Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Rules and Regulations 17297 

1The regulations of the Commission can be found 

at 17 CFR Chapter 1. 

2 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. 

3The Act can be found at 7 U.S.C. 1–23. 

4 74 FR 40794 (August 13, 2009). 

5The Notice proposed defining ‘‘cleared OTC 

derivatives’’ as: 

Positions in commodity contracts that have not 

been entered into or traded on a contract market (as 

such term is defined in § 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 § 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). 

Id. at 40799. 

6 7 U.S.C. 6d. 

ATTN: Greg Davison, Aerospace Engineer, 

FAA, Small Airplane Directorate, 901 Locust, 

Room 301, Kansas City, Missouri 64106; 

telephone: (816) 329–4130; fax: (816) 329– 

4090. Before using any approved AMOC on 

any airplane to which the AMOC applies, 

notify your appropriate principal inspector 

(PI) in the FAA Flight Standards District 

Office (FSDO), or lacking a PI, your local 

FSDO. 

(2) Airworthy Product: For any requirement 

in this AD to obtain corrective actions from 

a manufacturer or other source, use these 

actions if they are FAA-approved. Corrective 

actions are considered FAA-approved if they 

are approved by the State of Design Authority 

(or their delegated agent). You are required 

to assure the product is airworthy before it 

is returned to service. 

(3) Reporting Requirements: For any 

reporting requirement in this AD, under the 

provisions of the Paperwork Reduction Act 

(44 U.S.C. 3501 et. seq.), the Office of 

Management and Budget (OMB) has 

approved the information collection 

requirements and has assigned OMB Control 

Number 2120–0056. 

Related Information 

(h) Refer to MCAI EASA Emergency AD 

No.: 2010–0037–E, dated March 8, 2010, and 

Aircraft Industries, a.s. Mandatory Bulletin 

MB No.: L23/052a, dated March 2, 2010, for 

related information. 

Material Incorporated by Reference 

(i) You must use Aircraft Industries, a.s. 

Mandatory Bulletin MB No.: L23/052a, dated 

March 2, 2010, to do the actions required by 

this AD, unless the AD specifies otherwise. 

(1) The Director of the Federal Register 

approved the incorporation by reference of 

this service information under 5 U.S.C. 

552(a) and 1 CFR part 51. 

(2) For service information identified in 

this AD, contact Aircraft Industries, a.s.—Na 

za ́honech1177, 686 04 Kunovice, Czech 

Republic; telephone: +420 572 817 660; fax: 

+420 572 816 112; E-mail: ots@let.cz; 

Internet: www.let.cz. 

(3) You may review copies of the service 

information incorporated by reference for 

this AD at the FAA, Central Region, Office of 

the Regional Counsel, 901 Locust, Kansas 

City, Missouri 64106. For information on the 

availability of this material at the Central 

Region, call (816) 329–3768. 

(4) You may also review copies of the 

service information incorporated by reference 

for this AD at the National Archives and 

Records Administration (NARA). For 

information on the availability of this 

material at NARA, call (202) 741–6030, or go 

to: http://www.archives.gov/federal_register/ 

code_of_federal_regulations/ 

ibr_locations.html. 

Issued in Kansas City, Missouri, on March 

29, 2010. 

Steven R. Thompson, 

Acting Manager, Small Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. 2010–7591 Filed 4–5–10; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 190 

RIN 3038–AC94 

Account Class 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rules. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

‘‘Commission’’) is amending its 

regulations (the ‘‘Regulations’’) 1 to 

create a sixth and separate ‘‘account 

class,’’ 2 applicable only to the 

bankruptcy of a commodity broker that 

is a futures commission merchant 

(‘‘FCM’’), for positions in cleared overthe-counter (‘‘OTC’’) derivatives (and 

money, securities, and/or other property 

margining, guaranteeing, or securing 

such positions). 

Further, the Commission is 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), which, 

pursuant to an order issued by the 

Commission under Section 4d of the 

Commodity Exchange Act (the ‘‘Act’’),3

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). 

DATES: Effective Date: The final rules are 

effective as of May 6, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Robert B. Wasserman, Associate 

Director, Division of Clearing and 

Intermediary Oversight, 202–418–5092, 

rwasserman@cftc.gov; or Nancy 

Schnabel, Special Counsel, Division of 

Clearing and Intermediary Oversight, 

202–418–5344, nschnabel@cftc.gov; 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On August 13, 2009, the Commission 

published a Notice of Proposed 

Rulemaking, which contained the 

following three proposals (the 

‘‘Notice’’).4 First, the Notice proposed 

amending Regulation 190.01(a), as well 

as adding new Regulation 190.01(oo), to 

create a sixth and separate account 

class, applicable only to the bankruptcy 

of a commodity broker that is an FCM, 

for positions in ‘‘cleared OTC 

derivatives’’ (and money, securities, 

and/or other property margining, 

guaranteeing, or securing such 

positions).5 Second, the Notice 

proposed further amending Regulation 

190.01(a) to codify the appropriate 

allocation, in a bankruptcy of any 

commodity broker, of positions in 

commodity contracts of one account 

class (and relevant collateral), which, 

pursuant to an order issued by the 

Commission under Section 4d of the 

Act 6 (a ‘‘Section 4d Order’’), are 

commingled with positions in 

commodity contracts of the futures 

account class (and relevant collateral). 

Third, the Notice proposed making 

certain conforming amendments to 

Regulation 190.07(b)(2)(viii) and Form 4 

(Proof of Claim) in Appendix A to 

Regulation Part 190 (Bankruptcy 

Forms). 

Although, as mentioned above, the 

Notice proposed creating a new account 

class for positions in cleared OTC 

derivatives (and relevant collateral), the 

Notice declined to propose substantive 

requirements, applicable prior to the 

bankruptcy of a commodity broker that 

is an FCM, for the treatment of such 

positions (and relevant collateral). 

Rather, the Notice stated that ‘‘the 

Commission proposes to define ‘cleared 

OTC derivatives’ in such a manner as to 

specify the sources from which such 

substantive requirements may 


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17298 Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Rules and Regulations 

7 74 FR at 40796. 

8For purposes of this release, a comment letter is 

referenced by (i) its author, (ii) its file number (as 

shown in the comment file associated with the 

Notice on the Commission’s Web site), and (iii) the 

page (if applicable). The comment file associated 

with the Notice is available at http://www.cftc.gov/ 

lawandregulation/federalregister/ 

federalregistercomments/2009/09-009.html. 

9The Managed Funds Association (representing 

the global alternative investment industry) (‘‘MFA’’) 

(CL01). 

10The Futures Industry Association (representing 

the commodity futures and options industry) 

(‘‘FIA’’) (CL02). 

11The CME Group, Inc. (the holding company for: 

(i) The Chicago Mercantile Exchange Inc. (‘‘CME’’) 

and CME Clearing, a division of CME; (ii) the Board 

of Trade of the City of Chicago, Inc. and its clearing 

house; (iii) the New York Mercantile Exchange, Inc. 

and its clearing house; and (iv) the Commodity 

Exchange, Inc.) (‘‘The CME Group’’) (CL03). 

12ELX Futures, L.P. (‘‘ELX’’) (CL04). 

13 In 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.’’ 73 FR 65514 

(November 4, 2008). 

14 Id. 

15The Segregation and Portability Report is 

available at http://www.newyorkfed.org/ 

newsevents/news/markets/2009/an090713.html. 

According to the MFA, the Segregation and 

Portability Report states that ‘‘there is uncertainty as 

to the proposition that cleared OTC derivatives 

contracts constitute ‘commodity contracts’, thereby 

receiving account class protections under the [Act] 

and the Bankruptcy Code.’’ See MFA CL01 at 3. 

According to the FIA, the Segregation and 

Portability Report ‘‘concludes that there are 

reasonable arguments that cleared OTC derivatives 

may be viewed as ‘commodity contracts’ for 

purposes of Subchapter IV and Part 190. However, 

‘the risk of a contrary conclusion is not 

insignificant.’ [Emphasis supplied.]’’ See FIA CL02 

at 6. 

16 Id. The FIA also quotes from another portion 

of the Segregation and Portability Report, which 

states: 

We believe there is a significant possibility (in a 

worst-case scenario) that the proposition that 

cleared [credit default swap] contracts constitute 

‘‘commodity contracts’’ within the meaning of the 

Bankruptcy Code may be challenged * * * In 

addition, we also believe that any challenge to the 

proposition that [credit default swaps] constitute 

‘‘commodity contracts’’ would likely result in 

significant delay for customers seeking the return of 

margin through the insolvent FCM. 

Id. 

To properly contextualize these expressed 

concerns, the Commission makes two observations. 

First, while the Segregation and Portability 

Report repeatedly makes portentous statements 

concerning the ‘‘not insignificant’’ risk that a court 

might find that cleared-only contracts (as the 

Statement on Cleared OTC Derivatives defines such 

term) are not commodity contracts, the Segregation 

and Portability Report cites neither to statutory 

language nor to case law that might be relied upon 

to support such a conclusion. Indeed, the Report 

fails to specify any analytical basis for its concerns. 

Second, the Segregation and Portability Report’s 

discussion of timing concerns in this context is 

somewhat incongruous, given that the report 

contains the following description of its own scope: 

We do not principally focus on timing issues in 

this Report—e.g., when customers will be able to 

recover their margin. Although we note certain 

instances in which timing concerns may be 

particularly relevant, our primary focus is on 

whether customers will be able to recover their 

margin. Timing issues are critical to the analysis of 

any CCP’s customer protection framework. 

However, we do not focus on them in this Report 

because of their inherently complex and 

unpredictable nature. 

See the Segregation and Portability Report at 3. 

In any event, the prosaic observation that the 

conclusions of the Statement on Cleared OTC 

Derivatives may be the subject of a challenge, and 

that such a challenge might take time to resolve, 

provides no reason for rejecting the proposals 

contained in the Notice that are based on those 

conclusions. 

17 11 U.S.C. 761(4)(A). 

18 11 U.S.C. Chapter 7, Subchapter IV. 

19Appendix E of Public Law 106–554, 114 Stat. 

2763 (2000). 

20See supra note 17. 

21See, e.g., Sections 2(d), (e), and (g) of the Act 

(7 U.S.C. 2(d), (e), (g)). 

originate.’’ 7 According to the Notice, the 

rules or bylaws of a DCO constitute one 

such source. 

The public comment period on the 

Notice ended on September 14, 2009. 

The Commission received four 

comments 8 during the comment period: 

(i) One from an alternative investment 

industry trade association; 9 (ii) one 

from a futures industry trade 

association; 10 (iii) one from the holding 

company of four designated contract 

markets (each, a ‘‘DCM’’) and three 

DCOs; 11 and (iv) one from a DCM.12

Collectively, the comments raise the 

following five concerns with the Notice: 

• The Commission may not have 

authority to promulgate the proposed 

amendments in the Notice; 

• The Commission should make the 

proposed account class for cleared OTC 

derivatives applicable to the bankruptcy 

of a commodity broker that is a DCO, 

not simply to the bankruptcy of a 

commodity broker that is an FCM; 

• The Commission should change the 

definition of cleared OTC derivatives in 

the Notice to better comport with the 

definition of ‘‘cleared-only contracts’’ 13

in the Interpretative Statement that the 

Commission issued on September 26, 

2008 (the ‘‘Statement on Cleared OTC 

Derivatives’’); 14

• The Commission should establish 

objective standards for issuing Section 

4d Orders; and 

• The Commission should specify 

substantive requirements with respect to 

the treatment of positions in cleared 

OTC derivatives (and money, securities, 

and/or other property margining, 

guaranteeing, or securing such 

positions), if a DCO requires such 

positions (and relevant collateral) to be 

held in a separate account for cleared 

OTC derivatives. 

The Commission will address below 

each of the five concerns in turn. 

II. Concern That the Commission Does 

Not Have Authority To Promulgate the 

Proposed Amendments in the Notice 

A. Rationale for Concern 

Two commenters stated that certain 

participants in the OTC derivatives 

markets have questioned the authority 

of the Commission to promulgate the 

proposed amendments in the Notice. In 

support of their respective statements, 

both commenters referenced the Report 

to the Supervisors of the Major OTC 

Derivatives Dealers on the Proposals of 

Centralized CDS Clearing Solutions for 

the Segregation and Portability of 

Customer CDS Positions and Related 

Margin, dated June 30, 2009 (the 

‘‘Segregation and Portability Report’’).15

One commenter quotes from a portion of 

the Segregation and Portability Report, 

which states that there exists a ‘‘not 

insignificant’’ risk that a court 

administering the bankruptcy of a 

commodity broker would disagree with 

the Statement on Cleared OTC 

Derivatives.16 In the Statement on 

Cleared OTC Derivatives, the 

Commission determined (i) that clearedonly contracts constituted ‘‘commodity 

contracts’’ 17 within the meaning of 

Subchapter IV of Chapter 7 of the 

Bankruptcy Code (‘‘Subchapter IV’’),18

and (ii) that, therefore, customer 

positions in cleared-only contracts that, 

pursuant to a Section 4d Order, are 

commingled with customer positions in 

futures contracts should be afforded all 

protections available under Subchapter 

IV and Regulation Part 190 in the event 

of the bankruptcy of a commodity 

broker that is an FCM. For the reasons 

explained below, the Commission does 

not believe that the commenters’ 

concerns are well founded. 

B. ‘‘Commodity Contract’’ Definition 

In both the Statement on Cleared OTC 

Derivatives and the Notice, the 

Commission relied on clear statutory 

authority that the Commodity Futures 

Modernization Act of 2000 (the 

‘‘CFMA’’) 19 introduced in the Act and in 

Subchapter IV to conclude that cleared 

OTC derivatives are ‘‘commodity 

contracts’’ within the meaning of 

Section 761(4)(A) of the Bankruptcy 

Code.20 The CFMA created the 

opportunity for OTC derivatives to be 

cleared.21 The CFMA also extended 

Subchapter IV to 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 


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Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Rules and Regulations 17299 

22See supra note 17. 

23 11 U.S.C. 761(7). 

24 11 U.S.C. 761(8). 

25 7 U.S.C. 1a(29). 

26See supra note 17. 

27As mentioned above, ‘‘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. As the NPRM states, ‘‘[t]he Commission 

is empowered by Section 20 of the Commodity 

Exchange Act * * * (i) to define the ‘net equity’ of 

a customer of a commodity broker in bankruptcy, 

and (ii) to prescribe, by rule or regulation, the 

procedures for calculating such ‘net equity.’ ’’ See 74 

FR at 40795. The Commission is exercising its 

powers under Section 20 of the Act in determining 

whether cleared OTC derivatives could, with 

respect to an FCM that is a commodity broker, 

constitute a sixth and separate account class. The 

plain language of the Bankruptcy Code recognizes 

the authority of the Commission to make such 

determination. For example, Section 761(17) of the 

Bankruptcy Code 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.’’ Moreover, the 

legislative history of the 1978 amendments to the 

Bankruptcy Code supports the authority of the 

Commission. Cf. H.R. Rep. No. 95–595 (1977) 

(stating that ‘‘a final distinction [between 

Subchapter III of Title 7 of the Bankruptcy Code (11 

U.S.C., Title 7, Subchapter III) and Subchapter IV] 

concerns the creation of a rule-making power in the 

Commodity Futures Trading Commission to carry 

out the provisions * * * The bill contains such a 

rule-making power with respect to * * * net equity 

* * * The rule-making power was requested by the 

CFTC and is appropriate in light of the germinal 

state of regulation in this area’’). 

28The Segregation and Portability Report does 

note that ‘‘this outcome is not at all certain.’’ See 

the Segregation and Portability Report at 35. 

However, the Segregation and Portability Report 

also observes that, in the event that a court 

administering the bankruptcy of a commodity 

broker disagrees with the determination of the 

Commission that cleared-only contracts (as the 

Statement on Cleared OTC Derivatives defines such 

term) constitute ‘‘commodity contracts’’ under 

Subchapter IV, ‘‘if the [commodity broker] 

segregates assets solely for the cleared [credit 

default swap] customers, then the cleared [credit 

default swap] customers’ interest in those assets 

may be superior to any interest of the commodities 

customers or unsecured creditors of the [commodity 

broker] * * *’’. See the Segregation and Portability 

Report at 37. Therefore, the Segregation and 

Portability Report appears to imply that the 

creation, in the event of the bankruptcy of a 

commodity broker that is an FCM, of a separate 

account class for customer positions in cleared OTC 

derivatives (and money, securities, and/or other 

property margining, guaranteeing, or securing such 

positions), as the Notice proposed, may benefit 

customers, even if a court does not accord such 

positions (and relevant collateral) full protection 

under Subchapter IV and Regulation Part 190. 

29As mentioned above, according to the FIA, the 

Segregation and Portability Report ‘‘concludes that 

there are reasonable arguments that cleared OTC 

derivatives may be viewed as ‘commodity contracts’ 

for purposes of Subchapter IV and Part 190. 

However, ‘the risk of a contrary conclusion is not 

insignificant.’ [Emphasis supplied.]’’ The FIA then 

further observes: 

The Commission may have reached the same 

conclusion. In its August 17, 2009 

recommendations to Congress, the Commission has 

proposed amendments to the Bankruptcy Code that 

amend the definition of a ‘‘contract market’’ to 

remove the reference to ‘‘registered entity,’’ which 

is currently the Commission’s basis for finding that 

cleared-only derivatives contracts are ‘‘commodity 

contracts’’ under the Bankruptcy Code. Instead, the 

Commission recommends that the definition of a 

‘‘commodity contract’’ be amended to include a 

‘‘swap that is submitted to a derivatives clearing 

organization for clearing’’ by a ‘‘swap clearer’’ (as 

defined). The broad definition of a ‘‘swap’’ in the 

Bankruptcy Code would encompass all cleared OTC 

derivatives contracts. 

See FIA CL02 at 6–7. 

30See supra note 17. 

31Such proposals are available at http:// 

financialstability.gov/docs/regulatoryreform/ 

titleVII.pdf. 32See United States v. Sepulveda, 115 F.3d 882, 

885 (11th Cir. 1997) (quoting Hawkins v. United 

States, 30 F.3d 1077, 1082 (9th Cir. 1994)) (stating 

that ‘‘Congress may, however, ‘amend a statute to 

clarify existing law * * *’ Thus, an amendment to 

a statute does not necessarily indicate that the 

unamended statute meant the opposite.’’ See also 

Wesson v. United States, 48 F.3d 894, 900–901 (5th 

Cir. 1995); Fowler v. Unified School District No. 

259, Sedgwick County, Kansas, 128 F.3d 1431 (10th 

Cir. 1997)). 33Specifically, The CME Group states: 

If, as proposed by the Commission, an FCM were 

to utilize a separate account for customers’ cleared 

OTC derivatives in the absence of a 4d order, the 

DCO must also maintain a similar account for 

holding such positions and their accompanying 

margins. If the cleared OTC derivatives account 

class will not apply in the unlikely event of a DCO 

bankruptcy, then it is unclear what account class 

would apply to the funds in the DCO’s separate 

account for those OTC derivatives that it clears on 

behalf of its clearing FCMs’ customers. 

See The CME Group CL03 at 3. 

34The proposing release to Regulation Part 190 

states: 

The Commission is proposing that all open 

commodity contracts, even those in a deliverable 

Continued 

or board of trade.’’ 22 Section 112(c)(6) of 

the CFMA amended the definition of 

‘‘contract market’’ in Section 761(7) of 

the Bankruptcy Code to include 

reference to a ‘‘registered entity.’’ 23 It 

also amended Section 761(8) of the 

Bankruptcy Code to incorporate by 

reference the definition of ‘‘registered 

entity’’ in the Act.24 Section 1a(29) of 

the Act defines a ‘‘registered entity’’ to 

include ‘‘(iii) a derivatives clearing 

organization registered under Section 5b 

***’’.25

Therefore, the Commission believes 

that the CFMA permitted cleared OTC 

derivatives, which are subject to the 

rules of a DCO, to become ‘‘commodity 

contracts,’’ with respect to an FCM, 

within the meaning of Section 761(4) of 

the Bankruptcy Code.26 The 

Commission further believes that a court 

administering the bankruptcy of an FCM 

would consider the abovementioned 

CFMA interpretation to be a 

‘‘reasonable’’ ‘‘construction of a statutory 

scheme’’ that the Commission has been 

‘‘entrusted to administer’’ under Chevron 

U.S.A. Inc. v. Natural Resources Defense 

Council, Inc., et al., 467 U.S. 837, 844 

(1984).27 Indeed, the Segregation and 

Portability Report states: ‘‘Ultimately, 

we believe a court is likely to conclude 

that [credit default swaps] are 

‘commodity contracts’ (on account of 

which [credit default swap] clearing 

customers are ‘customers’ within the 

meaning of the Bankruptcy Code) 

***’’.28

C. Support for Legislative Changes 

One commenter notes that the 

Commission proposed to Congress on 

August 17, 2009 certain amendments to 

the Bankruptcy Code that would 

achieve the same effect as the 

amendments proposed in the Notice. 

The commenter then speculated that the 

Commission may have been motivated 

to make such proposal because it 

believed that it otherwise lacks 

authority to promulgate the proposed 

amendments in the Notice.29 Such 

speculation is mistaken. As stated 

above, the Commission believes that 

cleared OTC derivatives are ‘‘commodity 

contracts’’ within the meaning of 

Section 761(4)(A) of the Bankruptcy 

Code.30 The commenter references 

proposals that Chairman Gary Gensler 

made to Congress. These proposals 

included the abovementioned 

amendments to the Bankruptcy Code in 

order to clarify the status of swaps, in 

the context of the improvements to 

regulation of over-the-counter 

derivatives markets that the 

Administration proposed 31 and other, 

more extensive changes to the 

Bankruptcy Code. The proposal that 

Congress make explicit what the CFMA 

left implicit does not mean that the 

interpretation of the existing statute that 

the Commission has advanced is not 

reasonable.32

III. Recommendation That the 

Commission Extend the Application of 

the Proposed Account Class for Cleared 

OTC Derivatives 

One commenter recommends that the 

Commission extend the application of 

the account class for cleared OTC 

derivatives, as proposed in the Notice, 

to the bankruptcy of a commodity 

broker that is a DCO, rather than limit 

such application to the bankruptcy of a 

commodity broker that is an FCM. That 

commenter argues that the absence of 

such an extension would cause 

confusion, in the event of a DCO 

bankruptcy, regarding the treatment of 

the money, securities, and/or other 

property that the DCO holds to margin, 

guarantee, or secure positions in cleared 

OTC derivatives belonging to customers 

of DCO members.33

While sympathetic to these 

arguments, the Commission continues 

to believe that a DCO bankruptcy would 

be sui generis.34 Therefore, the 


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17300 Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Rules and Regulations 

position, be liquidated in the event of a clearing 

organization bankruptcy because it would be highly 

unlikely that an exchange could maintain a 

properly functioning futures market in the event of 

the collapse of its clearing organization. The 

Commission has proposed no other rules with 

respect to the operation of clearing organization 

debtors * * * Because the bankruptcy of a clearing 

organization would be unique, the Commission is 

not proposing a general rule in this regard. The 

potential for disruption of the Markets, and of the 

nation’s economy as a whole, in the case of a 

clearing organization bankruptcy, together with the 

desirability of the Commission’s active 

participation in developing a means of meeting 

such an emergency, has disposed the Commission 

to take a case-by-case approach with respect to 

clearing organizations. 

See 46 FR 57535, 57545 (November 24, 1981). 

35See supra note 5. 

36See supra note 13. 

37See The CME Group CL03 at 5. 

38 Id. 

39Specifically, ELX asks: 

• ‘‘What constitutes a ‘cleared only’ contract? If 

an OTC derivative is offered for exchange trading 

(thus losing the moniker OTC derivative) but fails 

to trade, or trades fewer than 100 contracts per day, 

is it considered cleared only?’’ 

• ‘‘How much time will a contract be given to 

reach a liquidity threshold before being deemed 

‘cleared only’ and required to be placed in a new 

account class?’’ 

See ELX CL04 at 2. 

40A Section 4d Order would permit positions in 

a cleared OTC derivative (and relevant collateral) to 

be included in the futures account class rather than 

another account class (e.g., the account class for 

cleared OTC derivatives). 

41See The CME Group CL03 at 7. 

42See FIA CL02 at 3. 

43 Id. at 3–5. 

44 74 FR at 40798–99. 

45To enhance clarity on this point, the reference 

in the definition of cleared OTC derivatives, as 

proposed in the Notice, to positions (and relevant 

collateral) that are ‘‘segregated * * * in accordance 

with a rule, regulation, or order issued by the 

Commission,’’ see id. at 40799, has been changed in 

this release to a reference to positions (and relevant 

collateral) that are ‘‘segregated or set aside * * * in 

accordance with a rule, regulation, or order issued 

by the Commission.’’ Also, Regulation 190.01(a), as 

proposed in the Notice, has been changed to 

include the following emphasized language: 

‘‘Provided, further, that, if positions in commodity 

contracts that would otherwise belong to one 

account class (and the money, securities, and/or 

other property margining, guaranteeing, or securing 

such positions), are, pursuant to a Commission 

order, 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.’’ 

In making the abovementioned changes, the 

Commission intends to remove any possible doubt 

that: 

• OTC derivatives subject to a Section 4d Order 

(including from inception) are ‘‘cleared OTC 

derivatives’’ within the meaning of Regulation 

190.01(oo), but that such derivatives shall be 

treated, pursuant to Regulation 190.01(a), as 

belonging to the futures account class and not the 

cleared OTC derivative account class; and 

• OTC derivatives not subject to a Section 4d 

Order may become ‘‘cleared OTC derivatives’’ 

within the meaning of Regulation 190.01(oo), but 

that such derivatives shall be treated, pursuant to 

Regulation 190.01(a), as belonging to the cleared 

OTC derivative account class and not the futures 

account class. 

Commission believes that the best 

approach, at present, would be to limit 

the application of the account class for 

cleared OTC derivatives to the 

bankruptcy of a commodity broker that 

is an FCM. 

IV. Recommendation That the 

Commission Change the Proposed 

Definition of Cleared OTC Derivatives 

One commenter recommends that the 

Commission change the definition of 

cleared OTC derivatives, as proposed in 

the Notice,35 to better comport with the 

definition of cleared-only contracts in 

the Statement on Cleared OTC 

Derivatives.36 Specifically, the 

commenter notes that the definition of 

cleared OTC derivatives proposed in the 

Notice appears to require that an FCM 

actually submit a contract for clearing. 

In contrast, the definition of clearedonly contracts in the Statement on 

Cleared OTC Derivatives only requires 

that a contract is submitted through an 

FCM for clearing.37 The commenter 

states that, if the Commission adopts the 

recommendation, the Commission 

would render patent that it ‘‘does not 

intend to prohibit clearing FCMs from 

authorizing their customers to directly 

enter their transactions into the clearing 

system, in order to meet the definition 

of cleared OTC derivatives, as long as 

the transactions are cleared through an 

FCM.’’ 38 The Commission agrees with 

this commenter, and has modified, in 

this release, the definition of cleared 

OTC derivatives proposed in the Notice 

in accordance with the recommendation 

from this commenter. 

Another commenter poses two 

questions about the definition of cleared 

OTC derivatives proposed in the 

Notice.39 All such questions appear 

related to whether the Commission may 

deem a contract listed for trading on a 

contract market (as Regulation 1.3(h) 

defines such term) to have been 

executed OTC, if such contract fails to 

reach a certain liquidity threshold on 

the contract market. The Commission 

believes that the definition of cleared 

OTC derivatives, as proposed in the 

Notice (i.e., proposed Regulation 

190.01(oo)), plainly limits such term to 

contracts that ‘‘have not been entered 

into or traded on a contract market (as 

such term is defined in § 1.3(h) of this 

chapter) * * *.’’ Regulation 1.3(h), in 

turn, defines ‘‘contract market’’ in terms 

of a board of trade’s designation as a 

DCM, not in terms of the liquidity of 

any particular contract. 

V. Recommendations That the 

Commission Establish Objective 

Standards for Section 4d Orders 

Two commenters recommend that the 

Commission propose objective 

standards for determining which cleared 

OTC derivatives would be eligible for a 

Section 4d Order.40 The first commenter 

states that ‘‘it would be beneficial to 

DCOs and the Commission if the 

Commission were to adopt standards 

that would define the requirements that 

must be met for a cleared OTC 

derivative to qualify for 4d treatment.’’ 41

In contrast, the second commenter states 

that the Commission must propose such 

objective standards ‘‘[i]n order to assure 

that ‘cleared OTC derivatives’ customers 

receive the benefits intended’’ by the 

proposed rules contained in the 

Notice.42 The second commenter 

contends that, without such standards, 

customers with positions (and money, 

securities, and/or other property 

margining, guaranteeing, or securing 

such positions) in the account class for 

cleared OTC derivatives may argue, in 

the bankruptcy of a commodity broker 

that is an FCM, that: (i) Such positions 

share certain characteristics with 

positions in the futures account class; 

and (ii) thus such customers ‘‘should 

have access to the same pool of assets, 

i.e., the futures account.’’ 43

The proposed regulations contained 

in the Notice (i.e., the proposed 

amendment to Regulation 190.01(a)) 

unambiguously state that ‘‘positions in 

commodity contracts of one account 

class (and the money, securities, and/or 

other property margining, guaranteeing, 

or securing such positions)’’ would be 

treated, in the bankruptcy of any 

commodity broker, ‘‘as being held in the 

futures account class’’ only if, ‘‘pursuant 

to a Commission order,’’ such positions 

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).’’ 44 Pursuant to that 

plain language, in the bankruptcy of a 

commodity broker, the decisive factor as 

to whether a position in a cleared OTC 

derivative contract (and relevant 

collateral) would be treated as belonging 

to the futures account class is whether 

the Commission has issued a Section 4d 

Order covering such contract, not 

whether the Commission should have or 

could have issued such a Section 4d 

Order.45

It is outside the purview of this 

release to propose objective standards 

for determining which cleared OTC 

derivative contracts would be eligible 


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46As the Notice states: ‘‘The Commission is 

proposing [to create an account class for cleared 

OTC derivatives] 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 in bankruptcy.’’ 

74 FR at 40796. 

47Specifically, ELX asks: 

• ‘‘[W]hether the DCO will be permitted to cross 

margin the new account class envisioned by the 

Proposed Rules against related products in different 

account classes * * *’’ 

• ‘‘Will 4d exemptions still be granted after the 

new account class is created?’’ 

• ‘‘What will be the status of previously granted 

4d exemptions, and will they be grandfathered or 

required to be transferred into the new account 

class?’’ 

ELX CL04 at 2. 

48The Statement on Cleared OTC Derivatives can 

be found at 73 FR 65514 (November 4, 2008). The 

Statement on Commingling Foreign Futures 

Positions can be found at 69 FR 69510 (November 

30, 2004). 

49As The CME Group accurately observed, the 

proposed definition of ‘‘cleared OTC derivatives’’ in 

the Notice would permit, for example, ‘‘one DCO 

[to] model its rule on the requirements for 4d 

segregated accounts which limit the instruments in 

which such funds may be invested to those set forth 

in Regulation 1.25,’’ and ‘‘another DCO [to] use 

Regulation 30.7 requirements as its guide, and 

choose not to specify permissible investments.’’ The 

CME Group CL03 at 6. 

50FIA states: ‘‘In adopting these standards, the 

Commission should also provide guidance 

regarding the treatment of funds deposited to 

margin ‘cleared OTC derivatives.’ ’’ FIA CL02 at 4. 

In addition, The CME Group states: 

Given that the Commission’s goal is to ensure that 

customers clearing OTC derivatives receive 

bankruptcy protection, and in the interest of 

providing consistency in the safeguards for OTC 

customer positions and margins, the Commission 

should define the minimum requirements that must 

apply to cleared OTC derivatives accounts for 

transactions that are cleared through any DCO with 

respect to those areas that the Commission has 

already addressed for 4d accounts, including 

permitted investments, recordkeeping, and 

acknowledgement letters. The CME Group CL03 at 

6–7. 

51See The CME Group CL03 at 6. 

52See Regulations 40.5 and 40.6 (17 CFR 40.5, 

40.6). 

for a Section 4d Order. For the 

abovementioned reasons, such 

standards are not necessary to effectuate 

the purposes of the proposed rules 

contained in the Notice (including the 

proposed amendment to Regulation 

190.01(a)).46

A third commenter poses questions 

pertaining to the operation of the futures 

account class after the Commission 

establishes a separate account class for 

cleared OTC derivatives.47 In answer to 

such questions, the Commission makes 

the following three observations. First, 

the Commission will continue to review 

petitions for Section 4d Orders and will 

approve such petitions in appropriate 

cases. Second, the only effect of this 

release on contracts (and relevant 

collateral) that, pursuant to a previously 

issued Section 4d Order, are permitted 

to be commingled with contracts (and 

relevant collateral) of the futures 

account class, is to codify the Statement 

on Cleared OTC Derivatives and the 

Interpretative Statement that the 

Commission issued on November 30, 

2004 (the ‘‘Statement on Commingling 

Foreign Futures Positions’’),48 which, in 

each case, provides that such contracts 

(and relevant collateral) are to be treated 

as part of the futures account class. This 

release does not in any way vitiate any 

previously issued Section 4d Order. 

Finally, in the absence of an appropriate 

order, the Commission does not intend 

to permit positions in the futures 

account class and positions in the 

separate account class for cleared OTC 

derivatives to be margined as a single 

portfolio. 

VI. Recommendation That the 

Commission Establish Rules for the 

Treatment of Positions in Cleared OTC 

Derivatives (and Relevant Collateral) 

In the Notice, the Commission stated 

that it ‘‘[did] 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 propose[d] to define 

‘cleared OTC derivatives’ in such a 

manner as to specify the sources from 

which such substantive requirements 

may originate.’’ As the Notice indicates, 

a DCO rule or bylaw constitutes one 

possible source for such substantive 

requirements. Because different DCOs 

may adopt different substantive 

requirements, such DCOs may afford 

varying levels of protection to positions 

in cleared OTC derivatives (and relevant 

collateral).49

Two commenters disagree with such 

approach. They recommend that the 

Commission specify substantive 

requirements with respect to the 

treatment of positions in cleared OTC 

derivatives (and relevant collateral), if 

the DCO requires such positions (and 

relevant collateral) to be held in a 

separate account for cleared OTC 

derivatives.50 One commenter observes: 

Depending on how much the requirements 

for cleared OTC derivatives accounts vary 

among DCOs, FCMs could find themselves in 

the position of having to maintain multiple 

cleared OTC derivatives accounts with 

respect to different DCOs. Moreover, under 

the Commission proposal, all cleared OTC 

derivatives accounts are considered to be part 

of the same account class, even if the 

accounts relate to multiple DCOs with 

varying requirements for such accounts. 

Therefore, the available funds in the cleared 

OTC derivatives account class could be 

diluted for customers of a bankrupt FCM who 

hold OTC derivatives cleared by a DCO with 

more stringent requirements because the 

account class also contains the margins of 

customers who hold OTC derivatives cleared 

by a DCO with less stringent requirements.51

The Commission does not disagree 

with the recommendations of the two 

commenters, and has directed staff to 

recommend for the Commission’s 

consideration proposals that would 

impose substantive requirements with 

respect to the treatment of positions in 

cleared OTC derivatives (and relevant 

collateral). 

The Commission has decided to 

promulgate the final rules contained in 

this release, without waiting to propose 

the abovementioned requirements, 

because the Commission believes that it 

is important, in light of recent market 

events (including disruptions in global 

credit markets), to enhance certainty, as 

soon as possible, with respect to the 

protections available under Subchapter 

IV and Regulation Part 190 to positions 

in cleared OTC derivatives (and relevant 

collateral), however the FCM and the 

DCO treat such collateral. Moreover, the 

Commission believes that it is important 

to enhance certainty, as soon as 

possible, regarding the treatment, in a 

bankruptcy of any commodity broker, of 

customers with positions (and relevant 

collateral) subject to a Section 4d Order. 

Therefore, for the avoidance of doubt, 

the Commission clarifies that, after the 

final rules become effective, a position 

in an OTC derivative (and relevant 

collateral) that a customer clears 

through an FCM with a DCO, which 

position (and collateral) is not subject to 

a Section 4d Order, would be 

considered part of the cleared OTC 

derivative account class, as soon as, but 

only after, a DCO rule or bylaw that 

requires such positions (and relevant 

collateral) to be held in a separate 

account for cleared OTC derivatives 

becomes effective, either through selfcertification or approval by the 

Commission.52 Such rule or bylaw need 

not specify any particular treatment of 

such positions (and relevant collateral) 

at this time in order for such positions 

to be considered within the OTC 

derivative account class. 


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53 5 U.S.C. 601 et seq. 

54 47 FR 18618 (April 30, 1982). 

55 Id. at 18619. 

56 66 FR 45604, 45609 (August 29, 2001). 

57 44 U.S.C. 3501–3520. 

VII. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 53 requires Federal agencies, in 

promulgating regulations, to consider 

the impact of those regulations on small 

businesses. The final rules promulgated 

in this release 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 in accordance with the 

RFA.54 The Commission has previously 

determined that FCMs 55 and DCOs 56

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 

final rules promulgated herein will not 

have a significant impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 57 imposes certain requirements 

on Federal agencies in connection with 

their conducting or sponsoring any 

‘‘collection of information’’ as defined by 

the PRA. The final rules promulgated in 

this release do not require the new 

collection of information on the part of 

DCOs or FCMs. Accordingly, for 

purposes of the PRA, the Commission 

certifies that the final rules promulgated 

in this release would not impose any 

new reporting or recordkeeping 

requirements. 

C. Cost-Benefit Analysis 

Section 15(a) of the Act requires that 

the Commission, before promulgating a 

regulation under the Act or issuing an 

order, consider the costs and benefits of 

its action. By its terms, Section 15(a) 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 final rules 

promulgated in this release in light of 

(i) the comments that it has received on 

the Notice and (ii) the specific 

considerations identified in Section 

15(a) of the Act, as follows: 

1. Protection of Market Participants and 

the Public 

The final rules promulgated in this 

release 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 a 

Section 4d Order, with positions in 

commodity contracts (and relevant 

money, securities, and/or other 

property) of the futures account class. 

2. Efficiency and Competition 

The final rules promulgated in this 

release are not expected to have an 

effect on efficiency or competition. 

3. Financial Integrity of Futures Markets 

and Price Discovery 

The final rules promulgated in this 

release 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). Further, the final rules 

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 Cleared OTC 

Derivatives, as well as the Statement on 

Commingling Foreign Futures Positions, 

would be limited to the specific factual 

patterns addressed therein. Thus, the 

final rules would contribute to the 

financial integrity of the futures and 

options markets as a whole. 

4. Sound Risk Management Practices 

The final rules promulgated in this 

release would reinforce the sound risk 

management practices already required 

of FCMs and DCOs, by (i) providing an 

account class, in the bankruptcy of a 

commodity broker that is an FCM, 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 bankruptcy of any 

commodity broker, 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 

promulgate the final rules as set forth 

below. 

List of Subjects in 17 CFR Part 190 

Bankruptcy, Brokers, Commodity 

futures. 

■ For the reasons stated in the preamble, 

the Commission hereby amends 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 § 190.01, revise paragraph (a) and 

add paragraph (oo) to read as follows: 

§ 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 § 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 § 190.07, of a customer in a 


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Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Rules and Regulations 17303 

commodity option, as defined in 

§ 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 that would 

otherwise belong to one account class 

(and the money, securities, and/or other 

property margining, guaranteeing, or 

securing such positions), are, pursuant 

to a Commission order, 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 § 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 through a 

commodity broker that is a futures 

commission merchant (as such term is 

defined in § 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 or set aside, 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 § 190.07, revise paragraph 

(b)(2)(viii) to read as follows: 

§ 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 March 31, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–7742 Filed 4–5–10; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 570 

[Docket No. 5326–F–02] 

RIN 2506–AC28 

Section 108 Community Development 

Loan Guarantee Program: Participation 

of States as Borrowers Pursuant to 

Section 222 of the Omnibus 

Appropriations Act, 2009 

AGENCY: Office of the Assistant 

Secretary for Community Planning and 

Development, HUD. 

ACTION: Final rule. 

SUMMARY: This final rule follows 

publication of a July 22, 2009, interim 

rule that implemented section 222 in 

Division I of the Omnibus 

Appropriations Act, 2009. Section 222 

authorizes HUD, to the extent of its 

Fiscal Year (FY) 2009 loan guarantee 

authority, to provide community 

development loan guarantees, under 

section 108 of the Housing and 

Community Development Act of 1974, 

to States borrowing on behalf of local 

governments in nonentitlement areas 

(governments that do not receive annual 

Community Development Block Grants 

(CDBGs) from HUD). Section 108 

authorizes HUD to guarantee notes 

issued by such nonentitlement local 

governments or their designated public 

agencies supported by the respective 

State’s pledge of its CDBG funds. Prior 

to the enactment of section 222, HUD 

lacked authority to guarantee notes 

issued by States on behalf of local 

governments in nonentitlement areas. 

HUD received a single public comment 

on the July 22, 2009, interim rule, which 

expressed support for the interim 

regulatory amendments. HUD is 

adopting the interim rule without 

change. 

DATES: Effective Date: May 6, 2010. 

FOR FURTHER INFORMATION CONTACT: Paul 

Webster, Director, Financial 

Management Division, Office of 

Community Planning and Development, 

Department of Housing and Urban 

Development, 451 7th Street, SW., 

Room 7186, Washington, DC 20410; 

telephone number 202–708–1871 (this 

is not a toll-free number). Individuals 

with speech or hearing impairments 

may access this number through TTY by 

calling the toll-free Federal Information 

Relay Service at 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 22, 2009, at 74 FR 36384, 

HUD published an interim rule to 

implement section 222 in Division I of 

the Omnibus Appropriations Act, 2009, 

(Pub. L. 111–8) (2009 Appropriations 

Act). Section 222 authorizes expanded 

loan guarantee authority under section 

108 of the Housing and Community 

Development Act of 1974 (HCD Act) for 

Fiscal Year (FY) 2009. 

Section 108 of the HCD Act provides 

local governments with access to longterm (up to 20-year) fixed-rate loans at 

relatively low interest rates to finance 

certain categories of eligible CDBG 

projects. Historically, section 108 

guarantee authority has been limited to 

units of general local government and 

their public agencies. States have 

participated in the section 108 program 

by supporting loan guarantee 

applications of local governments in 

nonentitlement areas (governments that 

do not receive annual CDBG funds from 

HUD) and by pledging the State’s CDBG 

allocations to secure the obligations 

issued by the local governments. 

However, States have not been able to 

participate in the program as issuers of 

obligations. One of the administrative 

provisions of the 2009 Appropriations 

Act, section 222, authorizes HUD, to the 

extent allowed under FY 2009 loan 

guarantee authority, to provide section 

108 community development loan 


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