23962 Federal Register / Vol. 74, No. 98 / Friday, May 22, 2009 / Proposed Rules 

1 7 U.S.C. 6d(a)(2). 

and other voting procedures to clarify 

the director elections process, and to 

update the rules to incorporate 

interpretations made through recent 

bookletters to System institutions. We 

are extending the comment period so all 

interested parties will have additional 

time to provide comments. 

DATES: You may send comments on or 

before August 14, 2009. 

ADDRESSES: We offer a variety of 

methods for you to submit your 

comments. For accuracy and efficiency 

reasons, commenters are encouraged to 

submit comments by e-mail or through 

the FCA’s Web site. As facsimiles (fax) 

are difficult for us to process and 

achieve compliance with section 508 of 

the Rehabilitation Act, we are no longer 

accepting comments submitted by fax. 

Regardless of the method you use, 

please do not submit your comment 

multiple times via different methods. 

You may submit comments by any of 

the following methods: 

• E-mail: Send us an e-mail at regcomm@fca.gov. 

• FCA Web site: http://www.fca.gov. 

Select ‘‘Public Commenters,’’ then 

‘‘Public Comments,’’ and follow the 

directions for ‘‘Submitting a Comment.’’ 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Gary K. Van Meter, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, VA 22102–5090. 

You may review copies of all comments 

we receive at our office in McLean, 

Virginia, or from our Web site at http:// 

www.fca.gov. Once you are in the Web 

site, select ‘‘Public Commenters,’’ then 

‘‘Public Comments,’’ and follow the 

directions for ‘‘Reading Submitted 

Public Comments.’’ We will show your 

comments as submitted, but for 

technical reasons we may omit items 

such as logos and special characters. 

Identifying information you provide, 

such as phone numbers and addresses, 

will be publicly available. However, we 

will attempt to remove e-mail addresses 

to help reduce Internet spam. 

FOR FURTHER INFORMATION CONTACT: 

Elna Luopa, Senior Corporate Analyst, 

Office of Regulatory Policy, Farm 

Credit Administration, McLean, VA 

22102–5090, (703) 883–4498, TTY 

(703) 883–4434; or 

Laura D. McFarland, Senior Counsel, 

Office of General Counsel, Farm 

Credit Administration, McLean, VA 

22102–5090, (703) 883–4020, TTY 

(703) 883–4020. 

SUPPLEMENTARY INFORMATION: On April 

16, 2009, FCA published a notice in the 

Federal Register seeking public 

comment on proposed changes to the 

rules governing director elections for 

System banks and associations and the 

related director elections process. See 

74 FR 17612. The comment period is 

scheduled to expire on June 15, 2009. In 

a letter dated May 1, 2009, the Farm 

Credit Council, on behalf of System 

banks and associations, requested that 

the Agency extend the comment period 

for another 60 days to allow more time 

for the boards of directors of System 

banks and associations to consider the 

proposed rule and submit their 

comments. Several System associations 

submitted separate requests to extend 

the public comment period for an 

additional 60 days, noting that they will 

have only one board meeting at which 

to consider and discuss the issues before 

the comment period expires. Due to the 

wide-ranging effect of the proposed rule 

on directors, director candidates, 

nominating committees, and the voting 

shareholders of System institutions, we 

have granted this request. The FCA 

supports public involvement and 

participation in its regulatory process 

and invites all interested parties to 

review and provide comments on our 

proposed rule. 

Dated: May 19, 2009. 

Roland E. Smith, 

Secretary, Farm Credit Administration Board. 

[FR Doc. E9–12013 Filed 5–21–09; 8:45 am] 

BILLING CODE 6705–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1 and 30 

RIN 3038–AC79 

Investment of Customer Funds and 

Funds Held in an Account for Foreign 

Futures and Foreign Options 

Transactions 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Advance notice of proposed 

rulemaking; request for public 

comment. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission) is 

seeking public comment on possible 

changes to its regulations regarding the 

investment of customer funds 

segregated pursuant to Section 4d of the 

Commodity Exchange Act (customer 

segregated funds) and funds held in an 

account subject to Commission 

Regulation 30.7 (30.7 funds). 

Commission Regulation 1.25 provides 

that a derivatives clearing organization 

(DCO) or a futures commission 

merchant (FCM) holding customer 

segregated funds may invest those funds 

in certain permitted investments subject 

to specified requirements that are 

designed to minimize exposure to 

credit, liquidity, and market risks. The 

Commission is considering significantly 

revising the scope and character of these 

permitted investments and is seeking 

public comment before issuing 

proposed rule amendments. 

Additionally, in conjunction with its 

consideration of possible amendments 

to Regulation 1.25, the Commission is 

considering applying the investment 

requirements of Regulation 1.25, 

including any prospective amendments, 

to investments of 30.7 funds. The 

Commission is seeking public comment 

on this action before issuing proposed 

rule amendments. 

DATES: Comments must be received on 

or before July 21, 2009. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov/http:// 

frwebgate.access.gpo/cgi-bin/leaving. 

Follow the instructions for submitting 

comments. 

• E-mail: secretary@cftc.gov. Include 

‘‘Advance Notice of Proposed 

Rulemaking for Regulations 1.25 and 

30.7’’ in the subject line of the message. 

• Fax: 202–418–5521. 

• Mail: Send to David A. Stawick, 

Secretary, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

• Courier: Same as mail above. 

All comments received will be posted 

without change to http:// 

www.CFTC.gov/. Reference should be 

made to ‘‘Advance Notice of Proposed 

Rulemaking for Regulations 1.25 and 

30.7.’’ 

FOR FURTHER INFORMATION CONTACT: 

Sarah E. Josephson, Special Counsel, 

202–418–5684, sjosephson@cftc.gov, or 

Phyllis P. Dietz, Associate Director, 

202–418–5449, pdietz@cftc.gov, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1151 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Regulation 1.25 

Under Section 4d(a)(2) of the 

Commodity Exchange Act (Act),1 the 


erowe on PROD1PC63 with PROPOSALS-1
Federal Register / Vol. 74, No. 98 / Friday, May 22, 2009 / Proposed Rules 23963 

2 7 U.S.C. 6(c). 

3 17 CFR 1.25. See 65 FR 77993 (Dec. 13, 2000) 

(publishing final rules); and 65 FR 82270 (Dec. 28, 

2000) (making technical corrections and 

accelerating effective date of final rules from 

February 12, 2001 to December 28, 2000). 

4 Id. 

5 69 FR 6140 (Feb. 10, 2004). 

6 70 FR 28190 (May 17, 2005). 

7 17 CFR 1.25(b). 

8 17 CFR 30.7. 

9 7 U.S.C. 6(b). 

10See Commission Form 1–FR–FCM Instructions 

at 12–9 (Mar. 31, 2007) (‘‘In investing funds 

required to be maintained in separate section 30.7 

account(s), FCMs are bound by their fiduciary 

obligations to customers and the requirement that 

the secured amount required to be set aside be at 

all times liquid and sufficient to cover all 

obligations to such customers. Regulation 1.25 

investments would be appropriate, as would 

investments in any other readily marketable 

securities.’’). 

investment of customer segregated 

funds is limited to obligations of the 

United States and obligations fully 

guaranteed as to principal and interest 

by the United States (U.S. government 

securities), and general obligations of 

any State or of any political subdivision 

thereof (municipal securities). Pursuant 

to authority under section 4(c) of the 

Act,2 the Commission substantially 

expanded the list of permitted 

investments by amending Commission 

Regulation 1.25 in December 2000 to 

permit investments in general 

obligations issued by any enterprise 

sponsored by the United States 

(government sponsored enterprise 

securities), bank certificates of deposit, 

commercial paper, corporate notes, 

general obligations of a sovereign 

nation, and interests in money market 

mutual funds.3 In connection with that 

expansion, the Commission included 

several provisions intended to control 

exposure to credit, liquidity, and market 

risks associated with the additional 

investments, e.g., requirements that the 

investments satisfy specified rating 

standards and concentration limits, and 

be readily marketable and subject to 

prompt liquidation.4

The Commission further modified 

Regulation 1.25 in 2004 and 2005. In 

February 2004, the Commission adopted 

amendments regarding repurchase 

agreements with customer-deposited 

securities and time-to-maturity 

requirements for securities deposited in 

connection with certain collateral 

management programs of DCOs.5 In May 

2005, the Commission adopted 

amendments related to standards for 

investing in instruments with embedded 

derivatives, requirements for adjustable 

rate securities, concentration limits on 

reverse repurchase agreements, 

transactions by FCMs that are also 

registered as securities brokers or 

dealers (in-house transactions), rating 

standards and registration requirements 

for money market mutual funds, an 

auditability standard for investment 

records, and certain technical changes.6

The Commission has been, and 

continues to be, mindful that customer 

segregated funds must be invested in a 

manner that minimizes their exposure 

to credit, liquidity, and market risks 

both to preserve their availability to 

customers upon demand and to enable 

these assets to be quickly converted to 

cash at a predictable value to minimize 

systemic risk. Toward these ends, 

Regulation 1.25 establishes a general 

prudential standard by requiring that all 

permitted investments be ‘‘consistent 

with the objectives of preserving 

principal and maintaining liquidity.’’ 7

In 2007, the Commission’s Division of 

Clearing and Intermediary Oversight 

(Division) launched a review of the 

nature and extent of investments of 

customer segregated funds and 30.7 

funds in order to obtain an up-to-date 

understanding of investment strategies 

and practices and to assess whether any 

changes to the regulations would be 

appropriate. As part of this review, all 

Commission-registered DCOs and FCMs 

carrying customer accounts provided 

responses to a series of questions. As the 

Division was conducting follow-up 

interviews with respondents, the market 

events of September 2008 occurred and 

changed the financial landscape such 

that the data previously gathered no 

longer reflected current market 

conditions. Recent events in the 

economy have underscored the 

importance of conducting periodic 

reassessments, and through this advance 

notice of proposed rulemaking the 

Commission is refocusing its review of 

permitted investments for customer 

segregated funds and 30.7 funds. 

The Commission believes that DCOs 

and FCMs have managed customer 

segregated funds and 30.7 funds 

responsibly during this difficult 

economic time. Nonetheless, the market 

events of the past year, notably the 

failures of certain government 

sponsored enterprises, difficulties 

encountered by certain money market 

mutual funds in honoring redemption 

requests, illiquidity of certain adjustable 

rate securities, and turmoil in the credit 

ratings industry, have challenged many 

of the fundamental assumptions 

regarding investments. As a result, the 

Commission believes it is an especially 

appropriate time to review permitted 

investments for customer segregated 

funds and 30.7 funds. 

B. Regulation 30.7 

Regulation 30.7 8 governs an FCM’s 

treatment of customer money, securities, 

and property associated with positions 

in foreign futures and foreign options. 

Regulation 30.7 was issued pursuant to 

the Commission’s plenary authority 

under Section 4(b) of the Act.9 Because 

Congress did not expressly apply the 

limitations of Section 4d of the Act to 

30.7 funds, the Commission historically 

has not subjected those funds to the 

investment limitations applicable to 

customer segregated funds. 

The investment guidelines for 30.7 

funds are general in nature.10 Although 

Regulation 1.25 investments offer a safe 

harbor, the Commission has not limited 

investments of 30.7 funds to permitted 

investments under Regulation 1.25. The 

Commission believes that it may be 

appropriate to impose such a limitation 

because the same prudential concerns 

that arise in the context of customer 

segregated funds also arise in the 

context of 30.7 funds. Applying the 

same standards to both types of funds 

would be consistent with the Act and 

would establish a bright line for the 

industry and the Commission. 

II. Public Comment Solicited 

The Commission is considering 

significantly revising the scope and 

character of permitted investments for 

customer segregated funds and 30.7 

funds and is seeking public comment 

before issuing any proposed 

amendments to Regulations 1.25 or 30.7. 

In the interest of gathering as much 

information as possible before reaching 

any conclusions, the Commission is 

soliciting comments from the public 

regarding which instruments should 

continue to be permitted investments 

for customer segregated funds under 

Regulation 1.25. The Commission 

welcomes comments on which 

instruments no longer merit inclusion as 

permitted investments, as well as 

comments in support of any new 

instruments that might qualify as 

permitted investments. The Commission 

also requests comment on appropriate 

limitations or safeguards that should be 

applied to permitted investments. 

The Commission is particularly 

interested in relevant data that 

commenters can provide regarding the 

credit, liquidity, and market risk of 

various investment choices. The 

Commission is open both to evidence in 

support of retaining current permitted 

investments and evidence indicating a 

need to eliminate certain permitted 

investments. Additionally, the 

Commission urges commenters to 

analyze the benefits and burdens of any 


erowe on PROD1PC63 with PROPOSALS-1
23964 Federal Register / Vol. 74, No. 98 / Friday, May 22, 2009 / Proposed Rules 

11 15 U.S.C. 78c(a)(6). 

potential regulatory modifications in 

light of current market realities. 

Given the substantive and practical 

concerns that may arise from altering 

the current list of permitted 

investments, the Commission is seeking 

the views of all interested parties before 

regulatory changes, if any, are proposed. 

The Commission also will conduct its 

own research and analysis. Before any 

regulatory changes are adopted there 

will be an opportunity for additional 

public comment. 

The Commission requests comment 

on all aspects of Regulation 1.25, as 

follows: 

A. Permitted Investments Under the 

Act. U.S. government securities and 

municipal securities are permitted 

investments under Section 4d(a)(2) of 

the Act and Regulation 1.25(a)(1)(i)–(ii). 

Please provide any comments, 

information, research, or data regarding 

appropriate regulatory requirements that 

might be imposed in order to better 

safeguard customer segregated funds. 

B. Other Permitted Investments Under 

Regulation 1.25. Please provide any 

comments, information, research, or 

data in support of retaining, rescinding, 

or modifying authorization to invest 

customer segregated funds in the 

following instruments: 

1. Government sponsored enterprise 

securities (Regulation 1.25(a)(1)(iii)); 

2. Certificates of deposit issued by a 

bank as defined in section 3(a)(6) of the 

Securities Exchange Act of 1934,11 or a 

domestic branch of a foreign bank that 

carries deposits insured by the Federal 

Deposit Insurance Corporation 

(Regulation 1.25(a)(1)(iv)); 

3. Commercial paper (Regulation 

1.25(a)(1)(v)); 

4. Corporate notes or bonds 

(Regulation 1.25(a)(1)(vi)); 

5. General obligations of a sovereign 

nation (Regulation 1.25(a)(1)(vii)); and 

6. Interests in money market mutual 

funds (Regulation 1.25(a)(1)(viii)). 

C. Transactions in Permitted 

Investments. Please provide any 

comments, information, research, or 

data in support of retaining, rescinding, 

or modifying authorization to enter into 

the following transactions, and please 

consider the effect that a more limited 

list of permitted investments would 

have on: 

1. Repurchase and reverse repurchase 

transactions using customer cash or 

securities purchased with customer cash 

(Regulation 1.25(a)(2)(i)); 

2. Repurchase transactions using 

customer-deposited securities 

(Regulation 1.25(a)(2)(ii)); and 

3. In-house transactions by FCMs that 

are also registered as securities brokers 

or dealers (Regulation 1.25(a)(3)(i)–(iii)). 

D. Limitations and Safeguards. Please 

provide any comments, information, 

research, or data regarding the general 

terms and conditions of permitted 

instruments, including: 

1. Marketability/liquidity (Regulation 

1.25(b)(1)); 

2. Rating requirements (Regulation 

1.25(b)(2)); 

3. Restrictions on instrument features, 

such as instruments that contain an 

embedded derivative and adjustable rate 

securities (Regulation 1.25(b)(3)); 

4. Issuer concentration limits 

(Regulation 1.25(b)(4)); 

5. Time-to-maturity (for an investment 

portfolio or individual instruments) 

(Regulation 1.25(b)(5)); 

6. Investments in instruments issued 

by affiliates (Regulation 1.25(b)(6)); 

7. Requirements specific to interests 

in money market mutual funds 

(Regulation 1.25(c)); 

8. Requirements specific to 

repurchase agreements and reverse 

repurchase agreements (Regulation 

1.25(d)); and 

9. Requirements specific to in-house 

transactions (Regulation 1.25(e)). 

The Commission requests comment 

on Regulation 30.7, as follows: 

Please provide comments, 

information, research, or data on the 

effect of applying the requirements of 

Regulation 1.25 to investments of 30.7 

funds. The Commission also requests 

comments, information, research, or 

data relating to whether there is any 

basis supporting the continued 

application of two different investment 

standards. 

Issued in Washington, DC, on May 19, 

2009, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. E9–12020 Filed 5–21–09; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 150 

RIN 3038–AC40 

Concept Release on Whether To 

Eliminate the Bona Fide Hedge 

Exemption for Certain Swap Dealers 

and Create a New Limited Risk 

Management Exemption From 

Speculative Position Limits 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Extension of comment period. 

SUMMARY: On March 24, 2009, the 

Commodity Futures Trading 

Commission (‘‘Commission’’) published 

a concept release on whether to 

eliminate the bona fide hedge 

exemption for certain swap dealers and 

create a new limited risk management 

exemption from speculative position 

limits. Comments on the proposal were 

originally due by May 26, 2009. Now, at 

the request of interested parties, the 

Commission is extending the comment 

period to June 16, 2009. 

DATES: Comments must be received by 

June 16, 2009. 

ADDRESSES: Written comments should 

be sent to David Stawick, Secretary, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Comments may also be sent by 

facsimile to (202) 418–5521, submitted 

via e-mail to secretary@cftc.gov. The 

words, ‘‘Concept Release, Swap 

Dealers’’ should appear in the subject 

field of responses submitted via e-mail, 

and should be clearly indicated in 

written submissions. Comments may 

also be submitted by connecting to the 

Federal eRulemaking Portal at: http:// 

www.regulations.gov and following 

comment submission instructions. 

FOR FURTHER INFORMATION CONTACT: 

Donald H. Heitman, Senior Special 

Counsel, Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581, telephone (202) 418–5041, e-mail 

dheitman@cftc.gov. 

SUPPLEMENTARY INFORMATION: On March 

24, 2009, the Commission published 

and sought public comment regarding a 

concept release on whether to eliminate 

the bona fide hedge exemption for 

certain swap dealers and create a new 

limited risk management exemption 

from speculative position limits. 

By letters dated May 12, 2009, the 

Futures Industry Association and the 

CME Group, Inc., respectively, 

requested that the original comment 

period be extended to June 16, 2009. 

Recognizing the significance of the 

issues raised in the Concept Release, 

and to encourage the submission of 

meaningful comments, the Commission 

has decided to grant the requests. The 

comment period for the Commission’s 

Concept Release on Whether to 

Eliminate the Bona Fide Hedge 

Exemption for Certain Swap Dealers and 

Create a New Limited Risk Management 

Exemption from Speculative Position 

Limits is hereby extended to June 16, 

2009. 


erowe on PROD1PC63 with PROPOSALS-1