> 

,. 

C.F.T.C. 

OFFICE Of THE SECRETARIAT 

2009 JUL 2 8 Prl 3 33 

July 21, 2009 

David A Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street N.W. 

Washington, D.C. 20581 

o(tf 

FCStone· 

UNDERSTAND•SIMPUFY·SUCCEED 

FCSTONE GROUP, INC. 

COMMODITY RISK INTELLIGENCE 

1251 NW Briarcliff Parkway 

Suite 800 

Kansas City, Missouri 64116 

816-410-7120 OFFICE 

800-255-6381 TOLL FREE 

www.fcswne.com 

COMMENT 

Re: Investment of Customer Funds and Funds Held in an Account for Foreign Futures and 

Foreign Options Transactions. 74 FR 23962 (May 22, 2009) 

Dear Mr. Stawick: 

FCStone Group Inc. appreciates the opportunity to provide comments on the Commodity Futures 

Trading Commission's ("CFTC or Commission") Federal Register Release dated May 22, 2009 

("the Release"). The Commission is proposing to revise the regulations regarding the investment 

of customer segregated funds. 

FCStone Group Inc. was originally formed as a cooperative of grain cooperatives, but is now a 

publicly held for-profit corporation. FCStone's chief operating subsidiary is FCStone, LLC 

("FCStone"). FCStone is a registered Futures Commission Merchant ("FCM"). FCStone Group, 

ln9. and its subsidiaries provide commodity risk management consulting and transaction 

execution services to commercial commodity intermediaries, end-users and producers. FCStone 

and its subsidiaries assist primarily middle-market customers in optimizing their profit margins 

and mitigating exposure to commodity price risk. 

FCStone strongly supports the Commission's oversight of the commodity futures industry, 

especially during the current global economic turmoil. It is a commendable achievement that not 

one dollar of customer segregated funds held in an operational FCM has been lost. In our view, 

the regulation and enforcement of segregated funds requirements by the Commission to protect 

customers has been an unqualified success. 

FCStone believes, however, that some of the details of the Release present concerns. While the 

recent economic turmoil has produced notable bankruptcies and other failures in the capital 

markets, the parameters of Regulation 1.25 minimized exposure to the vast majority of "toxic 

assets". In our view, Regulation 1.25 does not need significant overhaul as it provides a broad 

mix of various investment choices which enhance diversification, and lessen concentration risk 

consistent with the objectives of preserving principal and maintaining liquidity. 

The Commission has expressed interest in our views on the permitted instruments. 

In FCStone's view, US Treasury and Agency securities must remain permissible investments. 

These securities carry the backing of the US Treasury and the markets for them are highly 

developed to maintain liquidity. 

In FCStone's view, specific permitted investments listed in the Regulation 1.25 other than US 

Treasury, and Agency obligations should stay as permitted in the new release of the Regulation. 
Mr. David A. Stawick 

July 21, 2009 

Page2 

In FCStone's view, corporate obligations and specifically commercial paper should remain as an 

allowable investment. Commercial paper is a short term corporate obligation and is a staple of 

many money market funds. It should be allowable as a stand alone investment as it has short 

maturity, is very liquid with an established secondary market and reflects current market rates. 

In FCStone's view, securities with adjustable rates should remain an allowable investment with 

the caveat that coupon rates should reset within 3 months based upon a simple margin to an 

established index such as 3 month LIBOR, 1 month LIBOR, T-Bills or Fed Funds. Adjustable rate 

securities have been shown to maintain a market value close to par even in volatile interest rate 

environments, thereby minimizing principal risk. 

In FCStone's view, securities with embedded derivatives can include mortgage backed passthrough securities. The market for mortgage backed pass-through securities remains very large 

and liquid. Since these types of investments have long final maturity dates, a reasonable 

restriction should be placed upon them as a percentage of the investment portfolio. 

In FCStone's view, issuer concentration limits should be based upon a factor of capital of the 

organization. Issuer limitations that are codified could pose a one-size-does-not-fit-all situation. 

A restriction of this nature could limit the ability of a FCM to properly diversify investments. 

In FCStone's view investments in money market funds should continue to be permitted subject to 

issuer limits. Money market funds offer professional management with daily liquidity. Such 

investments offer significant value in managing the day-to-day flows of cash. 

It is impossible to totally remove market risk from the investment of customer segregated funds. 

Investments in securities that have large and liquid markets will limit liquidity risk. Investments in 

a broad mix of securities will enhance diversification and limit principal risk to the base of 

customer funds. Significantly limiting investment choices will only limit our ability to meet our 

client needs and may actually increase systematic risk to customer funds. 

0"72». 

P~~e=n w~ Chief Executive Officer 

cc: Honorable Gary Gensler, Chairman 

Honorable Michael Dunn, Commissioner 

Honorable Jill E. Sommers, Commissioner 

Honorable Bart Chilton, Commissioner 

Honorable Walter Lukken, Commissioner 

Ananda Radhakrishnan, Director-Division of Clearing and Intermediary Oversight