Dan M. Berkowitz

General Counsel

Jonathan L. Marcus

Deputy General Counsel

Robert B. Wasserman 

Chief Counsel, Division of Clearing and Risk

Martin B. White

Assistant General Counsel

Robert A. Schwartz

Assistant General Counsel

Commodity Futures Trading Commission

3 Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

(202) 418-5129

mwhite@cftc.gov

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

In re:

MF GLOBAL Inc., 

Debtor.

Case No. 11-2790 (MG) SIPA 

BRIEF OF THE COMMODITY FUTURES TRADING COMMISSION

PURSUANT TO THE COURT’S NOVEMBER 17, 2011 ORDER

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On November 17, 2011, this Court instructed the CFTC, SIPC, and the Trustee for 

MF Global, Inc., to submit briefing on the regulations applicable to the remaining distributions 

of customer property by the Trustee. Pursuant to the Court’s instructions, the CFTC respectfully 

states as follows: 

1. The CFTC’s regulations implement a “clear mandate” from Congress under the 

Commodity Exchange Act (CEA) and Bankruptcy Code to ensure “customer protection” in 

commodity broker liquidation. See In re Stotler & Co., 144 B.R. 385, 392 (N.D. Ill. 1992) 

(describing the statutes). These laws are designed to “‘ensure that the property entrusted by 

customers to their brokers will not be subject to the risks of the broker’s business and will be 

available for disbursement to customers if the broker becomes bankrupt.’” See id. at 387 

(quoting S. Rep. No. 989, 95th Cong. 2d Sess. (1977)). Accordingly, in the liquidation of a 

commodity broker under Title 11, “commodity customers are granted the highest priority against 

the bankrupt broker’s estate.” In re Bucyrus Grain Co., Inc., 127 B.R. 45, 48 (D. Kan. 1988). 

Section 766 of the Bankruptcy Code provides that the trustee in commodity broker liquidation 

proceedings “shall distribute customer property ratably to customers on the basis and to the 

extent of such customers’ allowed net equity claims, and in priority to all other claims,” except 

for certain administrative expenses. See 11 U.S.C. § 766(h). The CFTC, acting pursuant to its 

robust statutory mandate to protect commodity customers in commodity broker liquidations, see

7 U.S.C. § 24, has enacted a detailed set of procedures to guide trustees and assist courts in 

implementing the CEA and Subchapter IV of Title 11 of the Bankruptcy Code. See 17 C.F.R. 

§ 190.01-.10 & appendices. As described below, these regulations, inter alia: (1) define what 

constitutes “customer property,” id. § 190.08; (2) establish a system of customer classes and 

account classes designed to ensure a fair and orderly process of pro rata distribution, 

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id. §§ 190.01(a), (m), (bb), & (hh); and (3) provide a formula for calculating allowable “net 

equity” claims, id. § 190.07. Under these regulations and the statutes they implement, all 

customer claims must be satisfied in full before property of the estate may be used to pay any 

general creditors’ claims, see 11 U.S.C. § 766(h); 17 C.F.R. § 190.08(a), and no “insider” who 

also happens to be a brokerage customer may be paid until all public customers’ claims are fully 

satisfied, see 11 U.S.C. § 766(h); 17 C.F.R. § 190.08(b) & (c)(2).

“Customer Property”

2. The CEA grants the CFTC broad authority to define what is “customer property” 

that must be distributed in preference to substantially all other claims. 7 U.S.C. § 24(a). While 

the Bankruptcy Code itself contains an expansive definition of “customer property,” 11 U.S.C. 

§ 761(10), the CEA states that “[n]otwithstanding title 11 of the United States Code,” the CFTC 

may issue regulations to “provide . . . that certain cash, securities, other property, or commodity 

contracts are to be included in or excluded from customer property.” 7 U.S.C. § 24(a) (emphasis 

supplied).1 Pursuant to that statutory authority, the CFTC promulgated 17 C.F.R. § 190.08, 

which, among other things, specifies 15 categories of “customer property.” Categories of 

particular relevance in this proceeding include: 

a. Segregated Customer Property. Section 190.08(a)(ii)(A) states that “customer 

property” includes “[a]ll cash, securities, or other property which . . . [i]s 

segregated on the filing date.” This is a reference to the requirements, such as in 

CEA Section 4d(a)(2), that a commodities broker account separately for, and not 

 

1

This proceeding is brought under the Securities Investor Protection Act of 1970, 15 U.S.C. § 

78aaa, et seq., rather than Title 11, but SIPA provides that provisions of the Bankruptcy Code 

apply “to the extent consistent with” SIPA. Id. § 78fff(b). SIPA contains no provision relevant 

to the definition of commodity customer property, nor is there any other inconsistency between 

the statutes in this regard. Thus, the definition of “customer property” set forth in Title 11 

applies, as modified by CFTC regulations.

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commingle with other funds, any money, securities, or property the broker 

receives from a public customer to margin, guarantee, or secure futures or 

commodity options transactions. 7 U.S.C. § 6d(a)(2); see also 17 C.F.R. § 1.20(a) 

(requiring that customer funds “be deposited under an account name which 

clearly identifies them as such and shows that they are segregated as required by 

the [Commodity Exchange] Act and this part”). Analogous requirements apply to 

collateral associated with foreign futures. See 17 C.F.R. § 30.7. Thus, Section 

190.08(a)(1)(ii)(A) confirms that, pursuant to the priority that Section 766 of the 

Bankruptcy Code gives to customer property, segregated customer property is to 

be distributed by a bankruptcy trustee to commodity customers in preference to 

other claims.

b. Property that Should Have Been Segregated. Section 190.08(a)(1)(i)(A) 

provides that “customer property” also includes “[a]ll cash, securities, or other 

property . . . , received, acquired, or held by or for the account of the debtor, from 

or for the account of a customer, which is . . . received, acquired or held to 

margin, guarantee, secure, purchase or sell a commodity contract[.]” This 

category, which parallels the definition of “customer property” contained in 

Section 761(10) of the Bankruptcy Code, includes all property that is subject to 

the segregation requirements in, inter alia, CEA Section 4d(a)(2). Neither the 

regulation nor the Bankruptcy Code, however, conditions the classification as 

“customer property” on the broker’s actual compliance with the relevant 

segregation requirement. Indeed, 17 C.F.R. § 190.08(a)(1)(ii)(G) confirms that 

customer property includes “cash, securities or other property which . . . is 

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property of the debtor that any applicable law, regulation or order requires to be 

set aside for the benefit of customers . . . .” Thus, property that should have been 

segregated, but was not, or as to which segregation was not maintained, remains 

customer property subject to priority distribution.

c. Property that Has Been Converted. Section 190.08(a)(1)(ii)(F) specifies that 

“customer property” also includes all such property that “[w]as unlawfully 

converted but is part of the debtor’s estate.” Thus, where the debtor or its agents 

have unlawfully removed customer property from segregation, that property 

remains customer property subject to priority distribution.

d. Property Recovered by the Trustee. If property that would be covered by 

Section 190.08(a)(1)(i)(A), because it was “received, acquired or held to margin, 

guarantee, secure, purchase or sell a commodity contract,” has been withdrawn 

from the estate, Section 190.08(a)(1)(ii)(D) provides that such property 

nevertheless becomes “customer property” if it is “subsequently recovered by the 

avoidance powers of the trustee.” Thus, if customer property has been withdrawn 

from the estate and transferred elsewhere – for example, to the holding company –

and is recovered by the Trustee in this case, then such property will be restored as 

customer property.

e. Specifically Identifiable Property. “Specifically identifiable property” is a class 

of property defined in Section 190.01(kk) that must be transferred or returned 

upon instructions from the customers who have posted such property as collateral, 

generally because it is non-fungible from the customer’s perspective, subject to 

certain conditions. Notable among those conditions is that customers who have 

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posted specifically identifiable property as collateral are not excused from the pro 

rata distribution, that is, they will suffer the same loss of value as other customers 

with property in the same account class. Section 190.08(a)(1)(ii)(C) confirms that 

specifically identifiable property is “customer property.” Rules applicable to the 

distribution of specifically identifiable property are discussed infra at ¶¶ 16-19.

f. Shortfalls in Customer Property. Finally, Section 190.08(a)(1)(ii)(J) provides 

that, “only to the extent that” the enumerated types of customer property are

insufficient to satisfy in full all claims of public customers, other estate property 

will be used to satisfy those claims.2

Customer Classes and Account Classes

3. Section 766 of the Bankruptcy Code requires that commodity customer property 

be distributed ratably. 11 U.S.C. § 766(h). CFTC regulations specify that, in that process, the 

trustee must allocate the “property of the debtor’s estate . . . among account classes and between 

customer classes.” 17 C.F.R. § 190.08. Each of these allocated amounts is then treated as “a 

separate estate of the customer class and the account class to which it is allocated.” Id. 

4. Customer Classes. Section 190.01(m) establishes two “customer classes”: 

public customers and non-public customers. Generally, a “non-public customer” is a customer 

who is also an insider, affiliate, or other controlling person or entity of the debtor. 

Id. § 190.01(bb) (referring to, inter alia, id. §1.3(y), which defines proprietary accounts). All 

other customers are public customers. Id. § 190.01(hh). Where a futures commission merchant 

 

2 As has been mentioned elsewhere during this case, a bankruptcy court in In re Griffin Trading 

Co., 245 B.R. 291 (Bankr. N.D. Ill. 2000), found that this provision exceeded the Commission’s 

authority. The Commission appealed the decision, which was vacated as part of a settlement 

before the appeal was decided. The Commission submits that the time for briefing and resolving 

any issues concerning the validity of §190.08(a)(1)(ii)(J) is when (and if) it becomes clear that 

the enumerated types of customer property are insufficient.

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(“FCM”) such as MF Global, Inc. is a corporation, then the account of an owner of ten percent or 

more of the capital stock of that corporation (such as MF Global Holdings, Ltd.) is a proprietary 

account, see id. § 1.3(y)(iv), as is the account of “a business affiliate that directly or indirectly 

controls such . . . corporation” or “a business affiliate that, directly or indirectly, is controlled by 

or is under common control with such corporation,” see id. § 1.3(y)(vii) & (viii). The customers 

owning such proprietary accounts are non-public customers. 

5. All allowable net equity claims by public customers must be satisfied in full 

before any distribution may be made to any non-public (insider) customer. See 11 U.S.C.

§ 766(h) (“Notwithstanding any other provision of this subsection, a customer net equity claim 

based on a proprietary account, as defined by Commission rule, regulation or order, may not be 

paid either in whole or in part, directly or indirectly, out of customer property unless all other 

customer net equity claims have been paid in full.”);

3

17 C.F.R. § 190.08(b); id. § 190.08(c)(2) 

(establishing a 4-tier allocation order); CFTC, Bankruptcy, 46 Fed. Reg. 57535, 57546 (proposed 

Nov. 24, 1981) (explaining that the rules “subordinate claims for non-public customers for which 

no property is required to be segregated under the [CEA] and the [CFTC’s] regulations to claims 

of public customers for which property” must be “so segregated”). Thus, neither MF Global 

Holdings, Ltd., nor any of its subsidiaries, whether or not such subsidiaries are themselves 

debtors in bankruptcy, are eligible to receive any customer property on account of any of their 

claims until and unless “all other customer net equity claims have been paid in full.” 11 U.S.C.

§ 766(h).

6. Account Classes. Section 190.01(a) specifies six types of customer accounts that 

must be recognized by the trustee as separate “account classes” for various purposes in 

 

3

This language was added by Section 19(d) of P.L. 97-222, 96 Stat. 235 (1982).

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liquidation: futures accounts, foreign futures accounts, leverage accounts, commodity option 

accounts, delivery accounts, and (where, as here, the debtor is an FCM) cleared over-the-counter 

(OTC) derivative accounts. 17 C.F.R. § 190.01(a). The reason for identifying classes of 

accounts is to implement pro rata distribution in the context of segregation requirements that 

differ among different types of investment accounts. Bankruptcy, 46 Fed. Reg. at 57536.4 

Property in “futures accounts,” for example, is subject to the segregation requirement set forth in 

Section 4d(a)(2) of the CEA, while property in “foreign futures accounts” is subject to the 

segregation requirement in 17 C.F.R. § 30.7. Moreover, property in “foreign futures accounts” is 

more likely to be posted with members of foreign boards of trade, and thus subject to the risks of 

being subject to non-U.S. insolvency proceedings.

7. Pursuant to Section 4d(a)(2) of the CEA, the Commission may, by rule, regulation 

or order, permit commodity contracts and associated collateral that would normally not be 

associated with the futures account class to be commingled with the commodity contracts and 

associated collateral of that account class. The Commission has issued such orders (commonly 

referred to as “4d Orders”) with respect to specified foreign futures contracts,

5

as well as 

 

4

The Commission created the “account class” concept in adopting original Part 190. 

See Bankruptcy, 46 Fed Reg 57535. In making that proposal, the Commission cited to the House 

Report for the 1978 Bankruptcy Code, which noted that:

It is anticipated that a debtor with multifaceted characteristics will have separate estates 

for each different kind of customer. Thus, a debtor that is a leverage transaction merchant 

and a commodity options dealer would have separate estates for the leverage transaction 

customers and for the options customers, and a general estate for other creditors.

See H.R. Rep. 95-595 at 355, 1978 U.S.C.C.A.N. 5963, 6346.

5

See, e.g., Order, Treatment of Funds Held in Connection with the Clearing by the New York 

Mercantile Exchange, Inc. of Contracts Traded on the Dubai Mercantile Exchange Limited (May 

23, 2007), available at http://www.cftc.gov/files/opa/press07/opaNYMEXDME4dOrderfinal.pdf.

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specified cleared swaps contracts.6 Pursuant to 17 C.F.R. § 190.01(a), such commingled 

contracts and property are treated as part of the futures account class.

8. In May 2010, before the enactment of the Dodd-Frank Act, the Commission 

created an account class for cleared OTC derivatives. Cleared OTC derivatives are those 

submitted by an FCM for clearing on a clearing organization registered with the Commission as 

a derivatives clearing organization (a “DCO”), see 11 U.S.C. § 761(2); 17 C.F.R. 190.01(e) &

(oo), and thus do not include OTC derivatives cleared on clearing organizations that are not so 

registered. Moreover, they are limited to those positions which, along with the property 

margining, guaranteeing or securing such positions, are required to be held in a separate account 

for cleared OTC derivatives only, in accordance with the rules or by-laws of a DCO. 17 C.F.R. 

§ 190.1(oo).7

9. The trustee must carefully trace and attribute all customer property to the 

appropriate account class: Section 190.08(c)(1) provides that “property held by or for the 

account of a customer, which is segregated on behalf of a specific account class, or readily 

traceable on the filing date to customers of such account class, must be allocated to the customer 

estate of the account class for which it is segregated or to which it is readily traceable.” Thus, if 

customer property is found to have been moved out of the account in which it belongs, the 

trustee must trace and treat that property as belonging to the correct account class. See 

Bankruptcy, 46 Fed. Reg. at 57552 (“[T]o the extent property can be traced and restored to the 

 

6

See, e.g., Order, Permitting Customer Positions in OTC Wheat Calendar Swaps to Be 

Commingled With Other Positions and Funds Held in Customer Segregated Accounts, 75 Fed. 

Reg. 34983 (June 10, 2010).

7 While Section 190.01(oo) also refers to segregation and set-aside rules, regulations or orders 

issued by the Commission, no such rules, regulations or orders (other than the 4d Orders such as 

referred to above) have yet been promulgated.

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customer estate, the trustee should attempt to trace and restore it, provided that the estate would 

be reasonably augmented as a result.”).

10. Once the segregated or traceable property has been properly allocated by account 

class, any customer property that is not segregated or traceable to a particular class must be 

allocated so as to equalize the percentage of each claim to be paid for each class of accounts. 

17 C.F.R. § 190.08(c)(2).

Calculation of Net Equity and the Funded Balance

11. As stated above, the Bankruptcy Code requires that pro rata distributions be made 

“on the basis and to the extent of such customers’ allowed net equity claims.” 11 U.S.C. 

§ 766(h). Section 20(a)(5) of the CEA authorizes the CFTC to provide by rule or regulation 

“how the net equity of a customer is to be determined.” 7 U.S.C. § 24(a)(5); see also 11 U.S.C. 

§ 761(17) (subjecting the statutory definition of “net equity” to “such rules and regulations as the 

[CFTC] promulgates under the [CEA]”). Pursuant to that grant of authority, Section 190.07(b) 

defines “net equity” as “the total claim of a customer against the estate of the debtor based on the 

commodity contracts held by the debtor” net of certain amounts, and then establishes a six-step 

process for calculation of net equity. 17 C.F.R. § 190.07(b). The regulations contain valuation 

instructions for various types of property, including, inter alia, exchange-traded contracts, 

principal contracts (generally those not traded on an exchange), securities, and all other property. 

Id. § 190.07(e)(1)-(5). The following are key elements of this valuation process:

a. When property such as an exchange-traded contract or publicly traded security is 

liquidated by the trustee, the value assigned for net equity purposes is equal to the 

net proceeds of that liquidation. Id. § 190.07(e). The potential for unfairness may 

arise if identical contracts or securities are liquidated on the same day but at 

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different prices. In such cases, the trustee may “use the weighted average of the 

liquidation prices in computing the net equity of each customer holding such 

contracts, securities or property.” Id. Where an exchange-traded “contract is 

transferred, its value shall be determined at the time of its transfer.” 

Id. § 190.07(e)(1).

b. Unliquidated exchange-traded contracts are valued at the settlement price as of 

the close of business on the relevant board of trade, id. § 190.07(e)(1), while a 

security is valued at its closing price on the exchange where it is traded, 

id. § 190.07(e)(4). Unliquidated physical (“cash”) commodities are assigned their 

fair market value. Id. § 190.07(e)(5).

c. A customer’s net equity will fluctuate during the entire period that the debtor’s 

estate contains open commodity contracts. Unlike a securities account, which is 

typically valued as if it had been liquidated on the filing date, commodity 

contracts must generally be valued as of the date they are returned to the customer 

or transferred to an account at a different brokerage. Bankruptcy, 46 Fed. Reg. at

57546. Such value may change on a daily basis until the final net equity 

determination is made under the rules. Id. 

d. “Net equity” in this context does not, in the first instance, include any claims a 

customer may have against the debtor for matters other than commodity contracts 

held by the debtor for or on behalf of such customer. Free-standing tort claims, 

for example, would not be a part of the customer’s net equity. 6-761 Collier on 

Bankruptcy ¶ 761.18 (2011). However, if the customer has obligations to the 

debtor (other than in connection with commodity contracts) that exceed the 

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obligations of the debtor to the customer (again, other than in connection with 

commodity contracts), then the net of the two sets of obligations shall be deducted 

from the customer’s net equity balance and, if the customer has claims in multiple 

account classes, such deduction shall be made proportionally. See generally 17 

C.F.R. §190.07(b)(3)(ii). 

e. Some customers may have accounts of more than one class. See supra at ¶ 6 

(discussing account classes). In net equity calculations, an amount is determined 

for each customer for each account class, and any negative net equity amounts are 

used to offset any positive equity balance the same customer may have in a 

different account class. 17 C.F.R. § 190.07(b)(3)(iii).

f. In order to factor in any interim distributions that have taken place, Section 

190.07(b)(4) contains an “add-back” provision, providing that the amount already 

distributed or transferred must be included in the total equity obtained for each 

affected customer.

g. While Section 190.07(b) governs the determination of the extent of each 

customer’s claim, Section 190.07(c) governs the determination of the pro rata

amount that each claimant may be paid, based on the funds available in the estate 

(the “funded balance”). In effect, this is the portion of the estate that the customer 

will be paid (with respect to each account class up to the amount of that

customer’s allowable net equity claim). Id. § 190.07(c).

12. Pursuant to 17 C.F.R. § 1.49, certain customer property segregated under CEA 

Section 4d may be authorized, by customers, to be held outside the United States, or in 

currencies other than the U.S. Dollar. While all U.S. Dollar obligations to customers must be 

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held in the United States and in U.S. Dollars, obligations denominated in “money center”

currencies (i.e., Canadian Dollars, Euro, Japanese Yen, and United Kingdom Pounds), may be 

held either in the U.S. or a money center country (i.e., Canada, France, Italy, Germany, Japan or 

the United Kingdom), and obligations denominated in other currencies may be held in the United 

States, a money center country, or in the country of origin of the currency unless a customer 

provides instructions to the contrary. See 17 C.F.R. § 1.49(c) & (e).

13. Appendix B, Framework 2 to Part 190 is designed to allocate sovereign risk to 

those customers who have undertaken such risk. Thus, those customers whose obligations from 

the FCM are denominated in U.S. Dollars would not be subject to sovereign risk. On the other 

hand, those customers who have accepted having customer funds deposited in a specific foreign 

location would accept the risk that the insolvency regime in that location might make such funds 

unavailable for distribution on the same terms as the bankruptcy regime would in the United 

States. Those customers who have authorized having obligations from the FCM denominated in 

currencies other than the U.S. Dollar would be subject to sovereign risk with respect to currency 

(which implies an explicit action by a sovereign with respect to its currency, as opposed to the 

workings of the foreign exchange markets).

14. In the event that material amounts of MF Global, Inc., Section 4d property are 

found to be affected by sovereign risk, the Commission will provide further briefing on this 

topic.

15. Because Framework 2 is dependent on customer authorization to hold customer 

property in currencies other than the U.S. Dollar and in locations other than the U.S., and 

because these concepts are not found in 17 C.F.R. § 30.7, the Commission observes that 

Framework 2 is not applicable to the foreign futures account class.

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Specifically Identifiable Property

16. As discussed above, specifically identifiable property is a class of property that is 

generally non-fungible from the perspective of the customer and is not required to be liquidated 

by the trustee. See Bankruptcy, 46 Fed. Reg. at 57539 (explaining that “cash equivalent” of such 

property may not be sufficient to prevent damages to the customer). At the customer’s election, 

such property may be returned to the customer as part of the trustee’s distribution. However, 

because the requirement that customer property be distributed ratably still applies, 11 U.S.C. 

§ 766(h), the regulations must account for the possibility that the customer’s specifically 

identifiable property may have value in excess of the funded balance to which that customer is 

entitled. If the specifically identifiable property is more valuable to the customer than the 

amount to which the customer would otherwise be entitled in a pro rata distribution, the 

customer may recover the specifically identifiable property upon depositing with the trustee an 

amount equal to the difference between the value of the specifically identifiable property and the 

funded balance. 17 C.F.R. § 190.08(d). To illustrate, if a customer is entitled to a distribution of 

$2 million, but instead seeks the return of registered securities with a value of $2.25 million, the 

customer may receive those securities upon depositing $250,000 with the trustee, or, if the 

securities were divisible, could receive $2 million worth of such securities.8 If the registered 

securities had a value of $1.75 million, the customer could receive the securities and the 

remaining $250,000. In this way, a customer may receive the return of property of particular 

importance to that customer without affecting the parity of pro rata distribution among all 

customers within the same customer class and account class.

 

8

In cases where specifically identifiable property is not practically divisible (reference was made

at the November 9, 2011 hearing to a single gold bar), the Commission will work with the 

Trustee to achieve practical and equitable solutions that protect the interests of individual 

customers, but also protect the interests of the customers as a group.

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17. The definition of specifically identifiable property, set forth in 17 C.F.R. 

§ 190.01(kk), is restrictive. It includes certain property held as collateral, including (1) securities 

that are held for the account of a customer, registered in the name of that customer, not 

transferable by delivery, and not short-term obligations, which the debtor cannot transfer by 

delivery, and (2) warehouse receipts and other documents of title which, as of the filing date, can 

be identified on the books and records of the debtor as held for the account of a particular 

customer and are neither in bearer form nor are transferable by delivery. It also includes fully 

paid non-exempt securities identified on the books and records of the debtor as held for or on 

behalf of the commodity account of a particular customer for which, according to such books and 

records as of the filing date, no open commodity contracts were held in the same capacity.

18. Specifically identifiable property also includes property associated with the 

making or taking of delivery on commodity contracts. It includes:

a. Warehouse receipts and other documents of title, as well as physical commodities 

received, acquired, or held by or for the account of the debtor for the purpose of 

making or taking delivery or exercise from or for the account of a customer, 

which as of the entry of the order for relief can be identified on the books and 

records of the debtor as received from or for the account of a particular customer 

as held specifically for the purpose of delivery or exercise. 

See 17 C.F.R. §190.01(kk)(3).

b. Certain cash or other property, for the purpose of taking of physical delivery on a 

long futures contract or for payment of the strike price upon exercise of a short 

put option contract (that is, an obligation to buy) or a long call option contract 

(that is, a right to buy), in either case on a physical commodity which cannot be 

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settled in cash. Such cash or property is covered to the extent it is in excess of the 

amount necessary to margin the commodity contract prior to the notice date or 

exercise date. The cash or other property must be identified on the books and 

records of the debtor as received from or for the account of a particular customer, 

specifically for the purpose of payment of the notice price upon taking delivery or 

the strike price upon exercise, and must have been received by the debtor at the 

requisite time. The requisite time is on or after three business days before the first 

notice date or exercise date. Moreover, the customer must take delivery or 

exercise the option in accordance with the applicable contract market rules. See

17 C.F.R. §190.01(kk)(4).

c. The cash price tendered for any property deposited prior to the entry of the order 

for relief to make physical delivery on a short futures contract or for exercise of a 

long put option contract (the right to sell) or a short call option contract (the 

obligation to sell), in either case on a physical commodity which cannot be settled 

in cash. Such cash price is covered to the extent it is in excess of the amount 

necessary to margin the commodity contract prior to the notice date or exercise 

date. The property deposited must be identified on the books and records of the 

debtor as received from or for the account of a particular customer, specifically 

for the purpose of a delivery or exercise, respectively, and must have been 

received by the debtor at the requisite time. The requisite time is on or after three 

business days before the first notice date or exercise date. Moreover, the 

customer must make delivery or exercise the option in accordance with the 

applicable contract market rules. See 17 C.F.R. §190.01(kk)(5).

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19. Pursuant to Section 190.05(a)(2), a “delivery account” is an account prominently 

designated as such in the records of the debtor which contains only the specifically identifiable 

property associated with delivery set forth in the previous paragraph, except that delivery need 

not be made or taken and exercise need not be effected for such property to be included in a 

delivery account. Given the specific requirements set forth in that paragraph and the 

corresponding regulation, it is quite possible that much of the property associated with delivery 

in this case may not qualify as part of a “delivery account.” 

* * *

The CFTC will continue to assist the Court in any way possible to ensure the prompt, 

orderly, and equitable return of customer property in accordance with the applicable statutes and 

regulations.

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Dated: December 12, 2011

 Washington, D.C. By:

COMMODITY FUTURES TRADING COMMISSION

/s/Robert B. Wasserman 

Dan M. Berkovitz 

General Counsel

Jonathan L. Marcus 

Deputy General Counsel

Robert B. Wasserman 

Chief Counsel, Division of Clearing and Risk

Martin B. White 

Assistant General Counsel

Robert A. Schwartz

Assistant General Counsel

Commodity Futures Trading Commission

Three Lafayette Plaza

1155 21st Street N.W.

Washington, DC 20581

(202) 418-5000 

jmarcus@cftc.gov

rwasserman@cftc.gov

mwhite@cftc.gov

rschwartz@cftc.gov

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