[Federal Register Volume 74, Number 155 (Thursday, August 13, 2009)]
[Proposed Rules]
[Pages 40794-40799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18853]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 190

RIN 3038-AC82


Account Class

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (the ``Commission'') 
proposes amending its regulations (the ``Regulations'') to create a 
sixth and separate ``account class,'' applicable only to the bankruptcy 
of a commodity broker that is a futures commission merchant (``FCM''), 
for positions in cleared over-the-counter (``OTC'') derivatives (and 
money, securities, and/or other property margining, guaranteeing, and 
securing such positions). In general, the concept of ``account class'' 
governs the manner in which the trustee calculates the net equity 
(i.e., claims against the estate) and the allowed net equity (i.e., pro 
rata share of the estate) for each customer of a commodity broker in 
bankruptcy. The Commission further proposes amending the Regulations to 
codify the appropriate allocation, in a bankruptcy of any commodity 
broker, of positions in commodity contracts of one account class (and 
the money, securities, and/or other property margining, guaranteeing, 
or securing such positions) that are commingled with positions in 
commodity contracts of the futures account class (and the money, 
securities, and/or other property margining, guaranteeing, or securing 
such positions), pursuant to an order issued by the Commission.

DATES: Submit comments on or before September 14, 2009.

ADDRESSES: You may submit comments, identified by RIN number, by any of 
the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Agency Web Site: http://www.cftc.gov. Follow the 
instructions for submitting comments on the Web site.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#cebdabadbcabbaafbcb78eada8baade0a9a1b8"><span class="__cf_email__" data-cfemail="daa9bfb9a8bfaebba8a39ab9bcaeb9f4bdb5ac">[email protected]</span></a>. Include the RIN number in the 
subject line of the message.
    <bullet> Fax: 202-418-5521.
    <bullet> Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    <bullet> Hand Delivery/Courier: Same as mail above.

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate 
Director, Division of Clearing and Intermediary Oversight, 202-418-
5092, <a href="/cdn-cgi/l/email-protection#b2c0c5d3c1c1d7c0dfd3dcf2d1d4c6d19cd5ddc4"><span class="__cf_email__" data-cfemail="23515442505046514e424d63404557400d444c55">[email protected]</span></a>; or Nancy Schnabel, Attorney-Advisor, 
Division of Clearing and Intermediary Oversight, 202-418-5344, 
<a href="/cdn-cgi/l/email-protection#a8c6dbcbc0c6c9cacdc4e8cbcedccb86cfc7de"><span class="__cf_email__" data-cfemail="b9d7cadad1d7d8dbdcd5f9dadfcdda97ded6cf">[email protected]</span></a>; Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Net Equity

A. Authority of Commission To Define ``Net Equity'' and To Prescribe 
Procedures for Its Calculation

    The Commission is empowered by Section 20 of the Commodity Exchange 
Act (the ``Act''),\1\ (i) to define the ``net equity'' of a customer of 
a commodity broker \2\ in bankruptcy, and (ii) to prescribe, by rule or 
regulation,\3\ the procedures for calculating such ``net

[[Page 40795]]

equity.'' Moreover, Section 761(17) of the Bankruptcy Code \4\ subjects 
the definition of ``net equity'' in the case of a commodity broker to 
``such rules and regulations as the Commission promulgates under the 
Act.'' \5\ Section 20 of the Act states, in pertinent part, that:
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 24.
    \2\ Section 101(6) of the Bankruptcy Code (11 U.S.C. 101(6)) 
defines ``commodity broker'' as a ``futures commission merchant, 
foreign futures commission merchant, clearing organization, leverage 
transaction merchant, or commodity options dealer, as defined in 
section 761 of this title, with respect to which there is a 
customer, as defined in section 761 of this title.''
    \3\ The regulations of the Commission can be found at 17 CFR 
Chapter 1.
    \4\ Section 761(17) of the Bankruptcy Code (11 U.S.C. 761(17)) 
is one provision in Subchapter IV of Chapter 7 of the Bankruptcy 
Code (11 U.S.C. 761 et seq.), which governs commodity broker 
liquidations (``Subchapter IV'').
    \5\ 11 U.S.C. 761(17).

    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--* * * (5) how the net equity of a customer is to 
be determined.\6\
---------------------------------------------------------------------------

    \6\ 7 U.S.C. 24.

    The Commission has exercised its power under Section 20 of the Act 
---------------------------------------------------------------------------
in promulgating Regulation 190.07(b), which defines ``net equity'' as:

    [T]he total claim of a customer against the estate of the debtor 
based on the commodity contracts held by the debtor for or on behalf 
of such customer less any indebtedness of the customer to the 
debtor.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 190.07(a).

    In addition, the Commission has exercised its power under Section 
20 of the Act in promulgating the remainder of Regulation 190.07 
(Calculation of Allowed Net Equity). According to the proposing release 
for Regulation Part 190 (the ``Proposing Release''),\8\ the Commission 
intended Regulation 190.07 to constitute a ``step-by-step method for 
calculating the estate's liability to a customer (i.e., the customer's 
net equity) and of the pro rata share of the assets available to pay 
that claim (i.e., the customer's allowed net equity claim).'' \9\ To 
further such intent, the Commission set forth the concept of ``account 
class'' in Regulation 190.07, and defined the term ``account class'' in 
Regulation 190.01(a).
---------------------------------------------------------------------------

    \8\ See Proposed Rulemaking: 17 CFR Part 190 (Bankruptcy), 46 FR 
57535 (November 24, 1981).
    \9\ Id. at 57546.
---------------------------------------------------------------------------

B. Account Class

1. Definition
    Regulation 190.01(a) currently defines ``account class'' as 
follows:

    Each of the following types of customer accounts which must be 
recognized as a separate class of account by the trustee: [i] 
futures accounts, [ii] foreign futures accounts, [iii] leverage 
accounts, [iv] commodity option accounts and [v] delivery accounts 
as defined in Sec.  190.05(a)(2): Provided, however, That to the 
extent that the equity balance, as defined in Sec.  190.07, of a 
customer in a commodity option, as defined in Sec.  1.3(hh) of this 
chapter, may be commingled with the equity balance of such customer 
in any domestic commodity futures contract pursuant to regulations 
under the Act, the aggregate shall be treated for purposes of this 
part as being held in a futures account.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 190.01(a).

2. Rationale for the Concept of Account Class
    In general, the Regulations apply different requirements to the 
treatment of positions in different types of commodity contracts (and 
to the money, securities, and/or other property margining, 
guaranteeing, or securing such positions) based on the underlying 
characteristics of those contracts. For example, the segregation 
requirements in Regulations 1.20 through 1.30 \11\ would generally 
apply to positions in commodity futures contracts that are traded on a 
designated contract market (i.e., futures contracts), and to the money, 
securities, and/or other property margining, guaranteeing, or securing 
such positions. In contrast, the requirements in Regulation 30.7 \12\ 
would generally apply to positions in commodity futures contracts that 
are traded on foreign boards of trade (i.e., foreign futures or foreign 
options contracts), and to the money, securities, and/or other property 
margining, guaranteeing, or securing such positions.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 1.20-1.30.
    \12\ 17 CFR 30.7.
    \13\ As discussed in further detail below, the Commission has 
the power under Section 4d of the Act (7 U.S.C. 6d) to issue an 
order permitting positions in foreign futures contracts (and the 
money, securities, and/or property margining, guaranteeing, or 
securing such positions), to be commingled, in either an FCM or DCO 
account, with positions in futures contracts (and the money, 
securities, and/or other property margining, guaranteeing, or 
securing such positions).
---------------------------------------------------------------------------

    Under the Regulations, requirements for the treatment of positions 
(and the money, securities, and/or other property margining, 
guaranteeing, or securing such positions) may differ in stringency, and 
therefore in the degree of protection that they afford customers of a 
commodity broker in bankruptcy. For example, the segregation 
requirements in Regulations 1.20 through 1.30 are more stringent than 
the requirements in Regulation 30.7.\14\ Thus, the Commission created 
the concept of ``account class,'' in order to ensure that, in a 
bankruptcy of a commodity broker, customers that hold positions in 
commodity contracts (and deposit money, securities, and/or other 
property to margin, guarantee, or secure such positions) subject to one 
requirement would benefit from the specific protections afforded by 
such requirement. As the Commission stated in the Proposing Release:
---------------------------------------------------------------------------

    \14\ When the Commission promulgated Regulation Part 190 in 
1983, the Regulations had no requirements for the treatment of 
money, securities, and/or other property that were used to margin, 
guarantee, or secure commodity futures contracts traded on foreign 
boards of trade. In 1987, however, the Commission promulgated 
Regulation 30.7, which applies different and less stringent 
requirements to such money, securities, and/or other property than 
the segregation requirements in Regulations 1.20 through 1.30.

    The reason for identifying classes of customer accounts is to 
permit the implementation of the principle of pro rata distribution 
so that the differing segregation requirements with respect to 
different classes of accounts benefit customer claimants based on 
the class of account for which they were imposed.\15\
---------------------------------------------------------------------------

    \15\ Proposing Release, supra, note 9 at 57536.

---------------------------------------------------------------------------
    As the Commission further stated in the Proposing Release:

    Obviously, much of the benefit of segregation would be lost if 
property segregated on behalf of a particular account class could be 
allocated to pay the claims of customers of a different account 
class for which less stringent segregation requirements were in 
effect.\16\
---------------------------------------------------------------------------

    \16\ Id. at 57554.

    The Commission codified the aforementioned intent by promulgating 
---------------------------------------------------------------------------
Regulation 190.08(c), which states:

    [P]roperty held by or for the account of a customer, which is 
segregated on behalf of a specific account class * * * must be 
allocated to the customer estate of the account class for which it 
is segregated. * * * \17\
---------------------------------------------------------------------------

    \17\ 17 CFR 190.08(c).

C. The Use of Account Class in the Calculation of Net Equity and 
Allowed Net Equity

    As mentioned above, the concept of ``account class'' governs the 
manner in which the trustee calculates the net equity and the ``allowed 
net equity'' for each customer of a commodity broker in bankruptcy.
    In general, Regulation 190.07(b) requires a trustee to calculate 
net equity separately for each account class.\18\ Specifically, 
Regulation 190.07(b)(2) directs the trustee to ``aggregate the credit 
and debit equity balances of all accounts of the same class held by a 
customer in the same capacity'' while calculating net equity.\19\
---------------------------------------------------------------------------

    \18\ 17 CFR 190.07(b).
    \19\ 17 CFR 190.07(b)(2).
    Regulation 190.07(b)(3) (17 CFR 190.07(b)(3)) provides a limited 
exception to Regulation 190.07(b)(2), by permitting the trustee, 
while calculating net equity, to offset ``[a] negative equity 
balance with respect to one customer account class'' against ``a 
positive equity balance in any other account class of such customer 
held in the same capacity.''

---------------------------------------------------------------------------

[[Page 40796]]

    Regulation 190.07(a) states that ``allowed net equity'' shall ``be 
equal to the aggregate of the funded balances of such customer's net 
equity claim for each account class plus or minus'' certain 
adjustments.\20\ Regulation 190.07(c), in turn, defines ``funded 
balance'' as: ``* * * a customer's pro rata share of the customer 
estate with respect to each account class available as of the primary 
liquidation date for distribution to customers of the same class.'' 
\21\
---------------------------------------------------------------------------

    \20\ 17 CFR 190.07(a).
    \21\ 17 CFR 190.07(c).
---------------------------------------------------------------------------

    As this definition provides, Regulation 190.07(c) requires a 
trustee to calculate funded balance separately for each account class. 
Specifically, Regulation 190.07(c)(1) requires the trustee to 
calculate, with respect to a particular account class held by a 
particular customer of a commodity broker in bankruptcy, the ratio 
between (i) the net equity of such customer for such account class, and 
(ii) the net equity of all customers for such account class. Regulation 
190.07(c)(1) then requires the trustee to multiply such ratio against 
the value of any money, securities or other property that the commodity 
broker held on behalf of commodity contracts in such account class. 
Finally, to calculate allowed net equity, Regulation 190.07(a) requires 
the trustee to aggregate the funded balances across account classes, 
and to make certain adjustments, thus generating the total amount that 
each customer is entitled to recover from all money, securities, and/or 
other property held on behalf of such customer.

II. Proposed Amendments To Include Cleared OTC Derivatives as a 
Separate Account Class

A. Description

    As mentioned above, Regulation 190.01(a) currently sets forth five 
separate account classes: (i) Futures accounts; (ii) foreign futures 
accounts; (iii) leverage accounts; (iv) commodity option accounts; and 
(v) delivery accounts. The Commission is proposing to amend Regulation 
190.01(a) to designate ``cleared OTC derivatives'' as a sixth and 
separate account class with respect to the bankruptcy of a commodity 
broker that is an FCM. The Commission is also proposing to make certain 
conforming changes to Regulation 190.07(b)(2)(viii) and Form 4 (Proof 
of Claim) in Appendix A to Regulation Part 190 (Bankruptcy Forms).\22\ 
As described below, the Commission does not intend for ``cleared OTC 
derivatives'' to constitute a sixth and separate account class with 
respect to a bankruptcy of a commodity broker that is not an FCM.
---------------------------------------------------------------------------

    \22\ 17 CFR pt. 190, app. A, form 4.
---------------------------------------------------------------------------

    The Commission is also proposing to amend Regulation 190.01 to 
define ``cleared OTC derivatives.'' In its Interpretative Statement, 
dated September 26, 2008 (the ``Statement on Cleared OTC 
Derivatives''), the Commission defined ``cleared-only contracts'' as 
those contracts that ``although not executed or traded on a Designated 
Contract Market or a Derivatives Transaction Execution Facility, are 
subsequently submitted for clearing through a Futures Commission 
Merchant * * * to a Derivatives Clearing Organization.'' \23\ In the 
definition of ``cleared OTC derivatives'' in the proposed amendment to 
Regulation 190.01, the Commission is proposing to incorporate the 
definition for ``cleared-only contracts'' from the Statement on Cleared 
OTC Derivatives. However, consistent with the intentions specified in 
the Proposing Release,\24\ the Commission proposes to limit ``cleared 
OTC derivatives'' to only those positions in ``cleared-only contracts'' 
that (along with the money, securities, and/or other property 
margining, guaranteeing, or securing such positions) are required to 
have been (i) segregated in accordance with a rule, regulation, or 
order issued by the Commission, or (ii) held in a separate account for 
``cleared-only contracts'' in accordance with the rules or bylaws of a 
DCO. The Commission does not intend to specify substantive requirements 
for the treatment of cleared OTC derivatives (and the money, 
securities, and/or other property margining, guaranteeing, or securing 
such derivatives). Rather, the Commission proposes to define ``cleared 
OTC derivatives'' in such a manner as to specify the sources from which 
such substantive requirements may originate. Moreover, by including 
contracts that ``are required to be segregated * * * or to be held in a 
separate account'' for ``cleared-only contracts,'' the Commission seeks 
to avoid the need to engage in fact-intensive post-bankruptcy inquiries 
regarding compliance with such requirements.
---------------------------------------------------------------------------

    \23\ 73 FR 65514 (November 4, 2008).
    \24\ See supra notes 16 and 17, and the corresponding quotations 
from the Proposing Release in the text of this preamble.
---------------------------------------------------------------------------

 B. Rationale

    As detailed further below, the Commission is proposing these 
amendments (i) to reflect the extension of Subchapter IV (and, in turn, 
Regulation Part 190) to cleared OTC derivatives under the Commodity 
Futures Modernization Act of 2000 (the ``CFMA''),\25\ and (ii) to 
address a scenario that the Statement on Cleared OTC Derivatives did 
not reference. The Commission is proposing the amendments at this time 
because of increased interest among DCOs in clearing OTC derivatives, 
and the need to enhance certainty regarding the treatment of cleared 
OTC derivatives in the bankruptcy of a commodity broker that is an FCM.
---------------------------------------------------------------------------

    \25\ Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
---------------------------------------------------------------------------

1. To Reflect the Extension of Subchapter IV to Cleared OTC Derivatives
    The Commission promulgated the current version of Regulation 
190.01(a) in 1983. At that time, cleared OTC derivatives, if they 
existed, were not ``commodity contracts'' within the meaning of Section 
761(4) of the Bankruptcy Code.\26\ Therefore, neither Subchapter IV nor 
Regulation Part 190 applied to cleared OTC derivatives.
---------------------------------------------------------------------------

    \26\ 11 U.S.C. 761(4).
---------------------------------------------------------------------------

    The CFMA, however, created the opportunity for OTC derivatives to 
be cleared.\27\ In addition, the CFMA extended Subchapter IV (and, in 
turn, Regulation Part 190) to cleared OTC derivatives. As mentioned in 
the Statement on Cleared OTC Derivatives, Section 761(4)(A) of the 
Bankruptcy Code defines ``commodity contract,'' with respect to an FCM, 
as a ``contract for the purchase or sale of a commodity for future 
delivery on, or subject to the rules of, a contract market or board of 
trade.'' \28\ The CFMA amended the definition of ``contract market'' in 
Section 761(7) of the Bankruptcy Code to include reference to a 
``registered entity.'' As mentioned in the Statement on Cleared OTC 
Derivatives, Section 761(8) of the Bankruptcy Code incorporates by 
reference the definition of ``registered entity'' in the Act.\29\ 
Therefore, the CFMA first permitted cleared OTC derivatives, which are 
subject to the rules of a DCO, to become ``commodity contracts'' within 
the meaning of Section 761(4) of the Bankruptcy Code, specifically with 
respect to a commodity broker that is an FCM.
---------------------------------------------------------------------------

    \27\ See Sections 2(d) and 2(e) of the Act (7 U.S.C. Sec. Sec.  
2(d), (e)).
    \28\ Id.
    \29\ 11 U.S.C. 761(8). The term ``registered entity'' is defined 
in Section 1a(29) of the Act (7 U.S.C. Sec.  1a(29)) to include 
``(iii) a derivatives clearing organization registered under Section 
5b * * *.''

---------------------------------------------------------------------------

[[Page 40797]]

    As detailed in the Statement on Cleared OTC Derivatives, in a 
bankruptcy of a commodity broker that is an FCM, claims arising out of 
cleared OTC derivatives should be included in the determination of net 
equity (and therefore, by inference, in the determination of allowed 
net equity), for purposes of Subchapter IV and Regulation Part 190.\30\ 
Consequently, the Commission is proposing amendments to provide a 
regulatory framework to accomplish this goal.
---------------------------------------------------------------------------

    \30\ 73 FR 65514, 65515 (November 4, 2008).
---------------------------------------------------------------------------

2. To Address a Scenario Not Referenced in the Statement on Cleared OTC 
Derivatives
    In the Statement on Cleared OTC Derivatives, the Commission 
explained that, for purposes of Regulation Part 190:

    A claim arising out of a cleared-only contract, or the property 
margining such a contract, would be includable in the futures 
account class, where, pursuant to Commission Order, the contract or 
property is included in an account segregated in accordance with 
Section 4d of the Act.\31\
---------------------------------------------------------------------------

    \31\ 73 FR 65514, 65516 (November 4, 2008).

    However, the Commission did not address the treatment, under 
Regulation Part 190, of positions in cleared OTC derivatives (and the 
money, securities, and/or other property margining, guaranteeing, or 
securing such positions), in a scenario where there is no applicable 
Section 4d Order (as such term is defined below). Therefore, as 
mentioned above, the Commission is proposing amendments to create, only 
with respect to the bankruptcy of a commodity broker that is an FCM, a 
sixth and separate account class, to which cleared OTC derivatives (as 
well as the money, securities, and/or other property margining, 
guaranteeing, or securing such derivatives) could be allocated. By 
creating such an account class, the Commission is effectively 
specifying the manner in which the trustee in the bankruptcy of a 
commodity broker that is an FCM must treat, in the absence of an 
applicable Section 4d Order, claims arising out of cleared OTC 
derivatives when determining net equity and allowed net equity.

III. Proposed Amendment To Clarify Appropriate Allocation of Collateral 
to Certain Account Classes

    The Commission has the power under Section 4d of the Act \32\ to 
issue an order (a ``Section 4d Order'') permitting positions in 
commodity contracts of one account class (and the money, securities, 
and/or other property margining, guaranteeing or securing such 
positions), to be commingled with (and, therefore, to be accorded the 
same protections in bankruptcy as) positions in commodity contracts of 
the futures account class (and the money, securities, and/or other 
property margining, guaranteeing or securing such positions), in either 
an FCM or DCO account. Specifically, Section 4d of the Act states that:
---------------------------------------------------------------------------

    \32\ 7 U.S.C. 6d.

    In accordance with such terms and conditions as the Commission 
may prescribe by rule, regulation, or order, * * * money, 
securities, and property of the customers of such futures commission 
merchant may be commingled and deposited * * * with any other money, 
securities, and property received by such futures commission 
merchant and required by the Commission to be separately accounted 
for and treated and dealt with as belonging to the customers of such 
---------------------------------------------------------------------------
futures commission merchant.

    The Commission has issued two interpretations stating that, for 
purposes of Regulation Part 190, if positions in commodity contracts 
(and relevant money, securities, and/or other property) of one account 
class, are, pursuant to a Commission order, commingled with positions 
in commodity contracts (and relevant money, securities, and/or other 
property) of the futures account class, then, the former positions (and 
relevant money, securities, and/or other property) shall be treated as 
part of the futures account class. First, the Commission issued an 
Interpretative Statement on October 21, 2004 (the ``Statement on 
Commingling Foreign Futures Positions''), stating that ``collateral 
supporting foreign futures placed in domestic segregation pursuant to 
Commission Order should be treated as in a futures account, not a 
foreign futures account, for purposes of Part 190.'' \33\ In the 
Statement on Commingling Foreign Futures Positions, the Commission 
indicated that it would accord similar treatment to positions in other 
commodity contracts (and the relevant money, securities, and/or other 
property) that are placed in domestic segregation. Specifically, the 
Commission stated that:
---------------------------------------------------------------------------

    \33\ 69 FR 69510, 69511 (November 30, 2004).

    In a situation whereby Commission order or direction, customers 
are required or allowed to contribute to a Commission Regulation 
1.20 segregated account, those customers also should benefit from 
the distribution of that account proportionately to their 
contributions in the event of insolvency. Such claims should be 
treated as encompassed within the futures account class as opposed 
to the foreign futures account class or another account class.\34\
---------------------------------------------------------------------------

    \34\ Id.

    As mentioned above, the Commission subsequently issued the 
Statement on Cleared OTC Derivatives, which extends the conclusion in 
the Statement on Commingling Foreign Futures Positions to cover cleared 
OTC derivatives that have been placed in domestic segregation pursuant 
---------------------------------------------------------------------------
to Commission order. Specifically, the Commission stated that:

    [I]n October 2004, the Commission issued an interpretation 
regarding the appropriate account class for funds attributable to 
contracts traded on non-domestic boards of trade, and the assets 
margining such contracts, that are included in accounts segregated 
in accordance with Section 4d of the Act pursuant to Commission 
Order. In that context, the Commission concluded that the claim is 
properly against the Section 4d account class because customers 
whose assets are deposited in such an account pursuant to Commission 
Order should benefit from that pool of assets. The same rationale 
supports the Commission's conclusion that a claim arising out of a 
cleared-only contract, or the property margining such a contract, 
would be includable in the futures account class, where, pursuant to 
Commission Order, the contract or property is included in an account 
segregated in accordance with Section 4d of the Act.\35\
---------------------------------------------------------------------------

    \35\ 73 FR 65514, 65516 (November 4, 2008).

    The Commission is proposing to codify explicitly, in Regulation 
190.01(a), a generalized version of the Statement on Commingling 
Foreign Futures Positions and the Statement on Cleared OTC Derivatives. 
This version shall apply to positions in all commodity contracts (and 
money, securities, and/or other property margining, guaranteeing, or 
securing such positions). The Commission believes that these amendments 
would remove any concerns regarding whether the Statement on 
Commingling Foreign Futures Positions and the Statement on Cleared OTC 
Derivatives would be limited to the specific factual patterns addressed 
therein. To be clear, it is the belief of the Commission that the 
Statement on Commingling Foreign Futures Positions and the Statement on 
Cleared OTC Derivatives are nonetheless effective without such explicit 
codification.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \36\ requires Federal 
agencies, in promulgating regulations, to consider the impact of those 
regulations on small

[[Page 40798]]

businesses. The amendments proposed herein will affect only FCMs and 
DCOs. The Commission has previously established certain definitions of 
``small entities'' to be used by the Commission in evaluating the 
impact of its regulations on small entities in accordance with the 
RFA.\37\ The Commission has previously determined that FCMs \38\ and 
DCOs \39\ are not small entities for the purpose of the RFA. 
Accordingly, pursuant to 5 U.S.C. 605(b), the Chairman, on behalf of 
the Commission, certifies that the amendments will not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \36\ 5 U.S.C. 601 et seq.
    \37\ 47 FR 18618 (Apr. 30, 1982).
    \38\ Id. at 18619.
    \39\ 66 FR 45604, 45609 (Aug. 29, 2001).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \40\ imposes certain 
requirements on Federal agencies in connection with their conducting or 
sponsoring any collection of information as defined by the PRA. The 
amendments do not require the new collection of information on the part 
of any entities subject to such amendments. Accordingly, for purposes 
of the PRA, the Commission certifies that the amendments, if 
promulgated in final form, would not impose any new reporting or 
recordkeeping requirements.
---------------------------------------------------------------------------

    \40\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

C. Cost-Benefit Analysis

    Section 15(a) of the Act requires that the Commission, before 
promulgating a regulation under the Act or issuing an order, consider 
the costs and benefits of its action. By its terms, Section 15(a) of 
the Act does not require the Commission to quantify the costs and 
benefits of a new regulation or determine whether the benefits of the 
regulation outweigh its costs. Rather, Section 15(a) of the Act simply 
requires the Commission to ``consider the costs and benefits'' of its 
action.
    Section 15(a) of the Act further specifies that costs and benefits 
shall be evaluated in light of the following considerations: (1) 
Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity of futures markets; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. Accordingly, the Commission could, in its 
discretion, give greater weight to any one of the five considerations 
and could determine that, notwithstanding its costs, a particular 
regulation was necessary or appropriate to protect the public interest 
or to effectuate any of the provisions or to accomplish any of the 
purposes of the Act.
    The Commission has evaluated the costs and benefits of the 
amendments, in light of the specific considerations identified in 
Section 15(a) of the Act, as follows:
1. Protection of Market Participants and the Public
    The amendments would benefit FCMs and DCOs, as well as customers of 
the futures and options markets, by providing greater certainty (i) in 
a bankruptcy of a commodity broker that is an FCM, regarding the 
treatment of cleared OTC derivatives, and (ii) in a bankruptcy of any 
commodity broker, regarding the allocation of positions in commodity 
contracts (and relevant money, securities, and/or other property) of 
one account class that are commingled in an FCM or DCO account, 
pursuant to an order from the Commission, with positions in commodity 
contracts (and relevant money, securities, and/or other property) of 
the futures account class.
2. Efficiency and Competition
    The amendments are not expected to have an effect on efficiency or 
competition.
3. Financial Integrity of Futures Markets and Price Discovery
    The amendments would enhance the protection, in the bankruptcy of a 
commodity broker that is an FCM, of customers with positions in cleared 
OTC derivatives, by providing an account class in which to hold such 
positions (and relevant money, securities, and/or other property). The 
amendments would enhance certainty regarding the treatment, in a 
bankruptcy of any commodity broker, of customers with positions (and 
relevant money, securities, and/or other property) subject to a Section 
4d Order, by removing concerns regarding whether the Statement on 
Commingling Foreign Futures Positions and the Statement on Cleared OTC 
Derivatives would be limited to the specific factual patterns addressed 
therein. Thus, the proposed regulations would contribute to the 
financial integrity of the futures and options markets as a whole.
4. Sound Risk Management Practices
    The amendments would reinforce the sound risk management practices 
already required of FCMs and DCOs, by (i) providing an account class in 
which to hold positions in cleared OTC derivatives (and relevant money, 
securities, and/or other property), and (ii) providing certainty to 
FCMs and DCOs regarding the allocation between account classes, in a 
commodity broker bankruptcy, of customer positions (and relevant money, 
securities, and/or other property) subject to a Section 4d Order.
 5. Other Public Considerations
    Recent market events, including disruptions in global credit 
markets, render it prudent to enhance certainty regarding the treatment 
of customer positions (and relevant money, securities, and/or other 
property) in a commodity broker bankruptcy.
    Accordingly, after considering the five factors enumerated in the 
Act, the Commission has determined to propose the regulations set forth 
below.

List of Subjects in 17 CFR Part 190

    Bankruptcy, Brokers, Commodity Futures.

    For the reasons stated in the preamble, the Commission proposes to 
amend 17 CFR part 190 as follows:

PART 190--BANKRUPTCY

    1. The authority citation for part 190 continues to read as 
follows:

    Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 12, 19, and 24, 
and 11 U.S.C. 362, 546, 548, 556, and 761-766, unless otherwise 
noted.

    2. In Sec.  190.01, revise paragraph (a) and add paragraph (oo) to 
read as follows:


Sec.  190.01  Definitions.

* * * * *
    (a) Account class means each of the following types of customer 
accounts which must be recognized as a separate class of account by the 
trustee: futures accounts, foreign futures accounts, leverage accounts, 
commodity option accounts, delivery accounts as defined in Sec.  
190.05(a)(2), and, only with respect to the bankruptcy of a commodity 
broker that is a futures commission merchant, cleared OTC derivatives 
accounts; Provided, however, That to the extent that the equity 
balance, as defined in Sec.  190.07, of a customer in a commodity 
option, as defined in Sec.  1.3(hh) of this chapter, may be commingled 
with the equity balance of such customer in any domestic commodity 
futures contract pursuant to regulations under the Act, the aggregate 
shall be treated for purposes of this part as being held in a futures 
account; Provided, further, that, if positions in commodity contracts 
of one account class (and the money, securities, and/or other property 
margining, guaranteeing, or securing such positions), are, pursuant to 
a Commission order,

[[Page 40799]]

commingled with positions in commodity contracts of the futures account 
class (and the money, securities, and/or other property margining, 
guaranteeing, or securing such positions), then the former positions 
(and the relevant money, securities, and/or other property) shall be 
treated, for purposes of this part, as being held in an account of the 
futures account class.
* * * * *
    (oo) Cleared OTC derivatives shall mean positions in commodity 
contracts that have not been entered into or traded on a contract 
market (as such term is defined in Sec.  1.3(h) of this chapter) or on 
a derivatives transaction execution facility (within the meaning of 
Section 5a of the Act), but which nevertheless are submitted by a 
commodity broker that is a futures commission merchant (as such term is 
defined in Sec.  1.3(p) of this chapter) for clearing by a clearing 
organization (as such term is defined in this section), along with the 
money, securities, and/or other property margining, guaranteeing, or 
securing such positions, which are required to be segregated, in 
accordance with a rule, regulation, or order issued by the Commission, 
or which are required to be held in a separate account for cleared OTC 
derivatives only, in accordance with the rules or bylaws of a clearing 
organization (as such term is defined in this section).
    4. In Sec.  190.07, revise paragraph (b)(2)(viii) to read as 
follows:


Sec.  190.07  Calculation of allowed net equity.

    (b) * * *
    (2) * * *
    (viii) Subject to paragraph (b)(2)(ix) of this section, the futures 
accounts, leverage accounts, options accounts, foreign futures 
accounts, and cleared OTC derivatives 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.
* * * * *
    5. Amend ``bankruptcy appendix form 4--proof of claim'' in Appendix 
A to Part 190 by revising paragraph a in section III to read as 
follows:

Appendix A to Part 190--Bankruptcy Forms

* * * * *

Bankruptcy Appendix Form 4--Proof of Claim

* * * * *
    III. * * *
    a. Whether the account is a futures, foreign futures, leverage, 
option (if an option account, specify whether exchange-traded or 
dealer), ``delivery'' account, or, only with respect to a bankruptcy 
of a commodity broker that is a futures commission merchant, a 
cleared OTC derivatives account. A ``delivery'' account is one which 
contains only documents of title, commodities, cash, or other 
property identified to the claimant and deposited for the purposes 
of making or taking delivery on a commodity underlying a commodity 
contract or for payment of the strike price upon exercise of an 
option.
* * * * *

    Issued in Washington, DC, on July 31, 2009, by the Commission.
David A. Stawick,
Secretary of the Commission.

[FR Doc. E9-18853 Filed 8-12-09; 8:45 am]
BILLING CODE P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>