Federal Register / Vol. 65, No. 78 / Friday, April 21, 2000 / Rules and Regulations 21309

1 65 FR 6569 (February 10, 2000).

2Commission rules cited herein can be found at

17 CFR Ch. I (1999).

3The prohibition against withdrawal of equity

capital set forth in Regulation 1.17(e) applies to

both FCMs and IBs. The restriction requires

consideration of both the minimum dollar amount

of net capital required for both types of registrants

($250,000 for FCMs and $30,000 for IBs) and, just

for FCMs, the amount of funds required to be

segregated and set aside for FCMs’ customers. For

purposes of this final rulemaking, only the

restriction on FCMs need be addressed since the

amendments relate only to the percentage applied

to the amount of funds required to be segregated

and set aside for customers.

4Before applying the percentage capital factor,

the amount required to be segregated or set aside

is reduced by the market value of commodity

options purchased by customers on or subject to the

rules of a contract market or a foreign board of trade

for which the full premiums have been paid:

provided, however, that the option premium

deduction for each customer is limited to the

amount of customer funds and the foreign futures

and foreign options secured amounts in such

customer’s account(s).

5SEC rules cited herein can be found at 17 CFR

Part 240 (1999).

R–5119 Socorro, NM [New]

Boundaries. Beginning at lat. 33°59′56′′ N.,

long. 106°43′29′′ W.; to lat. 33°59′51′′ N.,

long. 106°56′27′′ W.; to lat. 34°08′16′′ N.,

long. 107°05′17′′ W.; to lat. 34°00′28′′ N.,

long. 107°12′04′′ W.; to lat. 33°46′04′′ N.,

long. 107°02′38′′ W.; to lat. 33°26′49′′ N.,

long. 107°02′25′′ W.; to lat. 33°26′49′′ N.,

long. 107°00′00′′ W.; to lat. 33°32′44′′ N.,

long. 106°58′47′′ W.; to lat. 33°54′10′′ N.,

long. 106°46′24′′ W.; to lat. 33°57′16′′ N.,

long. 106°43′58′′ W.; to the point of

beginning.

Designated altitudes. FL 350 to unlimited.

Time of designation. Intermittent by

NOTAM 24 hours in advance.

Controlling agency. FAA, Albuquerque

ARTCC.

Using agency. Commanding General, White

Sands Missile Range, NM.

R–5121 Ft. Wingate, NM [New]

Boundaries. Beginning at lat. 35°25′51′′ N.,

long. 108°30′09′′ W.; to lat. 35°21′22′′ N.,

long. 108°25′59′′ W.; to lat. 35°19′18′′ N.,

long. 108°28′10′′ W.; to lat. 35°17′48′′ N.,

long. 108°31′41′′ W.; to lat. 35°21′27′′ N.,

long. 108°36′58′′ W.; to the point of

beginning.

Designated altitudes. FL 200 to unlimited.

Time of designation. Intermittent by

NOTAM 24 hours in advance.

Controlling agency. FAA, Albuquerque

ARTCC.

Using agency. Commanding General, White

Sands Missile Range, NM.

R–5123 Magdalena, NM [New]

Boundaries. Beginning at lat. 34°22′30′′ N.,

long. 107°57′00′′ W.; to lat. 34°25′00′′ N.,

long. 107°49′00′′ W.; to lat. 34°24′45′′ N.,

long. 107°37′00′′ W.; to lat. 34°18′00′′ N.,

long. 107°30′00′′ W.; to lat. 34°15′08′′ N.,

long. 107°37′00′′ W.; to lat. 34°19′00′′ N.,

long. 107°40′00′′ W.; to lat. 34°15′08′′ N.,

long. 107°45′20′′ W.; to lat. 34°14′52′′ N.,

long. 107°44′40′′ W.; to lat. 34°13′00′′ N.,

long. 107°48′00′′ W.; to the point of

beginning.

Designated altitudes. Surface to unlimited.

Time of designation. Intermittent by

NOTAM 24 hours in advance.

Controlling agency. FAA, Albuquerque

ARTCC.

Using agency. Commanding General, White

Sands Missile Range, NM.

* * * * *

Issued in Washington, DC, on April 14,

2000.

Reginald C. Matthews,

Manager, Airspace and Rules Division.

[FR Doc. 00–10010 Filed 4–20–00; 8:45 am]

BILLING CODE 4910–13–P

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Part 1

RIN 3038–AB51

Minimum Financial Requirements for

Futures Commission Merchants and

Introducing Brokers

AGENCY: Commodity Futures Trading

Commission.

ACTION: Final rules.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’) is

amending Regulation 1.17, which

governs the minimum financial

requirements imposed upon futures

commission merchants (‘‘FCMs’’) and

introducing brokers (‘‘IBs’’). The

amendments will ease the restrictions

imposed upon the withdrawal of equity

capital from an FCM. The amendments

also increase the percentage deduction

(i.e., ‘‘haircut’’) applied to the value of

equity securities pledged as collateral

for secured demand notes that are

included in the adjusted net capital of

an FCM or IB and delete a reference to

a section of the Securities and Exchange

Commission’s (‘‘SEC’’) capital rule that

has been repealed.

EFFECTIVE DATE: May 22, 2000.

FOR FURTHER INFORMATION CONTACT:

Henry J. Matecki, Financial Audit and

Review Branch, Commodity Futures

Trading Commission, 300 S. Riverside

Plaza, Room 1600–N, Chicago, IL 60606;

telephone (312) 886–3217; electronic

mail hmatecki@cftc.gov: or Thomas J.

Smith, Special Counsel, Division of

Trading and Markets, Commodity

Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, NW.,

Washington, DC 20581; telephone (202)

418–5495; electronic mail

tsmith@cftc.gov.

SUPPLEMENTARY INFORMATION

I. Background

On February 10, 2000, the

Commission published in the Federal

Register 1 for public comment proposed

amendments to Regulation 1.17, which

governs the minimum financial

requirements imposed upon FCMs and

IBs (the ‘‘Proposal’’).2 The Proposal was

to: (1) Ease the restrictions imposed

upon the withdrawal of equity capital

from an FCM; (2) increase the

percentage deduction (i.e., ‘‘haircut’’)

applied to the value of equity securities

pledged as collateral for secured

demand notes that are included in the

adjusted net capital of an FCM or IB;

and (3) delete a reference to a section of

the SEC’s capital rules that has been

repealed. The comment period expired

on March 13, 2000. No comments were

received.

After considering the issues, the

Commission has determined to adopt

the amendments as proposed. A

discussion of the final rule amendments

is provided below.

II. Rule Amendments

A. Restriction on the Withdrawal of

Equity Capital From an FCM

Commission Regulation 1.17(e)

prohibits the withdrawal of equity

capital from an FCM 3 to redeem or to

repurchase shares of stock of the FCM,

to pay dividends, or to make an

unsecured advance or loan to a

stockholder, partner, sole proprietor or

employee of the FCM if, after giving

effect to the withdrawal and to certain

other specified withdrawals and

payments, the FCM’s adjusted net

capital would be less than the greatest

of:

(1) $300,000 (120 percent of the

$250,000 minimum adjusted net capital

requirement);

(2) Seven percent of the customer

funds required to be segregated or set

aside pursuant to the Commodity

Exchange Act (‘‘Act’’) and Commission

regulations, 4 (hereinafter collectively

referred to as the ‘‘customer segregated

and secured amount’’);

(3) 120 percent of the amount of

adjusted net capital required by a

registered futures association of which

the FCM is a member; or

(4) For an FCM that is also a securities

broker or dealer registered with the SEC,

the amount of net capital specified in

SEC Rule 15c3–1(e).5

21310 Federal Register / Vol. 65, No. 78 / Friday, April 21, 2000 / Rules and Regulations

6Regulation 1.17(a)(1)(i). FCMs that are also

registered with the SEC as securities brokers or

dealers are required to comply with the

Commission’s minimum adjusted net capital

requirement or the minimum adjusted net capital

requirement established by SEC Rule 15c3–1(e),

whichever is greater.

7Regulations 1.17(a)(2)(i) and 1.52.

8Regulation 1.17(a)(4).

9Regulation 1.12(b)(4).

10Equity capital is defined by Regulation

1.17(d)(1) to include certain loans subject to

qualifying satisfactory subordination agreements

and the following: (1) In the case of a corporation,

the sum of its par or stated value of capital stock,

paid in capital in excess of par, retained earnings,

unrealized profit and loss, and other capital

accounts;

(2) In the case of a partnership, the sum of its

capital accounts of partners (inclusive of such

partners’ commodity interest and securities

accounts subject to the provisions of Rule 1.17(e)

concerning restrictions on withdrawals of equity

capital), and unrealized profit and loss; and

(3) In the case of a sole proprietorship, the sum

of its capital accounts and unrealized profit and

loss.

‘‘Debt-equity total’’ is defined by Regulation

1.17(d)(2) and encompasses equity capital as

defined above plus loans subject to satisfactory

subordination agreements that do not qualify as

equity capital under Regulation 1.17(d)(1).

11See SEC Rule 15c3–1(a)(1)(ii).

12See Rule 15c3–1d(a)(2)(iii).

13See 57FR 56984 (December 2, 1992).

14See 57 FR 56973 (December 2, 1992).

The Commission is amending the

restriction in (2) above to permit the

withdrawal of equity capital from an

FCM provided that, after giving effect to

the withdrawal, the FCM’s adjusted net

capital is in excess of six percent of the

customer segregated and secured

amount. The Commission believes that

easing this restriction is appropriate in

light of other provisions of the

Commission’s regulations that provide

adequate assurances against the

excessive withdrawal of equity capital.

Generally, FCMs that carry customer

positions are required to maintain

minimum adjusted net capital of at least

four percent of the customer segregated

and secured amount.6 FCMs that are

members of self-regulatory organizations

(‘‘SROs’’—that is, commodity exchanges

and NFA) also must comply with the

minimum net capital requirements of

those exchanges, which are required to

be at least as stringent as the

Commission’s.7

An FCM that fails to comply with the

minimum net capital requirement must

transfer all customer accounts and

immediately cease doing business as an

FCM.8 Therefore, each FCM must

ensure that a capital withdrawal does

not cause the FCM’s adjusted net capital

to fall below four percent of the

customer segregated and secured

amount.

In addition, as stated in the Proposal,

the Commission’s ‘‘early warning’’

notice and financial reporting

requirements deter excessive equity

withdrawals. Regulation 1.12(b)(2)

requires an FCM to notify in writing the

Commission and its designated selfregulatory organization (‘‘DSRO’’) if its

adjusted net capital does not equal or

exceed six percent of the customer

segregated and secured amount. The

early warning notices must be filed

within five business days of the FCM’s

adjusted net capital falling below the

early warning level. Moreover,

Regulation 1.12(g)(2) requires an FCM to

give the Commission written notice at

least two business days prior to a

planned withdrawal of equity capital if

such withdrawal would reduce excess

net capital by 30 percent or more from

that most recently reported in a

financial report filed with the

Commission.

An FCM that hits the early warning

trigger is also required to file a financial

report on Form 1–FR–FCM with the

Commission and its DSRO as of the

close of the month during which its

adjusted net capital does not exceed the

early warning level and for each month

thereafter until three successive months

have elapsed during which its adjusted

net capital is at all times equal to or in

excess of the early warning level.9 The

early warning notices bring to the

Commission’s and DSRO’s attention

firms that should be subjected to closer

monitoring because of their minimal

regulatory capital.

Furthermore, the Commission’s ‘‘debtequity ratio’’ requirement also provides

a limit on the amount of capital that

may be withdrawn from an FCM.

Regulation 1.17(d) prohibits the

withdrawal of capital from an FCM if,

after giving effect to the withdrawal, the

FCM’s equity capital would be less than

30 percent of its debt-equity total.10

Finally, as noted in the Proposal, setting

the capital withdrawal limit at the

Commission’s early warning level is

consistent with the capital withdrawal

rules adopted by the SEC for securities

brokers or dealers that compute their

minimum net capital requirement in

accordance with the ‘‘alternative’’

method.11

B. Equity Securities Pledged as

Collateral for Secured Demand Notes

The Commission is amending

Regulation 1.17(h)(1)(iii) to increase

from 15 percent to 30 percent the

haircut that is applied to equity

securities collateralizing secured

demand notes that are included in an

FCM’s or IB’s adjusted net capital

computation. The amendment will

provide greater uniformity between the

Commission’s and SEC’s capital rules.

As stated in the Proposal, SEC capital

rules currently require brokers and

dealers to apply a 30 percent haircut to

equity securities collateralizing secured

demand notes included in the brokers’

or dealers’ adjusted net capital.12

Uniform capital rules reduce the

regulatory burden imposed upon duallyregistered FCMs (i.e., FCMs that are also

SEC registered securities brokers or

dealers) by more readily permitting such

FCMs to comply with both the

Commission’s and SEC’s capital rules.

Furthermore, as more fully discussed

in the Proposal, the Commission’s

capital rules incorporate by reference

the securities haircuts set forth in the

SEC’s capital rules. In 1992, the SEC

adopted several amendments to its

capital rules. One of the amendments

had the unintended consequence of

reducing from 30 percent to 15 percent

the haircut that an FCM was required to

apply to equity securities collateralizing

a secured demand note. 13 Brokers and

dealers, however, were still required to

apply a 30 percent haircut to such

equity securities. The amendments

would restore the haircut to the 30

percent level.

C. Technical Amendment

The Commission is amending

Regulation 1.17(c)(5)(v) to delete a

reference to SEC Rule 15c3–1(f) which

has been repealed.14 The technical

amendment has no impact on the

Commission’s capital rule and will not

affect FCMs or IBs.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act

(‘‘RFA’’), 5 U.S.C. 601–611, requires that

agencies, in proposing rules, consider

the impact of those rules on small

businesses. The rule amendments

discussed herein would affect FCMs and

IBs. The Commission has previously

determined that, based upon the

fiduciary nature of FCM/customer

relationships, as well as the requirement

that FCMs meet minimum financial

requirements, FCMs should be excluded

from the definition of small entity.

With respect to IBs, the Commission

stated that it is appropriate to evaluate

within the context of a particular rule

whether some or all IBs should be

Federal Register / Vol. 65, No. 78 / Friday, April 21, 2000 / Rules and Regulations 21311

considered to be small entities and, if

so, to analyze the economic impact on

such entities at that time. The technical

amendment to Regulation 1.17(c)(5)(v)

and the amendment to Regulation

1.17(e) easing the restriction on the

withdrawal of equity capital from an

FCM do not impose additional

requirements on an IB. The amendment

to Regulation 1.17(h)(1)(iii) increasing

the haircut on equity securities

submitted as collateral for a secured

demand note may have a minimal

economic impact on an IB’s financial

operations. The amendment, however,

conforms the Commission’s rules to

those of the SEC and restores the haircut

to its previous level prior to the SEC

amendment of its capital rules in

December 1992. Furthermore, no

comments were received in response to

the Commission’s specific request for

comments on the impact these rules, as

proposed, would have on small entities.

Thus, on behalf of the Commission, the

Chairman certifies that the rule

amendments will not have a significant

economic impact on a substantial

number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(PRA), 44 U.S.C. 3501 et seq., requires

federal agencies (including the

Commission) to review rules and rule

amendments to evaluate the information

collection burden that they impose on

the public. The Commission believes

that paragraphs (c)(5)(v), (e)(1)(ii), and

(h)(1)(iii) of Rule 1.17, as amended, do

not impose an information collection

burden on the public.

List of Subjects in 17 CFR Part 1

Brokers, Commodity futures.

In consideration of the foregoing and

pursuant to the authority contained in

the Commodity Exchange Act and, in

particular, Sections 4f, 4g and 8a (5)

thereof, 7 U.S.C. 6d, 6g and 12a(5), the

Commission hereby amends Chapter I of

Title 17 of the Code of Federal

Regulations as follows:

PART 1—GENERAL REGULATIONS

UNDER THE COMMODITY EXCHANGE

ACT

1. The authority citation for Part 1

continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a,

6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m,

6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,

13a–1, 16, 16a, 19, 21, 23, and 24.

2. Section 1.17 is amended by revising

paragraphs (c)(5)(v), (e)(1)(ii), and

(h)(1)(iii) to read as follows:

§ 1.17 Minimum financial requirements for

futures commission merchants and

introducing brokers.

* * * * *

(c) * * *

(5) * * *

(v) In the case of securities and

obligations used by the applicant or

registrant in computing net capital, and

in the case of a futures commission

merchant with securities in segregation

pursuant to section 4d(2) of the Act and

the regulations in this chapter which

were not deposited by customers, the

percentages specified in Rule 240.15c3–

1(c)(2)(vi) of the Securities and

Exchange Commission (17 CFR

240.15c3–1(c)(2)(vi)) (‘‘securities

haircuts’’) and 100 percent of the value

of ‘‘nonmarketable securities’’ as

specified in Rule 240.15c3–1(c)(2)(vii)

of the Securities and Exchange

Commission (17 CFR 240.15c3–

1(c)(2)(vii));

* * * * *

(e)* * *

(1)* * *

(ii) For a futures commission

merchant or applicant therefor, 6

percent of the following amount: The

customer funds required to be

segregated pursuant to the Act and the

regulations in this part and the foreign

futures or foreign options secured

amount, less the market value of

commodity options purchased by

customers on or subject to the rules of

a contract market or a foreign board of

trade for which the full premiums have

been paid: Provided, however, That the

deduction for each customer shall be

limited to the amount of customer funds

in such customer’s account(s) and

foreign futures and foreign options

secured amounts;

* * * * *

(h)* * *

(1)* * *

(iii) The term ‘‘collateral value’’ of any

securities pledged to secure a secured

demand note means the market value of

such securities after giving effect to the

percentage deductions specified in Rule

240.15c3–1d(a)(2)(iii) of the Securities

and Exchange Commission (17 CFR

240.15c3–1d(a)(2)(iii)).

* * * * *

Issued in Washington D.C. on April 12,

2000 by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 00–9647 Filed 4–20–00; 8:45 am]

BILLING CODE 6351–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 175

[Docket No. 98F–0675]

Indirect Food Additives: Adhesives

and Components of Coatings

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is amending the

food additive regulations to provide for

the safe use of polyethylenepolyamines

as cross-linking agents for epoxy resins

in coatings intended for use in contact

with food. This action responds to a

petition filed by the Dow Chemical Co.

DATES: This rule is effective April 21,

2000; submit written objections and

requests for a hearing by May 22, 2000.

ADDRESSES: Submit written objections to

the Dockets Management Branch (HFA–

305), Food and Drug Administration,

5630 Fishers Lane, rm. 1061, Rockville,

MD 20852.

FOR FURTHER INFORMATION CONTACT:

Hortense S. Macon, Center for Food

Safety and Applied Nutrition (HFS–

216), Food and Drug Administration,

200 C St. SW., Washington, DC 20204,

202–418–3086.

SUPPLEMENTARY INFORMATION: In a notice

published in the Federal Register of

August 24, 1998 (63 FR 45073), FDA

announced that a food additive petition

(FAP 8B4606) had been filed by The

Dow Chemical Co., 2030 Dow Center,

Midland, MI 48674. The petition

proposed to amend the food additive

regulations in § 175.300 Resinous and

polymeric coatings (21 CFR 175.300) to

provide for the safe use of

polyethylenepolyamines (PEPA’s) as

cross-linking agents for epoxy resins in

coatings intended for use in contact

with food.

In its evaluation of the safety of

PEPA’s, FDA has reviewed the safety of

the additive itself and the chemical

impurities that may be present in the

additive resulting from its

manufacturing process. Although

PEPA’s have not been shown to cause

cancer, they could contain minute

amounts of unreacted starting material,

ethylene dichloride (1,2-

dichloroethane), a carcinogenic

impurity. However, FDA concludes that

1, 2-dichloroethane is not likely to be

present in the final food contact

material in an amount that could

present a safety concern for the