CFTC Letter 04-11

CFTC letter No. 04-11

March 24, 2004

Interpretation

Division of Clearing and Intermediary Oversight

Dear _________:

This is in response to your letter dated February 25, 2004, to the Division of Clearing and Intermediary 

Oversight (the “Division” or “DCIO”) of the Commodity Futures Trading Commission (“Commission”). 

You requested on behalf of your client, __________, (“Bank”), confirmation that the Bank’s trust 

account product (“Trust Account”) satisfies the requirements of Section 4d(b) of the Commodity 

Exchange Act[1] (the “Act”) and Commission Rule 1.20[2] for the deposit of segregated customer funds 

by Commission registered derivatives clearing organizations (“DCOs”).

The Division has previously issued to you a letter dated August 25, 2003, confirming that the Trust 

Account meets the requirements of Section 4d(a)(2) of the Act and Commission Rules 1.20 and 1.25, as 

applicable, for the deposit of segregated customer funds by registered futures commission merchant 

(“FCM”) customers of the Bank (Interpretative Letter No. 03-31).[3] Interpretative Letter No. 03-31 was 

issued in response to your letter dated August 7, 2003, and other materials submitted by you in support 

of the August 7 letter.

Your February 25 letter specifically incorporates by reference and renews all representations made in 

your August 7, 2003 letter. In addition, you have represented that with respect to DCO customers of the 

Bank, the Trust Account would be appropriately titled under an account name which clearly shows that 

the funds are the customer funds of the DCO’s clearing members. You have further represented that the 

funds in the Trust Account would be identified by the Bank on its records as customer funds of 

commodity or option customers of clearing members of the DCO, segregated as required by the Act and 

Commission regulations.

Section 4d(b) of the Act requires DCOs and depositories that have received clearing member customers’

funds for deposit in segregated accounts to treat such funds as segregated for the benefit of such 

customers.[4] Commission Rule 1.20 expands on this requirement to provide that “customer funds when 

deposited in a bank or trust company shall be deposited under an account name which clearly shows that 

they are the customer funds of the commodity or option customers of clearing members, segregated as 

required by the Act and these regulations.”

[5] In addition, Commission Rule 1.20 provides that “[t]he 

clearing organization shall obtain and retain in its files...a written acknowledgement from such bank or 

trust company that it was informed that the customer funds deposited therein are those of commodity or 

option customers of its clearing members and are being held in accordance with the provisions of the 

Act and these regulations.”

[6]

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CFTC Letter 04-11

Based upon the representations set forth in your February 25, 2004 letter and the materials incorporated 

therein by reference, including your prior August 7, 2003 letter and other supporting materials, DCIO 

considers the analysis set forth in Interpretative Letter No. 03-31 similarly applicable to your current 

request. DCIO also agrees with your analysis that the deposit of customer funds into the Trust Account 

by DCOs would be permitted under the Act and Commission Rule 1.20.

The position taken herein is based upon the representations that have been made to DCIO. Any different, 

changed, or omitted facts or conditions might require DCIO to reach a different conclusion. You must 

notify DCIO immediately in the event that there is any change from the facts as presented to us 

concerning the Trust Account. Further, this letter represents the position of DCIO only and does not 

necessarily represent the views of the Commission or any other division or office of the Commission.

If you have any questions concerning this correspondence, please contact Jennifer C.P. Bauer, an 

attorney on my staff, at (202) 418-5472.

Very truly yours, 

James L. Carley 

Director 

[1] 7 U.S.C. §1 et seq. (2000). 

[2] 17 C.F.R. §1.20. Commission rules referred to herein are found at 17 C.F.R. Ch. 1 (2003).

[3] Comm. Fut. L. Rep. (CCH) ¶29,576 (August 25, 2003). Interpretative Letter No. 03-31 may also be 

obtained by accessing the Commission’s website at www.cftc.gov.

[4] §4d(b) states that it shall be unlawful for “any person, including but not limited to any clearing 

agency of a contract market or derivatives execution facility and any depository, that has received any 

money, securities or property for deposit in a separate account [for commodity or options customers 

under Section 4d(a)(2)] to hold, dispose of or use any such money, securities, or property as belonging 

to the depositing futures commission merchant or any person other than the customers of such futures 

commission merchant...” 7 U.S.C. §6d(b). 

[5] 17 C.F.R. §1.20(b). 

[6] Id. 

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