19324 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 4, 41, and 190 

RIN 3038–AE67 

Bankruptcy Regulations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

‘‘Commission’’) is amending its 

regulations governing bankruptcy 

proceedings of commodity brokers. The 

amendments are meant 

comprehensively to update those 

regulations to reflect current market 

practices and lessons learned from past 

commodity broker bankruptcies. 

DATES:

Effective date: The effective date for 

this final rule is May 13, 2021. 

Compliance date: The compliance 

date for § 1.43 is April 13, 2022, for all 

letters of credit accepted, and customer 

agreements entered into, by a futures 

commission merchant prior to May 13, 

2021. 

FOR FURTHER INFORMATION CONTACT: 

Robert B. Wasserman, Chief Counsel 

and Senior Advisor, 202–418–5092, 

rwasserman@cftc.gov, Ward P. Griffin, 

Senior Special Counsel, 202–418–5425, 

wgriffin@cftc.gov, Jocelyn Partridge, 

202–418–5926, jpartridge@cftc.gov, 

Abigail S. Knauff, 202–418–5123, 

aknauff@cftc.gov, Division of Clearing 

and Risk; Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Background of the Notice of Proposed 

Rulemaking 

B. Major Themes in the Revisions to Part 

190 

II. Finalized Regulations 

A. Subpart A—General Provisions 

1. Regulation § 190.00: Statutory Authority, 

Organization, Core Concepts, Scope, and 

Construction 

2. Regulation § 190.01: Definitions 

3. Regulation § 190.02: General 

B. Subpart B—Futures Commission 

Merchant (FCM) as Debtor 

1. Regulation § 190.03: Notices and Proofs 

of Claims 

2. Regulation § 190.04: Operation of the 

Debtor’s Estate—Customer Property 

3. Regulation § 190.05: Operation of the 

Debtor’s Estate—General 

4. Regulation § 190.06: Making and Taking 

Delivery Under Commodity Contracts 

5. Regulation § 190.07: Transfers 

6. Regulation § 190.08: Calculation of 

Funded Net Equity 

7. Regulation § 190.09: Allocation of 

Property and Allowance of Claims 

8. Regulation § 190.10: Provisions 

Applicable to Futures Commission 

Merchants During Business as Usual 

C. Subpart C—Clearing Organization as 

Debtor 

1. Regulation § 190.11: Scope and Purpose 

of Subpart C 

2. Regulation § 190.12: Required Reports 

and Records 

3. Regulation § 190.13: Prohibition on 

Avoidance of Transfers 

4. Regulation § 190.14: Operation of the 

Estate of the Debtor Subsequent to the 

Filing Date 

5. Regulation § 190.15: Recovery and 

Wind-Down Plans; Default Rules and 

Procedures 

6. Regulation § 190.16: Delivery 

7. Regulation § 190.17: Calculation of Net 

Equity 

8. Regulation § 190.18: Treatment of 

Property 

9. Regulation § 190.19: Support of Daily 

Settlement 

D. Appendix A Forms 

E. Appendix B Forms 

F. Technical Corrections to Other Parts 

1. Part 1 

2. Part 4 

3. Part 41 

G. Additional Comments 

H. Supplemental Proposal 

III. Cost-Benefit Considerations 

A. Introduction 

1. Baseline 

2. Overarching Concepts 

a. Changes to Structure of Industry 

b. Trustee Discretion 

c. Cost Effectiveness and Promptness 

Versus Precision 

d. Unique Nature of Bankruptcy Events 

e. Administrative Costs Are Costs to the 

Estate, and Often to the Customers 

f. Preference for Public Customers Over 

Non-Public Customers and for Both Over 

General Creditors 

B. Subpart A—General Provisions 

1. Regulation § 190.00: Statutory Authority, 

Organization, Core Concepts, Scope, and 

Construction: Consideration of Costs and 

Benefits 

2. Regulation § 190.01: Definitions: 

Consideration of Costs and Benefits 

3. Regulation § 190.02: General: 

Consideration of Costs and Benefits 

4. Section 15(a) Factors—Subpart A 

C. Subpart B—Futures Commission 

Merchant as Debtor 

1. Regulation § 190.03: Notices and Proofs 

of Claims: Consideration of Costs and 

Benefits 

2. Regulation § 190.04: Operation of the 

Debtor’s Estate—Customer Property: 

Consideration of Costs and Benefits 

3. Regulation § 190.05: Operation of the 

Debtor’s Estate—General: Consideration 

of Costs and Benefits 

4. Regulation § 190.06: Making and Taking 

Delivery Under Commodity Contracts: 

Consideration of Costs and Benefits 

5. Regulation § 190.07: Transfers: 

Consideration of Costs and Benefits 

6. Regulation § 190.08: Calculation of 

Funded Net Equity: Consideration of 

Costs and Benefits 

7. Regulation § 190.09: Allocation of 

Property and Allowance of Claims: 

Consideration of Costs and Benefits 

8. Regulation § 190.10: Provisions 

Applicable to Futures Commission 

Merchants During Business as Usual: 

Consideration of Costs and Benefits 

9. Section 15(a) Factors—Subpart B 

D. Subpart C—Clearing Organization as 

Debtor 

1. Regulation § 190.11: Scope and Purpose 

of Subpart C: Consideration of Costs and 

Benefits 

2. Regulation § 190.12: Required Reports 

and Records: Consideration of Costs and 

Benefits 

3. Regulation § 190.13: Prohibitions on 

Avoidance of Transfers: Consideration of 

Costs and Benefits 

4. Regulation § 190.14: Operation of the 

Estate of the Debtor Subsequent to the 

Filing Date: Consideration of Costs and 

Benefits 

5. Regulation § 190.15: Recovery and 

Wind-Down Plans; Default Rules and 

Procedures: Consideration of Costs and 

Benefits 

6. Regulation § 190.16: Delivery: 

Consideration of Costs and Benefits 

7. Regulation § 190.17: Calculation of Net 

Equity: Consideration of Costs and 

Benefits 

8. Regulation § 190.18: Treatment of 

Property: Consideration of Costs and 

Benefits 

9. Regulation § 190.19: Support of Daily 

Settlement: Consideration of Costs and 

Benefits 

10. Section 15(a) Factors—Subpart C 

E. Changes to Appendices A and B 

F. Technical Corrections to Parts 1, 4, and 

41 

IV. Related Matters 

A. Antitrust Considerations 

B. Regulatory Flexibility Act 

C. Paperwork Reduction Act 

1. Reporting Requirements in an FCM 

Bankruptcy 

2. Recordkeeping Requirements in an FCM 

Bankruptcy 

3. Third-Party Disclosure Requirements 

Applicable to a Single Respondent in an 

FCM Bankruptcy 

4. Reporting Requirements in a Derivatives 

Clearing Organization (DCO) Bankruptcy 

5. Recordkeeping Requirements in a DCO 

Bankruptcy 

6. Third-Party Disclosure Requirements 

Applicable to a Single Respondent in a 

DCO Bankruptcy 

7. Third-Party Disclosure Requirements 

Applicable to Multiple Respondents 

During Business as Usual 

I. Background 

A. Background of the Notice of 

Proposed Rulemaking 

The basic structure of the 

Commission’s bankruptcy regulations, 

part 190 of title 17 of the Code of 

Federal Regulations, was proposed in 

1981 and finalized in 1983. In April of 


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1 85 FR 36000 (June 12, 2020). 

2 85 FR 60110 (Sept. 24, 2020). 

3Public Law 111–203 (July 21, 2010). 

4See CEA section 20(a), 7 U.S.C. 24(a). 

5The submission by the ABA Subcommittee 

cautioned that ‘‘[t]he views expressed in this letter, 

and the proposed Model Part 190 Rules, are 

presented on behalf of the [ABA Subcommittee]. 

They have not been approved by the House of 

Delegates or Board of Governors of the ABA and, 

accordingly, should not be construed as 

representing the policy of the ABA. In addition, 

they do not represent the position of the ABA 

Business Law Section, nor do they necessarily 

reflect the views of all members of the Committee.’’ 

6 Including bankruptcy and SIPA trustees, as well 

as the FDIC in its role as a receiver. 

7This policy preference is manifest in section 

764(b) of the Bankruptcy Code, 11 U.S.C. 764(b) 

(protecting from avoidance transfers approved by 

the Commission up to seven days after the order for 

relief), and in current § 190.02(e). 

8Section 210(d)(2), 12 U.S.C. 5390(d)(2), provides 

that the maximum liability of the FDIC, acting as 

a receiver for a covered financial company in a 

resolution under Title II, is the amount the claimant 

would have received if the FDIC had not been 

appointed receiver and the covered financial 

company had instead been liquidated under chapter 

7 of the Bankruptcy Code. Thus, in developing 

resolution strategies for a DCO while mitigating 

claims against the FDIC as receiver, it is important 

to understand what would happen if the DCO was 

instead liquidated pursuant to chapter 7 of the 

Bankruptcy Code (and this part 190), and such a 

liquidation is the counterfactual to resolution of 

that DCO under Title II. 

9Only those DCOs that are subject to subpart C 

of part 39 (i.e., those that have been designated as 

systemically important by the Financial Stability 

Oversight Council (FSOC) or that have elected to be 

subject to subpart C of part 39) are subject to § 39.35 

(default rules and procedures) and § 39.39 (recovery 

and wind-down plans). 

10See generally § 190.19. 

11See, e.g., §§ 190.16, 190.17(c). 

this year, the Commission proposed a 

comprehensive revision of part 190 (the 

‘‘Proposal’’),1 and in September of this 

year, the Commission issued a 

supplemental proposal (the 

‘‘Supplemental Proposal’’) 2 addressing 

a particular issue involving the 

interaction between bankruptcy and 

resolution of a clearing organization 

pursuant to Title II of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act 3 (hereinafter, ‘‘Title II’’ 

and ‘‘Dodd-Frank’’). 

The Commission is revising part 190 

comprehensively in light of several 

major changes to the industry over the 

37 years since part 190 was first 

finalized. These changes include 

exponential growth in the speed of 

transactions and trade processing, 

important lessons learned over prior 

bankruptcies, and the increased 

importance of derivatives clearing 

organizations (‘‘DCOs’’) to the financial 

system. 

In promulgating these rules, the 

Commission is exercising its broad 

power under the Commodity Exchange 

Act (‘‘CEA’’ or ‘‘Act’’) to make 

regulations with respect to commodity 

broker debtors. Specifically, section 

20(a) states that notwithstanding title 

11, the Commission may provide, with 

respect to a commodity broker that is a 

debtor under chapter 7 of title 11, by 

rule or regulation (1) that certain cash, 

securities, other property, or commodity 

contracts are to be included in or 

excluded from customer property or 

member property; (2) that certain cash, 

securities, other property, or commodity 

contracts are to be specifically 

identifiable to a particular customer in 

a specific capacity; (3) the method by 

which the business of such commodity 

broker is to be conducted or liquidated 

after the date of the filing of the petition 

under such chapter, including the 

payment and allocation of margin with 

respect to commodity contracts not 

specifically identifiable to a particular 

customer pending their orderly 

liquidation; (4) any persons to which 

customer property and commodity 

contracts may be transferred under 

section 766 of title 11; and (5) how the 

net equity of a customer is to be 

determined.4

In developing this rulemaking, the 

Commission benefited from outside 

contributions. In particular, the 

Proposal benefited from a thoughtful 

and detailed model set of part 190 rules 

submitted by the Part 190 Subcommittee 

of the Business Law Section of the 

American Bar Association (‘‘ABA 

Subcommittee’’).5 In addition, and as 

discussed further below, the 

Commission benefited from thoughtful, 

analytical, and detailed public 

comments submitted in response to the 

Proposal and Supplemental Proposal. 

B. Major Themes in the Revisions to Part 

190 

The major themes in the revisions to 

part 190 include the following: 

(1) The Commission is adding 

§ 190.00, which sets out the statutory 

authority, organization, core concepts, 

scope, and rules of construction for part 

190. More generally, this section sets 

out, after notice and comment 

rulemaking, the Commission’s thinking 

and intent regarding part 190 in order to 

benefit and to enhance the 

understanding of DCOs, FCMs, their 

customers, trustees,6 and the public at 

large. 

(2) Some of the provisions support the 

implementation of the requirements, 

established consistent with section 4d of 

the CEA, that shortfalls in segregated 

property should be made up from the 

FCM’s general assets, while others 

further the preferences, arising from 

both title 11 of the United States Code 

(i.e., the ‘‘Bankruptcy Code’’), section 

766(h), and Commission policy, that 

with respect to customer property, 

public customers are favored over nonpublic customers, and that public 

customers are entitled inter se to a pro 

rata distribution based on their 

respective claims. 

(3) Other provisions foster the 

longstanding and continuing policy 

preference for transferring (as opposed 

to liquidating) positions of public 

customers and those customers’ 

proportionate share of associated 

collateral.7

(4) The Commission is promulgating a 

new subpart C to part 190, governing the 

bankruptcy of a clearing organization. In 

doing so, the Commission is 

establishing ex ante the approach to be 

taken in addressing such a bankruptcy, 

in order to foster prompt action in the 

event such a bankruptcy occurs, and in 

order to establish a more clear 

counterfactual (i.e., ‘‘what would 

creditors receive in a liquidation in 

bankruptcy?’’) in the event of a 

resolution of a clearing organization 

pursuant to Title II of Dodd-Frank.8 The 

Commission’s approach toward a DCO 

bankruptcy is characterized by three 

overarching concepts: 

a. First, the trustee should follow, to 

the extent practicable and appropriate, 

the DCO’s pre-existing default 

management rules and procedures and 

recovery and wind-down plans that 

have been submitted to the Commission. 

These rules, procedures, and plans will, 

in most cases,9 have been developed 

pursuant to the Commission’s 

regulations in part 39, and subject to 

staff oversight. This approach relieves 

the trustee of the burden of developing, 

in the moment, models to address an 

extraordinarily complex situation. It 

would also enhance the clarity of the 

counterfactual for purposes of 

resolution under Title II. However, as 

discussed further below, such plans are 

not rigid formulae. Moreover, the 

Commission’s approach gives the 

trustee discretion in following those 

plans. Accordingly, the approach seeks 

to balance advance planning with 

flexibility to tailor the implementation 

to the specific circumstances. 

b. Second, resources that are intended 

to flow through to members as part of 

daily settlement (including both daily 

variation payments and default 

resources) are devoted to that purpose, 

rather than to the general estate.10

c. Third, other provisions draw, with 

appropriate adaptations, from 

provisions applicable to FCMs.11

(5) The Commission is noting the 

applicability of part 190 in the context 


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19326 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

12Those would be FCMs that are also registered 

as broker-dealers with the Securities and Exchange 

Commission. See generally SIPA, 15 U.S.C. 78aaa et 

seq. 

13See the overarching concept discussed in 

section III.A.2.c below. 

14 78 FR 68506 (Nov. 14, 2013). This refers to 

§ 190.05(f) in section II.B.3 below. 

15The Commission received comment letters 

submitted by the following: American Council of 

Life Insurers (ACLI); Better Markets, Inc. (Better 

Markets); Cboe Global Markets, Inc. (CBOE); CME 

Group Inc. (CME); Commodity Markets Council 

(CMC); Futures Industry Association (FIA); 

Investment Company Institute (ICI); 

Intercontinental Exchange Inc. (ICE); International 

Swaps and Derivatives, Inc. (ISDA); LCH Group 

(LCH); National Grain and Feed Association 

(NGFA); Options Clearing Corporation (OCC); Part 

190 Subcommittee of the Business Law Section of 

the American Bar Association (ABA 

Subcommittee); Securities Industry and Financial 

Markets Asset Management Group and Managed 

Funds Association (SIFMA AMG/MFA);); Kathryn 

Trkla; Geoffrey Goodman; and Vincent Lazar, as 

individuals (Subcommittee Members), and 

Vanguard Group, Inc. (Vanguard). 

16The Commission also issued the Supplemental 

Proposal, which withdrew proposed § 190.14(b)(2) 

and (3), and proposed an alternative. The 

Commission received 5 substantive comment letters 

in response, each of which was from an entity that 

had also submitted a comment letter on the 

Proposal. For the reasons discussed in section II.H 

below, the Commission is not adopting the 

Supplemental Proposal. 

17The Commission is adopting the proposed 

technical corrections and updates to parts 1, 4, and 

41, which are discussed in section II.F. below. 

Moreover, as discussed in section II.B.8, parts of 

proposed § 190.10 are being adopted, but codified 

in part 1. 

of proceedings under the Securities 

Investors Protection Act (‘‘SIPA’’) in the 

case of FCMs subject to a SIPA 

proceeding,12 and Title II of Dodd-Frank 

in the case of a commodity broker where 

the Federal Deposit Insurance 

Corporation (‘‘FDIC’’) is acting as a 

receiver. 

(6) The Commission is enacting 

changes to the treatment of letters of 

credit as collateral, both during business 

as usual and during bankruptcy, in 

order to ensure that, consistent with the 

pro rata distribution principle, 

customers who post letters of credit as 

collateral suffer the same proportional 

loss as customers who post other types 

of collateral. 

(7) The Commission is granting 

trustees enhanced discretion, based on 

both practical necessity and positive 

experience. 

a. Recent commodity broker 

bankruptcies have involved many 

thousands of customers, with as many 

as hundreds of thousands of commodity 

contracts. Trustees must make decisions 

as to how to handle such customers and 

contracts in the days—in some cases, 

the hours—after being appointed. 

Moreover, each commodity broker 

bankruptcy has unique characteristics, 

and bankruptcy trustees need to adapt 

correspondingly quickly to those unique 

characteristics. 

i. In order to foster the ability of the 

trustee to operate effectively, some of 

the changes would permit the trustee 

enhanced discretion generally. 

ii. Others, recognizing the difficulty in 

treating large numbers of public 

customers on a bespoke basis, would 

permit the trustee to treat public 

customers on an aggregate basis. These 

changes represent a move from a model 

where the trustee receives and complies 

with instructions from individual public 

customers, to a model—reflecting actual 

practice in commodity broker 

bankruptcies in recent decades—where 

the trustee transfers as many open 

commodity contracts as possible on an 

omnibus basis. 

b. These grants of discretion are also 

supported by the Commission’s positive 

experience working in cooperation and 

consultation with bankruptcy and SIPA 

trustees. 

c. On a related note, and as discussed 

further as the third overarching concept 

in the section below on cost-benefit 

considerations,13 part 190 favors cost 

effectiveness and promptness over 

precision in certain respects, 

particularly with respect to the concept 

of pro rata treatment. Following the 

policy choice made by Congress in 

section 766(h) of the Bankruptcy Code, 

the Commission’s policy is that it is 

more important to be cost effective and 

prompt in the distribution of customer 

property (i.e., in terms of being able to 

treat customers as part of a class) than 

it is to value each customer’s 

entitlements on an individual basis. The 

Commission believes that this approach 

would lead to (1) in general, a faster 

administration of the proceeding, (2) 

customers receiving their share of the 

debtor’s customer property more 

quickly, and (3) a decrease in 

administrative costs (and thus, in case 

of a shortfall in customer property, a 

greater return to customers). 

(8) Many of the changes are intended 

to update part 190 in light of changes to 

the regulatory framework over the past 

three decades, including crossreferences to other Commission 

regulations. Some of these codify actual 

practice in prior bankruptcies, such as 

a requirement that an FCM notify the 

Commission of its imminent intention 

to file for voluntary bankruptcy. In 

another case, the Commission is 

addressing for the first time the 

interaction between part 190 and recent 

revisions to the Commission’s customer 

protection rules.14

(9) Other changes follow from changes 

to the technological ecosystem, in 

particular changes from paper-based to 

electronic-based means of 

communication and recording, (for 

example, the use of communication to 

customers’ electronic addresses rather 

than by paper mail, as well as the use 

of websites as a means for the trustee to 

communicate with customers on a 

regular basis). The proposal would also 

recognize the change from paper-based 

to electronic recording of ‘‘documents of 

title.’’ Many of these changes also 

recognize the actual practice in prior 

bankruptcies. 

(10) Finally, many of the changes are 

intended to clarify language in existing 

regulations, without any intent to 

change substantive results. While some 

of these changes will, as discussed 

below, address ambiguities that have 

complicated past bankruptcies, this 

comprehensive revision of part 190 has 

also provided opportunities to clarify 

language in order to avoid future 

ambiguities, and to add provisions to 

address circumstances that have not yet 

arisen, in order to accomplish better and 

more reliably the goals of promptly and 

cost-effectively resolving commodity 

broker bankruptcies while mitigating 

systemic risk and protecting the 

commodity broker’s customers. 

The Commission invited comments 

on all aspects of the proposed 

rulemaking and received a total of 16 

substantive comment letters in 

response.15 The comments generally 

supported the adoption of revisions to 

part 190, though several provided 

suggestions as to particular elements of 

the proposal that should be modified, 

clarified, deleted, or otherwise 

improved. The Commission has adopted 

many, though not all, of these 

suggestions, and in some cases has 

sought to address the concerns raised 

through alternative drafting.16

II. Finalized Regulations 

In the discussion below, the 

Commission highlights topics of interest 

to commenters and discusses comment 

letters that are representative of the 

views expressed on those topics. The 

discussion does not explicitly respond 

to every comment submitted; rather, it 

addresses important issues raised by the 

proposed rulemaking and analyzes 

those issues in the context of specific 

comments. 

A. Subpart A—General Provisions 17

The Commission is adopting as 

subpart A (§§ 190.00–190.02) general 

provisions to address both debtors that 

are both FCMs and debtors that are 

DCOs. 


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18See CEA section 1a(28), 7 U.S.C. 1a(28). The 

definition of foreign FCM involves soliciting or 

accepting orders for the purchase or sale of a 

commodity for future delivery executed on a foreign 

board of trade, or by accepting property or 

extending credit to margin, guarantee or secure any 

trade or contract that results from such a 

solicitation or acceptance. See section 761(12) of 

the Bankruptcy Code, 11 U.S.C. 761(12). 

19The Commission is using to use the term ‘‘core 

concepts’’ to avoid confusion with the core 

principles applicable to registered entities. Cf. CEA 

section 5b(c)(2), 7 U.S.C. 7a–1(c)(2). 

20 ‘‘Member property’’ is defined in § 190.01 and 

will be used to identify cash, securities, or property 

available to pay the net equity claims of clearing 

members based on their house account at the 

clearing organization. Cf. 11 U.S.C. 761(16). 

21See 11 U.S.C. 101(6) (definition of ‘‘commodity 

broker’’), 761(9) (definition of ‘‘customer’’ referred 

to in 101(6)). 

22This corresponds to segregation pursuant to 

section 4d(a) of the CEA, 7 U.S.C. 6d(a). 

23This corresponds to segregation pursuant to 

§ 30.7 (enacted pursuant to section 4(b)(2)(A) of the 

CEA, 7 U.S.C. 6(b)(2)(A). 

24This corresponds to segregation pursuant to 

section 4d(f) of the CEA, 7 U.S.C. 6d(f). 

25 Delivery accounts are discussed further below 

in, e.g., §§ 190.00(c)(6), 190.01 (definition of 

delivery account, cash delivery property, physical 

delivery property) and 190.06. 

26Section 766(h) of the Bankruptcy Code 

explicitly states that the trustee shall distribute 

property ratably to customers in priority to all other 

claims, except claims that are attributable to the 

administration of customer property. 

Notwithstanding any other provision of this 

subsection, a customer net equity claim based on 

a proprietary account may not be paid either in 

whole or in part, directly or indirectly, out of 

customer property unless all other customer net 

equity claims have been paid in full. Thus, all 

customer property will be allocated to public 

customers so long as the funded balance in any 

account class for public customers is less than one 

hundred percent of public customer net equity 

claims. Once all account classes for public 

customers are fully funded (i.e., at one hundred 

percent of net equity claims), any excess will be 

allocated to non-public customers’ net equity 

claims until all of those are fully funded. 

1. Regulation § 190.00: Statutory 

Authority, Organization, Core Concepts, 

Scope, and Construction 

The Commission is adopting § 190.00 

as proposed with the addition of 

§ 190.00(c)(3)(i)(C) and the modification 

to § 190.00(d)(3)(v), as set forth below. 

The Commission is adopting § 190.00 to 

set forth general provisions that state 

facts and concepts that exist in the 

Commission’s bankruptcy regulations. It 

is applicable to all of part 190. The 

Commission’s intent is to assist trustees, 

bankruptcy courts, customers, clearing 

members, clearing organizations, and 

other interested parties in 

understanding the Commission’s 

rationale for, and intent in 

promulgating, the specific provisions of 

part 190. The Commission also believes 

that the regulation may be particularly 

useful in a time of crisis for those 

individuals who may not have extensive 

experience with the CEA or Commission 

regulations. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.00. The Commission also raised 

specific questions as to whether a 

regulation setting forth core concepts 

would be useful; whether the core 

concepts were under or over inclusive; 

and whether the definitions and 

discussions for each core concept would 

be helpful. The Commission received 

several comments expressing support 

for various aspects of proposed § 190.00, 

including comments from SIFMA AMG/ 

MFA, CME, and the ABA 

Subcommittee. CME noted in particular 

that it believed that the regulation ‘‘may 

prove particularly useful to a trustee 

who has little experience with the CEA 

or the Commission’s customer funds 

segregation rules, as they try to get ‘up 

to speed’ in the critical early hours and 

days following the trustee’s 

appointment when the trustee is 

expected to act quickly on various 

matters.’’ 

The Commission is adopting 

§ 190.00(a) to set forth the Commission’s 

statutory authority to adopt the 

proposed part 190 regulations under 

section 8a(5) of the CEA, which 

empowers the Commission to make and 

promulgate such rules and regulations 

as are necessary to effectuate any of the 

provisions or to accomplish any of the 

purposes of the CEA, and section 20 of 

the CEA, which provides that the 

Commission may, notwithstanding the 

Bankruptcy Code, adopt certain rules or 

regulations governing a proceeding 

involving a commodity broker that is a 

debtor under subchapter IV of chapter 7 

of the Bankruptcy Code. The 

Commission received comments from 

CME and the ABA Subcommittee 

specifically supporting the inclusion of 

an explanation of the Commission’s 

authority to adopt the part 190 

regulations in § 190.00. 

The Commission is adopting 

§ 190.00(b) to explain that the part 190 

regulations are organized into three 

subparts. Subpart A contains general 

provisions applicable in all cases. 

Subpart B contains provisions that 

apply when the debtor is an FCM, the 

definition of which includes acting as a 

foreign FCM.18 Subpart C contains 

provisions that apply when the debtor is 

a DCO, as defined by the CEA. The 

Commission received comments from 

the ABA Subcommittee, CME, and ICI 

in support of the reorganization of part 

190. 

The Commission is adopting 

§ 190.00(c) to set forth the core 

concepts 19 of part 190 that are central 

to understanding how a commodity 

broker bankruptcy works. These include 

concepts related to commodity brokers 

and commodity contracts, account 

classes, public customers and nonpublic customers, Commission 

segregation requirements, member 

property,20 porting of public customer 

commodity contract positions, pro rata 

distribution, and deliveries. 

The Commission is adopting 

§ 190.00(c)(1) to explain that subchapter 

IV of chapter 7 of the Bankruptcy Code 

applies to a debtor that is a ‘‘commodity 

broker,’’ the definition of which requires 

a ‘‘customer.’’ 21 Section 190.00(c)(1) 

states that the regulations in part 190 

apply to commodity brokers that are 

FCMs as defined by the Act, or DCOs as 

defined by the Act. 

The Commission is adopting 

§ 190.00(c)(2) to explain that the CEA 

and Commission regulations provide 

separate treatment and protections for 

different types of cleared commodity 

contracts or account classes. The four 

account classes include the (domestic) 

futures account class (including options 

on futures),22 the foreign futures 

account class (including options on 

foreign futures),23 the cleared swaps 

account class for swaps cleared by a 

registered DCO (including cleared 

options other than options on futures or 

foreign futures),24 and the delivery 

account class for property held in an 

account designated as a delivery 

account. Delivery accounts are used for 

effecting delivery under commodity 

contracts that provide for settlement via 

delivery of the underlying when a 

commodity contract is held to 

expiration or, in the case of an option 

on a commodity, is exercised.25

The Commission is adopting 

§ 190.00(c)(3)(i) to prescribe the separate 

treatment of ‘‘public customers’’ and 

‘‘non-public customers,’’ as defined in 

§ 190.01, within each account class in 

the event of a proceeding in which the 

debtor is an FCM. It explains that, in a 

bankruptcy, public customers are 

generally entitled to a priority 

distribution of cash, securities, or other 

customer property over ‘‘non-public 

customers,’’ and both are given a 

priority over all other claimants (except 

for claims relating to the administration 

of customer property) pursuant to 

section 766(h) of the Bankruptcy 

Code.26 The Commission is adopting 

§ 190.00(c)(3)(ii) to address the division 

of customer property and member 

property in proceedings in which the 

debtor is a clearing organization. In such 

a proceeding, customer property 

consists of member property, which is 

distributed to pay member claims based 

on members’ house accounts, and 


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27Transfer or porting of customer positions 

mitigates risks to both the customers of the debtor 

FCM and to the markets. Specifically, porting 

(rather than the alternative, liquidation) of customer 

positions protects customers’ hedges from changes 

in value between the time they are liquidated and 

the time, if any, that the customer may be able to 

re-establish them (and thus mitigates the market 

risk that some customers use the futures markets to 

counteract), and similarly protects customers’ 

directional positions. Moreover, not all customers 

may be able to re-establish positions with the same 

speed—in particular, smaller customers may be 

subject to longer delays in re-establishing their 

positions. In addition, liquidation of an FCM’s book 

of positions can increase volatility in the markets, 

to the detriment of all market participants (and also 

contribute to making it more expensive for 

customers to re-establish their hedges and other 

positions). 

28 In prior bankruptcies, some customers posting 

letters of credit or specifically identifiable property 

as collateral sought to escape pro rata treatment for 

these categories of collateral, contrary to the 

Commission’s intent. See discussion of 

§ 190.04(d)(3) in section II.B.2 below. 

customer property other than member 

property, which is reserved for payment 

of claims for the benefit of members’ 

public customers. The Commission is 

adopting § 190.00(c)(3)(iii) to address 

the preferential assignment of property 

among customer classes and account 

classes in clearing organization 

bankruptcies. Certain customer 

property, as specified in § 190.18(c), 

will be preferentially assigned to 

‘‘customer property other than member 

property’’ (i.e., property for the public 

customers of members) instead of 

‘‘member property’’ to the extent that 

there is a shortfall in funded balances 

for members’ public customer claims. 

To the extent that there are excess 

funded balances for members’ claims in 

any customer class/account class 

combination, that excess will also be 

assigned preferentially to ‘‘customer 

property other than member property’’ 

for other account classes to the extent of 

any shortfall in funded balances for 

members’ public customer claims in 

such account classes. Where property 

will be assigned to a particular customer 

class with more than one account class, 

it will be assigned on a least funded to 

most funded basis among the account 

classes. 

The Commission is adopting 

§ 190.00(c)(4) to explain that, in a 

proceeding in which the debtor is an 

FCM, part 190 details the policy 

preference for transferring to another 

FCM (commonly known as ‘‘porting’’), 

the open commodity contract positions 

of the debtor’s customers along with all 

or a portion of such customers’ account 

equity.27

The Commission is adopting 

§ 190.00(c)(5) to address pro rata 

distribution. It explains that, if the 

aggregate value of customer property in 

a particular account class is less than 

the amount needed to satisfy the net 

equity claims of public customers in 

that account class (i.e., there is a 

‘‘shortfall’’), customer property in that 

account class will be distributed pro 

rata to those public customers. The pro 

rata distribution principle carries forth 

the statutory direction in section 766(h) 

of the Bankruptcy Code. It ensures that 

all public customers within an account 

class will suffer the same proportional 

loss, including those public customers 

that post as collateral letters of credit or 

specifically identifiable property.28 Any 

customer property that is not 

attributable to any particular account 

class or which is in excess of public 

customer net equity claims for the 

account class to which it is attributed, 

will be distributed to public customers 

in respect of net equity claims in other 

account classes where there is a 

shortfall. Thus, as noted in 

§ 190.00(c)(3), all public customer net 

equity claims would receive priority 

over non-public customer claims. 

The Commission is adopting 

§ 190.00(c)(6) to address deliveries. It 

explains that the delivery provisions of 

part 190 apply to any commodity that is 

subject to delivery under a commodity 

contract, including agricultural 

commodities, other non-financial 

commodities (such as metals or energy), 

and commodities that are financial in 

nature (including virtual currencies). In 

the ordinary course of business, 

commodity contracts with delivery 

obligations are offset before reaching the 

delivery stage (i.e., prior to triggering 

bilateral delivery obligations). 

Nonetheless, when delivery obligations 

do arise, a delivery default could have 

a disruptive effect on the cash market 

for the commodity and could adversely 

impact the parties to the transaction. In 

a proceeding in which the debtor is an 

FCM, the delivery provisions in part 190 

reflect the policy preferences (A) to 

liquidate commodity contracts that 

settle via delivery before they move into 

a delivery position and (B) when 

contracts do move into a delivery 

position, to allow the delivery to occur, 

where practicable, outside the 

administration of the debtor’s estate 

(i.e., directly between the debtor’s 

customer and the delivery counterparty 

assigned by the clearing organization). 

The Commission received several 

comments expressing support for 

certain provisions in § 190.00(c) and 

two comments expressing concerns. 

CME expressed support for ‘‘limiting the 

scope of part 190 to the bankruptcy of 

a commodity broker that is an FCM or 

a DCO and to commodity contracts that 

are cleared’’ as set forth § 190.00(c)(1). 

CME, OCC, Vanguard, and NGFA 

supported the concept of preferring the 

claims of public customers over nonpublic customers in a bankruptcy 

proceeding. CME agreed with the 

inclusion of the core concept set forth 

§ 190.00(c)(3)(ii), noting that ‘‘it aids 

understanding to explain how the 

distinction between the public customer 

class and the non-public customer class 

is reflected at the DCO-level in the 

distinctions made between customer 

accounts and house accounts and 

between the two categories of customer 

property—customer property and 

member property—that are available to 

satisfy the net equity claims of each.’’ 

Better Markets supported the 

clarification in § 190.00(c)(5)(ii) that 

customers relying on letters of credit 

must carry the same proportional losses 

as customers posting other forms of 

acceptable collateral. 

NGFA supported the core concept of 

prioritizing the prompt transfer of 

customer accounts and positions to 

another FCM as opposed to liquidating 

customer accounts. OCC, however, 

disagreed with this policy preference. 

OCC supported ‘‘the Commission’s 

objective to mitigate risk to an FCM’s 

customers and limit market volatility,’’ 

noting that ‘‘[p]orting positions and 

associated collateral in an FCM 

bankruptcy proceeding can be an 

effective way to achieve these objectives 

in some instances.’’ OCC believed, 

however, that the trustee should retain 

broad discretion to decide, on a case-bycase basis and in consideration of 

certain factors (e.g., the defaulting 

FCM’s total book of positions and 

market conditions) whether porting or 

liquidating positions will achieve the 

best result for customers involved in an 

FCM’s bankruptcy. OCC further 

commented that the market risk 

associated with closing out and 

reopening positions for certain 

customers that may be introduced with 

liquidation should be weighed against 

potential drawbacks of porting, 

including that ‘‘(i) a trustee (or DCO) 

must first identify a transferee to accept 

the open position[s] and collateral, 

which depending on market conditions 

could be a difficult and time consuming 

process; (ii) until the transfer is 

complete, the customer may face 

uncertainty as to how its position and 

associated collateral will be resolved 

and may not be able to exit the position 

in a timely and efficient manner; and 

(iii) a customer may be required to post 

additional collateral at a new FCM prior 

to or immediately after a transfer.’’ 

In response to the concerns raised by 

OCC, the Commission notes first that, as 

OCC forthrightly acknowledges, 


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29 Indeed, the preference contained § 190.00(c)(4) 

does not represent a departure from the existing 

standards under current part 190. It merely 

highlights the requirement in § 190.04(a)(1) that the 

trustee use its best efforts to effect a transfer no later 

than the seventh calendar day after the order for 

relief; that requirement is substantially identical to 

the requirement in current § 190.02(e). 

30For example, OCC Rule 1102(a) provides that 

OCC may summarily suspend any Clearing Member 

which is in such financial or operating difficulty 

that OCC determines and so notifies the Securities 

and Exchange Commission or the Commodity 

Futures Trading Commission that suspension is 

necessary for the protection of the Corporation, 

other Clearing Members, or the general public. OCC 

Rule 1106 permits OCC to close out the positions 

of a suspended clearing member. 

31While ‘‘ ‘[b]est efforts’ is a term which 

necessarily takes its meaning from the 

circumstances,’’ the trustee in exerting best efforts 

to meet a standard must diligently exert efforts to 

meet that standard ‘‘to the extent of its own total 

capabilities.’’ See generally Bloor v. Falstaff 

Brewing Corp, 454 F.Supp. 258, 266–67 aff’d 601 

F.2d 609 (2nd. Cir. 1979). By contrast, in exerting 

‘‘reasonable efforts’’ to meet a standard, the 

Commission expects that the trustee will work in 

good faith to meet the standard, but will also take 

into account other considerations, including the 

impact of the effort necessary to meet the standard 

on the overarching goal of protecting public 

customers as a class. 

32 12 U.S.C. 5381 et seq. 

33 15 U.S.C. 78aaa et seq. 

liquidating customer positions may 

introduce market risk associated with 

closing out and reopening positions for 

certain customers. Additionally, 

liquidating a mass of customer positions 

may roil the markets, if any, where 

those positions are concentrated. For 

these reasons, the policy preference in 

favor of transfer is both supported by 

statute and quite longstanding. It is 

supported by § 764(b) of the Bankruptcy 

Code, which explicitly permits transfers 

of commodity contracts that are 

authorized by the Commission up to 

seven calendar days after the order for 

relief. It is also embodied in current 

§ 190.02(e), which requires the trustee to 

immediately use its best efforts to effect 

a transfer, and is continued in proposed 

(and adopted) § 190.04(a)(1). 

Furthermore, § 190.00(c)(4) 

establishes, consistent with § 764(b), a 

policy preference for porting, rather 

than a mandate for porting. This 

recognizes that finding willing and able 

transferees for all customer positions 

may or may not be practicable. 

Moreover, § 190.04(a)(1) requires the 

trustee to use its best efforts to effect a 

transfer no later than the seventh 

calendar day after the order for relief,29

and § 190.04(d) requires the trustee 

promptly to liquidate most remaining 

contracts after than time. Indeed, as a 

practical matter, there is cause for doubt 

that a DCO will permit the trustee of a 

debtor that is a clearing member to hold 

open contracts quite that long.30 Thus, 

despite the preference for porting, there 

are practical limits to how long 

contracts will be held open before being 

liquidated. This also imposes temporal 

limits on the uncertainty customers will 

face as to how their positions will be 

resolved. 

Finally, while a customer may indeed 

be called for additional collateral at a 

transferee FCM (particularly if less than 

100% of the collateral is transferred 

along with the positions), a customer 

that is unwilling to meet such a call will 

at the least be permitted to have their 

positions liquidated. That would entitle 

the customer to prompt return by the 

transferee FCM of the remaining 

collateral that was transferred—which 

may well be more prompt than a 

distribution in the bankruptcy 

proceeding of the debtor. 

ICI expressed concerns with respect to 

the discretion granted to the trustee 

under the part 190 regulations. ICI 

agreed with the Commission ‘‘that 

trustees need flexibility given the 

myriad of decisions they must make in 

a short period of time and the unique 

circumstances that each commodity 

broker insolvency may present,’’ and 

that ‘‘trustees to date have exercised 

their discretion in a manner that has 

generally promoted customer 

protection.’’ ICI cautioned, however, 

that the Commission should take steps 

to help ensure that the trustee 

prioritizes the protection of public 

customers. ICI urged the Commission to 

make clear in § 190.00 ‘‘that the trustee 

must exercise [its] discretion in a 

manner that it determines will result in 

the greatest recovery for, and the least 

disruption to, public customers.’’ With 

respect to part 190 regulations that are 

‘‘specifically aimed at protecting 

customers,’’ ICI asserted the trustee’s 

discretion should be more limited. 

While ICI acknowledged that, at times, 

compliance with such provisions ‘‘may 

be impractical or impossible or may 

cause harm to customers,’’ ICI was 

concerned that a ‘‘reasonable efforts’’ 

standard ‘‘could signal that the trustee 

has wider latitude to depart from the 

requirement at issue.’’ ICI asked the 

Commission to impose a ‘‘best efforts’’ 

standard in certain cases. 

The Commission agrees with ICI that 

the trustee should exercise its discretion 

in a manner that best achieves the 

overarching goal of protecting the 

interests of public customers as a class, 

and specifically should act in the 

manner that it determines will result in 

the greatest recovery for, and the least 

disruption to, public customers. The 

Commission notes that, at times, those 

two sub-goals may be in tension. 

Because the Commission does not 

believe that there is a universally 

optimal means to reconcile the two subgoals in aid of best achieving the 

overarching goal of protecting the 

interests of public customers, the 

Commission concludes that it is best to 

leave the balancing of the two sub-goals 

to the discretion of the trustee. It is in 

that context that the Commission has 

decided to direct the trustee to exercise 

‘‘reasonable efforts’’ rather than ‘‘best 

efforts’’ to achieve certain standards. In 

determining what efforts are 

‘‘reasonable,’’ the trustee should act to 

achieve the overarching goal. 

In light of the foregoing and to 

provide clarity with respect to the scope 

of the trustee’s discretion, the 

Commission is adopting new 

§ 190.00(c)(3)(i)(C) which provides that 

where a provision in part 190 affords 

the trustee discretion, that discretion 

should be exercised in a manner that the 

trustee determines will best achieve the 

overarching goal of protecting public 

customers as a class by enhancing 

recoveries for, and mitigating 

disruptions to, public customers as a 

class. In seeking to achieve that 

overarching goal, the trustee has 

discretion to balance those two subgoals 

when they are in tension. Where the 

trustee is directed to exercise 

‘‘reasonable efforts’’ to meet a standard, 

those efforts should only be less than 

‘‘best efforts’’ to the extent that the 

trustee determines that such an 

approach would support the foregoing 

goals.31

The Commission is adopting 

§ 190.00(d)(1) to describe the scope of 

commodity broker proceedings under 

subchapter IV of chapter 7 of the 

Bankruptcy Code,32 and the relationship 

between part 190 to SIPA proceedings 

(where the debtor is a commodity 

broker) and to resolution of commodity 

brokers under Title II of the Dodd-Frank 

Act.’’ 

Section 190.00(d)(1)(i) acknowledges 

that, while section 101(6) of the 

Bankruptcy Code recognizes 

‘‘commodity options dealers’’ and 

‘‘leverage transaction merchants’’ (as 

defined in sections 761(6) and (13) of 

the Bankruptcy Code), as separate 

categories of commodity brokers, there 

are no commodity options dealers or 

leverage transaction merchants 

currently registered as such. As set forth 

in the Note to paragraph (d)(1)(i)(B), the 

Commission is declaring its intent to 

adopt regulations with respect to 

commodity options dealers and leverage 

transaction merchants, respectively, at 

such time as an entity registers as such. 

Section 190.00(d)(1)(ii) explains that, 

pursuant to section 7(b) of SIPA,33 the 


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34See SIPA section 7(b), 15 U.S.C. 78fff–1(b) (To 

the extent consistent with the provisions of [SIPA] 

or as otherwise ordered by the court, a trustee shall 

be subject to the same duties as a trustee in a case 

under chapter 7 of title 11, including, if the debtor 

is a commodity broker, as defined under section 

101 of such title, the duties specified in subchapter 

IV of such chapter 7). 35 15 U.S.C. 78o. 36 12 U.S.C. 5390(m)(1)(B). 37That is, the entity being resolved under Title 

II. Section 210(m)(1)(b) refers to ‘‘any covered 

financial company or bridge financial company.’’ 38 12 U.S.C. 5390(m)(1)(B) provides that the FDIC 

must apply the provisions of subchapter IV of 

chapter 7 of the Code with respect to the 

distribution of customer property and member 

property in connection with the liquidation of a 

commodity broker that is a ‘‘covered financial 

company’’ or ‘‘bridge financial company’’ (terms 

defined in 12 U.S.C. 5381(a)). 

39The contracts that would be excluded include: 

Options on commodities unless cleared by a DCO 

(or, in the context of a foreign futures clearing 

member, a foreign clearing organization); forwards 

(defined as such pursuant to the exclusions in 

sections 1a(27) or 1a(47)(B)(ii) of the CEA), unless 

they are cleared by a DCO (or, in the context of a 

foreign futures clearing member, a foreign clearing 

organization); security futures products when they 

are carried in a securities account; retail foreign 

currency transactions described in sections 

2(c)(2)(B) or (C) of the CEA; security-based swaps 

or other securities carried in a securities account 

(other than security futures products carried in an 

enumerated account class); and retail commodity 

transactions described in section (2)(c)(2)(D) of the 

CEA (other than transactions executed on or subject 

to the rules of a designated contract market 

(‘‘DCM’’) or foreign board of trade (‘‘FBOT’’) as if 

they were futures). 

trustee in a SIPA proceeding where the 

debtor is also a commodity broker has 

the same duties as a trustee in a 

proceeding under subchapter IV of 

chapter 7 of the Bankruptcy Code, to the 

extent consistent with SIPA or as 

ordered by the court.34 This part 

implements subchapter IV of chapter 7 

by establishing the trustee’s duties 

thereunder, consistent with the broad 

authority granted to the Commission 

pursuant to section 20 of the CEA. 

Therefore, this part also applies to a 

proceeding commenced under SIPA 

with respect to a debtor that is 

registered as a broker or dealer under 

section 15 of the Securities Exchange 

Act of 1934 35 when the debtor also is 

an FCM. 

Moreover, in the context of a 

resolution proceeding under Title II of 

Dodd-Frank, section 210(m)(1)(B) 36

provides that the FDIC (in its role as 

resolution authority) must apply the 

provisions of subchapter IV of chapter 7 

of the Bankruptcy Code in respect of the 

distribution of customer property and 

member property of a resolution 

entity 37 that is a commodity broker as 

if the resolution entity were a debtor for 

purposes of subchapter IV. Accordingly, 

§ 190.00(d)(1)(iii) explains that this part 

shall serve as guidance with respect to 

the distribution of property in a 

proceeding in which the FDIC acts as a 

receiver for an FCM or DCO pursuant to 

Title II of Dodd-Frank.38

The Commission is adopting 

§ 190.00(d)(2)(i) to clarify that a trustee 

may not recognize any account classes 

not explicitly provided for in part 190. 

Section 190.00(d)(2)(ii) provides that no 

property that would otherwise be 

included in customer property, as 

defined in § 190.01, shall be excluded 

from customer property because it is 

considered to be held in a constructive 

trust, resulting trust, or other trust that 

is implied in equity. 

Generally, in a commodity broker 

bankruptcy, the basis for distributing 

segregated customer property is pro rata 

treatment. To achieve this goal, the 

FCM’s segregation records (including 

account statements) and reporting to the 

Commission and self-regulatory 

organizations (‘‘SROs’’) and DCOs must 

reflect what is actually available for 

customers. This is necessary to enable 

FCMs, SROs, DCOs, and the 

Commission to ensure, during business 

as usual, that (a) customer property is 

being properly protected pursuant to the 

segregation requirements of section 4d 

of the CEA and the regulations 

thereunder, and (b) customer property is 

not subject to hidden arrangements that 

cannot be accounted for transparently 

and reliably. Through § 190.00(d)(2)(ii), 

the Commission is making clear that 

customer property cannot be burdened 

by equitable trusts. Attempting to 

account for such equitable trusts in a 

bankruptcy proceeding under part 190 

would undermine the Commission’s 

implementation and enforcement of the 

statutory scheme under the CEA. 

Section 190.00(d)(3) provides that 

certain transactions, contracts, or 

agreements are excluded from the term 

‘‘commodity contract.’’ 39 The excluded 

agreements and transactions 

traditionally have not been considered 

to be commodity contracts for purposes 

of segregation and customer protection, 

while those that are excepted from these 

exclusions are so considered, and thus 

are covered by part 190. 

The Commission received four 

comments supportive of specific 

provisions of proposed § 190.00(d) and 

one comment requesting a modification 

of the regulation. CME agreed that 

removing provisions relating to 

commodity option dealers and leverage 

transaction merchants would ‘‘improve 

the rules’ clarity.’’ CME and Cboe 

expressed support for the clarification 

in § 190.00(d)(1)(ii) of the applicability 

of SIPA in the bankruptcy proceeding of 

a firm that is dually registered as an 

FCM and a broker-dealer where the 

bankruptcy must be handled pursuant 

to SIPA rather than by the FCM rules. 

Cboe noted that such clarity will be 

‘‘beneficial to the entire ecosystem, 

including customers of FCMs and 

broker-dealers’’ and will ‘‘further the 

ability of market participants to utilize 

portfolio margining and the associated 

efficiencies.’’ CME expressed support 

for § 190.00(d)(1)(iii). CME specifically 

supported ‘‘setting out that Part 190 

‘shall serve as guidance’ to the FDIC as 

receiver for an FCM or DCO in a 

proceeding under Title II of Dodd Frank, 

with respect to the distribution of 

customer property and member 

property.’’ Noting that ‘‘Title II [of the 

Dodd-Frank Act] directs the FDIC to 

apply the provisions of subchapter IV of 

chapter 7 of the [Bankruptcy] Code with 

respect to such distributions,’’ CME 

stated its belief that ‘‘it is reasonable to 

read Title II’s cross-reference to 

subchapter IV of chapter 7 ‘‘as indirectly 

bringing [p]art 190 into the scope of that 

provision given the need for 

Commission regulations to give 

specificity and meaning to the general 

principles set out in subchapter IV.’’ 

SIFMA AMG/MFA supported the 

principle of excluding property held in 

a constructive trust from customer 

property as set forth in § 190.00(d)(2)(ii), 

noting that this principle ‘‘serves to 

preserve the integrity of customer 

property.’’ ICI strongly supported setting 

forth the prohibition on excluding 

property from ‘‘customer property’’ 

because it is considered to be held in a 

trust implied in equity in 

§ 190.00(d)(2)(ii), and the exclusion 

from the term ‘‘commodity contract’’ of 

off-exchange retail foreign currency 

transactions in § 190.00(d)(3)(iv). 

The ABA Subcommittee 

recommended one modification to this 

regulation. It asked the Commission to 

amend proposed § 190.00(d)(3)(v) to 

clarify that mixed swaps could be 

commodity contracts subject to part 190. 

In support of its position, the ABA 

Subcommittee asserted that a DCO 

could theoretically provide clearing 

services to FCMs and their customers 

with respect to mixed swaps, where the 

mixed swap positions are carried in 

accounts subject to part 22 and 

customers are part of the cleared swap 

account class under part 190. The ABA 

Subcommittee analogized the inclusion 

of mixed swaps within the ‘‘commodity 

contract’’ definition to the 

Commission’s proposal to not exclude 

security futures products from the 

commodity contract definition when the 

security futures product is carried in an 

account for which there is a 

corresponding account class under part 

190. The Commission agrees with the 


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40Respectively, In Re Peregrine Financial Group, 

Inc., No. 12–B27488 (Bankr. N.D. Ill.), and MF 

Global, Inc. 

41See generally 83 FR 7979, 7979 & n.6 (Feb. 23, 

2018). 

42The Commission did not receive comments 

with respect to the following part 190 definitions 

as proposed in § 190.00: Act, Bankruptcy code, 

Business day, Calendar day, Cash delivery account 

class, Cash equivalents, Clearing organization, 

Commodity broker, Commodity contract account, 

Court, Cover, Customer, Customer claim of record, 

Customer class, Dealer option, Debtor, Distribution, 

Equity, Exchange Act, FDIC, Filing Date, Final net 

equity determination date, Foreign board of trade, 

Foreign clearing organization, Foreign future, 

Foreign futures commission merchant, Foreign 

futures intermediary, Funded balance, Futures and 

futures contract, In-the-money amount, Joint 

account, Leverage contract, Leverage transaction 

merchant, Member property, Net equity, Open 

commodity contract, Order for relief, Person, 

Premium, Primary liquidation date, Principal 

contract, Securities Account, SIPA, Security, Short 

term obligation, Specifically identifiable property, 

Strike price, Substitute customer property, Swap, 

Trustee, and Undermargined. Accordingly, the 

Commission is adopting those definitions as 

proposed, as discussed later in section II.A.2. 

43The Commission is adopting paragraph (2) of 

the definition of account class to address 

commingling orders and rules. Specifically, there 

are cases where commodity contracts (and 

associated collateral) that would be attributable to 

one account class are held separately from contracts 

and collateral associated with that first account 

class, and instead are allocated to a different 

account class and commingled with contracts and 

collateral in that latter account class. This would 

take place because the contracts in question are 

risk-offsetting to contracts in the latter account 

class. For example, this could involve portfolio 

margining within a DCO or cross-margining 

between a DCO and another central counterparty, 

which may or may not be a DCO. This commingling 

may be authorized pursuant to a Commission 

regulation or order, or pursuant to a clearing 

organization rule that is approved in accordance 

with § 39.15(b)(2). The Commission is adopting 

paragraph (2) to confirm that the trustee must treat 

the commodity contracts in question (and the 

associated collateral) as being held in an account of 

the latter account class. The Commission is also 

adopting paragraph (3) of the definition of account 

class to address cases where the commodity broker 

establishes internal books and records in which it 

records a customer’s commodity contracts and 

Continued 

ABA Subcommittee’s reasoning with 

respect to proposed § 190.00(d)(3)(v) 

and is amending § 190.00(d)(3)(v) to 

read in pertinent part, that ‘‘. . . a 

security futures product or mixed swap 

(as defined in 1a(47)(D) of the Act) that 

is, in either case, carried in an account 

for which there is a corresponding 

account class under part 190 is not 

excluded.’’ 

The Commission is adopting 

§ 190.00(e) to explain the context in 

which part 190 should be interpreted. It 

states that any references to other 

federal rules and regulations refer to the 

most current versions of these rules and 

regulations (i.e., ‘‘as the same may be 

amended, superseded or renumbered’’) 

and that, where they differ, the 

definitions set forth in § 190.01 shall be 

used instead of the defined terms set 

forth in section 761 of the Bankruptcy 

Code. The Commission notes that other 

regulations in part 190 are designed to 

be consistent with subchapter IV of 

chapter 7 of the Bankruptcy Code. 

Section 190.00(e) addresses account 

classes in the context of portfolio 

margining and cross margining 

programs. Where commodity contracts 

(and associated collateral) that would be 

attributable to one account class are, 

instead, commingled with the 

commodity contracts (and associated 

collateral) in a second account class (the 

‘‘home field’’), then the trustee must 

treat all such commodity contracts and 

associated collateral as being held in, 

and consistent with the regulations 

applicable to, an account of the second 

account class. The approach of 

following the rules of the ‘‘home field’’ 

also pertains to securities positions held 

in a commodity account class (and thus 

treated in accord with the relevant 

commodity account class) and 

commodity contract positions (and 

associated collateral) held in the 

securities account, in which case the 

rules applicable to the securities 

account will apply, consistent with 

section 16(2)(b)(ii) of SIPA, 15 U.S.C. 

78lll(2)(b)(ii). 

The Commission received two 

comments on proposed § 190.00(e). ICI 

and Cboe expressed support for the 

clarity provided by § 190.00(e) with 

respect to portfolio margining and cross 

margining programs. ICI strongly 

supported the ‘‘home field’’ rule in 

proposed § 190.00(e), noting that 

providing ‘‘clarity regarding how 

transactions and margin that are 

portfolio margined in the same account 

will be treated in the event that an FCM 

or broker-dealer becomes insolvent is a 

‘‘prerequisite for an effective portfolio 

margining regime.’’ 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.00 as proposed with the addition 

of § 190.00(c)(3)(i)(C) and the 

modification to § 190.00(d)(3)(v), as set 

forth above. 

2. Regulation § 190.01: Definitions 

The Commission is adopting § 190.01 

as proposed with modifications set forth 

below, to update the definitions for 

revised part 190. Most of the changes in 

§ 190.01 are conforming changes, such 

as correcting cross-references and 

deleting definitions of certain terms that 

are not used in part 190, as amended. 

Other changes tie the definitions in 

§ 190.01 more closely to the definitions 

in § 1.3 and other Commission 

regulations, to reflect changes in 

Commission regulations. In some cases, 

the Commission is adopting more 

substantive changes to the definitions, 

such as amending or adding definitions 

to further clarify and provide additional 

details where the current definitions are 

silent or unclear, or to reflect concepts 

that are new to part 190. In particular, 

the Commission is separating the 

delivery account class into two 

subclasses, a physical delivery account 

class and a cash delivery account class; 

the relevant terms are defined below. 

The definitions of commodity contract 

and physical delivery property codify 

positions that the Commission has taken 

in recent commodity broker 

bankruptcies.40

The Commission is also amending 

§ 190.01 to replace the paragraphs 

identified with an alphabetic 

designation for each defined term (e.g., 

‘‘§ 190.01(ll)’’) with a simple 

alphabetized list, as is recommended by 

the Office of the Federal Register, and as 

recently implemented by the 

Commission with respect to, e.g., 

§ 1.3.41

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.01, including the usefulness and 

any unintended consequences of the 

revised definitions. The Commission 

received a number of comments on the 

proposed definitions in § 190.01. As 

further detailed below, the Commission 

is modifying some of the definitions in 

response to comments. Unless stated 

otherwise below, the Commission did 

not receive any comments on a 

proposed definition in § 190.01 and is 

adopting each definition as proposed.42

The Commission is adopting the 

definition of ‘‘account class’’ as 

proposed with the modifications 

described below. The current definition 

of the term ‘‘account class’’ specifies 

that it includes certain types of 

customer accounts, each of which is to 

be recognized as a separate class of 

account. The types are ‘‘futures 

account,’’ ‘‘foreign futures accounts,’’ 

‘‘leverage accounts,’’ ‘‘delivery 

accounts,’’ and ‘‘cleared swap 

accounts.’’ The Commission is adding 

detail to the definition of ‘‘account 

class’’ by including therein definitions 

of ‘‘futures account,’’ ‘‘foreign futures 

accounts,’’ ‘‘cleared swaps accounts,’’ 

and ‘‘delivery accounts.’’ However, as 

discussed above with respect to 

§ 190.00(d)(1)(i), the Commission is 

removing, at least temporarily, the 

‘‘commodity options’’ and ‘‘leverage 

account’’ account classes.43


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collateral, and related activity. It confirms that the 

commodity broker is considered to maintain such 

an account for the customer regardless of whether 

it has kept such books and records current or 

accurate. 

44See, e.g., § 190.09(c)(2)(iv) (allocating residual 

property to the non-public customer estate for each 

account class in the same order as is prescribed in 

paragraphs (c)(2)(i) through (iii) of this section for 

the allocation of the customer estate among account 

classes.) 

45This separate consideration is a consequence of 

the fact that, pursuant to Bankruptcy Code section 

766(h), public customer claims must be paid in full 

before non-public customer claims. 

46See § 190.01. 

47The Commission agrees with a point previously 

made by the ABA Committee: ‘‘Based on lessons 

learned from the MF Global Bankruptcy, those 

challenges are likely greater for tracing cash. 

Physical delivery property, in particular when held 

in the form of electronic documents of title as is 

prevalent today, is more readily identifiable and 

less vulnerable to loss, compared to cash delivery 

property that an FCM may hold in an operating 

bank account.’’ See Transmittal Letter from The Part 

190 Subcommittee of the Business Law Section of 

the American Bar Association accompanying Model 

Part 190 Rules (‘‘ABA Cover Note’’), available at 

https://comments.cftc.gov/PublicComments/ 

ViewComment.aspx?id=61330&SearchText at 14. 

See also In re MF Global Inc., 2012 WL 1424670 

(noting how physical delivery property was 

traceable). 

48 ‘‘Filing date’’ means the date that a petition 

under the Bankruptcy Code or application under 

SIPA commencing a proceeding is filed or on which 

the FDIC is appointed as a receiver pursuant to 12 

U.S.C. 5382(a). 

The Commission is adopting the 

definition of ‘‘futures account’’ to crossreference the definition of the same term 

in § 1.3 of the Act, while the definition 

of ‘‘cleared swaps account’’ crossreferences the definition of ‘‘cleared 

swaps customer account’’ in § 22.1. 

These definitions apply to both FCMs 

and DCOs. The definition of ‘‘foreign 

futures account’’ cross-references the 

definition of ‘‘30.7 account’’ in § 30.1(g). 

As that latter definition is limited to 

FCMs, the Commission is adopting a 

corresponding reference to such 

accounts at a clearing organization, in 

the event that a clearing organization 

clears foreign futures transactions for 

members that are FCMs, where those 

accounts are maintained on behalf of 

those FCM members’ 30.7 customers (as 

that latter term is defined in § 30.1(f)). 

The Commission clarifies that this 

would not apply if a foreign clearing 

organization is clearing foreign futures 

for clearing members that are not subject 

to the requirements of § 30.7. 

The ABA Subcommittee and CME 

recommended that the Commission 

expand the definitions of ‘‘futures 

account,’’ ‘‘foreign futures account,’’ 

and ‘‘cleared swaps account’’ within the 

§ 190.01 definition of ‘‘account class’’ to 

cover the accounts of non-public 

customers. The ABA Subcommittee and 

CME stated that as proposed, the crossreferences to § 1.3, the ‘‘30.7 account’’ in 

30.1, and the ‘‘cleared swaps customer 

account’’ in § 22.1 within the account 

class definitions, limited the scope of 

those definitions to only segregated 

accounts of public customers despite 

the Commission’s intention to use those 

same account class distinctions for nonpublic customers elsewhere in the part 

190 rules. The ABA Subcommittee and 

CME suggested that those account class 

distinctions are also relevant for the 

non-public customer class (i.e., the 

holders of proprietary accounts carried 

by FCMs and for clearing members’ 

house accounts carried by DCOs). 

The Commission is persuaded by the 

comments that there are, in at least 

some cases, account class distinctions 

within the customer class for non-public 

customers,44 and thus agrees that the 

revised definitions of ‘‘futures account,’’ 

‘‘foreign futures account,’’ and ‘‘cleared 

swaps account’’ within the § 190.01 

definition of ‘‘account class’’ should 

address separately non-public 

customers, and has amended the 

definitions to do so. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting the 

‘‘account class,’’ ‘‘futures account,’’ 

foreign futures account,’’ and ‘‘cleared 

swaps account’’ definitions in § 190.01 

as proposed with the modifications 

referred to above. 

The ‘‘delivery account’’ class is the 

fourth type of account class. It is the 

relevant account through which an FCM 

or DCO accounts for the making or 

taking of physical delivery under 

commodity contracts whose terms 

require settlement by delivery of a 

commodity. The FCM or DCO 

designates such account as a delivery 

account on its books and records. The 

Commission is adopting the definition 

of ‘‘delivery account’’ as proposed 

within paragraph (1)(iv) of the 

definition of account class, with a 

modification to conform to the issue 

addressed in the preceding paragraph: 

The delivery account applies to ‘‘both 

public and non-public customers, 

considered separately.’’ 45

The current definition of ‘‘delivery 

account’’ in § 190.05(a)(2) refers to an 

account that contains only property 

described in three of the nine categories 

of property in the current definition of 

‘‘specifically identifiable property.’’ The 

Commission has determined to adopt a 

more functional definition of ‘‘delivery 

account’’ in § 190.01. This revised 

definition will focus on an account 

maintained on the books and records of 

an FCM or DCO for the purpose of 

accounting for the making or taking of 

delivery under commodity contracts 

whose terms require settlement by 

delivery of a commodity.46

The Commission is thus adopting 

paragraph (1)(iv)(A)(1) to define 

delivery accounts for FCMs. The 

Commission is adopting paragraph 

(1)(iv)(A)(2) to incorporate the same 

concepts for clearing organizations, and 

also permit a clearing organization to act 

as a central depository for physical 

delivery property represented by 

electronic title documents, or otherwise 

in electronic (dematerialized) form. 

As set forth in paragraph (1)(iv)(B), 

the delivery account class is being 

subdivided into separate physical and 

cash delivery account classes, as 

provided in § 190.06(b), for purposes of 

pro rata distributions to customers for 

their delivery claims. The definitions of 

the terms ‘‘physical delivery property’’ 

and ‘‘cash delivery property’’ are 

addressed in detail later in this section. 

As customer property held in a 

delivery account is not subject to the 

Commission’s segregation requirements, 

the Commission believes it may be more 

challenging and time-consuming to 

identify customer property for the cash 

delivery account class,47 (and such cash 

would thus be commingled with the 

FCM’s own cash intended for 

operations). Consequently, the 

Commission believes separating (1) 

most cash delivery property and 

customer claims from (2) most physical 

delivery property and customer claims 

should promote more efficient and 

prompter distribution of the latter to 

customers. For these reasons, the 

Commission is adopting the delivery 

account definition to be further divided 

into physical delivery and cash delivery 

account classes, for purposes of pro rata 

distributions to customers for their 

delivery claims. 

The claims with respect to the 

physical delivery and cash delivery 

subclasses are fixed on the ‘‘filing 

date.’’ 48 Thus, the physical delivery 

account class includes, in addition to 

certain physical delivery property, cash 

delivery property received post-filing 

date in exchange for physical delivery 

property held on the filing date that has 

been delivered under a commodity 

contract. Conversely, the cash delivery 

account class includes, in addition to 

certain cash delivery property, physical 

delivery property that has been received 

post-filing date in exchange for cash 

delivery property held on the filing 

date. 

CME and ICE supported separate 

subaccounts of the delivery account for 

physical property (the property being 

delivered) and cash property (cash used 


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Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19333 

49 In re MF Global, No. 11–2790 (MG) (SIPA) 

(Bankr. S.D.N.Y.). 

50This recommendation is addressed in section 

II.G below. 

51As discussed below, the proposal had specified 

a period of three calendar days; after consideration 

of the comments, that period has been changed to 

seven calendar days. 

to pay for delivery). CME agreed with 

the proposed definition of the delivery 

account class and supported the 

proposed separation of the delivery 

account class into the cash delivery 

account and physical delivery account 

classes, as they delineate the customer 

property that is available to distribute to 

customers in each account class on a 

pro rata basis. CME agreed that cash 

delivery property should include cash 

or cash equivalents recorded in a 

customer’s delivery account as of the 

filing date, along with any physical 

delivery property subsequently received 

in accepting a delivery, and likewise 

that physical delivery property should 

include any cash delivery property 

received subsequent to the filing date in 

exchange for making a delivery. CME 

also had specific comments on each of 

the two subaccount definitions as 

discussed below. 

CME noted that the Commission does 

not impose segregation requirements on 

FCMs with respect to the cash or 

physical delivery property that an FCM 

holds on behalf of its customers and 

records in a delivery account. As 

learned from the In re MF Global, Inc. 

bankruptcy (hereinafter ‘‘MF Global’’),49

CME agreed that it can be more 

challenging for a trustee to trace the 

cash recorded in delivery accounts than 

to trace physical delivery property. For 

example, the MF Global trustee could 

more readily identify physical delivery 

property in the form of electronic title 

documents, compared to identifying 

non-segregated cash belonging to the 

delivery account class given the 

fungible nature of cash. 

CME recommended that the 

Commission address through a separate 

rulemaking the broader issues around 

whether customer property carried in 

delivery accounts should be subject to 

any special customer protections, such 

as requirements that FCMs should hold 

such property in custody accounts or 

limitations on how long cash or cash 

equivalents should be held in delivery 

accounts that are not subject to custody 

requirements.50

At this time, after consideration of the 

comments and for the reasons stated 

above the Commission is adopting the 

definition of ‘‘delivery account’’ as 

proposed, with the modification to note 

that it applies to each of public and nonpublic customers, considered 

separately. 

The Commission is adopting the 

definition of ‘‘cash delivery property’’ as 

proposed with the modifications 

described below. The Commission 

proposed to define cash delivery 

property to carry through the concepts 

from current § 190.01(ll)(4) and (5) that 

the cash or cash equivalents, or the 

commodity must be identified on the 

books and records of the debtor as 

having been received, from or for the 

account of a particular customer, on or 

after three calendar days before the 

relevant (i) first delivery notice date in 

the case of a futures contract or (ii) 

exercise date in the case of an option. 

The Commission is adopting the cash 

delivery property definition to mean 

any cash or cash equivalents recorded in 

a delivery account that is, as of the filing 

date: (1) Credited to such account to pay 

for receipt of delivery of a commodity 

under a commodity contract; (2) 

credited to such account to collateralize 

or guarantee an obligation to make or 

take delivery of a commodity under a 

commodity contract, or (3) has been 

credited to such account as payment 

received in exchange for making 

delivery of a commodity under a 

commodity contract. It includes 

property in the form of commodities 

that have been delivered after the filing 

date in exchange for cash or cash 

equivalents held in a delivery account 

as of the filing date. The definition also 

requires that the cash or cash 

equivalents, or the commodity, must be 

identified on the books and the records 

of the debtor as having been received, 

from or for the account of a particular 

customer, on or after seven calendar 

days before the relevant (i) first delivery 

notice date in the case of a futures 

contract or (ii) exercise date in the case 

of a cleared option.51 In response to 

comments discussed below, the 

Commission is adopting the definition 

of cash delivery property to also include 

any cash transferred by a customer to 

the trustee on or after the filing date for 

the purpose of paying for delivery, 

consistent with § 190.06(a)(3)(ii)(B)(1). 

The Commission is also adopting the 

definition in response to comments that 

requested that the Commission provide 

that in the case of a contract where one 

fiat currency is to be exchanged for 

another fiat currency, each currency 

will be considered cash delivery 

property to the extent that it is recorded 

in a delivery account. 

Commenters generally supported 

separate subaccounts of the delivery 

account, and that cash delivery property 

should include cash or cash equivalents 

recorded in a customer’s delivery 

accounts as of the filing date, along with 

any delivery property subsequently 

received in accepting a delivery. 

However, the Commission also received 

several comments on three aspects of 

the proposed definition of cash delivery 

property. 

First, the ABA Subcommittee, CME, 

ICE, FIA, and CMC recommended that 

the Commission remove the threecalendar day restriction proposed in the 

definition of cash delivery property in 

§ 190.01. While several of these 

commenters recognized the 

Commission’s intention to encourage 

customers and their FCMs to hold cash 

in a segregated account where it is better 

protected until needed to pay for a 

delivery that is effected in the delivery 

account, the commenters were 

concerned that cash or cash equivalents 

might be posted to delivery accounts 

sooner than three days before the first 

notice date or exercise date, and 

therefore this property might be denied 

the cash delivery property protection. 

FIA stated that the Federal Register 

release did not explain why the 

Commission proposed to restrict cash 

delivery property to cash and cash 

equivalents received no earlier than 

three calendar days before the relevant 

first notice day or exercise date. FIA and 

ICE could not identify any justification 

as to why cash or cash equivalents that 

may be received by a debtor FCM and 

properly deposited in a cash delivery 

account prior to this period should 

receive different protections under part 

190 than cash and cash equivalents 

received within the three-calendar day 

time frame. The ABA Subcommittee 

noted that their Committee eliminated 

this provision in the Model Part 190 

Rules to avoid unintended 

consequences. 

CME recognized that the three-day 

limitation is based on the limitation in 

current part 190, but stated that it does 

not make sense and if not eliminated 

from the definition, it could be 

detrimental to customers, which is 

contrary to the goal of enhancing 

customer protections. CME further 

explained that if a customer posts cash 

or cash equivalents to its delivery 

account in anticipation of paying for an 

upcoming delivery or to guarantee its 

obligation to take delivery, the timing of 

the payment should not matter. If the 

parties intend to make and take 

delivery, CME believed the trustee 

should be able to follow the customers’ 

intention. CME explained that a 

customer is unlikely to leave cash in an 

unsegregated delivery account with an 

FCM for any extended time, without 

reason, when it would be better 


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52See current § 190.05(a)(2) (tying delivery 

account to portions of the definition of specifically 

identifiable property in § 190.01); § 190.01(ll)(4) and 

(5) (limiting recognition of cash as specifically 

identifiable property to cases where it is identified 

on the books and records of the FCM as being 

received from or for the account of a particular 

customer on or after three calendar days before the 

first notice date or exercise date specifically for the 

purpose of a delivery or exercise). 

protected by holding the cash in a 

segregated account or withdrawing the 

cash if not needed to meet upcoming 

delivery obligations. CME noted that 

there can be times, though, when a 

customer will legitimately post cash to 

its delivery account sooner than the 

definition would allow, for example, out 

of caution to assure that the necessary 

funds are available to pay for a delivery 

when the first notice date or exercise 

date immediately follows a weekend or 

holiday, or to meet payment deadlines 

imposed by the FCM, or based on 

market convention. CME noted that 

some FCMs may require customers to 

post cash sooner than three days prior 

to the relevant notice or exercise date, 

as applicable, to satisfy a deliveryrelated obligation. CME believed it 

could be potentially disruptive to the 

delivery process to deny the customer 

the protection of having its funds 

classified as cash delivery property 

because it posted the cash or cash 

equivalents needed to complete an 

upcoming delivery too soon. 

CME also believed the three-day 

timing element does not make sense 

with respect to cash recorded in a 

customer’s delivery account as of the 

filing date, which the customer had 

previously received as payment for 

delivering a commodity under an 

expired or exercised contract. CME 

believed the Commission intended for 

the timing limitation to apply to this 

situation, but the proposed definition 

does not exclude such cash from the 

requirement. 

CME understood that the Commission 

proposed to keep the timing limitation 

to encourage FCMs and their delivery 

customers to hold cash intended to pay 

for a delivery in a segregated account 

until bilateral delivery obligations are 

near at hand. However, CME questioned 

whether the limitation was effective in 

encouraging the desired behavior, in 

particular when it is contained in 

bankruptcy regulations and parties with 

delivery obligations may not necessarily 

be aware of it. As a result, CME 

recommended that the Commission 

address the protection of customer 

property held in delivery accounts in a 

more direct and transparent matter, 

through a separate rulemaking. 

Specifically, CME recommended that 

the Commission revise the ‘‘cash 

delivery property’’ definition to remove 

the limitation that cash delivery 

property must be recorded in the 

delivery account no sooner than three 

calendar days before the first notice date 

or exercise date. 

The Commission notes that part 190 

currently contains the three-day 

limitation, which serves to limit 

delivery property to property that is 

transferred into a delivery account 

shortly before the notice or exercise 

date.52 Thus, the Commission 

considered whether a change in the 

current standard is warranted. As 

discussed further below, the 

Commission concludes that while the 

case has been made to extend the 

limitation from three calendar days to 

seven calendar days, the case has not 

been made to remove the limitation in 

its entirety at this time. 

While delivery accounts provide some 

customer protection, in that they benefit 

from favorable treatment in bankruptcy, 

they lack the protection of segregation 

requirements, in contrast to futures 

account, foreign futures account, and 

cleared swaps accounts. In the case of 

the latter types of accounts, the FCM 

must maintain in accounts, protected 

from the claims of creditors of the FCM 

other than the customers for whom they 

are segregated, sufficient funds to repay 

the claims of such customers in full, at 

all times. Such segregation protections 

are a very important means of ensuring 

that sufficient funds are in fact available 

to pay customers in full in the (highly 

unlikely) event of the insolvency of an 

FCM. 

Accordingly, the Commission is of the 

view that changing current part 190 to 

completely remove any time limitation 

for protecting property transferred into 

a delivery account would, in light of 

this lack of segregation protection, carry 

the risk of significant unintended 

consequences, e.g., customers being 

encouraged to transfer funds 

prematurely into an account without 

such protection, and thus a bankruptcy 

where a greater number of customers 

receive less than the full amount of their 

claims, and greater total shortfalls in 

repayment of such claims. 

CME, while noting their preference 

for simply deleting the three-day 

limitation, observed that protection of 

customer property held in delivery 

accounts should be addressed in a direct 

and transparent manner through a 

separate rulemaking. The Commission 

concludes that deleting entirely the time 

limitation on posting cash delivery 

property should only be undertaken, if 

at all, in the context of a separate, 

dedicated, and explicit rulemaking, in 

which moving property more quickly to 

a delivery account is considered in 

conjunction with segregation protection 

for property in such an account. 

However, the Commission believes 

CME’s concerns about long weekends 

raise important issues. For example, in 

the context of an FCM’s global business, 

there could be a bank holiday on a 

Friday in the jurisdiction where a 

customer is based, a Federal holiday on 

the following Monday in the U.S., and 

the exercise or notice date might be on 

a Tuesday; in which event three 

calendar days may be too short. 

Similarly, in the vein of CME’s 

comment, there may be legitimate 

reasons to transfer the funds a day or 

two in advance of when they are 

needed, to account for the possibility of 

a failure in the transfer process. 

Weighing the concerns of having 

funds for an extended time in an 

account that is not protected by 

segregation against the need to provide 

a modest amount of flexibility in the 

process, the Commission has 

determined that a reasonable balance 

can be achieved by changing the threeday (before notice or exercise date) 

period to a seven-day period. The 

Commission believes this extended time 

period will address completely the 

concern that a delivery date may come 

after a holiday weekend, and should 

mitigate concerns about FCM funding 

requirements that extend beyond three 

days. If and when a separate rulemaking 

results in additional protection for 

delivery accounts, it will be appropriate 

to revisit this aspect of part 190 as part 

of such a rulemaking. 

Second, the ABA Subcommittee, 

CME, and CMC recommended that the 

Committee revise the definition of cash 

delivery property to allow for the 

possibility that cash or cash equivalents 

could be posted after the filing date for 

the purpose of paying for a delivery, and 

to provide protection for such deposits. 

The commenters requested that the 

Commission expand the definition to 

allow for the rare possibility that a 

customer may be unable to post funds 

needed to pay for a delivery in advance 

of the filing date so that the definition 

should also cover cash delivery property 

received after the filing date in 

anticipation of taking delivery of a 

commodity. CME noted that as has been 

seen with other FCM bankruptcies, the 

days prior to actual filing can be chaotic 

and customers may not have had the 

opportunity to meet such a deadline. To 

allow the delivery to be completed 

reduces a potential disruptive situation 

to commodities markets during an 

otherwise tumultuous time. 

This issue is illuminated by 

considering the interplay of other 


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53The current definition is found in 

§ 190.01(ll)(3), and focuses on documents of title 

and physical commodities. 

54See ABA Cover Note at 10, 12–13. 

55These first two categories together correspond 

to current § 190.01(ll)(3), with the first category 

corresponding to physical delivery property held 

for the purpose of making delivery and the second 

category corresponding to physical delivery 

property held as a result of taking delivery. The 

property that is (or should be) within these two 

categories, as of the filing date, comprises the 

property that will be distributed as part of the 

physical delivery class. 

56The current definition does not prescribe or 

imply a limit to how long such received property 

can be held in a delivery account, because there is 

no principled basis to draw a bright line delineating 

how long is too long. The definition the 

Commission is adopting explicitly codifies that 

position. 

57As the ABA Cover Note explained at 13, 

‘‘[w]hen the FCM has a role in facilitating delivery, 

deliveries may occur via title transfer in a futures 

account, foreign futures account, cleared swaps 

account, delivery account, or, if the commodity is 

a security . . . in a securities account.’’ 

regulations that affect delivery. The 

Commission notes that while § 190.04(c) 

continues the preference for the trustee 

to liquidate contracts moving into 

delivery position before they do so, and 

§ 190.06(a)(2) continues the preference, 

in cases where the trustee is unable to 

do so, for the trustee to arrange for 

delivery to occur outside the estate, 

§ 190.06(a)(3) acknowledges that there 

may be cases where the trustee will 

need to facilitate the making or taking 

of delivery. Regulation 

§ 190.06(a)(3)(ii)(B)(1) refers to cases 

where the trustee pays for delivery (in 

whole or in part) with cash transferred 

by the customer to the trustee on or after 

the filing date for the purpose of paying 

for delivery. 

Thus, the Commission agrees with the 

arguments made by the commenters 

who suggested that the Commission 

expand the definition of ‘‘cash delivery 

property’’ in this context, and 

consequently is adding an explicit 

reference to the cash transferred from a 

customer to the trustee after the filing 

date, consistent with 

§ 190.06(a)(3)(ii)(B)(1). Moreover, for 

consistency, the Commission will 

amend § 190.08(c)(1)(ii) as proposed to 

explicitly give such post-petition 

transfers treatment as 100% funded. 

Finally, the ABA Subcommittee 

suggested that the Commission clarify 

that the delivery of two different fiat 

currencies for foreign currency 

commodity contract constitutes cash 

delivery property. CME suggested a 

similar technical change to clarify in the 

definition that for a commodity contract 

that settles by delivery of a foreign 

currency as the underlying commodity 

or by an exchange of a pair of 

currencies, the USD or foreign currency 

recorded to a delivery account in 

connection with either side of the 

delivery constitutes cash delivery 

property. 

In response to the ABA Subcommittee 

comment regarding the delivery of two 

fiat currencies, ‘‘[g]iven the fungible 

nature of cash, regardless of currency 

denomination,’’ the Commission has 

determined to amend further the 

definition of ‘‘cash delivery property’’ to 

clarify that for foreign exchange 

contracts, i.e., contracts where one fiat 

currency is exchanged for another fiat 

currency, both fiat currencies will be 

treated as cash delivery property, and 

neither currency will be considered 

physical delivery property. 

Accordingly, in consideration of the 

comments and the reasons discussed 

above, the Commission will adopt the 

definition of ‘‘cash delivery property’’ in 

§ 190.01 as modified, with the additions 

referred to above. 

The Commission is adopting the 

definition of ‘‘physical delivery 

property’’ in § 190.01 as proposed with 

modifications, as described below. The 

Commission is adopting the definition 

of ‘‘physical delivery property’’ to 

include, under the four specified sets of 

circumstances discussed below, a 

commodity, whether tangible or 

intangible, held in a form that can be 

delivered to meet and fulfill delivery 

obligations under a commodity contract 

that settles via delivery if held to a 

delivery position.53 The Commission is 

adopting the definition to include 

warehouse receipts, other documents of 

title, or shipping certificates (including 

electronic versions of the forgoing), for 

the commodity, or the commodity itself. 

The Commission is amending the 

physical deliver property definition to 

address changes in delivery practices 

since the 1980s. The reference to 

electronic versions of warehouse 

receipts, other documents of title, or 

shipping certificates explicitly 

recognizes that title documents for 

commodities are now commonly held in 

dematerialized, electronic form, in lieu 

of paper. Moreover, the types of 

commodities that might be physically 

delivered would extend beyond tangible 

commodities to those that are 

intangible, including Treasury 

securities, foreign currencies, or virtual 

currencies.54

For purposes of analytical clarity, the 

Commission is adopting the definition 

of physical delivery property as 

subdivided into four categories: 

First, the commodities or warehouse 

receipts, other documents of title, or 

shipping certificates (including 

electronic versions of any of the 

foregoing) for the commodity that the 

debtor holds for the account of a 

customer for purposes of making 

delivery of such property and which, as 

of the filing date or thereafter, can be 

identified as held in a delivery account 

for the benefit of such customer on the 

books and records of the debtor.55

Second, the commodities or 

warehouse receipts, other documents of 

title, or shipping certificates (including 

electronic versions of any of the 

foregoing) for the commodity that the 

debtor holds for the account of the 

customer, where the customer received 

or acquired such property by taking 

delivery under an expired or exercised 

commodity contract, and which, as of 

the filing date or thereafter, can be 

identified as held in a delivery account 

for the benefit of such customer on the 

books and records of the debtor.56

The third category addresses property 

that (a) is in fact being used, or has in 

fact been used, for the purpose of 

making or taking delivery, but (b) is 

held in a futures, foreign futures, 

cleared swaps, or (if the commodity is 

a security) securities account.57 This 

property would be considered physical 

delivery property solely for the purpose 

of the obligations, pursuant to § 190.06, 

to make or take delivery of physical 

delivery property. The property in this 

category would be distributed as part of 

the account class in which it is held 

(futures, foreign futures, or cleared 

swaps, or, in the case of a securities 

account, as part of a SIPA proceeding). 

Fourth, where such commodities or 

documents of title are not held by the 

debtor, but are delivered or received by 

a customer in accordance with 

§ 190.06(a)(2) (either by itself in the case 

of an FCM bankruptcy or in conjunction 

with § 190.16(a) in the case of a clearing 

organization bankruptcy), they will be 

considered physical delivery property, 

but, again, solely for purposes of 

obligations to make or take delivery of 

physical delivery property pursuant to 

§ 190.06. As this property is held 

outside of the debtor’s estate (and there 

was no obligation to transmit it to the 

debtor’s customer accounts), it is not 

subject to pro rata distribution. 

The Commission is also adding a 

special case to correspond with the 

special case for cash delivery property, 

which states that where one fiat 

currency is exchanged for another, 

neither such currency, to the extent that 

it is recorded in the delivery account, 

will be considered physical delivery 

property. The Commission is also, as 

discussed further below, additionally 

amending the physical delivery 

property definition to address the 

possibility of a negative delivery price 


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19336 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

58The ABA Subcommittee also recommended 

that the Commission further amend § 190.02 by 

adding new paragraph (g) to proposed § 190.02 to 

state that the term ‘allowed’ in this part shall have 

the meaning ascribed to it in the Bankruptcy Code. 

The ABA Subcommittee believed that this would 

confirm that ‘‘allowed’’ under part 190 equates with 

the use of ‘‘allowed’’ under the Bankruptcy Code. 

The ABA Subcommittee also recommended that the 

Commission add ‘‘funded balance of’’ before ‘‘such 

customer’s allowed net equity claim’’ in proposed 

§ 190.09(d)(3). The Commission agrees that these 

recommended amendments would avoid confusion 

with the meaning of ‘‘allowed’’ in § 190.02(g) and 

is therefore making these suggested changes. 

where the party obliged to delivery 

physical delivery property under an 

expiring contract or an expired options 

contract is also obliged to make a cash 

payment to the buyer, as such cash or 

cash equivalents constitute physical 

delivery property. 

CME and CMC agreed that physical 

delivery property should include any 

cash delivery property received 

subsequent to the filing date in 

exchange for making a delivery. 

In light of the evolving nature of 

intangible assets, and of the manner in 

which they may be held, custodied or 

transferred, ICE suggested that the 

definition of physical delivery property 

include, as examples (and not by way of 

limitation), other electronic 

representations of commodities 

(whether or not technically ‘‘an 

electronic title document’’) or any 

property entitlement to a commodity 

(such as for a commodity held as a 

financial asset in a securities account 

under Article 8 of the Uniform 

Commercial Code (whether or not a 

security) or similar structure). 

ICE strongly agreed with the 

Commission’s proposal to clarify that 

intangible property received or held for 

purposes of delivery is appropriately 

regarded as subject to the delivery 

account, without regard to whether it is 

‘‘physical’’ as under the current rule. 

ICE argued that any asset, tangible or 

intangible, that can be delivered in 

settlement of a contract should be 

eligible to be treated as delivery 

property, as set out in the proposed 

definition of ‘‘physical delivery 

property.’’ ICE believed this proposed 

definition would avoid questions that 

may otherwise arise in connection with 

the delivery of digital currencies or 

other novel digital assets. CME also 

supported the decision to expand the 

delivery account class to cover 

intangible commodities. 

Additionally, CME supported 

modernizing the definition of physical 

delivery property to recognize the use of 

electronic delivery documents in 

effecting deliveries under physical 

delivery commodity contracts. CME 

recommended that the Commission 

further expand the physical delivery 

property definition to cover within its 

scope any cash or cash equivalents that 

a seller may deposit in its delivery 

account when its obligation to deliver 

physical delivery property under an 

expiring futures or exercised options 

contract also includes an obligation to 

make a cash payment to the buyer, as 

could arise if the contract’s final 

settlement price is negative. CME 

acknowledged that this scenario would 

be unprecedented and may never occur, 

but believed it prudent to contemplate 

the possibility in light of events in April 

2020 where certain physical-delivery oil 

futures contracts traded below zero in 

the days prior to establishment of the 

final settlement prices. 

CME also recommended a technical 

correction to the definition relating to 

the fact that shipping certificates are not 

electronic title documents, and instead 

represent the contractual obligation of a 

facility to deliver the underlying 

commodity to the buyer. Thus, for 

clarity CME recommended that the 

Commission revise the phrase 

‘‘including warehouse receipts, 

shipping certificates or other documents 

of title (including electronic title 

documents) for the commodity’’ to read 

‘‘including warehouse receipts, 

shipping certificates or other similar 

documents (including electronic 

versions thereof).’’ The Commission is 

not amending the examples to explicitly 

address additional ‘‘electronic 

representations of commodities’’ within 

the definition of physical delivery 

property because the definition already 

broadly covers ‘‘a commodity, whether 

tangible or intangible, held in a form 

that can be delivered to meet and fulfill 

delivery obligations under a commodity 

contract. . . .’’ 

The Commission is amending the 

definition of physical delivery property 

to address the technical correction 

recommended by CME by 

acknowledging that shipping certificates 

are not documents of title while 

avoiding the phrase ‘‘similar 

documents’’ by instead amending the 

last phrase to read ‘‘including 

warehouse receipts, other documents of 

title, or shipping certificates (including 

electronic versions of any of the 

foregoing) for the commodity, or the 

commodity itself.’’ 

The Commission is also adding a 

special case, corresponding to the 

special case for cash delivery property, 

stating that where one fiat currency is 

exchanged for another, neither such 

currency would be considered physical 

delivery property. 

The Commission is further amending 

the physical delivery property 

definition with a second special case in 

response to CME’s suggestion to address 

the possibility of a negative delivery 

price. While negative prices for 

deliverable commodities are rare, they 

are not unprecedented (e.g., the price of 

crude oil briefly went negative in April 

2020). While a negative price for actual 

delivery may be even rarer, it is 

theoretically possible. Thus, the 

Commission is amending the definition 

of ‘‘physical delivery property’’ to 

address this special case by adding the 

following: In a case where the final 

settlement price is negative, i.e., where 

the party obliged to deliver physical 

delivery property under an expiring 

futures contract or an expired options 

contract is also obliged to make a cash 

payment to the buyer, such cash or cash 

equivalents constitute physical delivery 

property. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting the 

definition of ‘‘physical delivery 

property’’ as proposed with the 

appropriate modifications to the 

structure, as set forth above, to 

correspond to ‘‘(1) In general.’’ and to 

address two special cases in ‘‘(2) Special 

cases.’’ The Commission is adopting the 

definition of ‘‘allowed net equity’’ as 

proposed in § 190.01 and as modified to 

become ‘‘funded net equity’’ as 

described below. The Commission 

proposed ‘‘allowed net equity’’ to 

update cross-references and allow for 

two definitions of the term (as used in 

subparts B and C of part 190). 

The ABA Subcommittee expressed 

concern in their comment letter that the 

definition and the use of the term 

‘‘allowed net equity’’ as proposed in 

§§ 190.01 and 190.08(a) could create 

inconsistencies and confusion between 

part 190 and the settled bankruptcy law 

terminology in which ‘‘allowed’’ 

typically refers to the fixed amount of a 

creditor’s claim rather than the amount 

distributable on such claim. The ABA 

Subcommittee recommended three 

modifications to address this potential 

confusion, including the deletion of the 

definition of ‘‘allowed net equity’’ in 

proposed §§ 190.01 and 190.08(a), as the 

ABA Subcommittee believes the 

remainder of proposed § 190.08 would 

address how to calculate a customer’s 

net equity claims and the funded 

balances for each such claims.58

The Commission agrees with the ABA 

Subcommittee that the inclusion of 

‘‘allowed’’ in the defined term ‘‘allowed 

net equity’’ could cause confusion in the 

broader context of established 

bankruptcy law, where ‘‘allowed’’ refers 

to the trustee’s measure of the proper 

amount of a claim, rather than to the 


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59 It should be noted that, consistent with 

§ 190.00(d)(3)(iv) and the decision In re Peregrine 

Financial Group, Inc., 866 F.3d 775, 776 (7th Cir. 

2017), adopting by reference Secure Leverage 

Group, Inc. v. Bodenstein, 558 B.R. 226 (N.D. Ill. 

2016), retail foreign exchange contracts do not fit 

within the definition of commodity contracts. 

60This is in contrast to the current definition in 

§ 190.01(cc) and (ii), which explicitly define nonpublic customer, and define public customer as a 

customer that is not a non-public customer. This 

change is not substantive, but rather fosters closely 

tying the account classes to business-as-usual 

segregation requirements. 

portion of a claim that is funded (in pro 

rata distribution). 

Accordingly, after consideration of 

the comments, including the ABA 

Subcommittee’s suggestion regarding 

the funded portion of a customer’s 

allowed claim throughout part 190, and 

for the reasons stated above, the 

Commission is changing the defined 

term ‘‘allowed net equity’’ to ‘‘funded 

net equity,’’ and adopting the definition 

as so modified. The Commission is also 

adding § 190.02(g) (as discussed below) 

and adding ‘‘funded balance of’’ before 

‘‘such customer’s allowed net equity 

claim’’ in § 190.09(d)(3) as suggested. 

The Commission is adopting the 

definition of ‘‘commodity contract’’ in 

§ 190.01 as proposed, in order to amend 

the definition to incorporate and extend 

in context (through references to current 

Commission regulations) the definition 

in section 761(4) of the Bankruptcy 

Code.59

ICI strongly supported the proposed 

amendments to the definition of 

‘‘commodity contract’’ to include any 

‘‘futures contract’’ and any ‘‘swap’’ 

thereby permitting transactions carried 

in a futures or cleared swaps account in 

accordance with the Commission’s 

regulations to be eligible for the 

protections that part 190 affords. 

Accordingly, after consideration of 

the comment and for the reasons stated 

above, the Commission is adopting the 

definition of ‘‘commodity contract’’ as 

proposed. 

The Commission is adopting the 

definition of ‘‘customer property and 

customer estate’’ as proposed to update 

the definition to clarify cross-references 

within part 190 and to note that 

customer property distribution is 

addressed in section 766(i) of the 

Bankruptcy Code in addition to section 

766(h). 

ICE supported the Commission’s 

decision to include forward contracts 

that are traded on a DCM and cleared by 

a DCO as customer property. 

Accordingly, after consideration of 

the comment, and for the reasons stated 

above, the Commission is adopting the 

definition of ‘‘Customer property, 

customer estate’’ in § 190.01 as 

proposed. 

The Commission is adopting the 

definition of ‘‘house account’’ with 

modifications, as set forth below to 

modify the existing definition to (a) 

clarify the connection between the 

concept of a ‘‘house account’’ in part 

190 and the concept of a proprietary 

account in § 1.3, and (b) separately 

define the term in relation to an FCM, 

a foreign futures commission merchant, 

and a DCO. 

The ABA Subcommittee and CME 

agreed with expanding the current 

definition to cover the house accounts 

that DCOs maintain for clearing 

members. However, the commenters 

noted that ‘‘house account’’ is used in 

only three places for an FCM 

proceeding: (i) Proposed § 190.06(a)(5), 

which addresses deliveries made or 

taken with respect to the debtor FCM’s 

house account under open commodity 

contracts; (ii) proposed § 190.07(c), 

which prohibits transfer of the debtor 

FCM’s house account after the filing 

date; and (iii) proposed 

§ 190.08(b)(2)(ix), which provides that 

when a non-debtor FCM maintains an 

omnibus account and a house account 

with a debtor FCM, it holds the 

accounts in a separate capacity for 

purposes of calculating its net equity 

claims against the debtor FCM. 

Assuming the Commission intended to 

expand the scope of these provisions in 

each case, the ABA Subcommittee and 

CME suggested that the Commission 

modify the three provisions to clarify 

that they apply to proprietary accounts 

of FCMs, and to limit the defined term 

to house accounts maintained by a DCO 

for clearing members. The ABA 

Subcommittee believed it was 

unnecessary, potentially confusing, and 

could preclude porting of proprietary 

accounts. 

The Commission agrees with the 

commenters’ recommendation to 

streamline the ‘‘house account’’ 

definition and amend the respective 

subpart B provisions to limit the use of 

‘‘house account’’ to the context of 

clearing organization bankruptcies to 

avoid any potential confusion regarding 

the ability to port proprietary accounts. 

Accordingly, after considering the 

comments, and for the reasons stated 

above, the Commission is adopting the 

definition of ‘‘house account’’ in 

§ 190.01, as modified. 

The Commission is adopting the 

definitions of ‘‘non-public customer’’ 

and ‘‘public customer’’ as proposed to 

define who is considered a public 

versus a non-public customer separately 

for FCMs and for clearing organizations. 

These definitions are complements (i.e., 

every customer is either a ‘‘public 

customer’’ or a ‘‘non-public customer,’’ 

but never both). 

In the case of a customer of an FCM, 

the Commission is adopting the 

definition of ‘‘public customer,’’ 60

which would be analyzed separately for 

each of the relevant account classes 

(futures, foreign futures, cleared swaps, 

and delivery) with the relevant crossreferences to other Commission 

regulations. For the ‘‘futures account 

class,’’ this would be a futures customer 

as defined in § 1.3, whose futures 

account is subject to the segregation 

requirements of section 4d(a) of the Act 

and the Commission regulations 

thereunder; for the foreign futures 

account class, a 30.7 customer as 

defined in § 30.1, whose foreign futures 

account is subject to the segregation 

requirements of § 30.7; for the cleared 

swaps account class, a cleared swaps 

customer as defined in § 22.1, whose 

cleared swaps account is subject to the 

segregation requirements of part 22; and 

for the delivery account class, a 

customer that would be classified as a 

‘‘public customer’’ if the property held 

in the customer’s delivery account had 

been held in an account described in 

one of the prior three categories. The 

Commission is tying the definition of 

public customer for bankruptcy 

purposes to the definitions of 

‘‘customer’’ (and segregation 

requirements) that apply during 

business as usual. An FCM’s non-public 

customers are customers that are not 

public customers. 

As part of the process for introducing 

a bespoke regime for the bankruptcy of 

a clearing organization, the Commission 

is differentiating between public and 

non-public customers such that 

customers of clearing members (whether 

such clearing members are FCMs or 

foreign brokers) acting on behalf of their 

proprietary (i.e., house) accounts, would 

be non-public customers, while all other 

customers of clearing members would 

be public customers. 

In the case of members of a DCO that 

are foreign brokers, the determination as 

to whether a customer of such a member 

is a proprietary member would be based 

on either the rules of the clearing 

organization or the jurisdiction of 

incorporation of such member: If either 

designates the customer as a proprietary 

member, then the customer would be 

treated as a non-public customer. 

Vanguard agreed that the proposed 

definition of public customer in 

§ 190.01 included any customer of an 

FCM whose commodity contract is 

subject to the Commission’s segregation 


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19338 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

61The technical correction suggested by the ABA 

subcommittee to § 190.14(b) (change ‘‘variation’’ to 

‘‘variation settlement’’) will be adopted in one case; 

the subsection where the second case was found 

has been removed entirely by the supplemental 

notice of proposed rulemaking. 

requirements, and for a DCO, a person 

whose account with the FCM is not 

classified as a proprietary account. CME 

also supported the proposed definitions 

of public customer and non-public 

customer as it believed they are more 

understandable than the prior part 190 

definitions. 

CME, however, asked the Commission 

to reconsider the recommendation of the 

ABA Subcommittee to include non-U.S. 

customers of foreign broker clearing 

members of a DCO within the public 

customer definition. CME noted that it 

previously considered admitting foreign 

brokers as clearing members to clear 

trades of their non-U.S. customers in 

futures or options on futures listed on 

the CME or the other designated 

contract markets (‘‘DCMs’’) owned by 

CME Group, which would be analogous 

to a foreign clearing organization 

admitting FCMs as members to clear 

trades of their public customers in 

futures or options on futures listed by a 

foreign board of trade. While that model 

does not currently exist for U.S. DCOs 

and the DCMs for which they provide 

clearing services, CME believed it is 

appropriate to include that flexibility in 

part 190 to accommodate that 

possibility. OCC also requested 

clarification as to whether customers of 

foreign brokers that access a DCO 

through an FCM clearing member 

affiliated with the foreign broker would 

be treated as public customers. 

The Commission is of the view that 

including non-U.S. customers of 

foreign-broker clearing members as 

public customers should be considered 

as part of a comprehensive review of the 

issues at such time as the model of 

admitting foreign brokers as clearing 

members for U.S. DCOs becomes 

empirical. Such a review of the issues, 

including issues related to both 

bankruptcy and risk management, can 

be more reliably, and more efficiently, 

be conducted in the context of empirical 

rather than hypothetical circumstances. 

In response to OCC’s request for 

clarification, the Commission notes that 

where a foreign broker clears the trades 

of its (foreign) customers through an 

affiliated FCM that is a clearing 

member, those trades would be cleared 

on an omnibus basis through the FCM’s 

customer account, and would be 

required to be kept separate from the 

proprietary trades of the affiliated 

foreign broker. Thus, those customers 

would be treated as public customers. If 

a foreign broker clears its own 

proprietary trades through an 

unaffiliated FCM (i.e., there is no 

proprietary relationship between the 

foreign broker and the FCM as set forth 

in § 1.3), those trades would be 

considered as public customer trades at 

the FCM, but would not be part of the 

customer omnibus account of the 

foreign broker at the FCM. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting the 

definitions of ‘‘non-public customer’’ 

and ‘‘public customer’’ as proposed in 

§ 190.01. 

The Commission is adopting the 

definitions of ‘‘variation settlement’’ as 

proposed to define the payments that a 

trustee may make with respect to open 

commodity contracts. The definition of 

variation settlement includes ‘‘variation 

margin’’ as defined in § 1.3, and also 

includes ‘‘all other daily settlement 

amounts (such as price alignment 

payments) that may be owed or owing 

on the commodity contract’’ to cover all 

of the potential obligations associated 

with an open commodity contract. 

CME supported defining variation 

settlement and generally agreed with the 

substance of the definition, but 

recommended that the Commission 

adopt one self-contained definition that 

does not rely on cross-reference to 

another Commission definition. CME 

suggested that the Commission adopt 

the ABA Subcommittee’s variation 

settlement definition which would 

cover ‘‘any amount paid or collected (or 

to be paid or collected) on an open 

commodity contract relating to changes 

in the market value of the commodity 

contract since the trade was executed or 

the previous time the commodity 

contract was marked to market along 

with all other daily settlement amounts 

(such as price alignment payments) that 

may be owed or owing on the 

commodity contract.’’ 

The ABA Subcommittee believed that 

the definition of variation settlement 

was not used consistently in the 

Proposal and identified two places in 

proposed § 190.14(b) where the term 

‘‘variation’’ is used instead of ‘‘variation 

settlement.’’ The ABA Committee 

recommended using ‘‘variation 

settlement’’ in both places, to avoid any 

confusion as to whether ‘‘variation’’ 

refers to the Commission’s variation 

margin definition or variation 

settlement definition. 

The Commission notes that the crossreferences in § 190.01 to definitions in 

other parts of the Commission’s rules is 

intentional to clarify the relationships 

with those other definitions, and thus 

the Commission declines to make the 

change proposed by the commenters.61

Accordingly, after consideration of the 

comments and for the reasons stated 

above, the Commission is adopting the 

definition of ‘‘variation settlement’’ in 

§ 190.01 as proposed. 

The Commission did not receive 

comments on the remaining definitions 

in § 190.01 and is therefore adopting 

them as proposed. 

The Commission is adopting the 

definition of ‘‘Act’’ in § 190.01 to refer 

to the Commodity Exchange Act. 

The Commission is amending the 

definition of ‘‘Bankruptcy Code’’ in 

§ 190.01 to update cross-references. 

The Commission is amending the 

definition of ‘‘Business day’’ to define 

what constitutes a Federal holiday and 

clarify that the end of a business day is 

one second before the beginning of the 

next business day. 

The Commission is amending the 

definition of ‘‘Calendar day’’ to include 

a reference to Washington, DC as the 

reference location for the Calendar day. 

The Commission is adopting the 

definition of ‘‘Cash delivery account 

class’’ to cross-reference it to the new 

definition in ‘‘Account class.’’ 

The Commission is adopting the 

definition of ‘‘Cash equivalents’’ to 

define assets that might be accepted as 

a substitute for United States dollar 

cash. 

The Commission is amending the 

definition of ‘‘Cleared swaps account’’ 

in § 190.01 to cross-reference it to the 

new definition in ‘‘Account class.’’ 

The Commission is adopting the 

amended definition of ‘‘Clearing 

organization’’ to update crossreferences. 

The Commission is amending the 

definition of ‘‘Commodity broker’’ to 

reflect the current definition of 

commodity broker in the Bankruptcy 

Code and the relevant cross-references. 

The Commission is adding the 

definition of ‘‘Commodity contract 

account’’ to refer to accounts of a 

customer based on commodity contracts 

in one of the four account classes, as 

well as, for purposes of identifying 

customer property for the foreign 

futures account class (subject to 

§ 190.09(a)(1)), accounts maintained by 

foreign clearing organizations or foreign 

futures intermediaries reflecting foreign 

futures or options on futures executed 

on or subject to the rules of a foreign 

board of trade, including any account 

maintained on behalf of the debtor’s 

public customers. 

The Commission is amending the 

definition of ‘‘Court’’ to clarify that the 

court having jurisdiction over the 


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62Cf. 28 U.S.C. 157(d). 63 In SIPA, the term ‘‘filing date’’ is defined to 

occur earlier than the filing of an application for a 

protective decree if the debtor is the subject of a 

proceeding in which a receiver, trustee, or 

liquidator for the debtor has been appointed and 

such proceeding is commenced before the date on 

which the application for a protective decree under 

SIPA is filed. In such case, the term ‘‘filing date’’ 

is defined to mean the date on which such 

proceeding is commenced. By contrast, this 

rulemaking does not define the term ‘‘filing date’’ 

to occur earlier in such a case, although it would 

(in § 190.02(f) as discussed below) authorize such 

a to receiver themselves file a voluntary petition for 

bankruptcy of the FCM. 

This difference is due to the different uses of the 

‘‘filing date’’ in these rules and in SIPA. For 

purposes of part 190, ‘‘filing date’’ refers to the date 

on and after which a commodity broker is treated 

as a debtor in bankruptcy. See, e.g., §§ 190.00(c)(4), 

190.06(a)(1) and (b)(1), 190.08(b)(4), and 

190.09(a)(1)(ii)(A). For purposes of SIPA, by 

contrast, the ‘‘filing date’’ is the date on which 

securities are valued. See, e.g., SIPA sections 8(b), 

8(c)(1), 8(d), 9 ff–2(b), (c)(1), (d), and 78fff–3(a)(3). 

64See § 4.20(a)(1). 

debtor’s estate may not be a bankruptcy 

court (e.g., in the event of a withdrawal 

of the reference).62

The Commission is amending the 

definition of ‘‘Cover’’ to improve clarity 

without any substantive change to the 

current definition. 

The Commission is amending the 

definition of ‘‘Customer’’ to reflect the 

revisions to part 190 through this 

rulemaking, specifically, noting the 

different meanings of ‘‘customer’’ with 

respect to an FCM in contrast to with 

respect to a DCO. 

The Commission is amending the 

definition of ‘‘Customer claim of 

record’’ to improve clarity without any 

substantive changes to the current 

definition. 

The Commission is amending the 

definition of ‘‘Customer class’’ to reflect 

the revisions to part 190 through this 

rulemaking, specifically emphasizing 

the difference between public customers 

and non-public customers. 

The Commission is deleting the 

definition of ‘‘Dealer option’’ as this 

term is no longer used. 

The Commission is amending the 

definition of ‘‘Debtor’’ to explicitly refer 

to commodity brokers involved in a 

bankruptcy proceeding, a proceeding 

under SIPA, or a proceeding under 

which the FDIC is appointed as a 

receiver. 

The Commission is newly adopting a 

definition of ‘‘Distribution’’ to include 

the transfer of property on a customer’s 

behalf, return of property to a customer, 

as well as distributions to a customer of 

valuable property that is different than 

the property posted by that customer. 

The Commission is amending the 

definition of ‘‘Equity’’ to update a crossreference. 

The Commission is adding definitions 

for ‘‘Exchange Act’’ and ‘‘FDIC’’ to 

incorporate the statute and regulator, 

respectively, in part 190. 

The Commission is revising the 

definition of ‘‘Filing date’’ to include 

the commencement date for proceedings 

under SIPA or Title II of the Dodd-Frank 

Act.63

The Commission is revising the 

definition of ‘‘Final net equity 

determination date’’ stylistically, to 

provide updated cross-references, and to 

further clarify who the parties involved 

are intended to be. 

The Commission is adding the 

definition of ‘‘Foreign board of trade’’ 

and adopting by reference the definition 

in § 1.3 (which is consistent with 

§ 48.2(a)). 

The Commission is adding the 

definition of ‘‘Foreign clearing 

organization’’ to refer to a clearing 

house, clearing association, clearing 

corporation or similar entity, facility or 

organization that clears and settles 

transactions in futures or options on 

futures executed on or subject to the 

rules of a foreign board of trade. 

The Commission is retaining the 

definitions of ‘‘Foreign future’’ and 

‘‘Foreign futures commission merchant’’ 

as proposed to be unchanged. 

The Commission is adopting the 

definition of ‘‘Foreign futures 

intermediary’’ to refer to a foreign 

futures or options broker, as defined in 

§ 30.1, acting as an intermediary for 

foreign futures contracts between a 

foreign futures commission merchant 

and a foreign clearing organization. 

The Commission is revising the 

definition of ‘‘Funded balance’’ to the 

definition in § 190.08(c). That definition 

is discussed further below in section 

II.B.6. 

The Commission is adding a 

definition for ‘‘Futures’’ and ‘‘Futures 

contract,’’ used interchangeably, to 

clarify what these terms mean for 

purposes of part 190. 

The Commission is deleting the 

definition of ‘‘In-the-money amount’’ as 

the term will no longer be used and 

replacing it with ‘‘in-the-money,’’ a term 

that is Boolean, and is used in 

§ 190.04(c). 

The Commission is amending the 

definition of ‘‘Joint account’’ to reflect 

that a commodity pool must be a legal 

entity.64 Thus, the Commission is 

removing the reference to a commodity 

pool that is not a legal entity. 

The Commission is deleting the 

definitions of ‘‘Leverage contract’’ and 

‘‘Leverage transaction merchant’’ 

consistent with the discussion above 

with respect to § 190.00(d)(1)(i)(B). 

The Commission is removing the 

definition of ‘‘Member property’’ from 

current § 190.09(a) and addressing it in 

§ 190.01, and clarifying that member 

property is the property that may be 

used to pay net equity claims based on 

both the members’ house account as 

well as claims on behalf of non-public 

customers of the member. 

The Commission is revising the 

definition of ‘‘Net equity’’ to update 

cross-references, including the 

difference between bankruptcy of an 

FCM and of a clearing organization. 

The Commission is revising the 

definition of ‘‘Open commodity 

contract’’ to improve clarity without any 

substantive changes to the definition. 

The Commission is revising the 

definition of ‘‘Order for relief’’ to update 

cross-references and incorporate 

stylistic, non-substantive changes. 

The Commission is adding the 

definition of ‘‘Person’’ to clarify what 

this term means in the context of part 

190. 

The Commission is adding the 

definition of ‘‘Physical delivery account 

class’’ to be cross-referenced to the new 

definition in ‘‘Account class.’’ 

The Commission is deleting the 

definition of ‘‘Premium’’ as that term is 

no longer used. 

The Commission is revising the 

definition of ‘‘Primary liquidation date’’ 

to reflect the removal of the concept of 

accounts being held open for later 

transfer. As a result of such removal, the 

Commission is also deleting current 

§ 190.03(a), which set forth provisions 

regarding the operation of accounts held 

open for later transfer, since there will 

no longer be any such accounts. 

The Commission is deleting the 

definition of ‘‘Principal contract’’ as that 

term is no longer used. This term was 

previously used to refer to contracts that 

are not traded on designated contract 

markets, but the definition excluded 

cleared swaps. 

The Commission is adding the 

definition of the ‘‘Securities account’’ 

and ‘‘SIPA’’ to address the bankruptcy 

of an FCM that is also subject to the 

Securities Investor Protection Act. 

These are based on appropriate crossreferences to the Exchange Act and 

SIPA. 

The Commission is amending the 

definition of ‘‘Security’’ to update the 

cross-reference to the Bankruptcy Code 

without any substantive changes to the 

definition. 

The Commission is removing the 

definition of ‘‘Short term obligation’’ 

from § 190.01 as the term is no longer 

used within the definition of 

‘‘specifically identifiable property.’’ The 

Commission is instead amending the 

‘‘specifically identifiable property’’ 


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65See section II.B.1.c. 

66See current § 190.01(pp). 

67Cf. 11 U.S.C. 761(4)(F)(ii) (including as a 

commodity contract ‘‘with respect to a futures 

commission merchant or clearing organization, any 

other contract, option, agreement, or transaction, in 

each case, that is cleared by a clearing 

organization’’). 

68For further discussion of maintenance margin 

and its relationship to initial margin, see, e.g., 

https://www.cmegroup.com/education/courses/ 

introduction-to-futures/margin-know-whatisneeded.html. 

69An account is in deficit if the balance is 

negative (i.e., the customer owes the debtor instead 

of the reverse). An account can be undermargined 

but not in deficit (if the balance is positive, but less 

than the required margin). See discussion of 

§ 190.04(b)(f). For example, if the margin 

requirement is $100 and the account balance is $20, 

the account is undermargined by $80, but is not in 

deficit. If the account loses a further $35, the 

balance would be ($15). The account would be in 

deficit by $15, and would be undermargined by 

$115. 

70The Market Participants Division is the 

successor to the Division of Swap Dealer and 

Intermediary Oversight, the title of that division at 

the time of the Proposal. 

definition with respect to securities, as 

discussed immediately below. 

The Commission is amending the 

definition of ‘‘Specifically identifiable 

property’’ to update and streamline the 

definition in current § 190.01(ll). 

Paragraph (1)(i) focuses on ‘‘futures 

accounts,’’ ‘‘foreign futures accounts,’’ 

and ‘‘cleared swaps accounts.’’ 

Paragraph (1)(i)(A) corresponds in major 

part to paragraphs (ll)(1) and (6) of the 

current definition. For securities, 

paragraph (1)(i)(A)(1) substantially 

copies current paragraph (ll)(1)(i), but 

clarifies that a security, to be included 

as specifically identifiable property, 

must have ‘‘a duration or maturity date 

of more than 180 days.’’ Paragraph 

(1)(i)(A)(2) reformats current paragraph 

(ll)(6). For warehouse receipts, bills of 

lading, or other documents of title 

(paragraph (i)(B), corresponding to 

current paragraph (ll)(1)(ii)), the 

definition restates the corresponding 

portion of the current definition. 

Paragraph (1)(ii) of the definition 

furthers the approach of providing 

discretion to the trustee. It includes as 

specifically identifiable property 

commodity contracts that are treated as 

such in accordance with § 190.03(c)(2). 

As discussed further below,65 the latter 

provision permits (but does not require) 

the trustee, following consultation with 

the Commission, to treat open 

commodity contracts of public 

customers as specifically identifiable 

property if they are held in a futures 

account, foreign futures account, or 

cleared swaps account that is designated 

as a hedging account in the debtor’s 

books and records, and if the trustee 

determines that treating the commodity 

contracts as specifically identifiable 

property is reasonably practicable under 

the circumstances of the case. In 

contrast, paragraph (ll)(2) of the current 

definition is more prescriptive. 

The Commission is amending the 

definition of ‘‘Strike price’’ for brevity 

without any substantive change. 

The Commission is adding the 

definition of ‘‘Substitute customer 

property’’ to refer to the property (in the 

form of cash or cash equivalents) 

delivered to the trustee by or on behalf 

of a customer in order to redeem either 

specifically identifiable property or a 

letter of credit. 

The Commission is adopting the 

definition of ‘‘Swap’’ to replace the 

current definition of ‘‘Cleared swap’’ 66

in part 190. The definition of reflects the 

current definition and meaning of the 

term ‘‘swap’’ in section 1a(47) of the 

CEA and Commission regulation § 1.3. 

The Commission is also adopting the 

definition to add as a swap, for purposes 

of this part, ‘‘any other contract, 

agreement or transaction that is carried 

in a cleared swaps account pursuant to 

a rule, regulation or order of the 

Commission, provided, in each case, 

that it is cleared by a clearing 

organization [i.e., a DCO] as, or the same 

as if it were, a swap.’’ 67

The Commission is amending the 

definition of ‘‘Trustee’’ to include the 

trustee in a SIPA proceeding. 

The Commission is adopting a 

definition of ‘‘Undermargined’’ for 

purposes of part 190 to mean when the 

funded balance of a debtor’s futures 

account, foreign futures account, or 

cleared swaps account is below the 

minimum amount that the debtor is 

required to collect and maintain for the 

open commodity contracts in such 

account under the rules of the relevant 

clearing organization, foreign clearing 

organization, DCM, Swap Execution 

Facility (‘‘SEF’’), or FBOT. If any such 

rules establish both an initial margin 

requirement and a lower maintenance 

margin 68 requirement applicable to any 

commodity contracts (or to the entire 

portfolio of commodity contracts or any 

subset thereof) in a particular 

commodity contract account of the 

customer, the trustee will use the lower 

maintenance margin level to determine 

the customer’s minimum margin 

requirement for such account. An 

undermargined account may or may not 

be in deficit.69

Accordingly, after consideration of 

the comments, and for the reasons 

discussed above, the Commission will 

adopt § 190.01 as proposed, with the 

amendments discussed above. 

3. Regulation § 190.02: General 

Regulation § 190.02 is being adopted 

as proposed, with the addition of 

paragraph (g) as described below. The 

Commission is adopting § 190.02(a)(1) 

based on current § 190.10(b)(1) with one 

substantive change to permit a trustee to 

request an exemption from the 

Commission from any procedural 

provision (rather than limiting such 

requests to exemptions from, or 

extension of, a time limit). Such an 

exemption may be subject to conditions, 

and must be consistent with the 

purposes of this part and of subchapter 

IV of the Bankruptcy Code. The 

Commission is adopting § 190.02(a)(1) 

consistent with major theme 7, 

discussed in section I.B. above regarding 

enhanced trustee discretion. Section 

190.02(a)(1) allows the trustee to request 

to be permitted to extend a deadline or 

to amend a form. 

The Commission is also adopting 

§ 190.02(a)(2)(i) and (ii), (a)(3), and (b), 

as derived from current §§ 190.10(b)(2), 

(3), and (4) and 190.10(d), respectively, 

with minor editorial and conforming 

changes. 

The Commission is adopting 

§ 190.02(b) to delegate the functions of 

the Commission set forth in part 190, 

other than the authority to disapprove 

pre-relief transfers pursuant to 

§ 190.07(e)(1), to the Director of the 

Division of Clearing and Risk, after 

consultation with the Director of the 

Market Participants Division 70 (with the 

possibility of further delegations to 

members of the respective Directors’ 

staffs). 

The Commission is adopting 

§ 190.02(c) to exclude from the 

definition of ‘‘customer’’ entities who 

hold claims against a debtor solely on 

account of uncleared forward contracts. 

The Commission is adopting § 190.02(d) 

to provide that the Bankruptcy Code 

will not be construed to prohibit a 

commodity broker from doing certain 

combinations of business, or to permit 

any otherwise prohibited operation, 

trade or business. The Commission is 

adopting § 190.02(e) to provide that 

security futures products held in a 

securities account shall not be 

considered to be part of commodity 

futures or options accounts as those 

terms are used in section 761(9) of the 

Bankruptcy Code. The Commission is 

adopting § 190.02(c) (forward contracts), 

(d) (other), and (e) (rule of construction) 

as transposed from current § 190.10(e), 

(g), and (h), respectively. 

The Commission continues to believe, 

as stated in the proposal, that § 190.02(f) 

should enhance customer protection in 

cases where a receiver has been 


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71Section 6c of the CEA provides in relevant part 

that whenever it shall appear to the Commission 

that any person has engaged, is engaging, or is about 

to engage in any act or practice constituting a 

violation of any provision of this Act or any rule, 

regulation, or order thereunder the Commission 

may bring an action in the proper district court to 

enjoin such act or practice, or to enforce 

compliance with this Act (emphasis supplied). 

Section 6c also refers to an order appointing a 

temporary receiver to administer such restraining 

order and to perform such other duties as the court 

may consider appropriate. 7 U.S.C. 13a–1. 

72See section II.A.2. (recommending that the 

Commission instead use ‘‘funded net equity’’ as the 

defined term in the § 190.01 definitions.) 

appointed (pursuant to e.g., section 6c 

of the CEA) for an FCM due to a 

violation or imminent violation 71 of the 

customer property protection 

requirements of section 4d of the CEA 

or of the regulations thereunder, or of 

the Commission’s capital rule (§ 1.17). 

Section 190.02(f) explicitly permits such 

a receiver to file a voluntary petition for 

bankruptcy of such FCM in appropriate 

cases. For example, the receiver may 

determine that, due to a deficiency in 

property in segregation, bankruptcy is 

necessary to protect customers’ interests 

in customer property. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.02. In particular, the Commission 

requested comment as to whether it 

would be appropriate to permit trustees 

to request relief from procedural 

provisions such as requirements as to 

forms, in addition to requesting relief 

from deadlines; whether it would be 

appropriate to permit receivers for 

FCMs to file voluntary petitions in 

bankruptcy; and whether any portion of 

proposed § 190.02 would likely to lead 

to unintended consequences, and, if so, 

how may these be mitigated. 

The Commission received two 

comments on proposed § 190.02. CME 

generally supported proposed § 190.02, 

including adding a provision that would 

allow the trustee to request an 

exemption from the procedural 

requirements of the rules. CME also 

favored adding the proposed provision 

to clarify that a receiver appointed for 

an FCM due to segregation or net capital 

violations may, in an appropriate case, 

file a petition for bankruptcy of the FCM 

pursuant to section 301 of the 

Bankruptcy Code. In contrast, FIA 

recommended that the Commission 

require a receiver to obtain the 

Commission’s consent before the 

receiver may file a voluntary petition in 

bankruptcy on behalf of an FCM. FIA 

believed that any receiver that may be 

appointed by a court would be in 

response to a proceeding initiated by the 

Commission pursuant to section 6c of 

the Act, which authorizes the 

Commission to file an action in the 

appropriate U.S. District Court when it 

appears that a person has engaged, is 

engaging, or is about to engage in any 

act or practice constituting a violation of 

any provision of this Act or any rule, 

regulation, or order thereunder. FIA 

noted that there may be circumstances 

in which a receiver may determine that 

a voluntary petition under the 

Bankruptcy Code is warranted. 

However, in light of the fact that such 

a petition would effectively close the 

FCM, FIA believed that § 190.02(f) 

should provide that the receiver may 

file a voluntary petition only with the 

prior consent of the Commission. 

The Commission notes that § 190.02(f) 

is limited to cases where the receiver 

was appointed due to concerns about 

either protection of customer property, 

or of capital inadequacy, and the 

appointment would be in response to a 

proceeding initiated by the Commission. 

In such a case, the Commission believes 

that it would be appropriate and most 

effective to defer to the judgment of the 

appointed receiver as to the necessity of 

the filing of a petition in bankruptcy. 

As a technical point, the ABA 

Subcommittee recommended 

(consistent with their recommendation 

in the definitions section, § 190.01, to 

more precisely use the term ‘‘allowed 

net equity’’) 72 that the Commission 

further amend § 190.02 by adding new 

paragraph (g) to proposed § 190.02 to 

state that the term ‘‘allowed’’ in this part 

shall have the meaning ascribed to it in 

the Bankruptcy Code. The ABA 

Subcommittee believed that this would 

confirm that ‘‘allowed’’ under part 190 

equates with the use of ‘‘allowed’’ under 

the Bankruptcy Code. The Commission 

agrees, and is making the change. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting § 190.02 as proposed, with the 

addition of paragraph (g). 

B. Subpart B—Futures Commission 

Merchant (FCM) as Debtor 

The Commission is adopting subpart 

B (§§ 190.03–190.10) to address debtors 

that are FCMs. 

1. Regulation § 190.03: Notices and 

Proofs of Claims 

The Commission is adopting § 190.03 

as proposed with modifications to 

§ 190.03(c)(2), as set forth below. 

The Commission is adopting § 190.03 

to set forth requirements for the notices 

and proofs of claim that are applicable 

to subpart B of part 190. It reorganizes 

and revises much of current § 190.02, 

and incorporates some portions of 

current § 190.10. 

a. Regulation § 190.03(a): Notices— 

Means of Providing 

The Commission is adopting 

§ 190.03(a) to set forth the means by 

which notices required under subpart B 

of part 190 are to be provided. Section 

190.03(a)(1) is substantially similar to 

current § 190.10(a), but, in an effort to 

modernize part 190, the Commission is 

deleting the requirement that notices be 

given to it via overnight mail (i.e., in 

hard copy). The Commission is 

retaining the requirement that all such 

notices be sent via electronic mail. The 

Commission believes that overnight 

hard copy delivery is unnecessary and 

that removing the requirement to send 

notices to the Commission via overnight 

mail will result in cost savings. 

The Commission is adopting 

§ 190.03(a)(2) to provide a generalized 

approach for giving notice to customers 

under part 190. In light of evolving 

technology, § 190.03(a)(2) replaces the 

specific procedures for providing notice 

to customers that appear in current 

§ 190.02(b) with the requirement that 

the trustee must establish and follow 

procedures ‘‘reasonably designed’’ for 

giving notice to customers under 

subpart B of part 190. Such notice 

procedures should generally include the 

use of a website and customers’ 

electronic addresses. In the 

Commission’s view, this new approach 

provides trustees with the necessary 

flexibility to determine the best way to 

provide notice and is consistent with 

the manner in which bankruptcy 

trustees in recent FCM bankruptcy cases 

have provided notice to customers. The 

Commission also believes that adopting 

a generalized notice requirement in lieu 

of retaining more specific notice 

obligations (e.g., newspaper publication) 

will result in both cost savings for the 

debtor’s estate, and more efficient and 

effective notification of customers. 

The Commission requested comment 

on the approach to the notice 

requirements set forth in proposed 

§ 190.03(a). The Commission 

specifically asked whether the proposed 

changes would be helpful; would be 

likely to lead to unintended 

consequences; and how any unintended 

consequences could be mitigated. CME 

supported providing trustees with the 

flexibility, in consultation with the 

Commission, to establish appropriate 

procedures for giving notice to 

customers and moving away from 

outdated and impractical notice 

requirements. CME also agreed that the 

changes align with how trustees in 

recent FCM cases have communicated 

with the FCM’s customers and are more 

customer-friendly. 


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73For further detail regarding SROs and DSROs 

see generally § 1.52. 74A voluntary case under a chapter of the 

Bankruptcy Code is commenced by the debtor by 

filing a petition under that chapter. Section 301(a) 

of the Bankruptcy Code, 11 U.S.C. 301(a). Under 

certain circumstances, creditors of a person may file 

an involuntary case against that person pursuant to 

section 303 of the Bankruptcy Code, 11 U.S.C. 303. 

In such cases, the order for relief will be granted 

only if the petition is not timely controverted or if 

the court makes specific findings. Id. There is no 

historical precedent for an involuntary petition in 

bankruptcy being filed against a commodity broker. 

75A SIPA proceeding is commenced when the 

Securities Investors Protection Corporation 

(‘‘SIPC’’) files a petition for a protective order. See 

generally SIPA section 5, 15 U.S.C. 78eee. 

76See, e.g., LCH Ltd.: FCM Procedures of the 

Clearing House 1.6(b)(G) (‘‘All FCM Clearing 

Members must provide the Clearing House in a 

prompt and timely manner with: . . . notice if the 

FCM Clearing Member becomes the subject of a 

bankruptcy petition.’’). 

b. Regulation § 190.03(b): Notices to the 

Commission and Designated SelfRegulatory Organizations 

Section 190.03(b)(1) is derived from 

current § 190.02(a)(1), but includes 

revised notice requirements that are 

designed to ensure that the Commission 

and the relevant designated selfregulatory organization (‘‘DSRO’’) 73 will 

be aware of a voluntary or involuntary 

bankruptcy filing or SIPA application as 

soon as is practicable and to codify the 

practices observed in recent bankruptcy 

and SIPA cases.74 First, § 190.03(b)(1) 

provides that, in the event of a 

voluntary bankruptcy filing, the 

commodity broker must notify the 

Commission and the appropriate DSRO 

as soon as practicable before, and in any 

event no later than, the time of filing. 

Second, § 190.03(b)(1) provides that, in 

the event of an involuntary bankruptcy 

filing or an application for a protective 

decree under SIPA,75 the commodity 

broker must notify the Commission and 

the appropriate DSRO immediately 

upon the filing of such petition or 

application. The Commission notes that, 

as a practical matter, a decision to file 

for bankruptcy takes measurable time, 

as does the preparation of the necessary 

papers. In previous FCM voluntary 

bankruptcy filings, the commodity 

broker has provided the Commission 

and its DSRO with notice ahead of the 

bankruptcy filing. Section 190.03(b)(1) 

merely codifies the expectation that 

such advance notice should, in fact, 

occur to the extent practicable. Section 

190.03(b)(1) allows the commodity 

broker to provide the relevant docket 

number of the bankruptcy or SIPA 

proceeding to the Commission and the 

DSRO ‘‘as soon as known,’’ in order to 

account for the fact that there may be a 

time lag between the filing of a 

proceeding and the assignment of a 

docket number. 

Section 190.03(b)(2) sets forth the 

requirements for the provision of notice 

to the Commission of an intent to 

transfer or to apply to transfer open 

commodity contracts in accordance 

with section 764(b) of the Bankruptcy 

Code and relevant provisions of part 

190. It is derived from current 

§ 190.02(a)(2). While § 190.03(b)(2) 

retains the requirement that such notice 

be provided ‘‘[a]s soon as possible,’’ it 

removes the requirement that such 

notice be provided no later than three 

days after the order for relief. The 

Commission believes that the three-day 

deadline set forth in current 

§ 190.02(a)(2) is likely in many cases to 

be too long, but may, in some cases, be 

too short. 

The Commission expects that the 

bankruptcy trustee would begin working 

on transferring any open commodity 

contracts as soon as the trustee is 

appointed and that, by the end of three 

days following entry of the order for 

relief, any such transfers likely will be 

either completed, actively in process, or 

determined not to be possible. Indeed, 

the Commission expects that a DCO 

would, in most cases, be reluctant to 

hold a position open for more than three 

days following the entry of the order for 

relief unless a transfer is actively in 

process and imminent. Thus, while the 

Commission recognizes that the ‘‘[a]s 

soon as possible’’ language is somewhat 

vague, given past experience, the 

Commission views the current 

timeframe of three days after the entry 

of the order for relief as generally too 

long, and it is not clear what precise 

shorter period of time would be 

generally appropriate, given the 

uniqueness of each case. Under different 

circumstances, that is, where transfer 

arrangements cannot be made within 

three days after the order for relief, a 

specified deadline for notification may 

in fact be harmful, in that it could be 

interpreted to prohibit notification after 

the expiration of such deadline (and 

thus, impliedly prohibit the trustee from 

forming the intent to transfer after that 

time). 

In the event of an FCM bankruptcy, 

the Commission anticipates that there 

will be frequent contact between the 

trustee, the relevant DSRO, any relevant 

clearing organization(s), and 

Commission staff. Thus, a specified 

deadline for such notification would not 

appear to be helpful. Section 

190.03(b)(2) also clarifies that 

notification should be made with 

respect to a transfer of customer 

property. 

The Commission requested comment 

on proposed § 190.03(b). Specifically, 

the Commission asked whether 

proposed § 190.03 would meet the 

objective of ensuring that the 

Commission and the relevant DSRO will 

be aware of a bankruptcy filing or SIPA 

proceeding as soon as is practicable. 

LCH expressed support for the 

requirement that FCMs notify DSROs, in 

addition to the CFTC, of involuntary 

bankruptcy filings. LCH also requested 

that the Commission consider ways in 

which this information could be quickly 

transmitted to the DCOs that may be 

impacted, given the interconnectedness 

of the derivatives market. While, as 

noted above, staff would be in contact 

with DCOs that might be impacted by a 

bankruptcy proceeding involving an 

FCM as a matter of supervisory practice, 

this practice does not need to be 

incorporated into regulation. Moreover, 

the Commission notes that many DCOs, 

including LCH, require as part of their 

own rules and procedures that their 

clearing members provide prompt 

notice of a bankruptcy filing affecting 

the clearing member.76

c. Regulation § 190.03(c): Notices to 

Customers; Treatment of Hedging 

Accounts and Treatment of Specifically 

Identifiable Property 

The Commission is adopting 

§ 190.03(c) to address notices to 

customers and the treatment of hedging 

accounts and specifically identifiable 

property. 

Section 190.03(c)(1) requires the 

trustee to use all reasonable efforts to 

notify promptly any customer whose 

futures account, foreign futures account, 

or cleared swaps account includes 

specifically identifiable property, other 

than open commodity contracts, which 

has not been liquidated, that such 

property may be liquidated on and after 

the seventh day after the order for relief 

if the customer has not instructed the 

trustee in writing before the deadline 

specified in the notice to return such 

property pursuant to the terms for 

distribution of customer property 

contained in part 190. It also requires 

that the trustee’s notice to customers 

with specifically identifiable property 

include, where applicable, a reference to 

substitute property. 

Section 190.03(c)(1) is derived from 

current § 190.02(b)(1), but replaces the 

requirement that the trustee publish 

such notice to customers in a newspaper 

for two consecutive days prior to 

liquidating the specifically identifiable 

property with the requirement that the 

trustee notify customers in accordance 

with § 190.03(a)(2). This change is 

intended to provide the trustee with 

flexibility in notifying customers 

regarding specifically identifiable 


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77See major theme 7 in section I.B. above. 

78The Commission is also making other changes 

that are intended to make it simpler for the trustee 

to identify hedging positions and allow an FCM to 

designate an account as a hedging account by 

relying on explicit customer representations that 

the account contains a hedging position. See § 1.41. 

This would simplify the existing requirement that 

FCMs provide a hedging instructions form when a 

customer first opens up a hedging account. For 

commodity contract accounts opened prior to the 

effective date of the part 190 revisions, the 

Commission is proposing that FCMs may rely on 

written hedging instructions received from the 

customer in accordance with current § 190.06(d). 

See § 1.41(c). 

79See § 190.00(c)(4). 

property and to modernize part 190 to 

allow the trustee to provide notice to 

customers in a way that will maximize 

the number of customers reached. The 

timeframe in which the Commission 

would allow the trustee to commence 

liquidation of specifically identifiable 

property has been modified to reflect 

the revised notice requirements. 

Because § 190.03(c)(1) does not require 

newspaper publication of customer 

notice, the Commission is allowing the 

trustee to commence liquidation of 

specifically identifiable property on the 

seventh day after the order for relief (or 

such other date as specified by the 

trustee with the approval of the 

Commission or the court), so long as the 

trustee has used all reasonable efforts 

promptly to notify the customer under 

§ 190.03(a)(2) and the customer has not 

instructed the trustee in writing to 

return such specifically identifiable 

property. 

The Commission is adopting 

§ 190.03(c)(2) to address how a 

bankruptcy trustee may treat open 

commodity contracts carried in hedging 

accounts. This regulation moves from 

the bespoke approach of current 

§ 190.02(b)(2) to a categorical approach, 

in light of the practical difficulties of 

treating large numbers of customers 

with similar open contracts on a 

bespoke basis.77 The Commission notes 

that recent commodity broker 

bankruptcies have involved thousands 

of customers, with as many as hundreds 

of thousands of commodity contracts. 

Trustees must make decisions as to how 

to handle such customers and contracts 

within days—in some cases, hours— 

after being appointed. Therefore, the 

Commission is giving the trustee the 

authority (i.e., an option, but not an 

obligation) to treat open commodity 

contracts of public customers held in 

hedging accounts designated as such in 

the debtor’s records as specifically 

identifiable property, after consulting 

with the Commission and when 

practical under the circumstances. To 

the extent the trustee exercises such 

authority, the trustee is required to 

notify each relevant public customer in 

accordance with § 190.03(a)(2). As 

proposed, § 190.03(c)(2) would have 

required the trustee, in all cases, to 

request that the customer provide 

instructions as to whether to transfer or 

liquidate the relevant open commodity 

contracts.78 As discussed further below, 

in response to a comment, the 

Commission is modifying this proposal 

to address cases where, in the judgment 

of the trustee, the books and records of 

the debtor reveal a clear preference by 

the public customer with respect to 

transfer or liquidation of open 

commodity contracts. 

Section 190.03(c)(2) also delineates 

certain information that the trustee must 

include in the notice. As proposed, the 

notice must inform the customer that (1) 

if the customer does not provide 

instructions in the prescribed manner 

and by the prescribed deadline, the 

customer’s open commodity contracts 

will not be treated as specifically 

identifiable property; (2) any transfer of 

the open commodity contracts is subject 

to the terms for distribution contained 

in § 190.09(d)(2); (3) absent compliance 

with any terms imposed by the trustee 

or the court, the trustee may liquidate 

the open commodity contracts; and (4) 

providing instructions may not prevent 

the open commodity contracts from 

being liquidated. The Commission is 

making conforming changes to this 

portion of proposed § 190.03(c)(2) to 

reflect the modification referenced 

above. To the extent the trustee does not 

exercise its authority to treat public 

customer positions carried in a hedging 

account as specifically identifiable 

property, the trustee must endeavor to, 

as the baseline expectation, treat open 

commodity contracts of public 

customers carried in hedging accounts 

the same as other customer property and 

effect a transfer of such contracts to the 

extent possible.79 The Commission is 

making these changes to reflect the 

policy preference to port all positions of 

public customers. Requiring a trustee to 

identify hedging accounts and provide 

hedging account holders the 

opportunity to keep their positions open 

may be a resource and time intensive 

process, which the Commission believes 

could interfere with the trustee’s ability 

to take prudent and timely action to 

manage the debtor FCM’s estate to 

protect all of the FCM’s customers. The 

Commission believes that allowing the 

FCM to rely on representations made by 

customers during business-as-usual will 

alleviate this concern. In cases where it 

may be practical, the trustee may elect 

to provide special hedging account 

treatment. 

The Commission is adopting 

§ 190.03(c)(3) to make minor 

modifications to the notice of the 

commencement of an involuntary 

proceeding that the trustee may provide 

to customers prior to entry of an order 

for relief, and upon leave of the court. 

Such modifications include clarifying 

that such notice must be in accordance 

with the notice provisions set forth 

§ 190.03(a)(2), amending certain 

terminology, and removing unnecessary 

references. 

Section 190.03(c)(4) requires the 

bankruptcy trustee to notify customers 

that an order for relief has been entered 

and instruct customers to file a proof of 

customer claim. The regulation is 

derived from current § 190.02(b)(4), but 

adds that the notice must be provided 

in accordance with § 190.03(a)(2). 

Section 190.03(c)(4) replaces the term 

‘‘customer of record’’ with the term 

‘‘customer,’’ as ‘‘customer of record’’ is 

not a defined term in part 190 and all 

customers should receive notice that an 

order of relief has been entered. Section 

190.03(c)(4) also provides that the 

trustee shall cause the proof of customer 

claim form to set forth the bar date for 

its filing consistent with the current 

§ 190.03(a)(2). 

The Commission requested comment 

on proposed § 190.03(c). It specifically 

asked whether the proposed changes to 

the notice requirements would be 

helpful; whether the discretion granted 

to the trustee concerning the treatment 

of hedging accounts as specifically 

identifiable property is appropriately 

tailored; whether the proposed revisions 

appeared likely to lead to unintended 

consequences; and how such 

consequences; if any, could be 

mitigated. 

The Commission received three 

comments on proposed § 190.03. CME 

fully endorsed the policy preference 

that the trustee should use their best 

efforts to transfer all public customer 

positions and related customer property 

from the debtor FCM to one or more 

other FCMs. Accordingly, CME 

supported the provisions in § 190.03(c) 

that grant the trustee the discretion to 

not treat customer positions carried in 

hedge accounts as specifically 

identifiable property, unless the trustee 

determines that doing so would be 

practicable under the circumstances, 

following consultation with the 

Commission. CME asserted that this 

discretion will allow the trustee to 

devote their attention to transferring 

open positions of all public customers, 

along with their proportionate share of 

the customer property, in the aggregate. 


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80This last point is addressed with the addition 

of § 190.00(c)(3)(i)(C). 

SIFMA AMG/MFA also generally agreed 

with § 190.03(c)(2) in that it grants to 

the trustee the authority (that is, the 

option but not the obligation) to treat 

open commodity contracts of public 

customers held in hedging accounts 

designated as such in the debtor’s 

record as specifically identifiable 

property. SIFMA AMG/MFA stated that 

permitting the trustee this flexibility 

would serve the interest of customers as 

a whole by facilitating a more rapid 

transfer of customer positions and 

property. SIFMA AMG/MFA 

recommended, however, that the 

Commission explicitly clarify that 

§ 190.03(c)(2) is not intended to affect 

the treatment of hedging accounts under 

part 39 of the Commission’s regulations 

and that, to the extent reasonably 

practicable, the trustee’s goal will be to 

maximize value to the public 

customer.80 Additionally, in the context 

of the treatment of hedging accounts, 

SIFMA AMG/MFA recommended that, 

if the trustee exercises the authority as 

granted in this provision, the trustee 

should be first required to consult the 

instructions (regarding preferences with 

respect to transfer or liquidation of open 

commodity contracts) provided by a 

public customer to the debtor at the 

time of opening the relevant hedging 

account, and only if such instructions 

are missing or unclear should the 

trustee require such customer to provide 

it with written instructions as 

contemplated by proposed 

§ 190.03(c)(2). SIFMA AMG/MFA noted 

that the notice sent by the trustee to the 

customer can still provide that existing 

or previously provided instructions may 

not prevent the open commodity 

contracts from being liquidated. SIFMA 

AMG/MFA asserted that adding this 

first step would further the goal of 

expediency. 

The Commission agrees with the 

suggestion by SIFMA AMG/MFA that it 

is more efficient to endeavor to follow 

clear instructions previously provided 

rather than to request new instructions. 

Moreover, this approach mitigates the 

risk that a customer who has already 

made their preference patent will fail to 

reply to the request and thus be treated 

in a manner contrary to that previously 

expressed preference. 

Accordingly, the Commission is 

amending and reorganizing 

§ 190.03(c)(2) to implement that 

suggestion. Specifically, 

§ 190.03(c)(2)(ii)(B) is being amended to 

provide, in pertinent part that: (1) 

Where, in the judgment of the trustee, 

the books and records of the debtor 

reveal a clear preference by a relevant 

public customer with respect to transfer 

or liquidation of open commodity 

contracts, the trustee shall endeavor, to 

the extent reasonably practicable, to 

comply with that preference; and (2) 

Where, in the judgment of the trustee, 

the books and records of the debtor do 

not reveal a clear preference by a 

relevant public customer with respect to 

transfer or liquidation of open 

commodity contracts, the trustee will 

request the customer to provide written 

instructions whether to transfer or 

liquidate such open commodity 

contracts. Such notice must specify the 

manner for providing such instructions 

and the deadline by which the customer 

must provide instructions. 

Other conforming changes are being 

made to § 190.03(c)(2). With respect to 

SIFMA AMG/MFA’s request that the 

Commission explicitly clarify that 

proposed § 190.03(c)(2) is not intended 

to affect the treatment of hedging 

accounts under part 39, the Commission 

notes that § 190.03(c)(2) governs the 

trustee’s actions, and does not govern 

the actions a DCO may take under its 

default rules or otherwise. 

ACLI recommended that the 

Commission amend proposed 

§ 190.03(c)(2) to require a trustee to 

transfer a public customer’s hedge 

positions where the customer has 

requested the transfer and met the 

required terms unless, in consultation 

with the Commission, it is determined 

that it would be unreasonable to transfer 

such positions. ACLI further 

recommended that the Commission add 

a threshold such as ‘‘impossibility’’ or 

‘‘exigent circumstances’’ to limit a 

trustee’s ability to liquidate a customer’s 

hedge position in lieu of a requested 

transfer. ACLI asserted that the 

Commission’s oversight should be 

specifically mandated. In response to 

ACLI’s comment, the Commission notes 

that § 190.00(c)(4) sets forth a preference 

for the porting of all open commodity 

contract positions of public customers, 

along with all or a portion of such 

customers’ account equity, and 

§ 190.04(a)(1) instructs the trustee 

promptly to use its best efforts to effect 

a transfer of such positions and property 

in accordance with § 190.07(c) and (d) 

not later than seven calendar days after 

the order for relief. The discretion 

granted to the trustee in § 190.03(c)(2) is 

based on the reality that, in light of 

limited time and administrative 

resources, achieving porting to the 

maximum extent is fostered by treating 

customers on an omnibus, rather than 

an individualized, basis. For these 

reasons, the Commission declines to 

adopt ACLI’s specific suggestions. 

d. Regulation § 190.03(d): Notice of 

Court Filings 

Section 190.03(d) addresses notices of 

court filings. It is derived from current 

§ 190.10(f), but makes modernizing 

changes to the terminology and method 

of providing notice to the Commission. 

The Commission requested comment on 

proposed § 190.03(d). The Commission 

specifically asked whether the proposed 

revisions appeared likely to lead to 

unintended consequences, and, if so, 

how such consequences could be 

mitigated. The Commission did not 

receive any comments on proposed 

§ 190.03(d). 

e. Regulation § 190.03(e): Proof of 

Customer Claim 

The Commission is adopting 

§ 190.03(e) to require a trustee to request 

that customers provide information 

sufficient to determine a customer’s 

claim in accordance with the 

regulations contained in part 190. 

Section 190.03(e) lists certain 

information that customers shall be 

requested to provide, to the extent 

reasonably practicable, but grants the 

trustee discretion to adapt the request to 

the facts of the particular case. Such 

discretion is being granted to the trustee 

in order to enable the trustee to tailor 

the proof of claim form to the 

information that is most appropriate in 

light of the specifics of the types of 

business that the debtor did (and did 

not do), the way in which such types of 

business were organized, and the 

available records of the debtor (as well 

as the reliability of those records). 

Section 190.03(e) is generally derived 

from current § 190.02(d), although 

certain items on the list of information 

to be requested of customers have been 

revised and reorganized to: Inter alia, 

improve clarity; tie the questions to 

definitions of terms in part 190; give the 

claimant an opportunity to provide a 

more complete picture of its claims; and 

provide its own view as to the value of 

such open positions, unliquidated 

securities or other unliquidated 

property in order to support its claim 

against the debtor. 

The Commission requested comment 

on proposed § 190.03(e). Specifically, 

the Commission asked whether the 

proposed changes would be helpful; 

whether the discretion granted to the 

trustee was appropriately tailored; 

whether the proposed revisions 

appeared likely to lead to unintended 

consequences; and how such 

consequences, if any, could be 

mitigated. The Commission received 

one comment on proposed § 190.03(e). 

CME noted that the proposed regulation 


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81Appendix A is discussed in section II.D below. 

82The Commission discussed the rationale for 

this policy preference in the discussion of 

§ 190.00(c)(4). See section II.A.1. See also ABA 

Cover Note at 14 (recommending explicitly 

identifying in § 190.04(a) a clear policy that the 

trustee should use best efforts to transfer open 

commodity contracts and property held by the 

failed FCM for or on behalf of its public customers 

to one or more solvent FCMs). 

83The Commission is also adopting crossreferences in § 190.04(a) to other provisions within 

proposed part 190 that discuss transfers of customer 

property. 

84The Commission is adopting the same change— 

addition of the word ‘‘public’’ before ‘‘customers’’— 

to § 190.04(a)(2), as discussed below. 

85The Commission is deleting the reference to 

‘‘liquidation’’ in § 190.02(e)(4) accordingly since the 

limitation to trading for liquidation only is being 

deleted from § 190.04(a)(2). 

is a major improvement over the current 

regulation. 

f. Regulation § 190.03(f): Proof of Claim 

Form 

Regulation § 190.03(f) provides that a 

template proof of claim form is included 

as appendix A to part 190.81 The 

Commission substantially revised the 

customer proof of claim form in order to 

streamline it and better map it to the 

information listed in § 190.03(e). The 

revised customer proof of claim form 

now includes, in each section, citations 

to the location in the text of § 190.03(e) 

where such information is listed. 

Section 190.03(f)(1) provides that, to 

the extent there are no open commodity 

contracts that are being treated as 

specifically identifiable property, the 

bankruptcy trustee should modify the 

proof of claim form to delete any 

references to open commodity contracts 

as specifically identifiable property. For 

example, this would be the case if all 

open commodity contracts had been 

transferred or liquidated before the 

proof of claim form is sent. Section 

190.03(f)(2) makes clear that the trustee 

has discretion as to whether to use the 

template proof of claim form, and that 

the proof of claim form should be 

modified to reflect the specific facts and 

circumstances of the case. The 

provisions of § 190.03(f), taken together, 

are meant to provide bankruptcy 

trustees with appropriate flexibility to 

determine the best and most efficient 

way to compose the customer proof of 

claim. 

The Commission requested comment 

on proposed § 190.03(f). Specifically, 

the Commission asked whether the 

proposed changes to the treatment of the 

proof of customer claim form would be 

helpful; whether they would lead to 

unintended consequences; and how 

such consequences, if any, could be 

mitigated. The Commission also asked 

whether the discretion granted to the 

trustee was appropriately tailored and, 

if not, what changes should be made. 

CME commented that the proof of claim 

form had been improved and supported 

the flexibility provided to the trustee. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.03 as proposed, with 

modifications to § 190.03(c)(2), as set 

forth above. 

2. Regulation § 190.04: Operation of the 

Debtor’s Estate—Customer Property 

The Commission is adopting § 190.04 

as proposed with modifications, as set 

forth below to address the collection of 

margin and variation settlement, as well 

as the liquidation and valuation of 

positions. The Commission is adopting 

§ 190.04 to clarify and update portions 

of §§ 190.02, 190.03, and 190.04. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.04 including: Whether the 

revisions create any unintended 

conflicts with customer protection 

regulations set forth in parts 1, 22, and 

30; how any such conflicts may be 

resolved; whether there are any 

proposed clarification changes that are 

likely to create unintended 

consequences; and, if so, how might 

those be avoided or mitigated. 

a. Regulation § 190.04(a): Transfers 

The Commission is adopting 

§ 190.04(a) as proposed. Section 

190.04(a) largely retains the current 

provisions in current § 190.02(e) 

regarding transfers for customers in a 

bankruptcy proceeding. It also retains 

the policy preference 82 that the trustee 

should use its best efforts to transfer 

open commodity contracts and property 

held by the failed FCM for or on behalf 

of its public customers to one or more 

solvent FCMs.83 Regulation 

§ 190.04(a)(1) provides that the trustee 

‘‘shall promptly’’ use its best efforts to 

effect such transfers, while current 

§ 190.02(e)(1) states that the trustee 

must ‘‘must immediately’’ do so. This 

revision signals that the trustee must 

take action to transfer open commodity 

contracts as soon as practicable, while 

avoiding potential pressure of the term 

‘‘immediately’’ in light of the challenges 

presented in an FCM bankruptcy. 

Regulation § 190.04(a)(2) replaces the 

term ‘‘equity’’ with ‘‘property’’ to clarify 

that the trustee should endeavor to 

transfer all types of property that the 

commodity broker is holding on behalf 

of customers; the transfer is not limited 

to equity. The Commission is also 

adding the word ‘‘public’’ before 

‘‘customers’’ to clarify that the transfers 

discussed in § 190.04(a)(1) relate to the 

open commodity contracts and property 

of the debtor’s public customers.84

The Commission is adopting 

§ 190.04(a)(2), as derived from 

§ 190.02(e)(2), to remove the 

liquidation-only trading limitations on 

an FCM that is subject to an involuntary 

bankruptcy petition unless otherwise 

directed by the Commission, by any 

applicable self-regulatory organization, 

or by court. The Commission is instead 

adopting limitations on the business of 

an FCM in bankruptcy in § 190.04(g) to 

more generally address involuntary 

proceedings.85

The Commission is adopting 

§ 190.04(a)(2), as derived from current 

§ 190.02(e)(2), to provide that if such 

commodity broker demonstrates to the 

Commission within a specified period 

of time that it is in compliance with the 

Commission’s segregation and financial 

requirements on the filing date, the 

Commission may determine to allow the 

commodity broker to continue in 

business. The Commission is retaining 

this provision because any requirement 

to transfer customers is properly 

addressed pursuant to § 1.17(a)(4), 

which deals with FCMs that do not meet 

minimum financial requirements. The 

Commission is of the view that an FCM 

that does meet such requirements 

should not be compelled to cease 

business and transfer its customers 

absent an appropriate finding by a court 

or the Commission. 

In addition, similar to § 190.04(a)(1), 

as discussed above, the Commission is 

replacing the term ‘‘equity’’ with 

‘‘property’’ to clarify that the transfers 

discussed in § 190.04(a)(2) are for all 

types of property that the commodity 

broker is holding on behalf of 

customers, rather than limited to only 

equity. Also, the Commission is adding 

the word ‘‘public’’ before ‘‘customers’’ 

to clarify in § 190.04(a)(2) that the 

transfers discussed in § 190.04(a)(1) 

relate to the open commodity contracts 

and property of the debtor’s public 

customers. 

The Commission did not receive any 

comments on this aspect of the 

Proposal. Accordingly, for the reasons 

stated above, the Commission is 

adopting § 190.04(a) as proposed. 

b. Regulation § 190.04(b): Treatment of 

Open Commodity Contracts 

The Commission is adopting 

§ 190.04(b) as proposed to clarify and 

update the provisions in current 

§ 190.02(g)(1), which allow a trustee to 

make ‘‘variation and maintenance 

margin payments’’ on behalf of the 


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19346 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

86Current § 190.02(g)(1)(iii) provides that the 

trustee must make margin payments if payments of 

margin are received from customers after 

bankruptcy in response to margin calls. 

87See 7 U.S.C. 6d. 

88The phrase ‘‘to the extent within the trustee’s 

control’’ recognizes the reality that certain accounts 

are held on an omnibus basis. See discussion of 

§ 190.04(b)(1)(i) above. 

89See § 190.08(c)(1)(ii). 

90See generally major theme 7 discussed in 

section I.B. above. 

debtor FCM’s customers. The 

Commission is adopting § 190.04(b) to 

be generally consistent with the current 

regulation but with a number of 

substantive changes. 

First, the Commission is adopting 

§ 190.04(b) to permit the trustee to make 

margin payments pending transfer or 

liquidation; not just pending liquidation 

as required by current § 190.02(g)(1). 

The amendment is consistent with the 

Commission’s longstanding policy for 

the trustee to endeavor to transfer open 

commodity contracts. The trustee has 

two paths for the treatment of such 

contracts: Transfer and, if transfer is not 

possible, liquidation. 

Second, the Commission is adopting 

§ 190.04(b)(1) to delete the phrase 

‘‘required to be liquidated under 

paragraph (f)(1) of this section’’ in 

current § 190.02(g)(1) to eliminate a 

complete prohibition against paying 

margin on open contracts. While 

holding contracts open may or may not 

be practicable given the particular 

circumstances of the bankruptcy, a 

complete prohibition against paying 

margin on such open contracts would 

undermine the point of having the 

possibility to hold those contracts open. 

Accordingly, the Commission is 

deleting the phrase ‘‘required to be 

liquidated under paragraph (f)(1) of this 

section’’ and thus will instead apply 

more broadly to any open commodity 

contracts. 

The Commission is also adopting 

several technical amendments. Third, 

the Commission is replacing the phrase 

‘‘variation and maintenance margin 

payments’’ with ‘‘payments of initial 

margin and variation settlement’’ which, 

in the Commission’s view, more 

accurately describes the types of 

payments being reflected in this 

provision. Fourth, the Commission is 

replacing the phrase ‘‘to a commodity 

broker’’ with ‘‘to a clearing organization, 

commodity broker, foreign clearing 

organization or foreign futures 

intermediary’’ to account for the various 

types of entities to which a margin 

payment described in this provision 

may be made. Lastly, the Commission is 

replacing the phrase ‘‘specifically 

identifiable to a particular customer’’ 

with ‘‘specifically identifiable property 

of a particular customer’’ in order to be 

consistent with the definitions in part 

190, which includes as a defined term 

‘‘specifically identifiable property.’’ 

The Commission is adopting 

§ 190.04(b)(1)(i), as derived from current 

§ 190.02(g)(1)(i), to prevent the trustee 

from making any payments on behalf of 

any commodity contract account that is 

in deficit, to the extent within the 

trustee’s control. The Commission is 

including the phrase ‘‘to the extent 

within the trustee’s control’’ to 

recognize that certain commodity 

contract accounts may be held on an 

omnibus basis (i.e., on behalf of several 

customers), so to the extent the trustee 

is making a margin payment on behalf 

of the omnibus account, it may be out 

of the trustee’s control to identify and 

only pay on behalf of those underlying 

customer accounts (within the omnibus 

account) that are not in deficit. The 

Commission is including a proviso to 

note that § 190.04(b)(1)(i) shall not be 

construed to prevent a clearing 

organization, foreign clearing 

organization, FCM, or foreign futures 

intermediary from exercising its rights 

to the extent permitted under applicable 

law. This proviso is intended to remove 

any doubt that the right of these 

‘‘upstream’’ entities to use collateral 

posted by the FCM on an omnibus basis 

is not affected by the prohibition on 

making margin payments on behalf of 

accounts that are in deficit. 

The Commission is adopting 

§ 190.04(b)(1)(ii) as a new provision to 

prohibit the trustee from making an 

upstream margin payment with respect 

to a specific customer account that 

would exceed the funded balance of that 

account. This restriction is consistent 

with the pro rata distribution principle 

discussed in § 190.00(c)(5), in that any 

payment in excess of a customer’s 

funded balance would be to the 

detriment of other customers. 

The Commission is adopting some 

non-substantive clarifications in 

§ 190.04(b)(1)(iii), as derived from 

current § 190.02(g)(1)(ii), to retain the 

limitation that the trustee may not make 

payments on behalf of non-public 

customers of the debtor from funds that 

are segregated for the benefit of public 

customers. 

The Commission is adopting 

§ 190.04(b)(1)(iv)–(v) to clarify and 

expand upon current 

§ 190.02(g)(1)(iii),86 to require that 

margin is used consistent with the 

requirements of section 4d of the CEA.87

First, the Commission is adopting 

§ 190.04(b)(1)(iv) to provide that, if the 

trustee receives payments from a 

customer in response to a margin call, 

then to the extent within the trustee’s 

control,88 the trustee must use such 

payments to make margin payments for 

the open commodity contract positions 

of such customer. Second, the 

Commission is adopting 

§ 190.04(b)(1)(v) to provide that the 

trustee may not use payments received 

from one public customer to meet the 

margin (or any other) obligations of any 

other customer. Given the restriction in 

paragraph (b)(1)(v), the Commission 

believes it may in some cases be 

impracticable for a trustee to follow 

paragraph (b)(1)(iv). In such a situation, 

therefore the trustee would hold onto 

the funds received in response to a 

margin payment and such funds would 

be credited to the account of the 

customer that made the payment.89

Regulation § 190.04(b)(1)(vi) builds 

upon current § 190.02(g)(1)(iv), which 

provides that no payments need to be 

made to restore initial margin, thus 

noting that such payments are not 

required but implicitly allowed to be 

made. Revised § 190.04(b)(1)(vi) 

explains in this in more detail and 

provides more comprehensive guidance 

to the trustee about when such 

payments may be made. Specifically, 

§ 190.04(b)(1)(vi) provides that, in the 

event that the funds segregated for the 

benefit of public customers in a 

particular account class exceed the 

aggregate net equity claims for all 

customers in that account class, the 

trustee is permitted to use such funds to 

meet the margin obligations for any 

public customer in such account class 

whose account is undermargined, but 

not in deficit, and sets conditions 

around such use. 

Regulation § 190.04(b)(2) updates 

current § 190.02(g)(2), which concerns 

margin calls made by trustee with 

respect to undermargined accounts of 

public customers. The Commission is 

removing the current requirement in 

§ 190.02(g)(2) that the trustee issue 

margin calls, by replacing the term 

‘‘must issue margin calls’’ with ‘‘may 

issue a margin call,’’ in light of the 

possibility that the trustee will 

determine it impracticable or inefficient 

to do so. Current § 190.02(g)(2), which 

sets up a retail-level analysis on issuing 

mandatory margin calls based on the 

funded balance of the account, is based 

on a model of the FCM continuing in 

business. Revised § 190.04(b)(d) 

recognizes that an FCM in bankruptcy 

will be operated in crisis mode, and 

may be pending wholesale transfer or 

liquidation of open positions.90

Therefore, the Commission is allowing 

for the possibility that the trustee may 

issue margin calls. The specification of 


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91See, e.g., §§ 1.22(i)(4), 1.23(a)(2). 

92See, e.g., § 1.22(c)(3). 

93While the trustee may seek to recover any debit 

balance from a customer, see § 190.09(a)(1)(ii)(E), 

§ 190.04(b)(4) proceeds from the conservative 

assumption that such efforts will be unsuccessful. 

94An account is in deficit if the balance is 

negative (i.e., the customer owes the debtor instead 

of the reverse). An account can be undermargined 

but not in deficit (if the balance is positive, but less 

than the amount of required margin). For example, 

a customer may have a margin requirement of $100 

and an equity balance of $80. Such customer is 

undermargined by $20, but is not in deficit, because 

the liquidation value of the commodity contracts is 

positive. 

95See Morgan Stanley & Co. Inc. v. Peak Ridge 

Master SPC Ltd., 930 F.Supp.2d 532, 539–540 

(S.D.N.Y. 2013)(Morgan Stanley, in its business 

discretion, determined Peak Ridge’s account had 

assumed overly risky positions, necessitating an 

increase in the margin requirement and giving Peak 

Ridge a limited amount of time to bring the account 

into compliance. ‘‘Courts have held that as little as 

one hour is sufficient notice under similar 

circumstances.’’). See also Capital Options Invs., 

Inc. v. Goldberg Bros. Commodities, Inc., 958 F.2d 

186, 190 (7th Cir. 1992) (‘‘One-hour notice to post 

additional margin . . . is reasonable where a 

contract specifically provides for margin calls on 

options at any time and without notice.’’); 

Prudential–Bache Sec., Inc. v. Stricklin, 890 F.2d 

704, 706–07 (4th Cir. 1989) (rejecting a claim that 

24-hour notice, which the broker normally gave to 

customers, was necessary before broker could 

liquidate an under-margined account and 

upholding notice of one hour as in accordance with 

the customer agreement); Modern Settings, Inc. v. 

Prudential–Bache Sec. Inc., 936 F.2d 640, 645 (2d 

Cir. 1991) (upholding a provision of a customer 

agreement allowing Defendant-broker to liquidate 

an under-margined account without notice). 

96Cf. major theme 7 in section I.B above. 

97A liquidating position or transaction is one that 

offsets a position held by the debtor, in whole or 

in part. Thus, if the debtor has three long March ’21 

corn contracts, then three (or two, or one) short 

March ’21 corn contracts would be a liquidating 

transaction. 

98And thus are next at risk of going into deficit. 

highly prescriptive conditions for 

issuing such calls is no longer 

appropriate, given the Commission 

whether or not to make a margin call is 

now based on the trustee’s discretion. 

Regulation § 190.04(b)(3), as derived 

from current § 190.02(g)(3) with updated 

cross-references, retains the important 

concept that margin payments made by 

a customer in response to a trustee’s 

margin call are fully credited to the 

customer’s funded balance. As these 

post-petition payments made by the 

customer are fully counted toward the 

customer’s funded net equity claims 

under § 190.04(b)(3), they are not 

subject to pro rata distribution (in 

contrast to the treatment of the debtor 

commodity broker’s pre-petition 

obligations to customers). 

Regulation § 190.04(b)(4) is derived 

from a combination of current 

§§ 190.03(b)(1) and (2) and 190.04(e)(4), 

and addresses the trustee’s obligation to 

liquidate certain open commodity 

contracts; in particular, those in deficit 

and those where the customer has failed 

to promptly meet a margin call. During 

business-as-usual, an FCM is required to 

cover, at all times, any customer 

accounts in deficit (i.e., those with debit 

balances) with its own capital.91 The 

FCM is also required to cover with its 

own capital any undermargined 

amounts in customer accounts each day 

by no later than the Residual Interest 

Deadline.92 These ongoing requirements 

are intended to protect other customers 

with positive account balances. 

An FCM in bankruptcy will generally 

not have capital available to protect 

other customers by covering these 

obligations; rather, any loss suffered by 

customers whose accounts are in deficit 

will be at the risk of those other 

customers.93 The Commission intends 

for § 190.04(b)(4) to mitigate the risk to 

those other customers by directing the 

trustee to liquidate such accounts. 

In light of the importance of 

mitigating this fellow-customer risk, 

§ 190.04(b)(4), in contrast to many of the 

other proposed changes to part 190, 

curtails the trustee’s discretion. 

Specifically, § 190.04(b)(4), as derived 

from current § 190.03(b)(1) and (2), 

provides that the trustee shall, as soon 

as practicable, liquidate all open 

commodity contract accounts in any 

commodity contract account (i) that is 

in deficit; (ii) for which any mark-tomarket calculation would result in a 

deficit; or (iii) for which the customer 

fails to meet a margin call made by the 

trustee within a reasonable time. 

Pursuant to current § 190.03(b)(1), a 

trustee must liquidate open commodity 

contracts if any payment of margin 

would result in a deficit in the account 

in which they are held.94 Revised 

§ 190.04(b)(4) adds a requirement to 

liquidate all open commodity contracts 

in any commodity contract account that 

is in deficit. The existing language 

applies to an account that is on the 

threshold of deficit; the Commission is 

revising the language to clarify that the 

provision also applies to an account that 

is already in deficit. Moreover, the 

change from ‘‘payment of margin’’ to 

‘‘mark-to-market’’ calculations 

addresses the case where the trustee is 

aware, based on mark-to-market 

calculations, that the account is in 

deficit. In order to protect other 

customers more effectively, the trustee 

should begin the liquidation process 

immediately upon gaining that 

awareness, rather than delaying until 

the time when a margin payment is due. 

Regulation § 190.04(b)(4) also 

provides that, absent exigent 

circumstances or unless otherwise 

provided, a reasonable time for meeting 

margin calls made by a trustee shall be 

one hour or such greater period not to 

exceed one business day, as determined 

by the trustee.95 This language is largely 

reflective of current § 190.04(e)(4), but 

adds the concept of ‘‘exigent 

circumstances’’ as a new exception to 

the general and long-established rule 

that a minimum of one hour is sufficient 

notice for a trustee to liquidate an 

undermargined account. The 

Commission intends this revision to 

provide the trustee with the discretion 

to deem a period of less than one hour 

as sufficient notice to liquidate an 

undermargined account if the ‘‘exigent 

circumstances’’ so require. 

The Commission is deleting current 

§ 190.03(b)(3) to permit the trustee to 

liquidate open commodity contracts 

where the trustee has received no 

customer instructions with respect to 

such contracts by the sixth calendar day 

following the entry of the order for 

relief. The Commission is adopting this 

change as part of a model where the 

trustee receives and complies with 

instructions from individual customers 

to a model—that reflects actual practice 

in commodity broker bankruptcies in 

recent decades—where the trustee 

transfers as many open commodity 

contracts as possible.96

The Commission is adopting new 

§ 190.04(b)(5) to provide guidance to the 

trustee in assigning liquidating 

positions 97 to the debtor FCM’s 

customers when only a portion of the 

open commodity contracts in an 

omnibus account are liquidated. The 

new guidance is designed to protect the 

customer account as a whole, in light of 

the fact that any losses which cause a 

customer account to go into deficit are, 

as discussed in connection with 

§ 190.04(b)(4), at the risk of other 

customers. To mitigate the risk of such 

losses, § 190.04(b)(5) establishes a 

preference, subject to the trustee’s 

exercise of reasonable business 

judgment, for assigning liquidating 

transactions to individual customer 

accounts in a risk-reducing manner. 

Specifically, the trustee should 

endeavor to assign such liquidating 

transactions first, in a risk-reducing 

manner, to commodity contract 

accounts that are in deficit; second, in 

a risk-reducing manner, to commodity 

contract accounts that are 

undermargined; 98 and finally to 

liquidate any remaining open 

commodity contracts. Where there are 

multiple accounts in any of these 

groups, the trustee is instructed to, as 

practicable, to allocate such liquidating 

transactions pro rata. The term ‘‘riskreducing manner’’ is measured by the 

margin methodology and parameters 


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followed by the DCO at which such 

contracts are cleared. Specifically, 

where allocating a transaction to a 

particular customer account reduces the 

margin requirement for that account, 

such an allocation is ‘‘risk-reducing.’’ 

The Commission requested comment 

on whether the revised approach in 

proposed § 190.04(b)(4) regarding the 

required liquidation of certain open 

commodity contract accounts would 

provide the trustee with an appropriate 

amount of discretion and is practicable; 

whether customers, who believe they 

did not benefit from those decisions, 

would likely challenge the trustee’s 

choices given the level of discretion 

provided; whether such challenges 

could materially slow down the 

distribution of customer property 

relative to a context where the trustee 

was granted less discretion; and 

whether the proposed approach in 

§ 190.04(b)(5) for the assignment of 

liquidating positions to debtor FCM 

customers in a ‘‘risk-reducing manner’’ 

is practicable when only a portion of the 

open commodity contracts in an 

omnibus account are liquidated. 

SIFMA AMG/MFA supported most of 

the substantive amendments in subpart 

B of part 190 and believed such changes 

are generally helpful for purposes of 

reducing risk for market participants 

and allowing the trustee to act as 

efficiently as possible. SIFMA AMG/ 

MFA approved of the inclusion of 

transfers in addition to liquidation, and 

the clarification to apply the proposed 

regulation to any open commodity 

contracts in proposed § 190.04(b). 

CME agreed with the general concept 

of providing the trustee for a debtor 

FCM with significant flexibility to 

operate the FCM and favored any 

provision that encourages the transfer of 

customer positions and property and 

continuation of margin payments on 

behalf of the debtor FCM pending 

transfer or liquidation of positions. ICE 

suggested that the Commission should 

clarify that any trustee discretion 

proposed in § 190.04 for managing a 

failed FCM should be subject to the 

obligations of the defaulting clearing 

member and the rights of the DCO as 

provided by the DCO’s rules. 

ICE supported the Commission’s 

proposal in § 190.04(b)(1) to clarify that 

a trustee may make variation margin 

payments on open contracts, pending 

their liquidation or transfer. ICI agreed 

with proposed § 190.04(b)(1)(ii), which 

prohibits a trustee from making any 

margin payments with respect to a 

customer account that would exceed the 

funded balance for that account. 

ICI and Vanguard agreed with the 

preservation of the existing requirement 

within proposed § 190.04(b)(3) that the 

trustee fully credit the customer’s 

funded balance for any margin payment 

made by a customer in response to 

trustee’s margin call. Vanguard noted 

that any customer concerns as to the 

ability to fully recover margin would 

surely de-incentivize customers to post 

additional margin in critical times. 

SIFMA AMG/MFA generally 

supported proposed § 190.04(b), but had 

concerns regarding the calculation of 

whether a customer is undermargined, 

and the timing of margin calls. SIFMA 

AMG/MFA questioned whether the 

trustee would be able to calculate 

accurately whether a customer is 

undermargined, particularly if the 

FCM’s books and records do not 

accurately reflect margin amounts 

transferred by such customer to the 

FCM. SIFMA AMG/MFA requested that 

the Commission clarify how the trustee 

will try to protect customers from being 

called upon to provide duplicate margin 

amounts. SIFMA AMG/MFA 

recommended that the Commission 

amend proposed § 190.04(b) to provide 

customers with the opportunity to 

demonstrate that a margin payment was 

made even if the FCM’s books and 

records do not yet reflect its receipt. 

SIFMA AMG/MFA disagreed that 

absent exigent circumstances, a 

reasonable time for meeting margin calls 

made by the trustee shall be deemed to 

be one hour, or such greater period not 

to exceed one business day, as the 

trustee may determine in its sole 

discretion. SIFMA AMG/MFA stated 

that the necessary assets may not be 

readily available to customers and urged 

the Commission to require the trustee to 

defer to the margin call timings present 

in the applicable underlying agreements 

entered into by the customer pursuant 

to § 39.13 when determining a 

reasonable time for meeting margin 

calls. SIFMA AMG/MFA opined that 

this is a reasonable level of deference, 

since the trustee will have access to 

these agreements, which are already in 

place with the Commission regulations, 

and will allow for customers to satisfy 

margin calls without causing needless 

market panic. 

ICI and Vanguard agreed with 

proposed § 190.04(b)(4), which would 

require the trustee to liquidate any 

customer account in deficit. ICI 

supported maintaining the existing 

requirement that the trustee promptly 

liquidate any customer account when a 

customer fails to meet a margin call in 

a reasonable time or where any payment 

of margin from the account would result 

in an account deficit. ICI agreed with 

the proposal that a debtor FCM will 

generally not have capital available to 

protect other customers by covering 

account deficits, so any loss suffered by 

customers whose accounts are in deficit 

will be at risk of those other nondefaulting customers. As a result, ICI 

noted that it is vital that the trustee be 

required to swiftly crystallize, and 

therefore cap the losses resulting from, 

such deficits by promptly liquidating 

accounts in deficit or for which a 

customer has failed to meet a margin 

call. ICI cautioned that if the accounts 

were allowed to remain open, additional 

losses on the delinquent customers’ 

transactions would be borne by the 

FCM’s non-defaulting customers, which 

could dissuade non-defaulting 

customers from continuing to meet their 

margin obligations post-petition. 

OCC was concerned that the proposed 

definition of ‘‘undermargined’’ in 

§§ 190.01 and 190.04(b)(2) and (4) could 

create a situation in which a trustee 

offers one public customer an 

opportunity to deposit additional 

margin that ultimately prevents an 

account deficit and resulting liquidation 

of the public customer’s account, but 

exercises discretion not to offer another 

public customer the same opportunity 

to deposit margin and subsequently 

must liquidate the account because it is 

in deficit, notwithstanding the 

customer’s willingness to post 

additional margin to keep its positions 

open. OCC was concerned that the use 

of such trustee discretion would expose 

a trustee to challenge by a public 

customer that asserts, though it was 

similarly situated to a public customer 

that was given this opportunity, it was 

not given this opportunity and received 

inequitable treatment. 

In response to SIFMA AMG/MFA’s 

comment, the Commission notes that, in 

the case of an FCM in bankruptcy, any 

deficit in the account of one customer 

may come at the expense of 

distributions to other customers. As ICI 

noted, the normal buffer of the capital 

of an FCM in continuing operation 

cannot be relied upon. Accordingly, 

where a trustee believes, based on the 

records and limited time available to 

them, that a customer is undermargined, 

it is important that they act on that 

belief in order to protect other 

customers. Similarly, in a case where a 

customer fails to meet a margin call 

within what the trustee determines, in 

their sole discretion, is a reasonable 

time, the trustee should liquidate the 

contracts of that customer to protect 

other customers. Forcing the trustee to 

defer to margin call timings in prebankruptcy agreements, or to give the 

customer an opportunity to demonstrate 

that a margin payment was made, as 

requested by the comment, may 


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99See, e.g., § 190.04(b)(1) (while trustee shall, to 

the extent within its control, not make payments on 

behalf of an account in deficit, this shall not be 

construed to prevent a clearing organization from 

exercising its rights to the extent permitted under 

applicable law). 

100Moreover, there are other reasons to forego an 

approach that would reverse the effects of gainsbased haircutting. As discussed in more detail in 

section II.C.7 below, there is a limited amount of 

customer property available. Any increase in some 

customers claims (and thus their distributions) due 

to the reversal of gains-based haircutting would 

thus come at the expense of a reduced share of that 

limited customer property, and thus reduced 

distributions, to other customers. 

101The Commission is also adopting three nonsubstantive changes in the header language to 

proposed § 190.04(d) from that in current 

§ 190.02(f): (1) The addition of the phrase ‘‘except 

as otherwise set forth in this paragraph (d)’’ to 

account for any exceptions that are included in the 

paragraphs under the header language; (2) the 

addition of cross-references to proposed § 190.04(e) 

when discussing liquidation, as that provision 

contains instructions on how to effect liquidation; 

and (3) the deletion of the phrase ‘‘subject to limit 

moves and to applicable procedures under the 

Bankruptcy Code.’’ 

increase: (1) The risk that such customer 

would default; (2) the risk that delaying 

liquidation of such a customer’s 

positions increases the potential for and 

likelihood that they would do so with 

a debit balance; and (3) the risk that the 

size of that debit balance would increase 

as a result of that delay, thereby 

reducing the funded balances of other 

customers. The Commission is of the 

view that timeframes that may have 

been acceptable during business-asusual cannot bind the trustee in 

addressing the context of an FCM in 

bankruptcy, because any post-petition 

losses incurred by a customer will be at 

the cost of other customers (without the 

normal buffer of the capital of a goingconcern FCM). Moreover, the 

Commission agrees with the view 

championed by ICI and Vanguard that 

the trustee should be required to swiftly 

crystallize and therefore cap the losses 

resulting from deficit balances by 

promptly liquidating accounts in deficit 

and those for which a customer has 

failed to meet a margin call. OCC’s 

concerns about treating customers 

equitably inter se are understandable, 

but, in the Commission’s view, ensuring 

complete equity may not be practicable. 

A trustee must make decisions within a 

severely limited timeframe in a situation 

that is likely to be chaotic and with 

information that is limited and may be 

imperfect. In these circumstances, the 

Commission is of the view that it is 

appropriate to defer to the trustee’s 

discretion to make the best decisions 

they can under the circumstances. 

Accordingly, the Commission believes 

that, where a trustee makes in good faith 

decisions with regard to margin and 

liquidation of accounts, that are, in 

retrospect, inequitable, the 

Commission’s regulations should 

discourage challenges to such a decision 

(and, if such a challenge is made, 

should reduce the likelihood that it is 

successful). 

While the trustee retains discretion, as 

specified in, inter alia, proposed 

§ 190.04, to manage the affairs of the 

debtor FCM, the Commission can 

confirm, as requested by ICE, that a DCO 

of which that FCM is a member retains 

its rights to act under its rules.99

SIFMA AMG/MFA recommended that 

the Commission amend proposed 

§ 190.04(b) to clearly state that, to the 

extent gains-based haircutting has been 

utilized by a DCO in respect of customer 

positions, the trustee should give 

customers of an FCM credit for any 

gains that were haircut during such 

gains-based haircutting. With respect to 

this suggestion, the Commission notes 

that, where a DCO at which a debtor 

FCM is a member applies gains-based 

haircutting under that DCO’s rules, the 

measure of the claim of a customer 

whose account at the debtor FCM 

contains contracts cleared on that DCO 

will be based on the customer 

agreement between that customer and 

the debtor FCM. If, outside of the FCM’s 

bankruptcy and pursuant to that 

customer agreement, the customer’s 

gains would have been reduced by X% 

or $Y, then the amount of the 

customer’s claim in bankruptcy would 

be adjusted accordingly.100

Accordingly, the Commission does not 

accept that suggestion. 

ICI and Vanguard agreed with 

proposed § 190.04(b)(5) which prohibits 

a trustee from making margin payments 

that would exceed the customer’s 

funded account balance or transfer a 

customer’s transactions or property and 

thereby increase the exposure of other 

customers. Vanguard supported 

addressing situations where the trustee 

could allow certain customers to avoid 

the core customer protection of pro rata 

treatment at the expense of other 

customers. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, § 190.04(b) will be adopted 

as proposed. 

c. Regulation § 190.04(c): Contracts 

Moving Into Delivery 

The Commission is adopting 

§ 190.04(c), as proposed, to direct the 

trustee to use its best efforts to avoid 

delivery obligations concerning 

contracts held through the debtor FCM 

by transferring or liquidating such 

contracts before they move into delivery 

position. The Commission is adopting 

§ 190.04(c) based on its analog in 

current § 190.03(b)(5) and is 

incorporating a portion of current 

§ 190.02(f)(1)(ii). Current § 190.03(b)(5) 

instructs the trustee to liquidate 

promptly, and in an orderly manner, 

commodity contracts that are not settled 

in cash (implicitly, those that settle via 

physical delivery of a commodity) 

where the contract would remain open 

beyond the earlier of (i) the last day of 

trading or (ii) the first day on which 

notice of delivery may be tendered— 

that is, where the contract would move 

into delivery position. The Commission 

intends § 190.04(c) to have the same 

purpose as its predecessors, but uses 

more explicit language regarding 

physical delivery to refer to ‘‘any open 

commodity contract that settles upon 

expiration or exercise via the making or 

taking of delivery of a commodity,’’ and 

that is moving into the delivery 

position. The Commission also intends 

§ 190.04(c) to expand current 

§ 190.03(b)(5), with the incorporation of 

some aspects of current § 190.02(f)(1)(ii), 

to include an explicit reference to how 

options on commodities move into 

delivery position. 

CME supported proposed § 190.04(c), 

which directs the trustee to use their 

best efforts to liquidate open physical 

delivery commodity contracts that have 

not been transferred before the contracts 

move into a delivery position as CME 

believed this would avoid unnecessary 

disruptions to the delivery process by 

customers that did not intend to 

participate in making or taking delivery. 

ICI supported adding provisions that 

clarify the standards applicable to an 

FCM’s liquidation of a debtor FCM’s 

transactions and the way a trustee must 

assign liquidating transactions in the 

context of a partial liquidation. 

According, after consideration of the 

comments, and for the reasons stated 

above, the Commission is adopting 

§ 190.04(c) as proposed. 

d. Regulation § 190.04(d): Liquidation or 

Offset 

The Commission is adopting 

§ 190.04(d) as proposed with 

modifications, as set forth below. 

Regulation § 190.04(d), as derived from 

current §§ 190.02(f) and 190.04(d), sets 

forth the categories of commodity 

contracts and other property held by or 

for the account of a debtor that must be 

liquidated by the trustee in the market 

or by book entry offset, promptly, and 

in an orderly manner.101

Importantly, the Commission is 

retaining the requirement, present in the 

header language to current § 190.02(f), 

that the trustee must effect such 


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102Regulation § 190.04(d)(1) deletes the reference 

in current § 190.02(f)(1)(i) to dealer option contracts 

since such term is no longer used. 

103The Commission is incorporating part of 

current § 190.02(f)(1)(ii) into § 190.04(c), and 

therefore that will not appear in § 190.04(d)(1). 

104As noted in section II.A.1 above in the 

discussion of § 190.00(c)(6), a delivery default could 

have a disruptive effect on the cash market for the 

commodity and could adversely impact the parties 

to the transaction. 

105See current § 190.02(f)(2)(i). 

106See, e.g., 48 FR 8716, 8718–19 (March 1, 1983) 

(Commission intends to assure that customers using 

a letter of credit to meet original margin obligations 

would be treated no differently than customers 

depositing other forms of non-cash margin or 

customers with excess cash margin deposits. If 

letters of credit are treated differently than Treasury 

bills or other non-cash deposits, there would be a 

substantial incentive to use and accept such letters 

of credit as margin as they would be a means of 

avoiding the pro rata distribution of margin funds, 

contrary to the intent of the Bankruptcy Code (11 

U.S.C. 766).) 

107See ConocoPhillips v. Giddens, No. 12 Civ. 

6014, 2012 WL 4757866 (S.D.N.Y. 2012). 

liquidation ‘‘in an orderly manner.’’ 

Regulation § 190.04(d) recognizes that 

any factor which, in the trustee’s 

discretion, makes it imprudent to 

liquidate a position at a particular point 

in time would contribute to the trustee’s 

judgment as to what constitutes 

liquidation ‘‘in an orderly manner.’’ 

Section 190.04(d)(1), as derived from 

§ 190.02(f)(1), requires that all open 

commodity contracts must be 

liquidated, subject to two exceptions: (1) 

Commodity contracts that are 

specifically identifiable property and 

are subject to customer instructions to 

transfer as provided in proposed 

§ 190.03(c)(2); and (2) open commodity 

contract positions that are in a delivery 

position.102 In the former case 

(specifically identifiable property), the 

Commission is adopting § 190.04(d)(1) 

to revise the language of current 

§ 190.02(f)(1)(ii) to add references to the 

provisions of § 190.03(c)(2) (concerning 

the trustee’s option to treat hedging 

accounts as specifically identifiable 

property) and § 190.09(d)(2) (concerning 

the payments that customers on whose 

behalf specifically identifiable 

commodity contracts will be transferred 

must make to ensure that they do not 

receive property in excess of their pro 

rata share).103 The latter exception, for 

open commodity contract positions that 

are in a delivery position is new, and 

provides that such positions should be 

treated in accordance with § 190.06, 

which concerns delivery.104

Regulation § 190.04(d)(2) describes 

when specifically identifiable property, 

other than open commodity contracts or 

physical delivery property, must be 

liquidated. The Commission derived 

§ 190.04(d)(2) from current 

§ 190.02(f)(2), with a number of 

revisions. 

First, the provision applies to 

specifically identifiable property, other 

than open commodity contracts or 

physical delivery property, while the 

current regulation applies only to 

specifically identifiable property other 

than open commodity contracts. The 

Commission intends for this change to 

provide the trustee with discretion to 

avoid interfering with the physical 

delivery process. 

Second, while the current regulation 

would require liquidation of such 

property if the fair market value of the 

property drops below 90% of its value 

on the date of the entry of the order for 

relief,105 § 190.04(d)(2)(i) changes that 

standard to 75% of the fair market 

value, in order to provide greater 

discretion to the trustee to forego or 

postpone liquidation in appropriate 

cases. 

Third, revised § 190.04(d)(2)(ii) adds 

an additional condition that will require 

liquidation where failure to liquidate 

the specifically identifiable property 

may result in a deficit balance in the 

applicable customer account, which 

corresponds to the general policy of 

liquidating any accounts that are in 

deficit. 

Lastly, § 190.04(d)(2)(iii), which is 

similar to current § 190.02(f)(2)(ii), 

includes updated cross-references to the 

provisions in proposed part 190 that 

discuss the return of specifically 

identifiable property. 

Regulation § 190.04(d)(3) is a new 

provision that codifies the 

Commission’s longstanding policies of 

pro rata distribution and equitable 

treatment of customers in bankruptcy, 

as described in § 190.00(c)(5) above, as 

applied to letters of credit posted as 

margin.106 Accordingly, customers who 

post letters of credit as margin will be 

treated no differently than other 

customers and thus would suffer the 

same pro rata loss. 

The implementation of this policy in 

current § 190.08(a)(1)(i)(E) was 

challenged in an adversary proceeding 

in the MF Global bankruptcy; 107 the 

codification of this policy in 

§§ 190.00(c)(5) (clarifying policy), 

190.04(d)(3) (treatment in bankruptcy), 

and 1.43 (treatment during business-asusual) are intended to implement the 

policy effectively and to forestall any 

future challenge. 

Regulation § 190.04(d)(3) provides 

that the trustee may request that such a 

customer deliver substitute customer 

property with respect to any letter of 

credit received, acquired or held to 

margin, guarantee, secure, purchase, or 

sell a commodity contract. This applies 

whether the letter of credit is held by 

the trustee on behalf of the debtor’s 

estate, a DCO, a foreign broker, or 

foreign clearing organization, and 

whether it is held on a pass-through or 

other basis. The amount of the 

substitute customer property to be 

posted may be less than the full-face 

amount of the letter of credit, in the 

trustee’s discretion, if such lesser 

amount is sufficient to ensure pro rata 

treatment consistent with proposed 

§§ 190.08 and 190.09. If required, the 

trustee may require the customer to post 

property equal to the full-face amount of 

the letter of credit to ensure pro rata 

treatment. Regulation § 190.04(d)(3)(i) 

provides that, if such a customer fails to 

provide substitute customer property 

within a reasonable time specified by 

the trustee, the trustee may draw upon 

the full amount of the letter of credit or 

any portion thereof. 

Regulation § 190.04(d)(3)(ii) addresses 

cases where a letter of credit received, 

acquired or held to margin, guarantee, 

secure, purchase, or sell a commodity 

contract is not fully drawn upon. The 

trustee is instructed to treat any portion 

of the letter of credit that is not fully 

drawn upon as having been distributed 

to the customer. However, the amount 

treated as having been distributed will 

be reduced by the value of any 

substitute customer property delivered 

by the customer to the trustee. For 

example, if the face amount of the letter 

of credit is $1,000,000, the customer 

delivers $250,000 in substitute customer 

property, and no portion of the letter of 

credit is drawn upon, then the trustee 

will treat the customer as having 

received a distribution of $750,000. In 

order to avoid an effective transfer of 

value, due to an expiration of the letter 

of credit on or after the date of the order 

for relief, to the customer who posted 

the letter of credit, this calculation will 

not be changed due to such an 

expiration. 

Regulation § 190.04(d)(3)(iii) confirms 

that any proceeds of a letter of credit 

drawn by the trustee, or substitute 

customer property posted by a 

customer, shall be considered customer 

property in the account class applicable 

to the original letter of credit. 

Regulation § 190.04(d)(4), as derived 

from current § 190.02(f)(3), provides for 

the liquidation of all other property not 

required to be transferred or returned 

pursuant to customer instructions and 

which has not been liquidated. 

Regulation § 190.04(d)(4) excepts from 

the liquidation requirement any 

‘‘physical delivery property held for 

delivery in accordance with the 

provision of’’ § 190.06, in order to avoid 

interfering with the physical delivery 

process. 


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Several commenters supported 

proposed § 190.04(d)(3). SIFMA AMG/ 

MFA, ICI, and Vanguard strongly 

supported proposed § 190.04(d)(3) 

because it permits a trustee to demand 

substitute margin so that other 

customers’ margin need not be accessed 

to meet any shortfall occasioned by the 

inability to draw on the letters of credit. 

SIFMA AMG/MFA noted that the 

addition of proposed § 190.04(d)(3) 

would ensure that customers using 

letters of credit to meet original margin 

obligations will be treated no differently 

from customers depositing other forms 

of non-cash margin or excess cash 

margin deposits. SIFMA AMG/MFA 

‘‘agree[d] that most letters of credit 

currently in use by the industry follow 

the Joint Audit Committee forms [and 

believed] that the impact of these 

additional requirements concerning 

letters of credit will result in clearer 

guidance for more equitable treatment of 

customers within each account class.’’ 

However, SIFMA AMG/MFA 

‘‘questione[d] the one-year transition 

period and urge[d] the Commission to 

shorten it in the interest of investor 

protection. For example, if an FCM were 

to enter bankruptcy proceedings during 

the one-year transition period,’’ SIFMA 

AMG/MFA inquired as to how the 

letters of credit would be treated in such 

proceeding. 

OCC also supported proposed 

§ 190.04(d)(3) and the pro rata loss 

policy objective. OCC stated that it 

‘‘expects that it would generally, to the 

extent permitted by OCC’s rules and 

default management arrangements, draw 

on a defaulted member’s letter of credit 

collateral as soon as practicable after a 

declaration of default. OCC would 

attempt to do so, whether or not it has 

immediately identified a need to draw 

on a letter of credit to meet the 

defaulted member’s settlement 

obligations, as a protective action in 

anticipation of any potential increase in 

the credit risk associated with the letter 

of credit. In such cases, a trustee would 

obtain any remaining proceeds from the 

drawn-down letter to distribute pro rata 

among the FCM’s customers as 

appropriate.’’ 

However, several commenters 

including CME, FIA, and CMC believed 

the policy reasons for the trustee’s 

general right to demand substitute 

collateral do not exist with respect in 

the narrow context of a delivery letter of 

credit. 

CME agreed ‘‘that a letter of credit 

posted to secure obligations under open 

commodity contracts (whether drawn 

upon or not) must be deemed as part of 

the customer’s property, in addition to 

any additional collateral posted by the 

customer, for purposes of distribution 

calculations. [CME agreed] that it is 

prudent to make clear that the trustee in 

either an FCM or DCO bankruptcy can 

draw upon posted letters of credit.’’ 

CME supported ‘‘granting the trustee the 

power to require a customer to deliver 

substitute customer property to the 

estate and allowing the trustee to draw 

on the letter of credit if the customer 

does not post additional collateral, 

provided that those conditions apply 

only to letters of credit letter that are 

received, acquired, or held to guarantee 

or secure a customer’s obligations under 

open commodity contracts, and do not 

apply to delivery letters of credit.’’ 

With respect to a delivery letter of 

credit posted as collateral to secure the 

customer’s obligation to pay for delivery 

of a commodity it will receive, CME and 

CMC believed it was ‘‘critically 

important that the letter of credit be 

available to draw upon if the customer 

defaults or is expected to default on its 

obligation to pay the seller.’’ However, 

CME, CMC, and FIA recommended that 

the Commission revise proposed 

§ 190.04(d)(3) to confirm that the 

authority of the trustee to require a 

customer that posts a letter of credit to 

deliver substitute customer property 

does not extend to letters of credit 

posted to a delivery account. 

CME argued that ‘‘[c]ustomers 

routinely post letters of credit in 

connection with delivery obligations 

under certain physical delivery futures 

contracts held to maturity.’’ CME noted 

that this is the case for deliveries under 

certain oil futures listed on the New 

York Mercantile Exchange. ‘‘The buyers 

are required to post collateral for the full 

payment amount owed because actual 

delivery is effected via physical transfer 

of oil and thus is typically completed 30 

days or so after buyers and sellers are 

matched for bilateral delivery 

obligations. Given the substantial dollar 

amounts involved, often hundreds of 

millions, letters of credit are often 

posted as collateral.’’ CMC emphasized 

that ‘‘unlike other situations, a delivery 

[letter of credit] simply serves as 

collateral for delivery of a futures 

contract after expiry but before delivery 

is taken and while the seller still has 

possession of the commodity for 

delivery.’’ CME stated that ‘‘[t]he value 

available to CME under such a letter of 

credit is wholly independent from the 

solvency of an FCM, unlike a letter of 

credit posted as performance bond, 

which decays when utilized to meet 

margin or variation calls post-FCM 

bankruptcy.’’ CME posited that the 

delivery letter of credit does not pose 

the same issues that the Commission 

encountered in the MF Global 

bankruptcy. FIA argued that ‘‘[a] 

purchaser that takes delivery under a 

commodity contract frequently is not 

required to take delivery for a 

significant period of time after the 

purchaser and seller have been 

matched. In these circumstances, the 

purchaser may be required to post a 

letter of credit as security for full 

payment when delivery is made.’’ 

CME, CMC, and FIA warned that a 

trustee’s decision to request substitute 

collateral of cash or cash equivalents for 

a delivery letter of credit or risk having 

the letter of credit drawn down prior to 

the time that delivery is made would 

create a sudden and unexpected 

liquidity need for the delivery 

participant and introduce unnecessary 

strain into physical and derivatives 

markets. The commenters were 

concerned that because the parties’ 

obligations under the delivery account 

arise from a commodity account, a 

trustee’s authority under proposed 

§ 190.04(d)(3) could be interpreted to 

apply to letters of credit held in a 

delivery account. Accordingly, CME and 

CMC recommended ‘‘that the 

Commission limit or eliminate the 

trustee’s powers to request that a market 

participant substitute other forms of 

collateral for a delivery letter of credit 

upon which the DCO is a beneficiary.’’ 

Specifically, CME and FIA 

recommended that the Commission 

revise proposed § 190.04(d)(3) to 

exclude delivery letters of credit, i.e., 

letters of credit posted by buyers to 

guarantee their payment for 

commodities that they are contractually 

obligated to purchase under an expired 

futures or exercised commodity option 

contract. 

CME also requested clarity in the 

context of § 190.06 ‘‘that when a 

customer posts a delivery letter of credit 

directly with the DCO or with its 

delivery counterparty, and not with or 

through the FCM, the letter of credit is 

outside the delivery account class, i.e., 

it does not constitute cash delivery 

property (or property of the debtor’s 

estate), and the provisions in other parts 

of the proposed revisions regarding 

treatment of letters of credit posted with 

or through the debtor FCM do not 

apply.’’ 

The Commission notes that, despite 

the comments of CME, CMC, and FIA, 

there are reasons to forego excluding 

delivery letters of credit as a class from 

the application of § 190.04(d)(3), and to 

adopt § 190.04(d)(3) as proposed, as 

supported by ICI, SIFMA AMG/MFA, 

and Vanguard: If, at the end of the 

bankruptcy proceeding, there are 

shortfalls in customer property in the 

cash delivery account class, those 


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19352 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

108Pursuant to § 190.08(c)(1)(ii), the customer’s 

funded balance includes 100% of margin posted 

after the order for relief. Accordingly, this principle 

would not apply to a delivery letter of credit posted 

after the order for relief (unless the letter of credit 

was delivered in substitution for a pre-bankruptcy 

letter of credit). 

109Moreover, and for the avoidance of doubt, as 

delivery is simply a stage in the life of a commodity 

contract, § 190.04(d)(3) applies to letters of credit in 

connection with delivery obligations under a 

commodity contract. 

110Similarly, CMC’s concerns focus on ‘‘a 

delivery LOC upon which the DCO is beneficiary.’’ 

111The Commission was not requested to opine 

on whether this approach vis-a`-vis letters of credit 

is permissible outside of the context of the delivery 

account class, and expresses no view on that 

question. 

112See, e.g., § 190.04(e) (Rules providing for 

liquidation other than on the open market shall be 

designed to achieve, to the extent feasible under 

market conditions at the time of liquidation, a 

process for liquidating open commodity contracts 

that results in competitive pricing.) 

shortfalls will necessarily be borne by 

public customers. If public customers 

posting letters of credit (including in the 

delivery account) are shielded from 

such losses, they will be borne in greater 

proportion by other public customers. 

That result would be inconsistent with 

the Commission’s longstanding policy, 

embodied in section 766(h) of the 

Bankruptcy Code, to treat all customers 

on a pro rata basis.108

However, the concerns raised by 

commenters regarding sudden and 

unexpected liquidity needs are 

important ones. They are important both 

in the context of delivery letters of 

credit, as discussed by some 

commenters, and more broadly as 

well.109 The Commission agrees that 

these concerns can and should be 

mitigated. Specifically, the trustee has 

discretion in managing this process with 

respect to letters of credit, and should 

exercise that discretion with the goal of 

achieving pro rata treatment among 

customers in a manner that mitigates, to 

the extent practicable, the adverse 

effects upon customers that have posted 

letters of credit. 

First, with regard to timing, the 

commenters expressed concern that 

requests for substitute property would 

cause ‘‘sudden’’ liquidity needs. 

Regulation § 190.04(d)(3)(i) states that 

the trustee may draw upon the letter of 

credit if the customer fails to provide 

substitute customer property within a 

reasonable time specified by the trustee. 

If the expiry date of the letter of credit 

is not imminent, the Commission 

expects that a ‘‘reasonable time’’ would 

be sufficiently long to enable the 

customer to mitigate liquidity concerns 

(consistent with the trustee’s plans to 

make distributions). If the expiry date of 

the letter of credit is imminent, and the 

customer can and does arrange to have 

that expiry date extended, the parties 

could work in the context of that 

extended expiry date. However, if the 

expiry date is imminent, and cannot be 

extended, then the trustee will need to 

take promptly whatever steps are, in 

their discretion, necessary to ensure pro 

rata treatment among customers. 

Second, with regard to the amount 

requested, § 190.04(d)(3) provides that 

the trustee may request that a customer 

deliver substitute customer property 

with respect to a letter of credit, and 

that the amount of the request may 

equal the full face amount of the letter 

of credit or any portion thereof, to the 

extent required or may be required, in 

the trustee’s discretion to ensure pro 

rata treatment among customer claims 

within each account class, consistent 

with §§ 190.08 and 190.09. Thus, the 

amount of the substitute customer 

property requested (or, if substitute 

customer property is not provided, the 

amount of the letter of credit drawn 

upon (if partial draws are permitted)) 

should be proportionate to the amount 

required or may be required, in the 

trustee’s discretion, to ensure pro rata 

treatment among customer claims. If the 

amount of the shortfall in the relevant 

account class (whether cash delivery 

property or otherwise) is estimated to be 

a small percentage, the amount of 

substitute customer property requested 

would also be a small percentage 

(subject to the trustee adding an 

appropriate buffer for later corrections 

in estimates, and taking into account 

any need to use the letter of credit as 

ongoing performance bond for the 

customer’s obligations). 

To re-enforce these concepts, the 

Commission is adding a new 

§ 190.04(d)(3)(iv), which provides that 

the trustee shall, in exercising their 

discretion with regard to addressing 

letters of credit, including as to the 

timing and amount of a request for 

substitute customer property, endeavor 

to mitigate, to the extent practicable, the 

adverse effects upon customers that 

have posted letters of credit in a manner 

that achieves pro rata treatment among 

customer claims. The Commission 

intends that this new paragraph will 

confirm to trustees that they should 

steer their discretion in the specified 

manner, and will provide assurance to 

customers that have posted letters of 

credit that the trustees will exercise 

their discretion in that manner. The 

Commission believes that this provision 

will appropriately address concerns 

regarding the manner in which the 

trustee ensures that customers that have 

posted letters of credit are treated 

economically in the same manner as 

customers who have posted other forms 

of collateral 

Moreover, in the context of § 190.06, 

CME requested that the Commission 

confirm that ‘‘when a customer posts a 

delivery letter of credit directly with the 

DCO or with its delivery counterparty, 

and not with or through the FCM, the 

letter of credit is outside the delivery 

account class, i.e., it does not constitute 

cash delivery property (or property of 

the debtor’s estate), and the provisions 

in other parts of the proposed revisions 

regarding treatment of letters of credit 

posted with or through the debtor FCM 

do not apply.’’ 

For example, the Commission 

understands that upon expiry of certain 

deliverable contracts and assignment of 

delivery obligation, the long/buyer of 

the contract must post collateral to the 

DCO against its final payment obligation 

on the delivery. In certain cases, 

collateral in the form of a delivery letter 

of credit collateral is posted by the 

customer directly to the DCO. The 

delivery letters of credit in these cases 

are subject to uniform terms that name 

the DCO as the sole beneficiary on the 

instrument. These delivery letters of 

credit do not create an obligation of or 

to a customer’s FCM as they are posted 

directly to the DCO and the FCM is not 

a named beneficiary on the 

instrument.110

In the context of a delivery letter of 

credit that is posted directly with the 

DCO or with the delivery counterparty, 

rather than with or through the FCM, 

and for which the FCM is not a named 

beneficiary, the Commission confirms 

that the letter of credit is outside the 

delivery account class, i.e., it does not 

constitute cash delivery property (or 

property of the debtor’s estate), and the 

provisions in other parts of the 

proposed revisions regarding treatment 

of letters of credit posted with or 

through the debtor FCM do not 

apply.111

The Commission believes that this 

clarification, in combination with the 

new provision directing the trustee’s 

discretion in the context of letters of 

credit, will ameliorate the commenters 

concerns regarding delivery letters of 

credit. 

The foregoing applies to the trustee. 

DCOs remain free to exercise any of the 

rights and powers in their rules vis-a`-vis 

their clearing members, in particular 

with respect to risk management, 

limited only by requirements within the 

Commission’s regulations.112 However, 

in this context, the Commission would 

encourage DCOs holding letters of credit 

posted by customers of FCMs in 

bankruptcy to exercise their rights 

under such letters of credit in a 


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113 In this connection, the Commission notes that 

OCC Rule 1104(a)(ii) permits OCC, if the issuer of 

a letter of credit agrees to extend the irrevocability 

of its commitment thereunder in a manner 

satisfactory to OCC, to ‘‘demand only such amounts 

as it may from time to time deem necessary to meet 

anticipated disbursements.’’ 

114The Commission is amending § 190.08(d) to 

also clarify the process by which customer 

positions and other customer property are valued 

for purposes of determining the amount of a 

customer’s claim. 

measured fashion, in order to achieve 

risk management goals fully but in a 

manner that mitigates, to the extent 

practicable, adverse effects upon 

customers that have posted letters of 

credit.113

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.04(d) as proposed, with the 

addition of new § 190.04(d)(3)(iv) as set 

forth above. 

e. Regulation § 190.04(e): Liquidation of 

Open Commodity Contracts 

The Commission is adopting 

§ 190.04(e) as proposed to provide 

details regarding the liquidation and 

valuation of open positions.114

Paragraph (e) is derived from current 

§ 190.04(d), subject to a number of 

changes. 

The Commission is adopting 

§ 190.04(e)(1)(i), as derived from current 

§ 190.04(d)(1)(ii), to describe the process 

of liquidating open commodity 

contracts when the debtor is a member 

of a clearing organization. Regulation 

§ 190.04(e)(1)(i), like its predecessor, 

emphasizes the goal of competitive 

pricing to the extent feasible under 

market conditions at the time of 

liquidation. Treatment under the CEA of 

clearing organization rules has evolved 

from a pre-approval regime to a 

primarily self-certification regime. The 

Commission is of the view that the 

various processes set forth in part 40 of 

the Commission’s regulations (including 

self-certifications under § 40.6, 

voluntary submission for rule approval 

under § 40.5, and Commission review of 

certain rules of systemically important 

DCOs under § 40.10) are sufficient, and 

that a separate rule approval process for 

rules regarding settlement price in the 

context of a bankruptcy is no longer 

necessary. The Commission is 

accordingly adopting § 190.04(e)(1)(i) to 

delete the requirement contained in 

current § 190.04(d)(1)(i) that a clearing 

organization must obtain approval 

pursuant to section 5c(c) of the CEA for 

its rules regarding liquidation of open 

commodity contracts. 

Section 190.04(e)(1)(i) also adds a 

provision regarding open commodity 

contracts that are futures or options on 

futures that were established on or 

subject to the rules of a foreign board of 

trade and cleared by the debtor as a 

member of a foreign clearing 

organization, providing that such 

contracts shall by liquidated pursuant to 

the rules of the foreign clearing 

organization or foreign board of trade or, 

in the absence of such rules, in the 

manner the trustee deems appropriate. 

This the new provision is analogous to 

the existing provision but would extend 

to cases where the debtor FCM is a 

member of a foreign clearing 

organization. 

Section 190.04(e)(1)(ii) provides 

instructions to the trustee regarding the 

liquidation of open commodity 

contracts where the debtor is not a 

member of a DCO or foreign clearing 

organization, but instead clears through 

one or more accounts established with 

an FCM or a foreign futures 

intermediary. In such a case, 

§ 190.04(e)(1)(ii) provides that the 

trustee shall use commercially 

reasonable efforts to liquidate the open 

commodity contracts to achieve 

competitive pricing, to the extent 

feasible under market conditions at the 

time of liquidation. The Commission is 

adding this provision to account for 

those circumstances where the trustee 

must liquidate open commodity 

contracts for a debtor that is not a 

clearing member. 

As with § 190.04(e)(1)(i), the 

Commission is adopting § 190.04(e)(2) 

to delete the rule approval requirement, 

for the same reasons stated above. 

Regulation § 190.04(e)(2) is derived from 

current § 190.04(d)(1)(ii) which requires 

a trustee or clearing organization to 

apply to the Commission for permission 

to liquidate open commodity contracts 

by book entry. In such a case, the 

settlement price for such commodity 

contracts shall be determined by the 

clearing organization in accordance 

with its rules, which shall be designed 

to establish, to the extent feasible under 

market conditions at the time of 

liquidation, such settlement prices in a 

competitive manner. 

The Commission is adopting 

§ 190.04(e)(3) to recognize that an FCM 

or foreign futures intermediary through 

which a debtor FCM carries open 

commodity contracts will generally 

have enforceable contractual rights to 

liquidate such commodity contracts. 

New § 190.04(e)(3) confirms that the 

upstream intermediary may exercise 

such rights. However, the liquidating 

FCM or foreign futures intermediary 

shall use commercially reasonable 

efforts to liquidate the open commodity 

contracts to achieve competitive pricing, 

to the extent feasible under market 

conditions at the time of liquidation and 

subject to any rules or orders of the 

relevant clearing organization, foreign 

clearing organization, DCM, SEF or 

foreign board of trade governing its 

liquidation of such open commodity 

contracts. 

If the liquidating FCM or foreign 

futures intermediary fails to do so, the 

trustee may seek damages reflecting the 

difference in price(s) resulting from 

such failure. However, such damages 

would be the trustee’s sole available 

remedy as the regulation makes clear 

that ‘‘[i]n no event shall any such 

liquidation be voided.’’ 

The Commission is adopting 

§ 190.04(e)(4)(i) and (ii) based on 

current § 190.04(d)(2) and (3), 

respectively, with some minor nonsubstantive language changes and 

updated cross-references. 

The Commission requested comment 

in particular on the treatment of letters 

of credit in bankruptcy, as set forth in 

proposed § 190.04(e). The Commission 

did not receive any comments on this 

aspect of the Proposal. Accordingly, for 

the reasons stated above, the 

Commission is adopting § 190.04(e) as 

proposed. 

f. Regulation § 190.04(f): Long Option 

Contracts 

The Commission is adopting 

§ 190.04(f) as proposed to contain only 

minor non-substantive changes from the 

current § 190.04(e)(5), including (1) a 

cross-reference to the liquidation 

provisions in proposed § 190.04(d) and 

(e), and (2) a clarification that the 

provision is referring to commodity 

contracts that are long option contracts, 

rather than to long option contracts 

more generally. 

The Commission did not receive any 

comments on this aspect of the 

Proposal. Accordingly, for the reasons 

stated above, the Commission is 

adopting § 190.04(f) as proposed. 

3. Regulation § 190.05: Operation of the 

Debtor’s Estate—General 

The Commission is adopting § 190.05 

to revise parts of current § 190.04 and 

add new provisions to (1) require a 

trustee to use all reasonable efforts to 

continue to issue account statements for 

customer accounts holding open 

commodity contracts or other property 

and (2) clarify the trustee’s obligation 

with respect to residual interest. The 

Commission requested comment with 

respect to all aspects of proposed 

§ 190.05. 

The Commission is adopting 

§ 190.05(a) to amend the requirement in 

current § 190.04(a) that the trustee 

‘‘shall’’ comply with all provisions of 


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115To the extent that ICI’s comment raising 

concerns about trustee discretion applies here, the 

Commission notes that the addition of 

§ 190.00(c)(3)(i)(C), which directs the trustee to use 

their discretion with the overarching goal of 

protecting public customers, should mitigate that 

concern. 

116See major theme 7 discussed in section I.B 

above. 117See, e.g., § 1.32(d). 

118The Commission notes that current § 190.08(d) 

provides for the return of specifically identifiable 

property other than commodity contracts under 

certain circumstances (namely, where the customer 

makes good any pro rata loss related to that 

property) without court approval; however, the 

Commission is deleting this provision in favor of 

allowing transfers without court approval for the 

reasons stated above. 

the CEA and of the regulations 

thereunder as if it were the debtor, to 

state that the trustee ‘‘shall use 

reasonable efforts to comply’’ with all 

provisions of the CEA and of the 

regulations thereunder as if it were the 

debtor. This change is intended to 

provide the trustee with some flexibility 

in making decisions in an emergency 

bankruptcy situation, subject to the 

requirements of the Bankruptcy Code. 

Given that an FCM bankruptcy will 

likely be a fast-paced situation requiring 

the trustee to make decisions with little 

time for consideration, the Commission 

recognizes that there may be 

circumstances under which strict 

compliance with the CEA and the 

regulations thereunder may not be 

practicable. The Commission did not 

receive any comments on proposed 

§ 190.05(a).115

The Commission is adopting 

§ 190.05(b) to address the computation 

of funded balances. It is derived from, 

and makes several revisions to, 

§ 190.04(b). The Commission’s objective 

in making such revisions is to provide 

the bankruptcy trustee with the latitude 

to act reasonably given the 

circumstances with which the trustee is 

confronted, recognizing that information 

may be more reliable and/or accurate in 

some insolvency situations than in 

others and permitting an approach that, 

to an appropriate extent, favors cost 

effectiveness and promptness over 

precision.116 First, whereas current 

§ 190.04(b) provides that a trustee 

‘‘must’’ compute a daily funded balance 

for the relevant customer accounts, 

§ 190.05(b) requires the trustee to use 

‘‘reasonable efforts’’ to make such 

computations. Such computations are 

required to be ‘‘as accurate as 

reasonably practicable under the 

circumstances, including the reliability 

and availability of information.’’ 

Second, § 190.05(b) increases the scope 

of customer accounts for which the 

bankruptcy trustee is obligated to 

compute a funded balance from 

accounts that contain open commodity 

contracts to accounts that contain open 

commodity contracts or other property. 

In the Commission’s view, there is no 

reason to exclude customer accounts 

that contain only property (the value of 

which may change) from the scope of 

those for which bankruptcy trustees 

must compute a daily funded balance. 

Third, § 190.05(b) revises the length of 

time that the trustee is obligated to 

compute the funded balance of 

customer accounts from ‘‘until the final 

liquidation date’’ to until the open 

commodity contracts and other property 

in the account have been transferred or 

liquidated. This change ties the 

computation requirement to each 

specific account, such that a bankruptcy 

trustee is not required to continue to 

compute the funded balance of 

customer accounts that do not contain 

any open commodity contracts or other 

property. Lastly, the specific deadline 

by which the computation must be 

completed is being removed. The 

Commission does not believe that the 

deadline in current § 190.04(b) (by noon 

the next business day) is crucial in a 

bankruptcy context (as it is with respect 

to an FCM conducting ongoing daily 

business).117 Such computation would, 

however, inherently need to be 

accomplished prior to performing any 

action where knowledge of funded 

balances is essential, such as transfers of 

accounts or property. 

The Commission received one 

comment regarding proposed 

§ 190.05(b). CME agreed that allowing 

the trustee to compute the funded 

balance for customers’ accounts before 

transferring or liquidating customer 

positions or property using ‘‘reasonable 

efforts’’ to be ‘‘as accurate as reasonably 

practicable under the circumstances, 

including the reliability and availability 

of information’’ ‘‘should allow the 

trustee to act more promptly to transfer 

the positions of public customers and 

their pro rata share of the customer 

property than if the trustee were held to 

a strict standard of precision in 

calculating funded balances before it 

could undertake such transfers.’’ This is 

consistent with the Commission’s view. 

The Commission is adopting 

§ 190.05(c)(1) to amend the record 

retention requirements in current 

§ 190.04(c) to be more comprehensive. 

Section 190.05(c)(1) expands the 

referenced records from ‘‘computations 

required by this [p]art’’ to ‘‘records 

required under this chapter to be 

maintained by the debtor, including 

records of the computations required by 

this part.’’ To enable the trustee to 

mitigate the expenses of record 

retention, however, it reduces the time 

that records are required to be retained 

from ‘‘the greater of the period required 

by § 1.31 of this chapter or for a period 

of one year after the close of the 

bankruptcy proceeding for which they 

were compiled’’ to ‘‘until such time as 

the debtor’s case is closed.’’ Section 

190.05(c)(2) simplifies the 

corresponding portion of current 

§ 190.04(c)(2) by omitting the 

requirement that the records required in 

§ 190.05(c)(1) be available to the Court 

and parties in interest. The requirement 

that such records be available to the 

Commission and the United States 

Department of Justice is being retained. 

A court generally will not itself look at 

records, and any parties in interest 

should have access to records under the 

discovery provisions of the Federal 

Rules of Bankruptcy Procedure and the 

Federal Rules of Civil Procedure, as 

applicable. The Commission did not 

receive any comments on proposed 

§ 190.05(c). 

The Commission is adopting new 

§ 190.05(d) to facilitate the ability of 

customers of the bankrupt FCM with 

open commodity contracts or property 

to keep track of such open commodity 

contracts or property even during 

insolvency, and promptly to make them 

aware of the specifics of the liquidation 

or transfer of such contracts or property. 

Section 190.05(d) requires the trustee to 

use all reasonable efforts to continue to 

issue account statements with respect to 

any customer for whose account open 

commodity contracts or other property 

is held that has not been liquidated or 

transferred. Section 190.05(d) also 

requires the trustee to issue an account 

statement reflecting any liquidation or 

transfer that has taken place with 

respect to a customer account promptly 

after such liquidation or transfer has 

occurred. 

The Commission sought comment on 

the practicability of the proposed 

requirements regarding the issuance of 

account statements. ICI commented in 

support of the account statement 

requirements. 

The Commission is adopting 

§ 190.05(e)(1) to amend the requirement 

in current § 190.04(e)(2) that a trustee 

must obtain court approval to make 

disbursements to customers, to 

specifically carve out transfers of 

customer property made in accordance 

with § 190.07. The Commission is 

making this change to reflect the policy 

preference to transfer as many public 

customer positions as practicable in the 

event of an FCM insolvency.118 The 

Commission notes, however, that this 


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119The concept of prioritizing cost effectiveness 

and promptness over precision is discussed in 

detail in major theme 7 in section I.B above and in 

overarching concept three in the cost-benefit 

considerations, section III.A.2.iii below. 

120Section 190.05(e)(2) uses the term ‘‘proceeds’’ 

rather than the term ‘‘equity,’’ which is used in 

current § 190.04(e)(3). This change in wording is 

not meant to be a substantive. 

121Section 1.11(e)(3)(i)(D). 

122The timing of the entry of the order for relief 

in a subchapter IV proceeding relative to when 

physical delivery contracts move into a delivery 

positions will generally influence whether a 

delivery issue may arise. Additionally, during 

business as usual, market participants typically 

offset contracts before incurring delivery 

obligations. 

123Current § 190.05 applies to the delivery of a 

physical commodity, or of documents of title to 

physical commodities. Section 190.06 applies to 

any type of commodity that is subject to delivery, 

whether tangible or intangible. This is captured in 

the definition of physical property. Given the 

different ways in which delivery may take place, 

physical delivery property is not limited to property 

that an FCM holds for or on behalf of a customer 

in a delivery account. For a discussion of those 

different ways, see the third and fourth categories 

under the definition of physical delivery property 

in § 190.01 in section II.A.2 above. 

124See also § 1.42. 

125See also § 1.42. 

126As discussed above, § 190.04(c) directs the 

trustee to use its best efforts to avoid delivery 

obligations concerning contracts held through the 

Continued 

carve out does not detract from the 

trustee’s ability to, in their discretion, 

nonetheless seek and obtain court 

approval for certain transfers of 

property. The Commission recognizes 

that there is an inherent tension 

between distributing to public 

customers as much customer property 

as possible from the debtor’s estate, as 

quickly as possible, and ensuring 

accuracy in distribution, and believes 

that § 190.05(e)(1) strikes the right 

balance between these competing 

objectives.119

Section 190.05(e)(2) addresses how a 

bankruptcy trustee may invest the 

proceeds 120 from the liquidation of 

open commodity contracts and 

specifically identifiable property, and 

other customer property. It is derived 

from, and retains much of, current 

§ 190.04(e)(3), but it expands the 

provision permitting the bankruptcy 

trustee to ‘‘invest any customer equity 

in accounts which remain open in 

accordance with § 190.03’’ to permit the 

investment of ‘‘any other customer 

property.’’ It continues to limit the 

permissible investments to obligations 

of, or fully guaranteed by, the United 

States, and to limit the location of 

permissible depositories to those 

located in the United States or its 

territories or possessions. The 

Commission did not receive any 

comments on proposed § 190.05(e). 

The Commission is adopting new 

§ 190.05(f) to require a bankruptcy 

trustee to apply the residual interest 

provisions contained in § 1.11 ‘‘in a 

manner appropriate to the context of 

their responsibilities as a bankruptcy 

trustee’’ and ‘‘in light of the existence of 

a surplus or deficit in customer property 

available to pay customer claims.’’ The 

purpose of the residual interest 

provisions is to have the FCM maintain 

a sufficient buffer in segregated funds 

‘‘to reasonably ensure that the [FCM] 

. . . remains in compliance with the 

segregated funds requirements at all 

times.’’ 121 The Commission requested 

comment with respect to all aspects of 

proposed § 190.05. Specifically, the 

Commission sought comment on the 

practicability and appropriateness of 

proposed § 190.05(f). 

The Commission received supportive 

comments from CME, SIFMA AMG/ 

MFA, ICI, and Vanguard. CME 

supported adding clarity that the trustee 

should use reasonable efforts to operate 

the debtor FCM’s estate in compliance 

with the CEA and CFTC regulations 

governing FCMs, including to apply the 

residual interest provisions in § 1.11, in 

a manner appropriate to the context of 

their responsibilities and in light of the 

existence of a surplus or deficit in 

customer property available to pay 

customer claims. ICI and Vanguard 

supported the clarification in proposed 

§ 190.05(f) that an FCM’s residual 

interest is to be applied to public 

customer claims. Vanguard noted its 

belief that ‘‘FCM residual interest is a 

valuable buffer to insulate FCM 

customers from the risk of delayed or 

failed margin transfers from other 

customers.’’ Vanguard was ‘‘pleased that 

the Commission has confirmed that, 

while residual interest is fronted by 

FCMs, it must be used to support 

customers through an FCM insolvency,’’ 

noting that its ‘‘purpose is to enhance 

core customer protections.’’ SIFMA 

AMG/MFA also believed that ‘‘the 

proposed use of residual interest as 

contemplated by proposed §§ 190.05(f) 

and 190.09 is appropriate,’’ and agreed 

with the Commission that ‘‘the residual 

interest provisions contained in § 1.11 

remain important.’’ 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.05 as proposed. 

4. Regulation § 190.06: Making and 

Taking Delivery Under Commodity 

Contracts 

The Commission is adopting § 190.06 

as proposed. The Commission is 

adopting § 190.06 to provide more 

specificity regarding making and taking 

deliveries on commodity contracts in 

the context of an FCM bankruptcy and 

to reflect current delivery practices. 

Section 190.06 is derived from current 

§ 190.05, but implements new concepts 

(with respect to delivery practices, 

intangible commodities, and separation 

of physical and cash delivery property), 

as discussed further below. 

Generally, open positions may enter a 

delivery position where the parties 

incur bilateral contractual delivery 

obligations.122 It is important to address 

deliveries to avoid disruption to the 

cash market for the commodity and to 

avoid adverse consequences to parties 

that may be relying on delivery taking 

place in connection with their business 

operations. 

The delivery provisions in the current 

regulations largely reflect the delivery 

practices at the time current part 190 

was adopted in 1983. At that time, 

delivery was effected largely by 

tendering paper warehouse receipts or 

certificates. In contrast, most deliverable 

title documents today are held and 

transferred in electronic form, typically 

with the clearing organization serving as 

the central depository for such 

instruments. Under the terms of some 

contracts (such as oil or gas futures) the 

party with the contractual obligation to 

make delivery will physically transfer a 

tangible commodity to meet its 

obligations. In other cases, intangible 

commodities may be delivered, 

including virtual currencies. As noted 

previously, in the definitions section 

(§ 190.01), the Commission is dividing 

the delivery account class into physical 

delivery and cash delivery account 

subclasses to recognize the differing 

issues that apply to physical delivery 

property versus cash delivery property. 

The Commission is also recognizing 

that, consistent with current practice, 

physical deliveries 123 may be effected 

in different types of accounts.124 For 

example, when an FCM has a role in 

facilitating delivery, deliveries may 

occur via title transfer in a futures 

account, foreign futures account, cleared 

swaps account, delivery account, or, if 

the commodity is a security, in a 

securities account. 125

Section 190.06(a) applies to 

commodity contracts that settle upon 

expiration or exercise by making or 

taking delivery of physical delivery 

property, if such commodity contracts 

are in a delivery position on the filing 

date or the trustee is unable to liquidate 

such commodity contracts in 

accordance with § 190.04(c) to prevent 

them from moving into a delivery 

position.126 The Commission is 


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debtor FCM by transferring or liquidating such 

contracts before they move into delivery position. 

127The requirement for registered entity rules to 

be submitted for approval in accordance with 

section 5c(c) of the Act has been deleted for reasons 

discussed in section II.B.2 above with respect to 

§ 190.04(e)(1) and (2). 

128The Commission notes that § 190.04(c) directs 

the trustee to use its best efforts to avoid delivery 

obligations concerning contracts held through the 

debtor FCM by transferring or liquidating such 

contracts before they move into delivery position. 

Section 190.06(a)(2) applies where the trustee is 

unable to do so. 

adopting § 190.06(a)(2) to address 

delivery made or taken on behalf of a 

customer outside of the administration 

of the debtor’s estate, (i.e., directly 

between the debtor’s customer and the 

delivery counterparty assigned by the 

clearing organization). It replaces 

current § 190.05(b). Current § 190.05(b) 

requires a DCO, DCM, or SEF to enact 

rules that permit parties to make or take 

delivery under a commodity contract 

outside the debtor’s estate, through 

substitution of the customer for the 

commodity broker. The Commission 

believes that deliveries should occur in 

this manner only where feasible. 

Deliveries may not always happen in 

this manner, as customers largely rely 

on their FCMs to hold physical delivery 

property on their behalf in electronic 

form.127

Section 190.06(a)(2)(i) 128 directs the 

trustee to use ‘‘reasonable efforts’’ to 

allow a customer to deliver physical 

delivery property that is held directly by 

the customer in settlement of a 

commodity contract, and to allow 

payment in exchange for such delivery, 

to occur outside the debtor’s estate, 

where the rules of the exchange or 

clearing organization prescribe a process 

for delivery that allows delivery to be 

fulfilled either (A) in the ordinary 

course by the customer, (B) by 

substitution of the customer for the 

commodity broker, or (C) through 

agreement of the buyer and seller to 

alternative delivery procedures. In 

adopting a ‘‘reasonable efforts’’ standard 

rather than (as in current § 190.05(a)(1)) 

‘‘best efforts,’’ the Commission is 

recognizing that, in the event that the 

trustee is unable to transfer or earlier 

liquidate the positions, delivery 

involves a significant degree of bespoke 

administration. Moreover, requiring the 

trustee’s ‘‘best efforts’’ for delivery 

might require the trustee to spend an 

inordinate amount of time focusing on 

the needs of a few customers and detract 

from the trustee’s ability to manage the 

short term challenges of the 

administration of the estate in the days 

immediately following the filing date. 

Section 190.06(a)(2)(ii) addresses the 

circumstance where, while the customer 

makes physical delivery in satisfaction 

of a commodity contract using property 

that is outside the administration of the 

estate of the debtor, the customer 

nonetheless has property held in 

connection with that contract at the 

debtor (i.e., collateral posted in 

connection with that contract prepetition). Consistent with current 

§ 190.05(b)(2), § 190.06(a)(2)(ii) provides 

that the property held at the debtor 

becomes part of the customer’s claim 

and can only be distributed pro rata, 

despite the customer fulfilling the 

delivery obligation outside the 

administration of the debtor’s estate. 

Section 190.06(a)(3) applies when it is 

not practicable to effect delivery outside 

the estate. Section 190.06(a)(3) clarifies 

that which was implied, but was not 

addressed, in current § 190.05(c)(1)–(2), 

by providing additional details for when 

delivery is made or taken within the 

debtor’s estate. It contains provisions for 

the trustee to deliver physical or cash 

delivery property on a customer’s 

behalf, or return such property to the 

customer so that the customer may 

fulfill its delivery obligation. The 

regulation also includes restrictions 

designed to assure that a customer does 

not receive (or otherwise benefit from) 

a distribution of customer property (or 

other use of such property that benefits 

the customer) that exceeds the 

customer’s pro rata share of the relevant 

customer property pool. 

The Commission is adopting new 

§ 190.06(a)(4) to recognize that delivery 

may need to be made in a securities 

account if an open commodity contract 

held in a futures account, foreign 

futures account, or cleared swaps 

account requires the delivery of 

securities, and property from any of 

these accounts is transferred to the 

securities account for the purpose of 

effecting delivery. The value of the 

property transferred to the securities 

account must be limited to the 

customer’s funded balance for a 

commodity contract account, and only 

to the extent that funded balance 

exceeds (i.e., the surplus over) the 

customer’s minimum margin 

requirements for that account. Such a 

transfer may not be made if the 

customer is undermargined or has a 

deficit balance in any other commodity 

contract accounts. 

Section 190.06(a)(5), as proposed, 

addressed deliveries made or taken on 

behalf of ‘‘a house account of the 

debtor.’’ It was derived from current 

§ 190.05(c)(3), with some clarifying 

wording. Consistent with the suggestion 

from the ABA Subcommittee, as 

discussed in section II.A.2 above, the 

Commission is deleting in this final rule 

the definition of house account as it 

applies to FCMs. The reference in the 

provision as proposed to ‘‘a house 

account of the debtor’’ is being replaced 

in the final rule with a reference to ‘‘the 

debtor’s own account or the account of 

any non-public customer of the debtor.’’ 

No substantive change vis-a`-vis either 

the current regulation or the regulation 

as proposed is intended. 

The Commission is adopting new 

§ 190.06(b) to divide the delivery 

account class into separate physical 

delivery and cash delivery account 

subclasses, for purposes of pro rata 

distributions to customers in the 

delivery account class on their net 

equity claims. Because claims in each 

subclass are fixed as of the filing date, 

§ 190.06(b)(1)(i) provides that the 

physical delivery account class includes 

physical delivery property held in 

delivery accounts as of the filing date, 

and the proceeds of any such physical 

delivery property received subsequently 

(i.e., cash received after the filing date, 

in exchange for physical delivery 

property on which delivery was made), 

and § 190.06(b)(ii) provides the cash 

delivery account class includes cash 

delivery property in delivery accounts 

as of the filing date, along with physical 

delivery property for which delivery is 

subsequently taken (i.e., in exchange for 

cash delivery property paid after the 

filing date) on behalf of a customer in 

accordance with § 190.06(a)(3). 

Section 190.06(b)(2) describes the 

customer property included in the cash 

delivery account class and in the 

physical delivery account class. Section 

190.06(b)(2) provides that customer 

property in the cash delivery account 

class includes cash or cash equivalents 

that are held in an account under a 

name, or in a manner, that clearly 

indicates that the account holds 

property for the purpose of making 

payment for taking delivery of a 

commodity under commodity contracts. 

Customer property in the cash delivery 

account class also includes any other 

property that is (A) not segregated for 

the benefit of customers in the futures, 

foreign futures, or cleared swaps 

account classes) and (B) traceable 

(through, e.g., account statements) as 

having been received after the filing 

date as part of taking delivery. 

Section 190.06(b)(2) also provides, 

conversely, that customer property in 

the physical delivery account class 

includes cash or cash equivalents that 

are held in an account under a name, or 

in a manner, that clearly indicates that 

the account holds property received in 

payment for making delivery of a 

commodity under a commodity 

contract. Customer property in the 


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129CME noted that its support was ‘‘subject to 

CME’s comments which request changes to the cash 

delivery property and physical delivery property 

definitions.’’ Specifically, CME requested that the 

Commission adopt more formal requirements with 

respect to delivery accounts through a separate 

rulemaking. That request is addressed in section 

II.G below. 

130The Commission understands ICE’s reference 

to ‘‘bona fide changes in margin requirements and 

guarantee fund contributions’’ to mean changes that 

are not based on the fact that positions were 

acquired by transfer. 

physical delivery account class also 

includes any other property that is (A) 

not segregated for the benefit of 

customers in the futures, foreign futures, 

or cleared swaps account classes) and 

(B) traceable (through, e.g., account 

statements) as having been held for the 

purpose of making delivery of a 

commodity under a commodity 

contract, or held as of the filing date as 

a result of taking delivery. 

The Commission requested comment 

on all aspects of proposed § 190.06. In 

particular, the Commission sought 

comment on the implications of 

subdividing the delivery account class 

into separate physical delivery and cash 

delivery account subclasses, including 

any additional challenges or benefits 

that the Commission did not consider. 

CME expressed support for specific 

aspects of proposed § 190.06, such as: 

(1) The proposed enhancements to the 

delivery account class, including 

separating the account class into 

physical and cash delivery account 

classes; (2) the additional detail 

provided to the trustee on how to 

facilitate the completion of deliveries 

including, in particular, the requirement 

for the trustee to use reasonable efforts 

to allow delivery to occur outside 

administration of the debtor FCM’s 

estate when the rules of the relevant 

exchange or DCO prescribe a process for 

allowing deliveries to be accomplished 

as set forth in the proposal; and (3) the 

clarification that cash or cash 

equivalents held by the debtor FCM in 

an account maintained at a bank, DCO, 

foreign clearing organization or 

elsewhere constitutes customer property 

when it is held under a name or in a 

manner clearly indicating the property 

in the account relates to deliveries. As 

to the latter, CME believes that this will 

facilitate identifying cash delivery 

property available to distribute to 

customers in the cash delivery account 

class.129

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.06 as proposed, with 

modifications to § 190.06(a)(5) as set 

forth above. 

5. Regulation § 190.07: Transfers 

Regulation § 190.07 was proposed to 

set forth detailed provisions governing 

transfers, consistent with the policy 

preference, explained in § 190.00(c)(4), 

for transferring (or ‘‘porting’’) public 

customer commodity contract positions, 

as well as all or a portion of such 

customers’ account equity. It is being 

adopted as proposed with modifications 

to § 190.07(b), (d), and (e), as set forth 

below. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.07, and raised particular questions 

with respect to the proposed six-month 

post-transfer period to complete 

customer diligence, partial transfers, 

and estimates of customer claims. 

Section 190.07(a) addresses rules that 

clearing organizations and SROs may 

‘‘adopt, maintain in effect, or enforce’’ 

that may affect transfers. 

In § 190.07, paragraphs (a)(1) and (2) 

states that these organizations may not 

have such rules that, respectively, ‘‘are 

inconsistent with the provisions of’’ part 

190 or that interfere with the acceptance 

by their members of commodity 

contracts and collateral from FCMs that 

are required to transfer accounts 

pursuant to § 1.17(a)(4). These 

provisions are derived from current 

§ 190.06(a)(1) and (2), with technical 

changes. No comments were received 

with respect to these provisions. 

Section 190.07(a)(3) is intended to 

promote transfers, to the extent 

consistent with good risk management. 

It provides that no clearing organization 

or other SRO may adopt, maintain in 

effect, or enforce rules that ‘‘interfere 

with the acceptance by its members of 

transfers of commodity contracts, and 

the property margining or securing such 

contracts, from [an FCM that is a debtor] 

if such transfers have been approved by 

the Commission . . .’’ Paragraph (a)(3) 

includes a proviso, however, that it 

shall not (i) ‘‘[l]imit the exercise of any 

contractual right of a clearing 

organization or other registered entity to 

liquidate or transfer open commodity 

contracts’’; or (ii) ‘‘[b]e interpreted to 

limit a clearing organization’s ability 

adequately to manage risk.’’ 

FIA supported the proviso, and CME 

‘‘agree[ed] that transfers should be made 

consistent with sound risk management 

principles, and in that regard 

welcome[d] the proposed clarification 

that the requirements under the 

proposed rule do not limit the rights of 

a DCO (or a DCM or swap execution 

facility as ‘‘registered entities’’ as 

defined in the CEA) to liquidate or 

transfer open commodity contracts.’’ 

ICE, by contrast, was concerned that the 

term ‘‘interfere with’’ is overly broad, 

and requested that the Commission 

‘‘clarify that a clearing organization is 

not precluded from managing the risks 

presented by any such transfer, 

including through bona fide changes in 

margin requirements and guarantee 

fund contributions for transferee 

clearing members.’’ 

As discussed immediately above, the 

provision already states that ‘‘this 

paragraph (a)(3) shall not . . . be 

interpreted to limit a clearing 

organization’s ability adequately to 

manage risk.’’ Moreover, recognizing the 

different or additional margin 

requirements or guarantee fund 

contribution requirements resulting 

from the additional positions carried by 

a transferee clearing member is not a 

rule that interferes with the acceptance 

of a transfer of commodity contracts.130

Accordingly, the Commission concludes 

that § 190.07(a)(3) appropriately meets 

the goal of promoting transfers to the 

extent consistent with good risk 

management. 

Regulation § 190.07(b) concerns 

requirements for transferees. Paragraph 

(b)(1) clarifies that it is the duty of the 

transferee—not of anyone else—to 

assure that the transfer will not cause 

the transferee to be in violation of the 

minimum financial requirements. 

Paragraph (b)(2) notes that the transferee 

accepts the transfer subject to any loss 

arising from deficit balances that cannot 

be recovered from the customer, and, in 

the case of customer accounts, must 

keep such counts open for at least one 

business day (unless the customer fails 

to respond to a margin call within a 

reasonable time) and may not collect 

commissions with respect to the 

transfer. 

As stated in the proposal, the 

Commission understands that customer 

diligence processes would have already 

been required to have been completed 

by the debtor FCM with respect to each 

of its customers as part of opening their 

accounts. Regulation § 190.07(b)(3) thus 

provides that a transferee may accept 

open commodity contracts and 

property, and may open accounts on its 

records prior to completing customer 

diligence, provided that account 

opening diligence as required is 

performed as soon as practicable but no 

later than six months after transfer, 

unless the time is extended, by the 

Commission, for a particular account, 

transfer, or debtor. This provision is 

consistent with past practice in FCM 

bankruptcies. 

CME supported this provision as a 

‘‘practical change’’ that should assist in 

finding willing transferees, while ICI 

believed that it will help mitigate or 


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131Such normal procedures would include the 

‘‘ordinary course of business’’ referred to in Letter 

19–17, or any successor letter or regulation. See 

CFTC Letter 19–17, https://www.cftc.gov/node/ 

217076. 

132For the avoidance of doubt, the nature of the 

expectation and the instruction is that staff will 

provide a response to such requests with great 

dispatch. The nature of the response, whether 

affirmative, affirmative in part, or negative, will 

depend on the relevant facts and circumstances. 

eliminate ‘‘speed bumps’’ to porting. 

Vanguard supported the flexibility 

advanced by the Commission here, but 

urged the Commission to work to 

harmonize that flexibility across other 

regulatory regimes applicable at FCMs, 

particularly for those dually registered 

as broker-dealers. 

FIA supported the policy underlying 

paragraph (b)(3), and noted that it is 

essential to realize the policy of favoring 

porting over liquidation of customer 

accounts. FIA also agreed that six 

months is a reasonable period of time 

for this process, subject to the 

Commission’s authority to grant 

additional time in particular 

circumstances. FIA was, however, of the 

view that this regulation should 

‘‘provide transferee FCMs more specific 

relief from applicable law relating to 

‘customer diligence.’ ’’ 

FIA encouraged the Commission to 

specify the customer diligence rules 

from which transferee FCMs will have 

temporary relief. FIA stated that 

‘‘such rules may include, but not be limited 

to: (i) rules relating to anti-money laundering 

requirements (including rules requiring 

FCMs to implement customer identification 

programs and know your customer 

requirements and all corresponding selfregulatory organization (‘‘SRO’’) 

requirements); (ii) rules relating to risk and 

other disclosures (§§ 1.55, 30.6, 33.7 and 

similar SRO disclosure requirements); (iii) 

rules relating to capital and residual interest 

requirements (§§ 1.11, 1.17, 1.22, 1.23, 22.2, 

22.17, 30.7 and 41.48 and related SRO 

requirements); (iv) rules relating to account 

statements required under § 1.33 in the event 

positions transfer with inadequate contact 

information (§ 1.33 and related SRO 

requirements); and [(v)] rules relating to 

margin in the event accounts transfer without 

adequate margin (§§ 1.17, 39.13, 41.42–41.49 

and related SRO requirements).’’ 

The Commission has considered each 

of the five types of requirements 

discussed by FIA: 

With respect to anti-money 

laundering requirements, the 

Commission notes that, for purposes of 

the Customer Identification Program 

(‘‘CIP’’) requirements applicable to 

futures commission merchants pursuant 

to 31 CFR 1026.220, the term ‘‘account’’ 

is defined to exclude ‘‘[a]n account that 

the futures commission merchant 

acquires through any acquisition, 

merger, purchase of assets, or 

assumption of liabilities.’’ 31 CFR 

1026.100(a)(2)(i). Thus, transferred 

accounts are not subject to the CIP 

requirements. 

However, the Customer Due Diligence 

(‘‘CDD’’) requirements of 31 CFR 

1026.210(b)(5) do appear to apply. 

These include a requirement for 

‘‘[a]ppropriate risk-based procedures for 

conducting ongoing customer due 

diligence, to include . . . 

[u]nderstanding the nature and purpose 

of customer relationships for the 

purpose of developing a customer risk 

profile . . . .’’ 31 CFR 1026.210(b)(5)(i). 

The Commission is of the view that 

§ 190.07(b)(3) would inform the 

determination of what constitutes 

appropriate risk-based procedures in 

the exigent context of an FCM accepting 

a transfer of accounts from an FCM that 

is a debtor in bankruptcy. 

While FIA appears to request a 

reference to the account opening 

disclosure requirements in §§ 1.55, 30.6, 

and 33.7, these would appear to be 

addressed by the bulk transfer 

provisions of § 1.65. The Commission is 

amending § 190.07(b)(3) to include a 

parenthetical statement that explicitly 

refers to ‘‘the risk disclosures referred to 

in § 1.65(a)(3).’’ This will modify the 

sixty-day requirement of that paragraph. 

The Commission declines to amend 

the regulation to extend the time to 

comply with capital and residual 

interest requirements. To do so would 

risk permitting a transfer of accounts to 

result in contagion of financial 

weakness. The Commission reiterates 

the importance of § 190.07(b)(1), which 

provides that ‘‘it is the duty of each 

transferee to assure that it will not 

accept a transfer that would cause the 

transferee to be in violation of the 

minimum financial requirements set 

forth in this chapter.’’ 

However, to the extent that shortfalls 

in compliance with these requirements 

are due to errors or shortfalls in the data 

received by the transferee from the 

transferor FCM, and the transferee acts 

with reasonable and appropriate 

diligence in seeking to detect such 

errors or shortfalls in data, and, where 

detected, in investigating and correcting 

them, such shortfalls in compliance 

would not be considered violations of 

such requirements. 

Similarly, where account statements 

required by § 1.33 do not reach the 

customer due to errors or shortfalls in 

the contact information provided to the 

transferee, there would be no violation 

so long as the transferee takes 

reasonable steps to detect such errors or 

shortfalls (e.g., by reacting promptly to 

rejected email or returned postal mail, 

or to complaints by a transferred 

customer that they are not receiving 

such statements) and to correct the 

situation once detected. The proposed 

regulation does not need to be amended 

to achieve this result. 

Finally, with respect to FIA’s request 

for relief with respect to regulations 

‘‘relating to margin in the event 

accounts transfer without adequate 

margin,’’ the Commission believes that 

the determination of whether a 

transferee FCM is promptly collecting 

such margin should be informed by the 

exigencies of the situation. There is, 

however, no basis for a general 

exemption for transferee accounts from 

the requirements of § 39.13(g)(8)(iii), 

providing that a DCO shall require that 

its members do not permit customers to 

withdraw funds from their accounts 

unless the accounts would be fully 

margined after such withdrawal. If the 

transferee FCM is not confident of the 

information it has regarding the 

transferred account, it would seem 

appropriate to risk manage with caution. 

Once the transferee FCM is confident 

that it fully understands the situation, 

the transferee can act in accordance 

with its normal procedures.131

Similarly, there is no basis to provide a 

general exemption from undermargined 

account capital charges in accordance 

with § 1.17. 

In all of these cases, the Commission 

encourages DCOs and SROs to take 

similar approaches. 

While the Commission has declined, 

in many of the above cases, to provide 

general relief by regulation, this is 

without prejudice to the possibility that 

more targeted relief may be appropriate 

in particular cases. Specifically, any 

further relief that might be appropriate 

in a particular situation could be 

requested by, e.g., the transferee, in light 

of the relevant facts and circumstances. 

The Commission observes that its staff 

have traditionally responded to requests 

for relief in emergency situations with 

great dispatch, and expects, and thus 

instructs staff, to continue to do so in 

this context in the future.132

OCC recommended that ‘‘the 

Commission adopt a parallel regulation 

permitting a DCO to postpone any due 

diligence the DCO would typically have 

to perform on an FCM member 

accepting transferred positions from a 

bankrupt FCM.’’ This would include the 

requirements of, e.g., § 39.12, requiring 

a DCO to have ‘‘continuing participation 

requirements for clearing members of 

the [DCO] that are objective, publicly 

available, and risk-based.’’ 

The Commission does not agree that 

the situations are parallel: An FCM is 

required to perform individualized due 


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133To be sure, a transfer agreement would likely 

include transfers of records or at least copies of 

records as a matter of good practice. 

134Cf. 11 U.S.C. 761(9)(A)(ii)(II) (customer means, 

with respect to an FCM, an entity that holds a claim 

against the FCM arising out of ‘‘a deposit or 

payment of cash, security, or other property with 

such [FCM] for the purpose of making or margining 

[a] commodity contract’’) (emphasis added). 

Thus, where a person opens a customer account 

and deposits collateral on day 1, intending to trade 

on day 3 (or some subsequent day when the 

customer determines that it is propitious to trade) 

and the FCM becomes a debtor on day 2 (or some 

other day when the customer has no positions 

open) such person nonetheless qualifies as a 

customer, and their claim would be a customer 

claim. 

diligence on each of its customers, 

which in the case of a transfer such as 

was seen in historical situations such as 

MF Global, would amount to hundreds 

or even thousands of customers. By 

contrast, the focus of a DCO is on the 

financial and operational capability of 

each of its clearing members that is a 

transferee to manage, in the aggregate, 

the customer portfolios of which it 

accepts transfer. The number of 

transferee FCM clearing members is 

likely to be no more than a dozen. 

In any event, the Commission expects 

that a DCO would, and would be 

permitted to, conduct its due diligence 

procedures in a manner consistent with 

balancing risk management 

requirements (see, e.g., § 190.07(a)(3)(ii) 

(restrictions on a DCO interfering with 

the acceptance of transfers from a debtor 

FCM ‘‘shall not be interpreted to limit 

a clearing organization’s ability 

adequately to manage risk’’) with the 

exigencies of the situation. 

Section 190.07(b)(4) is designed to 

clarify what the account agreement 

between the transferred customer and 

the transferee is at and after the time the 

transfer becomes effective. This 

includes situations where an account is 

partially transferred. As proposed, it 

provides that any account agreements 

governing a transferred account shall be 

deemed assigned to the transferee and 

shall govern the customer’s relationship 

unless and until a new agreement is 

reached. It also provides that a breach 

of the agreement prior to a transfer does 

not constitute a breach on the part of the 

transferee. CME, ICI, and Vanguard 

supported this provision. 

FIA appreciated the need for legal 

certainty as to the terms of the 

relationship between a transferee FCM 

and each transferred customer, but was 

concerned that the transferee FCM 

might be disadvantaged by being subject 

to an account agreement between the 

transferred customer and the transferor 

(debtor) FCM. There are two possible 

situations with respect to each 

customer: Either the customer does, or 

does not, have a pre-existing account 

agreement with the transferee FCM. 

FIA noted that many large customers, 

in particular, may maintain accounts at 

more than one FCM, and thus it may be 

the case that the customer already has 

an account agreement in place with the 

transferee FCM. FIA asked the 

Commission to confirm their view that, 

in this context, the transferee would not 

be required to manage the ported 

account(s) in accordance with the 

agreement with the transferor FCM. The 

Commission agrees with this view, and 

is modifying proposed § 190.07(b)(4) to 

state this explicitly: The proposed text 

will be renumbered as § 190.07(b)(4)(i), 

and paragraph (b)(4)(ii) will be added to 

provide that paragraph (b)(4)(i) shall not 

apply where the customer has a preexisting account agreement with the 

transferee futures commission 

merchant. In such a case, the transferred 

account will be governed by that preexisting account agreement. 

However, where the transferred 

customer does not have a pre-existing 

account agreement with the transferee 

FCM, FIA conceded that ‘‘the account 

agreement [between the transferor and 

the customer] should stay in place for a 

short defined interim period during 

which the parties may 

renegotiate. . . .’’ FIA did not specify 

how long that ‘‘short defined interim 

period’’ should last, nor what should 

happen at the end of that period if the 

parties fail to reach agreement. The 

Commission notes that nothing prevents 

either the transferee FCM or customer 

from negotiating at any time to change 

the (in this case, assigned) account 

agreement between them, and that, 

aside from § 190.07(b)(2)(ii)(A) 

(requiring the transferee to keep the 

customer’s commodity contracts open at 

least one business day after their receipt 

unless the customer fails to meet 

promptly a margin call), nothing in the 

Commission’s regulations prevents 

either the transferee or customer from 

terminating their relationship if they 

cannot reach agreement as to the terms 

under which that relationship should 

continue, on what either party believes 

is a timely basis. Accordingly, the 

Commission declines to modify 

§ 190.07(b)(4) in this context. 

Lastly, FIA observed that a customer’s 

account may not always be able to be 

physically transferred from the debtor 

FCM to the transferee FCM. The 

Commission notes that the reference in 

§ 190.07(b)(4) to assignment of account 

agreements does not refer to the 

movement of physical documents.133 As 

requested by FIA, the Commission can 

thus confirm that assignment of the 

agreement does not depend upon such 

movement. 

Regulation § 190.07(b)(5) provides 

that customer instructions received by 

the debtor with respect to open 

commodity contracts or specifically 

identifiable property that has been, or 

will be, transferred in accordance with 

section 764(b) of the Bankruptcy Code, 

should be transmitted to any transferee, 

which shall comply therewith to the 

extent practicable (if the transferee 

subsequently enters insolvency). 

Regulation § 190.07(c) addresses 

eligibility of accounts for transfer under 

section 764(b) of the Bankruptcy Code. 

This provision states that ‘‘[a]ll 

commodity contract accounts (including 

accounts with no open commodity 

contract positions) are eligible for 

transfer. . . .’’ This language recognizes 

that accounts can be transferred even if 

they are intended for trading 

commodities but do not include any 

open commodity contracts at the time of 

the order for relief.134

Regulation § 190.07(d) addresses 

special rules for transfers under section 

764(b) of the Bankruptcy Code. 

Paragraph (d)(1) instructs the trustee to 

‘‘use its best efforts to effect a transfer 

to one or more other commodity brokers 

of all eligible commodity contract 

accounts, open commodity contracts 

and property held by the debtor for or 

on behalf of its customers, based on 

customer claims of record, no later than 

the seventh calendar day after the order 

for relief.’’ The Commission will correct 

a typographical error in the proposal, 

and refer to ‘‘customer claims of record’’ 

rather than ‘‘customer claims or record.’’ 

Regulation § 190.07(d)(2) addresses 

cases of partial transfers and multiple 

transferees. It includes a requirement 

that ‘‘a partial transfer of contracts and 

property may be made so long as such 

transfer would not result in an increase 

in the amount of any customer’s net 

equity claim.’’ The added language is 

intended to caution against partial 

transfers that would break netting sets 

and make the customer worse off. The 

Commission has also decided to state 

that one way to accomplish a partial 

transfer is ‘‘by liquidating a portion of 

the open commodity contracts held by 

a customer such that sufficient value is 

realized, or margin requirements are 

reduced to an extent sufficient, to 

permit the transfer of some or all of the 

remaining open commodity contracts 

and property.’’ This language is 

intended to clarify that the liquidation 

may either crystalize gains or have the 

effect of reducing the required margin. 

Finally, with regards to the transfer of 

part of a spread or a straddle, 


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135See also discussion of treatment of letters of 

credit in bankruptcy under § 190.04(d)(3) in section 

II.B.2. 

136See discussion of ‘‘funded claim’’ in section 

II.A.2 above. 

137Proposed § 190.08(a) is derived from current 

§ 190.07(a), but reflects the fact that, under the 

revised definition of the term ‘‘primary liquidation 

date,’’ all commodity contracts will be liquidated or 

transferred prior to the primary liquidation date. 

Since no (relevant) operations will occur 

§ 190.07(d)(2)(ii) states that ‘‘to the 

extent practicable under the 

circumstances,’’ each side of the spread 

or straddle must be transferred or none 

of the open commodity contracts 

comprising the spread or straddle may 

be transferred. This language is 

intended to clarify that the trustee is 

required to protect customers holding 

spread or straddle positions from the 

breaking of netting sets, but only to the 

extent practicable given the 

circumstances. 

Regulation § 190.07(d)(3) provides 

details regarding the treatment and 

transfer of letters of credit used as 

margin, consistent with other proposed 

provisions related to letters of credit. In 

particular, this provision states that a 

transfer of a letter of credit cannot be 

made if it would result in a recovery 

that exceeds the amount to which the 

customer is entitled in §§ 190.08 and 

190.09. If the letter of credit cannot be 

transferred and the customer does not 

deliver substitute property, the trustee 

may draw upon a portion or upon all of 

the letter of credit, the proceeds of 

which will be treated as customer 

property in the applicable account class. 

The Commission believes a regulation 

detailing how letters of credit are to be 

treated in a transfer will provide more 

certainty, as there is currently no such 

regulation, and that the proposed 

treatment is both practical and 

consistent with the policy of pro rata 

distribution.135

Regulation § 190.07(d)(4) requires a 

trustee to use reasonable efforts to 

prevent physical delivery property from 

being separated from commodity 

contract positions under which the 

property is deliverable. The 

Commission is proposing this regulation 

to clarify its expectations in such 

situations, specifically, to promote the 

delivery process. 

Regulation § 190.07(d)(5) is intended 

to prevent prejudice to customers 

generally by prohibiting the trustee from 

making a transfer that would result in 

insufficient customer property being 

available to make equivalent percentage 

distributions to all equity claim holders 

in the applicable account class. It 

clarifies that the trustee should make 

determinations in this context based on 

customer claims reflected in the FCM’s 

records, and, for customer claims that 

are not consistent with those records, 

should make estimates using reasonable 

discretion based in each case on 

available information as of the calendar 

day immediately preceding transfer. 

Regulation § 190.07(e) addresses the 

prohibition on avoidance of transfers 

under section 764(b) of the Bankruptcy 

Code. It explicitly approves specific 

types of transfers, unless such transfers 

are disapproved by the Commission. 

Section 190.07(e)(1) approves (i) 

transfers that were made before the 

order for relief in compliance with 

§ 1.17(a)(4) (FCM fails to meet capital 

requirements); (ii) pre-relief transfers, 

withdrawals or settlements at the 

request of public customers, unless the 

customer acted in collusion with the 

debtor to obtain a greater share than it 

would otherwise be entitled to; and (iii) 

pre-relief transfers of customer accounts 

or commodity contracts and other 

related property, either by a clearing 

organization or a receiver that has been 

appointed for the FCM that is now a 

debtor. In this context, ‘‘public 

customers’’ would include a lower-level 

(i.e., downstream) FCM acting on behalf 

of its own public customers (e.g., 

cleared at the debtor on an omnibus 

basis). 

Regulation § 190.07(e)(2) pertains to 

post-relief transfers. Section 764(b) of 

the bankruptcy code permits the 

Commission to approve, and thus 

protect from avoidance, transfers that 

occur up to seven days after the order 

for relief. Section 190.07(e)(2)(i) 

approves transfers of eligible 

commodity contract accounts or 

customer property made by the trustee 

or any clearing organization. Section 

190.07(e)(2)(ii) approves transfers made 

at the direction of the Commission upon 

such terms and conditions as the 

Commission may deem appropriate and 

in the public interest. 

Regulation § 190.07(e)(3) was referred 

to in preamble to the proposal as 

derived from current § 190.06(g)(3). It 

was inadvertently omitted from the rule 

text in the proposal. 

Section 190.07(e)(3) pertains to prerelief withdrawals by customers (in 

contrast to the transfers dealt with 

previously in § 190.07(e)(1)(ii)). It states 

(in terms analogous to § 190.07(e)(1)(ii)) 

that notwithstanding the provisions of 

paragraphs (c) and (d) of this section, 

the following transfers are approved and 

may not be avoided under sections 544, 

546, 547, 548, 549 or 724(a) of the 

Bankruptcy Code: The withdrawal or 

settlement of a commodity contract 

account by a public customer, including 

a public customer which is a 

commodity broker, prior to the filing 

date unless: (i) The customer making the 

withdrawal or settlement acted in 

collusion with the debtor or its 

principals to obtain a greater share of 

the bankruptcy estate than that to which 

such customer would be entitled in a 

bankruptcy distribution; or (ii) The 

withdrawal or settlement is disapproved 

by the Commission. 

Regulation § 190.07(f) provides that, 

notwithstanding the other provisions of 

this section (with exceptions discussed 

below), the Commission may prohibit 

the transfer of a particular set or sets of 

the commodity contract accounts and 

customer property, or permit the 

transfer of a particular set or sets of 

commodity contract accounts and 

customer property that do not comply 

with the requirements of the section. 

The exceptions are the policy in favor 

of avoiding the breaking of netting sets 

in § 190.07(d)(2)(ii), and the avoidance 

of prejudice to other customers in 

§ 190.07(d)(5). 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.07 as proposed with modifications 

to § 190.07(b), (d), and (e), as set forth 

above. 

6. Regulation § 190.08: Calculation of 

Funded Net Equity 

Section 190.08 is being adopted as 

proposed with a number of technical 

modifications, as set forth below. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.08, and raised particular questions 

with respect to the revisions to the 

calculation of the equity balance of a 

commodity contract set forth in 

proposed § 190.08(b)(1), and the 

appropriateness of the proposal to 

determine the value of an open 

commodity contract at the end of the 

last settlement cycle on the day 

preceding the transfer rather than at the 

end of the day of the transfer, as set 

forth in § 190.08(d)(1)–(2). 

As proposed, § 190.08(a) stated that 

the ‘‘allowed net equity claim of a 

customer shall be equal to the aggregate 

of the funded balances of such 

customer’s net equity claim for each 

account class.’’ As discussed above, the 

ABA Subcommittee urged that there 

should be more precise use of the term 

‘‘allowed claim.’’ 136 The Commission 

agrees with this recommendation. 

Accordingly, the Commission is 

amending the language in the proposal 

to replace the term ‘‘allowed net equity’’ 

with the term ‘‘funded net equity’’ in 

the final rule in both § 190.08(a) and in 

the title of § 190.08.137


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subsequent to the liquidation date, provisions that 

address how to deal with commodity contracts after 

that time are moot. 

138Pursuant to section 20(a)(5) of the CEA, 7 

U.S.C. 24(a)(5), the Commission has the power to 

provide how the net equity of a customer is to be 

determined. 

139See section II.A.2 above. 

140See CFTC Letter 19–17, https://www.cftc.gov/ 

node/217076. 

141 Id. at 5 (emphasis supplied). 

142See discussion of cash delivery property in 

section II.A.2, above. 

Section 190.08(b) sets forth the steps 

for a trustee to follow when calculating 

each customer’s net equity.138 Section 

190.08(b)(1), equity determination, sets 

forth the steps for a trustee to follow 

when calculating the equity balance of 

each commodity contract account of a 

customer. When calculating the 

customer’s claim against the debtor, the 

basis for calculating such claim is the 

data that appears in the debtor’s records. 

Once the customer’s claim based on the 

debtor’s records is calculated, the 

customer will have the opportunity to 

dispute such claim based on their own 

records, and the trustee may adjust the 

debtor’s records if it is persuaded by the 

customer. There were no comments 

directed specifically to this provision. 

Section 190.08(b)(2), customer 

determination (aggregation), provides 

instructions to the trustee regarding how 

to aggregate the credit and debit equity 

balances of all accounts of the same 

class held by a customer. Specifically, 

the regulation sets forth how to 

determine whether accounts are held in 

the same capacity or in separate 

capacities. There were two comments 

applicable to this provision. 

As proposed, § 190.08(b)(2)(ix) 

referred to the fact that an omnibus 

customer accounts is held in a separate 

capacity from the ‘‘house account.’’ As 

noted above,139 the ABA Subcommittee 

has suggested the deletion of the term 

‘‘house account’’ in the context of FCM 

bankruptcies, and the Commission has 

accepted this suggestion. Consistent 

with that approach, the Commission is 

accepting the ABA Subcommittee’s 

revised drafting for this provision: An 

omnibus customer account for public 

customers of a futures commission 

merchant maintained with a debtor 

shall be deemed to be held in a separate 

capacity from any omnibus customer 

account for non-public customers of 

such futures commission merchant and 

from any account maintained with the 

debtor on its own behalf or on behalf of 

any non-public customer (emphasis 

added only for illustration). 

As proposed, § 190.08(b)(2)(xii) 

provided that except as otherwise 

provided in this section, an account 

maintained with a debtor by an agent or 

nominee for a principal or a beneficial 

owner shall be deemed to be an account 

held in the individual capacity of such 

principal or beneficial owner. 

SIFMA AMG/MFA urged the 

Commission to amend this provision to 

‘‘treat accounts of the same principal or 

beneficial owner maintained by 

different agents or nominees as separate 

accounts,’’ noting that this approach 

would ‘‘reduce the administrative 

difficulties the trustee would face in 

consolidating all accounts of the same 

principal or beneficial owner’’ and 

would ‘‘avoid[] any confusion as to the 

treatment of separate accounts that 

could arise with the overlay of the timelimited relief provided by Letter 19– 

17.’’ 140 SIFMA AMG/MFA asserted that 

this change would be similar to the 

approach taken by the Commission in 

proposed § 190.08(b)(2)(xiv), which 

provides that accounts held by a 

customer in separate capacities shall be 

deemed to be accounts of different 

customers. 

The Commission notes that CFTC 

Letter 19–17 conditioned such relief on 

the FCM performing ‘‘stress testing and 

credit limits . . . on a combined 

account basis’’ and ‘‘provid[ing] each 

beneficial owner using separate 

accounts with a disclosure that under 

CFTC [p]art 190 rules all separate 

accounts of the beneficial owner will be 

combined in the event of an FCM 

bankruptcy.’’ 141 Thus, treating separate 

accounts of the same beneficial owner 

on a combined basis is entirely 

consistent with the approach taken in 

Letter 19–17. Nor is the situation of 

separate accounts for the same 

beneficial owner analogous to a 

customer holding accounts in separate 

capacities, as referred to in 

§ 190.08(b)(2)(xiv) (e.g., in their personal 

capacity versus in their capacity as 

trustee for X, or in their capacity as 

trustee for Y versus their capacity as 

trustee for Z.). In those latter cases, the 

same legal owner is acting for separate 

beneficial owners. Accordingly, the 

Commission is declining to amend 

§ 190.08(b)(2)(xii). 

Section 190.08(b)(3), setoffs, sets forth 

instructions regarding how and when to 

set off positive and negative equity 

balances. 

Section 190.08(b)(4), correction for 

distributions, provides that the value of 

property that has been transferred or 

distributed must be added to the net 

equity amount calculated for that 

customer after performing the steps 

contained in § 190.08(b)(1) through (3). 

Section 190.08(b)(4) also includes a 

proviso that clarifies that the calculation 

of net equity for any late-filed claims (in 

cases where all accounts for which there 

are customer claims of record as of the 

filing date are transferred with all of the 

equity pertaining thereto) will be based 

on the allowed amount of such claims. 

Section 190.08(b)(5), correction for 

ongoing events, provides that the 

calculation of net equity will be 

adjusted to correct for misestimates or 

errors, including corrections for the 

liquidation of claims or specifically 

identifiable property at a value different 

from the estimate value previously used 

in computing net equity. 

As proposed, § 190.08(c) set forth the 

method for calculation of a customer’s 

funded balance, i.e., ‘‘a customer’s pro 

rata share of the customer estate with 

respect to each account class available 

for distribution to customers of the same 

customer class.’’ Section 190.08(c)(1) 

sets forth instructions for calculating the 

funded balance of any customer claim, 

while § 190.08(c)(2) requires the funded 

balance to be adjusted to correct for 

ongoing events. 

One change is being made to 

paragraph (c)(1), as a result of 

addressing a comment that affected a 

prior section. As proposed, 

§ 190.08(c)(1)(ii) addressed giving 

customers credit for 100% of margin 

payments made after the order for relief. 

As discussed above,142 a number of 

commenters (ABA Subcommittee, CME, 

CMC), suggested that the definition of 

cash delivery property be expanded to 

address the possibility of post-filingdate payments made by customers to the 

FCM to pay for delivery. Such payments 

should be credited in full to the 

customer’s funded balance. Indeed, 

§ 190.06(a)(3)(ii)(B)(2) provides that the 

trustee could issue payment calls in this 

context and that ‘‘the full amount of any 

payment made by the customer in 

response to a payment call must be 

credited to the funded balance of the 

particular account for which such 

payment is made.’’ 

In order to be consistent with the 

principle that 100% of post-filing-date 

payments are credited to a customer’s 

funded balance, proposed 

§ 190.08(c)(1)(ii) is being amended, with 

the proposed language addressing postfiling-date margin payments to be 

codified as § 190.08(c)(1)(ii)(A), and the 

addition of § 190.08(c)(1)(ii)(B) to 

address post-filing-date payments for 

deliveries, to read as follows: ‘‘[then 

adding 100% of] . . . [f]or cash delivery 

property, any cash transferred to the 

trustee on or after the filing date for the 

purpose of paying for delivery.’’ 

Section 190.08(d), valuation, sets 

forth instructions about how to value 


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143 85 FR 36028. 

144The trustee’s employment of professionals 

remains subject to the requirements of section 327 

of the Bankruptcy Code. 

commodity contracts and other property 

for purposes of calculating net equity as 

set forth in the rest of § 190.08. 

Section 190.08(d)(1) sets forth 

instructions regarding how to value 

commodity contracts, separately 

addressing: (i) Open commodity 

contracts, and (ii) liquidated commodity 

contracts. 

As proposed, § 190.08(d)(1)(i), 

regarding the valuation of open 

commodity contracts, states that ‘‘if an 

open commodity contract is transferred 

to another commodity broker, its value 

on the debtor’s books and records shall 

be determined as of the end of the last 

settlement cycle on the day preceding 

such transfer.’’ The Commission noted 

in the proposal that ‘‘[t]his would allow 

the value of the open commodity 

contract to be known prior to the 

transfer,’’ 143 and, as discussed above, 

specifically sought comments on this 

issue. 

The Commission received contrasting 

comments on this provision. ICE ‘‘d[id] 

not believe that valuation is the right 

one, particularly because the market 

may move significantly on the date of 

transfer.’’ By contrast, CME ‘‘agree[d]’’ 

with valuation as of the end the last 

settlement cycle on the day preceding 

transfer, because it aligns with 

calculations of funded balances under 

proposed § 190.08(c), and noted that 

‘‘any mark-to-market gains or losses on 

the date of the transfer should be 

reflected by the receiving FCM(s) in the 

customer account statements as a result 

of that day’s settlement cycle.’’ The 

Commission is persuaded by the latter 

comment, and will adopt the provision 

as proposed, both for the reasons stated 

by the latter commenter, and because of 

concerns regarding practicability. 

Markets move on a continuous basis so 

long as they are open and, considering 

markets around the world, some 

markets on which futures, foreign 

futures, or cleared swaps are traded are 

moving at all times other than over a 

weekend. 

Section 190.08(d)(1)(ii)(A) allows the 

trustee to use the weighted average of 

liquidation prices for identical 

commodity contracts that are liquidated 

within a 24-hour period or business day, 

but not at the same price. 

Section 190.08(d)(1)(ii)(B) provides 

instructions on how to value commodity 

contracts that are liquidated as part of 

a bulk auction by a clearing organization 

or similarly outside of the open market. 

As proposed, this provision would 

value a commodity contract that is 

liquidated as part of a bulk auction at 

the settlement price calculated by the 

clearing organization as of the end of the 

settlement cycle during which the 

commodity contract was liquidated. ICE 

disagreed with this approach, stating 

that ‘‘the price achieved in the auction 

should be used.’’ However, as the 

Commission noted in the proposing 

release, the units being auctioned will 

often be a heterogenous (though riskrelated) set of products, tenors (e.g., 

contract months), and directions (e.g., 

long or short). Different auctioned 

portfolios may contain the same or 

similar contracts. In this context, setting 

the price of a particular contract based 

on the auction price for a portfolio 

would require considerable 

interpretation. Accordingly, the 

Commission will implement the 

approach from the proposal. 

Section 190.08(d)(2) sets forth the 

approach for valuing listed securities, 

and incorporates the same weighted 

average concept discussed above with 

respect to § 190.08(d)(1)(ii)(A). 

Section 190.08(d)(3) sets forth the 

approach for valuing commodities held 

in inventory, directing the trustee to use 

fair market value. If such fair market 

value is not readily ascertainable from 

public sources of prices, the trustee is 

directed to use the approach in 

§ 190.08(d)(5), discussed below. 

Section 190.08(d)(4) addresses the 

valuation of letters of credit. The trustee 

is directed to use the face amount (less 

amounts, if any, drawn and 

outstanding). However, if the trustee 

makes a determination in good faith that 

a draw is unlikely to be honored on 

either a temporary or permanent basis, 

they are directed to use the approach in 

paragraph (d)(5). 

Section 190.08(d)(5) provides the 

trustee with pragmatic flexibility in 

determining the value of customer 

property by allowing the trustee, in their 

sole discretion, to enlist the use of 

professional assistance to value all other 

customer property.144 This provision 

further notes that, if such property is 

sold, its value for purposes of the 

calculations required by this part is 

equal to the actual value realized on sale 

of such property (the trustee, of course, 

retains discretion to engage professional 

assistance to allocate such value among 

a heterogenous set of items sold as a 

unit). Finally, the provision notes that 

any such sale shall be made in 

compliance with all applicable statutes, 

rules, and orders of any court or 

governmental entity with jurisdiction 

thereover. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, § 190.08 is being adopted as 

proposed, with modifications to the title 

and to § 190.08(a), (b), and (c), as set 

forth above. 

7. Regulation § 190.09: Allocation of 

Property and Allowance of Claims 

Section 190.09 is being adopted to set 

forth rules governing the scope of 

customer property, the allocation of 

customer property between customer 

and account classes, and distribution of 

customer property. It was derived from 

current § 190.08. It is being adopted as 

proposed with modifications to 

§ 190.09(d)(3), as set forth below. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.09. The Commission also raised 

particular questions with respect to: 

Whether the proposed revisions to 

§ 190.09(a)(1) would appropriately 

preserve customer property for the 

benefit of customers; whether proposed 

§ 190.09(a)(1)(ii)(G), concerning 

property that other regulations require 

to be placed into segregation, and 

§ 190.09(a)(1)(ii)(L), concerning 

remaining shortfalls, are appropriately 

crafted; whether it is advisable to permit 

customers to post ‘‘substitute customer 

property’’ rather than ‘‘cash’’ in 

proposed § 190.09(d); and whether it is 

appropriate to clarify the term ‘‘likekind securities’’ by reference to the 

concept, derived from SIPA, of 

‘‘securities of the same class and series 

of an issuer?’’ 

There are three substantive changes in 

new § 190.09, as compared to current 

regulations: 

Section 190.09(a)(1)(ii)(G) and (L) are 

two categories of property that are 

defined to be included in customer 

property in order better to protect 

customers from shortfalls in customer 

property (i.e., cases where customer 

property is insufficient to cover claims 

for customer property). 

Section 190.09(a)(1)(ii)(G) is a new 

category of property that constitutes 

customer property. It includes any cash, 

securities, or other property which 

constitutes current assets of the debtor, 

including the debtor’s trading or 

operating accounts and commodities of 

the debtor held in inventory, in the 

greater of (i) the amount of the debtor’s 

targeted residual interest amount 

pursuant to § 1.11 with respect to each 

account class, or (ii) the debtor’s 

obligations to cover debit balances or 

undermargined amounts as provided in 

§§ 1.20, 1.22, 22.2 and, 30.7. Each of the 

sets of regulations referred to in 

proposed § 190.09(a)(1)(ii)(G) requires 

an FCM to put certain funds into 


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145 ICE notes that the issues with respect to this 

provision may be complicated, and that it may 

warrant further consideration, but ultimately 

expresses no view on it. 

146See generally SIPA section 8(c)(1), 15 U.S.C. 

78fff–2(c)(1). 

segregation on behalf of customers. To 

the extent the FCM has failed to comply 

with those regulatory requirements prior 

to the filing of the bankruptcy, this 

provision requires the bankruptcy 

trustee to fulfill that requirement, and 

allows the trustee to use the current 

assets of the debtor to do that. 

CME stated that this new provision is 

a ‘‘substantial improvement over the 

current rule,’’ and it was also supported 

by ICI and Vanguard. 

Section 190.09(a)(1)(ii)(L) is the 

analog to current § 190.08(a)(1)(ii)(J) but 

with updated cross-references (and a 

new second sentence, discussed in the 

next paragraph). It states that customer 

property includes any cash, securities, 

or other property in the debtor’s estate, 

but only to the extent that the customer 

property under the other definitional 

elements is insufficient to satisfy in full 

all claims of the FCM’s public 

customers.145

A new second sentence of 

§ 190.09(a)(1)(ii)(L) notes explicitly that 

customer property for purposes of these 

regulations includes any ‘‘customer 

property,’’ as that term is defined in 

SIPA, that remains after satisfaction of 

the provisions in SIPA regarding 

allocation of (securities) customer 

property. SIPA provides that such 

remaining customer property would be 

allocated to the general estate of the 

debtor.146 Any securities customer 

property that remains after satisfaction 

in full of securities claims provided for 

in that section of SIPA proceeding and 

would accordingly become property of 

the general estate should, to the extent 

otherwise provided in proposed 

§ 190.09(a)(1)(ii)(L), and for the same 

reasons, become customer property in 

the FCM bankruptcy proceeding. 

Section 190.09(d) governs the 

distribution of customer property, and 

has its analog in current § 190.08(d). 

Section 190.09(d)(1)(i) and (ii) and (d)(2) 

require customers to deposit ‘‘substitute 

customer property,’’ to obtain the return 

or transfer of specifically identifiable 

property. ‘‘Substitute customer 

property’’ is defined in § 190.01 to mean 

(in relevant part) ‘‘cash or cash 

equivalents.’’ ‘‘Cash equivalents,’’ in 

turn, are defined as ‘‘assets, other than 

United States dollar cash, that are 

highly liquid such that they may be 

converted into United States dollar cash 

within one business day without 

material discount in value.’’ 

The purpose of requiring customers 

to, in essence, ‘‘buy back’’ specifically 

identifiable property is to implement 

the pro rata distribution principle set 

forth in section 766(h) of the 

Bankruptcy Code, and discussed in 

§ 190.00(d)(5). Permitting customers to 

redeem specifically identifiable 

property with either cash or cash 

equivalents, rather than requiring cash, 

may mitigate the difficulty (and costs) 

such customers face in obtaining 

redemption, but will in any event fully 

implement the pro rata distribution 

principle. 

As a technical point, the ABA 

Subcommittee recommended 

(consistent with their recommendation 

in the definitions section, § 190.01, to 

more precisely use the term ‘‘allowed 

net equity’’) that the reference in 

proposed § 190.09(d)(3) to the amount 

distributable on a customer’s claim be 

amended to add ‘‘[the] funded balance 

of’’ before the phrase ‘‘such customers 

allowed net equity claim.’’ The 

Commission agrees, and is making the 

change. 

The remaining provisions of revised 

§ 190.09 include only technical changes 

to the current regulations. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, § 190.09 will be adopted as 

proposed, with the modification to 

§ 190.09(d)(3) referred to above. 

8. Regulation § 190.10: Provisions 

Applicable to Futures Commission 

Merchants During Business as Usual 

The Commission proposed § 190.10 to 

contain new and relocated provisions 

that set forth an FCM’s obligations 

during business as usual. The 

Commission requested comment with 

respect to all aspects of proposed 

§ 190.10, and specifically with respect 

to (1) the impact of proposed § 190.10(b) 

regarding the designation of hedging 

accounts, (2) the impact of proposed 

§ 190.10(c) regarding the establishment 

of delivery accounts during business as 

usual, (3) the changes in proposed 

§ 190.10(d) to the business as usual 

requirements for acceptance of letters of 

credit, and in particular (a) whether its 

understanding is correct that most 

letters of credit currently in use by the 

industry follow the JAC forms, (b) the 

impact of additional requirements 

concerning letters of credit (as well as 

any alternative methods of achieving the 

goal of treating customers posting letters 

of credit consistent with the treatment 

of other customers), and (c) whether the 

proposed one year transition period is 

reasonable, and (4) the disclosure 

statement for non-cash margin set out in 

proposed § 190.10(e) (whether the 

statement is helpful, legally or 

practically, whether it should be 

changed, or whether it should be 

deleted). 

Section 190.10 will be adopted as 

proposed with modifications. In 

particular, the ABA Subcommittee and 

CME suggested that the provisions in 

proposed § 190.10 be codified in part 1, 

along with other regulations that pertain 

to an FCM’s business as usual. The ABA 

Subcommittee stated that, while they 

had originally suggested that these 

provisions belong in § 190.10, ‘‘[u]pon 

further reflection, the Committee 

believes that such a rule more logically 

belongs in the Commission’s Part 1 

Regulations, along with other rules that 

apply to FCMs during business as usual. 

Compliance and legal personnel could 

inadvertently overlook obligations that 

are not located in the Commission rule 

set where they would expect to find 

them.’’ 

The Commission agrees with the 

commenters that transparency would be 

fostered by putting the ‘‘business as 

usual’’ requirements proposed for 

§ 190.10 into part 1 of the Commission’s 

regulations. Accordingly, as discussed 

further below, most of the paragraphs of 

the regulation that was proposed as 

§ 190.10 are being renumbered and will 

be codified in specified places in part 1. 

The provisions of proposed § 190.10 

will otherwise be adopted as proposed. 

The provision proposed as § 190.10(a) 

notes that an FCM is required to 

maintain current records relating to its 

customer accounts, pursuant to §§ 1.31, 

1.35, 1.36, and 1.37, and in a manner 

that would permit them to be provided 

to another FCM in connection with the 

transfer of open customer contracts of 

other customer property. This provision 

recognizes that current and accurate 

records are imperative in arranging for 

the transfer of customer contracts and 

other property, both for the trustee of 

the estate of the defaulter and for an 

FCM that is accepting the transfer. 

Nonetheless, it does not add to an 

FCM’s obligations under the specified 

regulations, but rather is useful as a 

reference for the trustee. Accordingly, 

this provision will not be moved to part 

1. 

No comments were received with 

respect to the substance of proposed 

§ 190.10(a). As the remaining 

paragraphs of proposed § 190.10 will be 

moved to part 1, this provision will be 

codified as § 190.10. 

The provision proposed as § 190.10(b) 

concerns the designation of hedging 

accounts. It incorporates concepts 

contained in current §§ 190.04(e) and 

190.06(d) and the current Bankruptcy 

appendix form 3 instructions. As it sets 


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147See § 190.06 regarding the making and taking 

of deliveries during bankruptcy. 

148CME again recommended that the Commission 

consider adopting customer protection 

requirements with respect to delivery accounts via 

a separate rulemaking. 

149The Joint Audit Committee (‘‘JAC’’) forms for 

an Irrevocable Standby Letter of Credit (both PassThrough and Non Pass-Through) appear to be 

consistent with the requirements of § 1.43. 

150See, e.g., 48 FR 8716, 8718 (March 1, 1983) 

(Adopting release for part 190); Proposal, 86 FR at 

36019 & n. 103. 

151See, e.g. Brief of the Commodity Futures 

Trading Commission In Support Of The Trustee’s 

Motion To Confirm in ConocoPhillips v. Giddens, 

Case No. 1:12–cv–06014–KBF, Document 33. 

forth obligations for an FCM during 

business as usual, it will be moved to 

part 1. As it does not fit under any 

existing part 1 regulation, it will be 

moved under the miscellaneous heading 

of part 1, and codified as § 1.41. 

For purposes of § 1.41, a customer 

will not need to provide, and an FCM 

will not be required to judge, evidence 

of hedging intent for purposes of 

bankruptcy treatment. Rather, § 1.41 

will permit the FCM to treat the account 

as a hedging account for such purposes 

based solely upon the written record of 

the customer’s representation. Hedging 

treatment for these bankruptcy purposes 

will not be determinative for any other 

purpose. 

Section 1.41(a) will require an FCM to 

provide a customer an opportunity to 

designate an account as a hedging 

account when the customer first opens 

the account, rather than when the 

customer undertakes its first hedging 

contract, as specified in current 

§ 190.06(d)(1). This provision will also 

require that the FCM indicate 

prominently in its accounting records 

for each customer account whether the 

account is designated as a hedging 

account. 

Section 1.41(b) will set forth the 

requirements for an FCM to treat an 

account as a hedging account: If, but 

only if, the FCM obtains the customer’s 

written representation that the 

customer’s trading in the account will 

constitute hedging as defined under any 

relevant Commission regulation or rule 

of a DCO, DCM, SEF, or FBOT. CME 

supported this approach, and the clarity 

it adds. 

In order to avoid the significant 

burden that would be associated with 

requiring FCMs to re-obtain hedging 

instructions for existing accounts, 

§ 1.41(c) will provide that the 

requirements of § 1.41(a) and (b) do not 

apply to commodity contract accounts 

opened prior to the effective date of 

these revisions. Rather, the provision 

will recognize expressly that an FCM 

may continue to designate existing 

accounts as hedging accounts based on 

written hedging instructions obtained 

under former § 190.06(d). 

Finally, § 1.41(d) will permit an FCM 

to designate an existing futures, foreign 

futures or cleared swaps account of a 

particular customer as a hedging 

account, provided that the FCM obtains 

the representation required under 

§ 1.41(b). 

The provision proposed as § 190.10(c) 

addresses the establishment of delivery 

accounts during business as usual.147 As 

it sets forth obligations for an FCM 

during business as usual, it will be 

moved to part 1. As it does not fit under 

any existing part 1 regulation, it will be 

moved under the miscellaneous 

heading, and codified as § 1.42. 

When a commodity contract is in the 

delivery phase, or when a customer has 

taken delivery of commodities that are 

physically delivered, associated 

property may be held in a ‘‘delivery 

account’’ rather than in the segregated 

accounts pursuant to, e.g., § 1.20 or 

§ 22.2. Section 1.42 recognizes that 

when an FCM facilitates delivery under 

a customer’s physical delivery contract, 

and such delivery is effected outside of 

a futures account, foreign futures 

account, or cleared swaps account, it 

must be effected through (and the 

associated property held in) a delivery 

account. If, however, the commodity 

that is subject to delivery is a security, 

the FCM may effect delivery through 

(and the property may be held in) a 

securities account. The regulation 

clarifies that the property must be held 

in one of these types of accounts. ICE 

and CME generally support this 

provision.148

The provision proposed as § 190.10(d) 

addresses letters of credit that an FCM 

accepts as collateral. As it sets forth 

obligations for an FCM during business 

as usual, it will be moved to part 1. As 

it does not fit under any existing part 1 

regulation, it will be moved under the 

miscellaneous heading, and codified as 

§ 1.43. 

Section 1.43 will prohibit an FCM 

from accepting a letter of credit as 

collateral unless certain conditions (1) 

are met at the time of acceptance and (2) 

remain true through its date of 

expiration. 

First, pursuant to § 1.43(a), the trustee 

must be able to draw upon the letter of 

credit, in full or in part, in the event of 

a bankruptcy proceeding, the entry of a 

protective decree under SIPA, or the 

appointment of FDIC as receiver 

pursuant to Title II of the Dodd-Frank 

Act. Second, pursuant to § 1.43(b), if the 

letter of credit is permitted to be and is 

passed through to a clearing 

organization, the bankruptcy trustee for 

such clearing organization or (if 

applicable) FDIC must be able to draw 

upon the letter of credit, in full or in 

part, in the event of a bankruptcy 

proceeding, or where the FDIC is 

appointed as receiver pursuant to Title 

II. 

The Commission has considered the 

impact that implementation of this 

regulation would have on FCMs and 

their customers, since letters of credit 

are currently in use by the industry.149

The Commission proposed that, upon 

the effective date of the regulation, what 

is now codified as § 1.43 would apply 

only to new letters of credit and 

customer agreements. In order to 

mitigate the impact of implementing 

this regulation with respect to existing 

letters of credit and customer 

agreements, the Commission proposed a 

transition period of one year from the 

effective date until § 1.43 will apply to 

existing letters of credit and customer 

agreements. 

CME supported this one-year 

transition period. By contrast, SIFMA 

AMG/MFA urged the Commission to 

shorten it in the interest of investor 

protection. They asked how letters of 

credit would be treated if an FCM were 

to go into bankruptcy during the 

transition period? 

The provisions in this rulemaking 

regarding letters of credit are intended 

to codify the Commission’s 

longstanding policy that ‘‘customers 

using a letter of credit to meet original 

margin obligations [sh]ould be treated 

no differently than customers depositing 

other forms of non-cash margin or 

customers with excess cash margin 

deposits.’’ 150 This is the policy that has 

been advanced by the Commission, 

including in litigation,151 under the 

current rules. Moreover, this policy is 

supported by the provision in revised 

§ 190.04(d)(3)(ii) that, for a letter of 

credit posted as collateral, ‘‘the trustee 

shall treat any portion that is not drawn 

upon (less the value of any substitute 

customer property delivered by the 

customer) as having been distributed to 

the customer for purposes of calculating 

entitlements to distribution or transfer.’’ 

That provision is not subject to the oneyear transition period. 

While the Commission will decline to 

shorten the one-year transition period 

for existing letters of credit, trustees will 

be expected to treat such letters of credit 

in accordance with the Commission’s 

policy. 

The provision proposed as § 190.10(e) 

concerns the disclosure statement for 

non-cash margin. No comments were 

received specific to this provision. 


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152After considering comments that were 

received on the original Proposal, the Commission 

subsequently issued a Supplemental Proposal that 

withdrew § 190.14(b)(2) and (3), and proposed other 

revisions to § 190.14. Bankruptcy Regulations, 85 

FR 60110 (Sept. 24, 2020). 

153At the time, the definition of clearing 

organization in section 761(2) of the Bankruptcy 

Code was an ‘‘organization that clears commodity 

contracts on, or subject to the rules of, a contract 

market or board of trade.’’ See Public Law 95–598 

(1978), 92 Stat 2549. 

154 46 FR 57535, 57545 (Nov. 24, 1981). 

155Commodity Futures Modernization Act of 

2000 Public Law 106–554 section 1(a)(5); Appendix 

E, section 112(f). 

156See Dodd-Frank section 804 (designation of 

systemic importance), section 803(8) (definition of 

‘‘supervisory agency’’), 12 U.S.C. 5463, 5462(8). 

These are CME and ICE Clear Credit. A third 

clearing organization (Options Clearing 

Corporation) has also been so designated, but the 

SEC is the supervisory agency in that case. 

157Resolution under Title II would require a 

recommendation concerning factors specified in 

section 203(a)(2) of Dodd-Frank, 12 U.S.C. 

5383(a)(2), by a 2⁄3 majority of the members then 

serving of each of the Board of Governors of the 

Federal Reserve System and of the FDIC, followed 

by a determination concerning a related set of 

factors specified in section 203(b), 12 U.S.C. 

5383(b), by the Secretary of the Treasury in 

consultation with the President. Thus, the choice of 

resolution versus bankruptcy for a DCO that is, in 

the terminology of Dodd-Frank, ‘‘in default or in 

danger of default,’’ see Dodd-Frank section 

203(c)(4), 12 U.S.C. 5383(c)(4), cannot be 

considered certain. 

It is, however, clear that Title II applies to 

clearing organizations. See, e.g., Dodd-Frank section 

210(m), 12 U.S.C. 5390(m) (applying ‘‘the 

provisions of subchapter IV of chapter 7 of the 

bankruptcy code’’ to ‘‘member property’’ of 

‘‘commodity brokers’’). Pursuant to section 761(16) 

of the Bankruptcy Code, ‘‘member property’’ 

applies only to a debtor that is a ‘‘clearing 

organization.’’ 11 U.S.C. 761(16). 

158 12 U.S.C. 5390(a)(7)(B). 

159 12 U.S.C. 5390(d)(2). 

160For the sake of completeness, it should be 

noted that section 210(d)(2), 12 U.S.C. 5390(d)(2), 

provides, as an additional comparator, ‘‘any similar 

provision of State insolvency law applicable to the 

covered financial company.’’ Given Federal 

regulation of DCOs, it would appear that this phrase 

is inapplicable. Similarly, section 210(d)(3), 12 

U.S.C. 5390(d)(3), which refers to covered financial 

companies that are brokers or dealers resolved by 

SIPC, is also inapplicable here, given the 

inconsistency in being both a DCO and a brokerdealer. 

As it sets forth obligations for an FCM 

during business as usual, it will be 

moved to part 1. This provision does fit 

under existing § 1.55 (Public disclosures 

by futures commission merchants), and 

will be added at the end, codified as 

§ 1.55(p). 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, § 190.10 will be adopted as 

proposed, with modifications: Proposed 

§ 190.10(a) will be codified as § 190.10, 

proposed § 190.10(b) will be codified as 

§ 1.41, proposed § 190.10(c) will be 

codified as § 1.42, proposed § 190.10(d) 

will be codified as § 1.43, and proposed 

§ 190.10(e) will be codified as § 1.55(p). 

C. Subpart C—Clearing Organization as 

Debtor 

The Commission is adopting a new 

subpart C of part 190 (proposed 

§§ 190.11–190.19), with certain 

modifications discussed below, to 

address the currently unprecedented 

scenario of a clearing organization as 

debtor.152

The customers of a clearing 

organization are its members, 

considered separately in two roles: (1) 

Each member may have a proprietary 

(also known as ‘‘house’’) account at the 

clearing organization, on behalf of itself 

and its non-public customers (i.e., 

affiliates). The property that the clearing 

organization holds in respect of these 

accounts is referred to as ‘‘member 

property.’’ (2) Each member may have 

one or more accounts (e.g., futures, 

cleared swaps) for that members’ public 

customers. The property that the 

clearing organization holds in respect of 

these accounts is referred to as 

‘‘customer property other than member 

property.’’ Many clearing members will 

have both such types of accounts, 

although some may have only one or the 

other. 

1. Regulation § 190.11: Scope and 

Purpose of Subpart C 

The Commission is adopting § 190.11 

as proposed, but designated as new 

paragraph (a), and adding a new 

paragraph (b), as set forth below. The 

Commission is adopting § 190.11 to 

establish that subpart C of part 190 will 

apply to proceedings under subchapter 

IV to chapter 7 of the Bankruptcy Code 

where the debtor is a clearing 

organization. 

When originally proposing part 190 in 

1981, the Commission proposed to (and 

ultimately did) forego providing 

generally applicable rules for the 

bankruptcy of a clearing organization.153

The Commission explained that it had 

proposed no other rules with respect to 

the operation of clearing organization 

debtors—other than proposing that all 

open commodity contracts, even those 

in a deliverable position, be liquidated 

in the event of a clearing organization 

bankruptcy—because the Commission 

viewed it as highly unlikely that an 

exchange could maintain a properly 

functioning futures market in the event 

of the collapse of its clearing 

organization. The Commission noted 

that, under section 764(b)(2) of the 

Bankruptcy Code, it had the power to 

permit a distribution of the proceeds of 

a clearing organization liquidation free 

from the avoidance powers of the 

trustee. The Commission further 

explained that it was not proposing a 

general rule, because the bankruptcy of 

a clearing organization would be 

unique. Instead, the Commission was 

inclined to take a case-by-case approach 

with respect to clearing organizations, 

given the potential for market 

disruption and disruption of the 

nation’s economy as a whole, in the case 

of a clearing organization bankruptcy, as 

well as the desirability of the 

Commission’s active participation in 

developing a means of meeting such an 

emergency.154

Much has changed in the intervening 

39 years. Markets move much more 

quickly, and thus the importance of 

quick action in respect to the 

bankruptcy of a clearing organization 

has increased. The Commodity Futures 

Modernization Act established DCOs as 

a separate registration category.155 The 

bankruptcy of a clearing organization 

would remain unique—it remains the 

case that no clearing organization 

registered with the Commission has ever 

entered bankruptcy—and thus the need 

for significant flexibility remains, but 

the balance has shifted towards 

establishing ex ante the approach that 

would be taken. 

Two clearing organizations for which 

the Commission has been designated the 

agency with primary jurisdiction have 

been designated as systemically 

important to the United States financial 

system pursuant to Title VIII of DoddFrank.156 If any clearing organization 

were to approach insolvency, it is 

possible, though not certain, that such 

an entity would be resolved pursuant to 

Title II of Dodd-Frank.157

Administration of a resolution under 

Title II of Dodd-Frank depends, in part, 

on clarity as to entitlements under 

chapter 7 of the Bankruptcy Code. 

Specifically, section 210(a)(7)(B) of 

Dodd-Frank 158 provides with respect to 

claims against the covered financial 

agency in resolution, that ‘‘a creditor 

shall, in no event, receive less than the 

amount that the creditor is entitled to 

under paragraphs (2) and (3) of 

subsection (d), as applicable.’’ Tracing 

to the cross-referenced subsection, 

section 210(d)(2) 159 provides that the 

maximum liability of the FDIC to a 

claimant is the amount that the claimant 

would have received if the FDIC had not 

been appointed receiver, and (instead), 

the covered financial company had been 

liquidated under chapter 7 of the 

Bankruptcy Code.160 Thus, it is 

important to have a clear 

‘‘counterfactual’’ that establishes what 

creditors would be entitled to in the 

case of the liquidation of a clearing 


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161As noted above, the Commission has 

traditionally focused its efforts on the protection of 

the public customers of FCM members of such 

foreign DCOs. In a DCO bankruptcy, the 

Commission believes that the application of these 

three regulations would be critical to fulfilling the 

agency’s mission to protect customers. 

organization under chapter 7 

(subchapter IV) of the Bankruptcy Code. 

Although the Commission believes 

that the potential—albeit 

unprecedented—scenario of a clearing 

organization as debtor would require 

significant flexibility, the Commission 

also believes it necessary and 

appropriate to establish an ex ante set 

of regulations for such a scenario. 

The Commission requested comment 

regarding the proposed scope of subpart 

C, as set forth in proposed § 190.11. The 

Commission also specifically asked 

commenters whether they supported or 

opposed the establishment of an 

explicit, bespoke set of regulations for 

the bankruptcy of a clearing 

organization. 

The Commission received two 

comments that raised concerns about 

how the proposed subpart C regulations 

would apply in the case of a debtor 

clearing organization that is organized 

and/or domiciled in a foreign country. 

SIFMA AMG/MFA commented that 

‘‘Part 190 should include a clear 

statement of public policy . . . that if an 

insolvency proceeding is commenced in 

respect of a DCO located outside the 

United States, such home country 

proceeding should take precedence over 

any case under the [U.S.] Bankruptcy 

Code.’’ 

ICE commented that such a clearing 

organization, if insolvent, ‘‘is likely to 

be subject to an insolvency proceeding 

in its home jurisdiction.’’ ICE also 

commented that many such DCOs ‘‘have 

significant assets (including for this 

purpose, the assets of clearing members 

and their customers.’’ In particular, ICE 

stated that ‘‘a foreign DCO may have, in 

addition to the customer account classes 

contemplated by the CEA and CFTC 

regulations (and the Part 190 

regulations), one or more classes of 

customer accounts that are required to 

be segregated or separately accounted 

for under applicable foreign law, 

generally for the protection of foreign 

clearing members and their customers.’’ 

ICE further commented that, ‘‘[t]o the 

extent the Part 190 rules mandate a 

distribution scheme for property of the 

[DCO in bankruptcy] that would be 

inconsistent with foreign law applicable 

to the DCO, and that could disadvantage 

foreign members or their customers, 

significant conflicts may arise . . . .’’ 

ICE suggested two alternative 

approaches for the Commission to 

consider: (1) The ‘‘Commission could 

provide that the new Part 190 

regulations would not apply to a foreign 

DCO;’’ or (2) ‘‘[a]lternatively, the 

Commission could provide that the new 

Part 190 regulations, including the 

distributional regime, would apply only 

to the separate customer account class 

structure provided for under U.S. law 

(futures, cleared swaps and foreign 

futures), to the extent carried through 

FCM clearing members.’’ 

After considering the comments, the 

Commission is adopting § 190.11 with 

modifications. With respect to the 

protection of customer property in 

connection with foreign DCOs, the 

Commission has traditionally focused 

its efforts on the protection of the public 

customers of FCM members of such 

foreign DCOs. While protecting public 

customers of FCM members of foreign 

DCOs would not be well served by 

disapplying part 190 in the case of 

foreign DCOs, as suggested in ICE’s first 

approach, as well as in the comment by 

SIFMA AMG/MFA, balancing the goal 

of protecting public customers of FCM 

members with the goal of mitigating 

conflict with foreign proceedings would 

appear to be supported by following 

ICE’s second approach, and limiting the 

applicability of part 190, in the case of 

a foreign DCO subject to a proceeding in 

its home jurisdiction, to focus on the 

contracts and property of public 

customers of FCM members. 

In order to balance the goal of 

protecting public customers of FCM 

members with the goal of mitigating 

conflict with foreign proceedings, the 

Commission believes it to be 

appropriate that, in a situation where a 

debtor clearing organization is 

organized outside the United States and 

is subject to a foreign bankruptcy 

proceeding, part 190 should apply as 

follows. First, the Commission believes 

it to be appropriate that subpart A 

should apply to such proceedings, given 

that those provisions set forth core 

concepts, definitions and general 

provisions. Second, the Commission 

believes it to be appropriate that 

§ 190.12 should apply to such 

proceedings, given that the regulation 

sets forth requirements for records and 

reporting, which are critical in such 

proceedings. And third, the Commission 

believes it to be appropriate that three 

regulations should be applicable in a 

limited fashion, to focus on the 

contracts and property of public 

customers of FCM members: 161 (1) 

§ 190.13, setting forth the prohibition on 

avoidance of transfers, but only with 

respect to futures and cleared swaps 

contracts cleared by FCM clearing 

members on behalf of their public 

customers; (2) § 190.17, setting forth the 

calculation of net equity; and (3) 

§ 190.18, setting forth the treatment of 

property. In such a scenario, §§ 190.13, 

190.17, and 190.18 would only apply 

with respect to: (1) Claims of FCM 

clearing members on behalf of their 

public customers; and (2) property that 

is or should have been segregated for the 

benefit of FCM clearing members’ 

public customers, or that has been 

recovered for the benefit of FCM 

clearing members’ public customers. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is: (1) Adopting 

the language of § 190.11 as proposed, 

but designated as new paragraph (a); 

and (2) modifying proposed § 190.11 by 

adding the following as new paragraph 

(b): If the debtor clearing organization is 

organized outside the United States, and 

is subject to a foreign proceeding, as 

defined in 11 U.S.C. 101(23), in the 

jurisdiction in which it is organized, 

then only the following provisions of 

part 190 shall apply: (1) Subpart A; (2) 

§ 190.12; (3) § 190.13, but only with 

respect to futures contracts and cleared 

swaps contracts cleared by FCM 

clearing members on behalf of their 

public customers and the property 

margining or securing such contracts; 

and (4) §§ 190.17 and 190.18, but only 

with respect to claims of FCM clearing 

members on behalf of their public 

customers, as well as property that is or 

should have been segregated for the 

benefit of FCM clearing members’ 

public customers, or that has been 

recovered for the benefit of FCM 

clearing members’ public customers.’’ 

2. Regulation § 190.12: Required Reports 

and Records 

The Commission is adopting § 190.12 

to establish the recordkeeping and 

reporting obligations of a debtor clearing 

organization and/or trustee in a 

bankruptcy proceeding under subpart C. 

The operations of a clearing 

organization are extremely timesensitive. For example, § 39.14 requires 

that a clearing organization complete 

settlement with each clearing member at 

least once every business day. It is thus 

critical that the Commission receive 

notice of a DCO bankruptcy in an 

extraordinarily rapid manner. Similarly, 

the trustee that is appointed (as well as 

the Commission) must receive critical 

documents rapidly, and proper notice 

should be provided to the DCO’s 

members. 

Regulation § 190.12 sets forth the 

timing and content of notices that must 

be provided to the Commission and the 

DCO’s members, as well as the timing 

and content of reports and records that 


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162While § 190.03(a)(2), as amended herein, 

applies to notice to an FCM’s customers, and 

§ 190.12(a)(1)(ii) applies to notice to a clearing 

organization’s members, the means of giving notice 

are identical. For a discussion of how these notice 

provisions differ from the prior iteration of part 190, 

please refer to the discussion of § 190.03(a) above. 163Commodity broker bankruptcies are rare, and 

outside the experience of most chapter 7 trustees, 

who are chosen from a panel of private trustees 

eligible to serve as such for all chapter 7 cases. See 

generally 11 U.S.C. 701(a)(1), 28 U.S.C. 586(a)(1). 

Historically, Commission staff, on being notified of 

an impending commodity broker bankruptcy, have 

worked with the office of the relevant regional 

United States Trustee, see generally 28 U.S.C. 581 

et seq., to identify, and have then briefed, the 

chapter 7 trustee that would then be appointed. 

This would be even more important in the context 

of a clearing organization bankruptcy. 

164See § 39.19(c)(4)(xxiv). 

165The trustee of a corporation in bankruptcy 

controls the corporation’s attorney-client privilege 

for pre-bankruptcy communications. Commodity 

Futures Trading Comm’n v. Weintraub, 471 U.S. 

343 (1985). Production to the Commission pursuant 

to the proposed regulation would not waive that 

privilege (although voluntary production would). 

See, e.g., U.S. v. de la Jara, 973 F.2d 746, 749 (9th 

Cir. 1992) (‘‘a party does not waive the attorneyclient privilege for documents which he is 

compelled to produce’’) (emphasis in original); 

Office of Comptroller of the Currency Interpretative 

Letter, 1991 WL 338409 (with respect to ‘‘internal 

Bank documents’’ that are ‘‘subject to the attorneyclient privilege’’ and are ‘‘requested by OCC 

examiners for their use during examinations of the 

Bank,’’ OCC ‘‘has the power to request and receive 

materials from national banks in carrying out its 

supervisory duties. It follows that national banks 

must comply with such requests. That being the 

case, it is our position that when national banks 

furnish documents to us at our request they are not 

acting voluntarily and do not waive any attorneyclient privilege that may attach to such 

documents.’’). 

must be provided to the Commission 

and trustee. 

Section 190.12(a)(1) is analogous to 

§ 190.03(a), as amended herein, in that 

it would provide instructions regarding 

how to give notice to the Commission 

and to a clearing organization’s 

members, where such notice would be 

required under subpart C of part 190.162

Section 190.12(a)(2) would require the 

clearing organization to notify the 

Commission either in advance of, or at 

the time of, filing a petition in 

bankruptcy (or within three hours of 

receiving notice of a filing of an 

involuntary petition against it).163

Notice would need to include the filing 

date and the court in which the 

proceeding has been or will be filed. 

While the clearing organization would 

also need to provide notice of the docket 

number, if the docket number is not 

immediately assigned, that information 

would be provided separately as soon as 

available. 

It is also important to permit the 

trustee to begin to understand the 

business of the clearing organization as 

soon as practicable, and within hours. 

Accordingly, § 190.12(b)(1) requires the 

clearing organization to provide to the 

trustee copies of each of the most recent 

reports filed with the Commission 

under § 39.19(c), which includes 

§ 39.19(c)(1) (daily reports, including 

initial margin required and on deposit 

by clearing member, daily variation and 

end-of-day positions (by member, by 

house and customer origin), and other 

daily cash flows), § 39.19(c)(2) 

(quarterly reports, including of financial 

resources), § 39.19(c)(3) (annual 

reporting, including audited financial 

statements and a report of the chief 

compliance officer), § 39.14(c)(4) (eventspecific reporting, which would include 

the most up-to-date version of any 

recovery and wind-down plans the 

debtor maintained pursuant to 

§ 39.39(b),164 and which may well 

include events that contributed to the 

clearing organization’s bankruptcy), and 

§ 39.19(c)(5) (reporting specially 

requested by the Commission or, by 

delegated authority, staff). In order to 

provide the trustee with an initial 

overview of the business and status of 

the clearing organization, with respect 

to quarterly, annual, or event-specific 

reports, the clearing organization would 

be required to provide any such reports 

filed during the preceding 12 months. 

These reports would need to be 

provided to the trustee as soon as 

practicable, but in any event no later 

than three hours following the later of 

the commencement of the proceeding or 

the appointment of the trustee. It is the 

Commission’s expectation that in the 

event of an impending bankruptcy 

event, staff at the DCO would, as soon 

as practicable, be preparing these 

materials for transmission to the trustee. 

Similarly, § 190.12(b)(2) requires the 

debtor clearing organization, in the 

same time-frame, to provide the trustee 

and the Commission with copies of the 

default management plan and default 

rules and procedures maintained by the 

debtor pursuant to § 39.16 and, as 

applicable, § 39.35. While some of this 

information may have previously been 

filed with the Commission pursuant to 

§ 39.19, it is important that the 

Commission have readily available what 

the clearing organization believes are 

the most up-to-date versions of these 

documents. Moreover, given that these 

documents must be provided to the 

trustee, providing copies to the 

Commission should impose minimal 

additional burden (particularly if the 

documents are provided in electronic 

form). 

Regulation § 39.20(a) requires a DCO 

to maintain records of all activities 

related to its business as such, and sets 

forth a non-exclusive list of the records 

that are included in that term. To enable 

the trustee and the Commission further 

to understand the business of the 

clearing organization, § 190.12(c) 

requires the debtor clearing organization 

to make copies of such records available 

to the trustee and to the Commission no 

later than the business day after the 

commencement of the proceeding. In 

order to inform the trustee and the 

Commission better concerning the 

enforceability in bankruptcy of the 

clearing organization’s rules and 

procedures, the clearing organization is 

similarly required to make available any 

opinions of counsel or other legal 

memoranda provided to the debtor, by 

inside or outside counsel, in the five 

years preceding the commencement of 

the proceeding, relating to the 

enforceability of those arrangements in 

the event of an insolvency proceeding 

involving the debtor.165

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.12. The Commission raised 

specific questions as to whether the 

reports and records identified in 

proposed § 190.12 to be provided to the 

Commission are useful and appropriate, 

and whether additional reports and 

records should be included. The 

Commission also asked if the proposed 

time deadlines are appropriate. 

The Commission received two 

comments on proposed § 190.12. 

CME expressed support for proposed 

§ 190.12, and agreed with the 

Commission that ‘‘the reports and 

records identified in [the proposed 

regulation] would be useful for the 

trustee and the Commission.’’ CME also 

agreed with the Commission that certain 

items, such as the DCO’s default rules 

and recovery and wind-down plans, 

should be furnished as soon as possible. 

OCC ‘‘generally support[ed] a 

requirement for a DCO to provide a 

trustee and the Commission with 

information they need for efficient 

resolution of the DCO,’’ recognizing that 

‘‘time would be of the essence in such 

a proceeding.’’ OCC also noted that, 

because the ‘‘information is periodically 

reported to, or filed with, the 

Commission,’’ OCC did not ‘‘foresee any 

challenge in identifying and providing 

this information without delay.’’ 

However, OCC requested that proposed 

§ 190.12(b) be amended to require a 

DCO to provide the information 

delineated therein ‘‘as soon as 

practicable.’’ OCC ‘‘believe[d] that a 

specific deadline of three hours is 

overly prescriptive.’’ 

After considering the comments, the 

Commission is adopting § 190.12 as 

proposed. As the commenters observed, 

the information specified in § 190.12 is 


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166 In withdrawing proposed § 190.14(b)(2) and 

(3), the Commission determined, after considering 

the comments, that those provisions would not be 

a practicable and effective way to foster the transfer 

of clearing operations—to the extent that such an 

opportunity presents itself—at an acceptable cost. 

The Commission also endeavored to propose (in the 

Supplemental Proposal) a more cost-effective 

alternative to foster the resolution of a DCO—in 

particular, a systemically important DCO—under 

Title II of the Dodd-Frank Act. Specifically, as set 

forth in the Supplemental Proposal, the 

Commission proposed ‘‘a limited revision to the 

Proposal that would (1) stay the termination of 

SIDCO contracts for a brief time after bankruptcy in 

order to foster the success of a Title II Resolution, 

if the FDIC is appointed receiver in such a 

Resolution within that time, but (2) do so in a 

manner that does not undermine the QMNA status 

of SIDCO rules.’’ 

The Commission sought comment on the 

Supplemental Proposal, and in particular, whether 

the new approach could reasonably be expected to 

achieve the Commission’s stated goals, would be 

feasible, would be the best design for such a 

solution, and appropriately reflected consideration 

of benefits and costs. 

167See section 3(b) of the CEA, 7 U.S.C. 5(b) (‘‘It 

is the purpose of [the CEA] . . . to ensure . . . the 

avoidance of systemic risk . . . .’’). 

168See section 20(a)(3) of the CEA, 7 U.S.C. 

24(a)(3) (‘‘Notwithstanding title 11 . . . , the 

Commission may provide, with respect to a 

commodity broker that is a debtor . . . [,] the 

method by which the business of such commodity 

broker is to be conducted or liquidated after the 

date of the filing of the petition . . . .’’). 

important for the trustee and the 

Commission, and time would be of the 

essence in a DCO bankruptcy. Moreover, 

the prescribed task in § 190.12 is to 

gather and transmit documents that 

already exist, rather than to generate 

new information. The documents to be 

sent to the trustee are documents that 

were recently sent to the Commission, 

and the documents to be sent to the 

trustee and to the Commission are 

documents that one would expect, as 

the commenter noted, to be readily 

accessible. In this context, the 

Commission believes that a deadline of 

‘‘as soon as practicable and in any event 

no later than three hours following the 

commencement of the proceeding’’ (or, 

where appropriate, the appointment of 

the trustee) is reasonable and will set 

clear expectations for relevant parties 

that will facilitate DCOs’ contingency 

planning. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting § 190.12 as proposed. 

3. Regulation § 190.13: Prohibition on 

Avoidance of Transfers 

The Commission is adopting § 190.13 

as proposed, to implement section 

764(b) of the U.S. Bankruptcy Code, 

protecting certain transfers from 

avoidance (sometimes referred to as 

‘‘claw-back’’) with respect to a debtor 

clearing organization. Regulation 

§ 190.13 is analogous to new § 190.07(e) 

(and current § 190.06(g)), with certain 

changes. Specifically, while § 190.07(e) 

allows FCM transfers unless they are 

explicitly disapproved by the 

Commission, § 190.13 requires explicit 

Commission approval for DCO transfers. 

The difference in approach is rooted in 

the inherent difference between FCM 

transfers and DCO transfers: Whereas an 

FCM is capable of transferring only a 

portion of its customer positions, a DCO 

would be expected to transfer all of its 

customer positions (or at least all 

positions in a given product set) 

simultaneously in order to maintain a 

balanced book. Given the importance of 

transferring all open commodity 

contracts—and the property margining 

such contracts—in the event of a DCO 

bankruptcy, the Commission believes 

that any such transfer should require 

explicit Commission approval, either 

before or after such transfer. 

Thus, whereas § 190.07(e)(1) provides 

that a pre-relief transfer by a clearing 

organization cannot be avoided as long 

as it is not disapproved by the 

Commission, § 190.13(a) instead 

provides that a pre-relief transfer of 

open commodity contracts and the 

property margining or securing such 

contracts cannot be avoided as long as 

it was approved by the Commission, 

either before or after such transfer. 

Similarly, whereas § 190.07(e)(2)(i) 

provides (for all commodity brokers, 

including clearing organizations) that a 

post-relief transfer of a customer 

account cannot be avoided as long as it 

is not disapproved by the Commission, 

§ 190.13(b) instead provides that a postrelief transfer of open commodity 

contracts and the property margining or 

securing such contracts made to another 

clearing organization cannot be avoided 

as long as it was approved by the 

Commission, either before or after such 

transfer. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.13, and in particular, the 

Commission asked whether commenters 

agreed with the proposed approach of 

requiring explicit Commission approval 

of transfers by debtor DCOs. 

The Commission received one 

comment on proposed § 190.13. CME 

expressed support for proposed 

§ 190.13, particularly the allowance for 

Commission approval of transfers after 

such transfers have occurred. CME 

noted that porting customer positions to 

a DCO would be the preferred course of 

action in a bankruptcy, and a DCO may 

need to act quickly. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.13 as proposed. 

4. Regulation § 190.14: Operation of the 

Estate of the Debtor Subsequent to the 

Filing Date 

The Commission is adopting § 190.14 

as proposed, with certain modifications 

discussed below. 

Section 190.14(a) provides discretion 

to the trustee to design the proof of 

claim form and to specify the 

information that is required. The 

Commission believes that broad 

discretion is appropriate in this context, 

given the bespoke nature of a clearing 

organization bankruptcy. 

Section 190.14(b) addresses the 

operation of a debtor clearing 

organization in bankruptcy and 

provides that, after the order for relief, 

the DCO shall cease making calls for 

either variation or initial margin. 

As originally proposed, § 190.14(b) 

included additional provisions that 

were intended to provide a brief 

opportunity, after the order for relief, to 

enable paths alternative to liquidation— 

that is, resolution under Title II of the 

Dodd-Frank Act, or transfer of clearing 

operations to another DCO—in cases 

where a short delay (i.e., less than or 

equal to six days) might facilitate such 

an alternative path. Subsequent to the 

issuance of the Proposal, the 

Commission received several comments 

on proposed § 190.14(b), and based on 

its consideration of those comments, the 

Commission determined it to be 

appropriate to issue the Supplemental 

Proposal. The Supplemental Proposal 

modified proposed § 190.14(b) in 

several respects, including the 

withdrawal of proposed § 190.14(b)(2) 

and (3) and the new proposal of an 

alternative approach.166 Further 

discussion of the Supplemental 

Proposal, including the Commission’s 

consideration of comments received in 

response to the Supplemental Proposal, 

is set forth in section II.H below. 

Section 190.14(c)(1) requires the 

trustee to liquidate, no later than seven 

calendar days after the order for relief, 

all open commodity contracts that had 

not earlier been terminated, liquidated 

or transferred. However, in the Proposal, 

paragraph (c)(1) also provided that such 

liquidation would not be required if the 

Commission (whether at the request of 

the trustee or sua sponte) determined 

that such liquidation would be 

inconsistent with the avoidance of 

systemic risk 167 or, in the expert 

judgment of the Commission, would not 

be in the best interests of the debtor 

clearing organization’s estate.168 In such 

a situation, the trustee would be 

directed to carry out such liquidation in 

accordance with the rules and 

procedures of the debtor clearing 


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169As discussed below, § 190.14(c)(1) is being 

modified to remove language that commenters 

stated would raise uncertainties concerning the 

enforceability of close-out netting provisions in a 

DCO bankruptcy. 

170 In particular, the Commission asked about the 

framing of the concepts of usefulness and 

practicability in the context of permitting the 

trustee to continue to operate a DCO in insolvency, 

in accordance with proposed § 190.14(b)(2), in 

order to facilitate the transfer of clearing operations 

to another DCO or placing the debtor DCO into 

resolution pursuant to Title II of the Dodd-Frank 

Act. The Commission also asked whether there is 

a better way to frame either of those terms, and 

whether it is appropriate to provide for the 

possibility that the trustee may be permitted to 

delay liquidating contracts. 

171For further discussion of the Supplemental 

Proposal and the Commission’s consideration of 

comments received thereto, see section II.H below. 

organization, to the extent applicable 

and practicable.169

Section 190.14(c)(2) permits the 

trustee to make distributions to 

members in the form of securities that 

are equivalent (i.e., securities of the 

same class and series of an issuer) to 

those that were originally delivered to 

the debtor by the clearing member or 

such member’s customer, rather than 

liquidating securities and making 

distributions in the form of cash. 

Section 190.14(c)(2) is analogous to 

§ 190.09(d)(3), discussed above in 

section II.B.7. 

Section 190.14(d) requires the trustee 

to use reasonable efforts to compute the 

funded balance of each customer 

account immediately prior to the 

distribution of any property in the 

account, ‘‘which shall be as accurate as 

reasonably practicable under the 

circumstances, including the reliability 

and availability of information.’’ Section 

190.14(d) is analogous to § 190.05(b), 

discussed above in section II.B.3, but is 

modified for the context of a DCO 

bankruptcy. Similar to § 190.05(b), the 

Commission’s objective in § 190.14(d) is 

to provide the bankruptcy trustee with 

the latitude to act reasonably, given the 

circumstances they are confronted with, 

recognizing that information may be 

more reliable and/or accurate in some 

insolvency situations than in others. 

However, at a minimum, the trustee is 

required to calculate each customer’s 

funded balance prior to distributing 

property, to achieve an appropriate 

allocation of property between 

customers. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.14. The Commission also raised 

specific questions regarding 

§ 190.14(b)(2).170 The comments 

received in response to those specific 

questions on § 190.14(b)(2) have already 

been considered by the Commission in 

the Supplemental Proposal, wherein the 

Commission ultimately withdrew 

§ 190.14(b)(2) and (3). Although such 

comments on the Proposal relate to 

proposed paragraphs that were 

withdrawn in the Supplemental 

Proposal, the comments relating to 

proposed § 190.14(b)(2) and (3) 

nonetheless are noted below.171

The Commission received some 

comments that related to § 190.14 

generally. ICI commented in favor of the 

requirement proposed in § 190.14 that 

‘‘any decision to continue operating a 

DCO in liquidation must be made with 

[the Commission’s] input and consent.’’ 

ICI asserted, however, that the 

Commission should only approve an 

application from a trustee to continue 

operating a DCO in liquidation if the 

Commission determines that the trustee 

‘‘has the knowledge and experience to 

manage such operations.’’ Noting that 

the continued operation of a DCO has 

the potential to result in significant 

continued losses for customers and 

exacerbate stress, ICI further asserted 

that, ‘‘[i]n considering whether to grant 

a request to allow a failed DCO to 

continue operating, the Commission 

should consider the potential harm to 

customers and should request input 

from both DCO members and 

customers.’’ OCC commented that 

additional considerations should be 

considered in determining ‘‘whether 

continued operation of a DCO in 

bankruptcy would be practical.’’ 

Specifically, OCC stated that ‘‘a DCO 

may . . . maintain contractual 

arrangements with various 

counterparties . . . that are necessary 

for the DCO’s continued operation,’’ 

such as contract markets and other trade 

sources, other DCOs, banking and 

liquidity providers, and information 

technology vendors). OCC asserted that 

‘‘a trustee would need to review the 

DCO’s recovery and wind-down plan[s] 

and/or consult with a DCO to determine 

whether such arrangements necessary 

for the DCO’s continued operation 

would—or could—be terminated [by the 

counterparties] upon the DCO’s entry 

into bankruptcy and, if so, determine 

whether the counterparties . . . would 

continue to provide those necessary 

services for a period of time.’’ 

The Commission also received 

comments on § 190.14(a). CME 

commented in support of paragraph (a). 

ICE commented that § 190.14(a) did not 

clearly account for ‘‘non-CFTCregulated clearing or other activity 

occurring at a DCO, including securitybased swaps and other securities, 

cleared forward contracts or spot 

contracts to the extent such instruments 

are not carried in a CFTC regulated 

futures or swap account.’’ ICE 

recommended that while ‘‘such activity 

may be outside the scope of the Part 190 

regulations, claims of members with 

respect to such activity, whether for 

their proprietary or customer accounts, 

need to be properly accounted for in a 

DCO’s bankruptcy and should not be 

disadvantaged.’’ 

Several commenters expressed 

concern that proposed § 190.14(b) 

would inadvertently create legal 

uncertainty with respect to the 

enforceability of a DCO’s close-out 

netting rules and related issues, and 

requested that the Commission address 

these concerns in varying ways. 

ICE did not object to proposed 

§ 190.14(b), but believed that the 

Commission ‘‘should clarify that the 

rule does not interfere with either the 

automatic termination of contracts upon 

insolvency or clearing member rights to 

terminate contracts upon insolvency.’’ 

Noting ‘‘that clearing member capital 

and accounting often take into account 

the ability of a clearing member to 

terminate, or the automatic termination 

of, its cleared positions in the event of 

a clearinghouse insolvency,’’ ICE 

asserted that it would be important that 

the final rules ‘‘not upset settled 

expectations of clearing members’’ in 

this regard. ICE further noted that 

‘‘automatic termination is common,’’ 

and thus, continuing the operations of a 

clearinghouse after insolvency would 

likely be infeasible, in practice. 

CME requested that the Commission 

add a provision to § 190.14 stating that: 

‘‘if the Commission permits the trustee 

to continue to operate the DCO, that the 

action is not in derogation of, and 

clearing members fully retain and may 

exercise, their right under the DCO’s 

rules and procedures with respect to 

close-out netting.’’ CME stated that 

‘‘[s]ome have expressed concern that 

proposed Regulation 190.14 creates 

uncertainty around the enforceability of 

close-out netting rules if the trustee is 

allowed to continue the DCO’s 

operations under the conditions as 

drafted.’’ CME asserted that it would be 

‘‘critical that any decision to continue to 

operate the DCO not be contrary to the 

DCO’s rules or be construed in any way 

to abrogate clearing members’ close-out 

netting rights under the rules.’’ CME 

noted that the enforceability of close-out 

rights is of ‘‘paramount importance’’ to 

clearing members as part of their 

contract with the DCO, and that CME 

and other DCOs have obtained detailed 

legal analyses on the enforceability of 

their close-out netting rules and other 

features of their default rules to assure 

clearing members of their rights. CME 

commented that it did not believe that 


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172See 85 FR at 60112 n.12 (‘‘The Commission 

will make appropriate edits to the language in 

proposed § 190.14(b)(1) as part of the process of 

finalizing the [p]art 190 rule proposal.’’). 

173See comment letters from ICE, CME. 

proposed § 190.14 would create an issue 

with respect to its own close-out netting 

rules or netting opinions, because its 

own rules ‘‘would compel termination 

of open contracts upon a CME 

bankruptcy event and, thus the 

conditions of Regulation 190.14(b) 

would not be satisfied and the trustee 

could not continue CME’s DCO 

operations.’’ Nonetheless, CME 

speculated that other DCOs ‘‘could 

potentially have rules that permit a 

clearing member to terminate open 

positions at their discretion without 

compelling termination.’’ 

ISDA supported the provision in 

proposed § 190.14(b) that would 

‘‘prevent the trustee from continuing 

operation of the DCO subsequent to the 

order for relief if the DCO’s rules 

contain closeout netting provisions.’’ 

However, ISDA also recommended that 

the Commission modify proposed 

§ 190.14(c)(1) to delete the second 

sentence and amend the first sentence to 

affirmatively provide that: 

‘‘notwithstanding anything else to the 

contrary in Subpart C, the trustee shall 

liquidate all open contracts in 

accordance with the close-out needing 

provisions in the DCO’s rules (or 

bylaws) and, in any event, no later than 

seven calendar days after the entry of 

the order for relief.’’ ISDA commented 

that it is ‘‘critical’’ that ‘‘all aspects of 

[the] Part 190 regulations . . . support, 

and in no event be inconsistent with, 

. . . exposure netting.’’ ISDA noted that 

‘‘[e]nforceable close-out netting rights 

provide the legal basis for netting of 

exposures between derivative 

counterparties, which reduces costs, 

increases market liquidity and reduces 

credit and systemic risks.’’ ISDA stated 

that a ‘‘firm’s right to terminate 

outstanding transactions with a 

counterparty following an event of 

default and calculate the net amount 

due to one party by another is the 

primary means of mitigating credit risks 

associated with financial contracts.’’ 

ISDA further argued that, [w]ithout 

enforceable close-out netting rights, 

firms would need to manage their credit 

risk on a gross basis, dramatically 

reducing liquidity and credit capacity.’’ 

OCC commented that ‘‘the 

Commission should continue to consult 

with DCOs and market participants who 

rely on closeout netting opinions to 

ensure that the proposed rules[, 

including proposed § 190.14(b)(2),] do 

not raise uncertainty related to the 

enforceability of DCOs’ closeout netting 

rules or have other unintended 

consequences.’’ 

FIA commented that proposed 

§ 190.14(b)(2) and proposed § 190.14(c) 

are ‘‘fundamentally flawed and should 

not be adopted.’’ FIA raised concerns 

that those provisions may inadvertently 

create ‘‘an unacceptable level of legal 

uncertainty related to the enforcement 

of closeout netting provisions’’ set out 

in DCO rulebooks, which all but four 

DCOs maintain. FIA asserted that, if 

proposed § 190.14(b)(2)(ii)(A) ‘‘could be 

read to provide the trustee some level of 

discretion to determine whether or 

when DCO rules may ‘compel’ the 

termination of contracts, such 

discretion, in turn, may call into 

question whether the DCO’s rules 

constitute a ‘qualifying master netting 

agreement’ as described in the rules of 

the several bank regulatory authorities.’’ 

FIA also commented that the 

‘‘continued operation of a DCO after an 

order for relief would be ill-advised’’ 

and impracticable. FIA stated that a 

trustee with no familiarity or 

understanding of central clearing would 

be highly unlikely to be able to manage 

effectively the operation of a bankrupt 

DCO. In the case of SIDCOs, FIA noted 

that ‘‘the prospect of a bankruptcy 

trustee operating the DCO for even a 

brief interim period prior to 

commencement of Title II [resolution] 

proceedings could result in a loss of 

market confidence and a destabilizing 

rush to exit by clearing members and 

their clients, [thereby] potentially 

frustrat[ing] the successful resolution of 

the DCO.’’ In the case of other DCOs, 

FIA commented that ‘‘the post-filing 

transfer of . . . clearing operations to 

another DCO would be difficult at best,’’ 

and ‘‘clearing members and their clients 

should not be expected to take the 

execution risk of being forced to 

continue clearing through a bankrupt 

DCO when successful completion of a 

transfer to a new DCO in bankruptcy is 

not certain.’’ FIA also stated its belief 

that ‘‘non-defaulting clearing members 

or their clients would be [unwilling] to 

continue to pay margin to the estate of 

a bankrupt DCO.’’ 

The ABA Subcommittee requested 

that the Commission revise proposed 

§ 190.14(b) ‘‘to clarify that the DCO’s 

close-out netting rules remain in effect 

and are enforceable as written, 

notwithstanding any decision under 

[proposed § ] 190.14(b) by the 

Commission to allow the trustee to 

continue making calls for variation 

settlement and margin.’’ The ABA 

Subcommittee raised a concern that 

proposed § 190.14(b) ‘‘may create 

unintended ambiguity’’ regarding the 

enforceability of such rules. 

After considering the comments, the 

Commission is adopting § 190.14(a) as 

proposed. The Commission notes that 

§ 190.14(a) provides that the trustee 

shall ‘‘instruct each customer [a term 

that, in the context of a debtor DCO, 

includes members] to file a proof of 

claim containing such information as is 

deemed appropriate by the trustee.’’ To 

the extent that the DCO is conducting 

non-CFTC-regulated activity that is 

outside the scope of the part 190 

regulations, the proof of claim form 

should include an opportunity to claim 

for debts of the DCO related to activity 

that is not regulated by the CFTC. These 

would be payable from the general 

estate (outside of customer property) or, 

if secured, from the property securing 

the debts. Thus, such activity will be 

properly accounted for in the DCO 

bankruptcy, and members will not be 

disadvantaged. For those reasons, the 

Commission does not believe that 

§ 190.14(a) should be modified in the 

manner recommended by ICE. 

The Commission is adopting 

§ 190.14(b)(1) as proposed, with two 

modifications that reflect the 

Commission’s previous withdrawal of 

paragraphs (b)(2) and (3) in the 

Supplemental Proposal: (1) Proposed 

paragraph (b)(1) is re-designated as 

paragraph (b); and (2) new paragraph (b) 

is modified to remove the phrase: 

‘‘except as otherwise explicitly provided 

in this paragraph (b).’’ 172

Several commenters expressed 

concern that proposed § 190.14(b) 

inadvertently creates legal uncertainty 

with respect to the enforceability of a 

DCO’s close-out netting rules and 

requested that the Commission address 

this concern in varying ways.173 The 

Commission considered those 

comments in advance of issuing the 

Supplemental Proposal, and determined 

that § 190.14(b)(2) and (3) would not be 

a practicable and effective way to foster 

the transfer of clearing operations—to 

the extent that such an opportunity 

presents itself—at an acceptable cost. 

Consequently, the Commission 

withdrew § 190.14(b)(2) and (3) in the 

Supplemental Proposal and instead 

proposed an alternative approach. The 

Supplemental Proposal, including the 

Commission’s consideration of 

comments thereto, is discussed below in 

section II.H of this adopting release. 

Commenters’ concerns regarding the 

legal uncertainty of close-out netting 

rules in the context of § 190.14(b) also 

apply to § 190.14(c), as proposed, 

specifically the language that states that 

the trustee shall liquidate all open 

positions no later than seven calendar 

days after the order for relief ‘‘unless the 


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174The modifications to paragraph (b)(1) include 

both the addition of the language described above 

and the re-designation of proposed paragraph (b)(1) 

as new paragraph (b), in light of the withdrawal of 

proposed paragraphs (b)(2) and (3) in the 

Supplemental Proposal. 

For further discussion of the Supplemental 

Proposal and the Commission’s consideration of 

comments thereto, see section II.H below. 

175 78 FR 72476, 72492 (Dec. 2, 2013). 

176 Id. at 72494. 

Commission determines that liquidation 

would be inconsistent with the 

avoidance of systemic risk or would not 

be in the best interests of the debtor’s 

estate’’ (the ‘‘Unless Clause’’). Some 

commenters—including FIA and 

ISDA—explicitly raised this issue in the 

context of § 190.14(c), to the extent that 

the proposed language would afford the 

trustee with some level of discretion to 

determine whether or when a DCO rule 

may ‘‘compel’’ the termination of 

contracts. Although the Commission 

believes that commenters’ concerns 

were largely addressed in the 

Supplemental Proposal through the 

withdrawal of § 190.14(b)(2) and (3), the 

Commission agrees that the Unless 

Clause raises similar concerns, in that it 

suggests that the Commission may 

decide that a DCO’s contracts should 

not be terminated in bankruptcy, and 

accordingly that paragraph (c)(1) should 

be modified by removing the Unless 

Clause. Thus, after considering the 

comments, the Commission is adopting 

§ 190.14(c) as proposed, with a 

modification to paragraph (c)(1) by 

deleting the phrase: ‘‘unless the 

Commission determines that liquidation 

would be inconsistent with the 

avoidance of systemic risk or would not 

be in the best interests of the debtor’s 

estate.’’ This modification—when taken 

in conjunction with the Commission’s 

prior withdrawal of § 190.14(b)(2) and 

(3)—should remove any lingering 

uncertainties in § 190.14 concerning the 

enforceability of close-out netting 

provisions in a DCO bankruptcy. 

The Commission received no specific 

comments on the proposed language of 

§ 190.14(d) and, thus, is adopting that 

paragraph as proposed. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.14 as proposed, with the deletion 

of paragraphs (b)(2) and (3) and 

modifications to paragraphs (b)(1) and 

(c)(1), as set forth above.174

5. Regulation § 190.15: Recovery and 

Wind-Down Plans; Default Rules and 

Procedures 

The Commission is adopting § 190.15 

substantially as proposed (with a 

modification, as discussed below), to 

favor the implementation of a debtor 

clearing organization’s default rules and 

procedures maintained pursuant to 

§ 39.16 and, as applicable, § 39.35, and 

any recovery and wind-down plans 

maintained by the debtor and filed with 

the Commission, pursuant to §§ 39.39 

and 39.19, respectively. Section 39.16 

requires each DCO to, among other 

things, ‘‘adopt rules and procedures 

designed to allow for the efficient, fair, 

and safe management of events during 

which clearing members become 

insolvent or default on the obligations of 

such clearing members to the’’ DCO. In 

adopting § 39.35, the Commission 

explained that it ‘‘was designed to 

protect SIDCOs, [s]ubpart C DCOs, their 

clearing members, customers of clearing 

members, and the financial system more 

broadly by requiring SIDCOs and 

[s]ubpart C DCOs to have plans and 

procedures to address credit losses and 

liquidity shortfalls beyond their 

prefunded resources.’’ 175 Similarly, in 

adopting § 39.39, the Commission 

explained that it was ‘‘designed to 

protect the members of such DCOs and 

their customers, as well as the financial 

system more broadly, from the 

consequences of a disorderly failure of 

such a DCO.’’ 176

Section 190.15(a) states that the 

trustee shall not avoid or prohibit any 

action taken by the debtor DCO that was 

reasonably within the scope of, and was 

provided for, in any recovery and winddown plans maintained by the debtor 

and filed with the Commission, subject 

to section 766 of the Bankruptcy Code. 

The Commission’s intent is to provide 

finality and legal certainty to actions 

taken by a DCO to implement its 

recovery and wind-down plans, which 

are developed subject to Commission 

regulations. 

Section 190.15(b) instructs the trustee 

to implement, in consultation with the 

Commission, the debtor DCO’s default 

rules and procedures maintained 

pursuant to § 39.16, and, as applicable, 

§ 39.35, as well as any termination, 

close-out and liquidation provisions 

included in the rules of the debtor, 

subject to the trustee’s reasonable 

discretion and to the extent that 

implementation of such default rules 

and procedures is practicable. 

Similarly, § 190.15(c), as proposed, 

instructs the trustee, in consultation 

with the Commission, to take actions in 

accordance with any recovery and 

wind-down plans maintained by the 

debtor and filed with the Commission, 

to the extent reasonable and practicable. 

The Commission’s intent is to provide 

the trustee, who will need to take 

prompt action to manage the DCO (and 

any member default), with a roadmap to 

manage such action. The Commission 

further intends that the roadmap be 

based on the rules, procedures, and 

plans that the DCO has developed in 

advance, and that are subject to the 

requirements of the Commission’s 

regulations. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.15. The Commission also raised 

specific questions as to whether it is 

appropriate to steer the trustee towards 

implementation of the debtor DCO’s 

default rules and procedures and 

recovery and wind-down plans, and 

whether the proposed language 

concerning discretion, reasonability, 

and practicability is appropriate and 

sufficient. 

The Commission received several 

comments on proposed § 190.15. CME 

and ICE generally supported the 

proposal, although ICE raised concerns 

about the discretion afforded to the 

trustee. In contrast, Vanguard, FIA, 

ACLI, SIFMA AMG/MFA, and ICI 

expressed concerns with the proposed 

rule, in whole or in part. 

ICE, while generally supporting the 

proposal, objected to the language in 

§ 190.15 that a ‘‘trustee’s obligation to 

[follow a DCO’s default rules and 

recovery and wind-down plans] is 

‘subject to the reasonable discretion’ of 

the trustee or is limited ‘to the extent 

reasonable and practicable.’ ’’ While ICE 

acknowledged ‘‘the need for some 

degree of flexibility in the conduct of a 

bankruptcy proceeding,’’ it contended 

that ‘‘the Commission should make 

clear that the trustee cannot override the 

DCO rules . . . [or] deviate from an 

approved recovery or wind-down plan.’’ 

Vanguard requested that proposed 

§ 190.15(a) be removed, arguing that it 

would be ‘‘imprudent to give deference’’ 

to a DCO’s rules because such rules ‘‘do 

not set forth a comprehensive roadmap 

to dealing with DCO insolvency.’’ 

Vanguard noted that ‘‘DCO rulebooks 

set forth a variety of powers the DCO 

may employ’’ (e.g., ‘‘assessments, 

variation margin gains haircutting, and 

tear-ups’’), and that such rules ‘‘lack 

[the] necessary specificity and detail to 

provide certainty to FCMs and 

customers, or to the trustee,’’ with 

respect to what would follow in DCO 

insolvency. Vanguard was concerned 

that such uncertainty may ‘‘contribute 

to further market stresses during a 

critical time,’’ and that expressly 

instructing the trustee to implement a 

DCO’s default rules and procedures 

‘‘where practicable,’’ permits a DCO to 

‘‘override the fundamental customer 

protections intended by Part 190.’’ 


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177Alteration in original. 

FIA did not support the adoption of 

proposed § 190.15(b) and (c), 

commenting that the proposal’s postbankruptcy implementation of all DCO 

default rules and procedures and 

recovery and wind-down plans is 

‘‘inappropriate.’’ FIA was concerned 

that the proposal’s ‘‘concept of ‘default 

rules and procedures’ could encompass 

a number of different tools or actions, 

some of which would be inappropriate 

and risky for a bankruptcy trustee to 

attempt to execute.’’ In addition, ‘‘to the 

extent that the Commission would 

select some but not other default rules 

and procedures for a trustee to 

implement,’’ uncertainty with respect to 

possible bankruptcy scenarios would 

increase. FIA stated that a DCO’s default 

rules and procedures should not be used 

‘‘for any purpose other than to ensure 

enforcement of a DCO’s closeout netting 

provisions,’’ and that, ‘‘[b]y their terms, 

the default rules and procedures . . . 

represent contractual arrangements 

between a DCO and its members whose 

purpose is to provide resources and 

tools to the DCO to prevent its 

bankruptcy.’’ FIA argued that ‘‘a 

fundamental term’’ of these 

arrangements is that ‘‘such resources 

and tools are only available prior to 

bankruptcy,’’ and that instructing a 

trustee in bankruptcy to implement, 

with discretion, the DCO’s default rules 

and procedures would ‘‘undermine the 

long-standing and settled expectations 

of DCOs and their members.’’ In the 

alternative, FIA recommended that the 

Commission revise proposed § 190.15(b) 

‘‘to confirm that, in administering a 

proceeding under Subpart C, the trustee 

must implement any termination, closeout and liquidation provisions included 

in the rules (or bylaws) of the debtor’’ 

(including loss allocation provisions). 

FIA raised further concerns about the 

treatment of a DCO’s recovery plans in 

proposed § 190.15. FIA asserted that 

such plans are intended to address 

‘‘actions to be taken prior to the DCO’s 

bankruptcy and [are] not relevant postfiling.’’ FIA also stated that such plans 

‘‘would provide no meaningful 

guidance to a trustee’’ because they ‘‘do 

not prescribe a particular course of 

action.’’ Rather, they ‘‘present a menu of 

options that a DCO might consider.’’ 

FIA asserted that reliance on a DCO’s 

recovery and wind-down plans is 

‘‘particularly inappropriate’’ because 

some of them ‘‘have been developed 

with no input or opportunity for 

comment by clearing members and 

other market participants.’’ 

ACLI also expressed concern with the 

deference that a trustee in bankruptcy 

would be required to afford a DCO’s 

rules and procedures and recovery and 

wind-down plans under proposed 

§ 190.15(a) and (c). ACLI claimed that 

‘‘DCO recovery and wind-down plans 

include such drastic measures as 

Variation Margin Gains Haircutting . . . 

and Partial Tear-Up . . . [that] are not 

subject to routine public input at the 

DCO level or at the Commission.’’ ACLI 

identified several circumstances in 

which deference to the DCO’s rules or 

recovery and wind-down plans should 

be reduced. ACLI asserted that: (a) A 

trustee should not be expected to defer 

to recovery and wind-down measures 

unless they were originally adopted 

with public input at the DCO level and 

made public for a reasonable period 

before the bankruptcy proceeding; (b) 

the trustee should ‘‘have discretion to 

override a DCO’s recovery or winddown actions if they violate proposed 

[p]art 190’s goal of protecting customer 

property on no worse than a pro rata 

basis’’; and (c) consistent with proposed 

§ 190.15(b), the trustee should be able to 

avoid or prohibit any DCO action that it 

determines, in consultation with the 

Commission, is not ‘‘reasonable and 

practicable.’’ 

SIFMA AMG/MFA commented that 

requiring a trustee to defer to a DCO’s 

recovery and wind-down plans as set 

forth in proposed § 190.15(a) and (c) is 

‘‘inadvisable’’ and, in some cases, 

‘‘unworkable,’’ and recommended that 

the provisions be deleted. SIFMA AMG/ 

MFA recommend that, if the 

Commission retains proposed 

§ 190.15(a), the provision be amended to 

remove the words ‘‘was reasonably in 

the scope of’’ and replace references to 

the DCO’s recovery and wind-down 

plans with references to the DCO’s 

default rules and procedures. In support 

of their position, SIFMA AMG/MFA 

asserted that recovery and wind-down 

plans are insufficiently prescriptive, and 

that because they tend to be drafted as 

a menu of options, such plans are not 

likely to provide the trustee with clear 

direction, effectively causing the trustee 

to defer to the judgment of the debtor 

itself. SIFMA AMG/MFA also asserted 

that recovery and wind-down plans do 

not require Commission approval or 

reflect significant input from customers, 

and because DCOs are not required to 

make such plans public, the plans are 

not a fair reflection of the ex ante 

expectations of a DCO’s stakeholders. 

SIFMA AMG/MFA further asserted that 

‘‘requiring the trustee . . . to defer to 

the debtor’s resolution plans would be 

inconsistent with other regimes for the 

resolution of systemically important 

financial institutions.’’ SIFMA AMG/ 

MFA requested that the Commission 

add a new clause to proposed § 190.15 

requiring the trustee and Commission, 

in implementing § 190.15, to ‘‘consider 

whether implementation of the debtor’s 

default rules and procedures [and 

recovery and wind-down plans] may 

undermine the core principles set forth 

in § 190.00 or may pose additional 

systemic risk.’’ 177 If the trustee and 

Commission determine that such 

implementation would have that effect, 

SIFMA AMG/MFA suggested that the 

provision permit the trustee to override 

the rules, procedures, and plans. SIFMA 

AMG/MFA further commented that, in 

the event that deference to a DCO’s 

default management rules and 

procedures and recovery and winddown plans is mandated in subpart C of 

the proposal, the Commission should 

amend parts 39 and 40 of the 

Commission’s regulations ‘‘to ensure 

that customers have the opportunity to 

provide meaningful input during the 

development and application of such 

rules, procedures, and plans.’’ 

ICI did not support the proposal’s 

deference to a DCO’s loss allocation, 

recovery, and wind-down rules in a 

DCO liquidation. ICI asserted that such 

rules are neither ‘‘clear’’ nor ‘‘wellvetted.’’ ICI stated that DCO rules ‘‘do 

not provide the level of specificity and 

detail that is required to give certainty 

to market participants,’’ but rather, they 

‘‘enumerate a wide variety of tools that 

a DCO may deploy to recover losses,’’ 

some of which ‘‘have the capacity to 

alter the entitlements of customers’’ 

under part 190 (e.g., ‘‘a customer would 

only be entitled to such a pro rata share 

of customer property to the extent the 

DCO rules did not modify the 

distribution of the DCO’s assets’’ 

through variation margin gains 

haircutting or partial tear-up). ICI 

recommended that, ‘‘[b]efore the 

Commission gives effect to any DCO 

loss allocation, recovery, and winddown rules in a [p]art 190 proceeding, 

. . . the Commission should develop 

and codify minimum principles that 

must be reflected in [those rules,] . . . 

review both existing DCO rules and 

proposed rule changes to ensure that 

they are consistent with the 

Commission’s minimum principles . . . 

[, and] require DCOs to change their 

governance process for rule changes to 

give stakeholders greater opportunity for 

input.’’ 

As an initial matter, the Commission 

notes that some commenters, including 

ACLI, FIA, ICI, and SIFMA AMG/MFA, 

objected to the application of DCO 

recovery and wind-down plans and 

rules, in particular the application of 


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178Moreover, as discussed in more detail in 

section II.C.7 below, there is a limited amount of 

customer property available. Any increase in some 

customers claims (and thus, their distributions) due 

to the disapplication of gains-based haircutting 

would come at the expense of a reduced share of 

that limited customer property (i.e., reduced 

distributions) to other customers, which could total 

less than the amount of their claim arising from 

initial margin. 

179See § 39.21(c)(6). 

180Note that § 190.15(c) only applies to recovery 

and wind-down plans that were ‘‘filed with the 

Commission pursuant to § 39.39 of this chapter.’’ 

181The ‘‘customers’’ of a DCO are, as noted at the 

top of this section II.C, the clearing members with 

respect to their public customers, as well as the 

clearing members with respect to their proprietary 

or ‘‘house’’ accounts. 

182See CEA section 3(b), 7 U.S.C. 5(b) (purposes 

of the CEA include ‘‘the avoidance of systemic 

risk’’). 

183See U.S. Department of Justice, Executive 

Office for United States Trustees, Handbook for 

Chapter 7 Trustees Section 4.B, at 4–2. 

variation margin gains haircutting, 

because they believed that changes 

should be made to the process by which 

parts 39 and 40 permit DCOs to adopt 

such plans and rules. 

Amendments to parts 39 and 40 are 

beyond the scope of this rulemaking, 

and the Commission does not believe 

that these concerns with the content and 

operation of parts 39 and 40 should 

inhibit the use of such plans and rules 

in the context of part 190. However, the 

Commission continues actively to 

review these issues, in particular with 

respect to governance, as they relate to 

parts 39 and 40. 

The Commission also notes that other 

commenters, including FIA, believed 

that default rules and procedures and 

recovery plans are designed to avoid 

bankruptcy, and should not be applied 

if they fail in achieving that goal. 

However, the DCO’s rules, procedures, 

and plans set forth ex ante the manner 

in which losses are allocated—that is, 

who is exposed to them, and to what 

extent. In the event that losses must be 

borne in bankruptcy, the Commission 

believes, as was noted in the preamble 

to the proposal, that ‘‘allocation of 

losses should not depend on the 

happenstance of when default 

management or recovery tools were 

used—e.g., when assessments were 

called for, or when such assessments 

were met.’’ The Commission does not 

believe that the comments offer a 

persuasive reason why the allocation of 

losses—who wins, who loses, and how 

much—should change on the basis of 

when a bankruptcy is filed. 

The Commission further notes that a 

number of commenters, including ACLI 

and Vanguard, were concerned with the 

application in bankruptcy of recovery 

tools such as variation margin gains 

haircutting and partial tear-up. 

Variation margin gains haircutting, to 

the extent set forth in DCO rules, will 

be applied in bankruptcy, in that it 

represents the ex ante manner in which 

losses are allocated.178 By contrast, 

partial tear-up of contracts will not be 

applied; rather, pursuant to 

§ 190.14(c)(1), ‘‘the trustee shall 

liquidate all open commodity contracts 

that have not been terminated, 

liquidated or transferred no later than 

seven calendar days after entry of the 

order for relief’’ (emphasis added). 

Turning to SIFMA AMG/MFA’s 

suggestion that ‘‘the trustee and the 

Commission should explicitly be 

required to consider the core concepts 

set forth in proposed § 190.00 and 

systemic risk in implementing a debtor 

DCO’s rules procedures and plans’’: 

With respect to the core concepts, 

§ 190.00(c) states that ‘‘the specific 

requirements in [part 190] should be 

interpreted and applied consistently 

with these core concepts.’’ In short, that 

requirement is already present. 

Moreover, the Commission has added 

§ 190.00(c)(3)(i)(C) to provide that where 

a provision in part 190 affords the 

trustee discretion, that discretion should 

be exercised in a manner that the trustee 

determines will best achieve the 

overarching goal of protecting public 

customers by enhancing recoveries for, 

and mitigating disruptions to, public 

customers as a class. Thus, in exercising 

their discretion to determine what is 

‘‘reasonable’’ for purposes of § 190.15, 

the trustee is already directed to focus 

on the ‘‘core concepts’’ in § 190.00(c), 

and, in particular, the ‘‘overarching goal 

of protecting public customers.’’ 

However, while a DCO’s default rules 

and procedures are required to be made 

public, posted on the DCO’s website,179

the same is not true for the DCO’s 

recovery and wind-down plans. Thus, 

in implementing the DCO’s default rules 

and procedures, the trustee would be 

implementing rules and procedures 

that, prior to the bankruptcy, were both 

subject to the supervision of the 

Commission and transparently available 

to both clearing members and their 

customers. By contrast, in implementing 

the DCO’s recovery and wind-down 

plans, the trustee would be 

implementing plans that, prior to the 

bankruptcy, were subject to the 

supervision of the Commission,180 but 

may not have been transparently 

available to clearing members or their 

customers. In light of this distinction, a 

more customer-protective approach 

seems appropriate in the latter context. 

Accordingly, the Commission is 

modifying proposed § 190.15(c), which 

reads that in administering a proceeding 

under this subpart, the trustee shall, in 

consultation with the Commission, take 

actions in accordance with any recovery 

and wind-down plans maintained by 

the debtor and filed with the 

Commission pursuant to § 39.39, to the 

extent reasonable and practicable—to 

add at the end the qualifier that these 

actions should also only be taken to the 

extent consistent with the protection of 

customers.181

With respect to systemic risk, while 

the Commission, as a governmental 

agency, is attentive to considerations of 

mitigating systemic risk in all that it 

does,182 it may be difficult for a trustee 

to make meaningful determinations as 

to how to do so. Moreover, the trustee 

is the representative of the bankruptcy 

estate, see 11 U.S.C. 323(a), with 

fiduciary duties to estate 

beneficiaries,183 rather than to the 

financial system as a whole. 

Accordingly, the Commission does not 

believe it appropriate to add an explicit 

requirement concerning considerations 

of systemic risk, as suggested by SIFMA 

AMG/MFA. 

The Commission does not agree that 

FIA’s observation that DCO recovery 

and wind-down plans may ‘‘not 

prescribe a particular course of action 

but, rather, present a menu of options 

that a DCO may consider’’ supports 

FIA’s conclusion that ‘‘these plans 

would appear to provide no meaningful 

guidance to a trustee.’’ To the contrary, 

the Commission believes that providing 

a ‘‘menu of options’’ among which the 

trustee may select (and adapt) in a 

manner that is ‘‘reasonable and 

practicable’’ would provide the 

trustee—who would be stepping into a 

complex and difficult situation with 

little preparation—with a helpful 

roadmap to determine strategy and 

tactics, in order to act in a prompt and 

cost-effective manner. 

The Commission also declines to 

provide that the trustee cannot override 

the DCO’s rules or deviate from an 

approved recovery or wind-down plan. 

Even if part 39 were to require that such 

plans be ‘‘approved’’—and it does not— 

they are designed in the context of 

operation of the DCO outside of 

bankruptcy. Thus, the Commission 

believes it to be appropriate for the 

trustee to apply them with flexibility to 

the extent reasonable and practicable. 

Accordingly, after consideration of 

the comments and for the reasons stated 

above, the Commission is adopting 

§ 190.15 as proposed, with the 

modification to § 190.15(c) discussed 

above. 


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184These recoveries might be based on 

prosecution of such claims in an insolvency or 

receivership proceeding, or, in the reasonable 

6. Regulation § 190.16: Delivery 

The Commission is adopting § 190.16 

as proposed with a modification to 

paragraph (a), as set forth below. 

Regulation § 190.16(a) instructs the 

trustee to use reasonable efforts to 

facilitate and cooperate with completion 

of delivery in a manner consistent with 

§ 190.06(a) (which instructs trustees of 

FCMs in bankruptcy to foster delivery 

where a contract has entered delivery 

phase before the filing date or where it 

is not practicable for the trustee to 

liquidate a contract moving into 

delivery position after the filing date) 

and the pro rata distribution principle 

in § 190.00(c)(5). The Commission 

believes that it is important to address 

deliveries to avoid disruption to the 

cash market for the commodity and to 

avoid adverse consequences to parties 

that may be relying on delivery taking 

place in connection with their business 

operations. However, given the potential 

for competing demands on the trustee’s 

resources, including time, this 

instruction is limited to requiring 

‘‘reasonable efforts.’’ 

Regulation § 190.16(b) carries 

forward, to the context of a DCO in 

bankruptcy, the delineation between the 

physical delivery property account class 

and the cash delivery property account 

class in § 190.06(b), as discussed above. 

Specifically, physical delivery property 

that is held in delivery accounts for the 

purpose of making delivery shall be 

treated as physical delivery property, as 

will the proceeds from any sale of such 

property. By contrast, cash delivery 

property that is held in delivery 

accounts for the purpose of paying for 

delivery shall be treated as cash delivery 

property, as would any physical 

delivery property for which delivery is 

subsequently taken. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.16. The Commission raised 

specific questions as to whether it is 

appropriate, in the context of a clearing 

organization bankruptcy, to separate the 

physical delivery account class from the 

cash delivery account class, and if so, 

whether the physical delivery account 

class should be further sub-divided. The 

Commission also asked whether the 

delivery account class should be treated 

as a single, undivided account class. 

CME supported the requirement in 

proposed § 190.16 that the trustee use 

reasonable efforts to facilitate deliveries 

of commodity contracts that have 

moved into delivery prior to the date 

and time of relief on behalf of a clearing 

member or customer, but asked that the 

Commission ‘‘expand the rule to require 

the trustee to facilitate deliveries’’ under 

contracts that move into delivery 

position after the filing and that the 

trustee is unable to liquidate. CME 

stated that ‘‘[i]t is equally important to 

protect deliveries under [such] contracts 

. . . to protect against disruption to 

commercial markets and operations,’’ 

and that the trustee may not be able to 

terminate them. 

The ABA Subcommittee similarly 

expressed concern that proposed 

§ 190.16(a) ‘‘does not address contracts 

that are unable to be liquidated and that 

then move into delivery position,’’ 

noting that ‘‘it may be impossible or 

impracticable for a trustee to liquidate 

every’’ physical-delivery commodity 

contract that is open at the date and 

time of the order for relief before the 

contract moves into delivery position. 

The ABA Subcommittee recommended 

that the Commission ‘‘remove the 

timing limitation in Proposed Rule 

190.16(a),’’ and add language stating 

that ‘‘the trustee should use reasonable 

efforts to liquidate open physical 

delivery commodity contracts before 

they move into a delivery position.’’ 

The Commission agrees with 

comments raised by CME and the ABA 

Subcommittee that deliveries should be 

facilitated after the order for relief for 

contracts that are not otherwise 

terminated, liquidated, or transferred. 

The Commission believes that 

modifying the proposal to address that 

scenario is appropriate to avoid 

disruption to the cash market and to 

avoid adverse consequences to parties 

that may be relying on delivery taking 

place in connection with their business 

operations. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting § 190.16 with a modification to 

apply paragraph (a) to any contract that 

‘‘moves into delivery after [the date and 

time of the order for relief], but before 

being terminated, liquidated, or 

transferred.’’ 

7. Regulation § 190.17: Calculation of 

Net Equity 

The Commission is adopting § 190.17 

as proposed, with a modification to 

§ 190.17(b)(2), as discussed below. 

Section 190.17 establishes net equity 

calculations to be used in determining 

the claims against the debtor DCO (and 

the allocation of losses) among members 

and their accounts. 

Section 190.17(a) with respect to net 

equity is parallel to § 190.18(a) with 

respect to the treatment of customer 

property. Section 190.17(a)(1) confirms 

that a member of a clearing organization 

may have claims in separate capacities. 

Specifically, a member may have claims 

on behalf of its public customers 

(customer account) and claims on behalf 

of itself and its non-public customers 

(i.e., affiliates) (house account), and, 

within those separate customer classes, 

the claims may be further separated by 

account class. The member shall be 

treated as part of the public customer 

class with respect to claims based on 

commodity customer accounts carried 

as ‘‘customer accounts’’ by the clearing 

organization for the benefit of the 

member’s public customers, and as part 

of the non-public customer class with 

respect to claims based on its house 

account. Section 190.17(a)(2) directs 

that net equity shall be calculated 

separately with respect to each customer 

capacity and, within such customer 

capacity, by account class. 

Section 190.17(b) sets forth how a 

debtor DCO’s pre-existing rules and 

procedures governing the allocation of 

losses—including the default rules and 

procedures—should be applied in a 

DCO bankruptcy. 

Section 190.17(b)(1) confirms that the 

calculation of members’ net equity 

claims—and, thus, the allocation of 

losses among members and their 

accounts—shall be based on the full 

application of the debtors’ loss 

allocation rules and procedures, 

including the default rules and 

procedures referred to in §§ 39.16 and 

39.35. These pre-existing loss allocation 

rules and procedures are the contract 

between and among the members and 

the DCO, and the Commission believes 

that it is appropriate to give them effect 

regardless of the bankruptcy of the DCO 

or the timing of any such bankruptcy. In 

other words, the pre-existing loss 

allocation rules and procedures (such as 

member assessments) should be given 

the same effect in a bankruptcy, 

regardless of whether default 

management or recovery tools were 

fully applied prior to the order for relief. 

While certain DCOs may have 

discretion, consistent with governance 

procedures, as to precisely when they 

call for members to meet assessment 

obligations, the Commission believes 

that allocation of losses should not 

depend on the happenstance of when 

default management or recovery tools 

were used—e.g., when assessments were 

called for, or when such assessments 

were met. 

Section 190.17(b) also addresses DCO 

rules that govern how recoveries on 

claims against defaulting members are 

allocated to non-defaulting members’ 

accounts,184 which effectively ‘‘reverse 


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commercial judgment of the DCO, the settlement or 

sale of such claims. 

185For example, if the DCO rules allocate losses 

in excess of the defaulters’ available resources first 

to the DCO’s own contributions, second to the 

mutualized default fund contributions of members 

other than the defaulter, third to assessments, and 

fourth to gains-based haircutting (pro rata), all of 

which tools were in fact used in a particular case, 

then recoveries on claims against the defaulting 

members would be allocated (to the extent 

available) first to those member accounts for which 

gains were haircut, pro rata based on the aggregate 

amount of such haircuts per member account, until 

all such haircuts have been reversed, second to 

those members who paid assessments, pro rata 

based on the amount of such assessments paid, 

until all such assessments have been repaid, third 

to members whose mutualized default-fund 

contributions were consumed, pro rata based on 

such default-fund contributions, until all such 

contributions have been repaid, and fourth to the 

DCO to the extent of its own contribution. 

the waterfall’’ by allocating recovered 

assets to member accounts in reverse 

order of the allocation of the losses to 

those member accounts.185 Section 

190.17(b)(2) implements such DCO rules 

in bankruptcy, thereby adjusting 

members’ net equity claims (and the 

basis for distributing any such 

recoveries) in light of such recoveries. 

The provision similarly implements 

DCO loss allocation rules in other 

contexts, for example, (i) rights to 

portions of mutualized default resources 

that are either prefunded or assessed 

and collected, and, in either event, not 

used, as well as (ii) rules that would 

allocate to members recoveries against 

third parties for non-default losses that 

are, under the DCO’s rules, originally 

borne by members. 

Section 190.17(c) adopts by reference 

the equity calculations set forth in 

proposed § 190.08, to the extent 

applicable. 

Finally, § 190.17(d) implements 

section 766(i) of the Bankruptcy Code, 

which: (1) Allocates a debtor DCO’s 

customer property (other than member 

property) to the DCO’s customers (i.e., 

clearing members) ratably based on the 

clearing members’ net equity claims 

based on their (public) customer 

accounts; and (2) allocates a debtor 

DCO’s member property to the DCO’s 

clearing members ratably based on the 

clearing members’ net equity claims 

based on their proprietary (i.e., house) 

accounts. To implement section 766(i), 

§ 190.17(d) defines ‘‘funded balance’’ as 

a clearing member’s pro rata share of 

member property (for a clearing 

member’s house accounts) or customer 

property other than member property 

(for accounts for a clearing member’s 

public customers). The pro rata amount 

shall be calculated with respect to each 

account class available for distribution 

to customers of the same customer class. 

Moreover, given that the calculation of 

funded balance for FCMs is an 

analogous exercise, the Commission 

intends that such calculations under 

§ 190.17(d) will be made in the manner 

provided in § 190.08(c), to the extent 

applicable. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.17. The Commission raised a 

specific question as to whether it is 

appropriate to base the calculations 

proposed § 190.17 on the full 

application of the debtors’ loss 

allocation rules and procedures, 

including the DCO’s default rules and 

procedures. 

Commenters addressed the proposed 

language of paragraph (b), or of § 190.17 

generally, but did not offer specific 

comments on the proposed language of 

paragraph (a), (c), or (d). 

CME commented in support of 

§ 190.17(b)(1)’s application of ‘‘the 

DCO’s loss allocation rules and 

procedures, including the DCO’s default 

rules and procedures, to the calculation 

of clearing members’ net equity claims,’’ 

but suggested a clarification to the 

proposed rule. Specifically, CME 

suggested that the Commission ‘‘clarify 

that ‘full application’ of the DCO’s loss 

allocation rules and procedures to the 

calculation of clearing members’ house 

net equity claims means that 

assessments or similar loss allocation 

arrangements thereunder are part of the 

calculation only if and to the extent that 

the DCO’s rules and procedures provide 

for post-filing assessments and 

payments.’’ CME noted that a ‘‘DCO’s 

rules are the contract between and 

among the members and the DCO,’’ and 

that, ‘‘[i]f the calculation of net equity 

claims deviates from the DCO’s loss 

allocation under its rules, including 

determination of amounts owned under 

close-out netting rules, that could 

adversely affect CME’s netting opinion 

as to the enforceability of its netting 

rules.’’ CME also commented in support 

of ‘‘giving effect to provisions in the 

debtor DCO’s loss allocation rules that 

entitle clearing members to return of 

guaranty fund deposits or other 

mutualized default resources that are 

not used, or to payments out of amounts 

that the DCO recovers on claims against 

a defaulting clearing member, through 

adjustments to clearing member’s net 

equity claims against member property 

to reflect their entitlement to such 

payments.’’ CME also commented in 

support of § 190.17(b)(2). 

The ABA Subcommittee expressed 

concern with respect to perceived 

ambiguity in § 190.17(b)(1) regarding 

‘‘how assessments that were not called 

for, or that were called for but not paid 

before the filing date, would impact the 

calculation of a clearing member’s net 

equity claim with respect to its house 

account.’’ The ABA Subcommittee 

requested that the Commission modify 

the proposed regulation to clarify that 

‘‘house account net equity claims would 

be adjusted to reflect post-filing 

obligations only if and to the extent that 

the DCO’s rules and procedures impose 

obligations on clearing members to 

continue making such payments 

following the DCO’s bankruptcy.’’ 

Specifically, the ABA Subcommittee 

suggested that the following phrase be 

added to the end of § 190.17(b)(1): If and 

to the extent that the debtor’s loss 

allocation rules and procedures impose 

obligations on clearing members to 

make such payments on or after the 

filing date. 

FIA did not support the adoption of 

§ 190.17(b)(1). FIA stated that it would 

be ‘‘inappropriate to require a clearing 

member to reduce the value of its net 

equity claim by the amount of an 

assessment that, under the rules of the 

relevant DCO, either may no longer be 

made or are not required to be paid.’’ 

FIA asserted that a DCO’s default fund 

is ‘‘a multilateral indemnification 

arrangement between the DCO and its 

members pursuant to which members’ 

contributions are used to cover the 

DCO’s losses resulting from member 

default(s) and thereby prevent the 

DCO’s bankruptcy.’’ FIA stated that a 

‘‘DCO has no authority under its rules 

to request or to apply these funds for 

any other purpose, nor do we believe 

that a trustee would have any authority 

under the [Bankruptcy] Code to do so.’’ 

FIA noted further that, ‘‘by requiring 

that a clearing member’s net equity 

claim must include the full application 

of the DCO’s loss allocation rules and 

procedures, proposed Rule 190.17(b)(1) 

appears to have the effect of reducing a 

clearing member’s potential recovery, 

even when the full application of the 

DCO’s loss allocation rules is not 

necessary to meet the DCO’s obligations 

to non-defaulting clearing members,’’ 

thereby impermissibly benefitting the 

DCO’s general creditors and 

shareholders to the detriment of clearing 

members. 

ICE commented that the Commission 

should refrain from adopting § 190.17(b) 

or providing ‘‘specific guidance as to 

what assumptions the CFTC would 

make and how the net equity claim is 

to be calculated hypothetically.’’ ICE 

stated that, in determining a clearing 

member’s net equity claim, it is neither 

appropriate nor feasible to consider a 

potential assessment that could have 

been called for before a bankruptcy 

filing but was not. ICE asserted that a 

DCO’s determination of whether ‘‘to call 


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186But see ICE Clear Credit Rules 806, 807. To 

mitigate the risk that their members will ‘‘rush to 

the exits’’ after a default, DCOs generally hold 

departing members liable for assessments due to the 

defaults that occurred before they withdrew from 

membership, as well as during a ‘‘cooling-off’’ 

period that extends past the date the member gives 

notice of intent to withdraw. The ICE Clear Credit 

rules cited, which include a ‘‘cooling-off period’’ of 

at least 30 days, are examples of this phenomenon. 

Thus, the possibility that clearing members would 

withdraw is not likely to affect their liability for 

assessments in this context. 187 85 FR at 36038. 

for an assessment and/or implement 

other loss allocation arrangements’’ 

accounts for many considerations that 

would not be appropriate to revisit in an 

insolvency. ICE also asserted that 

calculating the full application of loss 

allocation rules, or determining what 

would have happened in any full 

allocation, may not be possible. ICE 

noted, for example: (a) Because a DCO 

is not obligated to impose assessments 

against its clearing members, it is 

unclear how the CFTC or the trustee 

would determine how many 

assessments the DCO should have made; 

(b) in the event that ‘‘clearing members 

have the right to cap their liability by 

terminating their membership in a 

DCO,’’ it is unclear how the CFTC or the 

trustee would determine whether a 

clearing member should have 

terminated its membership; 186 and (c) it 

‘‘may not be possible to determine 

definitively what the [DCO’s] losses . . . 

would have been if additional loss 

allocation steps, such as variation 

margin gains haircutting or tear-up, had 

been taken.’’ 

SIFMA AMG/MFA commented that 

§§ 190.17 and 190.18(b)(1) should be 

modified to explicitly state that any 

gains that were haircut during gainsbased haircutting will be treated as 

customer property and included in the 

net equity claims of the clearing 

members and customers whose gains 

were haircut. SIFMA AMG/MFA further 

commented in support of § 190.17(b) but 

suggested that the proposal be modified 

to provide that, if a debtor DCO either 

(i) does not have ‘‘reverse the waterfall’’ 

rules or (ii) has ‘‘reverse the waterfall’’ 

rules that do not address each level of 

the debtor DCO’s waterfall, the net 

equity clams of the debtor DCO’s 

clearing members and customers will be 

calculated as though the debtor DCO, in 

fact, ‘‘has ‘reverse the waterfall’ rules 

that address each level of the DCO’s 

waterfall. 

Vanguard commented on 

§ 190.17(b)(1)’s requirement that a 

trustee’s calculation of DCO members’ 

net equity claims include the full 

application of DCO loss allocation rules 

and procedures. Vanguard expressed 

concern that the requirement would 

result in a customer being entitled to 

only ‘‘a pro rata share to the extent the 

DCO rules did not modify the 

distribution of the DCO’s asset, whether 

pre- or post-petition, through measures 

such as variation margin gains 

haircutting or partial tear-up of 

transactions.’’ Vanguard noted the 

possibility that, ‘‘as the DCO begins to 

fail,’’ the DCO’s rules ‘‘could be changed 

without the appropriate vetting by 

FCMs and customers who presently bear 

an inordinate share of the risk.’’ 

Vanguard believed that ‘‘any application 

of non-defaulting customer gains 

haircutting, or any other margin 

haircutting, should be prohibited as 

being fundamentally at odds with 

normal insolvency practice and highly 

counterproductive to incentivizing 

customers not to abandon a failing 

DCO.’’ Vanguard asserted that, if 

haircutting is to be allowed, customers 

should ‘‘receive full compensation in 

the form of a credit or equity claim 

against the DCO [that is] superior to that 

of other creditors.’’ Vanguard also 

suggested that § 190.17(b)(2) be 

modified in the same manner as 

suggested by SIFMA AMG/MFA, with 

respect to situations in which a debtor 

DCO does not have ‘‘reverse the 

waterfall’’ rules, or has ‘‘reverse the 

waterfall’’ rules that do not address each 

level of the debtor DCO’s waterfall. 

ICI expressed concern that 

§ 190.17(b)(1) would permit a DCO’s 

loss allocation, recovery, and winddown rules ‘‘to override the 

fundamental customer protections that 

Part 190 and Subchapter IV [of the 

Bankruptcy Code] are meant to 

safeguard,’’ because they would ‘‘no 

longer guarantee to a customer a pro 

rata share of customer property based 

on its transactions and margin in 

accordance with Subchapter IV.’’ In that 

scenario, ICI commented that ‘‘a 

customer would only be entitled to such 

a pro rata share to the extent the DCO 

rules did not modify the distribution of 

the DCO’s assets, whether pre- or postpetition, through measures such as 

variation gains haircutting or partial 

tear-up of transactions.’’ 

Having received no specific 

comments on the proposed language of 

paragraphs (a), (c), and (d) of § 190.17, 

the Commission is adopting those 

paragraphs as proposed. 

As described above, the Commission 

received several comments on 

paragraph (b). After considering the 

comments, the Commission notes that 

DCO default rules and procedures (also 

referred to as ‘‘default waterfalls’’), as a 

general matter, first use the resources of 

the defaulter (i.e., the defaulter’s initial 

margin and contribution to the default 

fund) to cover a shortfall. Should those 

resources be insufficient to cover the 

shortfall, such default waterfalls 

generally proceed to use the DCO’s own 

capital contribution, and only after 

those resources are extinguished is the 

remaining shortfall mutualized among 

the clearing members: (1) First, through 

the prefunded default fund 

contributions of non-defaulting clearing 

members; (2) then, through limited 

assessment powers against those nondefaulting clearing members, which are 

generally set as a multiple of each 

clearing member’s prior contributions to 

the default fund; and (3) finally, through 

gains-based haircuts that affect both 

clearing members and (through 

customer agreements) the customers of 

clearing members (i.e., public 

customers). 

The Commission notes two important 

takeaways from the general structure of 

default waterfalls. First, each clearing 

member knows, in advance of a default, 

the maximum amount of its exposure to 

contribute to mutualized loss through 

the guarantee fund and the DCO’s 

assessment powers. Second, should 

there be any reduction in the amount of 

funds collected through such 

assessments, then any losses in excess 

of the waterfall (i.e., up through the 

assessments) would instead be allocated 

to both clearing members and their 

public customers. In other words, if the 

losses are large enough, a reduced 

allocation of losses to clearing members 

would necessarily mean that their 

public customers would bear an 

increased allocation of losses. 

The Commission remains of the view 

that, as discussed in the proposal, 

‘‘[w]hile certain DCOs may have 

discretion, consistent with governance 

procedures, as to precisely when they 

call for members to meet assessment 

obligations, . . . allocation of losses 

should not depend on the happenstance 

of when default management or 

recovery tools were used—e.g., when 

assessments were called for, or when 

such assessments were met.’’ 187 As 

discussed above, the losses in a DCO 

bankruptcy ultimately would be 

allocated between clearing members and 

customers, and clearing members’ 

exposure to this allocation of losses is 

already capped by the ex ante limits on 

assessment powers. If the Commission 

were to modify the language of 

paragraph (b) in the manner suggested 

by multiple commenters, the 

modification would effectively decrease 

the allocation of losses that would be 

borne by clearing members—below the 

ex ante limits of which they are on 


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188FIA at 9. 

189 In the bankruptcy of a clearing organization, 

clearing members are a species of customer. 

190There are analogous provisions for bank 

holding companies regulated by the Federal Reserve 

Board that use the standardized approach for 

calculating bank capital requirements (12 CFR 

217.35) as well as banks regulated by the FDIC and 

the Office of the Comptroller of the Currency. 

notice—and correspondingly increase 

the allocation of losses that would be 

borne by customers. In other words, in 

such a scenario, the Commission 

believes that the suggested language 

could harm customers and run counter 

to the Commission’s policy that, with 

respect to customer property, public 

customers be favored over non-public 

customers. For those reasons, the 

Commission declines to adopt 

commenters’ suggestions to modify the 

net equity calculations in § 190.17(b) by 

limiting (or eliminating) the allocation 

of assessments that were not exercised 

prior to a bankruptcy filing. 

By contrast, gains-based haircuts are 

also part of the pre-bankruptcy 

arrangements for allocating losses. If 

that part of the ‘‘waterfall’’ is reached, 

then that ex ante arrangement should be 

followed. Moreover, there is a limited 

amount of customer property available. 

Thus, to the extent the application of 

gains-based haircuts was to be reversed, 

and some customers would realize 

increases in the allowed amounts of 

their claims (and thus a greater share of 

customer property), other customers 

would suffer a decreased share of 

customer property; indeed, the latter 

customers may, as a result, receive less 

than the amount of their claims for 

initial margin. This could have the 

effect of reducing those customers’ 

recoveries below the initial margin they 

have posted. The Commission stands 

firmly against initial margin haircutting 

as inimical to the principles of 

segregation. Thus, the Commission 

declines to adopt the suggestion by 

SIFMA AMG/MFA and Vanguard to 

reverse the application of gains-based 

haircutting in a DCO bankruptcy. 

FIA’s comment letter raised two 

points that should be further addressed. 

First, FIA stated that a DCO, under its 

rules, lacks the authority to apply the 

DCO’s default fund for any purpose 

other than preventing the DCO’s 

bankruptcy, and a trustee would 

similarly lack the authority to do so 

under the Bankruptcy Code.188 FIA 

further argued that, as a result of that 

limitation, the DCO’s authority to make 

new assessments or otherwise require 

that members contribute additional 

funds to a DCO’s default fund would not 

continue into bankruptcy. 

Consequently, FIA argued that a 

clearing member’s net equity claim 

should not be reduced in bankruptcy by 

the amount of an assessment that would 

no longer be required to be paid under 

the DCO’s rules. However, the 

Commission notes that § 190.17(b)(1) 

does not instruct the trustee to call any 

clearing member to pay in additional 

funds; rather, paragraph (b)(1) reduces 

the clearing member’s net equity claim 

against the estate of the DCO, to account 

for uncalled or uncollected assessments. 

Pursuant to section 20(a)(5) of the CEA, 

the Commission has the power to 

provide, with respect to a commodity 

broker in bankruptcy, ‘‘how the net 

equity of a customer is to be 

determined,’’ 189 and the Commission 

believes that by setting the net equity 

calculation as proposed, the rule would 

appropriately set such calculations in a 

manner that does ‘‘not depend on the 

happenstance of when default 

management or recovery tools were 

used,’’ as discussed more fully above. 

Second, FIA noted that, ‘‘by requiring 

that a clearing member’s net equity 

claim must include the full application 

of the DCO’s loss allocation rules and 

procedures, proposed [§ ] 190.17(b)(1) 

appears to have the effect of reducing a 

clearing member’s potential recovery, 

even when the full application of the 

DCO’s loss allocation rules is not 

necessary to meet the DCO’s obligations 

to non-defaulting clearing members’’ 

and that ‘‘[s]uch a result would 

impermissibly benefit the DCO’s general 

creditors and shareholders to the 

detriment of clearing members.’’ The 

Commission did not intend for the 

potential outcome suggested by FIA; 

rather, in proposed § 190.17(b)(2)(i), the 

Commission intended to provide that, 

where the full amount of assessment 

powers is not needed to cover a default, 

an appropriate adjustment shall be 

made to the net equity claims of clearing 

members. The Commission believes that 

the rule text should be modified in 

order to communicate its intent more 

clearly, and avoid the possibility of the 

unintended outcome raised by FIA. 

Accordingly, the Commission is 

modifying § 190.17(b)(1) to clarify that 

the DCO’s ‘‘loss allocation arrangements 

shall be applied to the extent necessary 

to address losses arising from default by 

clearing members.’’ 

This modification separates paragraph 

(b)(1) into two separate parts. First, 

paragraph (b)(1)(i) will provide that the 

calculation of a clearing member’s net 

equity claim shall include the full 

application of the debtor’s loss 

allocation rules and procedures, 

including the default rules and 

procedures referred to in § 39.16 and, if 

applicable, § 39.35. Second, paragraph 

(b)(1)(ii) will provide that the 

calculation in paragraph (b)(1)(i) will 

include, with respect to the clearing 

member’s house account, any 

assessments or similar loss allocation 

arrangements provided for under those 

rules and procedures that were not 

called for before the filing date, or, if 

called for, have not been paid. Such loss 

allocation arrangements shall be applied 

to the extent necessary to address losses 

arising from default by clearing 

members. 

The ABA Subcommittee, in its 

comment letter, was concerned that the 

proposed rule is ambiguous on whether 

assessments or similar loss allocation 

arrangements would be included in the 

calculation where the clearing 

organization’s rules do not impose 

obligations on clearing members to 

make such payments on or after the 

filing date. The modified structure of 

paragraph (b)(1), as described above, 

should remove that ambiguity, albeit not 

in the direction that the ABA 

Subcommittee would prefer: The 

calculation ‘‘will include, with respect 

to the clearing member’s house account, 

any assessments or similar loss 

allocation arrangements that were not 

called for before the filing date . . . to 

the extent necessary to address losses 

arising from default . . .’’ (emphasis 

added). 

CME’s comment letter also raises a 

concern that should be addressed. In 

particular, CME is concerned that 

deviating from the DCO’s rules with 

respect to loss allocation in this context 

could adversely affect the DCO’s netting 

opinion as to the enforceability of its 

netting rules. The Commission notes 

that this argument conflates bank capital 

charge calculations for cleared 

transactions with capital charge 

calculations for default fund 

contributions. Pursuant to, e.g., 12 CFR 

217.133(a)(2), a clearing member that is 

(or is part of) a bank holding company 

regulated by the Federal Reserve Board 

and that uses the internal ratings and 

advanced measurement approaches to 

bank capital requirements is required to 

use the methodologies described in the 

applicable paragraph of 12 CFR 217.133 

to calculate its risk-weighted assets for 

a cleared transaction (that is, paragraph 

(c) of that section) and the 

methodologies described in a different 

paragraph to calculate its risk-weighted 

assets for its default fund contribution 

to a CCP (that is, paragraph (d) of that 

section).190 Netting opinions are 

necessary to treat cleared transactions 


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191See 12 CFR 217.3(d). 

192This is another provision prescribed pursuant 

to the Commission’s authority under section 

20(a)(1) of the CEA, 7 U.S.C. 24(a)(1). 

on a net basis,191 while assessments are 

related to default fund contributions. 

Thus, the treatment of assessment 

obligations is irrelevant to netting 

opinions for cleared transactions. 

The Commission also received 

comments on proposed § 190.17(b)(2) 

concerning the treatment of ‘‘reverse the 

waterfall’’ rules in the context of a DCO 

bankruptcy. After considering the 

comments, the Commission continues to 

believe that it is useful and appropriate 

to use ‘‘reverse the waterfall’’ rules for 

recoveries made by a clearing 

organization (including a debtor 

clearing organization). Some 

commenters suggested that proposed 

§ 190.17(b)(2) be modified to address 

situations where the debtor DCO lacks 

‘‘reverse the waterfall’’ rules, or where 

such rules do not address each level of 

the debtor clearing organization’s 

waterfall. Although the commenters did 

not provide specific language that could 

be used to apply to such situations, the 

Commission believes that such a 

complicated modification is beyond the 

bounds of what was proposed, and thus, 

the Commission declines to make the 

modification here. Nonetheless, the 

commenters’ suggestion is well taken, 

and the Commission may consider 

further work on that issue in the future. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is: (1) 

Adopting § 190.17(a), (b)(1), (c), and (d) 

as proposed; and (2) adopting 

§ 190.17(b)(2) with the modification 

discussed above. 

8. Regulation § 190.18: Treatment of 

Property 

The Commission is adopting § 190.18 

to establish the allocation of the debtor 

DCO’s estate in order to satisfy claims 

of clearing members, as customers of the 

debtor. The Commission is adopting 

§ 190.18 as proposed, with the following 

modifications: (1) Adding new 

paragraph (b)(1)(iv), as described below; 

and (2) removing paragraph (c)(1) and 

renumbering the remaining paragraphs 

of paragraph (c). 

Section 190.18(a) with respect to 

customer property is parallel to 

§ 190.17(a) with respect to net equity. 

Paragraph (a) provides that property of 

the debtor clearing organization’s estate 

is allocated between member property, 

and customer property other than 

member property, in order to satisfy 

claims of clearing members as 

customers of the debtor. Such property 

would constitute a separate estate of the 

customer class (i.e., member property, 

and customer property other than 

member property) and the account class 

to which it is allocated, and would be 

designated by reference to such 

customer class and account class. 

Section 190.18(b) sets out the scope of 

customer property for a clearing 

organization,192 and is based in large 

part on § 190.09(a). Specifically, in 

§ 190.18, paragraphs (b)(1)(i)(A) through 

(G) are based on § 190.09(a)(1)(i)(A) 

through (G). Section 190.18(b)(1)(i) does 

not include a provision that is parallel 

to § 190.09(a)(1)(i)(H), because loans of 

margin are not applicable to DCOs. In 

§ 190.18, paragraphs (b)(1)(ii)(A) 

through (D) are based on 

§ 190.09(a)(1)(ii)(A), (D), (E), and (F), 

while § 190.18(b)(1)(ii)(E) adopts by 

reference § 190.09(a)(1)(ii)(H) through 

(K) as if the term debtor used therein 

refers to a clearing organization as 

debtor. Section 190.18(b)(1)(ii) does not 

include provisions that are parallel to 

§ 190.09(a)(1)(ii)(B), (C), (G), and (L), 

because they would not be applicable 

due to the differences in business 

models, structures, and activities of 

DCOs and FCMs, respectively. Section 

190.18(b)(1)(iii) is unique to clearing 

organizations, and includes as customer 

property any guarantee fund deposit, 

assessment, or similar payment or 

deposit made by a member, to the extent 

any remains following administration of 

the debtor’s default rules and 

procedures. Section 190.18(b)(1)(iii) also 

includes any other property of a 

member that, pursuant to the debtor’s 

rules and procedures, is available to 

satisfy claims made by or on behalf of 

public customers of a member. Finally, 

§ 190.18(b)(2), which identifies property 

that is not included in customer 

property, adopts by reference 

§ 190.09(a)(2) as if the term debtor used 

therein refers to a clearing organization 

as debtor and to the extent relevant to 

a clearing organization. 

Section 190.18(c) allocates customer 

property between customer classes, 

favoring allocation to customer property 

other than member property over 

allocation to member property, so long 

as the funded balance in any account 

class for members’ public customers is 

less than one hundred percent of net 

equity claims. Once all account classes 

for customer property other than 

member property are fully funded (i.e., 

at one hundred percent of net equity 

claims), any excess could be allocated to 

member property. Section 190.18(c)(1), 

as proposed (but not adopted herein, as 

discussed below), would allocate any 

property referred to in § 190.18(b)(1)(iii) 

(guarantee deposits, assessments, etc.) 

first to customer property other than 

member property, to the extent that any 

account class therein is not fully 

funded, and then to member property. 

In proposing this provision, the 

Commission intended such treatment of 

property to favor public customers over 

non-public customers. Section 

190.18(c)(2) allocates any excess funds 

in any account class for members’ house 

accounts first to customer property 

other than member property to the 

extent that any account class therein is 

not fully funded, and then any 

remaining excess to house accounts to 

the extent that any account class therein 

is not fully funded. Finally, 

§ 190.18(c)(3) allocates any excess funds 

in any account for members’ customer 

accounts first to customer property 

other than member property to the 

extent that any account class therein is 

not fully funded, and then any 

remaining excess to house accounts, to 

the extent that any account class therein 

is not fully funded. 

Section 190.18(d) allocates customer 

property among account classes within 

customer classes. Section 190.18(d)(1) 

confirms that, where customer property 

is tied to a specific account class—that 

is, where it is segregated on behalf of, 

readily traceable on the filing date to, or 

recovered by the trustee on behalf of or 

for the benefit of an account class 

within a customer class—the property 

must be allocated to the customer estate 

of that account class (that is, the account 

class for which it is segregated, to which 

it is readily traceable, or for which it is 

recovered). Section 190.18(d)(2) 

provides that customer property that 

cannot be allocated in accordance with 

paragraph (d)(1) shall be allocated in a 

manner that promotes equality of 

percentage distribution among account 

classes within a customer class. Thus, in 

such a scenario, such property would be 

allocated first to the account class for 

which funded balance—that is, the 

percentage that each member’s net 

equity claim is funded—is the lowest. 

This would continue until the funded 

balance percentage of that account class 

equals the funded balance percentage of 

the account class with the next lowest 

percentage of funded claims. The 

remaining customer property would be 

allocated to those two account classes so 

that the funded balance for each such 

account class remains equal. This would 

continue until the funded balance 

percentage of those two account classes 

is equal to the funded balance of the 

account class with the next lowest 

percentage of funded claims, and so 


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forth, until all account classes within 

the customer class are fully funded. 

Section 190.18(e) confirms, however, 

that where the debtor DCO has, prior to 

the order for relief, kept initial margin 

for house accounts in accounts without 

separation by account class, then 

member property will be considered to 

be in a single account class. 

Section 190.18(f) reserves the right of 

the trustee to assert claims against any 

person to recover the shortfall of 

property enumerated in 

§ 190.18(b)(1)(i)(E) and (b)(1)(ii) and 

(iii). Paragraph (f) is analogous in the 

DCO context to § 190.09(a)(3) in the 

context of FCMs. The purpose of 

paragraph (f), as with § 190.09(a)(3), is 

to clarify that any claims that the trustee 

may have against a person to recover 

customer property will not be 

undermined or reduced by the fact that 

the trustee may have been able to satisfy 

customer claims by other means. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.18. The Commission raised a 

specific question about the 

comprehensiveness of the scope of 

customer property for a clearing 

organization in proposed § 190.18(b). 

The Commission also asked specifically 

about the appropriateness of the 

proposed allocation of customer 

property between customer classes in 

proposed § 190.18(c) and within 

customer classes in proposed 

§ 190.18(d). 

The Commission received several 

comments on the proposal. Whereas 

some commenters supported the 

proposal, in whole or in part, others 

raised concerns particularly with 

respect to the scope of customer 

property in proposed § 190.18(b) and 

the treatment of guarantee fund deposits 

and other payments in proposed 

§ 190.18(c)(1), among other issues. 

ICI commented in support of the 

proposal and agreed with the 

Commission that the proposal is 

necessary to further the policy in 

section 766(h) of the Bankruptcy Code 

of prioritizing the claims of public 

customers over the claims of non-public 

customers. ICI stated that public 

customers need the proposed 

protections because they ‘‘typically have 

no direct participation in the DCO’s risk 

management and no insight into the 

transactions other customers have with 

the DCO.’’ ICI also stated that public 

customers may have less access to 

information concerning the DCO’s 

financial health, and may have fewer 

tools available to protect themselves 

against losses, when compared to DCO 

members. 

The ABA Subcommittee commented 

that the treatment of clearing members’ 

guaranty fund deposits and similar 

payments in proposed § 190.18(c)(1) 

represents a ‘‘significant policy change’’ 

with ‘‘significant competing policy 

considerations and complex issues’’ that 

warrant consideration outside of the 

Proposal. The ABA Subcommittee 

contended, for example, that such 

payments ‘‘may be exposed to risk in 

asset classes in which [the clearing 

member] does not trade, and which the 

clearing member does not expect to 

assume based on the DCO’s rules.’’ 

Without taking a formal position on the 

proposal, the ABA Subcommittee 

identified issues that it believed warrant 

further attention by the Commission and 

market participants, including whether 

the language in paragraph (c)(1): (a) 

Should be implemented ‘‘through a Part 

190 rule that would have the effect of 

overruling inconsistent DCO rules,’’ or 

through an amendment to part 39 to 

require DCOs ‘‘to have loss allocation 

rules that align with [the] policy 

change’’; (b) would place U.S. DCOs ’’at 

a competitive disadvantage to non-U.S. 

DCOs’’; (c) would ‘‘discourage firms 

from becoming or remaining direct 

clearing members of a DCO for the 

purpose of clearing trades solely for 

their own account or for non-public 

customers’’; and/or (d) would ‘‘create a 

risk that U.S. banking regulators will 

want to revisit the methodology for 

determining the amount of regulatory 

capital that bank and bank-affiliated 

clearing members must hold with 

respect to cleared derivatives.’’ The 

ABA Subcommittee therefore 

recommended that the Commission 

maintain the status quo by revising 

proposed § 190.18(c)(1) ‘‘to confirm that 

customer property described in Rule 

190.09(b)(1) will be allocated to member 

property after such property is applied 

to cover losses in accordance with the 

DCO’s rules . . . [until] the Commission 

separately considers the merits of the 

[proposed] policy change.’’ 

SIFMA AMG/MFA requested that the 

Commission amend proposed 

§ 190.18(b)(1) to provide explicitly ‘‘that 

customer property includes property a 

debtor DCO contributes to its default 

waterfall,’’ as seemingly was intended 

by proposed § 190.18(b)(1)(ii)(E). 

Consistent with its comments on 

proposed § 190.17(b), FIA commented 

that customer property should not 

include guaranty fund deposits as set 

forth in proposed § 190.18(b)(1)(iii) and 

recommended that the Commission 

remove that provision. FIA stated that a 

‘‘default fund represents a multilateral 

indemnification arrangement between 

the DCO and its members pursuant to 

which members’ contributions are used 

to cover the DCO’s losses resulting from 

member default(s) and thereby prevent 

the DCO’s bankruptcy.’’ FIA contended 

that a DCO has no authority under its 

rules, and a trustee has no authority 

under the Bankruptcy Code, ‘‘to request 

or to apply these funds for any other 

purpose.’’ 

CME commented in support of the 

decision to set forth the elements that 

comprise customer property in 

proposed § 190.18(b)(1). CME 

specifically agreed that the scope of 

customer property should include any 

guaranty fund deposit, assessment or 

similar deposit made by a clearing 

member or recovered by the trustee, to 

the extent any remains following 

administration of the debtor’s default 

rules and procedures, and any other 

property of a member available under 

the debtor’s default rules and 

procedures to satisfy claims made by or 

on behalf of pubic customers of a 

member. For clarity and transparency, 

CME encouraged the Commission to 

expand the scope of customer property 

to explicitly include the amounts that 

the DCO commits to the financial 

resources in the waterfall under its 

rules, to the extent that those resources 

have not already been applied under the 

DCO’s default rules. CME stated, 

however, that the Commission should 

eliminate the requirement set forth in 

proposed § 190.18(c)(1) that the 

payments described in proposed 

§ 190.18(b)(1) be allocated to customer 

property other than member property 

for use ‘‘to cover a shortfall in the 

funded balances for clearing members’ 

customer accounts in any account class’’ 

and, instead, ‘‘reaffirm that guaranty 

fund deposits are to be applied to cover 

losses in accordance with the DCO’s 

rules, with any remaining funds 

allocated to member property.’’ In 

support of its view, CME stated that 

such requirement set forth in proposed 

§ 190.18(c)(1): (1) Would materially 

change ‘‘the definition of member 

property in current Regulation 190.10, 

under which any guaranty funds 

remaining after payments in accordance 

with the DCO’s rules would be returned 

to clearing members as member 

property’’; (2) ‘‘may significantly alter 

how clearing members assess the risks 

they have assumed in joining CME,’’ by 

undermining CME’s ‘‘rules limiting use 

of clearing members’ guaranty fund 

deposits to cover losses in the relevant 

product class to which they have 

contributed to the guaranty fund and in 

which they participate’’; and (3) would 

‘‘compromise CME’s ability under 

Regulation 39.27 to ‘operate pursuant to 


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193Emphasis in original. 

194CME commented that the proposal would be 

contrary to the Bankruptcy Code’s definition of 

‘‘member property’’ as ‘‘customer property received, 

acquired, or held by or for the account of a debtor 

that is a clearing organization, from or for the 

proprietary account of a customer that is a clearing 

member of the debtor.’’ 

a well-founded, transparent, and 

enforceable legal framework that 

addresses each aspect’ of CME’s 

obligations as a DCO, including netting 

arrangements and ‘other significant 

aspects’ of CME’s ‘operations, risk 

management procedures, and related 

requirements’ as a DCO.’’ 193 CME also 

asserted that: (a) Proposed § 190.18(c)(1) 

‘‘is vulnerable to legal challenge as 

exceeding the Commission’s authority’’ 

in section 20 of the CEA, because such 

authority is not being exercised 

consistent with the Bankruptcy Code 

and other provisions of the CEA; 194 (b) 

the Commission does not have the 

authority under the CEA ‘‘to adopt rules 

that have the effect of directly rewriting 

a DCO’s rules,’’ and that doing so would 

be contrary to the reasonable discretion 

afforded to DCOs under section 5b of 

the CEA to comply with DCO core 

principles and Commission regulations; 

(c) the Commission may not alter or 

supplement the rules of a registered 

entity until it satisfies the requirement 

under section 8a(7) of the CEA to 

request that the registered entity amend 

its rules and provide the registered 

entity with notice and an opportunity 

for a hearing if it does not do so; (d) 

amending the contract between and 

among clearing members and the DCO 

through a Commission regulation 

‘‘would call into question . . . the 

enforceability of the DCO’s rules’’; and 

(e) ‘‘a proposed rule impacting the 

manner in which bank or bank-affiliated 

clearing members’ guaranty fund 

deposits and assessment obligations can 

be utilized may drive subsequent 

changes to the methodology and 

resulting amount of capital such 

members must hold for those exposures 

under the Cleared Transactions 

Framework in the Regulatory Capital 

Rules.’’ 

ICE agreed with the Commission’s 

approach not to propose ‘‘that property 

in an insolvent DCO’s general estate can 

be treated as customer property where 

customer property is otherwise 

insufficient to pay customer claims.’’ 

ICE suggested that the Commission 

clarify ‘‘that any ability to use residual 

assets should be only to the extent such 

assets are not required to be used for 

any other purpose under other 

applicable law (e.g.[,] for other classes of 

customers or for other products).’’ ICE 

suggested that ‘‘[t]he definition of 

customer property should also respect 

any express limitations on recourse that 

have been implemented under DCO 

rules.’’ ICE did not believe that the 

distributional preference for public 

customers over clearing members and 

any non-public customers of clearing 

members, as established by proposed 

§ 190.18, is appropriate in the context of 

a DCO failure, because it could ‘‘impose 

losses, or greater losses, on nondefaulting clearing members in a 

manner that overrides the negotiated 

and approved frameworks in the DCO’s 

rules.’’ ICE asserted that this ‘‘change 

could require fundamental restructuring 

of DCO operations,’’ and should be 

‘‘part of a separate rulemaking that 

addresses the interaction [of the 

proposal] with the Part 39 

requirements.’’ ICE also noted that the 

liability caps that limit the overall 

amount of a clearing member’s 

contributions and assessments—and the 

manner in which they may be used for 

a particular default—are important for 

the clearing members’ risk management 

and are often necessary under such 

clearing members’ capital requirements. 

ICE stated that requiring the use of 

contributions or assessments for 

purposes other than what is set forth in 

the DCO’s rules ‘‘would render such 

caps and limitations ineffective.’’ ICE 

further posited that proposed § 190.18 is 

‘‘unworkable for clearing houses that 

have separate guaranty funds for 

separate products, or other limited 

recourse provisions in their rulebooks 

[that are used] to designate particular 

default resources for particular 

products, and to ring-fence the liability 

of clearing members from particular 

products that they may choose not to 

clear.’’ ICE also raised a concern that 

proposed § 190.18’s potential 

subordination of the claims of the selfclearing members of a defaulting DCO to 

customers of other clearing members 

could serve as a ‘‘significant 

disincentive’’ to self-clearing, sponsored 

clearing, or direct clearing. ICE 

commented that proposed § 190.18 

‘‘should not be applied to require the 

use of clearing member guarantee fund, 

margin, or other resources in the context 

of a non-default loss where the rules of 

the DCO specifically do not contemplate 

(or expressly forbid) the use of such 

assets for such purposes.’’ On that issue, 

ICE noted that many DCOs have sought 

to address separately the allocation of 

non-default losses through rules that 

‘‘may allocate certain losses, and not 

others, to clearing members and/or to 

the clearing organization itself, and/or 

provide for the sharing of certain losses 

in certain amounts.’’ 

After considering the comments, the 

Commission is adopting § 190.18 with 

modifications, specifically with respect 

to paragraphs (b)(1) and (c)(1). 

Multiple commenters suggested that 

the Commission modify § 190.18(b)(1) to 

make explicit that customer property 

includes the amounts of its own funds 

that a debtor DCO had committed as 

part of its loss allocation rules. Given 

that the DCO’s commitment, in DCO 

rules, of a specified amount of its own 

funds to loss allocation sets a marketwide understanding and expectation 

that such an amount will be used for 

such a purpose, the Commission agrees 

that this clarification is warranted. 

Therefore, the Commission is modifying 

§ 190.18(b)(1) by adding a new 

paragraph (b)(1)(iv), which will 

explicitly include in customer property: 

‘‘Amounts of its own funds that the 

debtor had committed as part of its loss 

allocation rules, to the extent that such 

amounts have not already been applied 

under such rules.’’ 

Multiple commenters addressed 

proposed § 190.18(c)(1)(i), which 

assigned guarantee funds to customer 

property other than member property 

(i.e., to the benefit of members’ public 

customers) if and to the extent that a 

shortfall existed in the funded balance 

for such customers. The proposal was 

supported by ICI, but opposed by CME, 

FIA, and ICE, while the ABA 

Subcommittee also noted potential 

issues. 

The Commission separately 

considered each of the arguments raised 

by the commenters in opposition to 

proposed § 190.18(c)(1). In the 

discussion below, the Commission 

reviews the arguments raised by the 

commenters and explains why it is 

modifying the proposal by not adopting 

proposed § 190.18(c)(1), and 

renumbering the remaining paragraphs 

of proposed § 190.18(c). 

In response to concerns that the 

Commission lacks the authority to 

implement this provision, the 

Commission notes that it has the 

authority under section 20(a)(1) of the 

CEA to determine, ‘‘[n]otwithstanding 

title 11 of the United States Code’’ (i.e., 

the Bankruptcy Code) both ‘‘(1) that 

certain . . . property [including, e.g., 

guarantee fund deposits] [is] to be 

included in or excluded from . . . 

member property’’ and ‘‘(5) how the net 

equity of a customer is to be 

determined.’’ Thus, § 190.18(c)(1) is 

legally sound because of the 

‘‘notwithstanding title 11’’ clause in 

section 20 of the CEA. 

Moreover, proposed § 190.18(c)(1) 

would allocate guarantee fund deposits 

to customer property other than member 


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195And, thus, does not require the Commission 

to invoke or follow the procedures of CEA section 

8(a)(7). 196 Indeed, the risk would be even more 

unexpected by public customers: Clearing members 

are entirely aware that their default fund 

contributions are at risk of use to cover a 

mutualized default. Their customers, on the other 

hand, expect that their customer funds are fully 

protected by the CEA’s and the Commission’s 

segregation requirements. 

197That treatment could be significantly more 

onerous: For example, under the FDIC’s regulations, 

the capital requirement for a clearing member’s 

prefunded default fund contribution to a qualifying 

CCP can be as low as 0.16% of that default fund 

contribution. See 12 CFR 324.133(d)(4). By contrast, 

the capital requirement for a clearing member’s 

prefunded default fund contribution to a nonqualifying CCP is 100% of that default fund 

contribution. See 12 CFR 324.10(a)(1)(iii), (b)(3) 

(requiring capital of 8% of risk-weighted asset 

amount, 324.133(d)(2) (setting risk-weighted asset 

amount for default fund contributions to nonqualifying CCP at 1,250% of the contribution). 

(1,250% * 8% = 100%). The Federal Reserve and 

Office of the Comptroller of the Currency have 

similar regulations. 

Default fund contributions to DCOs total many 

billions of dollars. While not all default fund 

contributions to DCOs come from bank-affiliated 

clearing members, the majority of them do. 

198 76 FR 3608, 3708 (Jan. 11, 2011). 

199See Core Principle E(i), 7 U.S.C. 7a– 

1(c)(2)(E)(i). 

200 DCOs are required to effect settlement with 

each clearing member at least once each business 

day. They are additionally required to have the 

capability to effect a settlement with each clearing 

member on an intraday basis. See § 39.14(b). 

property only where the funded balance 

is less than one hundred percent of net 

equity claims for members’ public 

customers in an account class, i.e., 

where the DCO had failed to maintain 

in segregation sufficient funds to pay 

members’ public customer account 

balances in full. In other words, in that 

scenario, the debtor DCO would be noncompliant with Commission 

regulations. This is not a re-writing of 

the DCO’s rules,195 nor a re-writing of 

the contract between the DCO and its 

members, nor an undermining of the 

DCO’s ‘‘well-founded, transparent, and 

enforceable legal framework,’’ but an 

allocation of shortfall in a bankruptcy 

case where the DCO is non-compliant 

with Commission regulations. 

The use of guarantee funds in the 

manner specified in proposed 

§ 190.18(c)(1) would not be an 

‘‘unexpected loss’’ to non-defaulting 

clearing members, given that the 

regulation would be transparently 

available to all. To the extent that the 

consequences of the application of the 

regulation (re-allocation of their default 

fund contributions to cover a shortfall in 

customer property for members’ public 

customers) would be unexpected by 

clearing members, and unpredicted by 

their risk management systems, it is 

equally the case that the public 

customers of clearing members would 

be surprised by a shortfall in customer 

property, which their risk management 

systems would also see as 

unexpected.196 Thus, the choice is not 

simply whether to impose an 

unexpected loss to clearing members or 

not, but rather a choice of who should 

bear that unexpected loss, clearing 

members (as a group) or their customers 

(as a group). To that point, in addition 

to the statutory authority that is 

provided in the CEA, the Commission 

agrees with the comment from ICI that 

§ 190.18(c)(1) would further the policy 

goal—stated in section 766(h) of the 

Bankruptcy Code, but also running 

throughout the Commission’s approach 

to part 190—of prioritizing the claims of 

public customers over the claims of 

non-public customers. 

However, despite the foregoing 

analysis supporting adoption of 

§ 190.18(c)(1), the Commission is 

concerned about bank regulators’ 

potential analysis of § 190.08(c)(1). In 

particular, the Commission has 

considered that bank regulators may 

conclude that, because § 190.08(c)(1) 

directs the use of DCO default funds for 

reasons other than addressing 

mutualized member defaults, member 

contributions to DCO default funds do 

not fit within the definition (in bank 

capital regulations) of ‘‘default fund 

contribution,’’ see, e.g., 12 CFR 217.2. 

Specifically, such member contributions 

may not constitute ‘‘funds contributed 

or commitments made by a clearing 

member to a CCP’s mutualized loss 

sharing arrangement,’’ see, e.g., id. If 

this were the case, members’ default 

fund contributions would be subject to 

more onerous capital treatment than 

they would receive if such contributions 

did fit within the definition of ‘‘default 

fund contributions.’’ 197 That more 

onerous capital treatment would have a 

direct, negative impact on normal dayto-day activities for bank-affiliated 

clearing members, and not merely in the 

uncertain future event of a DCO 

bankruptcy. In other words, as 

discussed further below in section 

III.D.8, while the benefits to public 

customers of § 190.18(c)(1) in case of 

bankruptcy would be balanced by the 

costs to clearing members, the presentday costs to (bank-affiliated) clearing 

members of more onerous capital 

treatment would not be offset by 

significant benefits to public customers. 

The Commission acknowledges that 

the decision not to adopt proposed 

§ 190.18(c)(1) differs from the 

Commission’s approach to 

§ 190.17(b)(1). In § 190.17(b)(1), 

uncalled or unmet assessments would 

be applied to address default losses, 

with the only difference being the 

timing of the bankruptcy relative to the 

timing of the calls for, or payment of, 

the assessments. In short, the 

Commission concludes in that context 

that the default fund contributions 

would be treated as such for bank 

capital purposes, and thus would not be 

subject to more onerous capital 

treatment. In contrast, proposed 

§ 190.18(c)(1) would apply guarantee 

funds to cases that are distinct from a 

member default. As discussed above, it 

seems entirely plausible that doing so 

would take such contributions outside 

of the definition (in bank capital 

regulations) of ‘‘default fund 

contribution,’’ and thus subject them to 

more onerous capital treatment. The 

Commission believes that this 

distinction is significant and forms the 

basis for the difference in the 

Commission’s respective approaches to 

§ 190.17(b)(1) and proposed 

§ 190.18(c)(1). 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting § 190.18 as proposed, with the 

following modifications, as set forth 

above: (1) Adding new paragraph 

(b)(1)(iv), as described above; and (2) by 

removing paragraph (c)(1) and 

renumbering the remaining paragraphs 

of paragraph (c). 

9. Regulation § 190.19: Support of Daily 

Settlement 

The Commission is adopting § 190.19 

as proposed, with a modification to 

paragraph (b)(1), as discussed below. 

As the Commission noted in 

proposing § 39.14(b), ‘‘[t]he daily 

settlement of financial obligations 

arising from the addition of new 

positions and price changes with 

respect to all open positions is an 

essential element of the clearing process 

at a DCO.’’ 198 Indeed, Congress 

confirmed this by requiring that each 

DCO complete money settlements not 

less frequently than once each business 

day.199

In the ordinary course of business, 

variation settlement payments are, at a 

set time or times each day,200 sent to the 

DCO from the customer and proprietary 

accounts of each clearing member with 

net losses in such accounts (since the 

last point of computation of settlement 

obligations for that member), and then 

sent from the DCO to the customer and 

proprietary accounts of each clearing 

member with net gains in such accounts 

over that time period. 

There is no necessary relationship 

between the aggregate amount of 

payments to the DCO from all clearing 


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201Thus, while (for each settlement cycle), 

customer account losses (x) plus house account 

losses (y) will equal customer account gains (p) plus 

house account gains (q) (that is, x + y = p + q), x 

would only equal p by random chance. 202 In some cases, the DCO will use one 

settlement bank, and all settlement funds will flow 

into and out of that bank. In other cases, the DCO 

may use a system of settlement banks, and the DCO 

may, after receiving payments from members with 

payment obligations, move funds between and 

among the settlement banks (possibly through a 

‘‘concentration bank’’) to match the settlement 

funds at each bank to the DCO’s settlement 

obligations to members who are entitled to 

settlement payments. 

203 7 U.S.C. 24(a)(1) (‘‘Notwithstanding title 11 of 

the United States Code, the Commission may 

provide, with respect to a commodity broker that 

is a debtor under chapter 7 of title 11 of the United 

States Code, by rule or regulation . . . that certain 

cash, securities, other property, or commodity 

contracts are to be included in or excluded from 

customer property or member property.’’). 

204Because deposits of initial margin described in 

§ 39.14(a)(1)(iii) are separate from the variation 

settlement process, they are treated separately in 

§ 190.19(a). Such funds would be member property 

to the extent that they are deposited on behalf of 

members’ house accounts, and customer property 

other than member property to the extent that they 

are deposited on behalf of members’ customer 

accounts. 

205This is restricted to the extent that such 

margin may only be used to the extent that such use 

is permitted pursuant to parts 1, 22, and 30 of the 

Commission’s regulations, which include 

provisions restricting the use of customer margin. 

206FIA’s concerns with the language in 

§ 190.19(b) are the same as its concerns with 

§ 190.15(b) and (c), discussed in greater detail 

above. See supra section II.C.5. However, for the 

reasons noted in section II.C.5, the Commission 

believes that providing a ‘‘menu of options’’ among 

which a trustee may select (and adapt) in a manner 

that is ‘‘reasonable and practicable’’ would provide 

the trustee with a helpful roadmap to determine 

strategy and tactics, given that the trustee will likely 

face a complex and difficult situation with little 

preparation. 

207As SIFMA AMG/MFA correctly suggested, the 

Commission intends for the debtor DCO’s recovery 

and wind-down plans to apply to the property 

described in § 190.19(b)(1)(ii), and not to the 

property described in paragraph (b)(1)(i), (iii) or 

(iv), in the manner and to the extent described in 

paragraph (b)(1). As noted in the preamble to the 

proposal, and as found in the regulation itself, 

§ 190.19(b)(1)(ii) contains an explicit reference to 

‘‘recovery and wind-down plans,’’ whereas 

§ 190.19(b)(1)(i), (iii) and (iv) do not contain such 

references. 

member customer accounts with net 

losses and the aggregate amount of 

payments from the DCO to clearing 

members’ customer accounts with net 

gains. On the other hand, it is the case 

that, for each business day, the sum of 

variation settlement payments to the 

clearinghouse from clearing members’ 

customer and house accounts with net 

losses will equal the sum of variation 

settlement payments from the 

clearinghouse to clearing members’ 

customer and house accounts with net 

gains.201 Those variation settlement 

payments will be received into the 

DCO’s accounts at one or more 

settlement banks from the accounts of 

the clearing members with net losses 

and subsequently be disbursed from the 

DCO’s accounts at settlement banks to 

the accounts of the clearing members 

with net gains.202 Depending on the 

settlement bank and operational 

arrangements of the particular DCO, the 

variation settlement funds will remain 

in the DCO’s accounts between receipt 

and disbursement for a time period of 

between several minutes and several 

hours. 

The Commission believes that it is 

crucial to the settlement process that the 

variation settlement payments that flow 

into the DCO from accounts with net 

losses are available promptly to flow out 

of the DCO as variation settlement to 

accounts with net gains. 

The Commission is adopting 

§ 190.19(a), pursuant to section 20(a)(1) 

of the CEA,203 to provide that, upon and 

after an order for relief, variation 

settlement funds shall be included in 

the customer property of the DCO, and 

that they shall be considered traceable 

to—and shall promptly be distributed 

to—member and customer accounts 

entitled to payment with respect to the 

same daily settlement.204 This customer 

property would be allocated to (i) 

member property and (ii) customer 

property other than member property, in 

proportion to the ratio of total gains in 

member accounts with net gains, and 

total gains in customer accounts with 

net gains, respectively. 

The Commission is adopting 

§ 190.19(b) to address cases where there 

is a shortfall in funds received pursuant 

to paragraph (a) (i.e., settlement 

payments received by the DCO), such as 

in the case of a member default. 

Paragraph (b)(1) sets forth how such a 

shortfall shall be supplemented, to the 

extent necessary, and further states that 

such funds shall be allocated in the 

same proportion as referred to in 

paragraph (a). Paragraph (b)(1) provides 

that four types of property shall be 

included as customer property: (i) Initial 

margin held for the account of a member 

that has defaulted on a daily settlement, 

including initial margin segregated for 

the customers of such member; 205 (ii) 

Assets of the debtor to the extent 

dedicated to such use as part of the 

debtor’s default rules and procedures, or 

as part of any recovery and wind-down 

plans described in the paragraph (a) 

(i.e., the debtor DCO’s ‘‘skin in the 

game’’); (iii) Prefunded guarantee or 

default funds maintained pursuant to 

the DCO debtor’s default rules and 

procedures; and (iv) Payments made by 

members pursuant to assessment 

powers maintained pursuant to the 

debtor DCO’s default rules and 

procedures. Paragraph (b)(2) provides 

that, to the extent that the funds that are 

included as customer property pursuant 

to paragraph (a), supplemented as 

described in paragraph (b)(1), such 

funds would be allocated between (i) 

member property; and (ii) customer 

property other than member property, in 

proportion to the ratio of total gains in 

member accounts with net gains, and 

total gains in customer accounts with 

net gains, respectively. 

The Commission requested comment 

with respect to all aspects of proposed 

§ 190.19. 

CME expressed support for proposed 

§ 190.19, commenting that the 

provisions in the proposal ‘‘are 

appropriate to support the daily 

settlement cycle when the trustee 

obtains the Commission’s approval to 

continue operating the DCO.’’ FIA 

commented that it did not support 

proposed § 190.19(b), stating that the 

provision’s reliance on a debtor DCO’s 

recovery and wind-down plans postbankruptcy would be inappropriate.206

SIFMA AMG/MFA requested that the 

Commission modify proposed 

§ 190.19(b)(1) to clarify the 

Commission’s presumed intent that ‘‘the 

debtor’s recovery and wind-down plans 

shall only apply with respect to 

proposed § 190.19(b)(1)(ii)—the debtor’s 

‘‘skin in the game’’ [(i.e., its own capital 

contributions)]—and not with respect to 

the other’’ categories of customer 

property that are enumerated in 

§ 190.19(b)(1). The Commission agrees 

that its intent should be clarified to 

reflect the comment from SIFMA AMG/ 

MFA,207 and is modifying the language 

of § 190.19 to reflect that clarification. 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting § 190.19 as proposed, with a 

modification to clarify that the reference 

to the debtor’s recovery and wind-down 

plans in paragraph (b)(1) applies only to 

paragraph (b)(1)(ii), as set forth above. 

D. Appendix A Forms 

The Commission is deleting forms 1 

through 3 contained in appendix A and 

is replacing form 4 with a streamlined 

proof of claim form. Current forms 1 

through 3 contain outdated provisions 

that require unnecessary information to 

be collected. The Commission believes 

these changes will provide a trustee 

with flexibility to act based on the 

specific circumstances of the case, while 

still acting consistently with the rules. 

As noted in § 190.03(f), the trustee 

will be permitted, but not required, to 

use the revised template proof of claim 

form included as new appendix A. That 


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208The fact that sovereign action reduces 

distributions rather than claims means that, if the 

sovereign action is later reversed or modified (e.g., 

by appeal in the foreign courts, or due to recovery 

of assets in the foreign insolvency proceeding) 

resulting in reduced losses due to sovereign action 

in a particular jurisdiction, those customers whose 

distributions have been reduced due to sovereign 

action in that jurisdiction will receive increased 

distributions on their claims (with those 

distributions adjusted to reflect the revised amount 

of losses due to sovereign action). Thus, in this 

case, the claims remain constant, while the 

distributions increase. 

template is intended to implement 

§ 190.03(e), and includes crossreferences to the detailed paragraphs of 

that section. Similarly, the instructions 

for this template form that are included 

in appendix A are also designed to aid 

customers in providing information and 

documentation to the trustee that will 

enable the trustee to decide whether, 

and in what amount, to allow each 

customer’s claim consistent with part 

190. 

The Commission received one 

comment with respect to appendix A, 

from CME, which opined that ‘‘the 

proposed template proof of claim form 

included as Appendix A [is a] major 

improvement[ ] over the current . . . 

proof of claim template. CME also 

support[ed] giving the trustee the 

flexibility to tailor the proof of claim 

form to request information of 

customers as appropriate under the 

circumstances.’’ 

Accordingly, after consideration of 

this comment, and for the reasons stated 

above, appendix A to part 190 will be 

adopted as proposed. 

E. Appendix B Forms 

Appendix B to part 190 contains 

special bankruptcy distribution rules. 

These rules are broken into two 

frameworks. Framework 1 provides 

special rules for distributing customer 

funds when the debtor FCM 

participated in a futures-securities 

cross-margining program that refers to 

that framework. Framework 2 provides 

special rules for allocating as shortfall in 

customer funds to customers when the 

shortfall is incurred with respect to 

funds held in a depository outside the 

U.S. or in a foreign currency. 

The Commission proposed clarifying 

changes to framework 1. No comments 

were received with respect to 

framework 1. Accordingly, and for the 

reasons stated above, the Commission is 

adopting appendix B, framework 1 as 

proposed. 

The Commission proposed to retain 

framework 2 with some clarifying 

changes to the opening paragraph, but 

without proposing any substantive 

change. It proposed to retain the current 

instructions and examples following the 

first paragraph in appendix B, 

framework 2 entirely unchanged. It 

requested comment with respect to 

framework 2. The Commission received 

two comments on framework 2: From 

the ABA Subcommittee, and from a 

number of individual members of that 

subcommittee writing on their own 

behalf. 

The ABA Subcommittee expressed 

the concern that ‘‘[f]ramework 2 creates 

some ambiguity on when and how the 

special distribution framework it 

prescribes should apply.’’ First, the 

ABA Subcommittee stated that 

‘‘framework 2 could be read to apply 

whenever there is a loss resulting from 

a sovereign action, even if there is 

sufficient customer property to 

otherwise pay all customer net equity 

claims in full.’’ The ABA Subcommittee 

suggested that an additional sentence be 

added to the opening paragraph of 

framework 2 clarifying that it applies 

only when there is a loss due to 

sovereign action and there is 

insufficient customer property to pay all 

customer net equity claims in full. 

Second, the ABA Subcommittee (in 

conjunction with a clarifying comment 

from the Subcommittee Members) noted 

that framework 2 uses the term 

‘‘reduction in claims’’ in a potentially 

confusing manner—framework 2 is 

intended to reduce distributions 

allocated to those customers who are 

allocated losses due to sovereign risk; 

those customers claims are not reduced. 

If the sovereign action is later reversed 

or modified, those customers whose 

distributions were reduced will receive 

increased distributions on their claims. 

Third, the existing instructions to 

framework 2 ‘‘establish the ‘Final Net 

Equity Determination Date’ as the date 

for both converting customer claims to 

U.S. dollars and determining the 

amount of the Sovereign Loss.’’ 

However, in prior bankruptcies of FCM/ 

commodity brokers, ‘‘claims stated in 

foreign currencies were either valued on 

the date of transfer (where porting was 

available), or converted to U.S. dollars 

as of either as of the petition date or the 

date on which the foreign currency 

reflected in the customer’s account was 

liquidated (and thus the customer bore 

the risk of interim currency 

fluctuations).’’ Furthermore, ‘‘a 

sovereign action could take place at any 

time after the petition date, and the 

trustee is required to make funded 

balance calculations throughout the 

course of the bankruptcy case for 

purposes of porting and/or making 

interim distributions.’’ 

The Commission finds the comments 

on framework 2 of the ABA 

Subcommittee, as clarified by the 

comment of the Subcommittee 

Members, persuasive. First, framework 2 

is indeed only intended to address cases 

where there is insufficient customer 

property to pay all customer net equity 

claims in the relevant account class in 

full (if there is no shortfall, then there 

is no need to allocate losses), and that 

point should be made clear. Second, it 

is correct that framework 2 is intended 

to reduce distributions, it is not 

intended to reduce claims, and it is 

indeed appropriate to change the 

language used in framework 2 to clarify 

this fact.208 Third, the relevant date is 

the date of the calculation, not the 

‘‘Final Net Equity Determination Date,’’ 

and this should be clarified as well. 

Accordingly, the Commission is: 

(1) Modifying the first paragraph of 

framework 2 to include the statement 

that: ‘‘If a futures commission merchant 

enters into bankruptcy and maintains 

futures customer funds or Cleared 

Swaps Customer Collateral in a 

depository outside the U.S. or in a 

depository located in the U.S. in a 

currency other than U.S. dollars, and a 

sovereign action of a foreign government 

or court has occurred that contributes to 

shortfalls in the amounts of futures 

customer funds or Cleared Swaps 

Customer Collateral, the trustee shall 

use the following allocation 

procedures’’ (emphasis added solely for 

illustration). 

(2) Amending the instructions and 

examples within the whole of 

framework 2 to replace references to 

‘‘reduction in claims’’ with references to 

‘‘reduction in distributions,’’ and with 

conforming changes to other text. 

(3) Deleting the phrase ‘‘Final Net 

Equity Determination Date’’ from 

current section II.B.2.b of framework 2, 

and replacing it with the phrase ‘‘date 

of the calculation.’’ 

Accordingly, after consideration of 

the comments, and for the reasons 

stated above, the Commission is 

adopting appendix B, framework 2 as 

proposed, with the modifications 

described above. 

F. Technical Corrections to Other Parts 

1. Part 1 

The Commission is making as 

proposed several technical corrections 

and updates to part 1 in order to update 

cross-references. These are as follows: 

• In § 1.25(a)(2)(ii)(B) the Commission 

will revise the cross-reference to 

specifically identifiable property, since 

the definition will be updated in 

§ 190.01. 

• In § 1.55(d) introductory text and 

(d)(1) and (2), references to current 

§ 190.06 will be removed consistent 


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209See CMC, CME. 

210See CME. CME believed that the Commission 

has authority to adopt such a rule pursuant to its 

anti-fraud authority under CEA section 4b and its 

plenary authority to regulate commodity options 

under CEA section 4c(b). 

with the revisions to new § 1.41 (which 

was proposed as § 190.10(b) and 

renumbered). 

• In §§ 1.55(f) and 1.65(a)(3) 

introductory text and (a)(3)(iii) the 

Commission will update references to 

the customer acknowledgment in 

§ 1.55(p) (which was proposed as 

§ 190.10(e) and renumbered). 

2. Part 4 

In part 4, the Commission is making 

as proposed minor technical 

corrections: In §§ 4.5(c)(2)(iii)(A), 

4.12(b)(1)(i)(C), and 4.13(a)(3)(ii)(A), the 

Commission will change the crossreferences to the defined term for ‘‘inthe-money-amount.’’ 

3. Part 41 

In part 41, the Commission is making 

as proposed one technical correction. In 

§ 41.41(d), the Commission will delete 

the cross-reference to the recordkeeping 

obligations in current § 190.06, pursuant 

to the revisions to § 1.41 (which was 

proposed as § 190.10(b) and 

renumbered). 

No comments were received with any 

of these technical corrections and 

accordingly, for the reasons stated 

above, they are being adopted as 

proposed. 

G. Additional Comments 

In addition to the comments 

discussed above, the Commission 

received several general comments that 

addressed matters outside the scope of 

the Proposal. The Commission 

appreciates the additional feedback. 

Because these comments do not address 

proposed changes and are therefore 

outside the scope of this rulemaking, the 

Commission may take the comments 

under advisement for future 

rulemakings. 

ISDA encouraged the Commission to 

continue working on DCO recovery and 

resolution issues alongside the Federal 

Deposit Insurance Corporation (FDIC) in 

the United States, and with global 

standard setters such as CPMI–IOSCO 

and the Financial Stability Board and 

other CCP supervisors and resolution 

authorities internationally. The 

Commission notes that staff are actively 

doing each of those things. 

ISDA also noted that it would be 

advisable to engage in workshops with 

both market participants (including 

DCOs, FCMs and other clearing 

members and customers) and the FDIC 

prior to finalizing the Proposal to 

develop examples that illustrate both 

how net equity claims would be 

calculated in a hypothetical DCO 

insolvency under various loss scenarios 

and how the claims of creditors and 

equity would be treated in a resolution 

of the DCO under Title II of the DoddFrank Act. ISDA observed that the 

Proposal’s treatment of a DCO’s 

insolvency contains significant 

subtleties and nuances that could have 

implications for the counterfactual in a 

DCO resolution. ISDA suggested that 

further engagement could help ensure 

that these subtleties and nuances would 

not result in any unintended 

consequences, and that they are broadly 

understood by all entities that could be 

impacted by a DCO’s insolvency or 

resolution. 

While the Commission is finalizing 

the Proposal, it agrees that workshops 

and similar interactions between staff 

and other agencies, as well as with 

industry participants, are an excellent 

way to expose subtleties and nuances, 

build common understanding, and 

enhance planning. 

CME and CMC commented on various 

issues relating to delivery, and 

requested that ‘‘the Commission 

consider, in a separate rulemaking, the 

merits of imposing custody 

requirements or other customer 

protection requirements with respect to 

delivery accounts, along with the 

possibility of further subdividing 

delivery accounts and delivery account 

classes by underlying asset class or 

delivery mechanism, e.g., electronic 

transfer versus physical load-out.’’ 209

CME recommended that the separate 

rulemaking consider requirements such 

as whether FCMs should hold such 

property in custody accounts or 

limitations on how long cash or cash 

equivalents should be held in delivery 

accounts that are not subject to custody 

requirements.210 CME believed that any 

such rules would fit best in the 

Commission’s part 1 regulations and not 

in part 190 as parties with delivery 

obligations may not necessarily be 

aware of requirements in the bankruptcy 

regulations. CME recommended that the 

part 190 provisions relating to the 

delivery account class should be 

consistent with any such rules the 

Commission may ultimately adopt. 

Thus, CME believed that the 

Commission may have to revisit the 

delivery account class definition, and 

any appropriate subdivisions within the 

account class, along with the definitions 

of cash delivery property and physical 

delivery property definitions, based on 

the outcome of such a rulemaking. 

As noted above, the Commission 

recognizes the importance of addressing 

deliveries and delivery accounts, in 

order to protect customer funds in 

delivery accounts, to avoid disruptions 

to cash markets for delivered 

commodities, and to avoid adverse 

consequences to parties that may be 

relying on delivery taking place in 

connection with their business 

operations. The Commission notes that 

there potentially would be benefits to 

requiring segregation for delivery 

accounts, but there would be 

corresponding costs as well. The 

Commission expects to continue its 

consideration of such delivery and 

delivery account issues in the future. 

SIMFA AMG/MFA understood the 

Commission’s decision, due to limited 

resources, not to amend certain key 

definitions and concepts outside part 

190, as proposed by the ABA 

Subcommittee in its model set of part 

190 rules, within this rulemaking. These 

amendments include, e.g., the 

definitions of foreign option and 

variation margin, as well as regulations 

concerning non-swap and non-futures 

over-the-counter transactions cleared by 

a DCO and concerning leverage 

transaction merchants. However, SIFMA 

AMG/MFA recommended that the 

Commission make these amendments as 

soon as possible, given the beneficial 

impact such changes will have on the 

administration of an FCM or DCO 

insolvency. The Commission may 

consider these proposed changes in the 

future. 

ICI and Vanguard encouraged the 

Commission to work with other 

regulators to minimize existing barriers 

to porting, particularly for FCMs dually 

registered as broker-dealers, FCMs 

within consolidated groups that are 

subject to certain due diligence 

requirements, and FCMs that are subject 

to the FDIC’s Orderly Liquidation 

Authority proceedings. The commenters 

encouraged the Commission to work 

with regulators to permit similar sixmonth grace periods and remove the 

requirement to port ‘‘all or none’’ of the 

positions instead of allowing partial 

transfers of customer positions, 

including those of separately managed 

accounts. 

ICI also recommended that the 

Commission engage with SIPC or the 

relevant bankruptcy court to ensure that 

any selected trustee has the experience 

and knowledge to act in accordance 

with the duties contained in part 190 

and Subchapter IV of the Bankruptcy 

Code. 

Commission staff have and will 

continue to work with staff of other 

regulators to minimize barriers to 


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211 85 FR 70536 (November 5, 2020). 

212Such an interpretation may be superfluous. 

Previously, the Commission issued an 

‘‘Interpretative Statement Regarding Funds Related 

to Cleared-Only Contracts Determined To Be 

Included in a Customer’s Net Equity.’’ 73 FR 57235 

(October 2, 2008). At the time, prior to Dodd-Frank, 

there were questions as to whether cleared-only 

transactions were commodity contracts. The 

Commission noted that, in cases where such 

contracts are held in a futures account at an FCM 

and margined as a portfolio with exchange-traded 

futures, assets margining that portfolio are likely to 

be includable within ‘‘net equity’’ even if such 

contracts were found not to be commodity 

contracts: Where the assets in an entity’s account 

collateralize a portfolio containing both commodity 

contracts and other contracts, the entirety of those 

serves as performance bond for each type of 

contracts. See id. at 57236. See also 17 CFR 22.1 

(defining ‘‘Cleared Swaps Customer Collateral,’’ in 

relevant part, as all property that ‘‘[i]s intended to 

or does margin, guarantee, or secure a Cleared Swap 

. . . .’’). 

213 In the case of a SIDCO, this would include a 

written recommendation by each of the FDIC and 

the Federal Reserve covering eight statutory factors. 

Following that recommendation, the Secretary of 

the Treasury would then need to make a 

determination, in consultation with the President, 

that each of seven statutory factors is met. (The 

FDIC, Federal Reserve, and Secretary of the 

Treasury are often referred to as the ‘‘key turners’’ 

for Title II resolution). Following such a 

determination, the board of directors of the 

financial company may acquiesce or consent to the 

appointment of the FDIC as receiver, or there may 

be a period of judicial review which may extend to 

24 hours. 

214Any stay (in bankruptcy) on the termination 

of the SIDCO’s derivatives contracts would—under 

the regulations of the Prudential Regulators of the 

banks and bank holding companies that SIDCO 

clearing members may be affiliated with or part of— 

be inconsistent with the status of a DCO’s rules as 

a qualifying master netting agreement (‘‘QMNA’’). 

Qualification of DCO rules as a QMNA is necessary 

in order for the banks and bank holding companies 

that clearing members are affiliated with or part of 

Continued 

porting, and have worked and will, if 

and when necessary in future, work 

with SIPC and the office of the U.S. 

Trustee, to promote the appointment of 

the most knowledgeable trustees 

available in the context of SIPA or 

Chapter 7 proceedings, respectively, 

involving a commodity broker. 

ICI recommended that the 

Commission continue its portfolio 

margining harmonization efforts with 

the SEC to further facilitate portfolio 

margining, including with respect to 

security-based swaps and swaps. The 

Commission notes that the two 

Commissions are actively engaging in 

such efforts, and, on October 22, 2020, 

held a joint meeting during which they 

jointly approved a ‘‘Request for 

Comment: Portfolio Margining of 

Uncleared Swaps and Non-Cleared 

Security-Based Swaps.’’ 211

ICI and Vanguard recommended that 

the Commission extend the ‘‘legally 

segregated operationally commingled’’ 

(‘‘LSOC’’) model applied to cleared 

swaps contracts (and associated 

collateral) within part 22 to also apply 

to futures, foreign futures, and options 

thereon (and associated collateral) to 

limit non-defaulting customer exposure 

to defaulting customers. 

ICI also requested that the 

Commission or Commission staff 

provide guidance, such as an 

interpretive letter, that interprets part 22 

to require that OTC transactions cleared 

by DCOs and carried in a cleared swaps 

account be treated as cleared swaps 

subject to part 22.212

ICI and Vanguard recommended that 

the Commission prohibit non-defaulting 

customer gains haircutting, or any other 

margin haircutting, and if such gains 

haircutting is allowed at all, it should be 

limited in scope and duration, overseen 

by the DCO’s resolution authority and/ 

or the systemic risk authority, and the 

customer must receive full 

compensation in the form of a credit or 

equity claim against the DCO, superior 

to that of other creditors. 

ICI and Vanguard also requested that 

the Commission require DCOs to 

increase their ‘‘skin-in-the-game’’ as a 

foundational incentive for the DCO to 

set appropriate margin levels and avoid 

clearing illiquid or highly volatile 

products. Vanguard also recommended 

that a DCO’s capital should be required 

to backstop clearing risk, should the 

assets available for DCO recovery prove 

inadequate. 

FIA requested that the Commission 

confirm that amendments to part 190, 

including to appendix B, framework 2, 

would not prohibit the Commission 

from amending § 1.49 at a later date to 

expand the definition of ‘‘money center 

currency.’’ 

The Commission confirms that the 

amendments to part 190 that are being 

made herein will not prohibit the 

Commission from amending any other 

regulation, including § 1.49, in the 

future. If future amendments to other 

parts of the Commission’s regulations 

lead to a situation where it would be 

advisable to make conforming changes 

to part 190, the Commission will 

consider such conforming changes along 

with those amendments. 

H. Supplemental Proposal 

In the Supplemental Proposal, the 

Commission noted a problem to be 

solved: There is a possibility that a 

SIDCO could file for bankruptcy before 

the process for placing that SIDCO into 

Title II resolution is complete. Due to 

closeout netting rules adopted by many 

DCOs, including the SIDCOs, that filing 

could have the consequence of 

terminating all of the SIDCO’s cleared 

contracts. Terminating those contracts 

could undermine the success of any 

subsequent Title II resolution. 

The Supplemental Proposal suggested 

one approach to solve the problem, and 

requested comment, inter alia, on better 

ways to do so. In light of concerns 

raised in the comments received in 

response to the Supplemental Proposal, 

and for reasons discussed below, the 

Commission has determined not to 

finalize the alternative that was 

proposed in the Supplemental Proposal. 

The process for placing a financial 

company into Title II Resolution is 

deliberate and intricate.213 By contrast, 

a voluntary petition in bankruptcy 

commences the case, which in turn 

constitutes an order for relief. 

Accordingly, there exists a possibility 

that, in the highly unlikely event that a 

SIDCO would consider bankruptcy, the 

SIDCO could file for bankruptcy before 

a process to place that SIDCO into a 

Title II Resolution would have 

completed. While the appointment of 

the FDIC as receiver under Title II 

would automatically result in the 

dismissal of the prior bankruptcy, if the 

bankruptcy filing were to necessarily 

result in the termination of the SIDCO’s 

derivatives contracts with its members, 

that would undermine the potential 

success of any subsequent Title II 

Resolution. 

To address the problem, the 

Commission proposed, in the 

Supplemental Proposal, to adopt a 

provision that would stay the 

termination of SIDCO contracts for a 

brief time after bankruptcy in order to 

provide advance notice to the 

Commission (and, thus, to enable the 

Commission to notify the key turners) of 

the point at which the SIDCO’s 

contracts could be terminated, in order 

to foster the success of a Title II 

resolution by avoiding that termination, 

if the FDIC is appointed receiver in such 

a Resolution within that time. During 

this stay, variation margin would 

neither be collected nor paid. Due to 

concerns raised by commenters to the 

original Proposal regarding the effect of 

any restriction on termination of DCO 

contracts on treatment, under the capital 

regulations of Prudential Regulators of 

the banks that many clearing members 

are affiliated with, of SIDCO rules, the 

proposal provided that this provision 

would become effective only if the 

Commission were to find that the 

Prudential Regulators (i.e., the Federal 

Reserve, the FDIC, and the Office of the 

Comptroller of the Currency) have taken 

steps to make such a stay consistent 

with SIDCO rules retaining status as 

QMNAs.214


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to net the exposures of their contracts cleared with 

the DCO in calculating bank capital requirements. 

If they cannot net such exposures, there would be 

significantly increased bank capital requirements 

associated with such contracts. Such an increase in 

bank capital requirements would disrupt both 

proprietary and customer clearing. See generally 

Supplemental Proposal, 85 FR 60110, 60112 (Sept. 

24, 2020). 

215Comments on the Supplemental Proposal were 

submitted by: CME Group Inc. (‘‘CME (2)’’); Futures 

Industry Association (‘‘FIA (2)’’); Intercontinental 

Exchange Inc. (‘‘ICE (2)’’); Investment Company 

Institute (‘‘ICI (2)’’), and Securities Industry and 

Financial Markets Asset Management Group and 

Managed Funds Association (‘‘SIFMA AMG/MFA 

(2)’’). 

216See 2012 FSOC Annual Report, Appendix A, 

at 163, 178. 

The Commission requested comment 

on all aspects of the Supplemental 

Proposal, including as to whether the 

approach proposed ‘‘is the best design 

for such a solution.’’ 

The Commission received five 

comments on the Supplemental 

Proposal, each of which was from an 

entity that commented on the 

Proposal.215

Many of the commenters argued that 

the proposed stay is unnecessary, 

because the Commission would 

inevitably have received notice of the 

impending bankruptcy. For instance, ICI 

(2) commented that: 

Although it may indeed take some time for 

the relevant agencies to ‘‘turn the three 

keys,’’ a DCO’s recovery tools should give the 

agencies more than enough time. DCOs have 

clearing fund provisions, operational default 

provisions, and a variety of other risk 

management tools at their disposal. In 

practice, these tools may not be completely 

effective to preclude an insolvency. However, 

it seems extraordinarily unlikely that they 

would be so ineffective as to fail to give the 

FDIC, Federal Reserve Board, and Secretary 

of the Treasury enough time to decide 

whether to trigger OLA proceedings. 

Similarly, SIFMA AMG/MFA (2) 

stated that ‘‘the possibility of a surprise 

bankruptcy filing [is] implausible given 

the regulatory oversight framework.’’ 

FIA (2) agreed, stating that: 

A determination with regard to invoking 

Title II will almost certainly be made before 

a SIDCO is subject to an order for relief. . . . 

[W]e fully anticipate that the Commission, 

the FRB, the FDIC, and the Department of the 

Treasury will be making an assessment 

regarding the necessity and feasibility of 

recommending that the President invoke 

Title II and taking appropriate action before 

the SIDCO concludes that it must file a 

petition for bankruptcy. 

CME (2) argued that: 

under the CEA oversight framework, 

including a SIDCO’s reporting obligations, 

surely it is reasonable to expect that the 

Commission, FDIC, FRB and Treasury will be 

well aware of any circumstances that could 

portend a SIDCO’s failure, whatever the 

cause, and will be closely monitoring the 

situation. If the relevant parties are 

contemplating placing the SIDCO into a Title 

II resolution proceeding, and doing so is 

feasible, it is hard to imagine that a SIDCO 

could file a voluntary petition for relief under 

subchapter IV of Chapter 7 of the Bankruptcy 

Code without their prior knowledge. 

* * * 

In the highly unlike event a SIDCO were 

to face a decision whether to file for 

bankruptcy, it would be one of last resort, 

taken only after careful deliberation. The 

decision to file a voluntary petition for relief 

is certainly not one that CME, or any DCO, 

would take lightly. 

The Commission agrees that, pursuant 

to the DCO oversight framework, 

including a SIDCO’s reporting 

obligations under § 39.19, the 

Commission would promptly be 

notified of a DCO’s financial distress. 

Upon learning of such distress— 

whether through notification by the 

DCO or by risk surveillance by 

Commission staff—the Commission and 

staff would monitor the situation 

closely, and, in appropriate cases, 

promptly contact and act in 

coordination with fellow regulators, 

including the Federal Reserve and FDIC 

(and, as appropriate, the Department of 

the Treasury). Moreover, DCOs have 

strong and effective ‘‘clearing fund 

provisions, operational default 

provisions, and other risk management 

tools at their disposal,’’ as noted in the 

comment letter from ICI (2). The 

Commission believes it to be 

‘‘extraordinarily unlikely’’ that these 

tools would fail, let alone fail before the 

‘‘key turners’’ have time to act. 

It is also true that, given prior 

experience with discussions with DCOs 

concerning defaults of clearing members 

(none of which resulted in financial 

distress to the DCOs), the Commission 

fully expects that any DCO that is in 

financial distress would be in close 

contact with Commission staff. The 

Commission also appreciates the 

sentiment expressed by CME and 

quoted above, implying that ‘‘it is hard 

to imagine’’ that a SIDCO would not 

provide the Commission with prior 

knowledge of a voluntary bankruptcy 

filing. Finally, the Commission is 

confident that the decision to file a 

voluntary petition for relief in 

bankruptcy is ‘‘not one that . . . any 

DCO would take lightly.’’ 

Nevertheless, given the destructive 

impact that termination of the 

derivatives contracts of a SIDCO would 

cause, the Commission remains 

concerned about the effects that a 

bankruptcy filing would have on the 

ability to resolve the SIDCO pursuant to 

Title II successfully. In this context, it 

is not enough that such an event is 

‘‘implausible,’’ ‘‘hard to imagine,’’ or 

‘‘extraordinarily unlikely.’’ Knowledge 

of the SIDCO’s financial distress is 

distinct from knowledge of the timing of 

a potential bankruptcy filing. While the 

Commission would most likely be aware 

of the SIDCO’s distress, it is at this point 

not certain that there would be clear 

communication of the SIDCO’s 

intention to file for bankruptcy 

sufficiently in advance that the key 

turners would have time to act. 

As noted in the Supplemental 

Proposal, the destructive impact of a full 

tear-up of a SIDCO’s contracts would be 

significant. The FSOC has found that a 

significant disruption or failure of either 

SIDCO could have a major adverse 

impact on the U.S. financial markets, 

the impact of which would be 

exacerbated by the limited number of 

clearing alternatives currently available 

for the products cleared by each SIDCO. 

A failure or disruption of either SIDCO 

would likely have a significant 

detrimental effect on the liquidity of the 

futures and options markets (for CME) 

or swaps markets (for ICC), and on 

clearing members, which include large 

financial institutions, and other market 

participants. These significant effects 

would, in turn, likely threaten the 

stability of the broader U.S. financial 

system.216 For those reasons, inter alia, 

the Commission continues to be 

concerned about avoiding a 

circumstance where the derivatives 

contracts of a SIDCO are irrevocably 

terminated because the SIDCO files for 

bankruptcy before a process to place 

that SIDCO into a Title II Resolution. 

However, the comments expressed 

strong concerns about achieving those 

goals through the use of a bankruptcy 

stay, especially in light of the fact that 

variation margin would neither be 

collected nor paid during that period. 

The Supplemental Proposal 

acknowledged that risk levels would 

increase during the stay period. 

Commenters argued that such increase 

in risk exposures during the stay period 

would pose unacceptable risks. For 

example, CME (2) stated that 

‘‘permitting the accumulation of 

uncovered risk for 48 hours during an 

extremely volatile time would pose a 

risk to financial stability.’’ Similarly, 

SIFMA AMG/MFA (2) warned that the 

proposed part 190 stay, in conjunction 

with the Title II stay, ‘‘would result in 

extraordinary market exposures to 

market participants during highly 

volatile market conditions. The nonpayment of margin could also result in 

a multiple day liquidity problem for 


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217This also avoids the issue, raised by ICE (2), 

that action by the Prudential Regulators with 

respect to QMNA status may not be sufficient to 

address netting issues for non-U.S. clearing 

members. 

218See, e.g., CEA section 5b(c)(2)(J), 7 U.S.C. 7a– 

1(c)(2)(J) (reporting core principle); CEA section 

3(b), 7 U.S.C. 5(b) (purpose of the CEA is to ensure 

the financial integrity of transactions subject to the 

CEA and the avoidance of systemic risk); CEA 

section 8a(5), 7 U.S.C. 12a(5) (general rule-making 

authority). 

219CEA section 15(a), 7 U.S.C. 19(a). 

220 44 U.S.C. 3501 et seq. 

market participants clearing at the 

SIDCO.’’ 

The Supplemental Proposal also 

acknowledged that there is a significant 

cost to the proposed stay, in that ‘‘[f]or 

the duration of the stay period, clearing 

members and clients will be uncertain 

whether their contracts will continue (as 

part of a Resolution) or be terminated 

(and thus would need to be replaced). 

That uncertainty would mean that 

clearing members and clients would be 

disadvantaged in determining how best 

to protect their positions.’’ Again, 

commenters agreed that this cost would 

ensue, and argued that it would be 

unacceptable. For example, ICI (2) 

observed that during the stay: 

the price of the relevant underlying assets 

could (and if a SIDCO is insolvent, likely 

would) move dramatically. However, 

customers would be precluded from entering 

into risk-reducing or replacement 

transactions to stem potential losses, since 

they will not know whether their contracts 

will be terminated or reinstated. Such a 

freeze not only threatens to cause public 

customers significant losses that they cannot 

mitigate; it would also create a liquidity 

event because customers will need to 

preserve as much liquidity as possible during 

the pendency of the stay in order to meet 

potential margin calls. 

Commenters also raised issues 

relating to legal uncertainty. For 

instance, FIA (2) acknowledged that 

section 20 ‘‘authorizes the Commission 

to adopt rules ‘[n]otwithstanding title 11 

of the United States Code’ ’’ (i.e., the 

Bankruptcy Code). However, FIA 

observed that ‘‘[w]hether a stay 

contemplated under the Supplemental 

Proposal would conflict with section 

404(a) of FDICIA . . . is unclear.’’ 

In light of the persuasive arguments of 

the commenters, the Commission 

concludes that a bankruptcy stay is not 

an appropriate means of achieving the 

goal of fostering the success of a Title 

II Resolution by avoiding the possibility 

that the SIDCO could file for bankruptcy 

before a process to place that SIDCO 

into a Title II Resolution would have 

completed with the result that all of the 

SIDCO’s contracts were terminated. This 

would be true even if action was taken 

by the Prudential Regulators to avoid 

having such a stay undermine the 

QMNA status of SIDCO rules. Thus, 

while the goal remains important, the 

Commission will not adopt such a stay. 

A number of the comments answered 

the Commission’s call for a better way 

of achieving that goal. SIFMA AMG/ 

MFA(II) stated that ‘‘[a]s an alternative 

to the proposed stay, the Commission 

could require, as part of its Part 39 or 

Part 190 rules, that a SIDCO provide a 

1 or 2 day notice to the Commission of 

any bankruptcy petition by a SIDCO. We 

believe this notice requirement would 

achieve the same goal in a materially 

less detrimental manner.’’ 

CME (2) suggested the same 

alternative approach to achieve the 

same regulatory goal, in somewhat more 

detail. CME (2) urged that the 

Commission should address the 

problem: 

in a more direct manner, consistent with its 

rulemaking authority. For example, the 

Commission could require a DCO to notify 

the CFTC in advance of its plan to file a 

voluntary petition for relief under subchapter 

IV of Chapter 7 of the Code, to allow 

Treasury time to determine whether to 

appoint the FDIC as receiver before the 

SIDCO files its petition. We note that before 

a commodity broker may file a voluntary 

petition for relief under subchapter IV, its 

board of directors must approve a resolution 

authorizing the debtor to take that step. 

The Commission agrees that the 

alternative suggested by the commenters 

in response to the Commission’s 

request—providing the advance notice 

sought by the Commission, but before a 

bankruptcy filing rather than 

thereafter—is one that, as FIA (2) 

observed, ‘‘deserves the Commission’s 

strong consideration.’’ It appears that it 

may achieve the regulatory goals 

specified in the Supplemental Proposal 

while avoiding the concerns raised by 

the commenters: By providing advance 

notice to the Commission, it appears 

that it may allow the Commission, 

which will be coordinating with the 

‘‘key-turners,’’ to advise those agencies 

of the imminence of a bankruptcy filing, 

and to provide them with warning at a 

time that may be sufficient to enable 

them to act with dispatch to complete 

the process. 

Because the alternative approach 

would not involve a post-bankruptcy 

stay, it would appear to avoid affecting 

the QMNA status of SIDCO rules (and, 

thus, would appear not to require any 

action by the Prudential Regulators).217

Moreover, because this notice would 

occur in advance of a bankruptcy filing, 

the suspension of payments and 

collections of variation margin would 

not occur, and there would appear to be 

no ambiguity concerning the status of 

the cleared contracts of market 

participants. By avoiding the 

mechanism of a bankruptcy stay, the 

Commission would also appear to avoid 

the legal uncertainty issues raised by the 

commenters with respect to that 

mechanism. Instead, this notice 

approach would appear to be, as noted 

by CME, well within the Commission’s 

rulemaking authority.218

However, in light of the concerns 

raised with the previous approaches to 

addressing this problem, both the one 

advanced in the Supplemental Proposal 

as well as one advanced in the Proposal, 

the Commission concludes that, at this 

point, it should engage in further 

analysis and development before 

proposing this, or any other, alternative 

approach. Such further analysis and 

development might better enable the 

Commission to propose, in detail, a 

solution that is effective, and that 

mitigates any attendant costs. Thus, the 

Commission will, at present, keep this 

issue under advisement. 

III. Cost-Benefit Considerations 

A. Introduction 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.219

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of the following five broad areas of 

market and public concern: (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. The Commission 

considers the costs and benefits 

resulting from its discretionary 

determinations with respect to the 

section 15(a) factors (collectively 

referred to herein as ‘‘Section 15(a) 

Factors’’) below. 

In the Proposal, the Commission 

endeavored to assess the expected costs 

and benefits of the proposed rulemaking 

in quantitative terms, including costs 

related to matters addressed in the 

Paperwork Reduction Act 220 (‘‘PRArelated costs’’), where possible. In 

situations where the Commission was 

unable to quantify the costs and 

benefits, the Commission identified and 

considered the costs and benefits of the 

applicable proposed rules in qualitative 

terms. The lack of data and information 

to estimate those costs was attributable 

in part to the nature of the proposed 


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221The alternative, to forego providing such 

flexibility or discretion, would invert the benefits 

and costs discussed below. 

222As discussed above, see section II.B.2, while 

the trustee has discretion as to how they administer 

the affairs of the bankruptcy estate, a DCO of which 

that FCM is a member retains its rights to act under 

its rules. 223Certain discretionary decisions a trustee may 

take, for example, the frequency with which the 

trustee provides information. 224As a formal matter, the Commission has the 

right to appear and be heard on any issue in any 

such case. See 11 U.S.C. 762(b). As a practical 

matter, trustees and their counsel have, in previous 

commodity broker bankruptcies, consulted with 

Commission staff frequently and on an ongoing 

basis, particularly in making and implementing 

important decisions. 

rules. None of the comments identified 

quantifiable costs or benefits. 

In a number of cases, commenters 

suggested alternative approaches or 

modifications to the proposed 

provisions. The Commission has 

carefully considered these alternatives 

and modifications and in a number of 

instances, for reasons discussed in 

detail above, has adopted such 

alternative approaches or modifications 

where, in the Commission’s judgment, 

the alternative or modified approach is 

more appropriate to accomplish the 

regulatory objectives. The rationale in 

these cases was discussed in detail 

above. 

1. Baseline 

The baselines for the Commission’s 

consideration of the costs and benefits 

of this rulemaking are: (1) The 

Commission’s current regulations in 

part 190, which establish bankruptcy 

rules in the event of an FCM 

bankruptcy; (2) current appendix A to 

part 190, which contains four 

bankruptcy forms (form 1—Operation of 

the Debtor’s Estate—Schedule of 

Trustee’s Duties; form 2—Request for 

Instructions Concerning Non-Cash 

property Deposited with (Commodity 

Broker); form 3—Request for 

Instructions Concerning Transfer of 

Your Hedging Contracts Held by 

(Commodity Broker); and form 4—Proof 

of Claim); and (3) current appendix B to 

part 190, which contains two 

frameworks setting forth rules 

concerning distribution of customer 

funds or allocation of shortfall to 

customer claims in specific 

circumstances. 

2. Overarching Concepts 

a. Changes to Structure of Industry 

The Commission is making several 

revisions to part 190 in order to reflect 

the changes to the structure of the 

industry since part 190 was originally 

published in 1983. In particular, FCMs 

and DCOs now operate in a different 

world, where matters such as market 

moves, transactions, and movements of 

funds tend to happen much more 

quickly, in part due to the advances in 

technology and the global nature of 

underlying markets. 

These changes include major 

structural changes in the financial 

markets, including regulatory reforms 

following the 2008 financial crisis and 

consequent changes to the structure of 

the derivatives markets, changes in the 

governance of the market utilities, such 

as DCOs, from non-profit organizations 

to public companies, and major reforms 

in the banking sector, followed by the 

creation of large, publicly held financial 

holding companies with different 

attitudes towards risk. 

As a result, several of the changes to 

part 190 will address these changed 

circumstances. The Commission 

believes that the revisions in proposed 

part 190 that address the computerized 

and fast-paced nature of the industry 

will benefit all parties involved in a 

bankruptcy proceeding, since the rules 

would reflect how the industry actually 

works today and will avoid unnecessary 

delay to the administration of a 

bankruptcy proceeding. 

b. Trustee Discretion 

In several places in revised part 190, 

the Commission provides additional 

flexibility and discretion to the 

bankruptcy trustee in taking certain 

actions.221 This principles-based 

approach is in contrast to the customer 

notice procedures in current part 190, 

which are more prescribed and depend 

on the type of notice being given. 

The Commission has concluded that, 

in general, affording more discretion to 

the bankruptcy trustee in appropriate 

circumstances is beneficial, and indeed 

necessary, where matters are unique and 

fast-paced, as they often are in 

commodity broker bankruptcy 

proceedings. In many areas, it is 

unlikely that a prescriptive approach 

can be designed that will reliably be ‘‘fit 

for purpose’’ in all plausible future 

circumstances. 

Granting the trustee discretion is 

expected to decrease, though it certainly 

does not eliminate, the number and 

extent of cases in which the trustee will 

petition the bankruptcy court for formal 

approval of an action. Each formal 

approval the trustee is required to 

obtain—i.e., each time the trustee moves 

for an order from the bankruptcy court 

authorizing the trustee to take a 

particular action in a particular way— 

takes significant time and involves 

significant administrative costs—in 

particular, the time of professionals 

such as attorneys and financial experts 

to draft legal pleadings and analyses. 

These professionals charge significant 

hourly fees, and thus their time leads to 

significant administrative costs. As 

discussed further below, administrative 

costs can be charged against customer 

property, leading to reduced recoveries 

by public customers. 

Therefore, increased discretion of the 

trustee will benefit the estate by 

allowing the trustee to make principlesbased decisions that are uniquely 

tailored to the facts and circumstances 

of the particular case, rather than 

compelling the trustee to follow a 

procrustean framework, or requiring the 

trustee to request formal approval from 

the bankruptcy court or the Commission 

before implementing those decisions. 

This approach leads to approaches that 

are better tailored to the specifics of the 

circumstances, reductions in 

administrative costs (leaving more funds 

available for distribution to public 

customers and/or other creditors) and 

faster distributions of customer property 

(to the benefit of public customers). It is 

also intended to mitigate the negative 

externalities arising from the distressed 

circumstances that tend to result in 

further reduction in the value of 

customer assets.222

The Commission recognizes, however, 

that with increased discretion comes a 

risk of trustee mistake or misfeasance; in 

other words, a trustee making decisions 

that turn out not to be in the best 

interests of public customers as a class, 

or other creditors.223 While this is 

certainly a potential cost in situations 

where the trustee is given increased 

discretion or flexibility, the Commission 

believes that this potential cost will be 

mitigated by (1) the high degree of 

informal (and, where necessary, formal) 

involvement of Commission staff in 

FCM and DCO bankruptcy matters,224

and (2) the fact that such discretion 

would not be unbounded and would 

apply only in particular circumstances, 

as discussed below. 

Moreover, in response to a comment 

by ICI, and as discussed further below, 

the Commission is adding a clarification 

in § 190.00 that where a provision in 

part 190 affords the trustee discretion, 

that discretion should be exercised in a 

manner that the trustee determines will 

best achieve the overarching goal of 

protecting public customers as a class 

by enhancing recoveries for, and 

mitigating disruptions to, public 

customers as a class. The Commission is 

of the view that adding this principlesbased provision will further clarify the 

duty of trustees in commodity broker 

bankruptcy proceedings to act in a 


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225See ICI at 22 (failure of trustee to provide 

account statements or information about funded 

balances could ‘‘hinder the ability of a regulated 

fund to confirm the existence and value of its 

transactions and associated margin.’’) 

226See comparison of best efforts to reasonable 

efforts in section II.A.1 above. 

227Circumstances that may vary include: The 

accuracy of the commodity broker’s records at the 

time of bankruptcy; whether the bulk of an FCM’s 

customer accounts were transferred in the days after 

the filing date (or otherwise migrated in the days 

before); the number of customer accounts; the 

existence and extent of a shortfall in customer 

funds; and the complexity of the positions carried 

by the commodity broker. 

228Pursuant to section 503(b)(1) of the Code, 

administrative costs include the actual, necessary 

costs and expenses of preserving the estate; and 

pursuant to section 330(a)(1)(A) of the Code, the 

Court may award ‘‘reasonable compensation for 

actual, necessary services rendered by the trustee 

. . . professional person, or attorney . . . .’’ Factors 

that are considered in determining ‘‘reasonable 

compensation’’ include the time spent on the 

services, the rates charged, the customary 

compensation charged by comparably skilled 

Continued 

manner that adds benefits, and reduces 

costs, to public customers as a class by, 

respectively, enhancing their recoveries 

and mitigating disruptions to them. 

However, channeling the trustee’s 

discretion towards protecting public 

customers as a class may well work to 

the detriment of (and thus impose costs 

upon) individual public customers, or 

classes of public customers, whose 

interests differ from that of the class in 

general. For example, certain customers 

may have a particular need for current 

and precise information about their 

account balances and positions.225 It is 

possible (though unlikely) that the 

trustee might determine that it is 

inordinately costly to do so for a 

particular time, looking at the interests 

of public customers as a class. Such a 

decision would not be a mistake or 

malfeasance, though one would expect 

the trustee to endeavor to avoid the 

necessity for doing so. 

An additional risk related to increased 

discretion is the possibility that parties 

that are dissatisfied with the trustee’s 

exercise of discretion may challenge it 

in court, potentially leading to increased 

litigation costs. The Commission 

believes that this risk is mitigated by (1) 

the fact that certain of these decisions 

would be made in contexts where the 

trustee would be seeking an order of the 

bankruptcy court approving the trustee’s 

approach (and thus the trustee’s 

discretion would be subject to judicial 

review within a proceeding in which 

interested parties already have an 

opportunity to object) and (2) the 

likelihood that bankruptcy courts would 

respect the Commission’s rules granting 

the trustee discretion, rendering such 

litigation less likely to succeed, and 

quicker to resolve. Litigation that is less 

likely to succeed is less likely to be 

brought, and litigation that is quicker to 

resolve is likely to cost less. Thus, by 

granting the trustee discretion, the 

Commission mitigates the cost of such 

litigation. 

Instances where the revisions to 

proposed part 190 will afford more 

flexibility or discretion to the 

bankruptcy trustee are discussed in 

further detail where they appear in each 

provision below. 

c. Cost Effectiveness and Promptness 

Versus Precision 

In revising part 190, the Commission 

has endeavored to effect a proper 

balance between cost effectiveness and 

promptness, on the one hand, and 

precision, on the other hand. Current 

part 190 favors cost effectiveness and 

promptness over precision in certain 

respects, particularly with respect to the 

concept of pro rata treatment. As a 

result of the policy choice made by 

Congress in section 766(h) of the 

Bankruptcy Code, part 190 proceeds 

from the principle that it is more 

important to be cost effective and 

prompt in the distribution of customer 

property (i.e., in terms of being able to 

treat public customers as part of a class) 

than it is to value each customer’s 

entitlements on an individual basis. The 

revisions to part 190 take this concept 

further, recognizing that there are 

additional circumstances where cost 

effectiveness and promptness in the 

administration of a bankruptcy 

proceeding should have higher priority 

than precision. However, in response to 

ICI’s comment, the Commission has 

clarified that where the trustee is 

directed to exercise ‘‘reasonable efforts’’ 

to meet a standard, those efforts should 

only be less than ‘‘best efforts’’ to the 

extent that the trustee determines that 

such an approach would support the 

goal of protecting public customers by 

enhancing recoveries for, and mitigating 

disruptions to, public customers as a 

class.226 Thus, the Commission 

recognizes that there are limits to the 

extent to which cost effectiveness and 

promptness will be favored over 

precision as discretion must be 

exercised in furtherance of the 

overarching goal of protecting the 

interests of public customers as a class. 

The Commission believes that these 

revisions favoring cost effectiveness and 

promptness over precision further the 

policy embodied in section 766(h) of the 

Bankruptcy Code and benefit parties 

involved in a bankruptcy proceeding 

overall, in that they will in general lead 

to: (1) A faster administration of the 

proceeding; (2) public customers 

receiving their share of the debtor’s 

customer property more quickly; and (3) 

a decrease in administrative costs. 

There could, however, be 

corresponding costs to this approach for 

some public customers in that they may 

lose out on being treated precisely in 

terms of their individual circumstances 

(and, for example, may receive a smaller 

distribution of customer property than 

otherwise). 

d. Unique Nature of Bankruptcy Events 

The Commission recognizes in 

revised part 190 that there is no onesize-fits-all approach to the 

administration of the bankruptcy of an 

FCM or a DCO, and that it is important 

that the rules allow the trustee, in 

conducting that administration, to take 

into account the unique nature of each 

of these events. The revisions to 

proposed part 190, therefore, address 

the uniqueness of these bankruptcy 

events and allow for the bankruptcy 

trustee to tailor their approach in the 

way that most makes sense given the 

individual circumstances of the case at 

hand.227 History has shown that FCM 

bankruptcies play out in very different 

ways, and several of the Commission’s 

revisions to part 190 address that 

reality. These new provisions reflect the 

fact that each FCM and DCO bankruptcy 

presents individual circumstances, and 

that the proof of claim form will likely 

have to be modified to fit the unique 

facts and circumstances of each case. 

The Commission believes that the 

revisions of this type will benefit all 

parties involved in a bankruptcy 

proceeding by better tailoring such a 

proceeding to the unique needs of the 

particular case. 

However, by providing for a bespoke 

tailoring of the approach to commodity 

broker bankruptcy, the Commission 

inherently provides less transparency, 

and thus less certainty, of the 

particulars of the approach that will be 

followed. 

e. Administrative Costs are Costs to the 

Estate, and Often to the Customers 

In many instances in this adopting 

release, the Commission is noting that a 

certain provision will impose or reduce 

administrative costs, that is, the actual 

and necessary costs of preserving the 

bankruptcy estate and administering the 

case. In each of these cases, 

administrative costs will be a cost to the 

estate of the debtor, since administrative 

expenses that the bankruptcy trustee 

incurs in administering the estate 

(including for the time of the trustee, 

accountants, counsel, consultants, 

etc.) 228 will be passed onto the estate 


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practitioners, and whether the services were 

necessary to the administration of the case. See 

generally 11 U.S.C. 330(a)(3). 

229While such costs may in certain cases be borne 

instead by general creditors, section 766(h) permits 

customer property to be used to meet ‘‘claims of a 

kind specified in section 507(a)(2)’’ of the 

Bankruptcy Code (which in turn include claims for 

the expenses of administering the estate) ‘‘that are 

attributable to the administration of customer 

property.’’ 

230For example, as noted above in section II.A.1, 

OCC’s own rules would appear to permit it to 

liquidate such positions. 

itself. This means that, in the event of 

a shortfall, such costs will ultimately be 

borne by the public customers of the 

debtor, who will receive smaller 

dividends on their claims as the value 

of the debtor’s estate decreases.229 By a 

parity of reasoning, reducing such 

administrative costs will reduce the 

shortfall, and increase recoveries by 

public customers. 

To be sure, the actions taken to 

achieve these cost efficiencies that 

enhance the value of the estate for 

public customers as a whole may 

impose costs on individual public 

customers. 

f. Preference for Public Customers Over 

Non-Public Customers and for Both 

Over General Creditors 

As noted repeatedly above, and 

consistent with the requirements of 

section 766(h) of the Bankruptcy Code 

and longstanding Commission policy, 

many provisions in part 190 favor 

public customers over non-public 

customers, and both over general 

creditors, whenever there is a shortfall 

in customer property in any account 

class for public customers (or, with 

reference to general creditors, for nonpublic customers). 

The preference for public customers 

benefits them, and provides them with 

incentives to participate in transactions 

protected by part 190, and to post 

collateral willingly. However, this 

preference correspondingly disfavors 

non-public customers. Accordingly, it 

arguably provides them with incentives 

to participate less in transactions 

protected by part 190—or, perhaps, to 

clear through unaffiliated FCMs (and 

thus, to do so as public customers of 

those FCMs). 

Similarly, the preference for both 

public and non-public customers over 

general creditors may incentivize 

general creditors to be less willing to 

extend credit to commodity brokers. 

However, in light of the fact that 

commodity brokers are highly regulated 

entities subject to stringent capital or 

resource requirements, this incentive 

effect with respect to general creditors is 

not likely to be strong. 

B. Subpart A—General Provisions 

1. Regulation § 190.00: Statutory 

Authority, Organization, Core Concepts, 

Scope, and Construction: Consideration 

of Costs and Benefits 

Section 190.00 contains general 

provisions applicable to all of part 190. 

These provisions set forth the concepts 

that guide the Commission’s bankruptcy 

regulations. All of § 190.00 is new, in 

that current part 190 does not contain 

an analogous regulation. However, only 

certain provisions within § 190.00 have 

cost-benefit implications, since the bulk 

of § 190.00 is designed to explain 

concepts that are either (1) not different 

from those contained in current part 

190, but are simply stated more 

explicitly in the revised rules, or (2) 

new, in that they are not contained in 

current part 190, but are concepts that 

are meant to clarify how revised 

substantive provisions operate. In the 

latter case, cost and benefit 

considerations are addressed with 

respect to the substantive provisions. 

The Commission requested comment 

on all aspects of its cost and benefit 

considerations with respect to proposed 

§ 190.00. 

There are potential costs associated 

with § 190.00(c)(4) which promotes the 

transfer or porting of the open 

commodity contract positions of a 

bankrupt FCM’s public customers rather 

than the liquidation of these positions. 

For example, OCC commented that 

while liquidating customer positions 

may introduce market risk associated 

with closing out and reopening 

positions for certain customers, those 

risks should be weighed against the 

potential drawbacks of porting, 

especially if an FCM to accept the 

transfer is not immediately identified. 

Specifically, OCC identified three 

potential drawbacks with the proposed 

§ 190.00(c)(4). First, that it could be 

difficult for a trustee (or DCO) to 

identify a transferee to accept the open 

positions and collateral, which 

depending on the market conditions 

could be a difficult and time-consuming 

process. Second, a customer could face 

uncertainty as to how its position and 

associated collateral will be resolved 

until a transfer is complete and also may 

be unable to exit a position in a timely 

and efficient manner. Third, a customer 

might need to post additional collateral 

at a new FCM prior to or immediately 

after a transfer. 

In considering the costs and benefits 

of the preference for transfer versus 

liquidation, the Commission notes first 

that, as OCC forthrightly acknowledged, 

liquidating customer positions may 

introduce market risk associated with 

closing out and reopening positions for 

certain customers. Additionally, 

liquidating a mass of customer positions 

may roil the markets, if any, where 

those positions are concentrated. 

Furthermore, § 190.00(c)(4) 

establishes a preference for transfer 

rather than a mandate. Thus, if after 

exerting their best efforts, the trustee 

finds that the process of transfer is 

indeed too ‘‘difficult and timeconsuming,’’ the trustee is not obligated 

to implement a transfer. Moreover, as a 

practical matter, there are narrow limits 

to how long a trustee will have to 

endeavor to transfer before being 

compelled to liquidate positions by the 

DCO at which they are held, or, if 

applicable, an FCM through which they 

are held. (Either the DCO or the FCM, 

whichever is applicable, will have the 

discretion to liquidate positions that are 

being cleared/carried for an FCM that is 

in bankruptcy).230 Pursuant to 

§ 190.04(d), if the trustee is not 

successful in transferring an open 

contract by the seventh calendar day 

after the order for relief consistent with 

§ 190.04(a), the trustee is directed to 

liquidate such contract promptly and in 

an orderly manner. Thus, while a 

customer could face uncertainty as to 

how its position and associated 

collateral will be resolved until a 

transfer is complete (or until the 

customer’s positions are otherwise 

liquidated), the time of that uncertainty 

is both practically and legally limited. 

Finally, a customer who does not wish 

to post additional collateral at a new 

FCM would be entitled to have the new 

FCM liquidate their positions, and 

promptly receive any remaining 

transferred collateral. In this light, the 

Commission believes that the benefits of 

continuing the preference for transfer 

remain significant, while the costs of 

this preference are mitigated. 

There are potential benefits arising 

from reduced uncertainty as a result of 

clarifications provided in several 

provisions. For example, 

§ 190.00(d)(1)(ii), clearly expresses that 

part 190 applies to a proceeding 

commenced under SIPA with respect to 

a debtor that is registered as a broker or 

dealer under the CEA when the debtor 

also is an FCM. Similarly, § 190.00(e) 

clarifies how transactions and collateral 

that are portfolio margined are treated as 

an important prerequisite to an effective 

portfolio margining program. Cboe’s 

comment letter expressed the view that 

the clarity provided in § 190.00(d)(1)(ii) 

will be beneficial to the entire 


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231Moreover, prescribing regulations that are 

intended to be applicable to entities that, at some 

unknown point in the future, enter these empty 

categories risks poor tailoring due to lack of data 

concerning the characteristics of those unknown 

future entrants. 

232As noted above in section III.A.2.vi, the 

preference for public customers over non-public 

customers creates incentives for both groups. 

233Section 210(m)(1)(B) of title II,12 U.S.C. 

5390(m)(1)(B), requires the FDIC, where the covered 

financial company or bridge financial company is 

a commodity broker, to apply the provisions of 

subchapter IV as if the financial company were a 

debtor for purposes of such subchapter. 

234 DCOs operate nearly 24-hours a day, between 

Sunday afternoon and Friday evening. Moreover, 

the risks that a DCO is required to manage are based 

on market movements and events (including in 

OTC markets) that may occur whether or not the 

DCO is able to operate. Accordingly, Commission 

staff (in cooperation with FDIC staff) have engaged, 

and will continue to engage, in significant efforts 

to plan for the unlikely event that resolution under 

Title II would be necessary for a DCO. 

Thus, there is a public benefit to facilitating 

FDIC’s efforts in resolution planning for DCOs by 

setting forth clear guidance as to the distribution of 

customer property and member property in a DCO 

resolution proceeding. 

ecosystem, including customers of 

FCMs and broker-dealers, as it furthers 

the ability of market participants to 

utilize portfolio margining and the 

associated efficiencies. CME also saw 

benefits to ‘‘remov[ing] any doubt’’ that 

part 190 applies to a SIPA proceeding 

involving an FCM that is also registered 

with the SEC as a broker-dealer. 

Similarly, ICI’s comment letter 

considered that the ‘‘home field’’ rule in 

§ 190.00(e) is highly beneficial. 

With respect to the remaining 

provisions within proposed § 190.00, 

the Commission has not received 

comment letters that identify costs or 

benefits explicitly attributed to these 

provisions, and does not believe that 

there are material cost-benefit 

implications with respect to them: 

• Proposed § 190.00(a), which sets 

forth the statutory authority pursuant to 

which the Commission is proposing to 

adopt proposed part 190. 

• Proposed § 190.00(b), which 

describes how the proposed rules are 

organized into three subparts. While the 

addition of DCO-specific rules in this 

proposal is new, the cost-benefit 

implications of the DCO-specific 

provisions (§§ 190.11 through 190.18) 

are discussed separately below. 

• Section 190.00(c)(2), which 

provides that part 190 establishes four 

separate account classes, each of which 

is treated differently under the 

regulations. In the Commission’s view, 

this provision is a mere clarification, as 

current part 190 also establishes 

different account classes for different 

types of cleared commodity contracts, 

and treats each account class differently. 

• Section 190.00(c)(5), which 

explains that part 190 applies the 

concept of pro rata distribution when it 

comes to shortfalls of property in a 

particular account class. This provision 

is merely explanatory. 

• Section 190.00(d)(1)(i)(A), which 

provides that the definition of 

‘‘commodity broker’’ in proposed part 

190 covers both ‘‘futures commission 

merchants’’ and ‘‘foreign futures 

commission merchants’’ because both 

are required to register as FCMs under 

the CEA and Commission regulations. 

• Section 190.00(d)(2)(i), which states 

that the bankruptcy trustee may not 

recognize any account class that is not 

one of the account classes enumerated 

in proposed § 190.01. 

• Section 190.00(d)(3), which sets 

forth the transactions that are excluded 

from the definition of ‘‘commodity 

contract.’’ This provision explains and 

carries over concepts that are already 

embedded in current part 190. 

While the Commission has not 

received comment letters that identify 

costs or benefits explicitly attributed to 

the following provisions in § 190.00, it 

believes that there will be cost-benefit 

implications to these provisions: 

• Section 190.00(c)(1) states that part 

190 is limited to a commodity broker 

that is (1) an FCM as defined by the CEA 

and Commission regulations, or (2) a 

DCO under the CEA and Commission 

regulations. Current part 190 applies to 

a broader set of ‘‘commodity brokers,’’ 

including FCMs, clearing organizations, 

commodity options dealers, and 

leverage transaction merchants. This 

narrowing of the application of part 190 

(by excluding the empty categories of 

commodity options dealers and leverage 

transaction merchants) benefits the 

bankruptcy estate, and the customers, 

by allowing the Commission to 

promulgate regulations that are less 

complex and better tailored to the 

narrower, set of commodity brokers that 

are covered by the revised 

regulations.231

• Section 190.00(c)(3) explains the 

distinction between ‘‘public customers’’ 

and ‘‘non-public customers,’’ and the 

priority that public customers (and, after 

them, non-public customers) enjoy over 

all other claimants with respect to 

distributions of customer property. Both 

of these concepts exist in current part 

190 and are clarified and explained 

further in § 190.00(c)(3). In its comment, 

ICI urged the Commission to take steps 

‘‘to help ensure that the trustee 

prioritizes the protection of [public] 

customers.’’ In response, Commission 

has added a provision, 

§ 190.00(c)(3)(i)(C), directing the trustee 

to exercise its discretion (where it has 

such discretion) in a manner that will 

best achieve the overarching goal of 

protecting public customers by 

enhancing recoveries for, and mitigating 

disruptions to, public customers as a 

class.232 This approach has the benefit 

of guiding the trustee’s discretion in a 

manner consistent with the 

Commission’s regulatory and statutory 

goals. However, it has the limitation of 

still leaving the trustee with discretion. 

As noted above in section III.A.2 above, 

with discretion comes a risk of trustee 

mistake or misfeasance. 

• Section 190.00(c)(6) addresses the 

treatment of commodity contracts that 

require delivery performance. The 

revised regulations, in allowing the 

trustee more flexibility in how a 

customer could effect delivery outside 

of the debtor’s estate, will benefit 

customers by allowing for a more 

bespoke approach to effecting delivery 

when customers incur delivery 

obligations under their open commodity 

contracts. There will, however, be costs 

in acting in such a bespoke fashion in 

contrast to following standards 

established during business as usual. 

• Section 190.00(d)(1)(i)(B) notes that 

while there are currently no registered 

leverage transaction merchants or 

commodity options dealers, the 

Commission intends to adopt rules with 

respect to leverage transaction 

merchants or commodity options 

dealers at such time as an entity 

registers as one of those categories of 

commodity brokers. This forwardlooking flexibility will generate benefits 

by fostering bankruptcy rules 

specifically tailored to leverage 

transaction merchants or commodity 

options dealers when and if an entity 

registers as such. 

• Section 190.00(d)(1)(iii), provides 

that part 190 shall serve as guidance as 

to the distribution of customer property 

and member property in a proceeding in 

which the FDIC is acting as receiver 

pursuant to Title II of Dodd-Frank.233

This provision has the benefits 

associated with transparently providing 

to FDIC during business-as-usual the 

expertise and guidance of the agency 

with regulatory and supervisory 

responsibility for commodity brokers 

(i.e., FCMs and DCOs).234

• Section 190.00(d)(2)(ii) provides 

that no property that would otherwise 

be included in customer property shall 

be excluded from customer property 

because it is considered to be held in a 

constructive, resulting, or other trust 

that is implied in equity. It prevents 

public customers from evading pro rata 

exposure to shortfalls in customer 

property by keeping their collateral in a 

trust structure. This provision has the 


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235These reasons for this difficulty and 

vulnerability are discussed above in section II.B.4 

in the explanation of the changes to proposed 

§ 190.06(b). 

236The Commission also notes CME’s suggestion 

that it ‘‘consider adopting more formal 

requirements with respect to delivery accounts 

through separate rulemaking.’’ 

237See section II.A.2 above. 

benefit of supporting the statutory 

policy of pro rata distribution for the 

pool of customers, by ensuring that all 

property that properly belongs in the 

category of ‘‘customer property’’ would 

be considered such customer property. 

It should mitigate costs in cases where 

particular customers might structure 

their relationships with their FCMs in 

order to establish such a trust for the 

purpose of thwarting their exposure to 

pro rata distribution, rather than 

structuring those relationships in ways 

that otherwise make sense for their 

business. It would also reduce those 

customers’ incentives to do so, and 

would mitigate the costs of litigation 

within the bankruptcy proceeding over 

the effectiveness of such structures in 

achieving that goal. It also benefits the 

remaining customers, since if such 

litigation were successful, it would 

spread the pro rata shortfall over a 

smaller volume of customer claims. 

• However, this approach will impose 

costs on those customers, if any there 

be, who would otherwise endeavor to 

rely on the trust concept to shield 

certain of their property from entering 

the pool of customer property. Such 

customers might (despite opposition 

from the Commission and the trustee) 

otherwise be successful in litigation 

over the effectiveness of such 

arrangements, or may obtain settlements 

that would benefit their individual 

claims (albeit to the detriment of other 

customers, and to the policy of pro rata 

distribution). Such customers may view 

the inability to protect their collateral 

under a trust concept as an incentive to 

reduce their use of transactions subject 

to part 190. 

2. Regulation § 190.01: Definitions: 

Consideration of Costs and Benefits 

Section 190.01 sets forth definitions 

as they are used for purposes of part 

190. In the Commission’s view, only 

certain of the definitions in proposed 

§ 190.01 will have cost-benefit 

implications, and these are discussed in 

more detail below, as are any definitions 

concerning which there were comments. 

The remainder of the definitions set 

forth in revised § 190.01 do not, in the 

Commission’s view, impose any costs or 

benefits, as the changes to the 

definitions are minor (in the vein of, for 

example, updating cross-references or 

updating language to reflect the changes 

in the rest of revised part 190) or merely 

clarify the current definition. 

Where, in the Commission’s view, a 

definition in revised § 190.01 has costbenefit implications, and/or where 

comments have identified costs or 

benefits concerning such a definition, 

those implications are discussed in 

more detail below: 

• ‘‘Account class,’’ ‘‘cash delivery 

property,’’ and ‘‘physical delivery 

property’’: The definition of the term 

‘‘account class’’ is expanded to include 

definitions of each type of account class 

set forth in proposed part 190: Futures 

account, foreign futures account, cleared 

swaps account, and delivery account. 

The ABA Subcommittee recommended 

that the Commission clarify that these 

types of account classes apply to nonpublic customers in addition to public 

customers. The Commission agrees that 

it is appropriate to clarify this point, 

and to include a specific definition for 

each type of account class. Doing so will 

benefit all parties involved in a 

bankruptcy proceeding by ensuring that 

all have a common understanding of 

how these various types of accounts are 

defined for purposes of part 190. 

Accordingly, the Commission is 

adopting the ABA Subcommittee’s 

recommendation. 

• The definition of ‘‘account class’’ 

also removes the category in current 

part 190 of ‘‘leverage account’’ because, 

as noted above, there are currently no 

registered leverage transaction 

merchants. Rather, the Commission 

intends to adopt rules with respect to 

leverage transaction merchants (and, 

accordingly, with respect to leverage 

accounts) at such time as an entity 

registers as such. Removal of the 

category of ‘‘leverage account’’ from the 

‘‘account class’’ definition benefits 

market participants by allowing the 

Commission to promulgate bankruptcy 

rules specifically tailored to leverage 

transaction merchants (and, 

accordingly, to leverage accounts) in the 

event an entity registers as such. 

• The definition of ‘‘account class’’ 

also splits ‘‘delivery accounts’’ into 

separate physical and cash delivery 

account classes. Because cash delivery 

property is, in some cases, more 

difficult to trace to specific customers 

and more vulnerable to loss,235 this 

separate treatment of physical delivery 

property and cash delivery property 

should benefit customers with physical 

delivery property by allowing for more 

prompt distribution of such physical 

delivery property. This separation 

should also benefit the estate, because 

the trustee will not have to wait to 

distribute physical delivery property to 

customers while attempting to trace 

cash delivery property, which could 

result in a more prompt resolution of 

the bankruptcy as a whole. However, 

there may be costs as a result of 

complications, since the trustee will 

have to deal with two delivery account 

subclasses rather than one delivery 

account class. Moreover, in the event of 

a shortfall, some customers could 

ultimately obtain larger recoveries than 

they would have if the delivery account 

had not been split into two subclasses, 

while others could obtain smaller 

recoveries. 

The ABA Subcommittee and CME 

suggested changes to the definition of 

‘‘cash delivery property.’’ Under the 

current definition, cash falls within the 

delivery class if, inter alia, it is received 

on or after three calendar days before 

the first notice date or exercise date. The 

definition of cash delivery property in 

the Proposal continued that limitation. 

CME suggested that the three-day 

limitation should be removed to address 

cases where 

‘‘a customer will legitimately post cash to its 

delivery account sooner than the definition 

would allow, for example, out of caution to 

assure that the necessary funds are available 

to pay for a delivery when the first notice 

date or exercise date immediately follows a 

weekend or holiday, or to meet payment 

deadlines imposed by the FCM, or based on 

market convention.’’ 

The comments acknowledged that the 

Commission’s policy objective is to 

‘‘encourage FCMs and their delivery 

customers to hold cash intended to pay 

for delivery in a segregated account 

until bilateral delivery obligations are 

near at hand’’ (the segregation 

obligations that apply to futures, foreign 

futures, and cleared swaps accounts do 

not apply to delivery accounts), but 

express some doubt that the limitation 

is effective in encouraging the desired 

behavior, because parties with delivery 

obligations may not be aware of it. 

Thus, the benefit of retaining the 

three-calendar day limitation is 

mitigating the time during which cash 

delivery property is held in an account 

that is not subject to the protection of 

segregation requirements, and in 

encouraging business models that take 

that approach. The cost of doing so is 

the risk that funds may nonetheless be 

transferred earlier into a delivery 

account, and would then be denied 

protection as delivery property in an 

FCM bankruptcy.236

As discussed above,237 the 

Commission has determined to take a 

middle-ground approach by expanding 

the three-calendar day limitation to a 


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238The commenters have not identified any 

legitimate reason for an FCM to impose a payment 

deadline of more than seven days before first notice 

or exercise date, or any relevant market convention 

that would require earlier payment, which in either 

case would require that the funds be held in a 

delivery account. 

239See § 39.15(b)(2), which provides a 

mechanism for these arrangements to be 

implemented pursuant to clearing organization 

rules. 

240Securities positions may also be commingled 

in an account class subject to section 4d of the CEA. 

7 U.S.C. 6d. 

241CME suggested that the Commission should 

include non-U.S. customers of foreign broker 

clearing members of a DCO within the public 

customer definition. As discussed above, the 

Commission has determined to consider this 

suggestion as part of a comprehensive review of the 

issues, to be conducted at such time as the model 

of admitting foreign brokers as clearing members for 

U.S. DCOs becomes empirical. 

242See § 190.04(a)(1). 

243See discussion of § 190.00(c)(4) in section 

II.B.1 above for concerns about customers lacking 

such clarity for an extended time. 

seven-calendar day limitation. This 

approach has the benefit of addressing 

fully the possibility that delivery 

property is transferred slightly early 

because of, e.g., a holiday weekend (and 

especially cases where FCMs and their 

customers or contracts span across 

jurisdictions with different holidays). 

By expanding the period by four days, 

it should address most of the cases 

where there are legitimate reasons to 

transfer the funds in advance of when 

they are needed, to account for the 

possibility of a failure in the transfer 

process.238 Significantly, it avoids the 

cost of encouraging the use of the 

delivery account (that is not subject to 

segregation requirements) as a long-term 

place to hold cash. 

Commenters also suggested technical 

additions to the definitions of cash 

delivery property (to address cash 

provided post-petition to facilitate 

taking deliveries in cases where 

necessary) to physical delivery property 

(to address the possibility of a negative 

final settlement price), and (in the case 

of both cash delivery property and 

physical delivery property) to provide 

that, for contracts exchanging one fiat 

currency for another, both ends of the 

transaction would be considered cash 

delivery property. The Commission 

incorporated these suggestions in the 

definitions as adopted. The benefit of 

these approaches is to deal properly 

with these scenarios; there are no 

discernable material costs. 

• Pursuant to section 4d of the CEA, 

certain contracts and associated 

collateral that would be associated with 

one account class may instead (pursuant 

to Commission regulation 239 or order) 

be commingled with a different account 

class.240 The purpose of these 

arrangements, referred to as portfoliomargining, is to associate such contracts 

with an account class in which they are 

risk-reducing related to other contracts 

in that latter account class. 

Paragraph (2) of the definition of 

account class confirms that these 

portfolio-margining arrangements will 

be respected in bankruptcy, that is, such 

contracts and associated collateral will 

be treated as being part of the account 

class into which they are commingled. 

The benefit of this treatment in 

bankruptcy is to foster and incentivize 

such risk-reducing (and capitalefficient) arrangements during business 

as usual; there should be no associated 

costs in bankruptcy. 

Finally, paragraph (3) of the definition 

of account class addresses cases where 

a commodity broker’s account for a 

customer is non-current, or otherwise 

inaccurate. These are situations over 

which public customers have, at best, 

limited control, and thus it is ineffective 

to endeavor to create incentives for 

public customers to police the behavior 

of their FCM. Paragraph (3) confirms 

that a commodity broker is considered 

to maintain an account for a customer 

where it establishes internal books and 

records for the customer’s contracts and 

collateral and related activity, regardless 

of whether the commodity broker has 

kept those internal books or records 

current or accurate. The benefit of this 

treatment will be to treat customers in 

accordance with their entitlements, 

regardless of whether the commodity 

broker has maintained its books and 

records current or accurate. 

• ‘‘Customer,’’ ‘‘Customer class,’’ 

‘‘public customer,’’ and ‘‘non-public 

customer:’’ The definitions of the terms 

‘‘public customer’’ and ‘‘non-public 

customer’’ are being revised to include 

separate definitions of those terms for 

FCMs and DCOs. This change reflects 

the new organization of part 190, which 

includes separate provisions for when 

the debtor is (1) an FCM (subpart B) and 

(2) a DCO (subpart C). The ‘‘public 

customer’’ definition for FCMs is also 

being revised to define that term with 

respect to each of the relevant account 

classes.241

These changes will generate benefits 

as they bring clarity to the question of 

who qualifies as a ‘‘public’’ versus a 

‘‘non-public’’ customer, and 

transparency to the distribution of 

property to which each customer is 

entitled. Furthermore, this clarity and 

transparency is likely to reduce the 

administrative costs to the estate, and 

the costs to claimants, associated with 

the claims allowance process, as well as 

the likelihood of litigation by 

dissatisfied claimants (and associated 

costs). These changes could, however, 

impose costs on customers for whom, 

under current part 190, it will not be 

clear which category they fall into. The 

pool of customer property would be 

different for public and non-public 

customers under the new policy regime. 

Thus, a hypothetical customer who 

could have been considered ‘‘public’’ 

under current part 190 but will be 

categorized as ‘‘non-public’’ under 

revised part 190 could receive less in 

the distribution of customer property 

(with other customers receiving more). 

• ‘‘Futures, futures contract:’’ The 

Commission is adding a definition for 

the terms ‘‘futures’’ and ‘‘futures 

contract’’ to clarify what those terms 

mean for purposes of part 190. This 

clarification will lower administrative 

costs by providing clarity and 

transparency to the types of transactions 

that are considered ‘‘futures’’ for 

purposes of proposed part 190 and 

therefore form part of the futures 

account or foreign futures account. 

• ‘‘House account:’’ The definition of 

the term ‘‘house account’’ will be 

revised to include a definition of that 

term solely for DCOs. This change will 

reflect the new organization of part 190, 

which is revised to include separate 

provisions for when the debtor is (1) an 

FCM (subpart B) or (2) a DCO (subpart 

C). CME and the ABA Subcommittee 

urged that the term ‘‘house account’’ be 

deleted in the few cases where it was 

proposed to be used in subpart B in 

order to avoid the implication that the 

accounts of non-public customers could 

not be ported. This change would 

enhance clarity and transparency (and, 

thus, would reduce administrative 

costs) by (1) avoiding that incorrect 

implication, while (2) clarifying what 

precisely constitutes a house account for 

a DCO bankruptcy proceeding. 

• ‘‘Primary liquidation date:’’ The 

definition of the term ‘‘primary 

liquidation date’’ is being revised to 

delete references to holding accounts 

open for later transfer. This is consistent 

with the policy of transferring as many 

open commodity contracts as possible 

within seven calendar days after entry 

of an order for relief or, if that is not 

possible, liquidating such commodity 

contracts. 242 This change in policy 

should benefit some customers, who 

will more quickly have clarity as to how 

their positions and associated collaterals 

will be resolved.243 There may, 

however, be costs to customers who 

might have preferred having their open 

commodity contracts held open for 

transfer after the primary liquidation 


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19394 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

244 Given that the clearing organization for such 

contracts may not be willing to permit such 

contracts to be held open for an extended period 

of time, the existence of such customers is quite 

hypothetical. 

245Benefits and costs associated with the use of 

substitute customer property are addressed further 

below in connection with § 190.04(d)(3) in section 

III.C.2. 

date. 244 In the event that a larger 

number of contracts is liquidated rather 

than transferred, there will be costs 

resulting from additional downward 

pressure on prices. 

• ‘‘Specifically identifiable property:’’ 

The Commission is revising the 

definition of the term ‘‘specifically 

identifiable property’’ to clarify and 

streamline the current definition of that 

term. The use of definitions that are 

clearer should reduce administrative 

costs. Of course, increasing clarity may 

be to the detriment of those customers 

for whom such clarity results in 

assignment to a category that they view 

as less favorable. 

• ‘‘Substitute customer property:’’ 

The definition of the term ‘‘substitute 

customer property’’ is being added to 

refer to cash or cash equivalents 

delivered to the trustee by or on behalf 

of a customer in order to redeem 

specifically identifiable property or a 

letter of credit. This provision will 

benefit customers who, in a bankruptcy 

event, seek to redeem their specifically 

identifiable property or letters of 

credit.245 Introducing the concept of 

substitute customer property may 

impose administrative costs, however, 

because the trustee may have to expend 

time and resources on tracking the 

substitute customer property and 

ensuring that such property ends up in 

the proper pool of customer property 

once received. 

• ‘‘Swap:’’ The Commission is 

amending the definition of ‘‘cleared 

swap’’ that appears in the current rules 

in order to clarify what this term means 

for purposes of proposed part 190. This 

clarification should serve the goals of 

clarity and transparency (and, 

consequently, reducing administrative 

costs). 

3. Regulation § 190.02: General: 

Consideration of Costs and Benefits 

Section 190.02(a)(1) is revised to 

provide that the bankruptcy trustee 

may, for good cause shown, request 

from the Commission an exemption 

from the requirements of any procedural 

provision in proposed part 190. This is 

in contrast to current § 190.10(b)(1), 

which provides only that a bankruptcy 

trustee may request an exemption from, 

or extension of, any time limit 

prescribed in current part 190. This 

expanded mechanism for a trustee to 

request exemptions should benefit the 

estate and customers by allowing the 

trustee to request an exemption that 

lowers administrative costs and 

increases timeliness. This change, 

however, may impose administrative 

costs if the trustee’s request is illfounded and the Commission were 

nonetheless to grant the request. 

The Commission does not believe that 

there will be any cost-benefit 

implications to § 190.02(a)(2) and (3), 

(b), (c), (d), and (e), as those provisions 

largely align with the provisions in 

current part 190 from which they are 

derived. 

Regulation § 190.02(f) is a new 

provision which addresses the context 

of a receiver for an FCM appointed due 

to a violation or imminent violation of 

the customer property protection 

requirements of section 4d of the CEA 

or of the regulations thereunder, or of 

the FCM’s minimum capital 

requirements in § 1.17. In this context, 

the FCM has been found to be in 

precarious financial condition. This 

provision will permit the receiver to file 

a petition for bankruptcy of such an 

FCM in appropriate cases. This 

provision may benefit public customers, 

in that a bankruptcy proceeding may be 

necessary to protect those customers’ 

interests in customer property from 

losses in value. However, this provision 

may have distributional effects as there 

may be some customers who do not 

receive as much in bankruptcy as they 

otherwise would have under the 

receivership. In addition, there could be 

additional administrative costs that 

result from this provision, as the 

bankruptcy trustee would have to spend 

time and resources overseeing a 

bankruptcy proceeding that might not 

be entered into absent the power 

granted to the receiver under this 

regulation. These costs could possibly 

be greater than the costs of continuing 

to administer the FCM under 

receivership. 

Indeed, FIA suggested that the 

Commission should require that the 

receiver must receive permission from 

the Commission before filing a 

voluntary petition, given that this action 

‘‘would effectively close the FCM.’’ 

Closing the FCM would impose 

significant costs on the FCM and, in a 

case where the Commission would have 

denied permission, those costs could be 

unnecessary. 

In considering the costs (discussed 

above) of what could be an unnecessary 

voluntary filing for bankruptcy in 

contrast to the benefits of avoiding delay 

in filing a necessary filing for 

bankruptcy, the Commission determines 

that the context where this rule would 

be applicable—only cases where a 

receiver has been appointed due to 

violation or imminent violation of 

customer property protection 

requirements, or of the FCM’s minimum 

capital requirements—minimizes the 

likelihood that a filing would turn out 

to be unnecessary, and counsels in favor 

of avoiding delay. 

4. Section 15(a) Factors—Subpart A 

No comments were received on the 

application of the section 15(a) factors 

to subpart A. 

i. Protection of Market Participants and 

the Public 

Subpart A of the proposed rules 

should increase the protection of market 

participants and the public by clearly 

setting forth how customers of FCMs 

and DCOs will be classified and treated, 

and how their accounts will be 

categorized and treated, in the event of 

an FCM or DCO insolvency. The goal of 

subpart A of the proposed rules is to 

promote an orderly and cost-effective 

resolution of the insolvency of an FCM 

or DCO, and to increase transparency to 

the customers of FCMs and DCOs as to 

how their property would be treated in 

the event of such an insolvency. 

However, as noted above, some of the 

provisions of subpart A provide 

discretion to the trustee. While 

enhanced discretion for the trustee has 

the benefit of permitting a more tailored 

approach, it also has the cost of 

increasing the possibility of trustee 

mistake or misfeasance. 

ii. Efficiency, Competitiveness, and 

Financial Integrity 

Subpart A of the proposed rules 

should promote efficiency (in the sense 

of both cost effectiveness and 

timeliness) in the administration of 

insolvency proceedings of FCMs and 

DCOs and the financial integrity of 

derivatives transactions carried by 

FCMs and/or cleared by DCOs by clearly 

communicating the goals and core 

concepts involved in such insolvencies, 

and by setting forth clear definitions 

that have been updated to account for 

current market practices. These effects 

should, in turn, enhance the 

competitiveness and financial integrity 

of U.S. FCMs and DCOs, by enhancing 

market confidence in the protection of 

public customer funds and positions 

entrusted to U.S. FCMs and DCOs, even 

if such an entity were to become 

insolvent. 

iii. Price Discovery 

Price discovery is the process of 

determining the price level for an asset 


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246See also § 190.03(d), which is adopting this 

new method of providing notice to the Commission 

for any court filings filed in a bankruptcy. 

247See discussion of § 190.00(c)(4) in section 

III.b.1 above. 

248See proposed § 190.10(b)(2) for the process of 

designating an account as a ‘‘hedging account.’’ 

through the interaction of buyers and 

sellers and based on supply and 

demand conditions. To the extent that 

the revised regulations should mitigate 

the need for liquidations in conditions 

of distress, they will help avoid negative 

impacts on price discovery. 

iv. Sound Risk Management Practices 

Subpart A of the proposed rules 

should generally promote sound risk 

management practices by setting forth 

the core concepts to which the 

bankruptcy trustee must adhere in 

administering an FCM or DCO 

bankruptcy. 

v. Other Public Interest Considerations 

Some of the FCMs or DCOs that might 

enter bankruptcy are very large financial 

institutions, and some are (or are part of 

larger groups that are) considered to be 

systematically important. A bankruptcy 

process that effectively facilitates the 

proceedings is likely to help to attenuate 

the detrimental effects of the bankruptcy 

on the financial marketplace and thus 

benefit the financial system and thus the 

public interest. 

C. Subpart B—Futures Commission 

Merchant as Debtor 

1. Regulation § 190.03: Notices and 

Proofs of Claims: Consideration of Costs 

and Benefits 

Section 190.03(a)(1) replaces the 

requirement in current § 190.10(a) that 

all mandatory or discretionary notices 

be sent to the Commission via overnight 

mail with the requirement of sending 

the notices by electronic mail.246 This 

change is expected to result in a benefit 

to all parties required to provide notices 

to the Commission because they will be 

able to avoid the costs of sending such 

notice in hardcopy form via overnight 

mail. These revisions will also allow the 

Commission to receive such notices— 

and thus, to act—much more 

expeditiously. 

Section 190.03(a)(2) is a new, 

principles-based provision that replaces 

the more specific procedures for 

providing notice to customers that 

appear in current § 190.02(b) by 

allowing the trustee to establish and 

follow procedures ‘‘reasonably 

designed’’ for giving adequate notice to 

customers. Paragraph (a)(2) also 

provides that the trustee’s procedures 

for providing notice to customers 

should include ‘‘the use of a prominent 

website as well as communication to 

customers’ electronic addresses that are 

available in the debtor’s books and 

records.’’ A generalized and more 

modernized approach to notifying 

customers will benefit the debtor’s 

estate, as the process allows the trustee 

to choose cost effective means of 

providing notice to customers within 

the more flexible bounds of the 

proposed regulation, resulting in 

savings of administrative costs. 

Similarly, it will benefit parties 

interested in the proceedings, by 

permitting the trustee flexibly to choose 

methods of notification that are more 

prompt and effective. On the other 

hand, affording the trustee increased 

discretion in how to provide notice to 

customers will carry the potential cost 

of trustee misfeasance and abuse of such 

discretion, as discussed above in section 

III.A.2.ii. 

Section 190.03(b)(1) will revise the 

time in which a commodity broker must 

notify the Commission of a bankruptcy 

filing. These revisions codify 

procedures whereby (1) in a voluntary 

bankruptcy proceeding, the commodity 

broker will provide advance notice to 

the Commission ahead of the filing to 

the extent practicable, and (2) in an 

involuntary bankruptcy proceeding, the 

commodity broker will notify the 

Commission immediately upon the 

filing. These revisions will foster the 

ability of the Commission and its staff 

to perform their duties to protect 

customers by providing the Commission 

with notice of any bankruptcy 

proceeding as soon as possible. 

Section 190.03(b)(2) removes the 

current deadline of three days after the 

order for relief by which the trustee, the 

relevant DSRO or a clearing 

organization must notify the 

Commission of an intent to transfer or 

to apply to transfer open commodity 

contracts in accordance with section 

764(b) of the Bankruptcy Code. It 

instead instructs such parties to give 

such notice of an intent to transfer ‘‘[a]s 

soon as possible.’’ To the extent that the 

three-day deadline was limiting transfer 

arrangements, this revision will benefit 

the estate and some customers by 

removing time constraints that could be 

construed to prohibit notification after 

expiration of the deadline (and thus, 

allow the trustee to form the intent to 

transfer after such time). 

The revision will also enhance the 

orderly functioning of the marketplace 

at a time of severe market disruption by 

facilitating prompt notice of intent to 

transfer. On the other hand, by giving 

the trustee, DSRO, or clearing 

organization more latitude for providing 

notice of an intent to transfer, there will 

be the potential cost of misfeasance in 

waiting an unreasonable amount of time 

to provide such notice (or to form such 

intent), which could ultimately impose 

additional costs on customers who 

would have benefited from an earlier 

transfer.247

Section 190.03(c)(1) removes the 

requirement that the trustee must 

publish notice to customers with 

specifically identifiable property in a 

newspaper of general circulation serving 

the location of each branch office of the 

debtor prior to liquidating such property 

and instead establishes a requirement to 

notify the customers with specifically 

identifiable property in accordance with 

§ 190.03(a)(2). The Commission believes 

that this change will result in lower 

administrative costs, as the trustee will 

be relieved of the cost of identifying, 

and publishing notice in, such 

newspapers. Moreover, the trustee will 

no longer be required to wait seven days 

after the second publication date to 

commence liquidation of specifically 

identifiable property. Rather, the trustee 

will be free to commence liquidation of 

specifically identifiable property 

starting on the seventh day after entry 

of the order for relief. This will benefit 

the estate, and potentially the affected 

customers, by allowing the trustee more 

freedom (from the time constraints set 

forth in the current regulations) in 

liquidating the specifically identifiable 

property, which, in turn, is expected 

ultimately to result in a better price. 

Moreover, the provisions in 

§ 190.03(a)(2) that describe the 

notification of customers with 

specifically identifiable property will 

benefit public customers by allowing 

them to receive notice on a ‘‘prominent 

website’’ and, more specifically, at their 

electronic addresses (to the extent such 

addresses are in the debtor’s books and 

records), thereby enhancing their ability 

to request the return of their specifically 

identifiable property within the 

specified timeframe. 

Section 190.03(c)(2) provides the 

bankruptcy trustee with authority to 

treat open commodity contracts of 

public customers held in hedging 

accounts designated as such in the 

debtor’s records as specifically 

identifiable property.248 This is a 

change from the current framework, 

under which the trustee treats 

customers with specifically identifiable 

property on a bespoke basis. 

Specifically, to the extent the trustee 

does not receive transfer instructions 

regarding a customer’s specifically 

identifiable open commodity contracts, 

the trustee will be required to liquidate 


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19396 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

249See current § 190.02(e). 

such contracts within a certain time 

period. To the extent the trustee 

exercises the authority derived from 

revised § 190.03(c)(2), they will (subject 

to the revision discussed in the next 

paragraph) be required to notify each 

relevant customer and request 

instructions whether to transfer or 

liquidate the open commodity contracts. 

To the extent the trustee would not 

exercise such authority, the trustee will 

treat these open commodity contracts 

the same as other customer property and 

effect a transfer of such contracts. This 

new framework should reduce 

administrative costs and benefit the 

bankruptcy estate by allowing the 

trustee to rely on hedging designations 

made during business as usual, thereby 

allowing the trustee to make swift and 

cost effective decisions regarding the 

treatment of open commodity contracts 

during a bankruptcy situation. 

ACLI suggested that § 190.03(c)(2) 

should express a preference for transfer 

over liquidation with respect to 

specifically identifiable property in the 

form of positions that are identified as 

hedging positions, and consult (on an 

individual basis) each customer’s 

expressed preferences. However, 

§ 190.00(c)(4) sets forth a preference for 

porting (transfer) of all open commodity 

contract positions of public customers. 

Thus, while treating customers with 

hedging positions on a bespoke basis 

may benefit some of them, it may be at 

the cost of effectively transferring a 

larger group of customer positions. 

Some of those may be customers with 

hedging positions whose positions are 

not transferred due to limited time and 

resources available to be devoted to 

bespoke treatment. Indeed, SIFMA 

AMG/MFA noted that ‘‘permitting the 

trustee this flexibility (subject to the 

additional customer protections [of 

consulting existing instructions, as 

described immediately below]) serves 

the interest of customers as a whole by 

facilitating a more rapid transfer of 

customer positions and property.’’ 

SIFMA AMG/MFA suggested that it 

would ‘‘further the goal of expediency’’ 

if the regulation would require the 

trustee to ‘‘first consult the instructions 

(regarding preferences with respect to 

transfer or liquidation of open 

commodity contracts) provided by a 

public customer to the debtor at the 

time of opening the relevant hedging 

account, and only if such instructions 

are missing or unclear, to then require 

such customer to provide the trustee 

with written instructions as 

contemplated by proposed 

§ 190.03(c)(2).’’ The Commission agrees, 

and has made corresponding changes to 

the regulation. While there is a cost 

involved in scanning to determine if 

there are instructions, there is a 

significant benefit in avoiding 

duplication, and in avoiding cases 

where the customer, having already 

provided instructions, does not reply to 

a duplicative request in time for that 

reply to be acted upon. 

The Commission does not believe that 

there are any cost-benefit implications 

to § 190.03(c)(3) or (4) (other than those 

discussed above with respect to the new 

notice provision referenced in each) or 

to § 190.03(d). 

Section 190.03(e), sets forth the 

information required from customers 

regarding their claims against the 

debtor. As revised, § 190.03(e), 

reorganizes and adds certain 

information items to those listed in the 

current regulation. The Commission 

anticipates that, while customers are 

likely to have this information at their 

disposal, there could be costs associated 

with gathering it all in one place. 

However, this additional and more 

detailed information should benefit the 

estate, the bankruptcy court and 

customers alike by allowing all parties 

to have a fuller, more detailed and more 

transparent picture of the customer 

claims against the debtor. It should 

foster the reduction of administrative 

costs and the prompt administration of 

the estate. Moreover, the Commission is 

of the view that clarifying several of the 

information items listed in proposed 

§ 190.03(e) and revising the proof of 

claim form to match more closely the 

text of the regulation should result in 

benefits to all parties involved in an 

FCM bankruptcy—the estate, the 

bankruptcy court, and the customers— 

by making the bankruptcy claims 

process more prompt and cost effective. 

CME sees § 190.03(e) and (f), and the 

revised proof of claim form, as ‘‘major 

improvements over the current rules 

and proof of claim template.’’ 

This regulation also provides that the 

specific items referred to are to be 

included ‘‘in the discretion of the 

trustee.’’ This discretion will permit the 

trustee to tailor the information 

requested to the specifics of the debtor’s 

prior business, as well as the alreadyavailable records. This will permit the 

trustee to limit or to increase the 

information requested, in appropriate 

cases, with a corresponding increase in 

cost effectiveness. To be sure, there may 

be corresponding costs (both in 

administrative expense and time) if the 

set of information requested by the 

trustee in the exercise of their discretion 

turns out, in retrospect, to be overly 

narrow (or broad). 

Proposed § 190.03(f) is new and 

provides the trustee with flexibility to 

modify the customer proof of claim form 

set forth in appendix A to part 190. 

Specifically, § 190.03(f) allows the 

trustee to modify the proof of claim 

form to take into account the particular 

facts and circumstances of the case. This 

provision should benefit the estate 

because the trustee will be able to 

modify the proof of claim form in a way 

that gathers the information necessary 

in a manner that is both effective and 

cost effective based on the specific facts 

of the case, and the trustee no longer 

will be required to get an order from the 

bankruptcy court to make such 

modifications, thereby saving time and 

resources. This new provision should 

also benefit customers, who will be able 

to take advantage of the more 

streamlined and tailored proof of claim 

forms developed by the trustee, and 

should, therefore, spend less time filling 

out such forms. It should also benefit 

the estate, which should bear less 

administrative cost in evaluating such 

forms. Again, there may be 

corresponding administrative costs if 

the set of information in a modified 

proof of claim form turns out, in 

retrospect, to be overly narrow (or 

broad). 

2. Regulation § 190.04: Operation of the 

Debtor’s Estate—Customer Property: 

Consideration of Costs and Benefits 

Regulation § 190.04(a) explicitly 

provides a policy and a direction by 

which the trustee should use best efforts 

to transfer open commodity contracts 

and property held by the failed FCM for 

or on behalf of its public customers. 

This policy and direction is 

substantially similar to the policy and 

direction under current regulations.249

The changes set forth a clear policy for 

trustees to follow, which should benefit 

customers of the failed FCM in a 

streamlined description of the transfer 

process that is consistent with the core 

concepts set forth in this part. The costs 

and benefits of the preference for 

transfer are discussed in section III.B.1 

above, in the context of § 190.00(c)(4). 

In § 190.04(a)(1), the Commission is 

clarifying language; these clarifications 

should benefit customers of the failed 

FCM by minimizing the likelihood of 

future disputes concerning qualification 

of property for transfer. The 

Commission is also changing the 

direction in current § 190.02(e) that the 

trustee ‘‘must immediately use its best 

efforts to effect a transfer’’ to a direction 

that the trustee ‘‘shall promptly use its 

best efforts to effect a transfer.’’ This 

modest change in focus will benefit 

public customers by recognizing that, 


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250The Commission is implementing the same 

change—the addition of the word ‘‘public’’ before 

‘‘customers’’—to § 190.04(a)(2). The anticipated cost 

and benefit analysis of the change is the same as 

in § 190.04(a)(1). 

251While there will be a corresponding detriment 

to the customers who may have benefited from such 

excess payments, those customers would only be 

losing something that runs counter to the statutory 

goal of pro rata distribution. Moreover, there are no 

likely incentive effects because, on this issue, 

customers stand behind the ‘‘veil of ignorance’’— 

it is difficult to identify, ex ante, which customers 

would be in the group of gaining customers (or in 

the group of losing customers). 

while effecting transfer is an 

extraordinarily high priority, it is 

possible that there may be higher 

priorities at the inception of the 

bankruptcy proceeding, e.g., it may be 

necessary to preserve some portion of 

customer property from an immediate 

threat.250 Once again, by enhancing the 

trustee’s discretion as to how to manage 

the liquidation, there is the cost that the 

trustee will make a mistake. 

Section 190.04(a)(2) directs the FCM 

(or a trustee, if one has been appointed) 

in a case where an involuntary petition 

for bankruptcy is filed against the FCM 

to use best efforts to effect a transfer 

within seven calendar days. The current 

regulation limits the commodity broker 

to trading for liquidation unless 

otherwise directed by the Commission, 

by any applicable self-regulatory 

organization or by the court. Revised 

§ 190.04(a)(2) removes this limitation. 

Rather, revised § 190.04(e)(4) more 

generally covers limitations on the 

business of an FCM in bankruptcy. 

Similarly, any requirement to transfer 

customer positions would more 

properly be addressed by § 1.17(a)(4). 

The Commission believes that these 

changes will benefit the estate and the 

public customers by mitigating the 

administrative costs by removing a 

redundant regulation. The Commission 

does not anticipate any resulting 

increase in cost. 

In § 190.04(b)(1), the Commission is 

clarifying and updating conditions 

under which the trustee may make 

payments of variation settlement and 

initial margin. In sum, the revisions 

clarify that payments can be made prior 

to pending transfers or liquidation, not 

just pending liquidation. The revision 

should benefit the customers of the FCM 

debtor in clarifying that the trustee has 

two paths in treating open commodity 

contracts—transfer, and if transfer is not 

possible, liquidation. The changes 

describe more accurately the types of 

payments that the trustee will be 

permitted to make and account 

specifically for the types of entities to 

which the trustee is permitted to make 

the types of payments referred to in this 

section. The revisions clarify the current 

regulatory text, which should benefit 

stakeholders. The Commission does not 

anticipate any increased cost from these 

changes. 

Section 190.04(b)(1)(i) prevents the 

trustee from making any payments of 

behalf of any commodity contract 

account that is in deficit, to the extent 

within the trustee’s control. The revised 

provision recognizes that certain 

accounts may be held on an omnibus 

basis on behalf of many customers. To 

the extent the trustee is making a margin 

payment with respect to such an 

omnibus account, it may be out of the 

trustee’s control to only make payment 

with respect to those customer accounts 

that are not in deficit. The proviso 

similarly will clarify that this 

prohibition on making margin payments 

on behalf of accounts in deficit is not 

intended to prohibit ‘‘upstream’’ entities 

(e.g., a CCP or an intermediary through 

which the debtor clears) from exercising 

legal rights to margin under applicable 

law. Due to the structure of omnibus 

accounts and the explicit requirement of 

lack of trustee control, any payments 

that are made under the revised 

provision would have been made 

pursuant to Commission authorization 

under the current regulation. Thus, 

neither provision should add any new 

regulatory burden and the Commission 

does not estimate that there will be any 

additional cost associated with the 

proposed changes. 

Section 190.04(b)(1)(ii) is a new 

regulation that adds an explicit 

restriction, that the trustee cannot make 

a margin payment with respect to a 

specific customer account that would 

exceed the funded balance of that 

account. ICI agrees that this restriction 

supports the pro rata distribution 

principle, and should benefit the other 

customers of the FCM debtor—any 

payment of customer property in excess 

of a particular customer’s funded 

balance is to the detriment of other 

customers.251

Section 190.04(b)(1)(iii) is a minor, 

non-substantive clarification of current 

§ 190.02(g)(1)(ii), that should not create 

any changes from the status quo with 

regards to costs and benefits. 

In § 190.04(b)(1)(iv)–(v), the 

Commission is clarifying that margin 

must only be used (i.e., paid to a 

clearing organization or upstream 

intermediary) consistent with section 4d 

of the CEA. Section 190.04(b)(1)(vi) 

states explicitly the conditions under 

which the trustee may make payments 

to meet margin obligations. 

Together, these changes protect 

customers who make payments after the 

order for relief by ensuring that they 

fully benefit from those payments (and 

thus incentivize customers to make such 

payments in appropriate 

circumstances). Moreover, more clearly 

permitting the trustee, for the purpose of 

curing customer margin deficiencies, to 

use funds in an account class that 

exceed the sum of all of the net equity 

claims for that account class, should 

facilitate the orderly transfer of 

positions and contracts following the 

default, lessening the potential for 

further roiling markets. Finally, these 

changes taken together also benefit the 

broader group of customers of the FCM 

debtor by clarifying the treatment of 

funds in segregated accounts, and thus 

mitigating administrative costs. 

These changes are designed to clarify 

the statutory requirements applicable to 

funds in the customer account. While 

there may be accounting requirements 

associated with funds in segregated 

accounts, substantially all of the costs of 

such accounting are already incurred 

pursuant to the segregation rules. Thus, 

the Commission does not anticipate that 

there should be any material additional 

costs associated with this change. 

Section 190.04(b)(2) allows the trustee 

discretion as to whether to issue margin 

calls to customers who are 

undermargined, deleting highly 

prescriptive conditions from the current 

rule. The revision should benefit public 

customers of the FCM debtor by giving 

the trustee the flexibility to recognize 

that there may be situations in which 

issuing a margin call is impracticable 

because the trustee is operating the FCM 

in ‘‘crisis mode’’ and may be pending 

wholesale transfer of liquidation of open 

positions. 

It is, however, possible that the 

trustee would exercise their discretion 

poorly, or in a manner that, in 

retrospect, would be seen to be to the 

detriment of the estate, and that the 

trustee would have failed to issue a 

margin call in a situation in which a 

public customer would have paid the 

call (and in which the balance of 

administrative cost and amount 

recovered would mean that, in 

retrospect, it would have profited the 

estate if the call was made). Such failure 

could result in a cost to the estate of the 

FCM debtor to the extent that such 

funds are not available. 

The balance of the revisions to 

§ 190.04(b) should cause no change to 

the related costs and benefits. 

Section 190.04(b)(3) retains the 

concept in current § 190.02(g)(3), with 

updated cross-references. The 

Commission does not anticipate that 

there will be any costs or benefits to the 

proposed minor revisions. 


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252This change may also provide incentives for 

a customer whose account is in, or is approaching, 

deficit to make such payments promptly to avoid 

liquidation of their positions. 

253SIFMA AMG and MFA also suggested that the 

regulation should be amended to give customers 

credit for any gains that were haircut due to gainsbased haircutting by a DCO. Any such haircutting 

of a customer’s gains is due to application of the 

customer’s agreement with the FCM. Moreover, 

giving some customers credit despite such 

agreements would increase their recovery, but at the 

expense of other customers, as discussed in detail 

in section II.C.7 above. 254See, e.g., current § 190.03(b)(5). 

Section 190.04(b)(4) addresses the 

trustee’s obligation to liquidate accounts 

in deficit, or where a mark-to-market 

calculation would result in a deficit, or 

where the customer fails to meet a 

margin call within a reasonable time. 

The revision will clarify the 

applicability of current authority to a 

situation that is already implicit in the 

current rule. The regulation does not 

require the trustee to make additional 

calculations but, if a calculation made 

by the trustee reveals that the mark-tomarket value of the account is a deficit, 

the trustee is instructed to liquidate the 

account as soon as practicable rather 

than to wait for the time that payment 

would be due. The benefit of this 

change should be to liquidate accounts 

in deficit more promptly (thus 

mitigating potential further losses); the 

cost will be the cost of engaging in such 

liquidation, as well as the possibility 

that, absent prompt liquidation, the 

deficit would have been mitigated due 

to favorable intervening changes in 

market value (or, potentially, an 

intervening deposit of additional 

collateral by the customer).252

Second, the Commission is adding the 

concept of ‘‘exigent circumstances’’ as a 

new exception to the general and longestablished rule that a minimum of one 

hour is sufficient notice for a trustee to 

liquidate an undermargined account. 

SIFMA AMG/MFA urged the 

Commission to curtail the trustee’s 

discretion in § 190.04(b)(4) in a number 

of ways: By requiring the trustee to defer 

to the margin call timings present in 

applicable underlying agreements 

between the customer and the (prebankruptcy) debtor, and by providing 

customers with the opportunity to 

demonstrate that a margin payment was 

made even if the FCM’s books and 

records do not yet reflect its receipt. By 

contrast, ICI noted that it is vital that the 

trustee be required to swiftly crystallize, 

and therefore cap the losses resulting 

from, such deficits by promptly 

liquidating accounts in deficit or for 

which a customer has failed to meet a 

margin call. ICI further stated that if the 

accounts were allowed to remain open, 

additional losses on the delinquent 

customers’ transactions would be borne 

by the FCM’s non-defaulting customers. 

The Commission has determined not 

to make the requested changes. While 

making those changes would benefit 

those customers who are treated on a 

more bespoke it would be to the 

detriment of the FCM’s other customers. 

Enhancing the trustee’s discretion to 

determine how long a customer has to 

meet a margin call, and to rely on the 

FCM’s books and records in doing—and 

refusing to curtail that discretion (by 

forcing the trustee to defer to margin 

call timings in pre-bankruptcy 

agreements, or to give the customer an 

opportunity to demonstrate that the a 

margin payment was made) as requested 

by the comment—will benefit other 

customers of the debtor FCM by giving 

the trustee flexibility to respond to 

market conditions following an FCM 

default. It is important to recognize that 

in stressed markets or in situations 

where communication protocols cannot 

practicably be followed, permitting a 

customer time to post margin in 

accordance with a pre-bankruptcy 

agreement—or, in some cases, even 

notice of one hour—may be 

insufficiently prompt to mitigate 

appropriately (1) the risk that such 

customers would default, (2) the risk 

that delaying liquidation of such a 

customer’s positions increases the 

potential for and likelihood that they 

would do so with a debit balance, and 

(3) the risk that the size of that debit 

balance would increase as a result of 

that delay, thereby reducing the funded 

balances of those other customers. 

However, customers who are required to 

make payments more promptly would 

bear associated costs, from making such 

payments in a reduced time frame, from 

having to make duplicate payments 

(while these would ultimately be 

returned in full, this would be without 

interest) or from having contracts 

liquidated that would otherwise not 

have been liquidated if the customer 

had more time to make payment.253

The Commission is adding 

§ 190.04(b)(5) to guide the trustee in 

assigning liquidating positions to the 

FCM debtor’s customers when only a 

portion of the open contracts are 

liquidated. The benefit of this new 

provision is that it presents a clear and 

transparent mechanism by which the 

trustee is to allocate the positions. This 

mechanism will protect the customer 

account as a whole, by establishing a 

preference for assigning liquidating 

transactions to individual customer 

accounts in a risk-reducing manner. The 

allocation mechanism will, however, be 

subject to the trustee’s exercise of 

reasonable business judgement. It is 

possible that such judgment could be 

exercised in a poor manner (or in a 

manner that, in retrospect, turns out to 

be regrettable), with resultant cost to the 

FCM debtor estate. 

Section 190.04(c) requires the trustee 

to use its best efforts to liquidate open 

commodity contracts that are not settled 

in cash (i.e., those that settle via 

physical delivery of a commodity) 

where the contract would move into 

delivery position. These clarifications 

are likely to reduce administrative costs, 

to the benefit of the estate (and, 

ultimately, customers). CME believed 

that this provision would have the 

benefit of avoiding unnecessary 

disruptions to the delivery process by 

customers that did not intend to 

participate in making or taking delivery. 

There should be no cost associated with 

the revision because, while there may be 

some customers who would prefer to 

hold their contracts through delivery, 

the current regulations, just as the 

revised regulations, direct the trustee to 

liquidate contracts coming into delivery 

position.254

Section 190.04(d) will clarify 

requirements concerning the liquidation 

and valuation of open positions. Section 

190.04(d)(1) and (2) clarify requirements 

for liquidating open commodity 

contracts and specifically identifiable 

property other than commodity 

contracts. 

Section 190.04(d)(3) codifies the 

Commission’s longstanding policies of 

pro rata distribution and equitable 

treatment of customers in bankruptcy, 

as described in § 190.00(c)(5) above, as 

applied to letters of credit posted as 

margin. Under the new provision, the 

trustee may request that a customer 

deliver substitute customer property 

with respect to any letter of credit 

received, acquired or held to margin, 

guarantee, secure, purchase, or sell a 

commodity contract. The amount of the 

substitute customer property to be 

posted may, in the trustee’s discretion, 

be less than the full-face amount of the 

letter of the credit, if such lesser amount 

is sufficient to ensure pro rata treatment 

consistent with §§ 190.08 and 190.09. If 

necessary, the trustee may require the 

customer to post property equal to the 

full-face amount of the letter of credit to 

ensure pro rata treatment. Pursuant to 

paragraph (d)(3)(i), if such a customer 

fails to provide substitute customer 

property within a reasonable time 

specified by the trustee, the trustee may 

draw upon the full amount of the letter 

of credit or any portion thereof (if the 


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255CMC, CME, FIA. 256See, e.g., 48 FR at 8718–19. 257 7 U.S.C. 7a–2(c). 

letter of credit has not expired). Under 

paragraph (d)(3)(ii), the trustee is 

instructed to treat any portion of the 

letter of credit that is not fully drawn 

upon as having been distributed to the 

customer. However, the amount treated 

as having been distributed will be 

reduced by the value of any substitute 

customer property delivered by the 

customer to the trustee. Any expiration 

of the letter of credit after the date of the 

order for relief would not affect this 

calculation. Pursuant to paragraph 

(d)(3)(iii), letters of credit drawn by the 

trustee, or substitute customer property 

posted by a customer, are to be 

considered customer property in the 

account class applicable to the original 

letter of credit. 

ICI, SIFMA AMG/MFA, and Vanguard 

supported § 190.04(d)(3) on the grounds 

that it has the benefit of treating 

customers equitably by avoiding a more 

favorable treatment of customers who 

post letters of credit than those who 

post cash and securities. 

These proposed new provisions could 

impose costs on customers who use 

letters of credit as collateral for their 

positions. Such customers could be 

considered to have received 

distributions up to the full amount of 

the letter of credit, or the trustee may 

draw upon a portion or possibly the full 

amount of the letter of credit. 

Moreover, a number of 

commenters,255 expressed the concern 

that requests for substitute customer 

property in the special context of 

delivery letters of credit could cause 

sudden liquidity needs, and substantial 

hardship to customers. For example, 

CME noted that, while they support 

§ 190.04(d)(3) outside the context of 

delivery letters of credit, they see 

difficulties in that context, specifically 

in the case of deliveries for certain 

energy contracts, often which take place 

over 30 days. The delivery letters of 

credit for these contracts can involve 

hundreds of millions of dollars in face 

amounts, and CME is of the view that 

it would cause substantial liquidity 

hardship for buyers to have to substitute 

cash in such amounts. 

While the discussion above represents 

potentially important costs, the 

Commission is noting factors that can 

alleviate these costs, and is 

implementing provisions that it believes 

substantially mitigate these costs: First, 

the Commission is adding a new 

§ 190.04(d)(3)(iv), which provides that 

the trustee shall, in exercising their 

discretion with regard to addressing 

letters of credit, including as to the 

timing and amount of a request for 

substitute customer property, endeavor 

to mitigate, to the extent practicable, the 

adverse effects upon customers that 

have posted letters of credit, in a 

manner that achieves pro rata treatment 

among customer claims. Second, the 

Commission notes the likelihood that 

requests for substitute customer 

property may not apply to the particular 

delivery letters of credit the commenters 

have expressed concerns about: As 

requested by CME, the Commission 

confirms that (1) a delivery letter of 

credit that is posted directly with the 

DCO or with the delivery counterparty, 

rather than with or through the FCM, 

and for which the FCM is not a named 

beneficiary, is outside the delivery 

account class, i.e., it does not constitute 

cash delivery property (or property of 

the debtor’s estate), and (2) the 

provisions in other parts of the part 190 

regulations regarding treatment of letters 

of credit posted with or through the 

debtor FCM do not apply such a letter 

of credit. 

The Commission’s priority in this 

context is to ensure the customers using 

letters of credit to meet margin 

obligations are treated in an 

economically equivalent manner to 

those who have posted other types of 

collateral, so that there is no incentive 

to use such letters of credit to 

circumvent the pro rata distribution of 

margin funds as set forth in section 

766(h) of the Bankruptcy Code.256

Moreover, if there are shortfalls in 

customer property in a particular 

account class, and public customers 

posting letters of credit are protected 

from sharing in those shortfalls, those 

public customers would benefit. 

However, the shortfalls would, 

inevitably, instead be allocated to other 

public customers, who would suffer 

corresponding losses. Regulation 

§ 190.04(d)(3) supports the policy of pro 

rata treatment of public customers 

embodied in section 766(h) of the 

Bankruptcy Code by clarifying that 

letters of credit cannot be used to avoid 

pro rata distribution of margin funds. It 

therefore avoids concentrating losses on 

those public customers (who are likely 

to be smaller customers) that cannot 

qualify for, or cannot afford the cost of, 

letters of credit, or otherwise do not use 

letters of credit as collateral. Moreover, 

by directing the trustee to exercise their 

discretion, including with respect to 

amounts and timing of requests for 

customer property, in a manner that 

mitigates adverse effects on those 

customers that have posted letters of 

credit, it will mitigate the liquidity costs 

to such customers. 

Section 190.04(e)(1) concerns 

liquidation of open commodity 

contracts in the market, while paragraph 

(e)(2) addresses liquidation by book 

entry offset. Both of these revised 

regulations delete the requirement in 

the current regulations that a clearing 

organization must obtain approval for 

its rules regarding liquidation of open 

commodity contracts, a requirement that 

is superfluous in light of the regulatory 

framework set forth in part 40 of the 

Commission’s regulations, and in light 

of the notice-filing regime established 

by Congress in section 5c(c) of the 

CEA.257 This has the benefit of enabling 

clearing organizations to avoid the cost 

of filing a request for rule approval, 

pursuant to CEA section 5c(c)(4) and 

Regulation § 40.5. There are potential 

costs, in that an ill-conceived rule could 

be more readily identified, and 

addressed, in a rule approval process. 

However, Commission staff, as a matter 

of practice, closely reviews all noticefiled clearing organization rules. 

Section 190.04(e)(3) is new, and 

confirms that an FCM or foreign futures 

intermediary through which a debtor 

FCM carries open commodity contracts 

may exercise any enforceable 

contractual rights that the FCM or 

foreign futures intermediary has to 

liquidate such commodity contracts. It 

provides that the liquidating FCM or 

foreign futures intermediary must use 

‘‘commercially reasonable efforts’’ in the 

liquidation and provides the trustee a 

damages remedy if the FCM or foreign 

futures intermediary fails to do so. 

Damages are the only remedy; under no 

circumstance can the liquidation be 

voided. 

This new provision will benefit 

carrying FCMs by confirming explicitly 

that carrying FCMs are allowed to 

exercise enforceable contractual rights 

to liquidate contracts, which reduces 

ambiguity and thus will reduce 

administrative costs. At the same time, 

clarification of the availability of the 

damages remedy will help to protect 

creditors of the debtor FCM’s estate in 

the event that the carrying FCM does 

not use commercially reasonable efforts 

in liquidating the open contracts (and 

thus will incentivize carrying FCMs to 

act in a commercially reasonable 

manner). Thus, the regulation itself 

provides the estate with a potential 

mitigant for the costs in the form of a 

damages remedy. 

The remainder of the revisions to 

§ 190.04(e)(4) and (f) are nonsubstantive language changes and 


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clarifications and updated crossreferences and should not have 

associated costs or benefits. 

3. Regulation § 190.05: Operation of the 

Debtor’s Estate—General: Consideration 

of Costs and Benefits 

In § 190.05, the Commission is 

addressing general issues regarding the 

operation of the debtor’s estate. In both 

§ 190.05(a) and (b), the Commission is 

making revisions providing the trustee 

with more flexibility to act in a 

bankruptcy situation. Section 190.05(a), 

for example, provides that the trustee 

‘‘shall use reasonable efforts’’ to comply 

with the CEA and the Commission’s 

regulations. Section 190.05(b) requires 

the trustee to ‘‘use reasonable efforts’’ to 

compute a funded balance for each 

customer account that contains open 

commodity contracts or other property 

as of the close of business each business 

day until such open commodity 

contracts and other property in such 

account have been transferred or 

liquidated, ‘‘which shall be as accurate 

as reasonably practicable under the 

circumstances, including the reliability 

and availability of information.’’ These 

two revisions will benefit the estate by 

recognizing that a bankruptcy could be 

an emergency event, that perfectly 

reliable information could be 

unavailable or inordinately expensive to 

obtain, and that therefore the trustee 

should be allowed some measure of 

flexibility to act reasonably given the 

particular circumstances of the case. 

CME noted that § 190.05(b) will have 

the benefit of allowing the trustee to 

transfer more promptly public 

customers’ positions and property than 

if the trustee were held to a strict 

standard of precision. On the other 

hand, affording the trustee increased 

discretion in complying with the CEA 

and the Commission’s regulations, and 

in computing a funded balance for each 

customer account, may carry the 

potential cost of trustee mistake, 

misfeasance, or abuse of such 

discretion, as discussed above. 

Whereas current § 190.04(b) requires a 

trustee to compute a funded balance 

only for those customer accounts with 

open commodity contracts, revised 

§ 190.05(b) expands the scope of 

customer accounts for which a trustee is 

required to compute a funded balance to 

those accounts with open commodity 

contracts or other property (including, 

but not limited to, specifically 

identifiable property). This expansion of 

the trustee’s duties represents an 

administrative cost, as the trustee will 

have to expend time and resources at 

the close of business each business day 

to compute the funded balance of all 

customer accounts. However, this 

revision should also result in a benefit 

to those customers whose accounts hold 

property but no open commodity 

contracts, in the form of enhanced 

information about their financial 

position (including with regard to 

collateral, the value of which may 

change on a daily basis, and with regard 

to the percentage distribution currently 

available). These customers will, under 

the revised provision, receive daily 

computations of the funded balance of 

their accounts with the debtor. 

However, revised § 190.05(b) also 

narrows the trustee’s duty compared to 

current § 190.04(b): While the current 

provision states that the trustee ‘‘must 

compute a funded balance for each 

customer account . . . each day,’’ the 

revised provision only requires the 

trustee to ‘‘use reasonable efforts’’ to do 

so. Regulation § 190.00(c)(3)(i)(C) 

provides that ‘‘reasonable efforts’’ 

should only be less than ‘‘best efforts’’ 

to the extent that this would benefit 

public customers as a class. Exercises of 

discretion by a trustee that, on a net 

basis, benefit public customers as a class 

may, on a net basis, impose costs on 

individuals or groups within that class. 

For example, there theoretically may be 

cases where, because the administrative 

cost of computing a funded balance 

would outweigh the benefit of doing so 

to public customers as a class, the 

trustee, in exerting ‘‘reasonable efforts,’’ 

determines not to do so on a particular 

day or for a particular time. As ICI 

points out in their comment letter, that 

decision would harm certain customers, 

i.e., regulated funds, who have a 

particular need to confirm the existence 

and value of their transactions and 

associated margin. 

Section 190.05(c) requires the debtor 

to maintain ‘‘records required under this 

chapter to be maintained by the debtor, 

including records of the computations 

required by this part’’ ‘‘until such time 

as the debtor’s case is closed.’’ This 

revision expands the scope of records 

that must be maintained, thereby 

imposing certain administrative costs, 

but should benefit the estate, because it 

will limit the amount of time the trustee 

will have to maintain the relevant 

records. 

Section 190.05(d) requires the 

bankruptcy trustee to use all reasonable 

efforts to continue to issue account 

statements for customer accounts that 

contain open commodity contracts or 

other property, and to issue account 

statements reflecting any liquidation or 

transfer of open commodity contracts or 

other property promptly after such 

liquidation or transfer. This provision 

will likely result in administrative costs, 

as the trustee will have to expend time 

and resources issuing account 

statements to customers. It will benefit 

customers because it should help them 

to keep track of their commodity 

contracts (and the continued availability 

of hedges) and the property in their 

accounts, including in particular when 

such contracts and property are 

liquidated or transferred, even during a 

bankruptcy. ICI noted that this is of 

particular benefit to regulated funds, 

providing them with a basis to confirm 

the existence and value of their 

transactions and associated margin. 

Section 190.05(e)(1) allows a 

bankruptcy trustee to effect transfers of 

customer property in accordance with 

§ 190.07, but requires the trustee to 

obtain court approval prior to making 

any other disbursements to customers. 

This provision should benefit the estate 

and customers by allowing the trustee, 

without court approval, to port 

customers’ positions and associated 

property to a solvent FCM as quickly as 

possible in a bankruptcy situation. In 

the event that too much customer 

property (that is, an amount in excess of 

the ultimate pro rata share) is 

transferred for those customers whose 

positions are being ported, and cannot 

be offset or clawed back, it could result 

in costs to other customers, for whom 

less than their pro rata share would be 

available. 

Section 190.05(e)(2) allows the 

bankruptcy trustee to invest the 

proceeds from the liquidation of 

commodity contracts or specifically 

identifiable property, and any other 

customer property, in obligations of or 

guaranteed by the United States, so long 

as the obligations are maintained in 

depositories located in the United States 

or its territories or possessions. The 

revised regulation expands the scope of 

customer property that the trustee is 

permitted to invest in such a manner to 

include ‘‘any other customer property.’’ 

This change should benefit customers, 

in that additional customer property 

could be invested (in this limited 

manner). 

Section 190.05(f) requires the trustee 

to apply the residual interest provisions 

contained in § 1.11 ‘‘in a manner 

appropriate to the context of their 

responsibilities as a bankruptcy trustee 

pursuant to’’ the Bankruptcy Code and 

‘‘in light of the existence of a surplus or 

deficit in customer property available to 

pay customer claims.’’ This explicit 

requirement to continue to apply the 

residual interest requirements set forth 

in § 1.11 may result in administrative 

costs, since the trustee would require 

resources to do so. However, this 

provision should benefit customers by 


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258As discussed above in section II.A.1, the 

trustee in exerting best efforts to meet a standard 

must diligently exert efforts to meet that standard 

‘‘to the extent of its own total capabilities.’’ By 

contrast, in exerting ‘‘reasonable efforts’’ to meet a 

standard, the Commission expects that the trustee 

will work in good faith to meet the standard, but 

will also take into account other considerations, 

including the impact of the effort necessary to meet 

the standard on the overarching goal of protecting 

public customers as a class. 

259This is only relevant for debtor FCMs that are 

also broker-dealers. 

260The customer diligence requirements in 

question focus on anti-money-laundering 

requirements and ensuring that risk disclosures 

have been provided to customers and 

acknowledgements of such disclosures have been 

received. The corresponding costs would arise from 

the possibility that the transferee’s diligence would 

have revealed problems that had been missed by the 

debtor FCM’s customer diligence process, or arose 

subsequent to the time that the original process was 

conducted, and that conducting the revised 

diligence more promptly would sooner reveal the 

concerns, thus permitting them to be addressed 

more expeditiously. 

making it more likely that they would 

receive what they are entitled to receive 

from the debtor’s estate. Indeed, 

Vanguard noted that the residual 

interest requirement is a valuable buffer 

to protect customers. 

4. Regulation § 190.06: Making and 

Taking Delivery Under Commodity 

Contracts: Consideration of Costs and 

Benefits 

Section 190.06 addresses the making 

and taking of deliveries under 

commodity contracts. 

Specifically, § 190.06(a)(2) requires 

the trustee to use ‘‘reasonable efforts’’ 

(in contrast to the current ‘‘best efforts’’) 

to allow a customer to deliver physical 

delivery property that is held directly by 

the customer in settlement of a 

commodity contract, and to allow 

payment in exchange for such delivery, 

and for both of these to occur outside 

the debtor’s estate, where the rules of 

the exchange or clearing organization 

prescribe a process for delivery that 

allows this. 

Management of contracts in the 

delivery positions involves a significant 

degree of tailored administration. Under 

the best efforts standard, the trustee may 

spend more time (and thus incur higher 

costs) focusing on the needs of a few 

customers, which could detract from the 

trustee’s ability to manage the estate 

more broadly. Accordingly, the change 

from ‘‘best efforts’’ to ‘‘reasonable 

efforts’’ should benefit creditors of the 

estate (as a whole) as the trustee should 

not need to provide a disproportionate 

amount of individualized treatment to 

such contracts.258 However, particular 

customers that would otherwise have 

received the trustee’s focused treatment 

under the ‘‘best efforts’’ standard could 

suffer a cost from the change. 

Section 190.06(a)(3) provides 

guidance to address situations when the 

trustee determines that it is not 

practicable to effect delivery outside the 

estate and therefore, delivery is made or 

taken within the debtor’s estate. The 

revisions provide the trustee with the 

flexibility to act ‘‘as it deems reasonable 

under the circumstances of the case,’’ 

but set an outer bound to the trustee’s 

discretion in requiring them to act 

‘‘consistent with the pro rata 

distribution of customer property by 

account class.’’ This provision again 

will have the benefits and costs of 

enhanced discretion discussed above, 

but includes an outer bound to that 

discretion. 

In § 190.06(a)(4), the Commission 

adds a new provision to reflect that 

delivery may need to be made in a 

securities account.259 The new 

provision should benefit customers who 

require the delivery of securities, and 

the trustee, by permitting those 

securities to be delivered to the proper 

type of account. By setting limits, the 

provision should mitigate the risk of 

transferring too much value out of the 

commodity contract account (and 

creating a risk of an undermargin or 

deficit balance). 

Section 190.06(b) is also new. It 

creates an account class for physical 

delivery property held in delivery 

accounts and the proceeds of such 

physical delivery property. This account 

class is further be sub-divided into 

separate physical delivery and cash 

delivery account subclasses. In general, 

creating the delivery account class 

should help protect customers with 

property in delivery accounts following 

a default, because delivery accounts are 

not subject to the Commission’s 

segregation requirements. The further 

sub-division into sub-classes recognizes 

that cash is more vulnerable to loss, and 

more difficult to trace, as compared to 

physical delivery property. This will 

likely benefit those with physical 

delivery claims; customers in the cash 

delivery sub-class would be likely get a 

pro rata distribution that is less. The 

benefits and costs of creating these subclasses were discussed more fully above 

in reference to the definition of account 

class in proposed § 190.01. 

5. Regulation § 190.07: Transfers: 

Consideration of Costs and Benefits 

Section 190.07(a) works to promote 

transfers of commodity contracts from a 

debtor FCM. It does so by prohibiting 

any clearing organization or selfregulatory organization from adopting, 

maintaining in effect, or enforcing rules 

that interfere with the acceptance by its 

members of transfers of open 

commodity contracts and the equity 

margining or securing of such contracts 

from FCMs with respect to which a 

petition in bankruptcy has been filed, if 

the transfers have been approved by the 

Commission. 

The revised regulation includes the 

provisos that it (1) does not limit the 

exercise of any contractual right of a 

clearing organization or other registered 

entity to liquidate or transfer open 

commodity contracts, and (2) should not 

be interpreted to limit a DCO’s ability 

adequately to manage risk. The revision 

modifies, in a balanced fashion, the 

standard for clearing organization and 

SRO rules that are adopted, maintained, 

in effect, and enforced and where 

transfers are approved by the 

Commission. While clearing 

organizations and SROs will need to 

comply with the revised standard, the 

compliance cost should not be different 

than under the prior standard. The 

clarification that the regulations do not 

limit contractual risk management rights 

should provide a benefit to clearing 

organizations and their members in 

clarifying that the regulation will not 

nullify the contracts in this regard, and 

will not have an associated cost. 

In § 190.07(b)(1), the Commission 

clarifies that it is the transferee FCM 

itself who has the responsibility to 

determine whether it would be in 

violation of regulatory minimum 

financial requirements upon accepting a 

transfer. It is not the trustee’s duty. The 

Commission does not anticipate any 

material cost from this revision. 

Section 190.07(b)(3) permits a 

transferee to accept open commodity 

contracts and associated property prior 

to completing customer diligence 

requirements, provided that such 

diligence is completed as soon as 

practicable thereafter, and no later than 

six months after transfer. It is intended 

to incentivize potential transferees to 

accept transfers by making it more 

practicable to do so. It recognizes that 

customer diligence processes would 

have already been required to have been 

completed by the debtor FCM with 

respect to each of its customers as part 

of opening their accounts. CME, ICI and 

Vanguard agree that the proposal would 

provide a benefit to customers and 

transferee clearing members and 

trustees, by facilitating the transfer 

process.260 If such flexibility were not 

provided, under the current regulations, 

transfer might not be accomplished, or 

may not be accomplished promptly. The 

provision recognizes the importance of 

the account opening diligence 


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261See discussion in Section II.B.5 above. 262See section III.B.1 above. 

requirements and would mitigate the 

risk from delay by requiring the 

diligence to be performed as soon as 

practicable and setting an outer limit at 

six months, unless that time is extended 

by the Commission. 

FIA has requested that the 

Commission provide transferee FCMs 

with more specific relief from 

applicable law relating to ‘‘customer 

diligence’’ and to add specific 

references to certain rules, in order to 

provide certainty, and to mitigate 

regulatory risk, to a transferee. FIA 

requested various points of specific 

relief under five headings: (i) Rules 

relating to anti-money laundering 

requirements; (ii) rules relating to risk 

and other disclosures; (iii) rules relating 

to capital and residual interest 

requirements; (iv) rules relating to 

account statements; and (v) rules 

relating to margin. 

As discussed in more detail in Section 

II.B.5 above, the Commission has 

decided that, with respect to certain 

points of the requested relief, providing 

the relief is warranted, and there are no 

material associated costs from doing so. 

Thus, for example, § 190.07(b)(3) is 

being amended to refer explicitly to the 

risk disclosure requirements in 

§ 1.65(a)(3). 

With respect to the other points of 

requested relief, the comment requests 

relief that the Commission has decided 

carries unacceptable costs. Thus, the 

Commission is not providing a general 

exemption from undermargined account 

capital charges in accordance with 

§ 1.17, nor is the Commission extending 

the time to comply with capital or 

residual interest requirements. While 

such relief might have the advantage of 

further incentivizing FCMs to accept 

transferred accounts, it would do so at 

the cost of potentially causing or 

accepting financial weakness at 

transferee FCMs. 

In a third group of points of requested 

relief, the Commission notes that 

interpretations of existing regulations 

should adequately address the concerns. 

Thus, transferred accounts are (based on 

the terms of the regulations) excluded 

from the Customer Identification 

Program requirements of 31 CFR 

1026.220, while the provisions of 

§ 190.07(b)(3) adequately inform what 

constitutes ‘‘appropriate risk-based 

procedures for conducting ongoing 

customer due diligence’’ (emphasis 

supplied) in the context of 31 CFR 

1026.210(b)(5)(i). While providing more 

specific regulatory provisions might 

enhance regulatory certainty (and thus 

redound to the benefit of transferee 

FCMs, and potentially incentivize FCMs 

to accept transferred accounts), it carries 

the risk of being under-inclusive or 

over-inclusive, and thus failing to 

achieve the regulatory goals. 

Moreover, as to both the second and 

third categories, there may be a more 

tailored approach to achieving the goal: 

As the Commission explicitly notes 

above, any further relief that might be 

appropriate in a particular situation can 

be requested by the transferee in light of 

the relevant facts and circumstances. 

The Commission observed that its staff 

have traditionally responded to requests 

for relief in emergency situations with 

great dispatch, and expects, and has 

instructed staff, to continue to do so in 

this context in the future.261 While this 

approach provides less certainty in 

advance, it has the benefit of making 

tailored relief available (and mitigating 

the possibility that relief leads to 

unintended consequences). 

Section 190.07(b)(4) clarifies that 

account agreements governing a 

transferred account are deemed assigned 

to the transferee until and unless a new 

agreement is reached. At the request of 

FIA, the Commission is confirming that 

if there is a pre-existing account 

agreement between a transferred 

customer and the transferee FCM, that 

pre-existing agreement will govern the 

relationship rather than the agreement 

between the customer and the transferor 

(debtor) FCM. The provision also 

confirms that consequences for breaches 

pre-transfer are borne by the transferor 

rather than the transferee. Section 

190.07(b)(4) provides important 

transparency regarding the agreement 

between a transferred customer and a 

transferee FCM pending the negotiation 

of a new agreement between them, or, 

if such negotiation is unsuccessful, until 

either party decides to terminate the 

relationship. 

Section 190.07(b)(5) provides that in 

the event of transfer, customer 

instructions that are received by the 

debtor with respect to any open 

commodity contracts or specifically 

identifiable property should be 

transmitted to the transferee, who 

should comply with such instructions to 

the extent practicable. The slight 

revisions to current § 190.02(c) are 

merely clarifications, and there should 

be no costs or benefits associated with 

such revisions. 

Section 190.07(c) provides that ‘‘all 

commodity contract accounts (including 

accounts with no open commodity 

contract positions) are eligible for 

transfer. . . .’’ This recognizes 

explicitly that accounts can be 

transferred if the accounts are intended 

for trading commodities, but do not 

include any open commodity contracts 

at the time of the order for relief. The 

revision clarifies the current language 

and will not change the types of 

accounts that can be transferred. 

Accordingly, the Commission does not 

anticipate that there will be material 

added cost associated with the revision. 

Section 190.07(d) revises special rules 

for transfers under section 764(b) of the 

Bankruptcy Code. The revision is being 

made to promote transfer. Cost and 

benefit considerations related to transfer 

are as discussed above.262 The revised 

regulation permits partial transfers, but 

(to the extent practicable) not in cases 

where netting sets for spreads or 

straddles would be broken or where 

customers’ net equity claims would 

increase. The revised regulation should 

provide a benefit to customers by 

codifying this limitation. This 

recognizes that there may be 

circumstances where partial transfer is 

not practicable and implies that the 

trustee makes that decision. It is 

therefore possible that certain customers 

holding spread or straddle positions 

could have positions liquidated or not 

transferred under the revised provision, 

or could have spreads or straddles 

broken because of the trustee’s exercise 

of discretion. 

The Commission has declined to 

adopt ICI’s suggestion to provide 

guidance to the effect that the trustee 

should not effectuate a transfer that will 

result in a separately managed account 

having a significant deficit following the 

porting, in order to avoid a 

circumstance where ‘‘the manager of 

that account would likely need to 

liquidate the bulk of the account’s 

portfolio and other positions in order to 

eliminate or reduce the deficit.’’ While 

adopting such a suggestion might 

benefit the beneficial owner by enabling 

the account manager to manage the 

separate account in accord with the 

account manager’s investment program, 

it may instead have the opposite effect, 

in that it may prevent any transfer of the 

customer’s positions before the seventh 

calendar day after the order for relief, in 

which event the trustee will be required 

to liquidate the entirety of the 

customer’s account, promptly and in an 

orderly manner, causing the very 

disruptions that the transfer provisions 

(and ICI’s suggestion) are designed to 

avoid. Moreover, many FCMs carry 

hundreds or even thousands of 

separately managed accounts. It may 

well not be practical for a trustee, in 

addition to their numerous other 

responsibilities (and in a context where 

they need to learn those responsibilities 


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263The costs and benefits of allowing the trustee 

to draw upon the letter of credit have been 

discussed above in section III.C.2 with respect to 

§ 190.04(d)(3). 

264Regulation § 190.02(b)(1) explicitly excepts 

from the delegation to the Director of the Division 

of Clearing and Risk the authority to disapprove a 

pre-relief transfer pursuant to § 190.07(e)(1). 

265See CFTC Letter 19–17, https://www.cftc.gov/ 

node/217076 at 4. 

in a compressed timeframe) to take ‘‘due 

account’’ of the particular circumstances 

of each of these separately managed 

accounts in the hours, or perhaps a 

small number of days, that the trustee 

may be allowed by the clearing 

organizations carrying the FCMs 

accounts to negotiate and effectuate a 

transfer. Endeavoring to do so might 

well have the cost of diverting the 

trustee and their assistants from 

carrying out more pressing tasks. 

Section 190.07(d)(3) permits a letter of 

credit associated with a commodity 

contract to be transferred with an 

eligible commodity contract account. If 

the letter of credit cannot be transferred 

and the customer does not deliver 

substitute property, the provision will 

permit the trustee to draw upon all or 

a portion of the letter of credit and treat 

the proceeds as customer property in 

the applicable account class. The 

revised regulation ensures that letters of 

credit are treated in an economically 

similar fashion to other types of 

collateral and that customers using 

letters of credit will not receive any 

differential economic advantages, thus 

serving the goal of pro rata distribution. 

If the trustee does draw upon the letter 

of credit, there may be administrative 

costs incurred by the estate, as well as 

costs to the customer that posted the 

letter of credit as collateral. These costs 

may be mitigated if the customer 

delivers substitute property, as set forth 

in the proposed regulation. Moreover, 

consistent with § 190.04(d)(3)(iv), the 

trustee is directed to ‘‘endeavor to 

achieve pro rata treatment among 

customer claims in a manner that 

mitigates, to the extent practicable, the 

adverse effects upon customers that 

have posted letters of credit.’’ 263

Section 190.07(d)(4) will require a 

trustee to use reasonable efforts to 

prevent physical delivery property from 

being separated from commodity 

contract positions under which the 

property is deliverable. While this 

provision will impose an administrative 

cost on the estate, it is already a best 

practice for trustees; keeping delivery 

property with the underlying contract 

positions is necessary for (and thus 

should benefit) the delivery process. 

Therefore, the additional administrative 

cost from the revised regulation should 

be minimal. 

In § 190.07(d)(5), the Commission 

prohibits the trustee from making a 

transfer that would result in insufficient 

remaining customer property to make an 

equivalent percentage distribution to all 

customers in the applicable account 

class (taking into account all previous 

transfers and distributions). The 

Commission is further clarifying that the 

trustee should make determinations in 

this context based on customer claims 

reflected in the FCM’s records, and, for 

customer claims that are not consistent 

with those records, should make 

estimates using reasonable discretion 

based in each case on available 

information as of the calendar day 

immediately preceding transfer. This 

will support achieving the statutory 

policy of pro rata distribution and give 

the trustee discretion to make decisions 

based on the overarching principle set 

forth above, valuing cost effectiveness 

over precise values of entitlement. 

However, this is designed to work to the 

detriment of any customer who, absent 

the provision, would otherwise benefit 

from a larger distribution. Moreover, in 

giving the trustee discretion, it carries 

the risk of mistake or misfeasance. 

Section 190.07(e) will add language to 

clarify that certain transfers are 

approved by the Commission pursuant 

to the procedure set forth in the 

Bankruptcy Code (and thus protected 

from avoidance) and will prohibit the 

trustee from avoiding such transfers, 

unless the transfer is disapproved by the 

Commission. These include a transfer 

made by ‘‘a receiver that has been 

appointed for the FCM that is now a 

debtor.’’ The new provision is being 

added in order to respect the actions of 

a receiver that is acting to protect the 

property of the FCM that has become 

the debtor in bankruptcy. It will provide 

certainty to the actions of such a 

receiver, whose duties, among others, 

include protecting the customer 

property of the FCM. However, to the 

extent that the receiver takes actions 

that are, considered in retrospect, 

mistaken or ill-advised, the revised 

provision will prevent the correction of 

such actions unless the Commission 

acts affirmatively to disapprove them.264

Section 190.07(f) will clarify that the 

Commission may prohibit the transfer of 

a particular set or sets of the commodity 

contract accounts, or permit the transfer 

of a particular set or sets of commodity 

contract accounts that do not comply 

with the requirements of the section. In 

addition, the Commission is clarifying 

that the transfers of the commodity 

contract accounts include the associated 

customer property. These revisions are 

clarifications and should not have any 

associated costs. 

6. Regulation § 190.08: Calculation of 

Funded Net Equity: Consideration of 

Costs and Benefits 

In § 190.08, the Commission 

addresses calculation of funded net 

equity. Section 190.08(a) simply states 

that a customer’s funded net equity 

claim is equal to the aggregate of such 

customers funded net equity claims for 

each account class. 

Section 190.08(b) sets forth the steps 

for a trustee to follow when calculating 

each customer’s net equity. SIFMA 

AMG/MFA requested that the 

Commission amend proposed 

§ 190.08(b)(2)(xii) to treat accounts of 

the same principal or beneficial owner 

maintained by different agents or 

nominees as separate accounts and not 

all held in the individual capacity of 

such principal or beneficial owner, 

suggesting that this would have the 

benefit of reducing the administrative 

difficulties the trustee would face in 

consolidating all accounts of the same 

principal or beneficial owner, and it 

would have the further benefit of 

avoiding any confusion as to treatment 

of separate accounts that could arise 

with the overlay of the time-limited 

relief provided by Letter 19–17. 

The Commission declined to make 

this change. The change would not 

achieve those benefits and would have 

associated costs: First, the FCM, to the 

extent it does treat such accounts 

separately pursuant to the relief set forth 

in Letter 19–17, will already be 

consolidating (for purposes of certain 

calculations) all accounts of the same 

principal or beneficial owner, in that the 

Letter conditions its relief on the FCM 

applying credit limits and stress testing 

on a combined account basis.265

Second, given that Letter 19–17 also 

conditions relief on the FCM disclosing 

that ‘‘under CFTC [p]art 190 rules all 

separate accounts of the beneficial 

owner will be combined in the event of 

an FCM bankruptcy,’’ amending 

§ 190.08(b)(2)(xii) to treat them 

separately would be inconsistent with 

that disclosure, and would cause, rather 

than relieve, inconsistency with the 

approach taken under the Letter. 

While the Commission is making 

certain revisions in § 190.08(b)(3), (4), 

and (5), the Commission views such 

revisions as non-substantive and merely 

clarifying the text in the current 

analogous provisions. Thus, the 

Commission does not expect these 


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266The costs and benefits of the underlying 

policy decision to take steps to ensure that 

customers posting letters of credit are treated (with 

respect to pro rata allocation of losses) in a manner 

consistent with the manner in which customers 

posting other forms of collateral are treated are 

discussed in connection with § 190.04(d)(3) in 

section III.C.2 above. 

changes to result in any costs or 

benefits. 

Section 190.08(c) sets forth 

instructions for calculating each 

customer’s funded balance, while in 

§ 190.08(d), the Commission is in 

general implementing changes to 

provide more flexibility to the trustee in 

valuing commodity contracts and other 

property held by or for a commodity 

broker. For instance, in § 190.08(d)(5), 

the Commission is deleting the 

requirement that the trustee seek 

approval of the court prior to enlisting 

professional assistance to value 

customer property. These changes 

should benefit the estate by providing 

the trustee with more flexibility to 

determine how to value certain 

customer property, including whether 

or not to enlist professional assistance 

in doing so. Likewise, these revisions 

should serve the goal of a pro rata 

distribution to customers, as the 

accurate valuation of customer property 

can benefit from the input of a 

professional. On the other hand, 

affording the trustee increased 

discretion in how to value commodity 

contracts and other property held by a 

debtor carries the potential cost of 

mistake, misfeasance, or abuse of 

discretion by the trustee, as discussed 

above, or possibly by the professional 

whose service is retained. 

With respect to commodity contracts 

that have been transferred, 

§ 190.08(d)(1)(i) provides that such 

contracts be valued at the end of the last 

settlement cycle on the day preceding 

such transfer, rather than at the end of 

the settlement cycle in which it is 

transferred. Again, this revision should 

benefit both the estate and customers by 

making it practical to calculate the value 

of the transferred commodity contracts 

prior to the transfer. 

The Commission has declined to 

accept ICE’s suggestion that it adopt a 

‘‘more flexible approach’’ because ‘‘the 

market may move significantly on the 

date of the transfer.’’ While prices may 

move intra-day during the period 

between opening and the time of 

auction, they may also move between 

the time of auction and closing. 

Therefore, there is no ex ante reason to 

expect that the previous day’s price is 

less reflective of the price at the time of 

the auction than the closing price on the 

auction day. Moreover, an alternative 

approach, using the price set in the 

auction as the price for individual 

contracts, is unlikely to be practicable. 

Units auctioned will frequently contain 

a heterogenous (though risk-related) set 

of products, tenors (e.g., contract 

months), and directions (e.g., long or 

short). Thus, it will often be 

impracticable to translate an auction 

price for a portfolio to prices for 

individual contracts within that 

portfolio. 

7. Regulation § 190.09: Allocation of 

Property and Allowance of Claims: 

Consideration of Costs and Benefits 

In § 190.09, the Commission is 

addressing allocation of property and 

allowance of claims. Section 

190.09(a)(1) defines the scope of 

‘‘customer property’’ that is available to 

pay the claims of a debtor FCM’s 

customers, and § 190.09(a)(1)(i) sets 

forth the categories of ‘‘cash, securities, 

or other property or the proceeds of 

such cash, securities, or other property 

received, acquired, or held by or for the 

account of the debtor, from or for the 

account of a customer’’ that are 

included in customer property. In 

§ 190.09(a)(1)(i), the Commission is 

making certain substantive changes to 

the categories listed in current 

§ 190.08(a)(1)(i), as discussed below: 

• First, § 190.09(a)(1)(i)(D) is new and 

provides that customer property 

includes any property ‘‘received by the 

debtor as payment for a commodity to 

be delivered to fulfill a commodity 

contract from or for the commodity 

customer account of a customer.’’ 

Clarifying this point explicitly should 

benefit both the estate and customers by 

avoiding confusion or potential 

litigation. 

• Second, § 190.09(a)(1)(i)(F) 

provides that letters of credit, including 

proceeds of letters of credit drawn by 

the trustee, or substitute customer 

property, constitute ‘‘customer 

property.’’ This section is being revised 

to be consistent with the other letters of 

credit provisions that are being added 

throughout part 190. The Commission 

does not anticipate that this provision 

will result in any material costs or 

benefits, as current § 190.08(a)(1)(i) 

already includes a provision regarding 

letters of credit.266

Section 190.09(a)(1)(ii) sets forth the 

categories of ‘‘[a]ll cash, securities, or 

other property’’ that would be included 

in customer property. In 

§ 190.09(a)(1)(ii), the Commission is 

making certain substantive changes to 

the categories listed in current 

§ 190.08(a)(1)(ii), as discussed below: 

• First, § 190.09(a)(1)(ii)(D) provides 

that any cash, securities, or other 

property that was property received, 

acquired or held to margin, guarantee, 

secure, purchase, or sell a commodity 

contract and that is subsequently 

recovered by the avoidance powers of 

the trustee or is otherwise recovered by 

the trustee on any other claim or basis 

constitutes customer property. The 

current version of this provision refers 

only to the trustee’s avoidance powers 

(leaving out the possibility for recovery 

other than through avoidance powers). 

The Commission’s revisions to this 

section will benefit the estate, by 

assuring that any property they recover 

will be included in the pool of customer 

property, rather than going to some 

other creditor (to be sure, those other 

creditors will receive correspondingly 

less). 

• Second, § 190.09(a)(1)(ii)(G) is new, 

and provides that any current assets of 

the debtor in the greater of (i) the 

amount that the debtor is obligated to be 

set aside as its targeted residual interest 

amount, pursuant to § 1.11, or (ii) the 

debtor’s obligations to cover debit 

balances or undermargined amounts, 

pursuant to § 1.20, § 1.22, § 22.2, or 

§ 30.7, constitute customer property. 

This new provision will result in 

administrative costs, because the trustee 

will need to take the extra step of 

determining whether any current assets 

of the debtor need to be set aside as 

customer property and, if so, how much. 

This provision should benefit public 

customers (and serve the policy of 

protecting customer collateral), 

however, because it will mitigate the 

risk of a shortfall in customer funds by 

ensuring that the trustee fulfills the 

Commission’s regulations that require 

an FCM to put certain funds into 

segregation on behalf of customers. ICI 

and Vanguard agreed that this provision 

will benefit customers, while CME 

considered it a ‘‘substantial 

improvement over the current rule.’’ 

This approach will result in such funds 

being included in the pool of customer 

property, rather than going to some 

other creditor. It will, to the same 

extent, operate to the detriment of 

general creditors. 

• Third, § 190.09(a)(1)(ii)(K) is also 

new, and provides that any cash, 

securities, or other property that is 

payment from an insurer to the trustee 

arising from or related to a claim related 

to the conversion or misuse of customer 

property constitutes customer property. 

This provision should benefit customers 

(and, again, the policy of protecting 

customer collateral), since any 

insurance payment as described in this 

proposed section will enlarge the pool 

of customer property, rather than going 


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267 It will, again, to the same extent, act to the 

detriment of general creditors. 

268The Commission further notes that the first 

sentence of § 190.09(a)(1)(ii)(L), which provides that 

customer property includes any cash, securities, or 

other property in the debtor’s estate, but only to the 

extent that the customer property under the other 

definitional elements is insufficient to satisfy in full 

all claims of the debtor’s public customers, will 

impose no new costs or benefits because such 

provision already appears in current § 190.08, and 

the only changes to the provision would be nonsubstantive updates to cross-references. 

269Of course, these recoveries are derived from 

persons against whom such claims are successfully 

asserted. The transfer to customers from these 

individuals advances the goal of pro-rata 

distribution. 

270Section 190.09(c)(1) will have a similar change 

in the addition of the phrase ‘‘or recovered by the 

trustee on behalf of or for the benefit of an account 

class,’’ which is meant to clarify that any property 

recovered by the trustee on behalf of or for the 

benefit of a particular account class after the 

bankruptcy filing must be allocated to the customer 

estate of that account class. This revision will 

present similar costs and benefits to those discussed 

above. 

271The incentive effects of such preferences are 

discussed in section III.A.2.vi, above. 

to general creditors.267 It could result in 

administrative costs, however, as the 

trustee will need to spend time and 

resources in order to determine whether 

any such insurance payments exist, and 

in prosecuting such insurance claims. 

• Fourth, the second sentence of 

§ 190.09(a)(1)(ii)(L) is new, and will 

provide that customer property for 

purposes of these regulations includes 

any ‘‘customer property,’’ as that term is 

defined in SIPA, that remains after 

satisfaction of the provisions in SIPA 

regarding allocation of customer 

property constitutes customer property. 

This provision should benefit 

commodity customers (and act to the 

detriment of general creditors) because 

any securities customer property 

remaining after full allocation to 

securities customers will enlarge the 

pool of commodity customer property. It 

could result in administrative costs, 

however, since the trustee could need to 

spend time and resources determining 

the extent to which such property is left 

over after allocation to customers in a 

SIPA proceeding.268

Section 190.09(a)(2) sets forth the 

categories of property that are not 

included in customer property. In 

§ 190.09(a)(2), the Commission has 

made certain substantive changes to the 

categories listed in current 

§ 190.08(a)(2), as discussed below: 

• First, in § 190.09(a)(2)(iii), the 

Commission is adding explicit language 

to state that only those forward 

contracts that are not cleared by a 

clearing organization are excluded from 

the pool of customer property. This 

revision will benefit customers (and act 

to the detriment of general creditors), 

since the pool of customer property 

would increase by explicitly including 

any cleared forward contracts. 

• Second, § 190.09(a)(2)(v) provides 

that any property deposited by a 

customer with a commodity broker after 

the entry of an order for relief that is not 

necessary to meet the margin 

requirements of such customer is not 

customer property. The deletion of the 

word ‘‘maintenance’’ before ‘‘margin’’ 

will eliminate any distinction between 

initial and variation margin; this 

deletion will benefit customers by 

ensuring that any amount deposited by 

a customer after the entry of an order for 

relief that is necessary to meet that 

customer’s margin requirements will be 

included in the pool of customer 

property. This provision would 

correspondingly act to the detriment of 

general creditors. 

• Third, § 190.09(a)(2)(viii), which is 

new, provides that any money, 

securities, or other property held in a 

securities account to fulfill delivery, 

under a commodity contract that is a 

security futures product, from or for the 

account of a customer, is excluded from 

customer property. This provision 

avoids conflict with the resolution, 

under SIPA, of claims for securities and 

related collateral. 

Section 190.09(a)(3), which is new, 

gives the trustee the authority to assert 

claims against any person to recover the 

shortfall of customer property 

enumerated in certain paragraphs 

elsewhere in § 190.09(a). This provision 

could impose administrative costs, since 

the trustee could have to expend time 

and resources to assert and prosecute 

such claims to make up for any shortfall 

in customer property. The provision 

will, however, benefit customers, since 

it will ensure that the trustee is in a 

position to recover any such shortfalls 

and gives the trustee authority to act to 

do so. Moreover, since this provision 

makes explicit what is implicit in 

current part 190, an additional benefit of 

this provision may be reduced litigation 

costs over a trustee’s authority to engage 

in attempts to recover shortfalls in 

customer property.269

Section 190.09(b) adds the phrase ‘‘or 

attributable to’’ to the language that is in 

current § 190.08(b), when describing 

how to treat property segregated on 

behalf of or attributable to non-public 

customers, namely, as part of the public 

customer estate; the addition of this 

phrase, as described above, will clarify 

that § 190.09(b)(1) applies both to 

property that is in the debtor’s estate at 

the time of the bankruptcy filing, as well 

as property that is later recovered by the 

trustee and becomes part of the debtor’s 

estate at the time of recovery. This 

additional phrase would benefit public 

customers and the statutory policy in 

favor of them (and correspondingly act 

to the detriment of non-public 

customers and general creditors), since 

it could increase the amount of property 

that is treated as part of the public 

customer estate. It could impose 

administrative costs because it could 

take time and resources to properly 

allocate any property that is recovered 

after the time the bankruptcy is filed.270

Section 190.09(c)(1)(ii) is a new 

provision that instructs the trustee, in 

the event there is property remaining 

allocated to a particular account class 

after payment in full of all allowed 

customer claims in that account class, to 

allocate the excess in accordance with 

proposed § 190.09(c)(2), which in turn 

sets forth the order of allocation for any 

customer property that cannot be traced 

to a specific customer account class. 

These provisions will benefit public 

customers who would otherwise face 

shortfalls (and then, non-public 

customers who would otherwise face 

shortfalls). Since these provisions make 

explicit what is implicit in current part 

190, an additional benefit of these 

provisions will result from the increased 

clarity over what to do with any excess 

customer property. However, the 

provisions will act to the detriment of 

non-public customers (relative to public 

customers) and general creditors 

(relative to both) who, under the current 

regime, could have been more likely to 

receive any excess customer property in 

the absence of an explicit provision 

providing what to do with any such 

excess customer property.271

Section 190.09(d) governs the 

distribution of customer property. The 

only substantive change in § 190.09(d) 

from its analog in current § 190.08(d) is 

in § 190.09(d)(1)(i) and (ii), which 

import the concept of ‘‘substitute 

customer property.’’ Whereas current 

§ 190.08(d)(1)(i) and (ii) require 

customers to deposit cash in order to 

obtain the return of specifically 

identifiable property, § 190.09(d)(1)(i) 

and (ii) allow the posting of ‘‘substitute 

customer property.’’ This term, which is 

defined in § 190.01, means cash or cash 

equivalents. This revision will benefit 

customers because it makes it easier for 

customers to redeem their specifically 

identifiable property by no longer 

limiting customers to only using cash to 

do so. It could, however, impose 

administrative costs in the form of time 

and resources of the trustee, who, in the 

event a customer chooses to post cash 

equivalents to redeem their specifically 

identifiable property, will be required to 


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272The Commission further understands that it is 

already industry practice to use such accounts, 

therefore, as a practical matter, the cost associated 

with mandating the use of such accounts should be 

mitigated. 

273See section II.B.8 above. 

value (and potentially to liquidate) such 

cash equivalents. Moreover, while ‘‘cash 

equivalents’’ are required to be assets 

‘‘that are highly liquid such that they 

may be converted into United States 

dollar cash within one business day 

without material discount in value,’’ it 

is possible that such assets could 

nonetheless decrease in value, 

potentially to the detriment of other 

customers. 

8. Regulation § 190.10: Provisions 

Applicable to Futures Commission 

Merchants During Business as Usual: 

Consideration of Costs and Benefits 

As proposed, § 190.10 addresses 

provisions applicable to FCMs during 

business as usual. The ABA 

Subcommittee and CME recommended 

that these ordinary course provisions 

should be codified in part 1 of the 

Commission’s regulations, to be more 

transparent to FCM compliance 

personnel. As discussed further below, 

the Commission has accepted that 

suggestion and is adopting in part 1 of 

its regulations the provisions that were 

proposed as § 190.10 (b), (c), (d), and (e). 

In the regulation proposed as 

§ 190.10(a), the Commission notes that 

an FCM is required to maintain current 

records related to its customer accounts, 

consistent with current Commission 

regulations, and in a manner that will 

permit them to be provided to another 

FCM in connection with the transfer of 

open customer contracts and other 

customer property. This regulation does 

not impose new obligations, but rather 

informs the trustee regarding their 

duties by incorporating references to the 

Commission’s existing regulations. 

Thus, this provision is remaining in part 

190, and, as the sole remaining 

paragraph, will be codified as § 190.10. 

The regulation proposed as 

§ 190.10(b) addresses designation of 

accounts as intended for the purpose of 

hedging. It is being codified as § 1.41. 

An FCM will be permitted to rely upon 

a customer’s written representation of 

hedging intent regarding the designation 

of a hedging account, without being 

required to look behind that 

representation, thus mitigating 

administrative costs. 

Section 1.41(a) requires an FCM to 

provide a customer an opportunity to 

designate an account as a hedging 

account when the customer first opens 

the account, allowing for clear 

instruction to FCMs at the outset of the 

relationship. Clear instruction at the 

outset will facilitate the ability properly 

to account for customer property. There 

will be some disclosure and accounting 

costs associated with this provision. For 

those customers that do engage in 

hedging, it will be more cost effective to 

designate the account at opening than to 

monitor the transactions for the first 

qualifying transaction to provide the 

opportunity to make the designation, as 

applicable under the current regulation. 

Thus, the regulation should reduce the 

probability that the opportunity to 

designate the account as a hedging 

account will be missed. 

Section 1.41(b) sets forth the 

conditions for treating an account as a 

hedging account, permitting such 

treatment upon the customer’s written 

representation that their trading would 

constitute hedging as defined under any 

relevant Commission rule or the rule of 

a DCO, DCM, SEF, or FBOT. There will 

be record-keeping costs for FCMs and 

customers associated with the 

provision. 

Section 1.41(c) provides that the 

foregoing requirements do not apply to 

commodity contract accounts opened 

prior to the effective date of this final 

rulemaking, and that an FCM can 

continue to designate such existing 

accounts as hedging accounts based on 

written hedging instructions obtained 

under current regulations. This 

provision should mitigate the impact of 

the changes to current requirements in 

§ 1.41(a) and (b) by not applying those 

provisions to already opened hedging 

accounts, instead relying upon the 

information collected and maintained 

during the current regulatory 

framework. 

Section 1.41(d) will permit an FCM to 

designate an existing customer account 

as a hedging account for purposes of 

bankruptcy treatment, provided that the 

FCM obtains the necessary customer 

representation. This provision will give 

FCMs and customers flexibility to apply 

the proposed regulations to existing 

accounts where the impact would not be 

overly burdensome. 

The regulation proposed as 

§ 190.10(c) addresses the establishment 

of delivery accounts during business as 

usual. It is being codified as § 1.42, and 

recognizes that when an FCM facilitates 

delivery under a customer’s physical 

delivery contract and such delivery is 

effected outside of a futures account, 

foreign futures account, or cleared 

swaps account, it must be effected 

through (and the associated property 

held in) a delivery account. While there 

are costs associated with the opening 

and maintenance of delivery accounts, 

the Commission views that the use of 

such accounts is cost effective in 

facilitating delivery.272 The benefit of 

using such accounts is twofold: To 

protect customer assets during the 

delivery process, and to foster the wellfunctioning of the delivery process. 

The regulation proposed as 

§ 190.10(d) addresses letters of credit, 

and will prohibit an FCM from 

accepting a letter of credit as collateral 

during business as usual unless certain 

conditions are met at the time of 

acceptance and remain true through the 

date of expiration. It is being codified as 

§ 1.43. 

The first condition is that the trustee 

must be able to draw upon the letter of 

credit in full or in part in the event of 

a bankruptcy proceeding, the entry of a 

protective decree under SIPA, or the 

appointment of FDIC as receiver 

pursuant to Title II of the Dodd-Frank 

Act. Second, if the letter of credit is 

permitted to be and in fact is passed 

through to a clearing organization, the 

trustee for such clearing organization (or 

the FDIC) must be able to draw upon the 

letter of credit in full or in part in the 

event of a bankruptcy proceeding for 

such clearing organization (or where the 

FDIC is appointed as receiver). 

Section 1.43 will ensure that an 

FCM’s treatment and acceptance of 

letters of credit during business as usual 

is consistent with and does not preclude 

the trustee’s treatment of letters of credit 

in accordance with §§ 190.00(c)(5) and 

190.04(d)(3). The Commission 

understands that under industry 

practice, most existing letter of credit 

arrangements are consistent with the 

Joint Audit Committee Forms of 

Irrevocable Standby Letter of Credit, 

both Pass-Through and Non PassThrough,273 and that these forms are 

consistent with these new requirements. 

Nevertheless, FCMs will need to review 

the existing letters of credit for 

consistency with the regulation, and it 

is plausible that some could need to be 

re-negotiated to be consistent therewith. 

To mitigate the costs of this change, 

the Commission has considered the 

extent of the use of letters of credit in 

the industry and has determined that 

upon the effective date of the regulation, 

§ 1.43 will apply only to new letters of 

credit and customer agreements. The 

Commission further is including a 

transition period of one year from the 

effective date until § 1.43 will apply to 

existing letters of credit and customer 

agreements. The transition period is 

intended to give FCMs an adequate 

opportunity to conduct the necessary 

review of existing letters of credit and 

customer agreements, and to make any 


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necessary changes. SIFMA AMG/MFA 

have urged the Commission to shorten 

that one-year transition period, 

questioning how a (non-conforming) 

letter of credit would be treated if an 

FCM that is holding such a letter of 

credit went into bankruptcy during that 

period. Nonetheless, the Commission 

has concluded that the one-year time 

period appropriately balances the goals 

of mitigating burden on FCMs who are 

required to conduct such reviews, and 

make such changes, with the goal of 

mitigating the risk that an FCM that has 

accepted one or more letters of credit 

that do not conform to the new 

requirements becomes a debtor during 

that transition period. Even if such a 

situation occurs, the risk that the 

customer who posted that letter of credit 

would obtain treatment that is not 

consistent with (i.e., better than) pro 

rata treatment (at the expense of other 

public customers) is mitigated by the 

provision in § 190.04(d)(3)(ii)—which is 

not subject to the one-year transition 

period—that, for a letter of credit posted 

as collateral, ‘‘the trustee shall treat any 

portion that is not drawn upon (less the 

value of any substitute customer 

property delivered by the customer) as 

having been distributed to the customer 

for purposes of calculating entitlements 

to distribution or transfer.’’ 

It is possible that some letters of 

credit could become more expensive for 

customers to obtain, as there will be an 

increased likelihood that the letter of 

credit will be drawn upon. (As 

discussed above, this appears to not 

apply to the majority of existing 

arrangements). As noted in the 

discussion of § 190.04(d)(3), the benefit 

of the regulation is ensuring that letters 

of credit are treated in an economically 

consistent manner with other types of 

collateral, thus promoting the goal of 

pro rata distribution. However, it could 

create incentives for customers who 

had, or who would prefer to, post letters 

of credit that could not be drawn upon 

unless the customer defaulted, to reduce 

their participation in transactions 

cleared through FCMs. 

The provision proposed as § 190.10(e) 

concerns the disclosure statement for 

non-cash margin, and is being codified 

as § 1.55(p). It largely aligns with the 

provisions in current part 190 from 

which it was derived; there will be no 

additional cost or benefit implications. 

9. Section 15(a) Factors—Subpart B 

a. Protection of Market Participants and 

the Public 

Subpart B of the revised regulations 

will increase the protection of market 

participants and the public by clarifying 

certain provisions (thereby promoting 

transparency for customers, other 

claimholders, and the general public), 

by providing, in certain other 

provisions, discretion to the trustee in 

determining how best to achieve the 

goal of protecting public customers as a 

class, by fostering transfer (and therefore 

mitigating the market risk associated 

with closing out and reopening 

positions for certain customers), by 

enhancing the likelihood that customer 

net equity claims will be fully funded, 

and by promoting fairness to customers 

as a class by achieving pro rata 

distribution. 

b. Efficiency, Competitiveness, and 

Financial Integrity 

Subpart B of the revised regulations 

will promote efficiency (in the sense of 

both cost effectiveness and timeliness) 

in the administration of insolvency 

proceedings of FCMs and the financial 

integrity of derivatives transactions 

carried by FCMs by setting forth clear 

and well-thought-out instructions for a 

bankruptcy trustee to follow in the 

event of an FCM insolvency, and by 

ensuring that these instructions are and 

remain consistent with current market 

practices. Moreover, subpart B will 

provide the bankruptcy trustee with 

discretion, in certain circumstances, to 

react flexibly to the particulars of the 

insolvency proceeding, guided by the 

goal of protecting public customers as a 

class, thereby promoting cost-effective 

administration of the proceeding. These 

effects will, in turn, enhance the 

competitiveness of U.S. FCMs, by 

enhancing market confidence in the 

protection of customer funds and 

positions entrusted to U.S. FCMs, even 

in the case of insolvency. 

c. Price Discovery 

Price discovery is the process of 

determining the price level for an asset 

through the interaction of buyers and 

sellers and based on supply and 

demand conditions. The revised 

regulations work to promote the 

transfer, rather than liquidation, of 

customer positions. To the extent that 

they therefore mitigate the likelihood of 

the need for liquidations of customer 

positions, particularly in conditions of 

market distress, they will mitigate the 

negative impacts of bankruptcy 

proceedings on price discovery. 

d. Sound Risk Management Practices 

Subpart B of the revised regulations 

will promote sound risk management 

practices by facilitating the bankruptcy 

trustee’ effective management of the risk 

of the debtor FCM. Subpart B will 

accomplish this by revising the 

bankruptcy regulations for an FCM 

insolvency to reflect current market 

practices and thereby make it easier for 

the trustee to act effectively to protect 

customer property in the event of such 

an insolvency. 

e. Other Public Interest Considerations 

Subpart B of the revised regulations 

supports the implementation of 

statutory policy such as promoting 

protection of public customers and 

ensuring pro rata distribution of 

customer funds. Moreover, some of the 

FCMs that might enter bankruptcy are 

very large financial institutions, and 

some are (or are part of larger groups 

that are) considered to be systematically 

important. A well-structured and 

effective bankruptcy process that 

efficiently facilitates the proceedings is 

likely to benefit the financial system 

(and thus the public interest), as that 

process will help to attenuate the 

detrimental effects of the bankruptcy on 

the financial system and reduce the 

likelihood that uncertainty as to the 

outcome of the insolvency could cause 

disruption to financial markets. 

D. Subpart C—Clearing Organization as 

Debtor 

Subpart C to part 190 is intended to 

create a tailored set of regulations to 

govern a proceeding under subchapter 

IV of chapter 7 of the Bankruptcy Code 

in which the debtor is a clearing 

organization. As discussed further 

below, while these regulations are fitted 

to the context of a commodity broker 

that is a clearing organization, they are 

principles-based rather than 

prescriptive, and flexible rather than 

rigid. 

The overarching benefits of this 

approach include the following. First, 

uncertainty will be reduced during 

business-as-usual (thus enhancing the 

ability of both clearing members and 

their customers better to understand 

their exposures to the possible 

insolvency of a clearing organization, 

and to tailor their risk management 

practices (and use of clearing services) 

in light of this enhanced 

understanding). This better 

understanding may well foster greater 

trust in the cleared derivatives 

marketplace, and thus greater 

participation therein. To be sure, it is 

also possible that some market 

participants, upon achieving a greater 

understanding, may decide not to 

participate. There are other limitations 

to these benefits, noted below. Second, 

by developing a more detailed, yet 

flexible, framework and procedures for 

the bankruptcy of a DCO, the costs (to 

the estate, to clearing members, and to 


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274See ACLI, FIA, ICI, SIFMA AMG/MFA, and 

Vanguard. 

275See, e.g., A Path Forward for CCP Resilience, 

Recovery, and Resolution (published by a group of 

prominent clearing members and money managers). 

276See generally part 39 of the Commission’s 

regulations. Only SIDCOs, or other DCOs that have 

elected to become subject to the provisions of 

subpart C of part 39, are required to address fully 

any default loss, or to maintain recovery and winddown plans. However, among DCOs based in the 

United States, the vast majority of activity is 

conducted on DCOs that fall within one of those 

two categories. 

277Moreover, among U.S. DCOs (and among all 

DCOs registered with the Commission), no loss has 

ever been so large that it was mutualized. 

278The effects of those rules on incentives for 

DCOs is even more difficult to measure, since a 

chapter 7 liquidation (the only bankruptcy available 

to a commodity broker, see 11 U.S.C. 109(d)) is 

highly likely to reduce severely, if it does not 

eliminate, the DCO’s value to its shareholders. 

public customers) of the case should be 

reduced. 

Third, the resolution regime 

established under Title II of Dodd-Frank 

provides that the maximum liability of 

FDIC as receiver of a covered financial 

company to a claimant is the amount 

the claimant would have received if the 

FDIC had not been appointed receiver 

and the covered financial company had 

been liquidated under chapter 7 of the 

Bankruptcy Code. By establishing a 

clearer counterfactual, subpart C will: 

(a) Enhance the ability of FDIC to plan 

for and to execute its responsibilities as 

receiver; (b) enhance the ability of 

market participants to predict in 

advance their exposures in the unlikely 

event of the resolution as a DCO; and (c) 

mitigate the cost of litigation over the 

value of such claims. The Commission 

notes that there can, to a certain extent, 

be costs imposed by proposed subpart 

C, in that there may be a corresponding 

reduction in flexibility with the 

addition of rules specifically tailored to 

address a DCO bankruptcy, but the 

Commission has drafted these proposed 

rules with the intent of maintaining 

significant flexibility, where warranted. 

It is apposite to note an important 

issue that affects incentives: A 

significant group of commenters have 

expressed strong concerns, both in 

comments to this rulemaking 274 and 

elsewhere,275 that clearing members and 

their customers have no meaningful role 

in DCO risk governance, and, most 

relevant here, that DCOs’ default rules 

and procedures and recovery and winddown plans are developed without 

sufficient input from members and their 

customers. As discussed in detail in 

section II.C above and in this section 

II.D, subpart C is based, in large part, on 

a debtor DCO’s ex ante default rules and 

procedures and recovery and winddown plans, though applied flexibly by 

the trustee—that is, only to the extent 

they determine is ‘‘reasonable’’ and 

‘‘practicable.’’ 

Most of those concerns transcend the 

topic of this rulemaking: As a general 

matter, risk governance is intended to 

mitigate the possibility of default and, 

where default does occur, to foster the 

result that it is the defaulter that pays 

for all of the losses; skin-in-the-game 

provides an additional layer of lossabsorbency that (i) comes before 

mutualizing costs to non-defaulters and 

(ii) creates incentives for DCOs to 

engage in successful risk management. 

Default rules and procedures are 

intended to, inter alia, ensure that the 

DCO can take timely action to contain 

losses and liquidity pressures and to 

continue meeting its obligations in the 

event of a clearing member default. 

Recovery plans address credit losses 

that exceed the DCO’s available 

resources, as well as the manifestation 

of other risks, as necessary to maintain 

the derivatives clearing organization’s 

viability as a going concern, while 

wind-down involves the actions of the 

DCO to effect the permanent cessation 

or sale or transfer of one or more 

services. 

Commission regulations require DCOs 

to: Take steps to ensure their resilience, 

have effective rules and procedures to 

manage defaults, address fully any 

individual or combined default loss, 

and maintain viable plans for recovery 

in the event that they suffer a default 

loss or any other (non-default) loss.276

DCOs’ rules and arrangements for 

default management and their recovery 

plans work to allocate losses that are not 

covered by the resources of the defaulter 

between the DCOs themselves, their 

clearing members, and (in some cases 

such as gains-based haircutting), will 

have the effect (along with clearing 

agreements between FCMs and their 

public customers) of allocating certain 

losses to public customers. These 

include default losses that are not 

covered by margin posted by the 

defaulter (or the defaulter’s own 

contribution to mutualized loss 

arrangements) or by the DCO’s ‘‘skin-inthe-game,’’ as well as certain investment 

or custody losses. All of this would 

occur outside of bankruptcy.277

Those rules, plans, and 

arrangements—and the extent to which 

they are considered helpful or 

noxious—thus influence the incentives 

of DCOs, their clearing members, and 

the customers of those clearing 

members. Accordingly, the concerns 

that these clearing members and money 

managers have raised with respect to 

their limited ability to influence these 

rules, plans, and arrangements that have 

effects outside of bankruptcy are likely 

to have important incentive effects on 

how, and the extent to which, clearing 

members and their public customers 

(including money managers) are willing 

to and do participate in cleared markets. 

To the extent that subpart C of part 

190 applies those rules, plans and 

arrangements, even if flexibly, then the 

incentive effects described above may 

be felt more strongly by clearing 

members and their public customers, 

albeit only marginally so.278 The level of 

that enhanced incentive is difficult to 

measure, since it depends, in significant 

part, on the perception of those entities 

as to the effect of referring to those 

rules, plans, and procedures in 

bankruptcy under part 190, subpart C: 

Those rules, plans, and procedures, 

which they dislike, are and will be 

applicable in cases where the DCO 

engages in either default management or 

recovery outside of bankruptcy. The 

references to these rules, plans, and 

procedures in part 190 increases the 

likelihood that they will be used 

(because bankruptcy represents an 

additional circumstance in which they 

would be applicable). The incentive 

effects also depend on the perception of 

clearing members and their public 

customers on the effect of such use in 

bankruptcy. 

A note on terminology: As discussed 

above in section II.C, the customers of 

a clearing organization are its members, 

considered separately in two roles: (1) 

Each member may have a proprietary 

(also known as ‘‘house’’) account at the 

clearing organization, on behalf of itself 

and its non-public customers (i.e., 

affiliates). The property that the clearing 

organization holds in respect of these 

accounts is referred to as ‘‘member 

property.’’ (2) Each member may have 

an account for that members’ public 

customers. The property that the 

clearing organization holds in respect of 

these accounts is referred to as 

‘‘customer property other than member 

property.’’ Many clearing members will 

have both such accounts, although some 

may have only one or the other. 

1. Regulation § 190.11: Scope and 

Purpose of Subpart C: Consideration of 

Costs and Benefits 

Section 190.11(a) will simply state 

that the new subpart C of part 190 will 

apply to a proceeding commenced 

under subchapter IV of chapter 7 of the 

Bankruptcy Code in which the debtor is 

a clearing organization. Therefore, the 

costs and benefits of § 190.11(a) are the 

overarching costs and benefits stated 

above. 


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279As noted immediately below, public 

customers of FCM clearing members will benefit 

from protection under part 190. 

280 I.e., §§ 190.13, 190.17, and 190.18, but only 

with respect to: (1) Claims of FCM clearing 

members on behalf of their public customers; and 

(2) property that is or should have been segregated 

for the benefit of FCM clearing members’ public 

customers, or that has been recovered for the benefit 

of FCM clearing members’ public customers. 

281 I.e., subpart A, and § 190.12. 

282The Commission notes that conflicts involving 

a DCO based outside the United States with the 

insolvency law in that DCO’s home jurisdiction as 

applied to claims of FCM clearing members on 

behalf of their public customers should be mitigated 

by the fact that, pursuant to § 39.27(c)(3) and 

Exhibit R to appendix A to part 39, the DCO is 

required to submit and to keep current a 

memorandum demonstrating, inter alia, the basis 

for the conclusion that the DCO’s arrangements to 

ring-fence the customer funds of FCM clearing 

member are effective under the relevant non-U.S. 

law in the event of the insolvency of the DCO, and 

the basis for the conclusion that a local court or 

insolvency official in the DCO’s jurisdiction of 

domicile would respect the choice of U.S. law in 

that context, and the basis for the conclusion that 

the DCO would be able to comply with relevant 

provisions of the Bankruptcy Code and Commission 

regulations with respect to pro rata distribution and 

relevant orders of a U.S. court regarding the 

distribution of customer funds. 

ICE and SIFMA AMG/MFA noted 

that, in the case of the bankruptcy of a 

DCO organized outside the United 

States, there may be conflicts with a 

bankruptcy proceeding in the home 

jurisdiction unless the applicability of 

part 190 is limited. For example, there 

may be differing—and irreconcilable— 

rules for distributing property. Such 

differing rules could incentivize, e.g. a 

customer of a non-FCM clearing 

member to bring litigation seeking to 

apply part 190’s customer protection 

rules to what they might describe as the 

customer claims of their non-FCM 

clearing member.279

The Commission has determined to 

adopt a suggestion by ICE and, in a 

newly created § 190.11(b), to limit the 

applicability of part 190, in the case of 

a foreign DCO subject to a proceeding in 

its home jurisdiction, to provisions that 

(a) focus on the contracts and property 

of public customers of FCM members 280

or (b) general provisions, and those that 

provide notice and reports to the 

Commission and a U.S. bankruptcy 

trustee.281 By limiting the applicability 

of part 190 in this manner, the 

Commission will foster the goal of 

mitigating such conflicts,282 while by 

including those provisions (rather than 

disapplying part 190 entirely to the 

bankruptcy of a foreign-based clearing 

organization), the Commission will 

foster the goal of protecting customers of 

U.S. FCM members of such a foreignbased DCO. 

2. Regulation § 190.12: Required Reports 

and Records: Consideration of Costs and 

Benefits 

Section 190.12(a)(1) is analogous to 

§ 190.03(a), in that it provides 

instructions regarding how to give 

notice to the Commission and to a 

clearing organization’s members, where 

such notice is required under subpart C. 

For a discussion of the costs and 

benefits of this section, please refer to 

the discussion of the cost and benefit 

implications of § 190.03(a). 

Section 190.12(a)(2) will revise the 

time in which a debtor clearing 

organization must notify the 

Commission of a bankruptcy filing. In 

particular: (1) In the event of a voluntary 

bankruptcy filing, the debtor will be 

required to notify the Commission at or 

before the time of filing, and (2) in the 

event of an involuntary bankruptcy 

filing, the debtor must notify the 

Commission as soon as possible, but in 

any event no later than three hours after 

the receipt of the notice of such filing. 

These revisions codify expectations that 

(1) in a voluntary bankruptcy 

proceeding, the debtor clearing 

organization will provide advance 

notice to the Commission ahead of the 

filing to the extent practicable, and (2) 

in an involuntary bankruptcy 

proceeding, the debtor clearing 

organization will notify the Commission 

immediately upon receiving notice of 

the filing, or within at the most three 

hours thereafter. 

With respect to a voluntary 

bankruptcy filing, the Commission 

expects that the DCO will have reported 

its financial distress in the lead-up to a 

bankruptcy filing in accordance with 

the mandatory reporting requirements 

in § 39.19(c)(4); the revision in proposed 

§ 190.12(a) merely codifies the 

expectation that the clearing 

organization will notify the Commission 

of an intent to file for bankruptcy 

protection as soon as practicable before, 

and in no event later than, the time of 

the filing. In addition, § 190.12(a) also 

will allow a debtor clearing organization 

to provide the relevant docket number 

of the bankruptcy proceeding to the 

Commission ‘‘as soon as available,’’ 

while not delaying notifying the 

Commission of the filing itself, to 

account for the potential for a time lag 

between the filing of a proceeding and 

the assignment by the relevant court of 

a docket number. These revisions will 

enhance the ability of the Commission 

to perform its responsibilities to support 

the interests of clearing members, 

customers of clearing members, markets, 

and the broader financial system, by 

providing the Commission with prompt 

notice of any DCO bankruptcy 

proceeding. 

Section 190.12(b) and (c) involve the 

provision of certain reports and records 

to the trustee and/or the Commission by 

the debtor clearing organization. In 

particular: § 190.12(b) sets forth the 

reports and records that the clearing 

organization will be required to provide 

to the Commission and to the trustee 

within three hours following the later of 

the commencement of the proceeding or 

the appointment of the trustee, and 

§ 190.12(c) sets forth the records to be 

provided to the Commission and to the 

trustee no later than the next business 

day following commencement of a 

bankruptcy proceeding. These 

provisions will impose administrative 

costs on the debtor clearing organization 

and/or the trustee, which will be 

obligated to spend time and resources 

transmitting copies of the required 

reports and records to the trustee and/ 

or Commission. However, these 

provisions should both benefit the 

estate, and enhance the Commission’s 

ability to fulfil its responsibilities, by 

providing them with the most current 

information about the clearing 

organization, and by allowing the 

trustee to begin to understand the 

business of the clearing organization as 

soon as possible following a bankruptcy 

filing, which is critically necessary to 

the administration of the debtor clearing 

organization’s estate. This would in turn 

promote confidence in the clearing 

system in particular, and financial 

markets more broadly. 

OCC indicated that, while they 

‘‘maintain[ ] this information in a 

readily accessible place and do[ ] not 

foresee any challenge in identifying and 

providing this information without 

delay,’’ they believe that the three hour 

time period is ‘‘overly prescriptive’’ 

because of the possibility of ‘‘unforeseen 

delays that could occur on the day in 

which a DCO enters bankruptcy.’’ The 

Commission has declined to modify the 

proposal, because the Commission 

believes that setting this specific 

deadline will result in significant 

benefits: Providing this information to 

the trustee and the Commission with 

much-needed expediency, and 

facilitating DCOs’ contingency planning. 

By comparison, the burden of providing 

the reports, which as the commenter 

notes, are already in existence and are 

readily accessible, appears modest. 

3. Regulation § 190.13: Prohibitions on 

Avoidance of Transfers: Consideration 

of Costs and Benefits 

Section 190.13 implements section 

764(b) of the Bankruptcy Code with 

respect to DCOs, and prohibits the 


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19410 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

283See section II.C.3 above. 

284 If the transferor clearing organization does not 

have a balanced book, e.g., because of a member 

default, it could nonetheless only transfer a 

balanced book. 

285See section II.C.4. 

286As originally proposed, § 190.14(b) also 

contained provisions that were intended to provide 

a brief opportunity, after the order for relief, to 

enable paths alternative to liquidation—that is, 

resolution under Title II of the Dodd-Frank Act, or 

transfer of clearing operations to another DCO—in 

cases where a short delay (i.e., less than or equal 

to six days) might facilitate such an alternative 

path. The Commission subsequently issued the 

Supplemental Proposal, which withdrew those 

proposed provisions—§ 190.14(b)(2) and (3)—and 

proposed a new alternative to facilitate the potential 

resolution of a SIDCO pursuant to Title II of the 

Dodd-Frank Act. As discussed in section II.C.4 

above, the Commission is not adopting the 

Supplemental Proposal. 

avoidance of certain transfers made 

either before or shortly after entry of the 

order for relief. While the prohibition of 

avoidance of pre- and post-relief 

transfers in the context of FCM debtors 

in § 190.07(e) applies so long as the 

transfer is not disapproved by 

Commission, the same prohibition on 

avoidance of pre- and post-relief 

transfers in § 190.13(a) and (b) will 

require the affirmative approval of the 

Commission (though such approval can 

be given either before or after the 

transfer is made). This distinction will 

impose administrative costs on the 

clearing organization or the trustee, who 

will have to expend time and resources 

to seek affirmative approval from the 

Commission for such a transfer in the 

context of administering a DCO, 

respectively, either before or after 

bankruptcy. As noted above,283 a 

clearing organization is mandated to 

maintain a ‘‘balanced book.’’ Thus, a 

transferee clearing organization may 

only accept transfer of all of the 

transferor’s customer positions (or at 

least all positions in a given product 

set).284 Any such transfer will have 

significant effects on the markets 

cleared, and on the broader financial 

system. There are important benefits 

from requiring the Commission’s 

approval of such a significant 

transaction, and thus permitting the 

administrative agency responsible for 

oversight of the derivatives markets to 

maintain a level of discretion which 

will help accomplish the goal of an 

orderly functioning of the marketplace. 

4. Regulation § 190.14: Operation of the 

Estate of the Debtor Subsequent to the 

Filing Date: Consideration of Costs and 

Benefits 

Section 190.14(a) provides that the 

trustee may, in their discretion based 

upon the facts and circumstances of the 

case, instruct each customer to file a 

proof of claim containing such 

information as is deemed appropriate by 

the trustee. Allowing the bankruptcy 

trustee to use their discretion in 

tailoring the proof of claim form to the 

specific facts and circumstances of the 

case should benefit both the trustee and 

customers by limiting the information 

requested to only that which is 

necessary for purposes of administering 

the debtor’s estate and thereby 

increasing cost effectiveness, 

particularly given the bespoke nature of 

a clearing organization bankruptcy. 

Thus, the Commission has not proposed 

a prescribed proof of claim form. There 

could, however, be corresponding 

administrative costs to both the estate 

and the customers if the set of 

information requested by the trustee in 

the exercise of their discretion turns out 

in retrospect to be overly narrow or 

broad. 

ICE believed that the proposal did not 

clearly take into account non-CFTCregulated clearing, and that claims of 

members with respect to such activity 

should be properly accounted for in 

bankruptcy and should not be 

disadvantaged. As the Commission 

noted above,285 to the extent that the 

DCO is conducting non-CFTC-regulated 

activity, the Commission expects that 

the proof of claim form will include the 

opportunity to claim for debts of the 

DCO related to activity that is not 

regulated by the CFTC. Thus, no change 

is necessary to address this concern. 

Section 190.14(b) provides that a 

debtor clearing organization will cease 

making calls for variation settlement or 

initial margin.286 Under current 

regulations, it would not be possible to 

continue the operations of a debtor 

clearing organization for any amount of 

time after entry of the order for relief, 

as there is no clear and coherent 

mechanism to do so. Thus, § 190.14(b) 

affirms current legal requirements and 

maintains the status quo. Section 

190.14(c)(1) provides that the trustee 

shall liquidate all open commodity 

contracts that have not been terminated, 

liquidated or transferred no later than 

seven calendar days after the entry of 

the order for relief. This provision will 

impose administrative costs in that the 

trustee will have a hard deadline for 

terminating, liquidating or transferring 

any open commodity contracts within a 

certain timeframe, whereas under 

current part 190 there was no specified 

timeframe for such termination, 

liquidation or transfer. It could, 

however, benefit clearing members and 

customers, who will have certainty that 

their open commodity contracts would 

be liquidated within a particular 

timeframe rather than being held open 

for an undetermined amount of time. A 

deadline for liquidation or transfer of 

open contracts may benefit the broader 

financial markets by mitigating 

uncertainty. 

Section 190.14(c)(2), which is derived 

from current § 190.08(d)(3), will provide 

that the trustee may, at their discretion, 

make distributions in the form of 

securities that are equivalent to the 

securities originally delivered to the 

debtor by a clearing member or such 

clearing member’s customer, rather than 

liquidating the securities and making 

distributions in cash. Unlike current 

§ 190.08(d)(3), § 190.14(c)(2) will not 

allow the customer to request that the 

trustee purchase like-kind securities and 

distribute those instead of cash, but 

instead will leave it to the discretion of 

the trustee whether to do so. This 

change could impose costs on customers 

who would prefer to have a distribution 

of equivalent securities rather than cash, 

since it will remove their option to 

request such a distribution. However, it 

could benefit the estate by allowing the 

trustee to use their discretion as to 

whether to purchase and distribute 

equivalent securities, rather than being 

obligated to do so at the request of a 

customer. 

Section 190.14(d) will require the 

trustee to use reasonable efforts to 

compute the funded balance of each 

customer account immediately prior to 

the distribution of any property in the 

account, ‘‘which shall be as accurate as 

reasonably practicable under the 

circumstances, including the reliability 

and availability of information.’’ This 

requirement applies with respect to 

accounts of the customers of the 

clearing organization: That is, its 

members, separately in respect of each 

such member’s (1) house account (on 

behalf of the member and its non-public 

customers and (2) customer account or 

accounts (on behalf of the member’s 

public customers, one such account for 

each account class, to the extent 

relevant). 

This requirement will impose 

administrative costs due to the time and 

effort involved in making such 

calculations. However, the regulation 

gives the trustee a certain amount of 

discretion, and this calculation will be 

necessary to achieve the goal of making 

distributions that are consistent with 

each customer’s proportionate share. 

5. Regulation § 190.15: Recovery and 

Wind-Down Plans; Default Rules and 

Procedures: Consideration of Costs and 

Benefits 

Section 190.15 provides that (1) the 

trustee shall not avoid or prohibit any 


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Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19411 

287With respect to DCO rules adopted as the DCO 

is on the threshold of failure: DCO rules are subject 

to review by the Commission. In all cases, they are 

subject to review for consistency with the CEA and 

Commission regulations (see § 40.6). In the case of 

SIDCOs, they are additionally subject to review for 

consistency with the purposes of the Dodd-Frank 

Act or any applicable rules, orders, or standards 

prescribed under section 805(a) thereof. Moreover, 

to the extent commenters are concerned that such 

late-enacted rules will be unfair to clearing 

members or their customers, the Commission 

expects that such unfairness would affect the 

trustee’s judgment of the extent to which it is 

‘‘reasonable’’ to apply those rules. 

288Nonetheless, the Commission is sensitive to 

the concerns raised by commenters with respect to 

the development and maintenance of DCO recovery 

and wind-down plans and default rules and 

procedures, and is actively reviewing these issues, 

in particular with respect to governance, as they 

relate to parts 39 and 40. 

289Cf. ISDA: Safeguarding Clearing: The Need for 

a Comprehensive CCP Recovery and Resolution 

Framework (2017) at 2 (‘‘Initial margin haircutting 

should never be permitted.’’) 

action taken by a debtor that was within 

the scope of and was provided for in the 

debtor’s recovery and wind-down plans; 

(2) in administering a DCO bankruptcy, 

the trustee shall, subject to the 

reasonable discretion of the trustee and 

to the extent practicable, implement the 

default rules and procedures maintained 

by the debtor; and (3) in administering 

a DCO bankruptcy, the trustee shall, to 

the extent reasonable and practicable, 

and consistent with the protection of 

customers, take actions in accordance 

with the debtor’s recovery and winddown plans. 

The Commission considered two 

alternatives to directing the trustee to 

implement the debtor’s own default 

rules and procedures and recovery and 

wind-down plans: First, continuing to 

allow a bankruptcy trustee to develop, 

in the moment, a plan for liquidating 

the debtor clearing organization, and 

second, prescribing an across-the-board 

method for liquidating a debtor clearing 

organization. 

A number of commenters appeared to 

support the first alternative approach. 

Some (e.g., ACLI, FIA, ICI, SIFMA 

AMG/MFA, Vanguard) expressed 

concern that they lack transparency 

with regard to the DCO risk 

management decisions and DCOs’ 

default rules and procedures and 

recovery and wind-down plans are 

developed without sufficient input from 

clearing members and their customers. 

For example, Vanguard argued that the 

existing DCO governance regime 

provides them with no meaningful voice 

in critical DCO risk management 

practices and new cleared product 

introductions; and since public 

customers have only a very limited 

ability to mitigate clearing risks 

contractually, they ‘‘rely heavily on the 

Commission to protect the interests of 

[their] investors in the mandated cleared 

market.’’ Commenters also expressed 

the concern that there is a risk that, as 

a DCO begins to fail, otherwise prudent 

DCO rules could be changed without the 

appropriate vetting by clearing members 

and public customers who, given 

mutualized allocation of losses, bear the 

risk of poor risk management choices 

undertaken by the DCO.287

The Commission has considered the 

potential interplay of the amendments 

to part 190 with other Commission 

regulations and applicable statutes. As 

noted above, these commenters’ 

concerns predominantly relate to the 

economic interests of clearing members 

and their customers in contexts outside 

of bankruptcy. 

A DCO’s operations and rules outside 

of bankruptcy are governed by parts 39 

and 40 of the Commission’s regulations. 

The Commission, in particular through 

its Division of Clearing and Risk, 

applies these regulations and conducts 

a rigorous program of oversight of DCOs 

designed to protect the interests of 

market participants and of the financial 

system, including through careful 

reviews of their rules (including default 

rules) and their recovery and winddown plans, through detailed daily and 

periodic risk surveillance, and through 

in-depth remote and on-site 

examinations addressing a wide 

spectrum of risk management issues. 

As noted by a commenter above, they 

‘‘rely heavily on the Commission to 

protect the interests of our investors in 

the mandated cleared market.’’ Over the 

years, the Commission has taken 

seriously its responsibilities in this 

regard, through its regulatory, 

surveillance, and examinations 

programs. 

As discussed above, there are 

important costs to addressing, in the 

context of part 190, market participants’ 

concerns regarding DCOs’ rules, 

procedures, and plans for allocating 

losses that apply outside of a DCO 

bankruptcy: Establishing a bankruptcy 

regime where some market participants 

would be allocated a smaller amount of 

losses in bankruptcy than outside of 

bankruptcy would risk creating 

incentives for those participants to act 

in a manner that promotes the 

likelihood that the DCO will enter 

bankruptcy. 

In view of these considerations, the 

Commission believes the commenters’ 

concerns are effectively mitigated by the 

existing provisions of parts 39 and 40 of 

its regulations and by the Commission’s 

supervision of DCOs.288 Therefore, the 

adoption of part 190, subpart C, which 

is applicable to a DCO’s potential 

bankruptcy, appropriately complements 

parts 39 and 40 and the Commission’s 

ongoing supervision, which apply to a 

DCO’s operations and rules outside of 

bankruptcy. 

Other commenters are concerned with 

the inclusion in those DCO rules and 

plans of ‘‘drastic measures as Variation 

Margin Gains Haircutting (VMGH) and 

Partial Tear-Up (PTU) of open 

positions.’’ Gains haircutting, however, 

is part of the ex ante allocation of losses, 

and thus is an inherent part of the way 

in which losses will be allocated in 

bankruptcy. Moreover, there is a limited 

amount of customer property available. 

Thus, to the extent the application of 

VMGH were to be disallowed, and some 

customers would realize corresponding 

benefits through increases in the 

allowed amounts of their claims (and 

thus a greater share of customer 

property), other customers would suffer 

corresponding costs, through a 

decreased share of customer property— 

indeed, the latter customers may receive 

less than the amount of their claims for 

initial margin.289 Accordingly, the 

Commission concludes that it is 

inadvisable to prohibit VMGH, or to 

mandate that its effects be reversed, in 

cases of DCO bankruptcy. 

Partial tear-up, on the other hand, is 

inapplicable in a clearing organization 

bankruptcy: § 190.14(b) prohibits further 

collection of variation margin, while 

§ 190.14(c) requires the trustee to 

liquidate all open commodity contracts. 

Together, they effectively mandate full 

tear-up of open positions. Thus, the 

question of whether partial tear-up 

should be prohibited is moot. 

Other commenters were concerned 

that these plans do not prescribe a 

specific course of action, but rather 

‘‘present a menu of options.’’ See, e.g., 

FIA, Vanguard. The Commission is of 

the view that, given the complexity of 

the operations of a DCO, and the need 

for extremely prompt action, having the 

trustee develop an entire plan in the 

moment would be likely to turn out to 

be impracticable. By contrast, being 

presented with a ‘‘menu of options’’ 

among which the trustee may select 

(and adapt) in a manner that is 

‘‘reasonable and practicable’’ provides 

the benefit of a helpful roadmap to 

determine strategy and tactics. 

The commenters, and potentially 

other clearing members and public 

customers who share the concerns of the 

commenters, appeared to view DCO 

default rules and procedures and 

recovery and wind-down plans that they 

believe have been adopted with 


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19412 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

290See discussion of § 190.06(b) in section II.B.4 

above. 

291Costs and benefits of the separation of the 

delivery account class into physical delivery and 

cash delivery subclasses were also addressed in 

respect to the costs and benefits section addressing 

the definition of ‘‘account class’’ in § 190.01, 

section II.A.2 above. 

inadequate input from them as noxious, 

and thus they may already be 

incentivized to reduce their exposure to 

such DCOs. Those incentives may be 

(marginally) increased by the fact that 

the Commission is establishing in 

§ 190.15 a model for the trustee that is 

based on those rules, procedures, and 

plans. 

Other commenters (CME and ICE) 

supported the second alternative, 

specifically, a requirement that the 

trustee cannot override the DCO’s 

default rules or deviate from the DCO’s 

recovery or wind-down plans. However, 

given that these rules and plans are 

designed to operate outside of 

bankruptcy, a requirement to follow 

them in procrustean fashion would have 

the cost of compelling the trustee to 

adopt an approach that may be poorly 

tailored to the situation, and the 

Commission will accordingly not adopt 

such a requirement. 

Finally, given the differences between 

DCOs (and potential bankruptcy 

situations), a one-size-fits-all approach 

prescribed by the Commission is likely 

to prove too rigid, and thus will not be 

adopted. 

The Commission is accordingly of the 

view that, relative to these alternatives, 

directing a trustee to implement the 

DCO’s own default rules and 

procedures, and recovery and winddown plans, would benefit the estate by 

providing the trustee with a menu of 

purpose-built rules, procedures and 

plans to liquidate a DCO, which rules, 

procedures and plans the DCO has 

developed subject to the requirements of 

the Commission’s regulations and 

supervision of the Commission. Adding 

concepts of reasonability and 

practicability will give the trustee the 

discretion to modify those rules, 

procedures, and plans where and to the 

extent appropriate. Hence, the 

Commission believes that an approach 

whereby the trustee would follow the 

DCO’s own purpose-built default rules 

and procedures and recovery and winddown plans, but have the discretion to 

vary them as appropriate, would be the 

most cost effective. 

6. Regulation § 190.16: Delivery: 

Consideration of Costs and Benefits 

Regulation § 190.16 addresses 

delivery in the context of a clearing 

organization bankruptcy. Current part 

190 does not contain any regulations 

specific to delivery in that context. 

Section 190.16(a) provides that a 

bankruptcy trustee is required to use 

‘‘reasonable efforts’’ to facilitate and 

cooperate with the completion of the 

delivery on behalf of the clearing 

organization’s clearing member or the 

clearing member’s customer. This has 

the benefit of mitigating disruption to 

the cash market for the commodity and 

mitigating adverse consequences to 

parties that may be relying on delivery 

taking place in connection with their 

business operations. While the exertion 

of such reasonable efforts will 

necessarily involve administrative costs 

(predominantly, time of the trustee or 

their agents), the Commission is of the 

view that this approach has important 

benefits relative to the two alternatives. 

Given the importance of reliable 

delivery to physical markets, it would 

be inappropriate to relieve the trustee of 

the obligation to endeavor to facilitate 

and cooperate with the members’ or 

members’ customers’ efforts to 

accomplish delivery. On the other hand, 

mandating that the trustee go beyond 

reasonable efforts would risk 

compelling the trustee to expend 

unwarranted amounts of resources in 

this endeavor. 

While proposed § 190.16(a) applied 

this approach only to contracts that had 

moved into delivery position prior to 

the date and time of the order for relief, 

the ABA Subcommittee and CME 

suggested that this approach should be 

extended to contracts that move into 

delivery position after that date and 

time, with CME noting that ‘‘it is 

equally important to protect deliveries 

under [such contracts] to avoid 

disruption to commercial markets and 

operations.’’ The Commission has 

accepted this suggestion and notes that, 

if any contracts move into delivery 

position after the order for relief, but 

before being terminated, liquidated, or 

transferred, the benefits and costs of this 

approach are analogous to those of 

contracts that move into delivery 

position prior to the order for relief. 

Section 190.16(b) clarifies which 

property will be part of the physical 

delivery account class and which will 

be part of the cash delivery account 

class. It is analogous to § 190.06(b) in 

the FCM context, and carries forward 

the concepts in that section, but has 

been modified for the context of a DCO 

bankruptcy. Clearly delineating between 

the physical delivery account class and 

the cash delivery account class will 

benefit customers because it will 

increase transparency in terms of which 

account class their property belongs in. 

Section 190.16(b) will likely impose 

administrative costs, since accounting 

separately for physical delivery property 

and cash delivery property will take the 

trustee’s time and resources. As noted 

above,290 the sub-division of the 

delivery account class into the physical 

and cash delivery account classes will 

recognize that cash is more vulnerable 

to loss, and more difficult to trace, as 

compared to physical delivery property. 

Therefore, this sub-division will likely 

benefit those with physical delivery 

claims. Since cash is more vulnerable to 

loss and more difficult to trace, then 

under this approach, clearing members 

and customers with claims in the cash 

delivery sub-class will be more likely to 

get a pro rata distribution that would be 

less than those with claims in the 

physical delivery property sub-class.291

7. Regulation § 190.17: Calculation of 

Net Equity: Consideration of Costs and 

Benefits 

Section 190.17(a) clarifies that a 

member of a debtor clearing 

organization may have claims against 

the clearing organization in separate 

capacities: On behalf of its public 

customers (customer accounts) and on 

behalf of its non-public customers 

(house accounts). It further states that 

net equity shall be calculated separately 

for each customer capacity in which the 

clearing member has a claim against the 

debtor. In the Commission’s view, the 

provisions in § 190.17(a) are 

clarifications that reflect customer 

classifications set forth in section 766(i) 

of the Bankruptcy Code, and account 

classifications that have long been used 

in other contexts, and will not impose 

any costs or benefits on any parties. 

Section 190.17(b)(1) provides that the 

calculation of a clearing member’s net 

equity claim in the bankruptcy of a 

clearing organization shall include the 

full application of the debtor’s loss 

allocation rules and procedures. It also 

provides that, with respect to a clearing 

member’s house account, this will 

include any assessments or similar loss 

allocation arrangements provided for 

under those rules and procedures that 

were not called for before the filing date, 

or, if called for, have not been paid. 

A number of commenters, including 

the ABA Subcommittee, CME, FIA, and 

ICE, objected to including assessments 

that had not been called for before the 

order for relief in the calculation of net 

equity claims where the debtor clearing 

organization’s rules provide that 

assessments cannot be called for after 

bankruptcy. Taking these commenters’ 

preferred approach would benefit the 

clearing members in circumstances 

where there are both uncalled 


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292 ‘‘Marginal’’ because this happens only if (a) 

there is a DCO bankruptcy, (b) there is a default loss 

suffered by the DCO in connection with the 

bankruptcy, and (c) not all of the assessments 

necessary to address that default loss were called 

before that bankruptcy. 

293While § 190.17(b)(1) will not result in uncalled 

assessments being ‘‘called’’—the clearing members 

will not have to pay them to the estate—uncalled 

assessments will be ‘‘used’’ to reduce the clearing 

member’s net equity claim. 

294For example, § 39.39(b)(1) requires SIDCOs 

and Subpart C DCOs to have viable plans for 

recovery necessitated by uncovered credit losses, 

and the extent of a DCO’s assessment power 

contributes to the viability of its recovery plan. 

Moreover, the two SIDCOs, CME and ICE Clear 

Credit, already have significant assessment powers, 

and any proposed rule change to reduce those 

powers would need to withstand review under 

§ 40.10 for consistency with inter alia, the purposes 

of the CEA and the Dodd-Frank Act, which include 

the mitigation of systemic risk and the promotion 

of financial stability. 

295See also 17 CFR 39.16 (requiring each DCO to, 

among other things, ‘‘adopt rules and procedures 

designed to allow for the efficient, fair, and safe 

management of events during which clearing 

members become insolvent or default on the 

obligations of such clearing members to the’’ DCO). 

296For a discussion of the cost and benefit 

considerations for § 190.08, please see section 

IV.C.6 above. 

297For a discussion of the cost and benefit 

considerations for § 190.08(c), please see section 

III.C.6 above. 

298For a discussion of the cost and benefit 

considerations for § 190.09(a), please see section 

III.C.7 above. 

assessments, and remaining default 

losses. As FIA noted in its comment 

letter, the inclusion of uncalled 

assessments ‘‘appears to have the effect 

of reducing a clearing member’s 

potential recovery.’’ However, all losses 

will ultimately be allocated, and if 

uncalled assessments are not taken into 

account, any remaining losses that 

haven’t been covered by other default 

resources will be allocated through 

gains-based haircutting. Thus, the 

commenters’ preferred approach would 

be at the cost of the customers of 

clearing members, who would bear 

additional losses even as the clearing 

members would benefit. 

Relative to the alternative suggested 

by these commenters, the direct effect of 

§ 190.17(b)(1) is to ensure that the 

uncalled assessment will make up more 

of the default losses, and conversely that 

haircutting of the gains (of both clearing 

members and customers) will make up 

less of that loss. Hence, the rule could 

harm clearing members, and 

correspondingly benefit their customers. 

In addition, there can be indirect effects. 

While the maximum amount of 

assessments that clearing members are 

exposed to will not increase, there is a 

marginally 292 increased likelihood that 

those assessments will be used.293

Because clearing members’ potential 

assessments are more likely to be used, 

they will have a marginally increased 

incentive to reduce their level of 

exposure to assessments—for example, 

by reducing their clearing activity for 

themselves or on behalf of their 

customers. While it is conceivable that 

clearing members could work to 

influence DCOs to reduce their own 

assessment powers as a result of these 

incentives, there are mitigants in the 

Commission’s regulations.294

Section 190.17(b)(2) provides that 

where the debtor’s loss allocation rules 

and procedures provide that clearing 

members are entitled to payments due 

to portions of mutualized default 

resources that are either prefunded, or 

assessed and collected, but in either 

case not used, or to the clearing 

organization’s recoveries on claims 

against others (including recoveries on 

claims against defaulting clearing 

members), then ‘‘appropriate 

adjustments shall be made to the net 

equity claims of clearing members that 

are so entitled.’’ These provisions will 

benefit the estate by providing the 

trustee with tools to act promptly and 

efficiently, with lower administration 

costs. The trustee will have a clear 

roadmap to calculate net equity in the 

bankruptcy of a clearing organization 

and will not be obligated to come up 

with an ad hoc methodology for doing 

so. The provisions would also benefit 

clearing members (and, therefore, their 

customers) by providing transparency as 

to how their net equity will be 

calculated, as well as facilitating the 

efficient administration of the estate.295

In those cases where the debtor has 

excess mutualized default funds, or 

recovers on claims against defaulters, 

application of the debtor’s ‘‘reverse 

waterfall’’ rules will benefit clearing 

members (and, in certain cases, their 

customers) by increasing the net equity 

claims of the entitled clearing members. 

In addition to the potential for these 

transfers between general creditors and 

clearing members and their customers, 

this rule can create incentives for 

clearing members and their customers. 

In particular, it makes clearing 

members’ contributions to mutualized 

resources (and the possibility that gainsbased haircutting will affect clearing 

members and their customers) less 

onerous, because they enhance the 

possibility that if the clearing member’s 

contribution to mutualized default 

resources (or gains-based haircutting 

affecting clearing members or their 

customers) is used to meet a default, it 

ultimately will come back to the 

clearing member or their customers as it 

is recovered by the DCO (or the DCO’s 

trustee) from the (bankruptcy) estate of 

the defaulter. 

Section 190.17(c) adopts by reference 

the net equity calculations set forth in 

proposed § 190.08, to the extent 

applicable.296

Section 190.17(d) sets forth a 

definition of the term ‘‘funded balance’’ 

that is taken directly from the relevant 

Bankruptcy Code provisions. Clarifying 

the meaning of the term ‘‘funded 

balance’’ in the context of a clearing 

organization bankruptcy will benefit 

clearing members, in that they will 

know ex ante what is and is not 

included in their funded balance and 

how that amount is calculated. In 

addition, § 190.17(d) adopts by 

reference the methodology for 

calculating funded balance that is set 

forth in § 190.08(c).297

8. Regulation § 190.18: Treatment of 

Property: Consideration of Costs and 

Benefits 

Section 190.18(a) is analogous to 

§ 190.17(a), in that it will provide that 

property of the debtor clearing 

organization’s estate will be allocated 

between member property and customer 

property other than member property in 

order to satisfy the proprietary and 

customer claims, respectively, of 

clearing members. In the Commission’s 

view, the provisions in § 190.18(a) are 

mere clarifications and do not impose 

any costs or benefits on any parties. 

Section 190.18(b)(1)(i) and (ii) set out 

the scope of customer property for a 

clearing organization, and are largely 

based on § 190.09(a).298

Section 190.18(b)(1)(iii) provides that 

customer property for a clearing 

organization includes any guaranty fund 

deposit, assessment or similar payment 

or deposit made by a clearing member 

or recovered by a trustee, to the extent 

any remains following administration of 

the debtor’s default rules and 

procedures, and any other property of a 

member available under the debtor’s 

rules and procedures to satisfy claims 

made by or on behalf of public 

customers of a member. This provision 

supports the goal of making customers 

of the clearing organization whole, since 

it clarifies that any property described 

in this section will be included in the 

scope of customer property, rather than 

ultimately going to some other creditor 

of the debtor. It would result in 

corresponding costs to non-customer 

creditors, and could result in 

administrative costs, however, since the 

trustee could need to spend time and 

resources in order to determine whether 

any such property exists in order to 

properly allocate such property to 

customers. 


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299For a discussion of the cost and benefit 

considerations for proposed § 190.09(a)(2), please 

see section III.C.7 above. 

300As discussed in detail in a footnote in section 

II.C.8, those capital charges could increase by 

literally hundreds of times, for a total impact of 

billions of dollars in increased capital charges. 

301 ‘‘Account class’’ is defined in § 190.01 as 

meaning one or more of each of the following types 

of accounts, as described in greater detail in that 

provision: (1) Futures account; (2) foreign futures 

account; (3) cleared swaps account; and (4) delivery 

account. 

302As discussed above in section III.C.7, while 

the persons against whom claims are successfully 

asserted may perceive a subjective cost, the 

Commission does not find these costs relevant to 

the analysis. 

A number of commenters (CME, 

SIFMA AMG/MFA) have suggested that 

the Commission make it explicit that 

customer property should include the 

amounts of its own funds a debtor DCO 

had committed as part of its loss 

allocation rules. The Commission has 

accepted this suggestion in the final 

rule, incorporating this provision in 

§ 190.18(b)(1)(iv). This will benefit 

customers, who will have additional 

funds allocated to their claims, thereby 

increasing the payment that they receive 

on their claims and/or increasing the 

likelihood of full payment of their 

claims (due to an increase in customer 

property). However, this benefit would 

accrue at the possible expense of general 

creditors, as there will be an equivalent 

reduction in assets in the general estate. 

An indirect consequence of this change 

might be to marginally incentivize 

customers to retain open positions in 

contracts that are cleared by a 

potentially-failing DCO, which might 

marginally contribute to preserving 

liquidity in those markets. 

Regulation § 190.18(b)(2) adopts by 

reference, in the context of a DCO as a 

debtor, the exclusions from customer 

property applied in the context of 

debtor FCMs in § 190.09(a)(2), as if the 

term debtor used therein would refer to 

a clearing organization as debtor and to 

the extent relevant to a clearing 

organization.299

Regulation § 190.18(c) sets forth the 

allocation of customer property among 

customer classes (i.e., allocation 

between (1) customer property other 

than member property, and (2) member 

property). This provision, in general, 

applies the principle, consistent with 

the Commission’s policy to favor public 

customers over non-public customers, 

that allocation to customer property 

other than member property is favored 

over allocation to member property, so 

long as the funded balance in any 

account class for members’ public 

customers is less than one hundred 

percent of net equity claims. This 

provision would, in the event and at the 

time it applied, benefit the public 

customers of the debtor’s clearing 

members, since it makes clear that 

allocation to such customers is preferred 

over allocation to the clearing members’ 

house accounts. It imposes 

corresponding costs on the debtor’s 

clearing members and affiliates to the 

extent that, under the current regime, 

there is a possibility that more customer 

property would be allocated to their 

house accounts. Overall, this provision 

provides the benefit of ex ante 

transparency to the estate, the debtor’s 

clearing members, and their customers, 

who would know during business-asusual how customer property would be 

allocated in the event of a bankruptcy. 

However, the ABA Subcommittee, 

CME, FIA, and ICE objected to proposed 

§ 190.18(c)(1), which would apply the 

debtor’s mutualized (and, in general, 

member-funded) default fund to 

customer property other than member 

property, that is, to the customer class 

for members’ public customers, to the 

extent the funded balance is less than 

one hundred percent for members’ 

public customers in any account class. 

CME raised a particularly trenchant 

point: Devoting member-funded 

guarantee funds to purposes other than 

mutualizing member defaults may result 

in more onerous capital treatment for 

the contributions of bank- or bankaffiliated-members to such funds, 

increasing the capital charges for such 

exposures manifold.300

As noted, the costs and benefits 

discussed above will only accrue if 

there is both a clearing organization 

bankruptcy and a shortfall in customer 

funds in one or more of the account 

classes for members’ public customers 

for that clearing organization in that 

bankruptcy. The costs and benefits at 

that potential future time would be 

balanced, in that the costs to clearing 

members (whose guarantee funds were 

devoted to claims of the clearing 

members’ customers) would be benefits 

to those customers. By contrast, less 

favorable capital treatment would have 

a present-day effect, in the form of 

higher capital costs for clearing 

members. Moreover, those higher costs 

would not create any direct benefit 

(present day or otherwise) for, e.g., 

customers. In light of these factors, the 

Commission has decided not to adopt 

proposed § 190.18(c)(1) and to renumber 

the remaining paragraphs of § 190.18(c). 

Section 190.18(d) sets forth the 

allocation of customer property among 

account classes. This provision is 

similar in concept to § 190.09(c). This 

provision will benefit clearing members 

and their customers, who will have 

increased transparency, ex ante, into 

how customer property will be 

allocated. Prescribing this allocation 

will, however, impose administrative 

costs, because the trustee will lose some 

amount of flexibility in terms of how to 

allocate customer property between 

account classes. 

Section 190.18(e) provides that, where 

the debtor has, prior to the order for 

relief, kept initial margin for house 

accounts in accounts without separation 

by account class, then member property 

will be considered to be in a single 

account class.301 This provision will 

benefit the estate in those cases, because 

the trustee will not be put to the 

considerable task of separating in 

bankruptcy that which was treated as a 

single account during business-as-usual. 

Paragraph (e) will also benefit the 

debtor’s clearing members, who will 

have increased transparency as to how 

their member property will be treated. 

Section 190.18(f) gives the trustee the 

authority to assert claims against any 

person to recover the shortfall of 

customer property enumerated in 

certain paragraphs elsewhere in 

§ 190.18, analogous to § 190.09(a)(3). 

This provision could impose 

administrative costs, since the trustee 

will need to expend time and resources 

to assert claims to make up for any 

shortfall in customer property. The 

provision will, however, benefit 

customers, since it will support the 

trustee’s efforts to recover any such 

shortfalls by giving the trustee authority 

to act to do so. Moreover, since this 

provision will make explicit what is 

implicit in current part 190, an 

additional benefit of this provision is a 

reduction in potential litigation costs 

over a trustee’s attempts to recover 

shortfalls in customer property.302

9. Regulation § 190.19: Support of Daily 

Settlement: Consideration of Costs and 

Benefits 

Section 190.19 deals with the 

treatment of variation settlement in a 

clearing organization bankruptcy, and 

sets forth the approach for the trustee to 

follow when there is a shortfall in 

variation settlement owed to a debtor 

clearing organization’s clearing 

members and customers. Specifically, 

§ 190.19(a) provides that any variation 

settlement payments received by the 

clearing organization after entry of an 

order for relief shall be included in 

customer property, and shall promptly 

be distributed to the member and 

customer accounts entitled to such 

payments. Section 190.19(b) deals with 

a situation where there is a shortfall in 


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variation settlement received by the 

clearing organization, and provides that 

such funds shall be supplemented with 

four specified categories of funds 

(margin, to the extent permissible under 

parts 1, 22, and 30, assets of the debtor, 

to the extent dedicated to such purpose, 

prefunded guarantee funds, and 

assessments) in accordance with the 

clearing organization’s default rules and 

procedures and (with respect to assets of 

the debtor) any recovery and winddown plans maintained by the clearing 

organization. 

Section 190.19 will benefit clearing 

members and their customers because it 

will ensure that any variation settlement 

received by the clearing organization 

will be sent to those member and 

customer accounts that would be 

entitled to payment of variation 

settlement, and that the trustee would 

be able to supplement any shortfall in 

variation settlement amounts with the 

property listed in proposed § 190.19(b). 

This approach will also benefit the 

financial system more broadly, by 

mitigating the effect of the bankruptcy 

of the debtor on settlement payments. 

There will be corresponding costs to 

general creditors of the clearing 

organization since, under current part 

190, it is conceivable that, contrary to 

the Commission’s interpretation of the 

current rules, variation settlement 

received by the clearing organization 

could be diverted to the pool of general 

creditors rather than becoming customer 

property (even though such diversion 

would be contrary to the expectations of 

both the Commission and the industry). 

In clarifying how variation settlement 

received by the clearing organization is 

to be treated by the bankruptcy trustee, 

§ 190.19 will also benefit clearing 

members and their customers by 

providing enhanced transparency. 

10. Section 15(a) Factors—Subpart C 

i. Protection of Market Participants and 

the Public 

Subpart C of the part 190 regulations 

will increase the protection of market 

participants and the public by setting 

forth a bespoke framework for how the 

bankruptcy trustee is expected to treat 

the property of DCO clearing members 

and their customers in the event of a 

DCO insolvency, thereby promoting ex 

ante transparency for such clearing 

members and customers, and by 

providing, in certain provisions, 

discretion to the trustee in determining 

how best to address the bankruptcy of 

the DCO, and to achieve the goal of 

protecting public customers as a class. 

Moreover, the addition in part 190 of 

bespoke bankruptcy rules for a DCO 

bankruptcy will provide better 

protections to market participants by 

accounting for the unique position of 

clearing members (and the customers of 

such clearing member) of a DCO that is 

going through an insolvency 

proceeding. Finally, provisions such as 

§ 190.18(c), which preferentially 

allocate excess property in any account 

class to the customer class that benefits 

public customers, to the extent there is 

a shortfall in any account class in that 

customer class, will further protect 

public customers. 

ii. Efficiency, Competitiveness, and 

Financial Integrity 

Subpart C of the part 190 regulations 

will promote efficiency (in the sense of 

both cost effectiveness and timeliness) 

in the administration of insolvency 

proceedings of DCOs, and the financial 

integrity of transactions cleared by 

DCOs by setting forth clear instructions 

for a bankruptcy trustee to follow in the 

event of a DCO insolvency. Moreover, 

subpart C will provide the bankruptcy 

trustee with discretion, in certain 

circumstances, to react flexibly to the 

particulars of the insolvency 

proceeding, guided by the goal of 

protecting public customers as a class, 

thereby promoting efficiency of the 

administration of the proceeding. These 

effects will, in turn, enhance the 

competitiveness of U.S. DCOs and their 

FCM clearing members, by enhancing 

market confidence in the protection of 

customer funds and positions entrusted 

to U.S. DCOs through their clearing 

members, even in the case of 

insolvency. 

iii. Price Discovery 

Price discovery is the process of 

determining the price level for an asset 

through the interaction of buyers and 

sellers and based on supply and 

demand conditions. Because a DCO 

bankruptcy inevitably leads to full 

close-out of the positions carried at the 

DCO, the part 190 regulations will not 

contribute to avoiding the resultant 

negative impacts on price discovery. 

iv. Sound Risk Management Practices 

Subpart C of the part 190 regulations 

will promote sound risk management 

practices by facilitating the bankruptcy 

trustee’s efforts to manage effectively 

the risk of the debtor DCO. Subpart C 

will accomplish this by adding 

bankruptcy regulations to part 190 for a 

DCO insolvency that reflect current 

market practices and thereby make it 

easier for the trustee to act effectively to 

protect customer property in the event 

of such an insolvency. Moreover, 

subpart C will promote sound risk 

management practices by instructing a 

bankruptcy trustee to implement the 

debtor DCO’s default rules and 

procedures and to take actions in 

accordance with the debtor DCO’s 

recovery and wind-down plans, which 

rules, procedures and plans are 

developed and overseen by the 

Commission, though subject to the 

trustee’s discretion. Some portions of 

subpart C may make additional 

resources available to the trustee. On the 

other hand, some commenters expressed 

concern about changes (such as 

§ 190.15) that they believe might lead to 

inappropriate risk management choices 

by DCOs. 

v. Other Public Interest Considerations 

By favoring the implementation of the 

clearing organization’s default rules, 

recovery plans, and procedures 

established ex ante under the 

supervision of the Commission, and by 

supporting daily settlement, the part 

190 regulations will support financial 

stability. Moreover, some of the DCOs 

that might enter bankruptcy are very 

large financial institutions, and some 

are considered to be systematically 

important. An effective bankruptcy 

process that efficiently facilitates the 

proceedings is likely to benefit the 

financial system (and thus the public 

interest), as that process will help to 

attenuate the detrimental effects of the 

bankruptcy on the financial network. 

E. Changes to Appendices A and B 

The Commission is deleting forms 1 

through 3 contained in appendix A, 

which contain outdated provisions that 

require the collection of unnecessary 

information, and is replacing form 4 

with a streamlined template proof of 

claim form, which the trustee can use in 

a flexible manner. CME considered the 

template proof of claim ‘‘a major 

improvement’’ over the current version. 

These changes have the benefit of 

reducing administrative costs, and there 

are no obvious increased costs. 

Similarly, the Commission is making 

clarifying changes to framework 1 of 

appendix B, and making, consistent 

with the suggestions of the ABA 

Subcommittee and the Subcommittee 

Members, a significant set of clarifying 

changes to framework 2. These changes 

have the benefit of having framework 2 

work in a more accurate, and less 

confusing manner, thus reducing 

administrative costs, and there are no 

obvious increased costs. 

F. Technical Corrections to Parts 1, 4, 

and 41 

The Commission is making technical 

corrections to parts 1, 4, and 41 to 


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303Section 15(b) of the CEA, 7 U.S.C. 19(b). 

304 5 U.S.C. 601 et seq. 

305 47 FR 18618 (Apr. 30, 1982). 

306See 66 FR 45604, 45609 (Aug. 29, 2001); 67 

FR 53146, 53171 (Aug. 14, 2002). 

307 44 U.S.C. 3501 et seq. 

308There are two information collections 

associated with OMB Control No. 3038–0021. The 

first includes the reporting, recordkeeping, and 

third-party disclosure requirements applicable to a 

single respondent in a commodity broker 

liquidation (e.g., a single FCM, DCO, or trustee) 

within the relevant time period. This includes both 

(1) requirements on a single FCM or a single trustee 

in an FCM bankruptcy which correspond to current 

requirements on a single FCM or a single trustee in 

an FCM bankruptcy, as provided for in 

§§ 190.03(b)(1) and (2) and (c)(1), (2), and (4), 

190.05(b) and (d), and 190.07(b)(5); and (2) new 

requirements on a single DCO or a single trustee in 

a DCO bankruptcy as provided for in 

§§ 190.12(a)(2), (b)(1) and (2), and (c)(1) and (2) and 

190.14(a) and (d). The second information 

collection includes the third-party disclosure 

requirements that are applicable during business as 

usual to multiple respondents (e.g., multiple FCMs). 

These requirements were proposed as § 190.10(b) 

and (e) (which are analogs to current §§ 190.06(d) 

and 190.10(c)), as well as a new third-party 

disclosure requirement provided for in § 190.10(d) 

(regarding letters of credit); however, the third-party 

disclosure requirements are being adopted as 

§§ 1.41, 1.43, and 1.55(p). 

309 11 U.S.C. 761 et seq. 

310These estimates express the burdens in terms 

of those that would be imposed on one respondent 

during the three-year period. 

311The Commission estimates that (1) under 

§ 190.03(b)(1), an FCM would make two 

notifications per bankruptcy (one to the 

Commission and one to its DSRO), and (2) under 

§ 190.03(b)(2), an FCM would make one notification 

per bankruptcy. Dividing those numbers by three 

(since the Commission anticipates an FCM 

bankruptcy occurring once every three years) 

results in 0.67 notifications annually pursuant to 

update cross-references. These 

corrections are clarifying and do not 

have any impact on the substantive 

obligations related to these sections. 

Thus, there are no increased costs 

associated with these minor technical 

updates. 

IV. Related Matters 

A. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the CEA in 

issuing any order or adopting any 

Commission rule or regulation.303

The Commission believes that the 

public interest to be protected by the 

antitrust laws is the promotion of 

competition. The Commission has 

considered this rulemaking to determine 

whether it might have anticompetitive 

effects, and has not identified any effect 

this rulemaking, which would apply 

only in the rare instance of an FCM or 

DCO bankruptcy, would have on 

competition. Accordingly, the 

Commission has not identified any less 

anticompetitive means of achieving the 

purposes of the CEA. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the regulations they propose 

will have a significant economic impact 

on a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis on the impact.304

The regulations being adopted by the 

Commission affect clearing 

organizations, FCMs, bankruptcy 

trustees, and customers. The 

Commission has previously established 

certain definitions of ‘‘small entities’’ to 

be used in evaluating the impact of its 

regulations in accordance with the 

RFA.305

The Commission has previously 

determined that clearing organizations 

and FCMs are not small entities for 

purposes of the RFA.306 In the event of 

a bankruptcy, a trustee is appointed as 

receiver to manage the estate of the 

insolvent FCM or clearing organization. 

Accordingly, since the trustee is 

representing the estate of either an FCM 

or clearing organization, the trustee is 

not a small entity for purposes of the 

RFA. The Commission recognizes that 

many customers of an FCM or DCO in 

bankruptcy could be considered to be 

small entities for purposes of the RFA. 

The Commission believes, however, that 

the amendments to part 190 are 

designed so that they can be 

implemented without imposing a 

significant economic burden on a 

substantial number of small entities. 

These regulations take into account 

existing trading practices and the 

logistical considerations of 

implementing the regulations. 

Accordingly, the Commission 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b), that the rule adopted herein will 

not have a significant economic impact 

on a substantial number of small 

entities. 

C. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 307 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring a collection of 

information as defined by the PRA. The 

regulations adopted herein would result 

in such a collection, as discussed below. 

A person is not required to respond to 

a collection of information unless it 

displays a currently valid control 

number issued by the Office of 

Management and Budget (OMB). The 

regulations include a collection of 

information for which the Commission 

has previously received control 

numbers from OMB. The title of this 

collection of information is: OMB 

Control Number 3038–0021, 

‘‘Regulations Governing Bankruptcies of 

Commodity Brokers.’’ 

Information Collection 3038–0021 308

contains the reporting, recordkeeping 

and third-party disclosure requirements 

in the Commission’s bankruptcy 

regulations for commodity broker 

liquidations (17 CFR part 190). These 

regulations apply to liquidations under 

chapter 7, subchapter IV of the 

Bankruptcy Code.309 The Commission 

promulgated part 190 pursuant to the 

authority of 7 U.S.C. 24. The 

Commission is amending Information 

Collection 3038–0021 as a result of 

these final regulations to (1) 

accommodate new information 

collection requirements for FCMs and 

DCOs, and (2) revise the existing 

information collection requirements for 

FCMs and DCOs. The Commission did 

not receive any comments regarding its 

PRA burden analysis in the preamble to 

the proposal. 

1. Reporting Requirements in an FCM 

Bankruptcy 

Regulation § 190.03(b)(1) requires 

FCMs that file a petition in bankruptcy 

to notify the Commission and the 

relevant DSRO, as soon as practicable 

before and in any event no later than the 

time of such filing, of the anticipated or 

actual filing date, the court in which the 

proceeding will be or has been filed 

and, as soon as known, the docket 

number assigned to that proceeding. It 

further requires an FCM against which 

an involuntary bankruptcy petition or 

application for a protective decree 

under SIPA is filed to notify the 

Commission and the relevant DSRO 

immediately upon the filing of such 

petition or application. 

Regulation § 190.03(b)(2) requires the 

trustee, the relevant DSRO, or an 

applicable clearing organization to 

notify the Commission if such person 

intends to transfer or apply to transfer 

open commodity contracts or customer 

property on behalf of the public 

customers of the debtor. 

Based on its experience, the 

Commission anticipates that an FCM 

bankruptcy would occur once every 

three years.310 The Commission has 

estimated the burden hours for the 

reporting requirements in an FCM 

bankruptcy as follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 1.311


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§ 190.03(b)(1), and 0.33 notifications annually 

pursuant to § 190.03(b)(2), for a total of one 

notification annually per respondent. 

312The Commission estimates that (1) the 

notifications required under § 190.03(b)(1) would 

take 0.5 hours to make, and (2) the notification 

required under § 190.03(b)(2) would take 2 hours to 

make. In terms of burden hours, this amounts to 

(0.5*0.67 under § 190.03(b)(1)) plus (2*0.33 under 

§ 190.03(b)(2)), or a total of one burden hour 

annually per respondent. 

313These estimates express the burdens in terms 

of those that would be imposed on one respondent 

during the three-year period. 

314The Commission estimates that (1) under 

§ 190.05(b), a trustee would compute a funded 

balance for customer accounts 40,000 times; and (2) 

under § 190.05(d), a trustee would issue 40,000 

account statements for customer accounts. Dividing 

those numbers by three (since the Commission 

anticipates an FCM bankruptcy occurring once 

every three years) results in 13,333.33 records 

annually pursuant to § 190.05(b), and 13,333.33 

records annually pursuant to § 190.05(d), for a total 

of 26,666.67 records annually per respondent. 

315The Commission estimates that each record 

required under § 190.05(b) and 190.05(d) would 

take 0.01 hours to prepare. In terms of burden 

hours, this amounts to (0.01*13,333.33 under 

§ 190.05(b)) plus (0.01*13,333.33 under 

§ 190.05(d)), or a total of 266.67 burden hours 

annually per respondent. 

316The Commission no longer assigns burden 

hours to the discretionary notice that a trustee may 

provide to customers in an involuntary FCM 

bankruptcy proceeding pursuant to § 190.03(c)(3). 

There have been no involuntary FCM liquidations 

and none are anticipated. Accordingly, continuing 

to assign burden hours to this voluntary 

requirement would inappropriately inflate the 

burden hours of this information collection. 

317These estimates express the burdens in terms 

of those that would be imposed on one respondent 

during the three-year period. 

318The Commission estimates that a trustee 

would make the required disclosures under each of 

§ 190.03(c)(1), (2), and (4) 10,000 times per 

bankruptcy. Dividing those numbers by three (since 

the Commission anticipates an FCM bankruptcy 

occurring once every three years) results in 3,333.33 

disclosures annually pursuant to each of 

§ 190.03(c)(1), (2), and (4). The Commission further 

estimates that a trustee would make the required 

disclosure under § 190.07(b)(5) 10 times per 

bankruptcy. Dividing this number by three results 

in 3.33 disclosures annually pursuant to 

§ 190.07(b)(5). This amounts to a total of 10,003.32 

disclosures annually per respondent. 

319The Commission estimates that (1) each 

disclosure required under § 190.03(c)(1) and (2) and 

(b) would take 0.1 hours to prepare; (2) each 

disclosure required under § 190.03(c)(4) would take 

0.2 hours to prepare; and (3) each disclosure 

required under § 190.07(b)(5) would take 1 hour to 

prepare. In terms of burden hours, this amounts to 

(0.1*3,333.33 under § 190.03(c)(1)) plus 

(0.1*3,333.33 under § 190.03(c)(2)) plus 

(0.2*3,333.33 under § 190.03(c)(4)) plus (1*3.33 

under § 190.07(b)(5)), or a total of 1336.66 burden 

hours annually per respondent. 

Estimated total annual number of 

responses for all respondents: 1. 

Estimated annual number of burden 

hours per respondent: 1.312

Estimated total annual burden hours 

for all respondents: 1. 

2. Recordkeeping Requirements in an 

FCM Bankruptcy 

Regulation § 190.05(b) requires the 

trustee to use reasonable efforts to 

compute a funded balance for each 

customer account that contains open 

commodity contracts or other property 

as of the close of business each business 

day subsequent to the order for relief 

until the date all open commodity 

contracts and other property in such 

account has been transferred or 

liquidated. 

Regulation § 190.05(d) requires the 

trustee to use reasonable efforts to 

continue to issue account statements 

with respect to any customer for whose 

account open commodity contracts or 

other property is held that has not been 

liquidated or transferred. 

Based on its experience, the 

Commission anticipates that an FCM 

bankruptcy would occur once every 

three years.313 The Commission has 

estimated the burden hours for the 

recordkeeping requirements in an FCM 

bankruptcy as follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 26,666.67.314

Estimated total annual number of 

responses for all respondents: 26,666.67. 

Estimated annual number of burden 

hours per respondent: 266.67.315

Estimated total annual burden hours 

for all respondents: 266.67. 

3. Third-Party Disclosure Requirements 

Applicable to a Single Respondent in an 

FCM Bankruptcy 

Regulation § 190.03(c)(1) requires the 

trustee to use all reasonable efforts to 

promptly notify any customer whose 

futures account, foreign futures account, 

or cleared swaps account includes 

specifically identifiable property, and 

that such specifically identifiable 

property may be liquidated on and after 

the seventh day after the order for relief 

if the customer has not instructed the 

trustee in writing before the deadline 

specified in the notice to return such 

property pursuant to the terms for 

distribution of customer property 

contained in part 190. 

Regulation § 190.03(c)(2) allows the 

trustee to treat open commodity 

contracts of public customers identified 

on the books and records of the debtor 

has held in an account designated as a 

hedging account as specifically 

identifiable property of such 

customer.316

Regulation § 190.03(c)(4) requires the 

trustee to promptly notify each 

customer that an order for relief has 

been entered and instruct each customer 

to file a proof of customer claim 

containing the information specified in 

§ 190.03(e). 

Regulation § 190.07(b)(5) requires the 

trustee, in the event that specifically 

identifiable property has been or will be 

transferred, to transmit any customer 

instructions previously received by the 

trustee with respect to such specifically 

identifiable property to the transferee of 

such property. 

Based on its experience, the 

Commission anticipates that an FCM 

bankruptcy would occur once every 

three years.317 The Commission has 

estimated the burden hours for the 

third-party disclosure requirements 

applicable to a single respondent in an 

FCM bankruptcy as follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 10,003.32.318

Estimated total annual number of 

responses for all respondents: 10,003.32. 

Estimated annual number of burden 

hours per respondent: 1,336.67.319

Estimated total annual burden hours 

for all respondents: 1,336.67. 

4. Reporting Requirements in a 

Derivatives Clearing Organization (DCO) 

Bankruptcy 

Regulation § 190.12(a)(2) requires a 

clearing organization that files a petition 

in bankruptcy to notify the Commission, 

at or before the time of such filing, of 

the filing date, the court in which the 

proceeding will be or has been filed 

and, as soon as known, the docket 

number assigned to that proceeding. It 

further requires a clearing organization 

against which an involuntary 

bankruptcy petition is filed to similarly 

notify the Commission within three 

hours after the receipt of notice of such 

filing. 

Regulation § 190.12(b)(1) requires the 

debtor clearing organization to provide 

to the trustee, no later than three hours 

following the later of the 

commencement of a bankruptcy 

proceeding or the appointment of the 

trustee, copies of each of the most recent 

reports that the debtor was required to 

file with the Commission under 

§ 39.19(c). 

Regulation § 190.12(b)(2) requires the 

debtor clearing organization to provide 

to the trustee and the Commission, no 

later than three hours following the 

commencement of a bankruptcy 

proceeding, copies of (1) the most recent 

recovery or wind-down plans of the 

debtor maintained pursuant to 

§ 39.39(b), and (2) the most recent 

version of the debtor’s default 

management plan and default rules and 

procedures maintained pursuant to 

§ 39.16 and, as applicable, § 39.35. 

Regulations § 190.12(c)(1) and (2) 

require the debtor clearing organization 


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320No U.S. clearing organization has ever been 

the subject of a bankruptcy proceeding, and none 

has come anywhere near insolvency. While there 

have been less than a handful of central 

counterparties worldwide that became functionally 

insolvent during the twentieth century, none of 

those were subject to modern resiliency 

requirements. Accordingly, the Commission 

believes that an estimate of one DCO bankruptcy 

every fifty years is an appropriate estimate. These 

burden estimates express the burdens in terms of 

those that would be imposed on one respondent 

during the fifty-year period. 

321The Commission estimates that (1) under 

§ 190.12(a)(2), a clearing organization would make 

two notifications per bankruptcy; (2) under 

§ 190.12(b)(1), a clearing organization would 

provide 40 reports to the trustee; (3) under 

§ 190.12(b)(2), a clearing organization would 

provide 5 reports to the trustee and the 

Commission; (4) under § 190.12(c)(1), a clearing 

organization would provide 100 records to the 

trustee and the Commission; and (5) under 

§ 190.12(c)(2), a clearing organization would 

provide 2 records to the trustee and the 

Commission. Dividing those numbers by 50 (since 

the Commission anticipates a clearing organization 

bankruptcy occurring once every 50 years) results 

in (1) 0.04 reports annually pursuant to 

§ 190.12(a)(2); (2) 0.8 reports annually pursuant to 

§ 190.12(b)(1); (3) 0.1 reports annually pursuant to 

§ 190.12(b)(2); (4) 2 reports annually pursuant to 

§ 190.12(c)(1); and (5) 0.04 reports annually 

pursuant to § 190.12(c)(2), for a total of 2.98 reports 

annually per respondent. 

322The Commission estimates that (1) each 

notification required under § 190.12(a)(2) and (d)(2) 

would take 0.5 hours to make; (2) gathering the 

reports required under § 190.12(b)(1) would take 0.2 

hours; (3) gathering the reports required under 

§ 190.12(b)(2) would take 0.2 hours; (4) gathering 

the reports required under § 190.12(c)(1) would take 

0.2 hours; and (5) gathering the reports required 

under § 190.12(c)(2) would take 0.2 hours. In terms 

of burden hours, this amounts to (0.5*0.04 under 

§ 190.12(a)(2)) plus (0.2*0.8 under § 190.12(b)(1)) 

plus (0.2*0.1 under § 190.12(b)(2)) plus (0.2*2 

under § 190.12(c)(1)) plus (0.2*0.04 under 

§ 190.12(c)(2)), or a total of 0.61 burden hours 

annually per respondent. 

323These estimates express the burdens in terms 

of those that would be imposed on one respondent 

during the fifty-year period. 

324The Commission estimates that, under 

§ 190.14(d), a clearing organization would compute 

a funded balance for customer accounts 450 times 

during a bankruptcy. This number is based on an 

average of 45 clearing members, each with two 

accounts (house and customer). Dividing that 

number by 50 (since the Commission anticipates a 

clearing organization bankruptcy occurring once 

every 50 years) results in 9 records annually per 

respondent. 

325The Commission estimates that computing the 

funded balance of customer accounts pursuant to 

§ 190.14(d) would take 0.1 hours per computation. 

In terms of burden hours, this amounts to (0.1*9), 

or 0.9 burden hours annually per respondent. 

326These estimates express the burdens in terms 

of those that would be imposed on one respondent 

during the fifty-year period. 

327The Commission estimates that, under 

§ 190.14(a), a trustee would make the disclosure 45 

times during a bankruptcy. This number is based 

on an average of 45 clearing members. Dividing that 

number by 50 (since the Commission anticipates a 

clearing organization bankruptcy occurring once 

every 50 years) results in 0.9 records annually per 

respondent. 

328The Commission estimates that instructing 

customers to file a proof of claim pursuant to 

§ 190.14(a) would take 0.2 hours. In terms of burden 

hours, this amounts to (0.2*0.9), or 0.18 burden 

hours annually per respondent. 

329The Commission estimates that under §§ 1.41, 

1.43, and 1.55(p), an FCM would make the required 

to make available to the trustee and the 

Commission, no later than the next 

business day following commencement 

of a bankruptcy proceeding, copies of 

(1) all records maintained by the debtor 

pursuant to § 39.20(a), and (2) any 

opinions of counsel or other legal 

memoranda provided to the debtor in 

the five years preceding the bankruptcy 

proceeding relating to the enforceability 

of the rules and procedures of the debtor 

in the event of an insolvency proceeding 

involving the debtor. 

Based on its experience, the 

Commission anticipates that a clearing 

organization bankruptcy would occur 

once every fifty years.320 The 

Commission has estimated the burden 

hours for the reporting requirements in 

a DCO bankruptcy as follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 2.98.321

Estimated total annual number of 

responses for all respondents: 2.98. 

Estimated annual number of burden 

hours per respondent: 0.61.322

Estimated total annual burden hours 

for all respondents: 0.61. 

5. Recordkeeping Requirements in a 

DCO Bankruptcy 

Regulation § 190.14(d) requires the 

trustee to use reasonable efforts to 

compute a funded balance for each 

customer account that contains open 

commodity contracts or other property 

as of the close of business each business 

day subsequent to the order for relief on 

which liquidation of property within 

the account has been completed or 

immediately prior to any distribution of 

property within the account. 

Based on its experience, the 

Commission anticipates that a clearing 

organization bankruptcy would occur 

once every fifty years.323 The 

Commission has estimated the burden 

hours for the recordkeeping 

requirements in a DCO bankruptcy as 

follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 9.324

Estimated total annual number of 

responses for all respondents: 9. 

Estimated annual number of burden 

hours per respondent: 0.9.325

Estimated total annual burden hours 

for all respondents: 0.9. 

6. Third-Party Disclosure Requirements 

Applicable to a Single Respondent in a 

DCO Bankruptcy 

Regulation § 190.14(a) allows the 

trustee, in their discretion based upon 

the facts and circumstances of the case, 

to instruct each customer to file a proof 

of claim containing such information as 

is deemed appropriate by the trustee, 

and seek a court order establishing a bar 

date for the filing of such proofs of 

claim. 

Based on its experience, the 

Commission anticipates that a clearing 

organization bankruptcy would occur 

once every fifty years.326 The 

Commission has estimated the burden 

hours for the third-party disclosure 

requirements applicable to a single 

respondent in a DCO bankruptcy as 

follows: 

Estimated number of respondents: 1. 

Estimated annual number of 

responses per respondent: 0.9.327

Estimated total annual number of 

responses for all respondents: 0.9. 

Estimated annual number of burden 

hours per respondent: 0.18.328

Estimated total annual burden hours 

for all respondents: 0.18. 

7. Third-Party Disclosure Requirements 

Applicable to Multiple Respondents 

During Business as Usual 

As discussed in Section II.B.8 above, 

the Commission is codifying the 

provisions proposed as § 190.10(b), (d), 

and (e) in part 1, along with other 

regulations that pertain to an FCM’s 

business as usual. Regulation § 1.41, 

which was proposed as § 190.10(b), 

requires an FCM to provide an 

opportunity to each of its customers, 

upon first opening a futures account or 

cleared swaps account with such FCM, 

to designate such account as a hedging 

account. 

Regulation § 1.43, which was 

proposed as § 190.10(d), prohibits an 

FCM from accepting a letter of credit as 

collateral unless such letter of credit 

may be exercised under certain 

conditions specified in the regulation. 

Regulation § 1.55(p), which was 

proposed as § 190.10(e), requires an 

FCM to provide any customer with the 

disclosure statement set forth in 

§ 1.55(p) prior to accepting property 

other than cash from or for the account 

of a customer to margin, guarantee, or 

secure a commodity contract. 

The requirements described above are 

applicable on a regular basis (i.e., during 

business as usual) to multiple 

respondents. The Commission has 

estimated the burden hours for the 

third-party disclosure requirements 

applicable to multiple respondents 

during business as usual as follows: 

Estimated number of respondents: 

125. 

Estimated annual number of 

responses per respondent: 3,000.329


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disclosures 1,000 times per year. This amounts to 

a total of 3,000 responses annually per respondent. 

330The Commission estimates that each 

disclosure required under §§ 1.41, 1.43, and 1.55(p) 

would take 0.02 hours to make. In terms of burden 

hours, this amounts to (0.02*1,000 under § 1.41) 

plus (0.02*1,000 under § 1.43 plus (0.02*1,000 

under § 1.55(p)), or 60 burden hours annually per 

respondent. 

Estimated total annual number of 

responses for all respondents: 375,000. 

Estimated annual number of burden 

hours per respondent: 60.330

Estimated total annual burden hours 

for all respondents: 7,500. 

List of Subjects 

17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

17 CFR Part 4 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

17 CFR Part 41 

Brokers, Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 190 

Bankruptcy, Brokers, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

chapter I 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. In § 1.25, revise paragraph 

(a)(2)(ii)(B) to read as follows: 

§ 1.25 Investment of customer funds. 

(a) * * * 

(2) * * * 

(ii) * * * 

(B) Securities subject to such 

repurchase agreements must not be 

‘‘specifically identifiable property’’ as 

defined in § 190.01 of this chapter. 

* * * * * 

■ 3. Add § 1.41 to read as follows: 

§ 1.41 Designation of hedging accounts. 

(a) A futures commission merchant 

must provide an opportunity to each 

customer, when it first opens a futures 

account, foreign futures account or 

cleared swaps account with such futures 

commission merchant, to designate such 

account as a hedging account. The 

futures commission merchant must 

indicate prominently in the accounting 

records in which it maintains open 

trade balances whether, for each 

customer account, the account is 

designated as a hedging account. 

(b) A futures commission merchant 

may permit the customer to open an 

account as a hedging account only if it 

obtains the customer’s written 

representation that the customer’s 

trading of futures or options on futures, 

foreign futures or options on foreign 

futures, or cleared swaps (as applicable) 

in the account constitutes hedging as 

such term may be defined under any 

relevant Commission regulation or rule 

of any clearing organization, designated 

contract market, swap execution facility 

or foreign board of trade. 

(c) The requirements set forth in 

paragraphs (a) and (b) of this section do 

not apply to a futures commission 

merchant with respect to any 

commodity contract account that the 

futures commission merchant opened 

prior to May 13, 2021. The futures 

commission merchant may continue to 

designate as a hedging account any 

account with respect to which the 

futures commission merchant received 

written hedging instructions from the 

customer in accordance with former 

§ 190.06(d) of this chapter. 

(d) A futures commission merchant 

may designate an existing futures 

account, foreign futures account or 

cleared swaps account of a particular 

customer as a hedging account, 

provided that it has obtained the 

representation set out in paragraph (b) 

of this section from such customer. 

■ 4. Add § 1.42 to read as follows: 

§ 1.42 Delivery accounts. 

In connection with the making or 

taking of delivery of a commodity under 

a commodity contract whose terms 

require settlement via physical delivery, 

if a futures commission merchant 

facilitates or effects the transfer of the 

physical delivery property and payment 

therefor on behalf of the customer, and 

does so outside the futures account, 

foreign futures account or cleared swaps 

account in which the commodity 

contract was held, the futures 

commission merchant must do so in a 

delivery account, provided, however, 

that when the commodity subject to 

delivery is a security, a futures 

commission merchant may, consistent 

with any applicable regulatory 

requirements, do so in a securities 

account. 

■ 5. Add § 1.43 to read as follows: 

§ 1.43 Letters of credit as collateral. 

A futures commission merchant shall 

not accept a letter of credit as collateral 

unless such letter of credit may be 

exercised, through its stated date of 

expiry, under the following conditions, 

regardless of whether the customer 

posting that letter of credit is in default 

in any obligation: 

(a) In the event that an order for relief 

under chapter 7 of the Bankruptcy Code 

or a protective decree pursuant to 

section 5(b)(1) of SIPA is entered with 

respect to the futures commission 

merchant, or if the FDIC is appointed as 

receiver for the futures commission 

merchant pursuant to 12 U.S.C. 5382(a), 

the trustee for that futures commission 

merchant (or, as applicable, FDIC) may 

draw upon such letter of credit, in full 

or in part, in accordance with 

§ 190.04(d)(3) of this chapter. 

(b) If the letter of credit is passed 

through to a clearing organization, then 

in the event that an order for relief 

under chapter 7 of the Bankruptcy Code 

is entered with respect to the clearing 

organization, or if the FDIC is appointed 

as receiver for the clearing organization 

pursuant to 12 U.S.C. 5382(a), the 

trustee for that clearing organization (or, 

as applicable, FDIC) may draw upon 

such letter of credit, in full or in part, 

in accordance with § 190.04(d)(3) of this 

chapter. 

(c) A futures commission merchant 

shall not accept a letter of credit from 

a customer as collateral if it has any 

agreement with the customer that is 

inconsistent with this section. 

■ 6. In § 1.55: 

■ a. Revise paragraphs (d) and (f); 

■ b. Remove the parenthetical control 

number sentence and parenthetical 

authority citation following paragraph 

(h); 

■ c. Remove the paragraph (k) heading; 

and 

■ d. Add paragraph (p). 

The revision and addition read as 

follows: 

§ 1.55 Public disclosures by futures 

commission merchants. 

* * * * * 

(d) Any futures commission 

merchant, or (in the case of an 

introduced account) any introducing 

broker, may open a commodity futures 

account for a customer without 

obtaining the separate acknowledgments 

of disclosure and elections required by 

this section and by §§ 1.33(g) and 33.7 

of this chapter, provided that: 

(1) Prior to the opening of such 

account, the futures commission 

merchant or introducing broker obtains 

an acknowledgement from the customer, 

which may consist of a single signature 


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at the end of the futures commission 

merchant’s or introducing broker’s 

customer account agreement, or on a 

separate page, of the disclosure 

statements, consents, and elections 

specified in this section and § 1.33(g), 

and in §§ 33.7, 155.3(b)(2), and 

155.4(b)(2) of this chapter, and which 

may include authorization for the 

transfer of funds from a segregated 

customer account to another account of 

such customer, as listed directly above 

the signature line, provided the 

customer has acknowledged by check or 

other indication next to a description of 

each specified disclosure statement, 

consent, or election that the customer 

has received and understood such 

disclosure statement or made such 

consent or election; and 

(2) The acknowledgment referred to in 

paragraph (d)(1) of this section is 

accompanied by and executed 

contemporaneously with delivery of the 

disclosures and elective provisions 

required by this section and § 1.33(g), 

and by § 33.7 of this chapter. 

* * * * * 

(f) A futures commission merchant or, 

in the case of an introduced account, an 

introducing broker, may open a 

commodity futures account for an 

‘‘institutional customer’’ as defined in 

§ 1.3 without furnishing such 

institutional customer the disclosure 

statements or obtaining the 

acknowledgments required under 

paragraph (a) of this section, or 

§§ 1.33(g), 1.55(p), and 1.65(a)(3), and 

§§ 30.6(a), 33.7(a), 155.3(b)(2), and 

155.4(b)(2) of this chapter. 

* * * * * 

(p)(1) Except as provided in § 1.65, no 

commodity broker (other than a clearing 

organization) may accept property other 

than cash from or for the account of a 

customer, other than a customer 

specified in paragraph (f) of this section, 

to margin, guarantee, or secure a 

commodity contract unless the 

commodity broker first furnishes the 

customer with the disclosure statement 

set forth in paragraph (p)(2) of this 

section in boldface print in at least 10 

point type which may be provided as 

either a separate, written document or 

incorporated into the customer 

agreement, or with another statement 

approved under paragraph (c) of this 

section and set forth in appendix A to 

this section which the Commission 

finds satisfies the requirement of this 

paragraph (p)(1). 

(2) The disclosure statement required 

by paragraph (p)(1) of this section is as 

follows: 

THIS STATEMENT IS FURNISHED 

TO YOU BECAUSE REGULATION 

1.55(p) OF THE COMMODITY 

FUTURES TRADING COMMISSION 

REQUIRES IT FOR REASONS OF FAIR 

NOTICE UNRELATED TO THIS 

COMPANY’S CURRENT FINANCIAL 

CONDITION. 

1. YOU SHOULD KNOW THAT IN 

THE UNLIKELY EVENT OF THIS 

COMPANY’S BANKRUPTCY, 

PROPERTY, INCLUDING PROPERTY 

SPECIFICALLY TRACEABLE TO YOU, 

WILL BE RETURNED, TRANSFERRED 

OR DISTRIBUTED TO YOU, OR ON 

YOUR BEHALF, ONLY TO THE 

EXTENT OF YOUR PRO RATA SHARE 

OF ALL PROPERTY AVAILABLE FOR 

DISTRIBUTION TO CUSTOMERS. 

2. THE COMMISSION’S 

REGULATIONS CONCERNING 

BANKRUPTCIES OF COMMODITY 

BROKERS CAN BE FOUND AT 17 

CODE OF FEDERAL REGULATIONS 

PART 190. 

(3) The statement contained in 

paragraph (p)(2) of this section need be 

furnished only once to each customer to 

whom it is required to be furnished by 

this section. 

■ 7. In § 1.65, revise paragraphs (a)(3) 

introductory text and (a)(3)(iii) to read 

as follows: 

§ 1.65 Notice of bulk transfers and 

disclosure obligations to customers. 

(a) * * * 

(3) Where customer accounts are 

transferred to a futures commission 

merchant or introducing broker, other 

than at the customer’s request, the 

transferee introducing broker or futures 

commission merchant must provide 

each customer whose account is 

transferred with the risk disclosure 

statements and acknowledgments 

required by § 1.55 (domestic futures and 

foreign futures and options trading) and 

§ 33.7 of this chapter (domestic 

exchange-traded commodity options) 

and receive the required 

acknowledgments within sixty days of 

the transfer of accounts. This paragraph 

(a)(3) shall not apply: 

* * * * * 

(iii) If the transfer of accounts is made 

from one introducing broker to another 

introducing broker guaranteed by the 

same futures commission merchant 

pursuant to a guarantee agreement in 

accordance with the requirements of 

§ 1.10(j) and such futures commission 

merchant maintains the relevant 

acknowledgments required by 

§§ 1.55(a)(1)(ii) and 33.7(a)(1)(ii) of this 

chapter and can establish compliance 

with § 1.55(p). 

* * * * * 

PART 4—COMMODITY POOL 

OPERATORS AND COMMODITY 

TRADING ADVISORS 

■ 8. The authority citation for part 4 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 

6m, 6n, 6o, 12a, and 23. 

■ 9. In § 4.5, revise paragraph 

(c)(2)(iii)(A) to read as follows: 

§ 4.5 Exclusion for certain otherwise 

regulated persons from the definition of the 

term ‘‘commodity pool operator.’’ 

* * * * * 

(c) * * * 

(2) * * * 

(iii) * * * 

(A) Will use commodity futures or 

commodity options contracts, or swaps 

solely for bona fide hedging purposes 

within the meaning and intent of the 

definition of bona fide hedging 

transactions and positions for excluded 

commodities in §§ 1.3 and 151.5 of this 

chapter; Provided however, That, in 

addition, with respect to positions in 

commodity futures or commodity 

options contracts, or swaps which do 

not come within the meaning and intent 

of the definition of bona fide hedging 

transactions and positions for excluded 

commodities in §§ 1.3 and 151.5 of this 

chapter, a qualifying entity may 

represent that the aggregate initial 

margin and premiums required to 

establish such positions will not exceed 

five percent of the liquidation value of 

the qualifying entity’s portfolio, after 

taking into account unrealized profits 

and unrealized losses on any such 

contracts it has entered into; and, 

Provided further, That in the case of an 

option that is in-the-money at the time 

of the purchase, the in-the-money 

amount as defined in § 190.01of this 

chapter may be excluded in computing 

such five percent; or 

* * * * * 

■ 10. In § 4.12, revise the section 

heading and paragraph (b)(1)(i)(C) to 

read as follows: 

§ 4.12 Exemption from provisions of this 

part. 

* * * * * 

(b) * * * 

(1) * * * 

(i) * * * 

(C) Will not enter into commodity 

interest transactions for which the 

aggregate initial margin and premiums, 

and required minimum security deposit 

for retail forex transactions (as defined 

in § 5.1(m) of this chapter) exceed 10 

percent of the fair market value of the 

pool’s assets, after taking into account 

unrealized profits and unrealized losses 

on any such contracts it has entered 


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into; Provided, however, That in the 

case of an option that is in-the-money at 

the time of purchase, the in-the-money 

amount as defined in § 190.01 of this 

chapter may be excluded in computing 

such 10 percent; and 

* * * * * 

■ 11. In § 4.13, revise paragraph 

(a)(3)(ii)(A) to read as follows: 

§ 4.13 Exemption from registration as a 

commodity pool operator. 

* * * * * 

(a) * * * 

(3) * * * 

(ii) * * * 

(A) The aggregate initial margin, 

premiums, and required minimum 

security deposit for retail forex 

transactions (as defined in § 5.1(m) of 

this chapter) required to establish such 

positions, determined at the time the 

most recent position was established, 

will not exceed 5 percent of the 

liquidation value of the pool’s portfolio, 

after taking into account unrealized 

profits and unrealized losses on any 

such positions it has entered into; 

Provided, That in the case of an option 

that is in-the-money at the time of 

purchase, the in-the-money amount as 

defined in § 190.01 of this chapter may 

be excluded in computing such 5 

percent; or 

* * * * * 

PART 41—SECURITY FUTURES 

PRODUCTS 

■ 12. The authority citation for part 41 

continues to read as follows: 

Authority: Sections 206, 251 and 252, Pub. 

L. 106–554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 

6j, 7a–2, 12a; 15 U.S.C. 78g(c)(2). 

■ 13. In § 41.41, revise paragraph (d) to 

read as follows: 

§ 41.41 Security futures products 

accounts. 

* * * * * 

(d) Recordkeeping requirements. The 

Commission’s recordkeeping rules set 

forth in §§ 1.31, 1.32, 1.35, 1.36, 1.37, 

4.23, 4.33, and 18.05 of this chapter 

shall apply to security futures product 

transactions and positions in a futures 

account (as that term is defined in § 1.3 

of this chapter). The rules in the 

preceding sentence shall not apply to 

security futures product transactions 

and positions in a securities account (as 

that term is defined in § 1.3 of this 

chapter); provided, that the SEC’s 

recordkeeping rules apply to those 

transactions and positions. 

* * * * * 

■ 14. Revise part 190 to read as follows: 

PART 190—BANKRUPTCY RULES 

Subpart A—General Provisions 

Sec. 

190.00 Statutory authority, organization, 

core concepts, scope, and construction. 

190.01 Definitions. 

190.02 General. 

Subpart B—Futures Commission Merchant 

as Debtor 

190.03 Notices and proofs of claims. 

190.04 Operation of the debtor’s estate— 

customer property. 

190.05 Operation of the debtor’s estate— 

general. 

190.06 Making and taking delivery under 

commodity contracts. 

190.07 Transfers. 

190.08 Calculation of funded net equity. 

190.09 Allocation of property and 

allowance of claims. 

190.10 Current records during business as 

usual. 

Subpart C—Clearing Organization as 

Debtor 

190.11 Scope and purpose of this subpart. 

190.12 Required reports and records. 

190.13 Prohibition on avoidance of 

transfers. 

190.14 Operation of the estate of the debtor 

subsequent to the filing date. 

190.15 Recovery and wind-down plans; 

default rules and procedures. 

190.16 Delivery. 

190.17 Calculation of net equity. 

190.18 Treatment of property. 

190.19 Support of daily settlement. 

Appendix A to Part 190—Customer Proof of 

Claim Form 

Appendix B to Part 190—Special 

Bankruptcy Distributions 

Authority: 7 U.S.C. 1a, 2, 6c, 6d, 6g, 7a– 

1, 12, 12a, 19, and 24; 11 U.S.C. 362, 546, 

548, 556, and 761–767, unless otherwise 

noted. 

Subpart A—General Provisions 

§ 190.00 Statutory authority, organization, 

core concepts, scope, and construction. 

(a) Statutory authority. The 

Commission has adopted the regulations 

in this part pursuant to its authority 

under sections 8a(5) and 20 of the Act. 

Section 8a(5) provides general 

rulemaking authority to effectuate the 

provisions and accomplish the purposes 

of the Act. Section 20 provides that the 

Commission may, notwithstanding title 

11 of the United States Code, adopt 

certain rules or regulations governing a 

proceeding involving a commodity 

broker that is a debtor under subchapter 

IV of chapter 7 of the Bankruptcy Code. 

Specifically, the Commission is 

authorized to adopt rules or regulations 

specifying: 

(1) That certain cash, securities, or 

other property, or commodity contracts, 

are to be included in or excluded from 

customer property or member property; 

(2) That certain cash, securities, or 

other property, or commodity contracts, 

are to be specifically identifiable to a 

particular customer in a particular 

capacity; 

(3) The method by which the business 

of the commodity broker is to be 

conducted or liquidated after the date of 

the filing of the petition under chapter 

7 of the Bankruptcy Code, including the 

payment and allocation of margin with 

respect to commodity contracts not 

specifically identifiable to a particular 

customer pending their orderly 

liquidation; 

(4) Any persons to which customer 

property and commodity contracts may 

be transferred under section 766 of the 

Bankruptcy Code; and 

(5) How a customer’s net equity is to 

be determined. 

(b) Organization. This part is 

organized into three subparts. This 

subpart contains general provisions 

applicable in all cases. Subpart B of this 

part contains provisions that apply 

when the debtor is a futures commission 

merchant (as that term is defined in the 

Act or Commission regulations). This 

includes acting as a foreign futures 

commission merchant, as defined in 

section 761(12) of the Bankruptcy Code, 

but excludes a person that is ‘‘noticeregistered’’ as a futures commission 

merchant pursuant to section 4f(a)(2) of 

the Act. Subpart C contains provisions 

that apply when the debtor is registered 

as a derivatives clearing organization 

under the Act. 

(c) Core concepts. The regulations in 

this part reflect several core concepts. 

The descriptions of core concepts in 

paragraphs (c)(1) through (6) of this 

section are subject to the further specific 

requirements set forth in this part, and 

the specific requirements in this part 

should be interpreted and applied 

consistently with these core concepts. 

(1) Commodity brokers. Subchapter IV 

of chapter 7 of the Bankruptcy Code 

applies to a debtor that is a commodity 

broker, against which a customer holds 

a ‘‘net equity’’ claim relating to a 

commodity contract. This part is limited 

to a commodity broker that is: 

(i) A futures commission merchant; or 

(ii) A derivatives clearing organization 

registered under the Act and § 39.3 of 

this chapter. 

(2) Account classes. The Act and 

Commission regulations in parts 1, 22, 

and 30 of this chapter provide differing 

treatment and protections for different 

types of cleared commodity contracts. 

This part establishes three account 

classes that correspond to the different 

types of accounts that futures 


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commission merchants and clearing 

organizations are required to maintain 

under the regulations in the preceding 

sentence, specifically, the futures 

account class (including options on 

futures), the foreign futures account 

class (including options on foreign 

futures), and the cleared swaps account 

class (including cleared options other 

than options on futures or foreign 

futures). This part also establishes a 

fourth account class, the delivery 

account class (which may be further 

subdivided as provided in this part), for 

property held in an account designated 

within the books and records of the 

debtor as a delivery account, for 

effecting delivery under commodity 

contracts whose terms require 

settlement via delivery when the 

commodity contract is held to 

expiration or, in the case of a cleared 

option, is exercised. 

(3) Public customers and non-public 

customers; Commission segregation 

requirements; member property—(i) 

Public customers and non-public 

customers. This part prescribes separate 

treatment of ‘‘public customers’’ and 

‘‘non-public customers’’ (as these terms 

are defined in § 190.01) within each 

account class in the event of a 

proceeding under this part in which the 

debtor is a futures commission 

merchant. Public customers of a debtor 

futures commission merchant are 

entitled to a priority in the distribution 

of cash, securities, or other customer 

property over non-public customers, 

and both have priority over all other 

claimants (except for claims relating to 

the administration of customer 

property) pursuant to section 766(h) of 

the Bankruptcy Code. 

(A) The cash, securities, or other 

property held on behalf of the public 

customers of a futures commission 

merchant in the futures, foreign futures, 

or cleared swaps account classes are 

subject to special segregation 

requirements imposed under parts 1, 22, 

and 30 of this chapter for each account 

class. Although such segregation 

requirements generally are not 

applicable to cash, securities, or other 

property received from or reflected in 

the futures, foreign futures, or cleared 

swaps accounts of non-public customers 

of a futures commission merchant, such 

transactions and property are customer 

property within the scope of this part. 

(B) While parts 1, 22, and 30 of this 

chapter do not impose special 

segregation requirements with respect to 

treatment of cash, securities, or other 

property of public customers carried in 

a delivery account, such property does 

constitute customer property. Thus, the 

distinction between public and nonpublic customers is, given the priority 

for public customers in section 766(h) of 

the Bankruptcy Code, relevant for the 

purpose of making distributions to 

delivery account class customers 

pursuant to this part. 

(C) Where a provision in this part 

affords the trustee discretion, that 

discretion should be exercised in a 

manner that the trustee determines will 

best achieve the overarching goal of 

protecting public customers as a class 

by enhancing recoveries for, and 

mitigating disruptions to, public 

customers as a class. In seeking to 

achieve that overarching goal, the 

trustee has discretion to balance those 

two sub-goals when they are in tension. 

Where the trustee is directed to exercise 

‘‘reasonable efforts’’ to meet a standard, 

those efforts should only be less than 

‘‘best efforts’’ to the extent that the 

trustee determines that such an 

approach would support the foregoing 

goals. 

(ii) Clearing organization 

bankruptcies: Member property and 

customer property other than member 

property. For a clearing organization, 

‘‘customer property’’ is divided into 

‘‘member property’’ and ‘‘customer 

property other than member property.’’ 

The term member property is used to 

identify the cash, securities, or property 

available to pay the net equity claims of 

clearing members based on their house 

account at the clearing organization. 

Thus, in the event of a proceeding under 

this part in which the debtor is a 

clearing organization, the classification 

of customers as public customers or 

non-public customers also is relevant, in 

that each member of the clearing 

organization will have separate claims 

against the clearing organization (by 

account class) with respect to: 

(A) Commodity contract transactions 

cleared for its own account or on behalf 

of any of its non-public customers 

(which are cleared in a ‘‘house account’’ 

at the clearing organization); and 

(B) Commodity contract transactions 

cleared on behalf of any public 

customers of the clearing member 

(which are cleared in accounts at the 

clearing organization that is separate 

and distinct from house accounts). 

(iii) Preferential assignment among 

customer classes and account classes 

for clearing organization bankruptcies. 

Section 190.18 is designed to support 

the interests of public customers of 

members of a debtor that is a clearing 

organization. 

(A) Certain customer property is 

preferentially assigned to ‘‘customer 

property other than member property’’ 

instead of ‘‘member property’’ to the 

extent that there is a shortfall in funded 

balances for members’ public customer 

claims. Moreover, to the extent that 

there are excess funded balances for 

members’ claims in any customer class/ 

account class combination, that excess 

is also preferentially assigned to 

‘‘customer property other than member 

property’’ to the extent of any shortfall 

in funded balances for members’ public 

customer claims. 

(B) Where property is assigned to a 

particular customer class with more 

than one account class, it is assigned to 

the account class for which the funded 

balance percentage is the lowest until 

there are two account classes with equal 

funded balance percentages, then to 

both such account classes, keeping the 

funded balance percentage the same, 

and so forth following the analogous 

approach if the debtor has more than 

two account classes within the relevant 

customer class. 

(4) Porting of public customer 

commodity contract positions. In a 

proceeding in which the debtor is a 

futures commission merchant, this part 

sets out a policy preference for 

transferring to another futures 

commission merchant, or ‘‘porting,’’ 

open commodity contract positions of 

the debtor’s public customers along 

with all or a portion of such customers’ 

account equity. Porting mitigates risks 

to both the customers of the debtor 

futures commission merchant and to the 

markets. To facilitate porting, this part 

addresses the manner in which the 

debtor’s business is to be conducted on 

and after the filing date, with specific 

provisions addressing the collection and 

payment of margin for open commodity 

contract positions prior to porting. 

(5) Pro rata distribution. (i) The 

commodity broker provisions of the 

Bankruptcy Code, subchapter IV of 

chapter 7, in particular section 766(h), 

have long revolved around the principle 

of pro rata distribution. If there is a 

shortfall in the cash, securities or other 

property in a particular account class 

needed to satisfy the net equity claims 

of public customers in that account 

class, the customer property in that 

account class will be distributed pro 

rata to those public customers (subject 

to appendix B of this part). Any 

customer property not attributable to a 

specific account class, or that exceeds 

the amount needed to pay allowed 

customer net equity claims in a 

particular account class, will be 

distributed to public customers in other 

account classes so long as there is a 

shortfall in those other classes. Nonpublic customers will not receive any 

distribution of customer property so 

long as there is any shortfall, in any 

account class, of customer property 


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needed to satisfy public customer net 

equity claims. 

(ii) The pro rata distribution principle 

means that, if there is a shortfall of 

customer property in an account class, 

all customers within that account class 

will suffer the same proportional loss 

relative to their allowed net equity 

claims. The principle in this paragraph 

(c)(5)(ii) applies to all customers, 

including those who post as collateral 

specifically identifiable property or 

letters of credit. The pro rata 

distribution principle is subject to the 

special distribution provisions set forth 

in framework 1 in appendix B of this 

part for cross-margin accounts and 

framework 2 in appendix B of this part 

for funds held outside of the U.S. or 

held in non-U.S. currency. 

(6) Deliveries. (i) Commodity contracts 

may have terms that require a customer 

owning the contract: 

(A) To make or take delivery of the 

underlying commodity if the customer 

holds the contract to a delivery position; 

or 

(B) In the case of an option on a 

commodity: 

(1) To make delivery upon exercise 

(as the buyer of a put option or seller of 

a call option); or 

(2) To take delivery upon exercise (as 

seller of a put option or buyer of a call 

option). 

(ii) Depending upon the 

circumstances and relevant market, 

delivery may be effected via a delivery 

account, a futures account, a foreign 

futures account or a cleared swaps 

account, or, when the commodity 

subject to delivery is a security, in a 

securities account (in which case 

property associated with the delivery 

held in a securities account is not part 

of any customer account class for 

purposes of this part). 

(iii) Although commodity contracts 

with delivery obligations are typically 

offset before reaching the delivery stage 

(i.e., prior to triggering bilateral delivery 

obligations), when delivery obligations 

do arise, a delivery default could have 

a disruptive effect on the cash market 

for the commodity and adversely impact 

the parties to the transaction. This part 

therefore sets out special provisions to 

address open commodity contracts that 

are settled by delivery, when those 

positions are nearing or have entered 

into a delivery position at the time of or 

after the filing date. The delivery 

provisions in this part are intended to 

allow deliveries to be completed in 

accordance with the rules and 

established practices for the relevant 

commodity contract market or clearing 

organization, as applicable and to the 

extent permitted under this part. 

(iv) In a proceeding in which the 

debtor is a futures commission 

merchant, the delivery provisions in 

this part reflect policy preferences to: 

(A) Liquidate commodity contracts 

that settle via delivery before they move 

into a delivery position; and 

(B) When such contracts are in a 

delivery position, to allow delivery to 

occur, where practicable, outside 

administration of the debtor’s estate. 

(v) The delivery provisions in this 

part apply to any commodity that is 

subject to delivery under a commodity 

contract, as the term commodity is 

defined in section of 1a(9) of the Act, 

whether the commodity itself is tangible 

or intangible, including agricultural 

commodities as defined in § 1.3 of this 

chapter, other non-financial 

commodities (such as metals or energy 

commodities) covered by the definition 

of exempt commodity in section 1a(20) 

of the Act, and commodities that are 

financial in nature (such as foreign 

currencies) covered by the definition of 

excluded commodity in section 1a(19) 

of the Act. The delivery provisions also 

apply to virtual currencies that are 

subject to delivery under a commodity 

contract. 

(d) Scope—(1) Proceedings—(i) 

Certain commodity broker proceedings 

under subchapter IV of chapter 7 of the 

Bankruptcy Code. (A) Section 101(6) of 

the Bankruptcy Code recognizes 

‘‘futures commission merchants’’ and 

‘‘foreign futures commission 

merchants,’’ as those terms are defined 

in section 761(12) of the Bankruptcy 

Code, as separate categories of 

commodity broker. The definition of 

commodity broker in § 190.01, as it 

applies to a commodity broker that is a 

futures commission merchant under the 

Act, also covers foreign futures 

commission merchants because a 

foreign futures commission merchant is 

required to register as a futures 

commission merchant under the Act. 

(B) Section 101(6) of the Bankruptcy 

Code recognizes ‘‘commodity options 

dealers,’’ and ‘‘leverage transaction 

merchants’’ as defined in sections 

761(6) and (13) of the Bankruptcy Code, 

as separate categories of commodity 

brokers. There are no commodity 

options dealers or leverage transaction 

merchants as of December 8, 2020. 

Note 1 to paragraph (b)(1)(i)(B). The 

Commission intends to adopt rules with 

respect to commodity options dealers or 

leverage transaction merchants, 

respectively, at such time as an entity 

registers as such. 

(ii) Futures commission merchants 

subject to a SIPA proceeding. Pursuant 

to section 7(b) of SIPA, 15 U.S.C. 78fff– 

1(b), the trustee in a SIPA proceeding, 

where the debtor also is a commodity 

broker, has the same duties as a trustee 

in a proceeding under subchapter IV of 

chapter 7 of the Bankruptcy Code, to the 

extent consistent with the provisions of 

SIPA or as otherwise ordered by the 

court. This part therefore also applies to 

a proceeding commenced under SIPA 

with respect to a debtor that is 

registered as a broker or dealer under 

section 15 of the Securities Exchange 

Act of 1934 when the debtor also is a 

futures commission merchant. 

(iii) Commodity brokers subject to an 

FDIC proceeding. Section 5390(m)(1)(B) 

of title 12 of the United States Code 

provides that the FDIC must apply the 

provisions of subchapter IV of chapter 7 

of the Bankruptcy Code in respect of the 

distribution of customer property and 

member property in connection with the 

liquidation of a covered financial 

company or a bridge financial company 

(as those terms are defined in section 

5381(a) of title 12) that is a commodity 

broker as if such person were a debtor 

for purposes of subchapter IV, except as 

specifically provided in section 5390 of 

title 12. This part therefore shall serve 

as guidance as to such distribution of 

property in a proceeding in which the 

FDIC is acting as a receiver pursuant to 

title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

with respect to a covered financial 

company or bridge financial company 

that is a commodity broker whose 

liquidation otherwise would be 

administered by a trustee under 

subchapter IV of chapter 7 of the 

Bankruptcy Code. 

(2) Account class and implied trust 

limitations. (i) The trustee may not 

recognize any account class that is not 

one of the account classes enumerated 

in § 190.01. 

(ii) No property that would otherwise 

be included in customer property, as 

defined in § 190.01, shall be excluded 

from customer property because such 

property is considered to be held in a 

constructive, resulting, or other trust 

that is implied in equity. 

(3) Commodity contract exclusions. 

For purposes of this part, the following 

are excluded from the term ‘‘commodity 

contract’’: 

(i) Options on commodities (including 

swaps subject to regulation under part 

32 of this chapter) that are not centrally 

cleared by a clearing organization or 

foreign clearing organization. 

(ii) Transactions, contracts or 

agreements that are classified as 

‘‘forward contracts’’ under the Act 

pursuant to the exclusion from the term 

‘‘future delivery’’ set out in section 

1a(27) of the Act or the exclusion from 

the definition of a ‘‘swap’’ under section 


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1a(47)(B)(ii) of the Act, in each case that 

are not centrally cleared by a clearing 

organization or foreign clearing 

organization. 

(iii) Security futures products as 

defined in section 1a(45) of the Act 

when such products are held in a 

securities account. 

(iv) Any off-exchange retail foreign 

currency transaction, contract or 

agreement described in sections 

2(c)(2)(B) or (C) of the Act. 

(v) Any security-based swap or other 

security (as defined in section 3 of the 

Exchange Act), but a security futures 

product or a mixed swap (as defined in 

1a(47)(D) of the Act) that is, in either 

case, carried in an account for which 

there is a corresponding account class 

under this part is not so excluded. 

(vi) Any off-exchange retail 

commodity transaction, contract or 

agreement described in section 

2(c)(2)(D) of the Act, unless such 

transaction, contract or agreement is 

traded on or subject to the rules of a 

designated contract market or foreign 

board of trade as, or as if, such 

transaction, contract, or agreement is a 

futures contract. 

(e) Construction. (1) A reference in 

this part to a specific section of a 

Federal statute or specific regulation 

refers to such section or regulation as 

the same may be amended or 

superseded. 

(2) Where they differ, the definitions 

set forth in § 190.01 shall be used 

instead of defined terms set forth in 

section 761 of the Bankruptcy Code. In 

many cases, these definitions are based 

on definitions in parts 1, 22, and 30 of 

this chapter. Notwithstanding the use of 

different defined terms, the regulations 

in this part are intended to be consistent 

with the provisions and objectives of 

subchapter IV of chapter 7 of the 

Bankruptcy Code. 

(3) In the context of portfolio 

margining and cross margining 

programs, commodity contracts and 

associated collateral will be treated as 

part of the account class in which, 

consistent with part 1, 22, 30, or 39 of 

this chapter, or Commission Order, they 

are held. 

(i) Thus, as noted in paragraph (2) of 

the definition of account class in 

§ 190.01, where open commodity 

contracts (and associated collateral) that 

would be attributable to one account 

class are, instead, commingled with the 

commodity contracts (and associated 

collateral) in a second account class (the 

‘‘home field’’), then the trustee must 

treat all such commodity contracts and 

collateral as part of, and consistent with 

the regulations applicable to, the second 

account class. 

(ii) The concept in paragraph (e)(3)(i) 

of this section, that the rules of the 

‘‘home field’’ will apply, also pertains to 

securities positions that are, pursuant to 

an approved cross margining program, 

held in a commodities account class (in 

which case the rules of that 

commodities account class will apply) 

and to commodities positions that are, 

pursuant to an approved crossmargining program, held in a securities 

account (in which case, the rules of the 

securities account will apply, consistent 

with section 16(2)(b)(ii) of SIPA, 15 

U.S.C. 78lll(2)(b)(ii)). 

§ 190.01 Definitions. 

For purposes of this part: 

Account class: 

(1) Means one or more of each of the 

following types of accounts maintained 

by a futures commission merchant or 

clearing organization (as applicable), 

each type of which must be recognized 

as a separate account class by the 

trustee: 

(i) Futures account means: 

(A) With respect to public customers, 

the same definition as set forth in § 1.3 

of this chapter. 

(B) With respect to non-public 

customers: 

(1) With respect to a futures 

commission merchant, an account 

maintained on the books and records of 

the futures commission merchant for the 

purpose of accounting for a person’s 

transactions in futures or options on 

futures contracts executed on or subject 

to the rules of a designated contract 

market registered under the Act (and 

related cash, securities, or other 

property); and 

(2) With respect to a clearing 

organization, an account maintained on 

the books and records of the clearing 

organization for the purpose of 

accounting for transactions in futures or 

options on futures contracts cleared or 

settled by the clearing organization for 

a member or a member’s non-public 

customers (and related cash, securities, 

or other property). 

(ii) Foreign futures account means: 

(A) With respect to public customers: 

(1) With respect to a futures 

commission merchant, a 30.7 account, 

as such term is defined in § 30.1(g) of 

this chapter; and 

(2) With respect to a clearing 

organization, an account maintained on 

the books and records of the clearing 

organization for the purpose of 

accounting for transactions in futures or 

options on futures contracts executed on 

or subject to the rules of a foreign board 

of trade, cleared or settled by the 

clearing organization for a member that 

is a futures commission merchant (and 

related cash, securities or other 

property), on behalf of that member’s 

30.7 customers (as that latter term is 

defined in § 30.1(f) of this chapter). 

(B) With respect to non-public 

customers: 

(1) With respect to a futures 

commission merchant, an account 

maintained on the books and records of 

the futures commission merchant for the 

purpose of accounting for a person’s 

transactions in futures or options on 

futures contracts executed on or subject 

to the rules of a foreign board of trade 

(and related cash, securities, or other 

property); and 

(2) With respect to a clearing 

organization, an account maintained on 

the books and records of the clearing 

organization for the purpose of 

accounting for transactions in futures or 

options on futures contracts executed on 

or subject to the rules of a foreign board 

of trade, cleared or settled by the 

clearing organization for a member or a 

member’s non-public customers (and 

related cash, securities, or other 

property). 

(iii) Cleared swaps account means: 

(A) With respect to public customers, 

a cleared swaps customer account, as 

such term is defined in § 22.1 of this 

chapter. 

(B) With respect to non-public 

customers: 

(1) With respect to a futures 

commission merchant, an account 

maintained on the books and records of 

the futures commission merchant for the 

purpose of accounting for a person’s 

transactions in cleared swaps (as 

defined in § 22.1 of this chapter) (and 

related cash, securities, or other 

property); and 

(2) With respect to a clearing 

organization, an account maintained on 

the books and records of the clearing 

organization for the purpose of 

accounting for transactions in cleared 

swaps (as defined in § 22.1 of this 

chapter) (or in other contracts permitted 

to be cleared in the account) cleared or 

settled by the clearing organization for 

a member or a member’s non-public 

customers (including any property 

related thereto). 

(iv)(A) Delivery account means (for 

both public and non-public customers, 

considered separately): 

(1) An account maintained on the 

books and records of a futures 

commission merchant for the purpose of 

accounting for the making or taking of 

delivery under commodity contracts 

whose terms require settlement by 

delivery of a commodity, and which is 

designated as a delivery account on the 

books and records of the futures 

commission merchant; and 


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(2) An account maintained on the 

books and records of a clearing 

organization for a clearing member (or a 

customer of a clearing member) for the 

purpose of accounting for the making or 

taking of delivery under commodity 

contracts whose terms require 

settlement by delivery of a commodity, 

as well as any account in which the 

clearing organization holds physical 

delivery property represented by 

electronic title documents or otherwise 

existing in an electronic 

(dematerialized) form in its capacity as 

a central depository, in each case where 

the account is designated as a delivery 

account on the books and the records of 

the clearing organization. 

(B) The delivery account class is 

further divided into a ‘‘physical delivery 

account class’’ and a ‘‘cash delivery 

account class,’’ as provided in 

§ 190.06(b), each of which shall be 

recognized as a separate class of account 

by the trustee. 

(2)(i) If open commodity contracts 

that would otherwise be attributable to 

one account class (and any property 

margining, guaranteeing, securing or 

accruing in respect of such commodity 

contracts) are, pursuant to a 

Commission rule, regulation, or order, 

or a clearing organization rule approved 

in accordance with § 39.15(b)(2) of this 

chapter, held separately from other 

commodity contracts and property in 

that account class and are commingled 

with the commodity contracts and 

property of another account class, then 

the trustee must treat the former 

commodity contracts (and any property 

margining, guaranteeing, securing, or 

accruing in respect of such commodity 

contracts), for purposes of this part, as 

being held in an account of the latter 

account class. 

(ii) The principle in paragraph (2)(i) of 

this definition will be applied to 

securities positions and associated 

collateral held in a commodity account 

class pursuant to a cross margining 

program approved by the Commission 

(and thus treated as part of that 

commodity account class) and to 

commodity positions and associated 

collateral held in a securities account 

pursuant to a cross margining program 

approved by the Commission (and thus 

treated as part of the securities account). 

(3) For the purpose of this definition, 

a commodity broker is considered to 

maintain an account for another person 

by establishing internal books and 

records in which it records the person’s 

commodity contracts and cash, 

securities or other property received 

from or on behalf of such person or 

accruing to the credit of such person’s 

account, and related activity (such as 

liquidation of commodity contract 

positions or adjustments to reflect markto-market gains or losses on commodity 

contract positions), regardless whether 

the commodity broker has kept such 

books and records current or accurate. 

Act means the Commodity Exchange 

Act. 

Bankruptcy Code means, except as the 

context of the regulations in this part 

otherwise requires, those provisions of 

title 11 of the United States Code 

relating to ordinary bankruptcies 

(chapters 1 through 5) and liquidations 

(chapter 7 with the exception of 

subchapters III and V), together with the 

Federal Rules of Bankruptcy Procedure 

relating thereto. 

Business day means weekdays, not 

including Federal holidays as 

established annually by 5 U.S.C. 6103. 

A business day begins at 8:00 a.m. in 

Washington, DC, and ends at 7:59:59 

a.m. on the next day that is a business 

day. 

Calendar day means the time from 

midnight to midnight in Washington, 

DC. 

Cash delivery account class has the 

meaning set forth under account class in 

this section. 

Cash delivery property means any 

cash or cash equivalents recorded in a 

delivery account that is, as of the filing 

date: 

(1) Credited to such account to pay for 

receipt of delivery of a commodity 

under a commodity contract; 

(2) Credited to such account to 

collateralize or guarantee an obligation 

to make or take delivery of a commodity 

under a commodity contract; or 

(3) Has been credited to such account 

as payment received in exchange for 

making delivery of a commodity under 

a commodity contract. It also includes 

property in the form of commodities 

that have been delivered after the filing 

date in exchange for cash or cash 

equivalents held in a delivery account 

as of the filing date. The cash or cash 

equivalents must be identified on the 

books and the records of the debtor as 

having been received, from or for the 

account of a particular customer, on or 

after seven calendar days before the 

relevant: 

(i) First notice date in the case of a 

futures contract; or 

(ii) Exercise date in the case of a 

(cleared) option. 

(4) Cash delivery property also 

includes any cash transferred by a 

customer to the trustee on or after the 

filing date for the purpose of paying for 

delivery, consistent with 

§ 190.06(a)(3)(ii)(B)(1). 

(5) In the case of a contract where one 

fiat currency is exchanged for another 

fiat currency, each such currency, to the 

extent that it is recorded in a delivery 

account, will be considered cash 

delivery property. 

Cash equivalents means assets, other 

than United States dollar cash, that are 

highly liquid such that they may be 

converted into United States dollar cash 

within one business day without 

material discount in value. 

Cleared swaps account has the 

meaning set forth under account class in 

this section. 

Clearing organization means a 

derivatives clearing organization that is 

registered with the Commission as such 

under the Act. 

Commodity broker means any person 

that is: 

(1) A futures commission merchant 

under the Act, but excludes a person 

that is ‘‘notice-registered’’ as a futures 

commission merchant under section 

4f(a)(2) of the Act; or 

(2) A clearing organization, in each 

case with respect to which there is a 

‘‘customer’’ as that term is defined in 

this section. 

Commodity contract means: 

(1) A futures or options on futures 

contract executed on or subject to the 

rules of a designated contract market; 

(2) A futures or option on futures 

contract executed on or subject to the 

rules of a foreign board of trade; 

(3) A swap as defined in section 

1a(47) of the Act and § 1.3 of this 

chapter, that is directly or indirectly 

submitted to and cleared by a clearing 

organization and which is thus a cleared 

swap as that term is defined in section 

1a(7) of the Act and § 22.1 of this 

chapter; or 

(4) Any other contract that is a swap 

for purposes of this part under the 

definition in this section and is 

submitted to and cleared by a clearing 

organization. 

(5) Notwithstanding paragraphs (1) 

through (4) of this definition, a security 

futures product as defined in section 

1a(45) of the Act is not a commodity 

contract for purposes of this part when 

such contract is held in a securities 

account. Moreover, a contract, 

agreement, or transaction described in 

§ 190.00(d)(3) as excluded from the term 

‘‘commodity contract’’ is excluded from 

this definition. 

Commodity contract account means: 

(1) A futures account, foreign futures 

account, cleared swaps account, or 

delivery account; or 

(2) If the debtor is a futures 

commission merchant, for purposes of 

identifying customer property for the 

foreign futures account class (subject to 

§ 190.09(a)(1)), an account maintained 

for the debtor by a foreign clearing 


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organization or a foreign futures 

intermediary reflecting futures or 

options on futures executed on or 

subject to the rules of a foreign board of 

trade, including any account maintained 

on behalf of the debtor’s public 

customers. 

Court means the court having 

jurisdiction over the debtor’s estate. 

Cover has the meaning set forth in 

§ 1.17(j) of this chapter. 

Customer means: 

(1)(i) With respect to a futures 

commission merchant as debtor 

(including a foreign futures commission 

merchant as that term is defined in 

section 761(12) of the Bankruptcy 

Code), the meaning set forth in sections 

761(9)(A) and (B) of the Bankruptcy 

Code. 

(ii) With respect to a clearing 

organization as debtor, the meaning set 

forth in section 761(9)(D) of the 

Bankruptcy Code. 

(2) The term customer includes the 

owner of a portfolio cross-margining 

account covering commodity contracts 

and related positions in securities (as 

defined in section 3 of the Exchange 

Act) that is carried as a futures account 

or cleared swaps customer account 

pursuant to an appropriate rule, 

regulation, or order of the Commission. 

Customer claim of record means a 

customer claim that is determinable 

solely by reference to the records of the 

debtor. 

Customer class means each of the 

following two classes of customers, 

which must be recognized as separate 

classes by the trustee: Public customers 

and non-public customers; provided, 

however, that when the debtor is a 

clearing organization the references to 

public customers and non-public 

customers are based on the 

classification of customers of, and in 

relation to, the members of the clearing 

organization. 

Customer property and customer 

estate are used interchangeably to mean 

the property subject to pro rata 

distribution in a commodity broker 

bankruptcy in the priority set forth in 

sections 766(h) or (i), as applicable, of 

the Bankruptcy Code, and includes 

cash, securities, and other property as 

set forth in § 190.09(a). 

Debtor means a person with respect to 

which a proceeding is commenced 

under subchapter IV of chapter 7 of the 

Bankruptcy Code or under SIPA, or for 

which the Federal Deposit Insurance 

Corporation is appointed as a receiver 

pursuant to 12 U.S.C. 5382, provided, 

however, that this part applies only to 

such a proceeding if the debtor is a 

commodity broker as defined in this 

section. 

Delivery account has the meaning set 

forth under account class in this 

section. 

Distribution of property to a customer 

includes transfer of property on the 

customer’s behalf, return of property to 

a customer, as well as distributions to a 

customer of valuable property that is 

different than the property posted by 

that customer. 

Equity means the amount calculated 

as equity in accordance with 

§ 190.08(b)(1). 

Exchange Act means the Securities 

Exchange Act of 1934, as amended, 15 

U.S.C. 78a et seq. 

FDIC means the Federal Deposit 

Insurance Corporation. 

Filing date means the date a petition 

under the Bankruptcy Code or 

application under SIPA commencing a 

proceeding is filed or on which the 

FDIC is appointed as a receiver pursuant 

to 12 U.S.C. 5382(a). 

Final net equity determination date 

means the latest of: 

(1) The day immediately following the 

day on which all commodity contracts 

held by or for the account of customers 

of the debtor have been transferred, 

liquidated, or satisfied by exercise or 

delivery; 

(2) The day immediately following the 

day on which all property other than 

commodity contracts held for the 

account of customers has been 

transferred, returned or liquidated; 

(3) The bar date for filing customer 

proofs of claim as determined by rule 

3002(c) of the Federal Rules of 

Bankruptcy Procedure, the expiration of 

the six-month period imposed pursuant 

to section 8(a)(3) of SIPA, or such other 

date (whether earlier or later) set by the 

court (or, in the case of the FDIC acting 

as a receiver pursuant to 12 U.S.C. 

5382(a), the deadline set by the FDIC 

pursuant to 12 U.S.C. 5390(a)(2)(B); or 

(4) The day following the allowance 

(by the trustee or by the bankruptcy 

court) or disallowance (by the 

bankruptcy court) of all disputed 

customer net equity claims. 

Foreign board of trade has the same 

meaning as set forth in § 1.3 of this 

chapter. 

Foreign clearing organization means a 

clearing house, clearing association, 

clearing corporation or similar entity, 

facility, or organization clears and 

settles transactions in futures or options 

on futures executed on or subject to the 

rules of a foreign board of trade. 

Foreign future shall have the same 

meaning as that set forth in section 

761(11) of the Bankruptcy Code. 

Foreign futures account has the 

meaning set forth under account class in 

this section. 

Foreign futures commission merchant 

shall have the same meaning as that set 

forth in section 761(12) of the 

Bankruptcy Code. 

Foreign futures intermediary refers to 

a foreign futures and options broker, as 

such term is defined in § 30.1(e) of this 

chapter, acting as an intermediary for 

foreign futures contracts between a 

foreign futures commission merchant 

and a foreign clearing organization. 

Funded balance means the amount 

calculated as funded balance in 

accordance with § 190.08(c) and, as 

applicable, § 190.17(d). 

Funded net equity means, for 

purposes of subpart B of this part, the 

amount calculated as funded net equity 

in accordance with § 190.08(a), and for 

purposes of subpart C of this part, the 

amount calculated as funded net equity 

in accordance with § 190.17(c). 

Futures and futures contract are used 

interchangeably to mean any contract 

for the purchase or sale of a commodity 

(as defined in section 1a(9) of the Act) 

for future delivery that is executed on or 

subject to the rules of a designated 

contract market or on or subject to the 

rules of a foreign board of trade. The 

term also covers, for purposes of this 

part: 

(1) Any transaction, contract or 

agreement described in section 

2(c)(2)(D) of the Act and traded on or 

subject to the rules of a designated 

contract market or foreign board of 

trade, to the extent not covered by the 

foregoing definition; and 

(2) Any transaction, contract, or 

agreement that is classified as a 

‘‘forward contract’’ under the Act 

pursuant to the exclusion from the term 

‘‘future delivery’’ set out in section 

1a(27) of the Act or the exclusion from 

the definition of a ‘‘swap’’ under section 

1a(47)(B)(ii) of the Act, provided that 

such transaction, contract, or agreement 

is traded on or subject to the rules of a 

designated contract market or foreign 

board of trade and is cleared by, 

respectively, a clearing organization or 

foreign clearing organization the same 

as if it were a futures contract. 

Futures account has the meaning set 

forth under account class in this 

section. 

House account means, in the case of 

a clearing organization, any commodity 

contract account of a member at such 

clearing organization maintained to 

reflect trades for the member’s own 

account or for any non-public customer 

of such member. 

In-the-money means: 

(1) With respect to a call option, when 

the value of the underlying interest 

(such as a commodity or futures 

contract) which is the subject of the 


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option exceeds the strike price of the 

option; and 

(2) With respect to a put option, when 

the value of the underlying interest 

(such as a commodity or futures 

contract) which is the subject of the 

option is exceeded by the strike price of 

the option. 

Joint account means any commodity 

contract account held by more than one 

person. 

Member property means, in 

connection with a clearing organization 

bankruptcy, the property which may be 

used to pay that portion of the net 

equity claim of a member which is 

based on the member’s house account at 

the clearing organization, including any 

claims on behalf of non-public 

customers of the member. 

Net equity means, for purposes of 

subpart B of this part, the amount 

calculated as net equity in accordance 

with § 190.08(b), and for purposes of 

subpart C of this part, the amount 

calculated as net equity in accordance 

with § 190.17(b). 

Non-public customer means: 

(1) With respect to a futures 

commission merchant, any customer 

that is not a public customer; and 

(2) With respect to a clearing 

organization, any person whose account 

carried on the books and records of: 

(i) A member of the clearing 

organization that is a futures 

commission merchant, is classified as a 

proprietary account under § 1.3 of this 

chapter (in the case of the futures or 

foreign futures account class) or as a 

cleared swaps proprietary account 

under § 22.1 of this chapter (in the case 

of the cleared swaps account class); or 

(ii) A member of the clearing 

organization that is a foreign broker, is 

classified or treated as proprietary under 

and for purposes of: 

(A) The rules of the clearing 

organization; or 

(B) The jurisdiction of incorporation 

of such member. 

Open commodity contract means a 

commodity contract which has been 

established in fact and which has not 

expired, been redeemed, been fulfilled 

by delivery or exercise, or been offset 

(i.e., liquidated) by another commodity 

contract. 

Order for relief has the same meaning 

set forth in section 301 of the 

Bankruptcy Code, in the case of the 

filing of a voluntary bankruptcy 

petition, and means the entry of an 

order granting relief under section 303 

of the Bankruptcy Code in an 

involuntary case. It also means, where 

applicable, the issuance of a protective 

decree under section 5(b)(1) of SIPA or 

the appointment of the FDIC as receiver 

pursuant to 12 U.S.C. 5382(a)(1)(A). 

Person means any individual, 

association, partnership, corporation, 

trust, or other form of legal entity. 

Physical delivery account class has 

the meaning set forth under account 

class in this section. 

Physical delivery property means: 

(1) In general. A commodity, whether 

tangible or intangible, held in a form 

that can be delivered to meet and fulfill 

delivery obligations under a commodity 

contract that settles via delivery if held 

to a delivery position (as described in 

§ 190.06(a)(1)), including warehouse 

receipts, other documents of title, or 

shipping certificates (including 

electronic versions of any of the 

foregoing) for the commodity, or the 

commodity itself: 

(i) That the debtor holds for the 

account of a customer for the purpose of 

making delivery of such commodity on 

the customer’s behalf, which as of the 

filing date or thereafter, can be 

identified on the books and records of 

the debtor as held in a delivery account 

for the benefit of such customer. Cash or 

cash equivalents received after the filing 

date in exchange for delivery of such 

physical delivery property shall also 

constitute physical delivery property; 

(ii) That the debtor holds for the 

account of a customer and that the 

customer received or acquired by taking 

delivery under an expired or exercised 

commodity contract and which, as of 

the filing date or thereafter, can be 

identified on the books and records of 

the debtor as held in a delivery account 

for the benefit of such customer, 

regardless how long such property has 

been held in such account; or 

(iii) Where property that the debtor 

holds in a futures account, foreign 

futures account, or cleared swaps 

account, or, if the commodity is a 

security, in a securities account, would 

meet the criteria listed in paragraph (1) 

or (2) of this definition, but for the fact 

of being held in such account rather 

than a delivery account, such property 

will be considered physical delivery 

property solely for purposes of the 

obligations to make or take delivery of 

physical delivery property pursuant to 

§ 190.06. 

(iv) Commodities or documents of 

title that are not held by the debtor and 

are delivered or received by a customer 

in accordance with § 190.06(a)(2) (or in 

accordance with § 190.06(a)(2) in 

conjunction with § 190.16(a) if the 

debtor is a clearing organization) to 

fulfill a customer’s delivery obligation 

under a commodity contract will be 

considered physical delivery property 

solely for purposes of the obligations to 

make or take delivery of physical 

delivery property pursuant to § 190.06. 

As this property is held outside of the 

debtor’s estate, it is not subject to pro 

rata distribution. 

(2) Special cases. (i) In the case of a 

contract where one fiat currency is 

exchanged for another fiat currency, 

neither such currency, to the extent that 

it is recorded in a delivery account, will 

be considered physical delivery 

property. 

(ii) In a case where the final 

settlement price is negative, i.e., where 

the party obliged to deliver physical 

delivery property under an expiring 

futures contract or an expired options 

contract is also obliged to make a cash 

payment to the buyer, such cash or cash 

equivalents constitute physical delivery 

property. 

Primary liquidation date means the 

first business day immediately 

following the day on which all 

commodity contracts (including any 

commodity contracts that are 

specifically identifiable property) have 

been liquidated or transferred. 

Public customer means: 

(1) With respect to a futures 

commission merchant and in relation to: 

(i) The futures account class, a futures 

customer as defined in § 1.3 of this 

chapter whose futures account is subject 

to the segregation requirements of 

section 4d(a) of the Act and the 

regulations in this chapter that 

implement section 4d(a), including as 

applicable §§ 1.20 through 1.30 of this 

chapter; 

(ii) The foreign futures account class, 

a 30.7 customer as defined in § 30.1 of 

this chapter whose foreign futures 

accounts is subject to the segregation 

requirements of § 30.7 of this chapter; 

(iii) The cleared swaps account class, 

a Cleared Swaps Customer as defined in 

§ 22.1 of this chapter whose cleared 

swaps account is subject to the 

segregation requirements of part 22 of 

this chapter; and 

(iv) The delivery account class, a 

customer that is or would be classified 

as a public customer if the property 

reflected in the customer’s delivery 

account had been held in an account 

described in paragraph (1)(i), (ii), or (iii) 

of this definition. 

(2) With respect to a clearing 

organization, any customer of that 

clearing organization that is not a nonpublic customer. 

Securities account means, in relation 

to a futures commission merchant that 

is registered as a broker or dealer under 

the Exchange Act, an account 

maintained by such futures commission 

merchant in accordance with the 

requirements of section 15(c)(3) of the 


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Exchange Act and § 240.15c3–3 of this 

title. 

Security has the meaning set forth in 

section 101(49) of the Bankruptcy Code. 

SIPA means the Securities Investor 

Protection Act of 1970, 15 U.S.C 78aaa 

et seq. 

Specifically identifiable property 

means: 

(1)(i) The following property received, 

acquired, or held by or for the account 

of the debtor from or for the futures 

account, foreign futures account, or 

cleared swaps account of a customer: 

(A) Any security which as of the filing 

date is: 

(1)(i) Held for the account of a 

customer; 

(ii) Registered in such customer’s 

name; 

(iii) Not transferable by delivery; and 

(iv) Has a duration or maturity date of 

more than 180 days; or 

(2)(i) Fully paid; 

(ii) Non-exempt; and 

(iii) Identified on the books and 

records of the debtor as held by the 

debtor for or on behalf of the commodity 

contract account of a particular 

customer for which, according to such 

books and records as of the filing date, 

no open commodity contracts were held 

in the same capacity. 

(B) Any warehouse receipt, bill of 

lading, or other document of title which 

as of the filing date: 

(1) Can be identified on the books and 

records of the debtor as held for the 

account of a particular customer; and 

(2) Is not in bearer form and is not 

otherwise transferable by delivery; 

(ii) Any open commodity contracts 

treated as specifically identifiable 

property in accordance with 

§ 190.03(c)(2); and 

(iii) Any physical delivery property 

described in paragraphs (1) through (3) 

of the definition of physical delivery 

property in this section. 

(2) Notwithstanding paragraphs (1) 

and (3) of this definition, security 

futures products, and any money, 

securities, or property held to margin, 

guarantee, or secure such products, or 

accruing as a result of such products, 

shall not be considered specifically 

identifiable property for the purposes of 

subchapter IV of the Bankruptcy Code 

or this part, if held in a securities 

account. 

(3) No property that is not explicitly 

included in this definition may be 

treated as specifically identifiable 

property. 

Strike price means the price per unit 

multiplied by the total number of units 

at which a person may purchase or sell 

a futures contract or a commodity or 

other interest underlying an option that 

is a commodity contract. 

Substitute customer property means 

cash or cash equivalents delivered to the 

trustee by or on behalf of a customer in 

connection with: 

(1) The return of specifically 

identifiable property by the trustee; or 

(2) The return of, or an agreement not 

to draw upon, a letter of credit received, 

acquired or held to margin, guarantee, 

secure, purchase, or sell a commodity 

contract. 

Swap has the meaning set forth in 

section 1a(47) of the Act and § 1.3 of 

this chapter, and, in addition, also 

means any other contract, agreement, or 

transaction that is carried in a cleared 

swaps account pursuant to a rule, 

regulation, or order of the Commission, 

provided, in each case, that it is cleared 

by a clearing organization as, or the 

same as if it were, a swap. 

Trustee means, as appropriate, the 

trustee in bankruptcy or in a SIPA 

proceeding, appointed to administer the 

debtor’s estate and any interim or 

successor trustee, or the FDIC, where it 

has been appointed as a receiver 

pursuant to 12 U.S.C. 5382. 

Undermargined means, with respect 

to a futures account, foreign futures 

account, or cleared swaps account 

carried by the debtor, the funded 

balance for such account is below the 

minimum amount that the debtor is 

required to collect and maintain for the 

open commodity contracts in such 

account under the rules of the relevant 

clearing organization, foreign clearing 

organization, designated contract 

market, swap execution facility or 

foreign board of trade. If any such rules 

establish both an initial margin 

requirement and a lower maintenance 

margin requirement applicable to any 

commodity contracts (or to the entire 

portfolio of commodity contracts or any 

subset thereof) in a particular 

commodity contract account of the 

customer, the trustee will use the lower 

maintenance margin level to determine 

the customer’s minimum margin 

requirement for such account. 

Variation settlement means variation 

margin as defined in § 1.3 of this 

chapter plus all other daily settlement 

amounts (such as price alignment 

payments) that may be owed or owing 

on the commodity contract. 

§ 190.02 General. 

(a) Request for exemption. (1) The 

trustee (or, in the case of an involuntary 

petition pursuant to section 303 of the 

Bankruptcy Code, any other person 

charged with the management of a 

commodity broker) may, for good cause 

shown, request from the Commission an 

exemption from the requirements of any 

procedural provision in this part, 

including an extension of any time limit 

prescribed by this part or an exemption 

subject to conditions, provided that the 

Commission shall not grant an 

extension for any time period 

established by the Bankruptcy Code. 

(2) A request pursuant to paragraph 

(a)(1) of this section— 

(i) May be made ex parte and by any 

means of communication, written or 

oral, provided that the trustee must 

confirm an oral request in writing 

within one business day and such 

confirmation must contain all the 

information required by paragraph (b)(3) 

of this section. The request or 

confirmation of an oral request must be 

given to the Commission as provided in 

paragraph (a) of this section. 

(ii) Must state the particular provision 

of this part with respect to which the 

exemption or extension is sought, the 

reason for the requested exemption or 

extension, the amount of time sought if 

the request is for an extension, and the 

reason why such exemption or 

extension would not be contrary to the 

purposes of the Bankruptcy Code and 

this part. 

(3) The Director of the Division of 

Clearing and Risk, or members of the 

Commission staff designated by the 

Director, shall grant, deny, or otherwise 

respond to a request, on the basis of the 

information provided in any such 

request and after consultation with the 

Director of the Market Participants 

Division or members of the Commission 

staff designated by the Director, unless 

exigent circumstances require 

immediate action precluding such prior 

consultation, and shall communicate 

that determination by the most 

appropriate means to the person making 

the request. 

(b) Delegation of authority to the 

Director of the Division of Clearing and 

Risk. (1) Until such time as the 

Commission orders otherwise, the 

Commission hereby delegates to the 

Director of the Division of Clearing and 

Risk, and to such members of the 

Commission’s staff acting under the 

Director’s direction as they may 

designate, after consultation with the 

Director of the Market Participants 

Division, or such members of the 

Commission’s staff under the Director’s 

direction as they may designate, unless 

exigent circumstances require 

immediate action, all the functions of 

the Commission set forth in this part, 

except the authority to disapprove a prerelief transfer of a public customer 

commodity contract account or 

customer property pursuant to 

§ 190.07(e)(1). 

(2) The Director of the Division of 

Clearing and Risk may submit to the 


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Commission for its consideration any 

matter which has been delegated to the 

Director pursuant to paragraph (b)(1) of 

this section. 

(3) Nothing in this section shall 

prohibit the Commission, at its election, 

from exercising its authority delegated 

to the Director of the Division of 

Clearing and Risk under paragraph 

(b)(1) of this section. 

(c) Forward contracts. For purposes of 

this part, an entity for or with whom the 

debtor deals who holds a claim against 

the debtor solely on account of a 

forward contract, that is not cleared by 

a clearing organization, will not be 

deemed to be a customer. 

(d) Other. The Bankruptcy Code will 

not be construed by the Commission to 

prohibit a commodity broker from doing 

business as any combination of the 

following: Futures commission 

merchant, commodity options dealer, 

foreign futures commission merchant, or 

leverage transaction merchant, nor will 

the Commission construe the 

Bankruptcy Code to permit any 

operation, trade, or business, or any 

combination of the foregoing, otherwise 

prohibited by the Act or by any of the 

Commission’s regulations in this 

chapter, or by any order of the 

Commission. 

(e) Rule of construction. Contracts in 

security futures products held in a 

securities account shall not be 

considered to be ‘‘from or for the 

commodity futures account’’ or ‘‘from or 

for the commodity options account’’ of 

such customers, as such terms are used 

in section 761(9) of the Bankruptcy 

Code. 

(f) Receivers. In the event that a 

receiver for a futures commission 

merchant is appointed due to the 

violation or imminent violation of the 

customer property protection 

requirements of section 4d of the Act, or 

of the regulations in part 1, 22, or 30 of 

this chapter that implement section 4d 

or 4(b)(2) of the Act, or of the futures 

commission merchant’s minimum 

capital requirements in § 1.17 of this 

chapter, such receiver may, in an 

appropriate case, file a petition for 

bankruptcy of such futures commission 

merchant pursuant to section 301 of the 

Bankruptcy Code. 

(g) Definition of ‘‘allowed.’’ The term 

‘‘allowed’’ in this part shall have the 

meaning ascribed to it in the 

Bankruptcy Code. 

Subpart B—Futures Commission 

Merchant as Debtor 

§ 190.03 Notices and proofs of claims. 

(a) Notices-means of providing—(1) 

To the Commission. Unless instructed 

otherwise by the Commission, all 

mandatory or discretionary notices to be 

given to the Commission under this 

subpart shall be directed by electronic 

mail to bankruptcyfilings@cftc.gov. For 

purposes of this subpart, notice to the 

Commission shall be deemed to be 

given only upon actual receipt. 

(2) To Customers. The trustee, after 

consultation with the Commission, and 

unless otherwise instructed by the 

Commission, will establish and follow 

procedures reasonably designed for 

giving adequate notice to customers 

under this subpart and for receiving 

claims or other notices from customers. 

Such procedures should include, absent 

good cause otherwise, the use of a 

prominent website as well as 

communication to customers’ electronic 

addresses that are available in the 

debtor’s books and records. 

(b) Notices to the Commission and 

designated self-regulatory 

organizations—(1) Of commencement of 

a proceeding. Each commodity broker 

that is a futures commission merchant 

and files a petition in bankruptcy shall 

as soon as practicable before, and in any 

event no later than, the time of such 

filing, notify the Commission and such 

commodity broker’s designated selfregulatory organization of the 

anticipated or actual filing date, the 

court in which the proceeding will be or 

has been filed and, as soon as known, 

the docket number assigned to that 

proceeding. Each commodity broker that 

is a futures commission merchant and 

against which a bankruptcy petition is 

filed or with respect to which an 

application for a protective decree 

under SIPA is filed shall immediately 

upon the filing of such petition or 

application notify the Commission and 

such commodity broker’s designated 

self-regulatory organization of the filing 

date, the court in which the proceeding 

has been filed, and, as soon as known, 

the docket number assigned to that 

proceeding. 

(2) Of transfers under section 764(b) 

of the Bankruptcy Code. As soon as 

possible, the trustee of a commodity 

broker that is a futures commissions 

merchant, the relevant designated selfregulatory organization, or the 

applicable clearing organization must 

notify the Commission, and in the case 

of a futures commission merchant, the 

trustee shall also notify its designated 

self-regulatory organization and clearing 

organization(s), if such person intends 

to transfer or to apply to transfer open 

commodity contracts or customer 

property on behalf of the public 

customers of the debtor in accordance 

with section 764(b) of the Bankruptcy 

Code and § 190.07(c) or (d). 

(c) Notices to customers—(1) 

Specifically identifiable property other 

than open commodity contracts. In any 

case in which an order for relief has 

been entered, the trustee must use all 

reasonable efforts to promptly notify, in 

accordance with paragraph (a)(2) of this 

section, any customer whose futures 

account, foreign futures account, or 

cleared swaps account includes 

specifically identifiable property, other 

than open commodity contracts, which 

has not been liquidated, that such 

specifically identifiable property may be 

liquidated commencing on and after the 

seventh day after the order for relief (or 

such other date as is specified by the 

trustee in the notice with the approval 

of the Commission or court) if the 

customer has not instructed the trustee 

in writing before the deadline specified 

in the notice to return such property 

pursuant to the terms for distribution of 

specifically identifiable property 

contained in § 190.09(d)(1). Such notice 

must describe the specifically 

identifiable property and specify the 

terms upon which that property may be 

returned, including if applicable and to 

the extent practicable any substitute 

customer property that must be 

provided by the customer. 

(2) Open commodity contracts carried 

in hedging accounts. To the extent 

reasonably practicable under the 

circumstances of the case, and following 

consultation with the Commission, the 

trustee may treat open commodity 

contracts of public customers identified 

on the books and records of the debtor 

as held in a futures account, foreign 

futures account, or cleared swaps 

account designated as a hedging account 

in the debtor’s records, as specifically 

identifiable property of such customer. 

(i) If the trustee does not exercise such 

authority, such open commodity 

contracts do not constitute specifically 

identifiable property. 

(ii) If the trustee exercises such 

authority: 

(A) The trustee shall use reasonable 

efforts to promptly notify, in accordance 

with paragraph (a)(2) of this section, 

each relevant public customer of such 

determination. 

(B)(1) Where, in the judgment of the 

trustee, the books and records of the 

debtor reveal a clear preference by a 

relevant public customer with respect to 

transfer or liquidation of open 

commodity contracts, the trustee shall 

endeavor, to the extent reasonably 

practicable, to comply with that 

preference. 

(2) Where, in the judgment of the 

trustee, the books and records of the 

debtor do not reveal a clear preference 

by a relevant public customer with 


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respect to transfer or liquidation of open 

commodity contracts, the trustee will 

request the customer to provide written 

instructions whether to transfer or 

liquidate such open commodity 

contracts. Such notice must specify the 

manner for providing such instructions 

and the deadline by which the customer 

must provide instructions. 

(C) Such notice must also inform the 

customer that: 

(1) (Where instructions have been 

requested pursuant to paragraph 

(c)(2)(ii)(B)(2) of this section), if the 

customer does not provide instructions 

in the prescribed manner and by the 

prescribed deadline, the customer’s 

open commodity contracts will not be 

treated as specifically identifiable 

property under this part; 

(2) Any transfer of the open 

commodity contracts is subject to the 

terms for distribution contained in 

§ 190.09(d)(2); 

(3) Absent compliance with any terms 

imposed by the trustee or the court, the 

trustee may liquidate the open 

commodity contracts; and 

(4) Providing (or having provided) 

instructions may not prevent the open 

commodity contracts from being 

liquidated. 

(3) Involuntary cases. Prior to entry of 

an order for relief, and upon leave of the 

court, a trustee appointed in an 

involuntary proceeding pursuant to 

section 303 of the Bankruptcy Code may 

notify customers, in accordance with 

paragraph (a)(2) of this section, of the 

commencement of such proceeding and 

may request customer instructions with 

respect to the return, liquidation, or 

transfer of specifically identifiable 

property. 

(4) Notice of bankruptcy and request 

for proof of customer claim. The trustee 

shall promptly notify, in accordance 

with paragraph (a)(2) of this section, 

each customer that an order for relief 

has been entered and instruct each 

customer to file a proof of customer 

claim containing the information 

specified in paragraph (e) of this 

section. Such notice may be given 

separately from any notice provided in 

accordance with paragraph (c) of this 

section. The trustee shall cause the 

proof of customer claim form referred to 

in paragraph (e) of this section to set 

forth the bar date for its filing. 

(d) Notice of court filings. The trustee 

shall promptly provide the Commission 

with copies of any complaint, motion, 

or petition filed in a commodity broker 

bankruptcy which concerns the 

disposition of customer property. Court 

filings shall be directed to the 

Commission addressed as provided in 

paragraph (a)(1) of this section. 

(e) Proof of customer claim. The 

trustee shall request that customers 

provide, to the extent reasonably 

practicable, information sufficient to 

determine a customer’s claim in 

accordance with the regulations 

contained in this part, including in the 

discretion of the trustee: 

(1) The class of commodity contract 

account upon which each claim is based 

(i.e., futures account, foreign futures 

account, cleared swaps account, or 

delivery account (and, in the case of a 

delivery account, how much is based on 

cash delivery property and how much is 

based on the value of physical delivery 

property); 

(2) Whether the claimant is a public 

customer or a non-public customer; 

(3) The number of commodity 

contract accounts held by each 

claimant, and, for each such account: 

(i) The account number; 

(ii) The name in which the account is 

held; 

(iii) The balance as of the last account 

statement for the account, and 

information regarding any activity in the 

account from the date of the last account 

statement up to and including the filing 

date that affected the balance of the 

account; 

(iv) The capacity in which the 

account is held; 

(v) Whether the account is a joint 

account and, if so, the amount of the 

claimant’s percentage interest in that 

account and whether participants in the 

joint account are claiming jointly or 

separately; 

(vi) Whether the account is a 

discretionary account; 

(vii) Whether the account is an 

individual retirement account for which 

there is a custodian; and 

(viii) Whether the account is a crossmargining account for futures and 

securities; 

(4) A description of any accounts held 

by the claimant with the debtor that are 

not commodity contract accounts; 

(5) A description of all claims against 

the debtor not based upon a commodity 

contract account of the claimant or an 

account listed in response to paragraph 

(e)(4) of this section; 

(6) A description of all claims of the 

debtor against the claimant not included 

in the balance of a commodity contract 

account of the claimant; 

(7) A description of and the value of 

any open positions, unliquidated 

securities, or other unliquidated 

property held by the debtor on behalf of 

the claimant, indicating the portion of 

such property, if any, which was 

included in the information provided in 

paragraph (e)(3) of this section, and 

identifying any such property which 

would be specifically identifiable 

property as defined in § 190.01; 

(8) Whether the claimant holds 

positions in security futures products, 

and, if so, whether those positions are 

held in a futures account, a foreign 

futures account, or a securities account; 

(9) Whether the claimant wishes to 

receive payment in kind, to the extent 

practicable, for any claim for 

unliquidated securities or other 

unliquidated property; and 

(10) Copies of any documents which 

support the information contained in 

the proof of customer claim, including 

without limitation, customer 

confirmations, account statements, and 

statements of purchase or sale. 

(f) Proof of claim form. A template 

customer proof of claim form which 

may (but is not required to) be used by 

the trustee is set forth in appendix A to 

this part. 

(1) If there are no open commodity 

contracts that are being treated as 

specifically identifiable property (e.g., if 

the customer proof of claim form was 

distributed after the primary liquidation 

date), the trustee should modify the 

customer proof of claim form to delete 

references to open commodity contracts 

as specifically identifiable property. 

(2) In the event the trustee determines 

that the debtor’s books and records 

reflecting customer transactions are not 

reasonably reliable, or account 

statements are not available from which 

account balances as of the date of 

transfer or liquidation of customer 

property may be determined, the proof 

of claim form used by the trustee should 

be modified to take into account the 

particular facts and circumstances of the 

case. 

§ 190.04 Operation of the debtor’s estate— 

customer property. 

(a) Transfers—(1) All cases. The 

trustee for a commodity broker shall 

promptly use its best efforts to effect a 

transfer in accordance with § 190.07(c) 

and (d) no later than the seventh 

calendar day after the order for relief of 

the open commodity contracts and 

property held by the commodity broker 

for or on behalf of its public customers. 

(2) Involuntary cases. A commodity 

broker against which an involuntary 

petition in bankruptcy is filed, or the 

trustee if a trustee has been appointed 

in such case, shall use its best efforts to 

effect a transfer in accordance with 

§ 190.07(c) and (d) of all open 

commodity contracts and property held 

by the commodity broker for or on 

behalf of its public customers and such 

other property as the Commission in its 

discretion may authorize, on or before 

the seventh calendar day after the filing 


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date, and immediately cease doing 

business; provided, however, that if the 

commodity broker demonstrates to the 

Commission within such period that it 

was in compliance with the segregation 

and financial requirements of this 

chapter on the filing date, and the 

Commission determines, in its sole 

discretion, that such transfer is neither 

appropriate nor in the public interest, 

the commodity broker may continue in 

business subject to applicable 

provisions of the Bankruptcy Code and 

of this chapter. 

(b) Treatment of open commodity 

contracts—(1) Payments by the trustee. 

Prior to the primary liquidation date, 

the trustee may make payments of 

initial margin and variation settlement 

to a clearing organization, commodity 

broker, foreign clearing organization, or 

foreign futures intermediary, carrying 

the account of the debtor, pending the 

transfer, or liquidation of any open 

commodity contracts, whether or not 

such contracts are specifically 

identifiable property of a particular 

customer, provided, that: 

(i) To the extent within the trustee’s 

control, the trustee shall not make any 

payments on behalf of any commodity 

contract account on the books and 

records of the debtor that is in deficit; 

provided, however, that the provision in 

this paragraph (b)(1) shall not be 

construed to prevent a clearing 

organization, foreign clearing 

organization, futures commission 

merchant, or foreign futures 

intermediary carrying an account of the 

debtor from exercising its rights to the 

extent permitted under applicable law; 

(ii) Any margin payments made by the 

trustee with respect to a specific 

customer account shall not exceed the 

funded balance for that account; 

(iii) The trustee shall not make any 

payments on behalf of non-public 

customers of the debtor from funds that 

are segregated for the benefit of public 

customers; 

(iv) If the trustee receives payments 

from a customer in response to a margin 

call, then to the extent within the 

trustee’s control, the trustee must use 

such payments to make margin 

payments for the open commodity 

contract positions of such customer; 

(v) The trustee may not use payments 

received from one public customer to 

meet the margin (or any other) 

obligations of any other customer; and 

(vi) If funds segregated for the benefit 

of public customers in a particular 

account class exceed the aggregate net 

equity claims for all public customers in 

such account class, the trustee may use 

such excess funds to meet the margin 

obligations for any public customer in 

such account class whose account is 

under-margined (as described in 

paragraph (b)(4) of this section) but not 

in deficit, provided that the trustee 

issues a margin call to such customer 

and provided further that the trustee 

shall liquidate such customer’s open 

commodity contracts if the customer 

fails to make the margin payment within 

a reasonable time as provided in 

paragraph (b)(4) of this section. 

(2) Margin calls. The trustee (or, prior 

to appointment of the trustee, the debtor 

against which an involuntary petition 

was filed) may issue a margin call to any 

public customer whose commodity 

contract account contains open 

commodity contracts if such account is 

under-margined. 

(3) Margin payments by the customer. 

The full amount of any margin payment 

by a customer in response to a margin 

call under paragraph (b)(2) of this 

section must be credited to the funded 

balance of the particular account for 

which it was made. 

(4) Trustee obligation to liquidate 

certain open commodity contracts. The 

trustee shall, as soon as practicable 

under the circumstances, liquidate all 

open commodity contracts in any 

commodity contract account that is in 

deficit, or for which any mark-to-market 

calculation would result in a deficit, or 

for which the customer fails to meet a 

margin call made by the trustee within 

a reasonable time. Except as otherwise 

provided in this part, absent exigent 

circumstances, a reasonable time for 

meeting margin calls made by the 

trustee shall be deemed to be one hour, 

or such greater period not to exceed one 

business day, as the trustee may 

determine in its sole discretion. 

(5) Partial liquidation of open 

commodity contracts by others. In the 

event that a clearing organization, 

foreign clearing organization, futures 

commission merchant, foreign futures 

intermediary, or other person carrying a 

commodity customer account for the 

debtor in the nature of an omnibus 

account has liquidated only a portion of 

open commodity contracts in such 

account, the trustee will exercise 

reasonable business judgment in 

assigning the liquidating transactions to 

the underlying commodity customer 

accounts carried by the debtor. 

Specifically, the trustee should 

endeavor to assign the contracts as 

follows: First, to liquidate open 

commodity contracts in a risk-reducing 

manner in any accounts that are in 

deficit; second, to liquidate open 

commodity contracts in a risk-reducing 

manner in any accounts that are 

undermargined; third, to liquidate open 

commodity contracts in a risk-reducing 

manner in any other accounts, and 

finally to liquidate any remaining open 

commodity contracts in any accounts. If 

more than one commodity contract 

account reflects open commodity 

contracts in a particular account class 

for which liquidating transactions have 

been executed, the trustee shall to the 

extent practicable allocate the 

liquidating transactions to such 

commodity contract accounts pro rata 

based on the number of open 

commodity contracts of such 

commodity contract accounts. For 

purposes of this section, the term ‘‘a 

risk-reducing manner’’ is measured by 

margin requirements set using the 

margin methodology and parameters 

followed by the derivatives clearing 

organization at which such contracts are 

cleared. 

(c) Contracts moving into delivery 

position. After entry of the order for 

relief and subject to paragraph (a) of this 

section, which requires the trustee to 

attempt to make transfers to other 

commodity brokers permitted by 

§ 190.07 and section 764(b) of the 

Bankruptcy Code, the trustee shall use 

its best efforts to liquidate any open 

commodity contract that settles upon 

expiration or exercise via the making or 

taking of delivery of a commodity: 

(1) If such contract is a futures 

contract or a cleared swaps contract, 

before the earlier of the last trading day 

or the first day on which notice of intent 

to deliver may be tendered with respect 

thereto, or otherwise before the debtor 

or its customer incurs an obligation to 

make or take delivery of the commodity 

under such contract; 

(2) If such contract is a long option on 

a commodity and has value, before the 

first date on which the contract could be 

automatically exercised or the last date 

on which the contract could be 

exercised if not subject to automatic 

exercise; or 

(3) If such contract is a short option 

on a commodity that is in-the-money in 

favor of the long position holder, before 

the first date on which the long option 

position could be exercised. 

(d) Liquidation or offset. After entry of 

the order for relief and subject to 

paragraph (a) of this section, which 

requires the trustee to attempt to make 

transfers to other commodity brokers 

permitted by § 190.07 and section 764(b) 

of the Bankruptcy Code, and except as 

otherwise set forth in this paragraph (d), 

the following commodity contracts and 

other property held by or for the 

account of a debtor must be liquidated 

in the market in accordance with 

paragraph (e)(1) of this section or 

liquidated via book entry in accordance 

with paragraph (e)(2) of this section by 


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the trustee promptly and in an orderly 

manner: 

(1) Open commodity contracts. All 

open commodity contracts, except for: 

(i) Commodity contracts that are 

specifically identifiable property (if 

applicable) and are subject to customer 

instructions to transfer (in lieu of 

liquidating) as provided in 

§ 190.03(c)(2), provided that the 

customer is in compliance with the 

terms of § 190.09(d)(2); and 

(ii) Open commodity contract 

positions that are in a delivery position, 

which shall be treated in accordance 

with the provisions of § 190.06. 

(2) Specifically identifiable property, 

other than open commodity contracts or 

physical delivery property. Specifically 

identifiable property, other than open 

commodity contracts or physical 

delivery property, to the extent that: 

(i) The fair market value of such 

property is less than 75% of its fair 

market value on the date of entry of the 

order for relief; 

(ii) Failure to liquidate the 

specifically identifiable property may 

result in a deficit balance in the 

applicable customer account; or 

(iii) The trustee has not received 

instructions to return pursuant to 

§ 190.03(c)(1), or has not returned such 

property upon the terms contained in 

§ 190.09(d)(1). 

(3) Letters of credit. The trustee may 

request that a customer deliver 

substitute customer property with 

respect to any letter of credit received, 

acquired, or held to margin, guarantee, 

secure, purchase, or sell a commodity 

contract, whether the letter of credit is 

held by the trustee on behalf of the 

debtor’s estate or a derivatives clearing 

organization or a foreign intermediary or 

foreign clearing organization on a passthrough or other basis, including in 

cases where the letter of credit has 

expired since the date of the order for 

relief. The amount of the request may 

equal the full face amount of the letter 

of the credit or any portion thereof, to 

the extent required or may be required 

in the trustee’s discretion to ensure pro 

rata treatment among customer claims 

within each account class, consistent 

with §§ 190.08 and 190.09. 

(i) If a customer fails to provide 

substitute customer property within a 

reasonable time specified by the trustee, 

the trustee may, if the letter of credit has 

not expired, draw upon the full amount 

of the letter of credit or any portion 

thereof. 

(ii) For any letter of credit referred to 

in this paragraph (d)(3), the trustee shall 

treat any portion that is not drawn upon 

(less the value of any substitute 

customer property delivered by the 

customer) as having been distributed to 

the customer for purposes of calculating 

entitlements to distribution or transfer. 

The expiration of the letter of credit on 

or at any time after the date of the order 

for relief shall not affect such 

calculation. 

(iii) Any proceeds of a letter of credit 

drawn by the trustee, or substitute 

customer property posted by a 

customer, shall be considered customer 

property in the account class applicable 

to the original letter of credit. 

(iv) The trustee shall, in exercising 

their discretion with regard to 

addressing letters of credit, including as 

to the timing and amount of a request 

for substitute customer property, 

endeavor to mitigate, to the extent 

practicable, the adverse effects upon 

customers that have posted letters of 

credit, in a manner that achieves pro 

rata treatment among customer claims. 

(4) All other property. All other 

property, other than physical delivery 

property held for delivery in accordance 

with the provisions of § 190.06, which 

is not required to be transferred or 

returned pursuant to customer 

instructions and which has not been 

liquidated in accordance with 

paragraphs (d)(1) through (3) of this 

section. 

(e) Liquidation of open commodity 

contracts—(1) By the trustee or a 

clearing organization in the market—(i) 

Debtor as a clearing member. For open 

commodity contracts cleared by the 

debtor as a member of a clearing 

organization, the trustee or clearing 

organization, as applicable, shall 

liquidate such open commodity 

contracts pursuant to the rules of the 

clearing organization, a designated 

contract market, or a swap execution 

facility, if and as applicable. Any such 

rules providing for liquidation other 

than on the open market shall be 

designed to achieve, to the extent 

feasible under market conditions at the 

time of liquidation, a process for 

liquidating open commodity contracts 

that results in competitive pricing. For 

open commodity contracts that are 

futures or options on futures that were 

established on or subject to the rules of 

a foreign board of trade and cleared by 

the debtor as a member of a foreign 

clearing organization, the trustee shall 

liquidate such open commodity 

contracts pursuant to the rules of the 

foreign clearing organization or foreign 

board of trade or, in the absence of such 

rules, in the manner the trustee 

determines appropriate. 

(ii) Debtor not a clearing member. For 

open commodity contracts submitted by 

the debtor for clearing through one or 

more accounts established with a 

futures commission merchant (as 

defined in § 1.3 of this chapter) or 

foreign futures intermediary, the trustee 

shall use commercially reasonable 

efforts to liquidate the open commodity 

contracts to achieve competitive pricing, 

to the extent feasible under market 

conditions at the time of liquidation and 

subject to any rules or orders of the 

relevant clearing organization, foreign 

clearing organization, designated 

contract market, swap execution facility, 

or foreign board of trade governing the 

liquidation of open commodity 

contracts. 

(2) By the trustee or a clearing 

organization via book entry offset. Upon 

application by the trustee or clearing 

organization, the Commission may 

permit open commodity contracts to be 

liquidated, or settlement on such 

contracts to be made, by book entry. 

Such book entry shall offset open 

commodity contracts, whether matched 

or not matched on the books of the 

commodity broker, using the settlement 

price for such commodity contracts as 

determined by the clearing organization 

in accordance with its rules. Such rules 

shall be designed to establish, to the 

extent feasible under market conditions 

at the time of liquidation, such 

settlement prices in a competitive 

manner. 

(3) By a futures commission merchant 

or foreign futures intermediary. For 

open commodity contracts cleared by 

the debtor through one or more accounts 

established with a futures commission 

merchant or a foreign futures 

intermediary, such futures commission 

merchant or foreign futures 

intermediary may exercise any 

enforceable contractual rights it has to 

liquidate such commodity contracts, 

provided, that it shall use commercially 

reasonable efforts to liquidate the open 

commodity contracts to achieve 

competitive pricing, to the extent 

feasible under market conditions at the 

time of liquidation and subject to any 

rules or orders of the relevant clearing 

organization, foreign clearing 

organization, designated contract 

market, swap execution facility, or 

foreign board of trade governing its 

liquidation of such open commodity 

contracts. If a futures commission 

merchant or foreign futures 

intermediary fails to use commercially 

reasonable efforts to liquidate open 

commodity contracts to achieve 

competitive pricing in accordance with 

this paragraph (e)(3), the trustee may 

seek damages reflecting the difference 

between the price (or prices) at which 

the relevant commodity contracts would 

have been liquidated using 

commercially reasonable efforts to 


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achieve competitive pricing and the 

price (or prices) at which the 

commodity contracts were liquidated, 

which shall be the sole remedy available 

to the trustee. In no event shall any such 

liquidation be voided. 

(4) Liquidation only. (i) Nothing in 

this part shall be interpreted to permit 

the trustee to purchase or sell new 

commodity contracts for the debtor or 

its customers except to offset open 

commodity contracts or to transfer any 

transferable notice received by the 

debtor or the trustee under any 

commodity contract; provided, however, 

that the trustee may, in its discretion 

and with approval of the Commission, 

cover uncovered inventory or 

commodity contracts of the debtor 

which cannot be liquidated immediately 

because of price limits or other market 

conditions, or may take an offsetting 

position in a new month or at a strike 

price for which limits have not been 

reached. 

(ii) Notwithstanding paragraph 

(e)(4)(i) of this section, the trustee may, 

with the written permission of the 

Commission, operate the business of the 

debtor in the ordinary course, including 

the purchase or sale of new commodity 

contracts on behalf of the customers of 

the debtor under appropriate 

circumstances, as determined by the 

Commission. 

(f) Long option contracts. Subject to 

paragraphs (d) and (e) of this section, 

the trustee shall use its best efforts to 

assure that a commodity contract that is 

a long option contract with value does 

not expire worthless. 

§ 190.05 Operation of the debtor’s estate— 

general. 

(a) Compliance with the Act and 

regulations in this chapter. Except as 

specifically provided otherwise in this 

part, the trustee shall use reasonable 

efforts to comply with all of the 

provisions of the Act and of the 

regulations in this chapter as if it were 

the debtor. 

(b) Computation of funded balance. 

The trustee shall use reasonable efforts 

to compute a funded balance for each 

customer account that contains open 

commodity contracts or other property 

as of the close of business each business 

day subsequent to the order for relief 

until the date all open commodity 

contracts and other property in such 

account have been transferred or 

liquidated, which shall be as accurate as 

reasonably practicable under the 

circumstances, including the reliability 

and availability of information. 

(c) Records—(1) Maintenance. Except 

as otherwise ordered by the court or as 

permitted by the Commission, records 

required under this chapter to be 

maintained by the debtor, including 

records of the computations required by 

this part, shall be maintained by the 

trustee until such time as the debtor’s 

case is closed. 

(2) Accessibility. The records required 

to be maintained by paragraph (c)(1) of 

this section shall be available during 

business hours to the Commission and 

the U.S. Department of Justice. The 

trustee shall give the Commission and 

the U.S. Department of Justice access to 

all records of the debtor, including 

records required to be retained in 

accordance with § 1.31 of this chapter 

and all other records of the commodity 

broker, whether or not the Act or this 

chapter would require such records to 

be maintained by the commodity broker. 

(d) Customer statements. The trustee 

shall use all reasonable efforts to 

continue to issue account statements 

with respect to any customer for whose 

account open commodity contracts or 

other property is held that has not been 

liquidated or transferred. With respect 

to such accounts, the trustee must also 

issue an account statement reflecting 

any liquidation or transfer of open 

commodity contracts or other property 

promptly after such liquidation or 

transfer. 

(e) Other matters—(1) Disbursements. 

With the exception of transfers of 

customer property made in accordance 

with § 190.07, the trustee shall make no 

disbursements to customers except with 

approval of the court. 

(2) Investment. The trustee shall 

promptly invest the proceeds from the 

liquidation of commodity contracts or 

specifically identifiable property, and 

may invest any other customer property, 

in obligations of the United States and 

obligations fully guaranteed as to 

principal and interest by the United 

States, provided that such obligations 

are maintained in a depository located 

in the United States, its territories or 

possessions. 

(f) Residual interest. The trustee shall 

apply the residual interest provisions of 

§ 1.11 of this chapter in a manner 

appropriate to the context of their 

responsibilities as a bankruptcy trustee 

pursuant subchapter IV of chapter 7 of 

the Bankruptcy Code and this part, and 

in light of the existence of a surplus or 

deficit in customer property available to 

pay customer claims. 

§ 190.06 Making and taking delivery under 

commodity contracts. 

(a) Deliveries—(1) General. The 

provisions of this paragraph (a) apply to 

commodity contracts that settle upon 

expiration or exercise by making or 

taking delivery of physical delivery 

property, if such commodity contracts 

are in a delivery position on the filing 

date, or the trustee is unable to liquidate 

such commodity contracts in 

accordance with § 190.04(c) to prevent 

them from moving into a delivery 

position, i.e., before the debtor or its 

customer incurs bilateral contractual 

obligations to make or take delivery 

under such commodity contracts. 

(2) Delivery made or taken on behalf 

of a customer outside of the 

administration of the debtor’s estate. (i) 

The trustee shall use reasonable efforts 

to allow a customer to deliver physical 

delivery property that is held directly by 

the customer and not by the debtor (and 

thus not recorded in any commodity 

contract account of the customer) in 

settlement of a commodity contract, and 

to allow payment in exchange for such 

delivery, to occur outside the 

administration of the debtor’s estate, 

when the rules of the exchange or other 

market listing the commodity contract, 

or the clearing organization or the 

foreign clearing organization clearing 

the commodity contract, as applicable, 

prescribe a process for delivery that 

allows the delivery to be fulfilled: 

(A) In the normal course directly by 

the customer; 

(B) By substitution of the customer for 

the commodity broker; or 

(C) Through agreement of the buyer 

and seller to alternative delivery 

procedures. 

(ii) Where a customer delivers 

physical delivery property in settlement 

of a commodity contract outside of the 

administration of the debtors’ estate in 

accordance with paragraph (a)(2)(i) of 

this section, any property of such 

customer held at the debtor in 

connection with such contract must 

nonetheless be included in the net 

equity claim of that customer, and, as 

such, can only be distributed pro rata at 

the time of, and as part of, any 

distributions to customers made by the 

trustee. 

(3) Delivery as part of administration 

of the debtor’s estate. When the trustee 

determines that it is not practicable to 

effect delivery as provided in paragraph 

(a)(2) of this section: 

(i) To facilitate the making or taking 

of delivery directly by a customer, the 

trustee may, as it determines reasonable 

under the circumstances of the case and 

consistent with the pro rata distribution 

of customer property by account class: 

(A) When a customer is obligated to 

make delivery, return any physical 

delivery property to the customer that is 

held by the debtor for or on behalf of the 

customer under the terms set forth in 

§ 190.09(d)(1)(ii), to allow the customer 

to deliver such property to fulfill its 


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delivery obligation under the 

commodity contract; or 

(B) When a customer is obligated to 

take delivery: 

(1) Return any cash delivery property 

to the customer that is reflected in the 

customer’s delivery account, provided 

that cash delivery property returned 

under this paragraph (a)(3)(i)(B)(1) shall 

not exceed the lesser of: 

(i) The amount the customer is 

required to pay for delivery of the 

commodity; or 

(ii) The customer’s net funded balance 

for all of the customer’s commodity 

contract accounts; 

(2) Return cash, securities, or other 

property held in the customer’s nondelivery commodity contract accounts, 

provided that property returned under 

this section shall not exceed the lesser 

of: 

(i) The amount the customer is 

required to pay for delivery of the 

commodity; or 

(ii) The net funded balance for all of 

the customer’s commodity contract 

accounts reduced by any amount 

returned to the customer pursuant to 

paragraph (a)(3)(i)(B)(1) of this section, 

and provided further, however, that the 

trustee may distribute such property 

only to the extent that the customer’s 

funded balance for each such account 

exceeds the minimum margin 

obligations for such account (as 

described in § 190.04(b)(2)); and 

(C) Impose such conditions on the 

customer as it considers appropriate to 

assure that property returned to the 

customer is used to fulfill the 

customer’s delivery obligations. 

(ii) If the trustee does not return 

physical delivery property, cash 

delivery property, or other property in 

the form of cash or cash equivalents to 

the customer as provided in paragraph 

(a)(3)(i) of this section, subject to 

paragraph (a)(4) of this section: 

(A) To the extent practical, the trustee 

shall make or take delivery of physical 

delivery property in the same manner as 

if no bankruptcy had occurred, and 

when making delivery, the party to 

which delivery is made must pay the 

full price required for taking such 

delivery; or 

(B) When taking delivery of physical 

delivery property: 

(1) The trustee shall pay for the 

delivery first using the customer’s cash 

delivery property or other property, 

limited to the amounts set forth in 

paragraph (a)(3)(i)(B) of this section, 

along with any cash transferred by the 

customer to the trustee on or after the 

filing date for the purpose of paying for 

delivery. 

(2) If the value of the cash or cash 

equivalents that may be used to pay for 

deliveries as described in paragraph 

(a)(3)(i)(B) of this section is less than the 

amount required to be paid for taking 

delivery, the trustee shall issue a 

payment call to the customer. The full 

amount of any payment made by the 

customer in response to a payment call 

must be credited to the funded balance 

of the particular account for which such 

payment is made. 

(3) If the customer fails to meet a call 

for payment under paragraph 

(a)(3)(ii)(B)(2) of this section before 

payment is made for delivery, the 

trustee must convert any physical 

delivery property received on behalf of 

the customer to cash as promptly as 

possible. 

(4) Deliveries in a securities account. 

If an open commodity contract held in 

a futures account, foreign futures 

account, or cleared swaps account 

requires delivery of a security upon 

expiration or exercise of such 

commodity contract, and delivery is not 

completed pursuant to paragraph (a)(2) 

or (a)(3)(i) of this section, the trustee 

may make or take delivery in a 

securities account in a manner 

consistent with paragraph (a)(3)(ii) of 

this section, provided, however, that the 

trustee may transfer property from the 

customer’s commodity contract 

accounts to the securities account to 

fulfill the delivery obligation only to the 

extent that the customer’s funded 

balance for such commodity contract 

account exceeds the customer’s 

minimum margin obligations for such 

accounts (as described in § 190.04(b)(2)) 

and provided further that the customer 

is not under-margined or does not have 

a deficit balance in any other 

commodity contract accounts. 

(5) Delivery made or taken on behalf 

of proprietary account. If delivery of 

physical delivery property is to be made 

or taken on behalf of the debtor’s own 

account or the account of any nonpublic customer of the debtor, the 

trustee shall make or take delivery, as 

the case may be, on behalf of the 

debtor’s estate, provided that if the 

trustee takes delivery of physical 

delivery property it must convert such 

property to cash as promptly as 

possible. 

(b) Special account class provisions 

for delivery accounts. (1) Within the 

delivery account class, the trustee shall 

treat— 

(i) Physical delivery property held in 

delivery accounts as of the filing date, 

and the proceeds of any such physical 

delivery property subsequently 

received, as part of the physical delivery 

account class; and 

(ii) Cash delivery property in delivery 

accounts as of the filing date, along with 

any physical delivery property for 

which delivery is subsequently taken on 

behalf of a customer in accordance with 

paragraph (a)(3) of this section, as part 

of a separate cash delivery account 

class. 

(2)(i) If the debtor holds any cash or 

cash equivalents in an account 

maintained at a bank, clearing 

organization, foreign clearing 

organization, or other person, under a 

name or in a manner that clearly 

indicates that the account holds 

property for the purpose of making 

payment for taking delivery, or 

receiving payment for making delivery, 

of a commodity under commodity 

contracts, such property shall (subject to 

§ 190.09) be considered customer 

property— 

(A) In the cash delivery account class 

if held for making payment for taking 

delivery; and 

(B) In the physical delivery account 

class, if held as a result of receiving 

such payment for a making delivery 

after the filing date. 

(ii) Any other property (excluding 

property segregated for the benefit of 

customer in the futures, foreign futures 

or cleared swaps account class) that is 

traceable as having been held or 

received for the purpose of making 

delivery, or as having been held or 

received as a result of taking delivery, 

of a commodity under commodity 

contracts, shall (subject to § 190.09) be 

considered customer property— 

(A) In the cash delivery account class 

if received after the filing date in 

exchange for taking delivery; and 

(B) Otherwise shall be considered 

customer property in the physical 

delivery account class. 

§ 190.07 Transfers. 

(a) Transfer rules. No clearing 

organization or self-regulatory 

organization may adopt, maintain in 

effect, or enforce rules that: 

(1) Are inconsistent with the 

provisions of this part; 

(2) Interfere with the acceptance by its 

members of transfers of commodity 

contracts, and the property margining or 

securing such contracts, from futures 

commission merchants that are required 

to transfer accounts pursuant to 

§ 1.17(a)(4) of this chapter; or 

(3) Interfere with the acceptance by its 

members of transfers of commodity 

contracts, and the property margining or 

securing such contracts, from a futures 

commission merchant that is a debtor as 

defined in § 190.01, if such transfers 

have been approved by the Commission, 


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provided, however, that this paragraph 

(a)(3) shall not— 

(i) Limit the exercise of any 

contractual right of a clearing 

organization or other registered entity to 

liquidate or transfer open commodity 

contracts; or 

(ii) Be interpreted to limit a clearing 

organization’s ability adequately to 

manage risk. 

(b) Requirements for transferees. (1) It 

is the duty of each transferee to assure 

that it will not accept a transfer that 

would cause the transferee to be in 

violation of the minimum financial 

requirements set forth in this chapter. 

(2) Any transferee that accepts a 

transfer of open commodity contracts 

from the estate of the debtor— 

(i) Accepts the transfer subject to any 

loss that may arise in the event the 

transferee cannot recover from the 

customer any deficit balance that may 

arise related to the transferred open 

commodity contracts. 

(ii) If the commodity contracts were 

held for the account of a customer: 

(A) Must keep such commodity 

contracts open at least one business day 

after their receipt, unless the customer 

for whom the transfer is made fails to 

respond within a reasonable time to a 

margin call for the difference between 

the margin transferred with such 

commodity contracts and the margin 

which such transferee would require 

with respect to a similar set of 

commodity contracts held for the 

account of a customer in the ordinary 

course of business; and 

(B) May not collect commissions with 

respect to the transfer of such 

commodity contracts. 

(3) A transferee may accept open 

commodity contracts and property, and 

open accounts on its records, for 

customers whose commodity contracts 

and property are transferred pursuant to 

this part prior to completing customer 

diligence, provided that account 

opening diligence as required by law 

(including the risk disclosures referred 

to in § 1.65(a)(3) of this chapter) is 

performed, and records and information 

required by law are obtained, as soon as 

practicable, but in any event within six 

months of the transfer, unless this time 

is extended for a particular account, 

transferee, or debtor by the Commission. 

(4)(i) Any account agreements 

governing a transferred account 

(including an account that has been 

partially transferred) shall be deemed 

assigned to the transferee by operation 

of law and shall govern the transferee 

and customer’s relationship until such 

time as the transferee and customer 

enter into a new agreement; provided, 

however, that any breach of such 

agreement by the debtor existing at or 

before the time of the transfer 

(including, but not limited to, any 

failure to segregate sufficient customer 

property) shall not constitute a default 

or breach of the agreement on the part 

of the transferee, or constitute a defense 

to the enforcement of the agreement by 

the transferee. 

(ii) Paragraph (b)(4)(i) of this section 

shall not apply where the customer has 

a pre-existing account agreement with 

the transferee futures commission 

merchant. In such a case, the transferred 

account will be governed by that preexisting account agreement. 

(5) If open commodity contracts or 

any specifically identifiable property 

has been, or is to be, transferred in 

accordance with section 764(b) of the 

Bankruptcy Code and this section, 

customer instructions previously 

received by the trustee with respect to 

open commodity contracts or with 

respect to specifically identifiable 

property, shall be transmitted to the 

transferee of property, which shall 

comply therewith to the extent 

practicable. 

(c) Eligibility for transfer under 

section 764(b) of the Bankruptcy Code— 

accounts eligible for transfer. All 

commodity contract accounts (including 

accounts with no open commodity 

contract positions) are eligible for 

transfer after the order for relief 

pursuant to section 764(b) of the 

Bankruptcy Code, except: 

(1) The debtor’s own account or the 

accounts of general partners of the 

debtor if the debtor is a partnership; and 

(2) Accounts that are in deficit. 

(d) Special rules for transfers under 

section 764(b) of the Bankruptcy Code— 

(1) Effecting transfer. The trustee for a 

commodity broker shall use its best 

efforts to effect a transfer to one or more 

other commodity brokers of all eligible 

commodity contract accounts, open 

commodity contracts and property held 

by the debtor for or on behalf of its 

customers, based on customer claims or 

record, no later than the seventh 

calendar day after the order for relief. 

(2) Partial transfers; multiple 

transferees—(i) Of the customer estate. 

If all eligible commodity contract 

accounts held by a debtor cannot be 

transferred under this section, a partial 

transfer may nonetheless be made. The 

Commission will not disapprove such a 

transfer for the sole reason that it was 

a partial transfer. Commodity contract 

accounts may be transferred to one or 

more transferees, and, subject to 

paragraph (d)(4) of this section, may be 

transferred to different transferees by 

account class. 

(ii) Of a customer’s commodity 

contract account. If all of a customer’s 

open commodity contracts and property 

cannot be transferred under this section, 

a partial transfer of contracts and 

property may be made so long as such 

transfer would not result in an increase 

in the amount of any customer’s net 

equity claim. One, but not the only, 

means to effectuate a partial transfer is 

by liquidating a portion of the open 

commodity contracts held by a customer 

such that sufficient value is realized, or 

margin requirements are reduced to an 

extent sufficient, to permit the transfer 

of some or all of the remaining open 

commodity contracts and property. If 

any open commodity contract to be 

transferred in a partial transfer is part of 

a spread or straddle, to the extent 

practicable under the circumstances, 

each side of such spread or straddle 

must be transferred or none of the open 

commodity contracts comprising the 

spread or straddle may be transferred. 

(3) Letters of credit. A letter of credit 

received, acquired, or held to margin, 

guarantee, secure, purchase, or sell a 

commodity contract may be transferred 

with an eligible commodity contract 

account if it is held by a derivatives 

clearing organization on a pass-through 

or other basis or is transferable by its 

terms, so long as the transfer will not 

result in a recovery which exceeds the 

amount to which the customer would be 

entitled under §§ 190.08 and 190.09. If 

the letter of credit cannot be transferred 

as provided for in the foregoing 

sentence, and the customer does not 

deliver substitute customer property to 

the trustee in accordance with 

§ 190.04(d)(3), the trustee may draw 

upon a portion or all of the letter of 

credit, the proceeds of which shall be 

treated as customer property in the 

applicable account class. 

(4) Physical delivery property. The 

trustee shall use reasonable efforts to 

prevent physical delivery property held 

for the purpose of making delivery on a 

commodity contract from being 

transferred separate and apart from the 

related commodity contract, or to a 

different transferee. 

(5) No prejudice to other customers. 

No transfer shall be made under this 

part by the trustee if, after taking into 

account all customer property available 

for distribution to customers in the 

applicable account class at the time of 

the transfer, such transfer would result 

in insufficient remaining customer 

property to make an equivalent 

percentage distribution (including all 

previous transfers and distributions) to 

all customers in the applicable account 

class, based on— 

(i) Customer claims of record; and 


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(ii) Estimates of other customer claims 

made in the trustee’s reasonable 

discretion based on available 

information, in each case as of the 

calendar day immediately preceding 

transfer. 

(e) Prohibition on avoidance of 

transfers under section 764(b) of the 

Bankruptcy Code—(1) Pre-relief 

transfers. Notwithstanding the 

provisions of paragraphs (c) and (d) of 

this section, the following transfers are 

approved and may not be avoided under 

sections 544, 546, 547, 548, 549, or 

724(a) of the Bankruptcy Code: 

(i) The transfer of commodity contract 

accounts or customer property prior to 

the entry of the order for relief in 

compliance with § 1.17(a)(4) of this 

chapter unless such transfer is 

disapproved by the Commission; 

(ii) The transfer, withdrawal, or 

settlement, prior to the order for relief 

at the request of a public customer, 

including a transfer, withdrawal, or 

settlement at the request of a public 

customer that is a commodity broker, of 

commodity contract accounts or 

customer property held from or for the 

account of such customer by or on 

behalf of the debtor unless: 

(A) The customer acted in collusion 

with the debtor or its principals to 

obtain a greater share of customer 

property or the bankruptcy estate than 

that to which it would be entitled under 

this part; or 

(B) The transfer is disapproved by the 

Commission; 

(iii) The transfer prior to the order for 

relief by a clearing organization, or by 

a receiver that has been appointed for 

the futures commission merchant (FCM) 

that is now a debtor, of one or more 

accounts held for or on behalf of 

customers of the debtor, or of 

commodity contracts and other 

customer property held for or on behalf 

of customers of the debtor, provided 

that the transfer is not disapproved by 

the Commission. 

(2) Post-relief transfers. 

Notwithstanding the provisions of 

paragraphs (c) and (d) of this section, 

the following transfers are approved and 

may not be avoided under sections 544, 

546, 547, 548, 549, or 724(a) of the 

Bankruptcy Code: 

(i) The transfer of a commodity 

contract account or customer property 

eligible to be transferred under 

paragraphs (c) and (d) of this section 

made by the trustee or by any clearing 

organization on or before the seventh 

calendar day after the entry of the order 

for relief, as to which the Commission 

has not disapproved the transfer; or 

(ii) The transfer of a commodity 

contract account or customer property at 

the direction of the Commission on or 

before the seventh calendar day after the 

order for relief, upon such terms and 

conditions as the Commission may 

deem appropriate and in the public 

interest. 

(f) Commission action. 

Notwithstanding any other provision of 

this section (other than paragraphs 

(d)(2)(ii) and (d)(5) of this section), in 

appropriate cases and to protect the 

public interest, the Commission may: 

(1) Prohibit the transfer of a particular 

set or sets of commodity contract 

accounts and customer property; or 

(2) Permit transfers of a particular set 

or sets of commodity contract accounts 

and customer property that do not 

comply with the requirements of this 

section. 

§ 190.08 Calculation of funded net equity. 

For purposes of this subpart, funded 

net equity shall be computed as follows: 

(a) Funded claim. The funded net 

equity claim of a customer shall be 

equal to the aggregate of the funded 

balances of such customer’s net equity 

claim for each account class. 

(b) Net equity. Net equity means a 

customer’s total customer claim of 

record against the estate of the debtor 

based on the customer property, 

including any commodity contracts, 

held by the debtor for or on behalf of 

such customer less any indebtedness of 

the customer to the debtor. Net equity 

shall be calculated as follows: 

(1) Step 1-equity determination. (i) 

Determine the equity balance of each 

commodity contract account of a 

customer by computing, with respect to 

such account, the sum of: 

(A) The ledger balance; 

(B) The open trade balance; and 

(C) The realizable market value, 

determined as of the close of the market 

on the last preceding market day, of any 

securities or other property held by or 

for the debtor from or for such account, 

plus accrued interest, if any. 

(ii) For the purposes of this paragraph 

(b)(1), the ledger balance of a customer 

account shall be calculated by: 

(A) Adding: 

(1) Cash deposited to purchase, 

margin, guarantee, secure, or settle a 

commodity contract; 

(2) Cash proceeds of liquidations of 

any securities or other property referred 

to in paragraph (b)(1)(i)(C) of this 

section; 

(3) Gains realized on trades; and 

(4) The face amount of any letter of 

credit received, acquired or held to 

margin, guarantee, secure, purchase or 

sell a commodity contract; and 

(B) Subtracting from the result: 

(1) Losses realized on trades; 

(2) Disbursements to or on behalf of 

the customer (including, for these 

purposes, transfers made pursuant to 

§§ 190.04(a) and 190.07); and 

(3) The normal costs attributable to 

the payment of commissions, brokerage, 

interest, taxes, storage, transaction fees, 

insurance, and other costs and charges 

lawfully incurred in connection with 

the purchase, sale, exercise, or 

liquidation of any commodity contract 

in such account. 

(iii) For purposes of this paragraph 

(b)(1), the open trade balance of a 

customer’s account shall be computed 

by subtracting the unrealized loss in 

value of the open commodity contracts 

held by or for such account from the 

unrealized gain in value of the open 

commodity contracts held by or for such 

account. 

(iv) For purposes of this paragraph 

(b)(1), in calculating the ledger balance 

or open trade balance of any customer, 

exclude any security futures products, 

any gains or losses realized on trades in 

such products, any property received to 

margin, guarantee, or secure such 

products (including interest thereon or 

the proceeds thereof), to the extent any 

of the foregoing are held in a securities 

account, and any disbursements to or on 

behalf of such customer in connection 

with such products or such property 

held in a securities account. 

(2) Step 2-customer determination 

(aggregation). Aggregate the credit and 

debit equity balances of all accounts of 

the same class held by a customer in the 

same capacity. Paragraphs (b)(2)(i) 

through (xii) of this section prescribe 

which accounts must be treated as being 

held in the same capacity and which 

accounts must be treated as being held 

in a separate capacity. 

(i) Except as otherwise provided in 

this paragraph (b)(2), all accounts that 

are maintained with a debtor in a 

person’s name and that, under this 

paragraph (b)(2), are deemed to be held 

by that person in its individual capacity 

shall be deemed to be held in the same 

capacity. 

(ii) An account maintained with a 

debtor by a guardian, custodian, or 

conservator for the benefit of a ward, or 

for the benefit of a minor under the 

Uniform Gift to Minors Act, shall be 

deemed to be held in a separate capacity 

from accounts held by such guardian, 

custodian or conservator in its 

individual capacity. 

(iii) An account maintained with a 

debtor in the name of an executor or 

administrator of an estate in its capacity 

as such shall be deemed to be held in 

a separate capacity from accounts held 

by such executor or administrator in its 

individual capacity. 


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(iv) An account maintained with a 

debtor in the name of a decedent, in the 

name of the decedent’s estate, or in the 

name of the executor or administrator of 

such estate in its capacity as such shall 

be deemed to be accounts held in the 

same capacity. 

(v) An account maintained with a 

debtor by a trustee shall be deemed to 

be held in the individual capacity of the 

grantor of the trust unless the trust is 

created by a valid written instrument for 

a purpose other than avoidance of an 

offset under the regulations contained in 

this part. A trust account which is not 

deemed to be held in the individual 

capacity of its grantor under this 

paragraph (b)(2)(v) shall be deemed to 

be held in a separate capacity from 

accounts held in an individual capacity 

by the trustee, by the grantor or any 

successor in interest of the grantor, or by 

any trust beneficiary, and from accounts 

held by any other trust. 

(vi) An account maintained with a 

debtor by a corporation, partnership, or 

unincorporated association shall be 

deemed to be held in a separate capacity 

from accounts held by the shareholders, 

partners or members of such 

corporation, partnership, or 

unincorporated association, if such 

entity was created for purposes other 

than avoidance of an offset under the 

regulations contained in this part. 

(vii) A hedging account of a person 

shall be deemed to be held in the same 

capacity as a speculative account of 

such person. 

(viii) Subject to paragraphs (b)(2)(ix) 

and (xiv) of this section, the futures 

accounts, foreign futures accounts, 

delivery accounts, and cleared swaps 

accounts of the same person shall not be 

deemed to be held in separate 

capacities: Provided, however, that such 

accounts may be aggregated only in 

accordance with paragraph (b)(3) of this 

section. 

(ix) An omnibus customer account for 

public customers of a futures 

commission merchant maintained with 

a debtor shall be deemed to be held in 

a separate capacity from any omnibus 

customer account for non-public 

customers of such futures commission 

merchant and from any account 

maintained with the debtor on its own 

behalf or on behalf of any non-public 

customer. 

(x) A joint account maintained with 

the debtor shall be deemed to be held 

in a separate capacity from any account 

held in an individual capacity by the 

participants in such account, from any 

account held in an individual capacity 

by a commodity pool operator or 

commodity trading advisor for such 

account, and from any other joint 

account; provided, however, that if such 

account is not transferred in accordance 

with §§ 190.04(a) and 190.07, it shall be 

deemed to be held in the same capacity 

as any other joint account held by 

identical participants and a participant’s 

percentage interest therein shall be 

deemed to be held in the same capacity 

as any account held in an individual 

capacity by such participant. 

(xi) An account maintained with a 

debtor in the name of a plan that is 

subject to the terms of the Employee 

Retirement Income Security Act of 1974 

and the regulations in 29 CFR chapter 

XXV, or similar state, Federal, or foreign 

laws or regulations applicable to 

retirement or pension plans, shall be 

deemed to be held in a separate capacity 

from an account held in an individual 

capacity by the plan administrator, any 

employer, employee, participant, or 

beneficiary with respect to such plan. 

(xii) Except as otherwise provided in 

this section, an account maintained 

with a debtor by an agent or nominee for 

a principal or a beneficial owner shall 

be deemed to be an account held in the 

individual capacity of such principal or 

beneficial owner. 

(xiii) With respect to the cleared 

swaps account class, each individual 

cleared swaps customer account within 

each cleared swap omnibus customer 

account referred to in paragraph 

(b)(2)(viii) of this section shall be 

deemed to be held in a separate capacity 

from each other such individual cleared 

swaps customer account, subject to the 

provisions of paragraphs (b)(2)(i) 

through (xi) of this section. 

(xiv) Accounts held by a customer in 

separate capacities shall be deemed to 

be accounts of different customers. The 

burden of proving that an account is 

held in a separate capacity shall be 

upon the customer. 

(3) Step 3-setoffs. (i) The net equity of 

one customer account may not be offset 

against the net equity of any other 

customer account. 

(ii) Any obligation to the debtor owed 

by a customer which is not required to 

be included in computing the equity of 

that customer under paragraph (b)(1) of 

this section (defined as x), must be 

deducted from any obligation to the 

customer owed by the debtor which is 

not required to be included in 

computing the equity of that customer 

(defined as y). If the former amount (x) 

exceeds the latter (y), the excess (x-y) 

must be deducted from the equity 

balance of the customer obtained after 

performing the preceding calculations 

required by paragraph (b) of this section, 

provided, that if the customer owns 

more than one class of accounts with a 

positive equity balance, the excess 

(again, x-y) must be allocated and offset 

against each positive equity balance in 

the same proportion as that positive 

equity balance bears to the total of all 

positive equity balances of accounts of 

different classes held by such customer. 

(iii) A negative equity balance 

obtained with respect to one customer 

account class must be set off against a 

positive equity balance in any other 

account class of such customer held in 

the same capacity, provided, that if a 

customer owns more than one class of 

accounts with a positive equity balance, 

such negative equity balance must be 

offset against each positive equity 

balance in the same proportion as that 

positive equity balance bears to the total 

of all positive equity balances in 

accounts of different classes held by 

such customer. 

(iv) To the extent any indebtedness of 

the debtor to the customer which is not 

required to be included in computing 

the equity of such customer under 

paragraph (b)(1) of this section exceeds 

such indebtedness of the customer to 

the debtor, the customer claim therefor 

will constitute a general creditor claim 

rather than a customer property claim, 

and the net equity therefor shall be 

separately calculated. 

(v) The rules pertaining to separate 

capacities and permitted setoffs 

contained in this section shall only be 

applied subsequent to the entry of an 

order for relief; prior to that date, the 

provisions of § 1.22 of this chapter and 

of sections 4d(a)(2) and 4d(f) of the Act 

(and, in each case, the regulations in 

part 1, 22, or 30 of this chapter that 

implement sections 4d(a)(2) and 4d(f)) 

shall govern what setoffs are permitted. 

(4) Step 4-correction for distributions. 

The value on the date of transfer or 

distribution of any property transferred 

or distributed subsequent to the filing 

date and prior to the primary 

liquidation date with respect to each 

class of account held by a customer 

must be added to the equity obtained for 

that customer for accounts of that class 

after performing the steps contained in 

paragraphs (b)(1) through (3) of this 

section: Provided, however, that if all 

accounts for which there are customer 

claims of record and 100% of the equity 

pertaining thereto is transferred in 

accordance with § 190.07 and section 

764(b) of the Bankruptcy Code, net 

equity shall be computed based solely 

upon those allowed customer claims, if 

any, filed subsequent to the order for 

relief which are not claims of record on 

the filing date. 

(5) Step 5-correction for ongoing 

events. Compute any adjustments to the 

steps in paragraphs (b)(1) through (4) of 

this section required to correct 


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misestimates or errors including, 

without limitation, corrections for 

ongoing events such as the liquidation 

of unliquidated claims or specifically 

identifiable property at a value different 

from the estimated value previously 

used in computing net equity. 

(c) Calculation of funded balance. 

Funded balance means a customer’s pro 

rata share of the customer estate with 

respect to each account class available 

for distribution to customers of the same 

customer class. 

(1) Funded balance computation. The 

funded balance of any customer claim 

shall be computed (separately by 

account class and customer class) by: 

(i) Multiplying the ratio of the amount 

of the net equity claim of such customer 

(defined as x) less the amounts referred 

to in paragraph (c)(1)(ii) of this section 

of such customer for any account class 

(defined as y) divided by the sum of the 

net equity claims of all customers for 

accounts of that class (defined as p) less 

the amounts referred to in paragraph 

(c)(1)(ii) of this section of all customers 

for accounts of that class (defined as q) 

(thus, ((x-y)/(p-q)) by the sum of: 

(A) The value of letters of credit 

received, acquired, or held to margin, 

guarantee, secure, purchase, or sell a 

commodity contract relating to all 

customer accounts of the same class; 

(B) The value of the money, securities, 

or other property segregated on behalf of 

all customer accounts of the same class 

less the amounts referred to in 

paragraph (c)(1)(ii) of this section; 

(C) The value of any money, 

securities, or other property which must 

be allocated under § 190.09 to all 

customer accounts of the same class; 

and 

(D) The amount of any add-back 

required under paragraph (b)(4) of this 

section; and 

(ii) Then adding 100% of— 

(A) Any margin payment made 

between the entry of the order for relief 

(or, in an involuntary case, the date on 

which the petition for bankruptcy is 

filed) and the primary liquidation date; 

provided, however, that if margin is 

posted to substitute for a letter of credit, 

such margin does not increase the 

funded balance; and 

(B) For cash delivery property, any 

cash transferred to the trustee on or after 

the filing date for the purpose of paying 

for delivery. 

(2) Corrections to funded balance. The 

funded balance must be adjusted to 

correct for ongoing events including, 

without limitation: 

(i) Added claimants; 

(ii) Disallowed claims; 

(iii) Liquidation of unliquidated 

claims at a value other than their 

estimated value; and 

(iv) Recovery of property. 

(d) Valuation. In computing net 

equity, commodity contracts and other 

property held by or for a commodity 

broker must be valued as provided in 

this paragraph (d). 

(1) Commodity contracts—(i) Open 

contracts. Unless otherwise specified in 

this paragraph (d), the value of an open 

commodity contract shall be equal to 

the settlement price as calculated by the 

clearing organization pursuant to its 

rules; provided, however, that if an open 

commodity contract is transferred to 

another commodity broker, its value on 

the debtor’s books and records shall be 

determined as of the end of the last 

settlement cycle on the day preceding 

such transfer. 

(ii) Liquidated contracts. Except as 

specified in paragraphs (d)(1)(ii)(A) and 

(B) of this section, the value of a 

commodity contract liquidated on the 

open market shall equal the actual value 

realized on liquidation of the 

commodity contract. 

(A) Weighted average. If identical 

commodity contracts are liquidated 

within a 24-hour period or business day 

(or such other period as the bankruptcy 

court may determine is appropriate) as 

part of a general liquidation of 

commodity contracts, but cannot be 

liquidated at the same price, the trustee 

may use the weighted average of the 

liquidation prices in computing the net 

equity of each customer for which the 

debtor held such commodity contracts. 

(B) Bulk liquidation. The value of a 

commodity contract liquidated as part 

of a bulk auction, taken into inventory 

or under management by a clearing 

organization, or similarly liquidated 

outside of the open market shall be 

equal to the settlement price calculated 

by the clearing organization as of the 

end of the settlement cycle during 

which the commodity contract was 

liquidated. 

(2) Securities. The value of a listed 

security shall be equal to the closing 

price for such security on the exchange 

upon which it is traded. The value of all 

securities not traded on an exchange 

shall be equal in the case of a long 

position, to the average of the bid prices 

for long positions, and in the case of a 

short position, to the average of the 

asking prices for the short positions. If 

liquidated, the value of such security 

shall be equal to the actual value 

realized on liquidation of the security; 

provided, however, that if identical 

securities are liquidated within a 24- 

hour period or business day (or such 

other period as the bankruptcy court 

may determine is appropriate) as part of 

a general liquidation of securities, but 

cannot be liquidated at the same price, 

the trustee may use the weighted 

average of the liquidation prices in 

computing the net equity of each 

customer for which the debtor held such 

securities. Securities which are not 

publicly traded shall be valued by the 

trustee pursuant to paragraph (d)(5) of 

this section. 

(3) Commodities held in inventory. 

Commodities held in inventory, as 

collateral or otherwise, shall be valued 

at their fair market value. If such fair 

market value is not readily ascertainable 

based upon public sources of prices, the 

trustee shall value such commodities 

pursuant to paragraph (d)(5) of this 

section. 

(4) Letters of credit. The value of any 

letter of credit received, acquired or 

held to margin, guarantee, secure, 

purchase, or sell a commodity contract 

shall be its face amount, less the 

amount, if any, drawn and outstanding, 

provided that, if the trustee makes a 

determination in good faith that a draw 

on a letter of credit is unlikely to be 

honored on either a temporary or a 

permanent basis, the trustee shall value 

the letter of credit pursuant to paragraph 

(d)(5) of this section. 

(5) All other property. Subject to the 

other provisions of this paragraph (d), 

all other property shall be valued by the 

trustee using such professional 

assistance as the trustee deems 

necessary in its sole discretion under 

the circumstances; provided, however, 

that if such property is sold, its value for 

purposes of the calculations required by 

this part shall be equal to the actual 

value realized on the sale of such 

property; and, provided further, that the 

sale shall be made in compliance with 

all applicable statutes, rules, and orders 

of any court or governmental entity with 

jurisdiction there over. 

§ 190.09 Allocation of property and 

allowance of claims. 

The property of the debtor’s estate 

must be allocated among account 

classes and between customer classes as 

provided in this section. (Property 

connected with certain cross-margining 

arrangements is subject to the 

provisions of framework 1 in appendix 

B to this part.) The property so allocated 

will constitute a separate estate of the 

customer class and the account class to 

which it is allocated, and will be 

designated by reference to such 

customer class and account class. 

(a) Scope of customer property. (1) 

Customer property includes the 

following: 


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(i) All cash, securities, or other 

property or the proceeds of such cash, 

securities, or other property received, 

acquired, or held by or for the account 

of the debtor, from or for the account of 

a customer, including a non-public 

customer, which is: 

(A) Property received, acquired, or 

held to margin, guarantee, secure, 

purchase or sell a commodity contract; 

(B) Open commodity contracts; 

(C) Physical delivery property as that 

term is defined in paragraphs (1) 

through (3) in the definition of that term 

in § 190.01; 

(D) Cash delivery property, or other 

cash, securities, or other property 

received by the debtor as payment for a 

commodity to be delivered to fulfill a 

commodity contract from or for the 

commodity customer account of a 

customer; 

(E) Profits or contractual rights 

accruing to a customer as the result of 

a commodity contract; 

(F) Letters of credit, including any 

proceeds of a letter of credit drawn by 

the trustee, or substitute customer 

property posted by the customer, 

pursuant to § 190.04(d)(3); 

(G) Securities held in a portfolio 

margining account carried as a futures 

account or a cleared swaps customer 

account; or 

(H) Property hypothecated under 

§ 1.30 of this chapter to the extent that 

the value of such property exceeds the 

proceeds of any loan of margin made 

with respect thereto; and 

(ii) All cash, securities, or other 

property which: 

(A) Is segregated for customers on the 

filing date; 

(B) Is a security owned by the debtor 

to the extent there are customer claims 

for securities of the same class and 

series of an issuer; 

(C) Is specifically identifiable to a 

customer; 

(D) Was property of a type described 

in paragraph (a)(1)(i)(A) of this section 

that is subsequently recovered by the 

avoidance powers of the trustee or is 

otherwise recovered by the trustee on 

any other claim or basis; 

(E) Represents recovery of any debit 

balance, margin deficit, or other claim of 

the debtor against a customer; 

(F) Was unlawfully converted but is 

part of the debtor’s estate; 

(G) Constitutes current assets of the 

debtor (as of the date of the order for 

relief) within the meaning of § 1.17(c)(2) 

of this chapter, including the debtor’s 

trading or operating accounts and 

commodities of the debtor held in 

inventory, in the greater of— 

(1) The amount that the debtor is 

obligated to set aside as its targeted 

residual interest amount pursuant to 

§ 1.11 of this chapter and the debtor’s 

residual interest policies adopted 

thereunder, with respect to each of the 

futures account class, the foreign futures 

account class, and the cleared swaps 

account class; or 

(2) The debtor’s obligations to cover 

debit balances or under-margined 

amounts as provided in §§ 1.20, 1.22, 

22.2, and 30.7 of this chapter; 

(H) Is other property of the debtor that 

any applicable law, rule, regulation, or 

order requires to be set aside for the 

benefit of customers; 

(I) Is property of the debtor’s estate 

recovered by the Commission in any 

proceeding brought against the 

principals, agents, or employees of the 

debtor; 

(J) Is proceeds from the investment of 

customer property by the trustee 

pending final distribution; 

(K) Is a payment from an insurer to 

the trustee arising from or related to a 

claim related to the conversion or 

misuse of customer property; or 

(L) Is cash, securities, or other 

property of the debtor’s estate, including 

the debtor’s trading or operating 

accounts and commodities of the debtor 

held in inventory, but only to the extent 

that the property enumerated in 

paragraphs (a)(1)(i)(F) and (a)(1)(ii)(A) 

through (K) of this section is insufficient 

to satisfy in full all claims of public 

customers. Such property includes 

‘‘customer property,’’ as defined in 

section 16(4) of SIPA, 15 U.S.C. 78lll(4), 

that remains after allocation in 

accordance with section 8(c)(1)(A)–(D) 

of SIPA, 15 U.S.C. 78fff–2(c)(1)(A)–(D) 

and that is allocated to the debtor’s 

general estate in accordance with 

section 8(c)(1) of SIPA, 15 U.S.C. 78fff– 

2(c)(1). 

(2) Customer property will not 

include: 

(i) Claims against the debtor for 

damages for any wrongdoing of the 

debtor, including claims for 

misrepresentation or fraud, or for any 

violation of the Act or of the regulations 

in this chapter; 

(ii) Other claims for property which 

are not based upon property received, 

acquired, or held by or for the account 

of the debtor, from or for the account of 

the customer; 

(iii) Forward contracts (unless such 

contracts are cleared by a clearing 

organization or, in the case of forward 

contracts treated as foreign futures, a 

foreign clearing organization); 

(iv) Physical delivery property that is 

not held by the debtor, and is delivered 

or received by a customer in accordance 

with § 190.06(a)(2) or § 190.16(a) to 

fulfill the customer’s delivery obligation 

under a commodity contract; 

(v) Property deposited by a customer 

with a commodity broker after the entry 

of an order for relief which is not 

necessary to meet the margin 

requirements applicable to the accounts 

of such customer; 

(vi) Property hypothecated pursuant 

to § 1.30 of this chapter to the extent of 

the loan of margin with respect thereto; 

(vii) Money, securities, or property 

held to margin, guarantee or secure 

security futures products, or accruing as 

a result of such products, if held in a 

securities account; and 

(viii) Money, securities, or property 

held in a securities account to fulfill 

delivery, under a commodity contract 

from or for the account of a customer, 

as described in § 190.06(b)(2). 

(3) Nothing contained in this section, 

including, but not limited to, the 

satisfaction of customer claims by 

operation of this section, shall prevent 

a trustee from asserting claims against 

any person to recover the shortfall of 

property enumerated in paragraphs 

(a)(1)(i)(F) and (a)(1)(ii)(A) through (L) 

of this section. 

(b) Allocation of customer property 

between customer classes. No customer 

property may be allocated to pay nonpublic customer claims until all public 

customer claims have been satisfied in 

full. Any property segregated on behalf 

of or attributable to non-public 

customers must be treated initially as 

part of the public customer estate and 

allocated in accordance with paragraph 

(c)(2) of this section. 

(c) Allocation of customer property 

among account classes—(1) Property 

identified to an account class—(i) 

Segregated property. Subject to 

paragraph (b) of this section, property 

held by or for the account of a customer, 

which is segregated on behalf of a 

specific account class, or readily 

traceable on the filing date to customers 

of such account class, or recovered by 

the trustee on behalf of or for the benefit 

of an account class, must be allocated to 

the customer estate of the account class 

for which it is segregated, to which it is 

readily traceable, or for which it is 

recovered. 

(ii) Excess property. If, after payment 

in full of all allowed customer claims in 

a particular account class, any property 

remains allocated to that account class, 

such excess shall be allocated in 

accordance with paragraph (c)(2) of this 

section. 

(2) All other property. Money, 

securities, and property received from 

or for the account of customers which 

cannot be allocated in accordance with 


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paragraph (c)(1)(i) of this section, must 

be allocated in the following order: 

(i) To the estate of the account class 

for which, after the allocation required 

in paragraph (c)(1) of this section, the 

percentage of each public customer net 

equity claim which is funded is the 

lowest, until the funded percentage of 

net equity claims of such class equals 

the percentage of each public customer’s 

net equity claim which is funded for the 

account class with the next lowest 

percentage of the funded claims; and 

then 

(ii) To the estate of the two account 

classes referred to in paragraph (c)(2)(i) 

of this section so that the percentage of 

the net equity claims which are funded 

for each class remains equal until the 

percentage of each public customer net 

equity claim which is funded equals the 

percentage of each public customer net 

equity claim which is funded for the 

account class with the next lowest 

percentage of funded claims, and so 

forth, until the percentage of each 

public customer net equity claim which 

is funded is equal for all classes of 

accounts; and then, 

(iii) Among account classes in the 

same proportion as the public customer 

net equity claims for each such account 

class bears to the total of public 

customer net equity claims of all 

account classes until the public 

customer claims of each account class 

are paid in full; and, thereafter, 

(iv) To the non-public customer estate 

for each account class in the same order 

as is prescribed in paragraphs (c)(2)(i) 

through (iii) of this section for the 

allocation of the customer estate among 

account classes. 

(d) Distribution of customer 

property—(1) Return or transfer of 

specifically identifiable property. 

Specifically identifiable property not 

required to be liquidated under 

§ 190.04(d)(2) may be returned or 

transferred on behalf of the customer to 

which it is identified: 

(i) If it is margining an open 

commodity contract, only if substitute 

customer property is first deposited 

with the trustee with a value equal to 

the greater of the full fair market value 

of such property on the return date or 

the balance due on the return date on 

any loan by the debtor to the customer 

for which such property constitutes 

security; or 

(ii) If it is not margining an open 

commodity contract, at the option of the 

customer, either pursuant to the terms 

of paragraph (d)(1)(i) of this section, or 

pursuant to the following terms: Such 

customer first deposits substitute 

customer property with the trustee with 

a value equal to the amount by which 

the greater of the value of the 

specifically identifiable property to be 

transferred or returned on the date of 

such transfer or return or the balance 

due on the return date on any loan by 

the debtor to the customer for which 

such property constitutes security, 

together with any other disbursements 

made, or to be made, to such customer, 

plus a reasonable reserve in the trustee’s 

sole discretion, exceeds the estimated 

aggregate of the funded balances for 

each class of account of such customer 

less the value on the date of its transfer 

or return of any property transferred or 

returned prior to the primary 

liquidation date with respect to the 

customer’s net equity claim for such 

account; provided, however, that 

adequate security to assure the recovery 

of any overpayments by the trustee is 

provided to the debtor’s estate by the 

customer. 

(2) Transfers of specifically 

identifiable commodity contracts under 

section 766 of the Bankruptcy Code. 

Any open commodity contract that is 

specifically identifiable property and 

which is not required to be liquidated 

under § 190.04(d), and which is not 

otherwise liquidated, may be transferred 

on behalf of a public customer, 

provided, however, that such customer 

must first deposit substitute customer 

property with the trustee with a value 

equal to the amount by which the equity 

to be transferred to margin such contract 

together with any other transfers or 

returns of specifically identifiable 

property or disbursements made, or to 

be made, to such customer, plus a 

reasonable reserve in the trustee’s sole 

discretion, exceeds the estimated 

aggregate of the funded balances for 

each class of account of such customer 

less the value on the date of its transfer 

or return of any property transferred or 

returned prior to the primary 

liquidation date with respect to the 

customer’s net equity claim for such 

account; and, provided further, that 

adequate security to assure the recovery 

of any overpayments by the trustee is 

provided to the debtor’s estate by the 

customer. 

(3) Distribution in kind of specifically 

identifiable securities. If any securities 

of a customer are specifically 

identifiable property as defined in 

paragraph (1)(i)(A) of the definition of 

that term in § 190.01 of this chapter, but 

the customer has no open commodity 

contracts, the customer may request that 

the trustee purchase or otherwise obtain 

the largest whole number of like-kind 

securities (i.e., securities of the same 

class and series of an issuer), with a fair 

market value (inclusive of transaction 

costs) which does not exceed that 

portion of the funded balance of such 

customer’s allowed net equity claim that 

constitutes a claim for securities, if likekind securities can be purchased in a 

fair and orderly manner. 

(4) Proof of customer claim. No 

distribution shall be made pursuant to 

paragraphs (d)(1) and (3) of this section 

prior to receipt of a completed proof of 

customer claim as described in 

§ 190.03(e) or (f). 

(5) No differential distributions. No 

further disbursements may be made to 

customers with respect to a particular 

account class for whom transfers have 

been made pursuant to § 190.07 and 

paragraph (d)(2) of this section, until a 

percentage of each net equity claim 

equivalent to the percentage distributed 

to such customers is distributed to all 

public customers in such account class. 

Partial distributions, other than the 

transfers referred to in § 190.07 and 

paragraph (d)(2) of this section, with 

respect to a particular account class 

made prior to the final net equity 

determination date must be made 

pursuant to a preliminary plan of 

distribution approved by the court, 

upon notice to the parties and to all 

customers, which plan requires 

adequate security to the debtor’s estate 

to assure the recovery of any 

overpayments by the trustee and 

distributes an equal percentage of net 

equity to all public customers in such 

account class. 

§ 190.10 Current records during business 

as usual. 

A person that is a futures commission 

merchant is required to maintain 

current records relating to its customers’ 

accounts, including copies of all 

account agreements and related account 

documentation, and ‘‘know your 

customer’’ materials, pursuant to 

§§ 1.31, 1.35, 1.36, and 1.37 of this 

chapter, which may be provided to 

another futures commission merchant to 

facilitate the transfer of open 

commodity contracts or other customer 

property held by such person for or on 

behalf of its customers to the other 

futures commission merchant, in the 

event an order for relief is entered with 

respect to such person. 

Subpart C—Clearing Organization as 

Debtor 

§ 190.11 Scope and purpose of this 

subpart. 

(a) This subpart applies to a 

proceeding commenced under 

subchapter IV of chapter 7 of the 

Bankruptcy Code in which the debtor is 

a clearing organization. 

(b) If the debtor clearing organization 

is organized outside the United States, 


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and is subject to a foreign proceeding, 

as defined in 11 U.S.C. 101(23), in the 

jurisdiction in which it is organized, 

then only the following provisions of 

this part shall apply: 

(1) Subpart A. 

(2) Section 190.12. 

(3) Section 190.13, but only with 

respect to futures contracts and cleared 

swaps contracts cleared by FCM 

clearing members on behalf of their 

public customers and the property 

margining or securing such contracts. 

(4) Sections 190.17 and 190.18, but 

only with respect to claims of FCM 

clearing members on behalf of their 

public customers, as well as to property 

that is or should have been segregated 

for the benefit of FCM clearing 

members’ public customers, or that has 

been recovered for the benefit of FCM 

clearing members’ public customers. 

§ 190.12 Required reports and records. 

(a) Notices—(1) Means of providing— 

(i) To the Commission. Unless 

instructed otherwise by the 

Commission, all mandatory or 

discretionary notices to be given to the 

Commission under this subpart shall be 

directed by electronic mail to 

bankruptcyfilings@cftc.gov. For 

purposes of this subpart, notice to the 

Commission shall be deemed to be 

given only upon actual receipt. 

(ii) To members. The trustee, after 

consultation with the Commission, and 

unless otherwise instructed by the 

Commission, will establish and follow 

procedures reasonably designed for 

giving adequate notice to members 

under this subpart and for receiving 

claims or other notices from members. 

Such procedures should include, absent 

good cause otherwise, the use of a 

prominent website as well as 

communication to members’ electronic 

addresses that are available in the 

debtor’s books and records. 

(2) Of commencement of a 

proceeding. A debtor that files a petition 

in bankruptcy that is subject to this 

subpart shall, at or before the time of 

such filing, and a debtor against which 

such a petition is filed shall, as soon as 

possible, but in any event no later than 

three hours after the receipt of notice of 

such filing, notify the Commission of 

the filing date, the court in which the 

proceeding has been or will be filed, 

and, as soon as available, the docket 

number assigned to that proceeding by 

the court. 

(b) Reports and records to be provided 

to the trustee and the Commission 

within three hours. (1) As soon as 

practicable following the 

commencement of a proceeding that is 

subject to this subpart and in any event 

no later than three hours following the 

later of the commencement of such 

proceeding or the appointment of the 

trustee, the debtor shall provide to the 

trustee copies of each of the most recent 

reports that the debtor was required to 

file with the Commission under 

§ 39.19(c) of this chapter, including 

copies of any reports required under 

§ 39.19(c)(2), (3), and (4) of this chapter 

(including the most up-to-date version 

of any recovery and wind-down plans of 

the debtor maintained pursuant to 

§ 39.39(b) of this chapter) that the debtor 

filed with the Commission during the 

preceding 12 months. 

(2) As soon as practicable following 

the commencement of a proceeding that 

is subject to this subpart and in any 

event no later than three hours 

following the commencement of such 

proceeding (or, with respect to the 

trustee, the appointment of the trustee), 

the debtor shall provide to the trustee 

and the Commission copies of the most 

up-to-date versions of the default 

management plan and default rules and 

procedures maintained by the debtor 

pursuant to § 39.16 and, as applicable, 

§ 39.35 of this chapter. 

(c) Records to be provided to the 

trustee and the Commission by the next 

business day. As soon as practicable 

following commencement of a 

proceeding that is subject to this subpart 

and in any event no later than the next 

business day, the debtor shall make 

available to the trustee and the 

Commission copies of the following 

records: 

(1) All records maintained by the 

debtor described in § 39.20(a) of this 

chapter; and 

(2) Any opinions of counsel or other 

legal memoranda provided to the debtor 

(whether by external or internal 

counsel) in the five years preceding the 

commencement of such proceeding 

relating to the enforceability of the rules 

and procedures of the debtor in the 

event of an insolvency proceeding 

involving the debtor. 

§ 190.13 Prohibition on avoidance of 

transfers. 

The following transfers are approved 

and may not be avoided under sections 

544, 546, 547, 548, 549, or 724(a) of the 

Bankruptcy Code: 

(a) Pre-relief transfers. Any transfer of 

open commodity contracts and the 

property margining or securing such 

contracts made to another clearing 

organization that was approved by the 

Commission, either before or after such 

transfer, and was made prior to entry of 

the order for relief; and 

(b) Post-relief transfers. Any transfers 

of open commodity contracts and the 

property margining or securing such 

contracts made to another clearing 

organization on or before the seventh 

calendar day after the entry of the order 

for relief, that was made with the 

approval of the Commission, either 

before or after such transfer. 

§ 190.14 Operation of the estate of the 

debtor subsequent to the filing date. 

(a) Proofs of claim. The trustee may, 

in its discretion based upon the facts 

and circumstances of the case, instruct 

each customer to file a proof of claim 

containing such information as is 

deemed appropriate by the trustee, and 

seek a court order establishing a bar date 

for the filing of such proofs of claim. 

(b) Operation of the derivatives 

clearing organization. Subsequent to the 

order for relief, the derivatives clearing 

organization shall cease making calls for 

variation settlement or initial margin. 

(c) Liquidation. (1) The trustee shall 

liquidate all open commodity contracts 

that have not been terminated, 

liquidated, or transferred no later than 

seven calendar days after entry of the 

order for relief. Such liquidation of open 

commodity contracts shall be conducted 

in accordance with the rules and 

procedures of the debtor, to the extent 

applicable and practicable. 

(2) In lieu of liquidating securities 

held by the debtor and making 

distributions in the form of cash, the 

trustee may, in its reasonable discretion, 

make distributions in the form of 

securities that are equivalent (i.e., 

securities of the same class and series of 

an issuer) to the securities originally 

delivered to the debtor by a clearing 

member or such clearing member’s 

customer. 

(d) Computation of funded balance. 

The trustee shall use reasonable efforts 

to compute a funded balance for each 

customer account immediately prior to 

any distribution of property within the 

account, which shall be as accurate as 

reasonably practicable under the 

circumstances, including the reliability 

and availability of information. 

§ 190.15 Recovery and wind-down plans; 

default rules and procedures. 

(a) Prohibition on avoidance of 

actions taken pursuant to recovery and 

wind-down plans. Subject to the 

provisions of section 766 of the 

Bankruptcy Code and §§ 190.13 and 

190.18, the trustee shall not avoid or 

prohibit any action taken by a debtor 

subject to this subpart that was 

reasonably within the scope of and was 

provided for in any recovery and winddown plans maintained by the debtor 

and filed with the Commission pursuant 

to § 39.39 of this chapter. 


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(b) Implementation of debtor’s default 

rules and procedures. In administering 

a proceeding under this subpart, the 

trustee shall implement, in consultation 

with the Commission, the default rules 

and procedures maintained by the 

debtor under § 39.16 and, as applicable, 

§ 39.35 of this chapter and any 

termination, close-out and liquidation 

provisions included in the rules of the 

debtor, subject to the reasonable 

discretion of the trustee and to the 

extent that implementation of such 

default rules and procedures is 

practicable. 

(c) Implementation of recovery and 

wind-down plans. In administering a 

proceeding under this subpart, the 

trustee shall, in consultation with the 

Commission, take actions in accordance 

with any recovery and wind-down plans 

maintained by the debtor and filed with 

the Commission pursuant to § 39.39 of 

this chapter, to the extent reasonable 

and practicable, and consistent with the 

protection of customers. 

§ 190.16 Delivery. 

(a) General. In the event that a 

commodity contract, cleared by the 

derivatives clearing organization, that 

settles upon expiration or exercise by 

making or taking delivery of physical 

delivery property, has moved into 

delivery position prior to the date and 

time of the order for relief, or moves 

into delivery position after that date and 

time, but before being terminated, 

liquidated, or transferred, then, in either 

such event, the trustee must use 

reasonable efforts to facilitate and 

cooperate with the completion of 

delivery on behalf of the clearing 

member or the clearing member’s 

customer in a manner consistent with 

§ 190.06(a) and the pro rata distribution 

principle addressed in § 190.00(c)(5). 

(b) Special provisions for delivery 

accounts. (1) Consistent with the 

separation of the physical delivery 

property account class and the cash 

delivery account class set forth in 

§ 190.06(b), the trustee shall treat— 

(i) Physical delivery property held in 

delivery accounts as of the filing date, 

along with the proceeds from any 

subsequent sale of such physical 

delivery property in accordance with 

§ 190.06(a)(3) to fulfill a clearing 

member’s or its customer’s delivery 

obligation or any other subsequent sale 

of such property, as part of the physical 

delivery account class; and 

(ii) Cash delivery property in delivery 

accounts as of the filing date, along with 

any physical delivery property for 

which delivery is subsequently taken on 

behalf of a clearing member or its 

customer in accordance with 

§ 190.06(a)(3), as part of the separate 

cash delivery account class. 

(2) If the debtor holds any cash or 

property in the form of cash equivalents 

in an account with a bank or other 

person under a name or in a manner 

that clearly indicates that the account 

holds property for the purpose of 

making payment for taking physical 

delivery, or receiving payment for 

making physical delivery, of a 

commodity under any commodity 

contracts, such property shall (subject to 

§ 190.19) be considered customer 

property in the cash delivery account 

class if held for making payment for 

taking delivery, or in the physical 

delivery account class, if held for the 

purpose of receiving such payment. 

§ 190.17 Calculation of net equity. 

(a) Net equity–separate capacities and 

calculations. (1) If a member of the 

clearing organization clears trades in 

commodity contracts through a 

commodity contract account carried by 

the debtor as a customer account for the 

benefit of the clearing member’s public 

customers and separately through a 

house account, the clearing member 

shall be treated as having customer 

claims against the debtor in separate 

capacities with respect to the customer 

account and house account at the 

clearing organization, and by account 

class. A member shall be treated as part 

of the public customer class with 

respect to claims based on any 

commodity customer accounts carried 

as ‘‘customer accounts’’ by the clearing 

organization for the benefit of the 

member’s public customers, and as part 

of the non-public customer class with 

respect to claims based on its house 

account. 

(2) Net equity shall be calculated 

separately for each separate customer 

capacity in which the clearing member 

has a claim against the debtor, i.e., 

separately by the member’s customer 

account and house account and by 

account class. 

(b) Net equity—application of debtor’s 

loss allocation rules and procedures. 

(1)(i) The calculation of a clearing 

member’s net equity claim shall include 

the full application of the debtor’s loss 

allocation rules and procedures, 

including the default rules and 

procedures referred to in § 39.16 and, if 

applicable, § 39.35 of this chapter. 

(ii) The calculation in paragraph 

(b)(1)(i) of this section will include, 

with respect to the clearing member’s 

house account, any assessments or 

similar loss allocation arrangements 

provided for under those rules and 

procedures that were not called for 

before the filing date, or, if called for, 

have not been paid. Such loss allocation 

arrangements shall be applied to the 

extent necessary to address losses 

arising from default by clearing 

members. 

(2) Appropriate adjustments shall be 

made to the net equity claims of the 

clearing members that are so entitled 

under the following circumstances: 

Where the debtor’s loss allocation rules 

and procedures would entitle clearing 

members to additional payments of cash 

or other property due to— 

(i) Portions of mutualized default 

resources that are prefunded, or 

assessed and collected, but in either 

event not used; or 

(ii) The debtor’s recoveries on claims 

against others (including, but not 

limited to, recoveries on claims against 

clearing members who have defaulted 

on their obligations to the debtor). 

(c) Net equity—general. Subject to 

paragraph (b) of this section, net equity 

shall be calculated in the manner 

provided in § 190.08, to the extent 

applicable. 

(d) Calculation of funded balance. 

Funded balance means a clearing 

member’s pro rata share of customer 

property other than member property 

(for accounts for a clearing member’s 

customer accounts) or member property 

(for a clearing member’s house 

accounts) with respect to each account 

class available for distribution to 

customers of the same customer class, 

calculated in the manner provided in 

§ 190.08(c) to the extent applicable. 

§ 190.18 Treatment of property. 

(a) General. The property of the 

debtor’s estate must be allocated 

between member property and customer 

property other than member property as 

provided in this section to satisfy claims 

of clearing members, as customers of the 

debtor. The property so allocated will 

constitute a separate estate of the 

customer class (i.e., member property, 

and customer property other than 

member property) and the account class 

to which it is allocated, and will be 

designated by reference to such 

customer class and account class. 

(b) Scope of customer property. 

Customer property is the property 

available for distribution within the 

relevant account class in respect of 

claims by clearing members, as 

customers of the clearing organization, 

based on customer accounts carried by 

the debtor for the benefit of such 

members’ public customers or, 

considered separately, such members’ 

house accounts. 

(1) Customer property includes the 

following: 


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(i) All cash, securities, or other 

property, or the proceeds of such cash, 

securities, or other property, that is 

received, acquired, or held by or for the 

account of the debtor, from or for any 

commodity contract account of a 

clearing member carried by the debtor, 

which is: 

(A) Property received, acquired, or 

held, in order to margin, guarantee, 

secure, purchase, or sell a commodity 

contract; 

(B) Open commodity contracts; 

(C) Physical delivery property as that 

term is defined in paragraphs (1) 

through (3) of the definition of that term 

in § 190.01; 

(D) Cash, securities or other property 

received by the debtor as payment for a 

commodity to be delivered to fulfill a 

commodity contract from or for the 

commodity customer account of a 

clearing member or a customer of a 

clearing member; 

(E) Profits or contractual rights 

accruing as a result of a commodity 

contract; 

(F) Letters of credit, including any 

proceeds of a letter of credit drawn 

upon by the trustee, or substitute 

customer property posted by a clearing 

member or a customer of a clearing 

member, pursuant to § 190.04(d)(3); or 

(G) Securities held in a portfolio 

margining account carried as a futures 

account or a cleared swaps customer 

account; 

(ii) All cash, securities, or other 

property which: 

(A) Is segregated by the debtor on the 

filing date for the benefit of clearing 

members’ house accounts or clearing 

members’ public customer accounts; 

(B) Was of a type described in 

paragraph (b)(1)(i)(A) of this section that 

is subsequently recovered by the 

avoidance powers of the trustee or is 

otherwise recovered by the trustee on 

any other claim or basis; 

(C) Represents a recovery of any debit 

balance, margin deficit or other claim of 

the debtor against any commodity 

contract account carried for the benefit 

of a member’s house accounts or a 

member’s public customer accounts; 

(D) Was unlawfully converted but is 

part of the debtor’s estate; or 

(E) Was of a type described in 

paragraphs (a)(1)(ii)(H) through (K) of 

§ 190.09 (as if the term debtor used 

therein refers to a clearing organization 

as debtor); 

(iii) Any guaranty fund deposit, 

assessment, or similar payment or 

deposit made by a clearing member, or 

recovered by the trustee, to the extent 

any remains following administration of 

the debtor’s default rules and 

procedures, and any other property of a 

member available under the debtor’s 

rules and procedures to satisfy claims 

made by or on behalf of public 

customers of a member; and 

(iv) Amounts of its own funds that the 

debtor had committed as part of its loss 

allocation rules, to the extent that such 

amounts have not already been applied 

under such rules. 

(2) Customer property will not 

include property of the type described 

in § 190.09(a)(2), as if the term debtor 

used therein refers to a clearing 

organization and to the extent relevant 

to a clearing organization. 

(c) Allocation of customer property 

between customer classes. (1) Where the 

funded balance for members’ house 

accounts is greater than one hundred 

percent with respect to any account 

class: 

(i) Any excess should be allocated to 

customer property other than member 

property to the extent that the funded 

balance is less than one hundred 

percent of net equity claims for 

members’ public customers in any 

account class; and 

(ii) Any remaining excess after the 

application of paragraph (c)(1)(i) of this 

section should be allocated to member 

property to the extent that the funded 

balance is less than one hundred 

percent of net equity claims for 

members’ house accounts in any other 

account class. 

(2) Where the funded balance for 

members’ public customers in any 

account class is greater than one 

hundred percent: 

(i) Any excess should be allocated to 

customer property other than member 

property to the extent that the funded 

balance is less than one hundred 

percent of net equity claims for 

members’ public customers in any other 

account class; and 

(ii) Any remaining excess after the 

application of paragraph (c)(2)(i) of this 

section should be allocated to member 

property to the extent that the funded 

balance is less than one hundred 

percent of net equity claims for 

members’ house accounts in any 

account class. 

(d) Allocation of customer property 

among account classes—(1) Segregated 

property. Subject to paragraph (b) of this 

section, property held by or for the 

account of a customer, which is 

segregated on behalf of a specific 

account class within a customer class, 

or readily traceable on the filing date to 

customers of such account class within 

a customer class, or recovered by the 

trustee on behalf of or for the benefit of 

an account class within a customer 

class, must be allocated to the customer 

estate of the account class for which it 

is segregated, to which it is readily 

traceable, or for which it is recovered. 

(2) All other property. Customer 

property which cannot be allocated in 

accordance with paragraph (d)(1) of this 

section, shall be allocated within 

customer classes, but between account 

classes, in the following order: 

(i) To the estate of the account class 

for which the percentage of each 

members’ net equity claim which is 

funded is the lowest, until the funded 

percentage of net equity claims of such 

account class equals the percentage of 

each members’ net equity claim which 

is funded for the account class with the 

next lowest percentage of the funded 

claims; and then 

(ii) To the estate of the two account 

classes so that the percentage of the net 

equity claims which are funded for each 

such account class remains equal until 

the percentage of each net equity claim 

which is funded equals the percentage 

of each net equity claim which is 

funded for the account class with the 

next lowest percentage of funded 

claims, and so forth, until all account 

classes within the customer class are 

fully funded. 

(e) Accounts without separation by 

account class. Where the debtor has, 

prior to the order for relief, kept initial 

margin for house accounts in accounts 

without separation by account class, 

then member property will be 

considered to be in a single account 

class. 

(f) Assertion of claims by trustee. 

Nothing in this section, including, but 

not limited to, the satisfaction of 

customer claims by operation of this 

section, shall prevent a trustee from 

asserting claims against any person to 

recover the shortfall of property 

enumerated in paragraphs (b)(1)(i)(E) 

and (b)(1)(ii) and (iii) of this section. 

§ 190.19 Support of daily settlement. 

(a) Notwithstanding any other 

provision of this part, funds received 

(whether from clearing members’ house 

or customer accounts) by a debtor 

clearing organization as part of the daily 

settlement required pursuant to § 39.14 

of this chapter shall, upon and after an 

order for relief, be included as customer 

property that is reserved for and 

traceable to, and promptly shall be 

distributed to, members entitled to 

payments of such funds with respect to 

such members’ house and customer 

accounts as part of that same daily 

settlement. Such funds when received, 

other than deposits of initial margin 

described in § 39.14(a)(1)(iii) of this 

chapter, shall be considered member 

property and, separately, customer 

property other than member property, in 


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proportion to the ratio of total gains in 

member accounts with net gains, and 

total gains in clearing members’ 

customer accounts with net gains, 

respectively. Deposits of initial margin 

described in § 39.14(a)(1)(iii) of this 

chapter shall be considered member 

property and, separately, customer 

property other than member property, to 

the extent deposited on behalf of, 

respectively, clearing members’ house 

accounts and customer accounts. 

(b) To the extent there is a shortfall in 

funds received pursuant to paragraph (a) 

of this section: 

(1) Such funds shall be supplemented 

with the property described in 

paragraphs (b)(1)(i) through (iv) of this 

section, as applicable, to the extent 

necessary to meet the shortfall, in 

accordance with the derivatives clearing 

organization’s default rules and 

procedures adopted pursuant to § 39.16 

and, as applicable, § 39.35 of this 

chapter, and (with respect to paragraph 

(b)(1)(ii) of this section) any recovery 

and wind-down plans maintained 

pursuant to § 39.39 of this chapter and 

submitted pursuant to § 39.19 of this 

chapter. Such funds shall be included as 

member property and customer property 

other than member property in the 

proportion described in paragraph (a) of 

this section, and shall be distributed 

promptly to members’ house accounts 

and members’ customer accounts which 

accounts are entitled to payment of such 

funds as part of that daily settlement. 

(i) Initial margin held for the account 

of a member, including initial margin 

segregated for the customers of such 

member, that has defaulted on payments 

required pursuant to a daily settlement, 

but only to the extent that such margin 

is permitted to be used pursuant to parts 

1, 22, and 30 of this chapter. 

(ii) Assets of the debtor, to the extent 

dedicated to such use as part of the 

debtor’s default rules and procedures, 

and any recovery and wind-down plans, 

described in this paragraph (b)(1). 

(iii) Prefunded guarantee or default 

funds maintained pursuant to the 

debtor’s default rules and procedures. 

(iv) Payments made by members 

pursuant to assessment powers 

maintained pursuant to the debtor’s 

default rules and procedures. 

(2) If the funds that are included as 

customer property pursuant to 

paragraph (a) of this section, 

supplemented as described in paragraph 

(b)(1) of this section, are insufficient to 

pay in full members entitled to payment 

of such funds as part of daily settlement, 

then such funds shall be distributed pro 

rata to such members’ house accounts 

and customer accounts in proportion to 

the ratio of total gains in member 

accounts with net gains, and total gains 

in customer accounts with net gains, 

respectively. 


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Appendix A to Part 190-Customer Proof of Claim Form 

[CASE CAPTION] 

CLAIM FORM FOR COMMODITY BROKER CUSTOMERS OF [DEBTOR) 

Debtor: [INSERT] 

Customer Name: 

COURT USE ONLY 

Account Number(s): D Check this box if this claim 

amends a previously filed claim. 

Court Claim 

Daytime Telephone number: Number: 

(If known) 

Email: Filed on: 

Name and address where payment should be sent (if D Check this box if you are aware 

different from above): that anyone else has filed a proof 

of claim relating to this claim. 

Attach copy of statement giving 

particulars. 

Telephone number: 

Email: 

THIS CLAIM FORM SHOULD BE USED ONLY IF YOU ARE A CUSTOMER HOLDING 

A CLAIM BASED ON A COMMODITY CONTRACT ACCOUNT (A FUTURES, 

FOREIGN FUTURES, CLEARED SWAPS OR DELIVERY ACCOUNT) AT THE 

DEBTOR. A DIFFERENT CLAIM FORM MUST BE USED TO ASSERT OTHER TYPES 

OF CLAIMS AGAINST THE DEBTOR. 

THE DEADLINE FOR FILING ALL CUSTOMER CLAIMS BASED ON COMMODITY 

CONTRACT ACCOUNTS IS [BAR DATE]. NO CUSTOMER CLAIM WILL BE 

ALLOWED IF IT IS RECEIVED AFTER THIS DATE. CLAIMS MUST BE RECEIVED 

BY 11:59 P.M. ([TIME ZONE]) ON ______ TO BE CONSIDERED TIMELY. 

[Include case-specific instructions for how to file a claim] 

If you require additional space to answer any question, please attach separate pieces of paper and 

label the answers to the corresponding questions. 
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I. CLAIM AMOUNT 

For each type of commodity contract account that is applicable, state the amount of your claim 

against the Debtor. 

(1) Futures account claim:$ ____ [§ 190.03(e)(1)]331 

(2) Foreign futures account claim:$ ____ [§ 190.03(e)(l)] 

(3) Cleared swaps account claim:$ ____ [§ 190.03(e)(l)] 

(4) Delivery account claim:$ ____ [§ 190.03(e)(l)] 

Of the amount in ( 4), please note how much is in the form of cash or cash equivalents($ ) 

and how much is the value of commodities that have been or were/are to be delivered ($ ___ ~ 

(5) Total claim: $ __________ _ 

(6) Date on which your claim is valued (see instructions): ________ _ 

II. ACCOUNT INFORMATION 

For each commodity contract account with the Debtor, please provide the following information. 

To the extent you have multiple commodity contract accounts with the Debtor, please provide 

the following information for each account separately in an attachment. 

(1) Account number: _______ [§ 190.03(e)(3)(i)] 

(2) Name in which the account is held: _________ [§ 190.03(e)(3)(ii)] 

(3) Please specify all capacities in which you hold the account (check all that are applicable) 

[§ 190.03(e)(3)(iv)]: 

D a. Individual capacity 

D b. Guardian, custodian, or conservator for the benefit of a ward or a minor under 

the Uniform Gift to Minors Act 

D c. Executor or administrator of an estate 

D d. Trustee for a trust beneficiary 

D e. Corporation, partnership, or unincorporated association 

D f. Omnibus customer account of a futures commission merchant 

D g. Part owner of a joint account 

D h. Individual retirement account 

331 Bracketed references are to the corresponding provision in § 190.03(e) where the relevant information item is 

listed. 
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D i. Agent or nominee for a principal or beneficial owner (and not described in 

Items (a)-(h)) 

D j. In any other capacity not described above in Items (a)-(i) (please specify the 

capacity): ______________ _ 

If you selected more than one box, please attach an explanation. 

(4) Please specify whether the account is a joint account[§ 190.03(e)(3)(v)]: 

Check one: 0 YES ONO 

If you selected "YES," please specify your percentage interest in the account, and 

whether all participants in the joint account are claiming jointly. In addition, please see 

the instructions for additional information required for joint accounts. 

a. My percentage interest in the joint account is: ___ % 

b. Participants in the joint account are claiming: 

Check one: 0 SEP ARA TEL Y JOINTLY 

(5) Please specify whether the account is a discretionary account (i.e., does another person have 

trading authority over the account)[§ 190.03(e)(3)(vi)]: 

Check one: 0 YES ONO 

If you selected "YES," please see the instructions for additional information required for 

discretionary accounts. 

(6) Please specify whether the account is an individual retirement account for which there is a 

custodian[§ 190.03(e)(3)(vii)]: 

Check one: 0 YES ONO 

1. If you selected "YES," please see the instructions for additional information required 

for individual retirement accounts for which there is a custodian. 

(7) Please specify whether the account is a cross-margining account for futures and securities 

[§ 190.03(e)(3)(viii)]: 

Check one: 0 YES ONO 

If you selected "YES, "please see the instructions for additional information required for 

cross-margining accounts for futures and securities. 
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III. ACCOUNT STATEMENT: OPEN POSITIONS, UNLIOUIDATED SECURITIES 

AND OTHER UNLIOUIDATED PROPERTY 

(1) Account balance per most recent account statement: $ ___ [§ 190.03(e)(3)(iii)] 

a. Date of the most recent account statement: ------------

PLEASE ATTACH A COPY OF THIS STATEMENT (NOT THE ORIGINAL) 

b. Do you agree with the account balance(s) on your most recent account statement(s), as 

set forth above? 

Check one: 0 YES O NO 

If you selected "NO, "please explain in an attachment the reasons why you disagree with 

the account balance reflected on your most recent statement. 

c. Has there been activity in the account since the date of the last account statement up to 

and including the filing date that has affected the balance of the account 

("subsequent activity")? 

Check one: 0 YES O NO 

If you selected "YES, "please provide full information regarding any such subsequent 

activity in an attachment. 

(2) On the date on which your claim is valued, did you have any open positions, unliquidated 

securities and/or other unliquidated property in or associated with any of your commodity 

contract accounts?[§ 190.03(e)(7)] 

2. Check one: 0 YES O NO 

If you selected "YES, "please state below the value of your open positions, unliquidated 

securities and/or other unliquidated property. In addition, please see the instructions for 

additional information required regarding open positions, unliquidated securities and 

other unliquidated property. 

Value of all open positions, unliquidated securities and/or other unliquidated property: 

$ -----------

(3) To the extent you are claiming unliquidated securities or other unliquidated property held in 

your account, do you wish to receive payment in kind, if possible?[§ 190.03(e)(9)] 

Check one: 0 YES O NO 

If you selected "YES," please see the instructions for additional required information. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19449 


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IV. CONNECTIONS WITH THE DEBTOR[§ 190.03(e)(2)] 

V. 

(1) Is the customer making this claim one of the following persons (check all that are applicable): 

D a. Officer, director, general partner or owner often percent or more of the capital 

stock of the Debtor. 

Db. An employee, limited partner or special partner of the Debtor whose duties 

include (1) the management of the business of the Debtor or any part 

thereof; (2) the handling of the trades or customer funds; (3) the keeping 

of records pertaining to the trades or funds of customers; or ( 4) the signing 

or cosigning of checks or drafts on behalf of Debtor. 

D c. A spouse or minor dependent living in the same household as any person listed 

in this section. 

D d. A business affiliate that directly or indirectly controls the Debtor, or is directly or 

indirectly controlled by or is under common control with the Debtor. 

(2) Is the customer making the claim on behalf of any account that is owned 10% or more by the 

Debtor or by any of the persons, alone or jointly, identified in IV.(1)? 

Check one: 0 YES ONO 

lf you selected "YES, "please identify such person(s) and the category identified in IV (I) 

under which they fit. 

SECURITY FUTURES PRODUCTS[§ 190.03(e)(8)]332 

Is any portion of your claim based on security futures products (i.e. futures whose underlying 

instrument is either a single security or a narrow-based security index) held in a securities 

account with the Debtor? 

Check one: 0 YES O NO 

lf you selected "YES, "you will need to file a separate claim in accordance with the 

procedures established for claims based on securities accounts at the Debtor. 

332 This section is for use only in cases where the debtor is jointly registered as a futures commission merchant and 

securities broker-dealer. 
19450 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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VI. 

VII. 

VIII. 

OTHER ACCOUNTS WITH DEBTOR[§ 190.03(e)(4)] 

Do you have any accounts with the Debtor that are not commodity contract accounts listed in 

response to Section III above? 

Check one: 0 YES ONO 

If you selected "YES," specify the other account number(s) and the type of each such 

account. 

Account Number Type of Account 

1. ----------

2. -----------

(Attach additional page(s) if necessary) 

OTHER CLAIMS AGAINST DEBTOR[§ 190.03(e)(5)] 

Do you have any other claims against the Debtor not already taken into account in the claim and 

account information provided in response to Sections I, II, III and VI above? 

Check one: 0 YES ONO 

If you selected "YES," please provide a detailed description in an attachment of any such 

claim or claims, and attach any supporting documentation you have. 

AMOUNTS OWED TO DEBTOR[§ 190.03(e)(6)] 

Do you owe any amounts to the Debtor not already taken into account in the claim and account 

balance information provided in response to the questions in sections I and II above? 

Check one: YES O NO 0 

If you selected "YES," please provide a detailed description in an attachment of any such 

claim or claims, and attach any supporting documentation you have. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19451 


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IX. VERIFICATION 

CHECK THE APPROPRIATE BOX: 

DI am the customer DI am the customer's authorized agent. 

D I am a guarantor, surety, indorser 

or other (See Bankruptcy Rule 3005.) 

I declare under penalty of perjury that the information provided in this claim is true and 

correct to the best of my knowledge, information, and reasonable belief. 

Print Name: ------------------

Title: --------------------

Company:------------------

Address and telephone number (if different from notice address above): 

Telephone number: _______________ _ 

Email: --------------------

Signature (Date) 

Penalty for presenting fraudulent claim: Fine ofup to $500,000 or imprisonment for up to 5 

years, or both. 18 U.S.C. §§ 152 and 3571. 
19452 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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INSTRUCTIONS FOR CUSTOMER PROOF OF CLAIM FORM 

Customer's Name and Address: 

Fill in the name of the person or entity asserting the claim, 

and the name and address of the person who should 

receive notices issued during the bankruptcy case. A 

separate space is provided for the payment address if it 

differs from the notice address. The customer has a 

continuing obligation to keep the court informed of its 

current address. See Federal Rule of Bankruptcy 

Procedure (FRBP) 2002(g). 

• Types of Customer Accounts: 

• A "futures account" is an account 

opened for the purpose of trading futures or 

options on futures on a U.S. futures exchange. 

Your account statement for a "futures account" 

would typically include the term "SEG" in the 

title or description of the account. 

• A "foreign futures account" is an 

account opened for the purpose of trading futures 

or options on futures on an exchange located 

outside the U.S. Your account statement for a 

"foreign futures account" would typically include 

the term "30.7" in the title or description of the 

account. 

• A "cleared swaps account" is an account 

opened for the purpose of holding swaps traded 

bilaterally or in off-exchange markets that are 

submitted to a CFTC-registered derivatives 

clearing organization for settlement and clearing. 

A "cleared swaps account" also is an account 

opened for the purpose of trading swaps or 

options on swaps on a designated contract market 

or swap execution facility and cleared by a 

CFTC-registered derivatives clearing 

organization. Your account statement for a 

"cleared swaps account" would typically include 

the term "swap" in the title or description of the 

account. 

• A "delivery account" is an account 

denominated as such and through which 

deliveries of commodities, whether tangible or 

intangible, occur or have occurred under expiring 

futures contracts. A delivery account also may 

hold cash balances, title documents for 

commodities such as metals warehouse receipts, 

or other commodities, whether tangible or 

intangible, that are deliverable under an 

exchange's futures contract. 

• Your account statement may include 

multiple types of customer accounts in a single 

account statement. 

Date on Which Claim is Valued: 

Your claim should be valued as of[the last date on which 

any contracts or property not liquidated to cash balances 

remained in your account. Do not include the value of 

any contracts, funds or other property transferred to 

another commodity broker] [1

', the date established by the 

Court as the date on which customer accounts should be 

valued]. 

Estimated Claim Amount: If you cannot compute the 

amount of your claim, you must file an estimated claim. 

In that case, please be sure to indicate that your claim is 

an estimated claim. 

Joint Accounts: If any commodity contract account for 

which you are making a claim is a joint account, please 

include an attachment listing the account number and the 

name, address and contact information for each joint 

account holder other than yourself. 

If you are making a claim with respect to multiple joint 

accounts, and those joint accounts are not owned by the 

same holders in the same legal capacities and in identical 

ownership percentages, please complete a separate claim 

form for each joint account. 

Discretionary Accounts: If any commodity contract 

account for which you are making a claim is a 

discretionary account, please include an attachment 

listing the account number and the name, address, and 

contact information for all persons with trading authority 

over any of those accounts. If different persons have 

trading authority over different accounts, please provide 

this information for each such account, listing applicable 

account numbers. 

Individual Retirement Accounts for which there is a 

Custodian: If any commodity contract account for 

which you are making a claim is an individual retirement 

account for which there is a custodian, please include an 

attachment listing the account number and the name, 

address, and contact information for both the custodian 

and the account owner. 

Cross-Margining Accounts for Futures and 

Securities: If any commodity contract account for which 

you are making a claim is a cross-margining account for 

futures and securities, please include an attachment 

listing the account number and whether the securities 

positions are held in an account with the debtor or in an 

account with an affiliate of the debtor. If such positions 

are held in an account with an affiliate of the debtor, 

please identify and include contact information for such 

affiliate. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19453 


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Other types of derivatives trading accounts that you may 

have with the debtor, such as accounts holding offexchange retail forex positions subject to part 5 of the 

regulations of the CFTC and funds to margin such 

positions, are not customer accounts entitled to special 

protection under the Bankruptcy Code. 

Claim in foreign currencies: If some or all of your claim 

is based on a currency other than U.S. dollars, please file 

you claim in U.S. dollars based on the exchange rate in 

effect as of the petition date ([INSERT]), and identify the 

exchange rate used in calculating your claim in a separate 

attachment. 

Open positions, Unliquidated Securities and Other 

Unliquidated Property: To the extent you have any open 

positions, unliquidated securities and/or other unliquidated 

property in a commodity contract account, please include 

an attachment (i) describing each such open position, 

unliquidated security and/or other item of unliquidated 

property (e.g., for positions, by contract, delivery date, 

long/short, quantity, and strike price for options; for 

securities, by CUSIP and quantity); (ii) identifying 

whether such open position, unliquidated security and/or 

other unliquidated property is specifically identifiable 

property; and (iii) identifying whether you would prefer, if 

practicable, payment in kind for each unliquidated security 

or other item ofunliquidated property or to have it 

liquidated. 

If the position, unliquidated security or other item of 

unliquidated property is already reflected in the account 

statement that you attached in response to Section III of 

this form, and you agree with the quantity and any value 

set forth therein, please say so. Otherwise, please (i) state 

the quantity and value you claim with respect to such open 

position, unliquidated security and/or other unliquidated 

property, and explain the basis for that quantity and value; 

and (ii) attach any documentary evidence supporting such 

value. 

• Documentation: 

• Please attach a copy (not the original) of the 

most recent account statement for each account on which 

this claim is based. 

• Please enclose copies (not originals) of any 

documentation or correspondence you believe will be of 

assistance in processing your claim, including, but not 

limited to, customer confirmations, account statements, 

and statements of purchase or sale. 

If, at any time, you complained in writing about the 

handling of your account to any person or entity or 

regulatory authority, and the complaint relates to the 

claim that you are asserting in this claim form, please 

provide copies of the complaint and all related 

correspondence, as well as any replies that you received. 
19454 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

Appendix B to Part 190—Special 

Bankruptcy Distributions 

Framework 1—Special Distribution of 

Customer Funds When the CrossMargining Account Is a Futures 

Account 

(a) This framework 1 applies when a 

debtor futures commission merchant 

has participated in a cross-margining 

(‘‘XM’’) program for futures and 

securities under which the crossmargined positions of its futures 

customers (as defined in § 1.3 of this 

chapter) and the property received to 

margin, secure or guarantee such 

positions are held in one or more 

accounts pursuant to a Commission 

order that requires such positions and 

property to be segregated, pursuant to 

section 4d(a) of the Act, from the 

positions and property of: 

(1) The futures commission merchant; 

(2) If applicable, any affiliate carrying 

the securities positions as a participant 

in the XM program (‘‘Affiliate’’); and 

(3) Other futures customers of the 

futures commission merchant (such 

segregated accounts, the ‘‘XM 

accounts’’). 

(b) The futures commission merchant 

may, and any Affiliate that holds the 

securities positions in an XM account 

that it directly carries will, be registered 

as a broker-dealer under the Exchange 

Act. The Commission order approving 

the XM program may limit participating 

customers to market professionals and 

will require a participating customer to 

sign an agreement, in a form approved 

by the Commission, that refers to this 

distributional rule. 

(c) A futures commission merchant is 

deemed to receive securities held in an 

XM account, including securities and 

other property held by an Affiliate in an 

XM account, as ‘‘futures customer 

funds’’ (as defined in § 1.3 of this 

chapter) that margin, guarantee or 

secure commodity contracts in the XM 

account (or paired XM accounts at the 

futures commission merchant and an 

Affiliate). Under the agreement signed 

by the customer, in the event that the 

futures commission merchant (or 

Affiliate) is the subject of a SIPA 

proceeding, the customer agrees that 

securities in an XM account are 

excluded from the securities estate for 

purposes of SIPA, and that its claim for 

return of the securities will not be 


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Verification: 

The individual completing this proof of claim must sign 

and date it. If the claim is filed electronically, the 

Bankruptcy Code authorizes courts to establish local rules 

specifying what constitutes a signature. If you sign this 

form, you declare under penalty of perjury that the 

information provided is true and correct to the best of your 

knowledge, information, and reasonable belief. Your 

signature is also a certification that the claim meets the 

requirements of FRBP 9011 (b ). Whether the claim is filed 

electronically or in person, if your name is on the signature 

line, you are responsible for the declaration. 

• Print the name and title, if any, of the 

customer or other person authorized to file this claim. 

State the filer's address and telephone number ifit differs 

from the address given on the top of the form for purposes 

ofreceiving notices. If the claim is filed by an authorized 

agent, provide both the name of the individual filing the 

claim and the name of the agent. Criminal penalties apply 

for making a false statement on a proof of claim. 

Credits: 

An authorized signature on this proof of claim serves as 

an acknowledgment that when calculating the amount of 

the claim, the customer gave the Debtor credit for any 

obligations of the customer to the Debtor. 

ADDITIONAL INFORMATION 

Acknowledgment of Receipt of Claim 

[Instructions for acknowledgment of filing] 

Offers to Purchase a Claim 

Certain entities are in the business of purchasing claims 

for an amount less than the face value of the claims. One 

or more of these entities may contact you and offer to 

purchase the claim. Some of the written communications 

from these entities may easily be confused with official 

court documentation or communications from the Debtor. 

These entities do not represent the Bankruptcy Court or 

the Debtor. A customer has no obligation to sell its claim. 

However, if a customer decides to sell its claim, any 

transfer of such claim is subject to FRBP 3001(e), any 

applicable provisions of the Bankruptcy Code (11 U.S.C. 

§ 101 et seq.), and any applicable orders of the 

Bankruptcy Court. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19455 

treated as a customer claim under SIPA. 

These restrictions apply to the customer 

only, and should not be read to limit 

any action that the trustee may take to 

seek recovery of property in an XM 

account carried by an Affiliate as part of 

the customer estate of the futures 

commission merchant. 

(d) XM accounts, and other futures 

accounts that are subject to segregation 

under section 4d(a) of the Act (pursuant 

to the Commission’s regulations in part 

1 of this chapter) (‘‘non-XM accounts’’), 

are treated as two subclasses of futures 

account with two separate pools of 

segregated futures customer property, an 

XM pool and a non-XM pool, each of 

which constitutes a segregated pool 

under section 4d(a) of the Act. If the 

futures commission merchant has 

participated in multiple XM programs, 

the XM accounts in the different 

programs are combined and treated as 

part of the same XM subclass of futures 

accounts. A futures customer could hold 

both non-XM and XM accounts. 

(e) Customer claims under this part 

arising out of the XM subclass of 

accounts are subordinated to customer 

claims arising out of the non-XM 

subclass of accounts in certain 

circumstances in which the futures 

commission merchant does not meet its 

segregation requirements. The 

segregation requirement is the amount 

of futures customer funds that the 

futures commission merchant is 

required by the Act and Commission 

regulations in part 1 of this chapter or 

Commission orders to hold on deposit 

in segregated accounts on behalf of its 

futures customers (exclusive of its 

targeted residual amount obligations 

pursuant to § 1.3 of this chapter). 

(f)(1) If there is a shortfall in the nonXM pool and no shortfall in the XM 

pool, all customer net equity claims, 

whether or not they arise out of the XM 

subclass of accounts, will be combined 

and paid pro rata out of the combined 

XM and non-XM pools of futures 

customer property. 

(2) If there is a shortfall in the XM 

pool and no shortfall in the non-XM 

pool, customer net equity claims arising 

from the XM subclass of accounts must 

be satisfied first from the XM pool, and 

customer net equity claims arising from 

the non-XM subclass of accounts must 

be satisfied first from the non-XM pool. 

(3) If there is a shortfall in both the 

non-XM and XM pools: 

(i) If the non-XM shortfall as a 

percentage of the segregation 

requirement for the non-XM pool is 

greater than or equal to the XM shortfall 

as a percentage of the segregation 

requirement for the XM pool, all 

customer net equity claims will be paid 

pro rata out of the combined XM and 

non-XM pools of futures customer 

property; and 

(ii) If the XM shortfall as a percentage 

of the segregation requirement for the 

XM pool is greater than the non-XM 

shortfall as a percentage of the 

segregation requirement for the non-XM 

pool, non-XM customer net equity 

claims will be paid pro rata out of the 

available non-XM pool, and XM 

customer net equity claims will be paid 

pro rata out of the available XM pool. 

(4) In this way, non-XM customers 

will never be adversely affected by an 

XM shortfall. 

(g) The following examples illustrate 

the operation of this framework 1. The 

examples assume that the FCM has two 

futures customers, one with exclusively 

XM accounts and one with exclusively 

non-XM accounts. 


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1. Sufficient Funds to Meet Non-XM and XM Customer Claims: 

Non-XM XM Total 

Funds in 4d(a) se!lfe2ation 150 150 

4d(a) Segregation requirement 150 150 

Shortfall (dollars) 0 0 

Shortfall (nercent) 0 0 

Distribution 150 150 

There are adequate funds available and both the non-XM and the XM customer 

claims will be paid in full. 

2 . Sh 0 rtfi a m 11 . N on-XM Onl 1y: 

Non-XM XM Total 

Funds in 4d(a) seg:re2ation 100 150 

4d( a) Se!lfegation requirement 150 150 

Shortfall (dollars) 50 0 

Shortfall foercent) 50/150=33.3 0 

Pro rata (percent) 150/300=50 150/300=50 

Pro rata (dollars) 125 125 

Distribution 125 125 

300 

300 

300 

250 

300 

250 

Due to the non-XM account, there are insufficient funds available to meet both the 

non-XM and the XM customer claims in full. Each customer will receive his pro rata 

share of the funds available, or 50% of the $250 available, or $125. 

3 . Sh 0 rtfall m . XM Ont tv: 

Non-XM XM Total 

Funds in 4d(a) se2re2ation 150 100 250 

4d(a)Seg:reaationreauirement 150 150 300 

Shortfall (dollars) 0 50 

Shortfall foercent) 0 50/150=33.3 

Pro rata (percent) 150/300=50 150/300=50 

Pro rata (dollars) 125 125 

Distribution 150 100 250 

Due to the XM account, there are insufficient funds available to meet both the nonXM and the XM customer claims in full. Accordingly, the XM funds and non-XM funds 

are treated as separate pools, and the non-XM customer will be paid in full, receiving 

$150 while the XM customer will receive the remaining $100. 

4 Sh Ort fall m . B th w·th XM Sh fall E d" N XM Sh fl II 0 ' 1 ort xcee mg on- Ort a . . . Non-XM XM Total 

Funds in 4d(a) se1Zre2ation 125 100 225 

4d(a) Se1Zre12:ation requirement 150 150 300 

Shortfall (dollars) 25 so 

Shortfall foercent) 25/150=16.7 50/150=33.3 

Pro rata (oercent) 150/300=50 150/300=50 

Pro rata (dollars) 112.50 112.50 

Distribution 125 100 225 

There are insufficient funds available to meet both the non-XM and the XM 

customer claims in full, and the XM shortfall exceeds the non-XM shortfall. The non-XM 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19457 

Framework 2—Special Allocation of 

Shortfall to Customer Claims When 

Customer Funds for Futures Contracts 

and Cleared Swaps Customer Collateral 

are Held in a Depository Outside of the 

United States or in a Foreign Currency 

The Commission has established the 

following allocation convention with 

respect to futures customer funds (as 

§ 1.3 of this chapter defines such term) 

and Cleared Swaps Customer Collateral 

(as § 22.1 of this chapter defines such 

term) (both of which are customer funds 

(as § 1.3 of this chapter defines such 

term) that are segregated pursuant to the 

Act and Commission rules thereunder), 

which applies in certain circumstances 

when futures customer funds or Cleared 

Swaps Customer Collateral are held by 

a futures commission merchant in a 

depository outside the United States 

(‘‘U.S.’’) or in a foreign currency. If a 

futures commission merchant enters 

into bankruptcy and maintains futures 

customer funds or Cleared Swaps 

Customer Collateral in a depository 

outside the U.S. or in a depository 

located in the U.S. in a currency other 

than U.S. dollars, the trustee shall use 

the following allocation procedures to 

calculate the claim of each public 

customer in the futures account class or 

each public customer in the cleared 

swaps account class, as applicable, 

when a sovereign action of a foreign 

government or court has occurred that 

contributes to shortfalls in the amounts 

of futures customer funds or Cleared 

Swaps Customer Collateral. In the event 

a sovereign action creates or contributes 

to a shortfall in customer property, 

applying the allocation convention will 

result in a reallocation of distributions 

of futures customer funds or Cleared 

Swaps Collateral to take into account 

the impact of the sovereign action. For 

purposes of this bankruptcy convention, 

sovereign action of a foreign government 

or court would include, but not be 

limited to, the application or 

enforcement of statutes, rules, 

regulations, interpretations, advisories, 

decisions, or orders, formal or informal, 

by a Federal, state, or provincial 

executive, legislature, judiciary, or 

government agency. The trustee should 

perform the allocation procedures 

separately with respect to each public 

customer in the futures account class or 

cleared swaps account class. 


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customer will receive the $125 available with respect to non-XM claims while the XM 

customer will receive the $100 available with respect to XM claims. 

5 . Sh ort fi a II m . B th w· th N XM Sh fi 11 E e<f XM Sh rtfi II 0 ' 1 on- Ort a xce mg 0 a 

Non-XM XM Total 

Funds in 4d(a) sem.-e12:ation 100 125 

4d(a) Segregation requirement 150 150 

Shortfall (dollars) 50 25 

Shortfall ( percent) 50/150=33.3 25/150=16.7 

Pro rata ( percent) 150/300=50 150/300=50 

Pro rata (dollars) 112.50 112.50 

Distribution 112.50 112.50 

There are insufficient funds available to meet both the non-XM and the XM 

customer claims in full, and the non-XM shortfall exceeds the XM shortfall. Each 

customer will receive 50% of the $225 available, or $112.50. 

6. Shortfall in Both, Non-XM Shortfall= XM Shortfall: 

Non-XM XM Total 

Funds in 4d( a) se12:regation 100 100 

4d(a) Sesrregation requirement 150 150 

Shortfall (dollars) 50 50 

Shortfall ( percent) 50/150=33.3 50/150=33.3 

Pro rata (percent) 150/300=50 150/300=50 

Pro rata (dollars) 100 100 

Distribution 100 100 

There are insufficient funds available to meet both the non-XM and the XM 

customer claims in full, and the non-XM shortfall equals the XM shortfall. Each 

customer will receive 50% of the $200 available, or $100. 

225 

300 

225 

200 

300 

200 

These examples illustrate the principle that pro rata distribution across both accounts 

is the preferable approach except when a shortfall in the XM account could harm nonXM customers. Thus. pro rata distribution occurs in Examples 1, 2, 5 and 6. Separate 

treatment of the XM and non-XM accounts occurs in Examples 3 and 4. 
19458 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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I. Reduction In Distributions For General Shortfall 

A. Determination of losses not attributable to sovereign action 

1. Convert the claim of each futures customer or Cleared Swaps Customer in each 

currency to U.S. Dollars at the exchange rate in effect on the Final Net Equity 

Determination Date, as defined in §190.0l(s) (the "Exchange Rate"). 

2. Determine the amount of assets available for distribution to futures customers or 

Cleared Swaps Customers. In making this calculation, include customer funds for futures 

contracts and Cleared Swaps Customer Collateral that would be available for distribution 

but for the sovereign action. 

3. Convert the amount of customer funds for futures contracts and Cleared Swaps 

Customer Collateral available for distribution to U.S. Dollars at the Exchange Rate. 

4. Determine the Shortfall Percentage that is not attributable to sovereign action, as 

follows: 

I Total Customer Assets 

Shortfall Percentage = ( 1- [ ] ) 

Total Customer Claims 

B. Allocation of Losses Not Attributable to Sovereign Action 

1. Reduce the claim of each futures customer or Cleared Swaps Customer by the 

Short fall Percentage. 

II. Reduction in Distributions for Sovereign Loss 

A. Determination of Losses Attributable to Sovereign Action ("Sovereign Loss'? 

1. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

required to be kept in U.S. dollars in the U.S., that portion of the claim is not exposed to 

Sovereign Loss. 

2. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in only one location and that location is: 

a. The U.S. or a location in which there is no Sovereign Loss, then that portion 

of the claim is not exposed to Sovereign Loss. 

b. A location in which there is Sovereign Loss, then that entire portion of the 

claim is exposed to Sovereign Loss. 
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3. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in only one currency and that currency is: 

a. U.S. dollars or a currency in which there is no Sovereign Loss, then that 

portion of the claim is not exposed to Sovereign Loss. 

b. A currency in which there is Sovereign Loss, then that entire portion of the 

claim is exposed to Sovereign Loss. 

4. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to he kept in more than one location and: 

a. There is no Sovereign Loss in any of those locations, then that portion of the 

claim is not exposed to Sovereign Loss. 

b. There is Sovereign Loss in one of those locations, then that entire portion of 

the claim is exposed to Sovereign Loss. 

c. There is Sovereign Loss in more than one of those locations, then an equal 

share of that portion of the claim will be exposed to Sovereign Loss in each such location. 

5. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in more than one currency and: 

a. There is no Sovereign Loss in any of those currencies, then that portion of 

the claim is not exposed to Sovereign Loss. 

b. There is Sovereign Loss in one of those currencies, then that entire portion of 

the claim is exposed to Sovereign Loss. 

c. There is Sovereign Loss in more than one of those currencies, then an equal 

share of that portion of the claim will be exposed to Sovereign Loss. 

B. Calculation of Sovereign Loss 

1. The total Sovereign Loss for each location is the difference between: 

a. The total customer funds for futures contracts or Cleared Swaps Customer 

Collateral deposited in depositories in that location and 

b. The amount of customer funds for futures contracts or Cleared Swaps 

Customer Collateral in that location that is available to be distributed to futures customers 

or Cleared Swaps Customers, after taking into account any sovereign action. 

2. The total Sovereign Loss for each currency is the difference between: 

a. The value, in U.S. dollars, of the customer funds for futures contracts or 

Cleared Swaps Customer Collateral held in that currency on the day before the sovereign 

action took place and 

b. The value, in U.S. dollars, of the customer funds for futures contracts or 

Cleared Swaps Customer Collateral held in that currency on the date of the calculation. 
19460 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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C. Allocation of Sovereign Loss 

1. Each distribution on account of the claim of a futures customer or Cleared Swaps 

Customer exposed to Sovereign Loss in a location will be reduced by: 

Portion of the customer's claim exposed to loss in that 

location Total Sovereign Loss x >------------------------< All portions of customer claims exposed to loss in that 

location 

2. Each distribution on account of the claim of a futures customer or Cleared Swaps 

Customer exposed to Sovereign Loss in a currency will be reduced by: 

Portion of the customer's claim exposed to loss in that 

Total Sovereign Loss x >-c_ur_re_n_c~-------------------< 

All portions of customer claims exposed to loss in that 

currency 

3. A distribution to a futures customer or Cleared Swaps Customer exposed to 

Sovereign Loss in a location or currency will not be reduced below zero. (The above 

calculations might yield a result below zero where the FCM kept more customer funds for 

futures contracts or Cleared Swaps Customer Funds in a location or currency than it was 

authorized to keep.) 

4. Any amount of Sovereign Loss from a location or currency in excess of the total 

amount of customer funds for futures contracts or Cleared Swaps Customer Funds 

authorized to be kept in that location or currency ( calculated in accord with section II. I 

above) ("Total Excess Sovereign Loss") will be allocated among all futures customers or 

Cleared Swaps Customer that have authorized funds to be kept outside the U.S., or in 

currencies other than U.S. dollars, with each such futures customer or Cleared Swaps 

Customer distribution reduced by the following amount: 

Total Excess Sovereign 

Lossx 

This customer's total claim-The portion of 

this Customer's claim required to be kept in 

U.S. dollars, in the U.S. 

Total customer claims - Total of all 

customer claims required to be kept in U.S. 

dollar, in the U.S. 

The following examples illustrate the operation of this convention. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19461 


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Example 1. No shortfall in any location. 

Customer Claim Location(s) customer has consented to havin2 funds held 

A $50 U.S. 

B €50 U.K. 

C €50 Germany 

D £300 U.K. 

Location Actual asset balance 

U.S. $50 

U.K. £300 

U.K. €50 

Germany €50 

Note: Conversion Rates: €1 = $1; £1=$1.5. 

Convert the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim in U.S. dollars 

A $50 1.0 $50 

B €50 1.0 50 

C €50 1.0 50 

D £300 1.5 450 

Total $600 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 

Assets in Shortfall due Actual Amount Conversion to sovereign shortfall due Location Assets U.S. actually rate dollars action to sovereign available percenta2e action 

U.S. $50 1.0 $50 $50 

U.K. £300 1.5 450 450 

U.K. €50 1.0 50 50 

Germany €50 1.0 50 50 

Total $600 0 $600 

There are no shortfalls in funds held in any location. Accordingly, there will be no reduction in 

distributions to holders of futures or Cleared Swaps Customer claims. 
19462 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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Claims: 

Claim in U.S. dollars after Allocation of shortfall Distributions after Customer allocated non-sovereign 

shortfall due to sovereign action all reductions 

A $50 $0 $50 

B 50 0 50 

C 50 0 50 

D 450 0 450 

Total $600 $0 $600 

Example 2. Shortfall in funds held in the U.S. 

Customer Claim Location(s) customer has consented to havine: funds held 

A $100 U.S. 

B €50 U.K. 

C €100 U.S., Germany, or Japan 

Location Actual asset balance 

U.S. $50 

U.K. €100 

Germany €50 

Note: Conversion Rates: €1 =$1. 

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

There is a shortfall in the funds held in the U.S. such that only 1/2 of the finds are available. Convert 

the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. Dollars: 

Convert each customer's claim in each currency to U.S. Dollars: 

Customer Claim Conversion rate Claim in US$ 

A $100 1.0 $100 

B €50 1.0 50 

C €100 1.0 100 

Total $250 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 

Assets in Shortfall due Actual Amount 

Location Assets Conversion U.S. to sovereign shortfall due actually rate action to sovereign dollars percentae:e action available 

U.S. $50 1.0 $50 $50 

U.K. €100 1.0 100 100 

Germany €50 1.0 50 50 

Total $200 $200 

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage= (1---(200/250)) = (1-80%) = 20%. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19463 


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Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage: 

Customer Claim in Allocation shortfall Distribution in U.S. dollars 

US$ (non-sovereign) after allocated shortfall 

A $100 $20 $80 

B 50 10 40 

C 100 20 80 

Total $250 $50 $200 

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION 

There is no shortfall due to sovereign action. Accordingly, distributions to holders of futures or 

Cleared Swaps Customer claims will not be further reduced. 

DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of shortfall Distribution after Customer before allocation of due to sovereign action all reductions soverei2n shortfall 

A $80 $80 

B 40 40 

C 80 80 

Total $200 $0 $200 

Example 3. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, not due 

to sovereign action. 

Customer Claim Location(s) customer has consented to having funds held 

A $150 U.S. 

B €100 U.K. 

C €50 Germany 

D $100 U.S. 

D €100 U.K. or Germany 

Location Actual asset balance 

U.S. $250 

U.K. €50 

Germany €100 

Note: Conversion Rates: €1=$1. 

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

Convert the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim in US$ 

A $150 1.0 $150 

B €100 1.0 100 

C €50 1.0 50 

D $100 1.0 100 

D €100 1.0 100 

Total $500 
19464 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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Determine assets available for distribution to futures customers or Cleared Swaps 

Customers, converting to U.S. dollars: 

Assets in Shortfall due Actual Amount 

Location Assets Conversion U.S. to sovereign shortfall due actually rate dollars action to sovereign available percentae:e action 

U.S. $250 1.0 $250 $250 

U.K. €50 1.0 50 50 

Germany €100 1.0 100 100 

Total $400 $0 $400 

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage= (1--400/500) = (1-80%) = 20%. 

Reduce each distribution to the holder of a futures customer or Cleared Swaps Customer by the 

Shortfall Percentage: 

Customer Claim in Allocation shortfall Distribution in U.S. dollars 

US$ (non-sovereie:n) after allocated shortfall 

A $150 $30 $120 

B 100 20 80 

C 50 10 40 

D 200 40 160 

Total $500 $100 $400 

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION 

There is no shortfall due to sovereign action. Accordingly, the distributions will not be further 

reduced. 

DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of shortfall Distribution after Customer before allocation of due to sovereign action all reductions sovereie:n shortfall 

A $120 $120 

B 80 80 

C 40 40 

D 160 0 160 

Total $400 $0 $400 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19465 


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Example 4. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due to 

sovereign action. 

Customer Claim Location(s) customer has consented to havine funds held 

A $50 U.S. 

B €50 U.K. 

C €50 Germany 

D $100 U.S. 

D €100 U.K. or Germany 

Location Actual asset balance 

U.S. $150 

U.K. 100 

Germany 100 

Notice: Conversion Rates: €1 = $1; £1 = $1.5. 

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim in US$ 

A $50 1.0 $50 

B €50 1.0 50 

C €50 1.0 50 

D $100 1.0 100 

D €100 1.0 100 

Total $350 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 

Assets in Shortfall due Actual Amount 

Location Assets Conversion U.S. to sovereign shortfall due actually rate dollars action to sovereign available percentage action 

U.S. $150 1.0 $150 $150 

U.K. €100 1.0 100 100 

Germany €100 1.0 100 50% 50 50 

Total $350 $50 $300 

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage= (1-350/350) = (1-100%) = 0%. 

Reduce each distribution to the holder of a futures customer or Cleared Swaps Customer claim by 

the Shortfall Percentage: 

Customer Claim in US$ Allocation shortfall Distribution in U.S. dollars 

(non-sovereien) after allocated shortfall 

A $50 $0 $50 

B 50 0 50 

C 50 0 50 

D 200 0 200 

Total $350 $0 $350 
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REDUCTION IN DISTRIBUTIONS FOR DUE TO SOVEREIGN ACTION 

Due to sovereign action, only 1/2 of the funds in Germany are available. 

Customer Presumed location of funds 

U.S. U.K. Germany 

A $50 

B $50 

C $50 

D 100 100 

Total $150 $50 $150 

Calculation of the allocation of the shortfall due to sovereign action--Germany ($50 shortfall to 

be allocated): 

Customer Allocation Allocation share of Actual shortfall 

share actual shortfall allocated 

C $50/$150 33.3% of $50 $16.67 

D $100/$150 66.7% of$50 33.33 

Total $50.00 

DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of shortfall Distribution after Customer before allocation of due to sovereign action all reductions sovereie;n shortfall from Germany 

A $50 $50 

B 50 50 

C 50 $16.67 33.33 

D 200 33.33 166.67 

Total $350.00 $50.00 $300.00 

Example 5. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due 

to sovereign action and a shortfall in funds held in the U.S. 

Customer Claim Location(s) customer has consented to havine; funds held 

A $100 U.S. 

B €50 V.K. 

C €150 Germany 

D $100 U.S. 

D £300 V.K. 

D €150 U.K. or Germany 

Location Actual asset balance 

U.S. $100 

U.K. £300 

U.K. €200 

Germany €150 

Conversion Rates: €1 = $1; £1 = $1.5. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19467 


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REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim in US$ 

A $100 1.0 $100 

B €50 1.0 50 

C €150 1.0 150 

D $100 1.0 100 

D £300 1.5 450 

D €150 1.0 150 

Total $1000 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 

Assets Shortfall due Actual Amount 

Location Assets Conversion in to sovereign shortfall due actually rate U.S. action to sovereign available dollars oercenta2e action 

U.S. $100 1.0 $100 $100 

U.K. £300 1.5 450 450 

U.K. €200 1.0 200 200 

Germany €150 1.0 150 100% $150 0 

Total $900 $150 $750 

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1 - 900 / 1000) = (1 - 90%) = 10%. 

Reduce each distribution to the holder ofa futures customer or Cleared Swaps Customer claim by 

the Shortfall Percentage: 

Customer Claim in Allocation shortfall Distribution in U.S. dollars 

US$ ( non-soverei2n) after allocated shortfall 

A $100 $10 $90 

B 50 5 45 

C 150 15 135 

D 700 70 630 

Total $1000 $100 $900 

REDUCTION IN DISTRIBUTIONS FOR SHORTFALL DUE TO SOVEREIGN ACTION 

Due to sovereign action, none of the money in Germany is available. 

Customer Presumed location of funds 

U.S. U.K. Germany 

A $100 

B $50 

C $150 

D 100 450 150 

Total $200 $500 $300 

Calculation of the allocation of the shortfall due to sovereign action Germany ($150 shortfall to 

be allocated): 
19468 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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Customer Allocation Allocation Share of actual Actual shortfall 

share shortfall allocated 

C $150/$300 50% of$150 $75 

D $150/$300 50% of$150 75 

Total $150 

DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of shortfall Distributions 

Customer before allocation of due to sovereign action after all 

sovereie:n shortfall from Germany reductions 

A $90 $90 

B 45 45 

C 135 $75 60 

D 630 75 555 

Total $900 $150 $750 

Example 6. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due 

to sovereign action, shortfall in funds held outside the U.S., or in a currency other than U.S. 

dollars, not due to sovereign action, and a shortfall in funds held in the U.S. 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19469 


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Customer Claim Location(s) customer has consented to havine: funds held 

A $50 U.S. 

B €50 U.K. 

C $20 U.S. 

C €50 Germany 

D $100 U.S. 

D £300 U.K. 

D €100 U.K., Germany, or Japan 

E $80 U.S. 

E ¥10,000 Japan 

Location Actual asset balance 

U.S. $200 

U.K. £200 

U.K. €100 

Germany €50 

Japan ¥10,000 

Conversion Rates: €1 = $1; ¥1 = $0.01, £1 = $1.5. 

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim In US$ 

A $50 1.0 $50 

B €50 1.0 50 

C $20 1.0 20 

C €50 1,0 50 

D $100 1.0 100 

D £300 1.5 450 

D €100 1.0 100 

E $80 1.0 80 

E ¥10,000 0.01 100 

Total $1000 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 

Shortfall Actual 

Conversio Assets in due shortfall due Amount 

Location Assets 

n rate U.S. to sovereign to sovereign actually 

dollars action available 

percentae:e action 

U.S. $200 1.0 $200 $200 

U.K. £200 1.5 300 300 

U.K. €100 1.0 100 100 

Germany €50 1.0 50 100% $50 0 

Japan ¥10,000 O.ol 100 50% 50 50 

Total $750 $100 $650 

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage= (1 =750/1000) = (1 =75%) = 25%. 

Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage: 
19470 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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Customer Claim in US$ Allocation shortfall Distributions in U.S. dollars 

( non-sovereie:n) after allocated shortfall 

A $50 $12.50 $37.50 

B 50 12.50 37.50 

C 70 17.50 52.50 

D 650 162.50 487.50 

E 180 45.00 135.00 

Total $1000.00 $250.00 $750.00 

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION 

Due to sovereign action, none of the money in Germany and only 1/2 of the funds in Japan are 

available. 

Presumed location of funds 

Customer U.S. U.K. Germany Japan 

A $50 

B $50 

C 20 $50 

D 100 450 50 $50 

E 80 100 

Total $250 $500 $100 $150 

Calculation of the allocation of the shortfall due to sovereign action-Germany ($50 shortfall to 

be allocated): 

Customer Allocation Allocation Share of Actual shortfall allocated Allocation share actual shortfall 

C $50/$100 50% of$50 $25 

D 50/100 50% of 50 25 

Total 50 

Japan ($50 shortfall to be allocated): 

Customer Allocation Allocation Share of Actual shortfall allocated Allocation share actual shortfall 

D $50/$150 33.3% of$50 $16.67 

E 100/150 66.6% of50 33.33 

Total $50.00 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19471 


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DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of Allocation of Distributi 

shortfall due to shortfall due to on after Customer before allocation of sovereign action sovereign action all sovereign shortfall from Germany from Japan reductions 

A $37.50 37.50 

B 37.50 37.50 

C 52.50 $25 27.50 

D 487.50 $25 16.67 445.83 

E 135.00 33.33 101.67 

Total $750.00 $50.00 $50.00 $650.00 

Example 7. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollar, due to 

sovereign action, where the FCM kept more funds than permitted in such location or currency. 

Customer Claim Location(s) customer has consented to havine: funds held 

A $50 U.S. 

B 50 U.S. 

B €50 U.K. 

C €50 Germany 

D 100 U.S. 

C €100 U.K. or Germany 

E 50 U.S. 

E €50 U.K. 

Location Actual asset balance 

U.S. $250 

U.K. €50 

Germany €200 

Conversion Rates: 1 = $1. 

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL 

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. 

Dollars: 

Customer Claim Conversion rate Claim in US$ 

A $50 1.0 $50 

B 50 1.0 50 

B €50 1.0 50 

C €50 1.0 50 

D €100 1.0 100 

D €100 1.0 100 

E 50 1.0 50 

E €50 1.0 50 

Total 500.00 

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars: 
19472 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 


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Assets in Shortfall due Actual Amount 

Location Assets Conversion U.S. to sovereign shortfall due actually rate action to sovereign dollars percenta~e action available 

U.S. $250 1.0 $250 $250 

U.K. €50 1.0 50 50 

Germany €200 1.0 200 100% 200 0 

Total $500 $200 $300 

Determine the percentage of shortfall that is not attributable to sovereign 

Shortfall Percentage= (1-500/500) = (1-100%) = 0%. 

Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage: 

Customer Claim in Allocation shortfall (non- Distribution in U.S. dollars 

US$ sovereign) after allocated shortfall 

A $50 $0 $50 

B 100 0 100 

C 50 0 50 

D 200 0 200 

E 100 0 100 

Total $500 $0 $500 

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION 

Due to sovereign action, none of the money in Germany is available. 

Presumed location of funds 

Customer U.S. U.K. Germanv 

A $50 

B 50 50 

C 50 

D 100 100 

E 50 50 

Total $250 $100 $150 

Calculation of the allocation of the shortfall due to sovereign action-Germany ($200 shortfall to 

be allocated): 

Allocation Allocation Share of Actual shortfall 

Customer share actual shortfall allocated 

C $50/$150 33.3% of$200 $66.67 

D $100/$150 66. 7% of $200 $133.33 

Total $200.00 

This would result in the distributions to customers C and D being reduced below zero. 

Accordingly, the distributions to customer C and D will only be reduced to zero, or $50 allocated 

to C and $100 allocated to D. This results in a Total Excess Shortfall of$50. 

Actual Allocation of shortfall Allocation of shortfall Total excess 

shortfall for customer C for customer D shortfall 

$200 $50 $100 $50 
Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19473 

1Bankruptcy Regulations, 85 FR 36000 (June 12, 

2020). 

2See Statement of Chairman Heath P. Tarbert in 

Support of Long-Awaited Updates to the CFTC’s 

Bankruptcy Regime (Apr. 14, 2020), available at 

https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/tarbertstatement041420. 

3The term ‘‘commodity broker’’ may refer either 

to a futures commission merchant (‘‘FCM’’) or a 

derivatives clearing organization (‘‘DCO’’). 11 

U.S.C. 101(6). 

Issued in Washington, DC, on December 

17, 2020, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Bankruptcy 

Regulations—Commission Voting 

Summary, Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Tarbert and 

Commissioners Quintenz, Behnam, 

Stump, and Berkovitz voted in the 

affirmative. No Commissioner voted in 

the negative. 

Appendix 2—Statement of Support of 

Chairman Heath P. Tarbert 

When our Commission considered the 

proposal to amend the CFTC’s 

bankruptcy rules in Part 190,1 I noted 

that, in his 1926 novel The Sun Also 

Rises, Ernest Hemingway offered what 

is perhaps the best chronicle of the 

anatomy of a typical bankruptcy. In the 

novel, the character Mike Campbell is 

asked how he went bankrupt. He 

answers: ‘‘two ways . . . gradually and 

then suddenly.’’ 2

As Hemingway’s dialogue succinctly 

describes, bankruptcies often come on 

unexpectedly. A business’s relatively 

minor financial or operational troubles 

may be exacerbated by a sudden crisis— 

whether a firm-level issue, or a national 

or even global event. Many catalysts for 

insolvency are entirely unpredictable. 

We must therefore be prepared with a 

bankruptcy regime that fosters a swift 

and equitable resolution to protect 

customer funds and promote financial 

stability. 

Background on the CFTC’s Bankruptcy 

Regime 

Part 190 of the CFTC’s rules, 

addressing commodity broker 3

bankruptcies, was finalized in 1983. 

Since that time, the commodity broker 

bankruptcy process and the state of the 

industry have gradually changed. Yet in 

the nearly four decades since, Part 190 

has never been comprehensively 

updated. This regime is intended to 

protect customer funds, but having 

antiquated rules does not help achieve 

that goal. 

CFTC staff has accordingly embarked 

on a process of updating Part 190 over 

the last several years, when a thenhealthy economy made bankruptcies 

relatively unlikely. Now that we find 

ourselves in the midst of the COVID–19 

pandemic and its economic 

ramifications, the fruits of our 

investment arguably could have not 

been better timed. The good news is that 

during 2020, U.S. derivatives markets 

and their participants have weathered 

the volatility associated with the 

coronavirus pandemic admirably. But as 

I just noted, we cannot know for certain 

what the future holds—for bankruptcy 

often comes ‘‘gradually and then 


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This shortfall will be allocated among the remaining futures customers or Cleared Swaps 

Customers who have authorized funds to be held outside the U.S. or in a currency other than U.S. 

dollars. 

Total claims Portion of Allocation share Allocation Actual of customers claim (column B- share of total 

Customer permitting required to C/column B actual total funds to be Total-all excess 

held outside be in the customer claims excess shortfall 

the U.S. U.S. in U.S.) shortfall allocated 

B $100 $50 $50/$200 25% of$50 $12.50 

C 50 0 (1) 0 

D 200 100 $100/200 50% of $50 25 

E 100 50 50/100 25% of$50 12.50 

Total $450.00 $50.00 

1Claim already reduced to $0. 

DISTRIBUTIONS AFTER REDUCTIONS 

Distribution in US$ Allocation of Allocation of Distribution shortfall due to Customer before allocation of sovereign action total excess after all 

sovereign shortfall Germany shortfall reductions 

A $50 $50.00 

B 100 12.50 87.50 

C 50 50 0 

D 200 100 25 75.00 

E 100 12.50 87.50 

Total $500.00 $150.00 $50.00 $300.00 
19474 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

4After considering comments that were received 

on the original proposal, our Commission 

subsequently issued a Supplemental Proposal that 

withdrew § 190.14(b)(2) and (3), and proposed other 

revisions to § 190.14. See Bankruptcy Regulations, 

85 FR 60110 (Sept. 24, 2020) (‘‘Supplemental 

Proposal’’). However, in light of comments raised 

on the Supplemental Proposal, as well as the 

original proposal, our Commission concluded that, 

at this point, it should engage in further analysis 

and development before proposing this, or any 

other, alternative approach. Such further analysis 

and development will better enable the CFTC to 

propose, in detail, a solution that is effective, and 

that mitigates any attendant concerns. 

5See Remarks of CFTC Chairman Heath P. 

Tarbert to the 35th Annual FIA Expo 2019 (Oct. 30, 

2019), available at https://www.cftc.gov/PressRoom/ 

SpeechesTestimony/opatarbert2 (outlining the 

CFTC’s strategic goals). 

6The final rule also grants the trustee appropriate 

discretion in other respects—for example, by 

allowing the trustee to modify the customer proof 

of claim form as needed for a particular bankruptcy. 

suddenly.’’ We must therefore be 

prepared for all contingencies. 

Accordingly, I am pleased to support 

today’s final rule to update Part 190 for 

the 21st century.4 The final rule is a 

product of both hard work by CFTC staff 

and Commissioners as well as 

contributions from external stakeholders 

and subject matter experts, including a 

subcommittee of the American Bar 

Association. The final rule promotes the 

CFTC’s core values in a number of ways, 

particularly the values of clarity and 

forward thinking. It also furthers the 

agency’s strategic goal of regulating our 

derivatives markets to promote the 

interests of all Americans.5

Clarity for Customers and Creditors 

The final rule serves our core value of 

clarity by incorporating key principles 

and actual practice as they have evolved 

in commodity broker bankruptcies and 

related judicial decisions in the years 

since 1983. 

A new introductory section of the rule 

enumerates certain ‘‘core concepts’’ of 

commodity broker bankruptcies. This 

section is intended to offer a readily 

understandable primer on relevant law, 

policy, and practical considerations in 

this area, thereby providing a common 

mental framework for brokers, 

customers, bankruptcy trustees, courts, 

and the public. Among other things, this 

section provides an overview of the 

various classes of customer segregated 

accounts held by a commodity broker; 

the priority of public customers over 

insiders; the requirement of pro rata 

distribution; and the preference to 

transfer rather than liquidate open 

positions. 

The final rule codifies a number of 

approaches and practices that have 

proven necessary or desirable in 

commodity broker bankruptcies in the 

intervening years since 1983. For 

example, the final rule authorizes a 

bankruptcy trustee to treat a broker’s 

customers in the aggregate for certain 

purposes, rather than handling each 

customer’s account on a bespoke basis. 

This aggregate treatment has in practice 

proven unavoidable in more recent 

commodity broker bankruptcies, which 

have required disposition of hundreds 

of thousands of derivatives contracts— 

on behalf of thousands or tens of 

thousands of customers—within days or 

even hours. By making clear that such 

aggregate disposition of accounts is 

permissible and may even be more 

likely to occur than the alternative, the 

final rule provides greater clarity on 

potential outcomes for trustees, brokers, 

and customers. 

For example, the final rule expressly 

permits the trustee—following 

consultation with CFTC staff—to 

determine whether to treat open 

positions of public customers in a 

designated hedging account as 

specifically identifiable property 

(requiring the trustee to solicit and 

comply with individual customer 

instructions), or instead transfer or 

‘‘port’’ all such positions to a solvent 

commodity broker where possible. This 

provision recognizes that requiring the 

trustee to identify hedging accounts and 

provide account holders the opportunity 

to give individual instructions is often 

a resource-intensive endeavor, which 

could interfere with the trustee’s ability 

to act in a timely and effective manner 

to protect all the broker’s customers.6

The final rule also includes explicit 

rules governing the bankruptcy of a 

clearinghouse, otherwise known as a 

derivatives clearing organization or 

DCO. Since its inception, Part 190 has 

contemplated only a ‘‘case-by-case’’ 

approach with no corresponding rules 

to spell out what would happen in the 

event of a DCO bankruptcy. While such 

a bankruptcy is extremely unlikely, it is 

important to provide ex ante clarity to 

DCO members and customers as to how 

it would be handled. The final rule 

favors following the DCO’s existing 

default management and recovery and 

wind-down rules and procedures, but 

gives the trustee discretion to apply 

them reasonably and practicably. This 

allows the bankruptcy trustee to take 

advantage of and adapt an established 

‘‘playbook,’’ rather than being forced 

either to follow a rigid, ‘‘one-size-fitsall’’ framework or to form a resolution 

plan in a matter of hours during the 

onset of a crisis. The final rule also gives 

legal certainty to DCO actions taken in 

accordance with a recovery and winddown plan filed with the CFTC by 

precluding the trustee from voiding any 

such action. 

I support codifying these and other 

practices within our rules in order to 

provide greater transparency and 

predictability to brokers, customers, and 

other key stakeholders regarding 

permissible and expected procedures in 

a bankruptcy scenario. 

Forward Thinking on Future 

Insolvencies 

The final rule updates a number of 

provisions to reflect changes in financial 

technology since Part 190 was enacted 

37 years ago. The enhanced discretion 

discussed above would in many cases 

help the trustee to account for the 

increase in transaction execution and 

processing speed, as well as the 

potential for large and unpredictable 

market moves given the rise of global 

trading and the 24-hour trading cycle. In 

addition, the final rule acknowledges 

digital assets as a physically deliverable 

asset class, in light of the listing of a 

number of physically delivered ‘‘virtual 

currency’’ derivatives contracts. 

The final rule also reflects advances 

in communications technology. For 

example, under the final rule, notice of 

a bankruptcy filing and related filed 

documents will be provided to the 

CFTC by electronic rather than paper 

means. Furthermore, required customer 

notice procedures no longer include 

publication in a ‘‘newspaper of general 

circulation’’ in light of the downward 

trend in newspaper readership. The 

final rule similarly recognizes changes 

from paper-based to electronic recording 

of documents of title. 

Promoting the Interests of All 

Americans 

Protection of customer funds is the 

lynchpin of the commodity broker 

bankruptcy regime of Part 190. The final 

rule includes a number of measures to 

enhance those protections, including by 

buttressing provisions already in place 

under existing law and regulation. In 

doing so, the final rule seeks to ensure 

that the CFTC’s bankruptcy regime 

works for the derivatives market 

participants it was meant to serve— 

particularly public brokerage customers, 

with a special emphasis on customers 

using derivatives to hedge their 

commercial risks. 

For example, the final rule reinforces 

the bankruptcy priority of public broker 

customers over ‘‘non-public’’ customers 

(e.g., the broker’s proprietary and 

affiliate accounts). It also strengthens 

the CFTC’s longstanding position that 

shortfalls in segregated customer assets 

should be made up from the broker’s 

general estate. As a result, our final rule 


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Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19475 

7 17 CFR 1.23 (enacted in 2013 and revised in 

2014) (requiring an FCM to contribute its own funds 

as ‘‘residual interest’’ to top up shortfalls in 

customer segregated accounts in the ordinary 

course of business). 

8Statutory authority for Part 190 includes 

Subchapter IV of Chapter 7 of the Bankruptcy Code. 

1Part 190 of the Commission’s regulations (17 

CFR part 190). 

2CFTC Requests Public Input on Simplifying 

Rules, https://www.cftc.gov/PressRoom/ 

PressReleases/pr7555-17. 

3 11 U.S.C. 761 et seq. 

4 § 190.00(c)(3)(i)(C). 

1Bankruptcy, 48 FR 8716 (March 1, 1983). 

2 82 FR 23765 (May 3, 2017). The ABA 

Submission can be found at: https://

comments.cftc.gov/PublicComments/ 

ViewComment.aspx?id=61331&SearchText; the 

accompanying cover note (‘‘ABA Cover Note’’) can 

be found at: https://comments.cftc.gov/ 

PublicComments/ 

ViewComment.aspx?id=61330&SearchText. 

3 John Gapper and Isabella Kaminska, Downfall of 

MF Global, Financial Times, Nov. 4, 2011, available 

at https://www.ft.com/content/2882d766-06fb-11e1- 

90de-00144feabdc0. 

makes clear that the CFTC’s bankruptcy 

regime is complementary to relatively 

recently-enacted customer protection 

rules for day-to-day broker operations.7

The final rule also furthers the 

preference—consistent with Subchapter 

IV of the Bankruptcy Code 8—for 

transferring or ‘‘porting’’ customer 

positions to a solvent broker, rather than 

liquidating those positions. Porting of 

positions protects the utility of customer 

hedges by avoiding the risk of market 

moves between liquidation and reestablishment of the customer’s hedging 

position. It also mitigates the risk that 

liquidation itself will cause such market 

moves. Among other measures, the grant 

of trustee discretion as to whether to 

treat hedging positions as specifically 

identifiable property will serve these 

objectives by facilitating porting of such 

positions en masse, promptly and 

efficiently, along with other customer 

property. 

Conclusion 

While updates to the CFTC’s 

bankruptcy rules have been years in the 

making, I believe today’s final rule was 

well worth the wait. The commodity 

broker resolution regime of Part 190 is 

respected throughout the world for its 

effectiveness and efficiency. In addition, 

Part 190 is important to the continued 

global competitiveness of American 

exchanges, clearinghouses, and market 

intermediaries. The final rule further 

enhances these features of our regime. 

Through its focus on promoting 

customer protection, clarity, and 

forward thinking, I believe the final rule 

will position us well for this decade and 

beyond. 

Appendix 3—Statement of Support of 

Commissioner Brian D. Quintenz 

I am pleased to support today’s final 

rule amending the Commission’s 

regulations governing the bankruptcy 

proceedings of commodity brokers.1

This rulemaking makes the first 

comprehensive change to these 

regulations since they were first issued 

in 1983. I commend both Chairman 

Tarbert for his leadership in continuing 

the Commission’s rulemaking agenda 

and former Chairman Giancarlo for 

laying the groundwork for this 

important rulemaking when he 

launched the CFTC’s Project KISS 

initiative.2

I am pleased that today’s final rule 

carefully took into consideration 

comments from FCMs, DCOs, asset 

managers and other market participants. 

I would like to highlight a few aspects 

of today’s final rule. The rulemaking 

reaffirms the special treatment the U.S. 

Bankruptcy Code affords to the 

customer account of an insolvent 

commodity broker, so that customers’ 

positions can promptly be transferred.3

The Commission is, for the first time, 

issuing rules specific to an insolvent 

DCO, which are similar to the rules 

applicable to an insolvent FCM. Next, 

taking advantage of the Commission’s 

experience with a few insolvent FCMs 

over the past decades, the final rule 

provides deference to the trustee that a 

U.S. Bankruptcy Court appoints to 

oversee the proceedings of an insolvent 

commodity broker. This increased 

deference is intended to expedite the 

transfer of customer funds. In response 

to comments from the asset management 

community, the final provisions provide 

additional guidance on how a trustee 

should balance various interests in 

seeking to protect public customers.4 In 

light of the Commission’s experience 

from the bankruptcy of MF Global in 

2011, the new bankruptcy rules 

generally treat letters of credit 

equivalently to other collateral posted 

by customers, so that the pro rata 

distribution of customer property in the 

event of a shortfall in the customer 

account will apply equally to all 

collateral. The final rule also reflects 

experience from MF Global by dividing 

the delivery account into ‘‘physical 

delivery’’ and ‘‘cash delivery’’ account 

classes. Property other than cash is 

generally easier to trace, so it should 

have the benefit of a separate account 

class. Finally, the final rule’s revised 

treatment of the ‘‘delivery account,’’ 

applicable in the context of physicallysettled futures and cleared swaps, will 

apply not only to tangible commodities, 

as is currently the case, but also to 

digital assets. This amendment will 

provide important legal certainty to the 

growing exchange-traded market for 

cleared, physically-settled, digital asset 

derivatives. 

I acknowledge that the asset 

management community has raised 

concerns with certain existing DCO 

rules that would be recognized in the 

bankruptcy of an FCM or DCO. I would 

support an on-going dialogue between 

the DCOs and their members and 

customers on resolution and resiliency 

concerns. 

Appendix 4—Statement of 

Commissioner Rostin Behnam 

I respectfully support the Commodity 

Futures Trading Commission’s (the 

‘‘Commission’’ or ‘‘CFTC’’) final rule 

amending Part 190 of its regulations, 

which governs bankruptcy proceedings 

of commodity brokers. First and 

foremost, I want to thank Commission 

staff for all of their hard work on the 

final rule. This is the first major update 

of the CFTC’s existing Part 190 since 

1983, when it was originally 

implemented by the Commission.1

The final rule is the product of years 

of staff analysis and engagement with 

market participants, including the Part 

190 Subcommittee of the Business Law 

Section of the American Bar 

Association, which provided a detailed 

submission of suggested model Part 190 

rules in response to a prior Commission 

request for information.2 Several agency 

Chairs going back many years deserve 

recognition and thanks for pushing to 

update Part 190 and starting this 

process. Customer protections are at the 

heart of the Commodity Exchange Act, 

and it is imperative that the 

Commission have clear rules that direct 

how proceedings occur during a 

commodity broker bankruptcy. 

The revision is designed to recognize 

the many changes in our industry over 

the past 37 years. Most importantly, it 

is informed by the Commission’s 

experience with past bankruptcies. 

More recently, the MF Global 

bankruptcy in 2011 was the eighth 

largest corporate bankruptcy in 

American history.3 It gave the 

Commission first hand experience with 

what worked, what did not, and what 

could be improved. 

I was a lead advisor during the U.S. 

Senate’s investigation of the MF Global 

bankruptcy, and during the Senate 

investigation, I learned the intricate 

contours of Part 190, its relationship to 

the Bankruptcy Code, and how the 

larger puzzle of creditors, customers, 

and equity holders, among others, fits 


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19476 Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 

4See Press Release Number 6300–12, CFTC, 

CFTC Files Complaint Against Peregrine Financial 

Group, Inc. and Russell R. Wasendorf, Sr., Alleging 

Fraud, Misappropriation of Customer Funds, 

Violation of Customer Fund Segregation Laws, and 

Making False Statements (July 10, 2012), https://

www.cftc.gov/PressRoom/PressReleases/6300-12. 

5https://www.federalreserve.gov/ 

paymentsystems/designated_fmu_about.htm. 

6Bankruptcy Regulations, 85 FR 36000 (June 12, 

2020). https://www.cftc.gov/LawRegulation/ 

FederalRegister/proposedrules/2020-08482.html. 

7Bankruptcy Regulations, 85 FR 60110 

(September 24, 2020). https://www.cftc.gov/ 

LawRegulation/FederalRegister/proposedrules/ 

2020-21005.html. 

1The bankruptcy trustee is directed to ‘‘return 

promptly to a customer any specifically identifiable 

security, property, or commodity contract to which 

such customer is entitled, or shall transfer, on such 

together. It was during those frenzied 

days that I truly appreciated the 

regulatory principle that customer 

margin is sacrosanct property. Because 

of my experience during those few 

months, I have made customer 

protections an absolute priority in my 

time as a Commissioner. Having spoken 

with many market participants 

throughout the MF Global bankruptcy 

proceedings, including those whose 

money disappeared in the days 

immediately following, customer 

protection is my most pressing 

responsibility. 

Just a few months later in early 2012, 

the bankruptcy of Peregrine Financial 

Group (‘‘PFG’’), the catastrophic 

culmination of a fraudulent scheme by 

a futures commission merchant 

(‘‘FCM’’) involving over $220M in 

customer funds,4 further laid bare the 

strengths and weaknesses of the 

Commission’s bankruptcy regime. 

Important lessons have been learned, 

both in terms of what works and what 

does not, and I believe today’s final rule 

implements the lessons learned in both 

of those events, and those that preceded 

them. 

Many of the changes to Part 190 in 

today’s final rule further support 

provisions that have worked in prior 

bankruptcies. One of the themes of this 

refresh is clarity. The goal is to be as 

clear as possible about the 

Commission’s intentions regarding Part 

190 in order to enhance the 

understanding of Designated Clearing 

Organizations (‘‘DCOs’’), FCMs, their 

customers, trustees, and the public at 

large. Changes in this final rule will 

foster the longstanding and continuing 

policy preference for transferring (as 

opposed to liquidating) the positions of 

public customers—an important 

customer protection aimed at preserving 

the status quo/asset value. Other 

changes further support existing 

requirements including that shortfalls in 

segregated property should be shored up 

from the FCM’s general assets, and that 

public customers are favored over nonpublic customers. The new provisions 

provide trustees with enhanced 

discretion based upon prior positive 

experience, and codify practice adopted 

in past bankruptcies by requiring FCMs 

to notify the Commission of their intent 

to file for voluntary bankruptcy. 

Other changes address what has not 

worked or become outdated. In light of 

lessons learned from MF Global, the 

Commission is enacting changes to the 

treatment of letters of credit as 

collateral, both during business as usual 

and during bankruptcy, in order to 

ensure that customers who post letters 

of credit as collateral have the same 

proportional loss as customers who post 

other types of collateral. 

The final rule also addresses a 

number of changes that have naturally 

occurred in our markets since the 

original Part 190 finalization in 1983. 

The Commission is promulgating a new 

subpart C to part 190, specifically 

governing the bankruptcy of a clearing 

organization. As DCOs have grown in 

importance over time, including being 

deemed systemically important by the 

Financial Stability Oversight Council 

following the financial crisis,5 the 

Commission believes that it is 

imperative to have a clear plan in place 

for exactly how a DCO bankruptcy 

would be resolved. The final rule also 

addresses changes in technology over 

the past 37 years, and the movement 

from paper-based to electronic-based 

means of communication—a lesson 

learned from the PFG bankruptcy. 

In many ways, this final rule is 

exactly how the rulemaking process 

should work. It looks retrospectively at 

major relevant events, and applies 

important lessons learned regarding 

what works in the existing Part 190 

rules, what does not, and what can be 

improved. But it also looks forward in 

a sense, recognizing changes in market 

structure and thinking ahead to the 

possibility of the bankruptcy of a 

clearing organization. This is a stark 

contrast to the risk principles final rule 

that we consider today. While the 

bankruptcy final rule looks back at the 

Commission’s past experiences with MF 

Global and PFG, the risk principles final 

rule seems to ignore past events. While 

the bankruptcy final rule looks ahead 

and plans for the possibility of 

addressing a DCO bankruptcy, the risk 

principles final rule ignores future 

events such as climate change. 

My only concern regarding the 

bankruptcy rule, and it is a relatively 

small one, is one of timing. The 

proposal for this rule was issued this 

past April.6 The comment period just 

closed on July 13. The Commission then 

issued a supplemental notice of 

proposed rulemaking in September.7

That comment period ended October 26. 

Particularly for a rule of this size and 

intricacy, the time that staff had to 

review and analyze the comment letters 

and draft the final rule and preamble 

has been incredibly short. Staff has 

worked tirelessly on this rule to get to 

the finish line. However, I think both 

the Commission and the public might 

well have benefited from more time for 

review and reflection before issuing 

such an important rule. 

On that note, I would like to close by 

again thanking staff for all of their hard 

work in producing this refresh of the 

Commission’s part 190 rules to provide 

important customer protections. 

Appendix 5—Statement of 

Commissioner Dan M. Berkovitz 

I support the final rule amending the 

Commission’s part 190 bankruptcy 

regulations. The amendments 

comprehensively update these 

regulations to address the increased size 

and speed of our markets and 

incorporate ‘‘lessons learned’’ from 

futures commission merchant (FCM) 

bankruptcies that occurred since the 

regulations were first adopted in 1983. 

The new derivatives clearing 

organization (DCO) bankruptcy 

regulations provide a framework to help 

market participants be prepared for such 

an event. While FCM bankruptcies are 

infrequent, and a registered DCO has 

never gone bankrupt, any such event 

could have significant financial impacts 

on many market participants, which, in 

turn, could have systemic implications. 

Improving the overall effectiveness and 

efficiency of the bankruptcy process 

fosters systemic stability and helps to 

better protect, preserve, and quickly 

return customer assets. 

The Bankruptcy Code provides 

express preferences for positions and 

property of customers of an FCM or 

DCO debtor so that the customers and 

their counterparties can be assured that 

those positions and property will not be 

included in the debtor’s general assets 

or clawed back post-filing. As a result, 

those positions and property (e.g., 

customer margin) can be transferred to 

another FCM or liquidated for value 

quickly and returned to customers 

following the filing of the bankruptcy. 

In this way, an FCM bankruptcy can be 

resolved expeditiously, greatly reducing 

any uncertainty as to the treatment of 

positions and property held in the name 

of the debtor.1 The protection of 


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Federal Register / Vol. 86, No. 69 / Tuesday, April 13, 2021 / Rules and Regulations 19477 

customer’s behalf, such security, property, or 

commodity contract to a commodity broker that is 

not a debtor’’ subject to CFTC regulations. 11 U.S.C. 

766(c). Section 764(a) of the Bankruptcy Code 

provides that ‘‘any transfer by the debtor of 

property that, but for such transfer, would have 

been customer property, may be avoided by the 

[bankruptcy] trustee . . . .’’ 11 U.S.C. 764(a). 

customer assets and positions furthers 

market stability by reducing the need for 

customers to rush to liquidate or 

transfer the positions themselves prior 

to the bankruptcy to avoid such assets 

being entangled in the debtor’s general 

assets. I am voting for the final rule 

because it significantly improves the 

likelihood of achieving these objectives. 

As a general matter, commenters 

agreed that, overall, the final rule is a 

significant improvement. As described 

in the final rule release and my 

statement on the proposed rule, the 

revised regulations further solidify and 

implement important principles such as 

the preference for public customers, pro 

rata distributions within account 

classes, and prompt return of assets. The 

final rule does this not only through 

general statements, but also in specific 

procedures established in the rule. 

Commenters raised a number of 

specific concerns regarding the final 

rule. As would be expected, these 

concerns were often (though not always) 

grouped by the specific interests of 

different types of market participants in 

the event of a bankruptcy of an FCM or 

DCO. 

Bankruptcy occurs because there are 

not enough assets to cover a debtor’s 

liabilities. In resolving the claims on the 

debtor’s assets during a bankruptcy 

proceeding, the allocation of the 

shortfall must entail a balancing of 

equities that, unfortunately, most often 

leaves one or more creditors and other 

interested parties (e.g., shareholders) 

with less than they expected to have if 

a bankruptcy had not occurred. As such, 

different creditor groups may have 

competing interests in the preferences 

and processes established in the 

Commission’s bankruptcy regulations. 

This reality is reflected in the 

thoughtful comments we received in 

response to the proposed rule. The final 

rule release addresses these comments 

in turn, discussing the pros and cons of 

the changes requested. In a number of 

instances, the final rule has been 

modified to address concerns raised 

where such modifications better achieve 

the stated principles of the regulations. 

For other concerns raised, as explained 

in the release, the balancing of the 

equities meant that the overall outcome 

of the bankruptcy proceeding would be 

better served by maintaining the rule as 

proposed. Particularly with respect to 

the bankruptcy rules, the fact that 

nobody gets everything they want likely 

means that the rule, for the most part, 

is well-balanced. 

I would like to take this opportunity 

to address two particular areas of 

comments. Entities that represent 

certain ‘‘public customers’’ expressed 

concern regarding the greater 

‘‘reasonable’’ discretion provided to 

bankruptcy trustees, which is intended 

to facilitate a speedier resolution and 

return of value to customers generally. 

These commenters are concerned that 

some customers could receive less than 

they could otherwise if the trustee 

makes poor choices when exercising its 

discretion or does not implement 

specific customer instructions. This 

concern is partially addressed with the 

addition of § 190.00(c)(3)(i)(C) to clarify 

how a trustee shall exercise its 

discretion to ‘‘best achieve the 

overarching goal of protecting public 

customers as a class by enhancing 

recoveries for, and mitigating 

disruptions to, public customers as a 

class.’’ Otherwise, as explained in the 

preamble, the discretion granted to the 

trustee is appropriate when weighing 

the benefits of prompt resolution of the 

bankruptcy with the other goals of the 

regulations. 

The Commission also received 

numerous comments on the proposed 

DCO bankruptcy regulations. This is not 

surprising given that these regulations 

create, for the first time, a regulatory 

scheme for DCO bankruptcies. Many 

commenters expressed concerns 

regarding the direction in § 190.15 to the 

trustee to, within reasonable discretion, 

follow the debtor DCO’s recovery and 

wind-down plans. The final rule, while 

largely leaving the proposed provision 

in place, did modify the rule text to 

emphasize that the trustee must act in 

a manner ‘‘consistent with the 

protection of customers.’’ In addition, 

the preamble notes that some of the 

concerns raised in this context are part 

of a broader discussion in the 

derivatives industry regarding the 

involvement of DCO members and 

customers in the governance, 

rulemaking, and structuring of the 

DCOs, and that the Commission 

continues to review these matters. I look 

forward to engaging in further 

discussions on these issues. 

I commend the Commission staff, 

particularly Bob Wasserman, for the 

thoughtful effort that has clearly been 

put into the final rule release. The 

Commission staff has done an 

exemplary job of reviewing the 

comments received, addressing those 

concerns, and drafting the preamble in 

very understandable language. I also 

appreciate Commission staff’s 

engagement with my office on a number 

of areas in the final rule. 

The final rule modernizes the 

Commission’s bankruptcy regulations 

and furthers the general principles these 

regulations serve. Public customers and 

markets will be better protected in the 

event of an FCM or DCO bankruptcy. 

For these reasons, I support the final 

rule. 

[FR Doc. 2020–28300 Filed 4–12–21; 8:45 am] 

BILLING CODE 6351–01–P 


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