any instruction from the 
CFTC upon which you have relied after having taken reasonable 
measures to assure that such instruction was provided to you by a 
duly authorized officer or employee of the CFTC. You further 
acknowledge that we will provide to the CFTC a copy of this 
acknowledgment.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds 
held in the Account(s), except upon instruction of the Trustee in 
Bankruptcy or pursuant to the Order of the respective U.S. 
Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, 
nothing contained herein shall be construed as limiting your right 
to assert any right of set off against or lien on assets other than 
assets maintained in the Account(s) nor to impose such charges 
against us or any proprietary account maintained by us with you. 
Further, it is understood that amounts represented by checks, drafts 
or other items shall not be considered to be part of the Account(s) 
until finally collected. Accordingly, checks, drafts and other items 
credited to the Account(s) and subsequently dishonored or otherwise 
returned to you, or reversed, for any reason and any claims relating 
thereto, including but not limited to claims of alteration or 
forgery, may be charged back to the Account(s), and we shall be 
responsible to you as a general endorser of all such items whether 
or not actually so endorsed.
    You may conclusively presume that any withdrawal from the 
Account(s) and the balances maintained therein are in conformity 
with the Act and CFTC regulations without any further inquiry, and 
you shall not in any manner not expressly agreed to herein be 
responsible for ensuring compliance by us with the provisions of the 
Act and CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree 
or levy relates in whole or in part to the Account(s). In any event, 
you shall not be liable by reason of any such action or omission to 
act, to us or to any other person, firm, association or corporation

[[Page 47744]]

even if thereafter any such order, decree, judgment or levy shall be 
reversed, modified, set aside or vacated.
    This letter agreement constitutes the entire understanding of 
the parties with respect to its subject matter and supersedes and 
replaces all prior writings, including any applicable agreement 
between the parties in connection with the Account(s), with respect 
thereto. This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to 
the principles of choice of law.
    Please acknowledge that you agree to abide by the requirements 
and conditions set forth above by signing and returning the enclosed 
copy of this letter.

[Name of Futures Commission Merchant or Derivatives Clearing 
Organization]
By:
Name:
Title:

    ACKNOWLEDGED AND AGREED:

[Name of Bank, Trust Company, Derivatives Clearing Organization or 
Futures Commission Merchant]
By:
Name:
Title:
DATE:

    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, except for investments in money 
market mutual funds, 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 in accordance with Sec.  1.31, 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 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, except for investments 
in money market mutual funds, 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 in accordance with Sec.  1.31, 
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.
    (c) Each futures commission merchant or derivatives clearing 
organization which invests customer funds in money market mutual funds, 
as permitted by Sec.  1.25, shall separately account for such funds and 
segregate such funds as belonging to such commodity or option 
customers. Such funds 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 or derivatives clearing organization, upon opening 
such an account, shall obtain and maintain readily accessible in its 
files in accordance with Sec.  1.31, for as long as the account remains 
open, and thereafter for the period provided in Sec.  1.31, a written 
acknowledgment from the money market mutual fund as set out in Appendix 
A to this section.

Appendix A Sec.  1.26--Acknowledgment Letter for CFTC Regulation 1.26 
Customer Segregated Money Market Mutual Fund Account

[Date]

[Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Futures Commission 
Merchant or Derivatives Clearing Organization] (``we'' or ``our'') 
on behalf of our commodity futures and options customers in shares 
of [Name of Money Market Mutual Fund] (``you'' or ``your'') under 
account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant or Derivatives Clearing 
Organization] CFTC Regulation 1.26 Customer Segregated Money Market 
Mutual Fund Account
Account Number(s):
(collectively, the ``Account(s)'').

    You acknowledge and agree that we are holding these funds, 
including any shares issued and amounts accruing in connection 
therewith (collectively the ``Funds''), for the benefit of our 
customers who trade commodities, options, cleared OTC derivatives 
products and other products (``Commodity Customers''), as required 
by Commodity Futures Trading Commission (``CFTC'') Regulation 1.26, 
as amended; that the Funds held by you, hereafter deposited in the 
Account(s) or accruing to the credit of the Accounts, will be 
separately accounted for and segregated on your books from our own 
funds and from any other funds held by us in accordance with the 
provisions of the Commodity Exchange Act, as amended (the ``Act''), 
and Part 1 of the CFTC's regulations, as amended; and that the Funds 
must otherwise be treated in accordance with the provisions of the 
Act and CFTC regulations.
    Furthermore, you acknowledge and agree that such Funds may not 
be used by you or by us to secure or guarantee any obligations we 
may have owing to you, nor used by us to secure credit from you. You 
further acknowledge and agree that the Funds in the Account(s) shall 
not be subject to any right of offset or lien for or on account of 
any indebtedness, obligations or liabilities we may now or in the 
future have owing to you. In addition, you agree that the Account(s) 
may be examined at any reasonable time by an appropriate officer, 
agent or employee of the CFTC or a self-regulatory organization, and 
this letter constitutes the authorization and direction of the 
undersigned to permit any such examination or audit to take place.
    You acknowledge and agree that the Funds in the Account(s) shall 
be released immediately, subject to the requirements of U.S. or non-
U.S. law as applicable, upon proper notice and instruction from an 
appropriate officer or employee of us or of the CFTC. We will not 
hold you responsible for acting pursuant to any instruction from the 
CFTC upon which you have relied after having taken reasonable 
measures to assure that such instruction was provided to you by a 
duly authorized officer or employee of the CFTC. You further 
acknowledge that we will provide to the CFTC a copy of this 
acknowledgment.
    In the event we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds 
held in the Account(s), except upon instruction of the Trustee in

[[Page 47745]]

Bankruptcy or pursuant to the Order of the respective U.S. 
Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, 
nothing contained herein shall be construed as limiting your right 
to assert any right of setoff against or lien on assets other than 
assets maintained in the Account(s) nor to impose such charges 
against us or any proprietary account maintained by us with you. 
Further, it is understood that amounts represented by checks, drafts 
or other items shall not be considered to be part of the Account(s) 
until finally collected. Accordingly, checks, drafts and other items 
credited to the Account(s) and subsequently dishonored or otherwise 
returned to you, or reversed, for any reason and any claims relating 
thereto, including but not limited to claims of alteration or 
forgery, may be charged back to the Account(s), and we shall be 
responsible to you as a general endorser of all such items whether 
or not actually so endorsed.
    You may conclusively presume that any withdrawal from the 
Account(s) and the balances maintained therein are in conformity 
with the Act and CFTC regulations without any further inquiry, and 
you shall not in any manner not expressly agreed to herein be 
responsible for ensuring compliance by us with the provisions of the 
Act and CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree 
or levy relates in whole or in part to the Account(s). In any event, 
you shall not be liable by reason of any such action or omission to 
act, to us or to any other person, firm, association or corporation 
even if thereafter any such order, decree, judgment or levy shall be 
reversed, modified, set aside or vacated. We are permitted to invest 
our Commodity Customers' funds in money market mutual funds pursuant 
to CFTC Regulation 1.25. That rule sets forth the following 
conditions, among others, with respect to any investment in a money 
market mutual fund:
    (1) The net asset value of the fund must be computed by 9:00 
a.m. of the business day following each business day and be made 
available to us by that time;
    (2) The fund must be legally obligated to redeem an interest in 
the fund and make payment in satisfaction thereof by the close of 
the business day following the day on which we make a redemption 
request except as otherwise specified in CFTC Regulation 
1.25(c)(5)(ii); and
    (3) The agreement under which we invest our Commodity Customers' 
funds must not contain any provision that would prevent us from 
pledging or transferring fund shares to a third party permitted to 
receive the shares under the rules of the SEC.
    This letter agreement constitutes the entire understanding of 
the parties with respect to its subject matter and supersedes and 
replaces all prior writings, including any applicable agreement 
between the parties in connection with the Account(s), with respect 
thereto.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to 
the principles of choice of law.
    Please acknowledge that you agree to abide by the requirements 
and conditions set forth above by signing and returning the enclosed 
copy of this letter.

[Name of Futures Commission Merchant or Derivatives Clearing 
Organization]
By:
Name:
Title:
    ACKNOWLEDGED AND AGREED:

[Name of Money Market Mutual Fund]
By:
Name:
Title:

DATE:

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 in accordance with Sec.  1.31, for as 
long as the account remains open, and thereafter for the period 
provided in Sec.  1.31, a written acknowledgment from such depository 
as set out in Appendix E to this part.
    (ii) The futures commission merchant shall file a copy of the 
written acknowledgment with the Commission in the manner specified by 
the Commission.
    (iii) The written acknowledgment shall be amended within 60 days of 
any changes in the following:
    (A) The name of the futures commission merchant;
    (B) The name of the depository; or
    (C) The account number(s) under which money, securities, and 
property representing the foreign futures or foreign options secured 
amount are held.
* * * * *
    6. Add appendix E to read as follows:

Appendix E to Part 30--Acknowledgment Letter for CFTC Regulation 30.7 
Customer Secured Account

[Date]

[Name and Address of Depository]

    We refer to the Secured Amount Account(s) which [Name of Futures 
Commission Merchant] (``we'' or ``our'') have opened or will open 
with [Name of Depository] (``you'' or ``your'') entitled:

[Name of Futures Commission Merchant] CFTC Regulation 30.7 Customer 
Secured Account
Account Number(s):
(collectively, the ``Account(s)'').

    You acknowledge and agree that we have opened or will open the 
above-referenced Account(s) for the purpose of depositing, as 
applicable, money, securities and other property (collectively 
``Funds'') for or on behalf of our customers who trade commodities, 
options, cleared OTC derivatives products and other products, that 
include, but are not limited to, customers who are entering into 
foreign futures and/or foreign options transactions (as such terms 
are defined in U.S. Commodity Futures Trading Commission (``CFTC'') 
Regulation 30.1, as amended). The Funds deposited in the Account(s) 
or accruing to the credit of the Accounts will be kept separate and 
apart and separately accounted for on your books from our own funds 
in accordance with the provisions of the Commodity Exchange Act, as 
amended (the ``Act''), and Part 30 of the CFTC's regulations, as 
amended, and may not be commingled with our own Funds in any 
proprietary account we maintain with you and the Funds must 
otherwise be treated in accordance with the provisions of the Act 
and CFTC regulations.
    Furthermore, you acknowledge and agree that such Funds may not 
be used by you or by us to secure or guarantee any obligations we 
may have owing to you, nor used by us to secure credit from you. You 
further acknowledge and agree that the Funds in the Account(s) shall 
not be subject to any right of offset or lien for or on account of 
any indebtedness, obligations or liabilities we may now or in the 
future have owing to you, and that you understand the nature of the 
Funds held or hereafter deposited in the Account(s) and that you 
will treat and maintain such Funds in accordance with the provisions 
of the Act and CFTC regulations. This prohibition does not affect 
your right to recover funds advanced in the form of cash transfers 
you make in lieu of liquidating assets held in the Account(s) for 
purposes of variation settlement or posting original margin.
    In addition, you agree that the Account(s) may be examined at 
any reasonable time by an appropriate officer, agent or employee of 
the CFTC or a self-regulatory organization, and this letter 
constitutes the authorization and direction of the undersigned to 
permit any such examination or audit to take place.
    You acknowledge and agree that you meet the requirements 
detailed for depositories in CFTC Regulation 30.7, as amended. You 
further acknowledge and agree that the Funds in the Account(s) shall 
be released immediately, subject to the requirements of US or non-
U.S. law as applicable, upon proper notice and instruction from an 
appropriate officer or employee of us or of the CFTC. We will not 
hold you responsible for acting pursuant to any instruction from the 
CFTC upon which you have relied after having taken reasonable 
measures to assure that such instruction was provided to you by a 
duly authorized officer or employee of the CFTC. You further 
acknowledge that we will provide to the CFTC a copy of this 
acknowledgment.

[[Page 47746]]

    In the event we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds 
held in the Account(s), except upon instruction of the Trustee in 
Bankruptcy or pursuant to the Order of the respective U.S. 
Bankruptcy Court. Notwithstanding anything in the foregoing to the 
contrary, nothing contained herein shall be construed as limiting 
your right to assert any right of set off against or lien on assets 
other than assets maintained in the Account(s) nor to impose such 
charges against us or any proprietary account maintained by us with 
you. Further, it is understood that amounts represented by checks, 
drafts or other items shall not be considered to be part of the 
Account(s) until finally collected. Accordingly, checks, drafts and 
other items credited to the Account(s) and subsequently dishonored 
or otherwise returned to you, or reversed, for any reason and any 
claims relating thereto, including but not limited to claims of 
alteration or forgery, may be charged back to the Account(s), and we 
shall be responsible to you as a general endorser of all such items 
whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the 
Account(s) and the balances maintained therein are in conformity 
with the Act and CFTC regulations without any further inquiry, and 
you shall not in any manner not expressly agreed to herein be 
responsible for ensuring compliance by us with the provisions of the 
Act and CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree 
or levy relates in whole or in part to the Account(s). In any event, 
you shall not be liable by reason of any such action or omission to 
act, to us or to any other person, firm, association or corporation 
even if thereafter any such order, decree, judgment or levy shall be 
reversed, modified, set aside or vacated.
    This letter agreement constitutes the entire understanding of 
the parties with respect to its subject matter and supersedes and 
replaces all prior writings, including any applicable agreement 
between the parties in connection with the Account(s), with respect 
thereto.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to 
the principles of choice of law.
    Please acknowledge that you agree to abide by the requirements 
and conditions set forth above by signing and returning the enclosed 
copy of this letter.

[Name of Futures Commission Merchant]

By:
Name:
Title:

    ACKNOWLEDGED AND AGREED:
[Name of Depository]

By:
Name:
Title:
DATE:

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

    7. 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 paragraphs (a)(7) and (a)(8) as 
paragraphs (a)(8) and (a)(11) respectively; add new paragraphs (a)(7), 
(a)(9), and (a)(10); and revise newly designated paragraph (a)(11) 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.  1.26 of this 
chapter.
    (10) All functions reserved to the Commission in Sec.  30.7 of this 
chapter.
    (11) All functions reserved to the Commission in Sec.  41.41 of 
this chapter. Any action taken pursuant to the delegation of authority 
under this paragraph (a)(11) shall be made with the concurrence of the 
General Counsel or, in his or her absence, a Deputy General Counsel.
* * * * *

    Issued in Washington, DC, on August 3, 2010, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-19553 Filed 8-6-10; 8:45 am]
BILLING CODE P
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