HUGHES HUBBARD & REED LLP

One Battery Park Plaza

New York, New York 10004

Telephone: (212) 837-6000

Facsimile: (212) 422-4726

Attorneys for James W. Giddens,

Trustee for the SIPA Liquidation of MF Global Inc.

UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK

In re

MF GLOBAL INC.,

Debtor.

Bankruptcy Case No. 11-2790 (MG) 

SIPA

CONOCOPHILLIPS COMPANY, et al.,

Plaintiffs,

v.

JAMES W. GIDDENS, Trustee for the SIPA

Liquidation of MF Global Inc.

Defendant.

Case No. 12-CV-6014 (KBF)

REPLY MEMORANDUM IN FURTHER SUPPORT OF THE TRUSTEE’S AMENDED 

MOTION FOR AN ORDER CONFIRMING THE TRUSTEE’S DETERMINATION 

OF CONOCOPHILLIPS’ CLAIMS TO CUSTOMER ACCOUNTS MARGINED 

WITH LETTERS OF CREDIT

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 1 of 15
TABLE OF CONTENTS

i

62141772_1

Page

PRELIMINARY STATEMENT .....................................................................................................1

ARGUMENT...................................................................................................................................2

I. THE CFTC SAID WHAT IT MEANT IN THE LOC PROVISION. .................................2

II. THE LOC PROVISION IS A VALID EXERCISE OF THE CFTC’S CLEARLY 

DELEGATED AUTHORITY. ............................................................................................4

A. The Bankruptcy Code Provisions Cited By ConocoPhillips Are Not 

Relevant To This Dispute. .......................................................................................5

B. The Legal Certainty For Bank Products Act Did Not Abrogate The LOC 

Provision. .................................................................................................................6

C. The U.C.C. Does Not Trump Federal Regulations..................................................8

III. CUSTOMER PROPERTY CANNOT DISAPPEAR WHEN LETTERS OF 

CREDIT EXPIRE. ...............................................................................................................9

CONCLUSION..............................................................................................................................11

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 2 of 15
ii

62141772_1

TABLE OF AUTHORITIES

Page(s)

CASES

Butner v. United States,

440 U.S. 48 (1979).....................................................................................................................8

Chechele v. Elstain,

No. 11 Civ. 3320 (SAS), 2012 U.S. Dist. LEXIS 23975 (S.D.N.Y. Feb. 24, 2012).................3

Conn. Office of Prot. & Advocacy for Persons with Disabilities v. Hartford Bd. of Educ.,

464 F.3d 229 (2d Cir. 2006)...................................................................................................7, 8

English v. Gen. Elec. Co.,

496 U.S. 72 (1990).....................................................................................................................8

Estate of Landers v. Leavitt,

545 F.3d 98 (2d Cir. 2008).........................................................................................................8

Green Island Power Auth. v. Fed. Energy Regulatory Comm’n,

No. 11-1960, 2012 U.S. App. LEXIS 20048 (2d Cir. Sept. 25, 2012)......................................4

In re Bernard L. Madoff Inv. Sec. LLC,

654 F.3d 229 (2d Cir. 2011).......................................................................................................9

Kruse v. Wells Fargo Home Mortg., Inc.,

383 F.3d 59 (2d Cir. 2004).........................................................................................................7

SIPC v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff Sec.),

476 B.R. 715 (S.D.N.Y. 2012)...................................................................................................8

SIPC v. Bernard L. Madoff Inv. Sec., LLC,

401 B.R. 629 (Bankr. S.D.N.Y. 2009), aff’d sub nom. Rosenman Family, LLC v. 

Picard, 420 B.R. 108 (S.D.N.Y. 2009), aff’d, 395 F. App’x 766 (2d Cir. 2010) ..................5, 6

Talk Am., Inc. v. Mich. Bell Tel. Co.,

131 S. Ct. 2254 (2011).............................................................................................................10

United States v. Ron Pair Enters. Inc.,

489 U.S. 235 (1989)...............................................................................................................2, 3

WPIX, Inc. v. ivi, Inc., 

691 F.3d 275 (2d Cir. 2012).......................................................................................................7

Wyeth v. Levine,

555 U.S. 555 (2009)...................................................................................................................9

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 3 of 15
TABLE OF AUTHORITIES

(Continued)

Page(s)

iii

62141772_1

STATUTES AND RULES

7 U.S.C. § 24(a)(1)...................................................................................................................4, 5, 8

7 U.S.C. § 27a(a)(1).....................................................................................................................6, 7

11 U.S.C. § 541(a)(1).......................................................................................................................5

11 U.S.C. § 761(10)(A)(ii)...............................................................................................................5

11 U.S.C. § 761(10)(B)....................................................................................................................5

11 U.S.C. § 766(f)........................................................................................................................5, 6

11 U.S.C. § 766(h)...........................................................................................................................1

REGULATIONS

17 C.F.R. § 190.08(a)(1)(i)(A).........................................................................................................3

17 C.F.R. § 190.08(a)(1)(i)(E)............................................................................................... passim

48 Fed. Reg. 8716 (Mar. 1, 1983)..........................................................................................3, 9, 10

LEGISLATIVE AND ADMINISTRATIVE MATERIALS

146 Cong. Rec. 27237 (2000)..........................................................................................................7

H.R. Rep. No. 95-595 (1977), reprinted in 1978 U.S.C.C.A.N. 5963.............................................5

S. Rep. No. 95-989 (1978), reprinted in 1978 U.S.C.C.A.N. 5787 .............................................6, 8

U.C.C. § 5-108(i)(1).......................................................................................................................10

OTHER AUTHORITIES

William F. Teuting & Christoper Q. King, Funds Protections: An Overview of What 

Happens When a Commodity Broker Becomes Insolvent, 7 J. of Futures Markets 93 

(Winter 1987).............................................................................................................................2

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 4 of 15
62141772_1

PRELIMINARY STATEMENT

Prior to the liquidation of MF Global Inc. (“MFGI”), ConocoPhillips, like all 

other former MFGI customers, posted margin to secure its trading activity. Unlike other 

customers, ConocoPhillips, because it used letters of credit (“LOCs”) as margin rather than cash 

or securities, argues for the return of its margin outside the Bankruptcy Code’s normal pro rata 

distribution process. As demonstrated in the opening papers by the Trustee (“Trustee’s Mem.”)

and the Commodity Futures Trading Commission (“CFTC Br.”), the CFTC anticipated exactly 

this situation as early as 1981. And it promulgated a regulation (17 C.F.R. § 190.08(a)(1)(i)(E)) 

or the “LOC Provision”) explicitly to foreclose ConocoPhillips’ position, emphasizing that all 

customers, large and small, should be treated the same in a futures commission merchant 

(“FCM”) liquidation. 

In its opposition brief (“Opp. Br.”), ConocoPhillips argues that the CFTC 

promulgated a regulation inadvertently directing a result exactly opposite from its explicit intent. 

Sidestepping legislative history and statutory construction principles, ConocoPhillips argues that 

Congress, in unrelated legislation, abrogated the LOC Provision without mentioning it. 

ConocoPhillips also argues that state LOC law trumps the CFTC’s regulation, despite Congress’ 

specific direction that the CFTC promulgate customer property regulations. Finally, 

ConocoPhillips argues that, even if the LOCs are customer property, the property evaporated 

when some of the LOCs expired.

ConocoPhillips is incorrect. The bedrock principle of ratable distribution in 

bankruptcy – codified in 11 U.S.C. § 766(h) in the context of a FCM liquidation – as well as the 

plain language and history of the relevant laws contravene its arguments.

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 5 of 15
2

62141772_1

ARGUMENT

I. THE CFTC SAID WHAT IT MEANT IN THE LOC PROVISION.

ConocoPhillips’ argument is premised on its contention that the CFTC 

promulgated a regulation that, inadvertently but also clearly and unambiguously, says exactly the 

opposite of what the CFTC intended. The language and intent of the LOC Provision belie such a 

reading. The CFTC articulated what it intended the LOC Provision to mean when it proposed 

the provision in 1981 prior to notice and comment. The commentators understood exactly what 

the provision meant during the notice and comment period. The CFTC reiterated the meaning of 

the LOC Provision in 1983 when it promulgated the final regulation. Subsequent commentators 

recognized the correct meaning of the regulation.1

The LOC Provision makes the “full proceeds” of a LOC customer property. 

17 C.F.R. § 190.08(a)(1)(i)(E). The plain language supports the Trustee’s position: “full 

proceeds” means that LOCs, when posted as margin with a FCM, should be fully available as 

customer property subject to pro rata distribution by the Trustee. (See Trustee’s Mem. at 9-10.) 

This plain meaning has been apparent for over thirty years. 

 And the CFTC remains consistent in its 

interpretation today.

ConocoPhillips’ argument – that the plain meaning supports it and that the 

purpose, history, and CFTC interpretation of the LOC Provision should all be ignored – is 

incorrect. First, the argument is not supported by case law. From the Supreme Court down, 

courts have recognized that the “plain language” of a statute or regulation should not be read in a 

manner contrary to the intent of the drafter or to reach absurd results. See United States v. Ron 

 

1. See William F. Teuting & Christoper Q. King, Funds Protections: An Overview of What Happens When a 

Commodity Broker Becomes Insolvent, 7 J. of Futures Markets 93, 98 (Winter 1987). 

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 6 of 15
3

62141772_1

Pair Enters. Inc., 489 U.S. 235, 242 (1989); Chechele v. Elstain, No. 11 Civ. 3320 (SAS), 2012 

U.S. Dist. LEXIS 23975, at *6 (S.D.N.Y. Feb. 24, 2012). ConocoPhillips’ proposed reading of 

the regulation would be contrary to and clearly frustrate the CFTC’s intent. 48 Fed. Reg. 8716, 

8718 (Mar. 1, 1983). 

Second, the “plain language” of the LOC Provision does not say what 

ConocoPhillips would like it to say, and it certainly does not do so unambiguously. 

ConocoPhillips argues that the CFTC should have written “full face amount” rather than “full 

proceeds” to achieve the outcome it clearly intended. But this is a false dichotomy. The term 

“proceeds” has its usual meaning of “something that results or accrues; the total amount derived 

from a sale or other transaction.” (CFTC Br. at 10.) Certainly, “full proceeds” does not equal 

“amount that could have been drawn down pre-petition, pursuant to state law, to remedy a 

customer default.” These additional words, which ConocoPhillips argues the Court should insert 

into the LOC Provision as its unambiguous plain meaning, actually defeat the provision’s 

purpose. For all of the LOCs involved in the MFGI liquidation, there was no customer default, 

meaning that the LOC Provision would bring no customer property into the estate where MFGI 

had actually permitted over $270 million in LOC margin to be posted by its customers. This 

result would provide a windfall to some customers, while depriving the others of customer 

property that the CFTC’s regulatory framework always contemplated would be available for 

distribution to them. 

Moreover, a “default” is consistently not required for any type of margin to 

become customer property. 17 C.F.R. § 190.08(a)(1)(i)(A). Any former MFGI customer could 

argue, like ConocoPhillips, that MFGI had no pre-petition state law right to access the margin it 

had posted absent a default. But in a FCM liquidation, there is no dispute that the Trustee is 

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 7 of 15
4

62141772_1

charged with distributing all margin to customers ratably. Inserting a “default” requirement only 

for margin posted as LOCs would prefer the nine former MFGI customers that used LOCs over 

the tens of thousands that did not. The LOC Provision certainly does not unambiguously 

mandate this inequitable result.

Third, regardless of how one reaches the LOC Provision’s promulgation history –

whether because the alleged “plain language” of a regulation cannot be interpreted in a vacuum 

or because the LOC Provision does not unambiguously say what ConocoPhillips argues, or both 

– there is no dispute that history supports the Trustee’s determination. The CFTC’s current 

interpretation is also entirely consistent with its contemporaneous intent. And the CFTC’s 

longstanding, consistent interpretation of its own regulation is entitled to deference. (See 

Trustee’s Mem. at 10-13); see also Green Island Power Auth. v. Fed. Energy Regulatory 

Comm’n, No. 11-1960, 2012 U.S. App. LEXIS 20048, at *2-3 (2d Cir. Sept. 25, 2012).

II. THE LOC PROVISION IS A VALID EXERCISE OF THE CFTC’S CLEARLY 

DELEGATED AUTHORITY.

ConocoPhillips dedicates only a few pages to its incorrect reading of the LOC 

Provision. Instead, it predominantly argues that other state and federal laws somehow invalidate 

the LOC Provision. They do not. ConocoPhillips’ arguments all must be considered in the 

context of the statute in which Congress granted the CFTC the authority to promulgate the LOC 

Provision in the first place – a statute that ConocoPhillips ignores in its opposition:

Notwithstanding Title 11, the [CFTC] may provide, with respect to 

a commodity broker that is a debtor under chapter 7 of Title 11, by 

rule or regulation . . . that certain cash, securities, other property or 

commodity contracts are to be included in or excluded from 

customer property. . . .

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 8 of 15
5

62141772_1

7 U.S.C. § 24(a)(1) (emphasis added). This delegation of authority to the CFTC to make rules 

about customer property in a FCM liquidation could not be more explicit. ConocoPhillips’ 

arguments that other, unrelated laws withdraw that authority should not be accepted.

A. The Bankruptcy Code Provisions Cited By ConocoPhillips Are Not 

Relevant To This Dispute.

ConocoPhillips argues that two Bankruptcy Code provisions – 11 U.S.C. 

§ 541(a)(1) and 11 U.S.C. § 766(f) – prohibit the LOC Provision as promulgated. They do no 

such thing. First, ConocoPhillips argues that, in the creation of the debtor’s estate under 

11 U.S.C. § 541(a)(1), the relevant analysis looks to the debtor’s state law property rights. In a 

typical bankruptcy, this is undoubtedly true. But this is a FCM liquidation. There is a separate 

subchapter of the Bankruptcy Code that governs such liquidations, particularly to address 

customer property. That important distinction shifts the question here to whether the LOCs are 

“customer property,” not whether they were property in which the pre-petition debtor had a state 

law property interest. 

The statutory definition of customer property supports this; it focuses not on the 

debtor’s interest but instead on whether or not the customer had a claim to the property. E.g., 11 

U.S.C. § 761(10)(A)(ii); 11 U.S.C. § 761(10)(B) (excluding from customer property any 

property to which the customer would not have a claim).2

 

2. See also H.R. Rep. No. 95-595, at 391 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6347 (explaining that the 

purpose of this subparagraph is to “[e]xclude[] property in a customer’s account that belongs to the commodity 

broker, such as a contract placed in the account by error, or cash due the broker for a margin payment that the 

broker has made”).

 Indeed, ConocoPhillips’ misplaced 

argument based on section 541(a) was advanced in the Madoff liquidation and rejected. See

SIPC v. Bernard L. Madoff Inv. Sec., LLC, 401 B.R. 629 (Bankr. S.D.N.Y. 2009), aff’d sub 

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 9 of 15
6

62141772_1

nom. Rosenman Family, LLC v. Picard, 420 B.R. 108 (S.D.N.Y. 2009), aff’d, 395 F. App’x 766 

(2d Cir. 2010).3

Second, ConocoPhillips argues that any draw down on the LOCs would have 

been unlawful and violated the “good market practice” reference in 11 U.S.C. § 766(f). But as 

we know, no “unlawful” draw down was ever contemplated. Had a Trustee draw been necessary 

– and one never was, as the Trustee reached interim or final agreement with all LOC customers –

the demand on the bank would have been accurate and clear that it was pursuant to CFTC 

regulation. It is difficult to fathom that, by following explicit CFTC instructions, the Trustee’s 

actions would fall outside good market practice. Indeed, “good market practice” as used in this 

statute has nothing to do with LOCs at all; rather, it was meant to prevent a trustee “from 

flooding a thin market with a large percentage of share in any one issue.” S. Rep. No. 95-989, at 

102 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5888.

B. The Legal Certainty For Bank Products Act Did Not Abrogate The 

LOC Provision.

ConocoPhillips argues that the Legal Certainty for Bank Products Act of 2000 

(“LCBPA”) abrogated the almost twenty-year-old LOC Provision, even though neither the 

LCBPA itself nor any of its legislative history mentions the LOC Provision at all. 

ConocoPhillips premises its argument on its contention that the LCBPA 

“unequivocally prohibits the CFTC from promulgating a rule that would alter the terms and 

characteristics of a letter of credit.” (Opp. Br. at 18.) This argument suffers from three flaws. 

First, the statute does not refer to altering the terms of a LOC. Rather it states that the CFTC 

 

3. Rosenman Family, LLC’s rejected argument is reproduced at Brief for Plaintiff-Appellant Rosenman Family, 

LLC, Rosenman Family, LLC v. Picard, 395 F. App’x. 766 (2d Cir. 2010) (No. 09-5296) (“[T]he SIPA statute 

is intended merely to create a priority class of creditors within the bankruptcy framework, and they are only 

entitled to property in which their broker had a legal or equitable interest.”)

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 10 of 15
7

62141772_1

“shall not exercise regulatory authority under the [CEA] with respect to” a series of traditional 

banking products like savings accounts, certificates of deposit, and LOCs. 7 U.S.C. § 27a(a)(1) 

(emphasis added). The most reasonable plain meaning of “regulatory authority under the 

[CEA]” is the CFTC’s well-known, historical, and thorough regulation of the commodity futures 

markets. (See CFTC Brief at 15.) A bank does not become subject to this extensive regulation 

simply by issuing a LOC any more than it does by loaning cash that could be used as margin.4

Second, ConocoPhillips overstates the effect of the LOC Provision when it argues 

that the provision alters the terms and characteristics of a LOC. The only effect that the LOC 

Provision has on a LOC is to bring its full proceeds into the customer property estate in a FCM

liquidation. It also notifies customers and banks how LOCs posted as margin for commodity 

futures trading will be treated in the event of a FCM liquidation: pro rata, exactly like all other 

forms of margin. 

Third, it is at the very least not clear and unambiguous that Congress intended in 

the LCBPA to abrogate the LOC Provision. Given this ambiguity, the CFTC’s interpretation –

as the agency charged with administering the statute – is highly persuasive. ConocoPhillips’

assertion that agency deference is only warranted when the agency’s interpretation has gone 

through formal notice and comment is simply not the law. See Kruse v. Wells Fargo Home 

Mortg., Inc., 383 F.3d 59, 59-61 (2d Cir. 2004); see also WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 

283-85 (2d Cir. 2012). Even the cases cited by ConocoPhillips support deference to the agency’s 

interpretation. See Conn. Office of Prot. & Advocacy for Persons with Disabilities v. Hartford 

Bd. of Educ., 464 F.3d 229, 239 (2d Cir. 2006) (deferring to agency’s interpretation under 

 

4. Legislative history supports this: Congress wanted to reiterate the existing state of the law by providing 

“certainty that products offered by banking institutions will not be regulated as futures contracts.” 146 Cong. 

Rec. 27237 (2000) (emphasis added); (see Trustee’s Mem. at 20-21; CFTC Br. at 14-15.)

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 11 of 15
8

62141772_1

Skidmore); Estate of Landers v. Leavitt, 545 F.3d 98, 106 (2d Cir. 2008) (“[L]ess formal, 

nonlegislative interpretations” are not “disqualified from receiving Chevron deference.”).

C. The U.C.C. Does Not Trump Federal Regulations. 

ConocoPhillips’ final “other laws” argument is that state contract law trumps the 

correct application of the CFTC regulation. But federal regulation in the commodity futures and 

bankruptcy fields is pervasive, and there is no question that the controlling rule is the federal one. 

First, ConocoPhillips argues that any CFTC interference with state laws 

governing LOCs is impermissible because Congress did not give the CFTC preemptive 

authority. (See Opp. Brief at 25.) There is no dispute that “[p]re-emption fundamentally is a 

question of congressional intent.” English v. Gen. Elec. Co., 496 U.S. 72, 78-79 (1990). Here, 

Congress’ intent that the CFTC promulgate rules governing what is and what is not customer 

property is clear. See 7 U.S.C. § 24(a)(1). With such an explicit grant of authority, Congress did 

not need to specifically mention the preemption of state laws, including U.C.C. provisions. 

Second, ConocoPhillips’ proposal that state law governs customer property 

conflicts with Congress’ stated intent to create a “cohesive policy for guidance” in a FCM 

liquidation. S. Rep. No. 95-989, at 7 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5793. 

ConocoPhillips is unable to cite a single case that limits the definition of customer property by 

reference to state law. Butner v. United States, the seminal bankruptcy case cited by 

ConocoPhillips, addressed the debtor’s interest in property, not customer property. See 440 U.S. 

48, 54-55 (1979). And even in that context, Butner recognized that an overriding federal interest 

would trump state law. See id.; see also SIPC v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff 

Sec.), 476 B.R. 715, 724-28 (S.D.N.Y. 2012) (citing to Butner and holding that “[n]either 

bankruptcy law nor state law require the Court to disregard SIPA . . .”).

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 12 of 15
9

62141772_1

Third, ConocoPhillips draws a false distinction between the LOC Provision and 

its accompanying Supplementary Information. Whether the Supplementary Information, 

standing alone, would have preemptive effect is not the question here. It is the regulation itself, 

properly interpreted, that must be given effect. And the only correct interpretation of the 

regulation is that, when a LOC is used to margin futures trading, the full value of that LOC 

becomes customer property in a FCM liquidation.5

III. CUSTOMER PROPERTY CANNOT DISAPPEAR WHEN LETTERS OF 

CREDIT EXPIRE.

ConocoPhillips’ final argument is that even if the LOCs were customer property, 

the property goes away when the LOCs expire. The resulting windfall would defeat the LOC 

Provision’s purpose and should not be expected by any customer. (See CFTC Brief at 24-25.) 

ConocoPhillips’ general premise that “when the contract expires, the right is lost,” does not 

address the treatment of LOCs-as-margin in a FCM liquidation; the LOC Provision does that. 

(Opp. Br. at 30.) And the LOC Provision does not make a “contract right” customer property; it 

directs that customer property includes a LOC’s “full proceeds.” 

As ConocoPhillips points out, the Supplementary Information (which 

ConocoPhillips otherwise urges the Court to ignore) contemplates that a trustee will draw on 

LOCs. But neither the regulation nor the Supplementary Information addresses what occurs if a 

LOC expires. To fill this gap, the Court should consider the economic reality of commodity 

futures margining, the LOC Provision’s purpose, and the CFTC’s interpretation. See In re 

Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 237-38 (2d Cir. 2011).

 

5. Because the regulation (and not just the Supplementary Information) is controlling here, Wyeth v. Levine is not 

relevant. 555 U.S. 555, 577-78 (2009). Wyeth is also distinguishable because the CFTC did provide a detailed 

and reasoned explanation of its consistent longstanding view, and that view is consistent with Congress’ 

purposes. See id.

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 13 of 15
10

62141772_1

First, the economic reality: LOCs and cash or other assets work the same way 

when used as margin. In either case, the customer is the ultimate source of the funds. For cash 

collateral customers, the cash is withdrawn from an account. For LOC customers like 

ConocoPhillips, the funds are initially drawn from the issuing bank, but that same day, 

ConocoPhillips would be obligated to reimburse the bank. See U.C.C. § 5-108(i)(1). If a LOC 

had expired pre-petition, ConocoPhillips would have been under-margined, and, just as with any 

other customer, additional margin would have been required. (See Trustee’s Mem. at 4.) Given 

the similarity pre-petition, there is no reason for different, more favorable treatment for LOCs 

post-petition. The expiration (or return) of a LOC is just like the return of any collateral, and it is 

subject to the same pro rata distribution principles. (See Trustee’s Mem. at 13-15.) 

Second, the LOC Provision’s goal is to ensure equitable treatment for customers 

posting margin regardless of form. (See supra section I.) If the customers posting LOCs can 

receive a windfall (i.e. the complete return of their margin in the event of an expiration) the 

purpose of the regulation is frustrated. (See CFTC Br. at 24-25.)

Finally, the CFTC made its interpretation of its regulations clear: the expiration 

of the LOCs does not affect their status as customer property. (See CFTC Br. at 24-25.) That 

interpretation is consistent with both the language and the purpose of the regulation, and it is 

entitled to deference. See Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2263 (2011)

(“[N]ovelty alone is not a reason to refuse deference.”); (See CFTC Br. at 20.)

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 14 of 15
For the foregoing reasons, the Trustee's determination of ConocoPhillips'laims

to customer accounts margined with LOCs should be confirmed.

Dated: December 3, 2012

New York, New York

HUGHES HUBBARD k REED LLP

i+ames B. Kobak, Js.

James C. Fitzpatrick

Anson B.Frelinghuysen

Marlena C. Frantzides

One Battery Park Plaza

New York, New York 10004

Telephone: (212) 837-6000

Facsimile: (212) 422-4726

Email: kobak@hugheshubbard.corn

Attorneys for James W. Giddens,

Trustee for the SIPA Liquidation of

MF Global Inc.

62141772 1

Case 1:12-cv-06014-KBF Document 41 Filed 12/03/12 Page 15 of 15