C.F.T.C. 

OFFICE OF THE SECRETARIAT 

2009 APR 9 Prl 3 26 

By Electronic Mail 

April 8, 2009 

Mr. David A. Stawick 

Secretary to the Commission 

Commodity Futures Trading Commission 

1155 21st Street, NW 

Washington DC 20581 

Katten 

KattenMuchinRosenman LLP 

525 W. Monroe Street 

Chicago, tl 60661-3693 

312.9b:2~52o6 let 

312.902.1061 fax 

ARTHUR W. HAHN 

arthur.hahn@ kattenlaw.com 

31_2.902.5241 direct 

312.5n.BB92 fax 

COMMENT 

Re: Proposed Rules for Acknowledgment Letters for Customer Segregated Funds and 

Secured AmountFunds-74 Fed.Reg. 7838 (February 20, 2009) 

Dear Mr. Stawick: 

Katten Muchin Rosenman LLP welcomes the opportunity to submit this letter in response to the 

Commodity Futures Trading Commission's ("Commission's") request for comments on the 

Commission's proposed amendments to Rules 1.20, 1.26 and 30.7. The proposed amendments 

would expand the specific representations that futures commission merchants ("FCMs"), 

derivatives clearing organizations ("DCOs"), banks and other permitted depositories 

(collectively, "Depositories"), which receive customer segregated funds or foreign secured 

amount funds (collectively, "customer funds") from an FCM, would be required to make in the 

acknowledgment letters prescribed under those rules. We support the purpose of the proposed 

amendments, which is to clarify, and require Depositories to acknowledge, the rights and 

obligations of Depositories holding customer funds. Nonetheless, we suggest below certain 

revisions with the intent of enhancing legal certainty, which is particularly essential in times of 

financial stress. 

If the Commission determines to promulgate final rules, we recommend that the Commission 

further amend Rules 1.20, 1.26 and 30.7 to require an FCM, in opening a account with a 

Depository, to include in the account opening agreement, an obligation on the Depository to 

release customer funds "immediately upon proper notice and instruction" from the FCM or the 

Commission. A Depository's relationship with a depositing FCM is governed in the first 

instance by the terms and conditions set forth in the contract between those two parties. 1 We are 

As discussed in more detail below, this contract may also provide that the Depository may advance monies 

to an FCM intra-day for the purpose of transferring cash to DCOs or meeting other obligations of the FCM's 

customers, including the investment of customer funds. The revised rules should confirm the rights of a Depository 

with respect to the obligations incurred to the Depository by an FCM on behalf of its customers. 

CHICAGO CHARLOTTE IRVING LONDON LOS ANGELES NEW YORK PALO ALTO WASHINGTON, DC WWW.KATTENLAW.COM 

LONDON AFFILIATE: KATTEN MUCHIN ROSENMAN CORNISH LLP 

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Mr. David A Stawick 

April 8, 2009 

Page2 

Katten 

KattenMuchinRosenman LLP 

concerned that, without the contractual obligation to act upon "proper notice" from the 

Commission, a Depository would be exposed to potential liability to its FCM customer, if the 

Depository were to honor the Commission's instruction without the express consent of the 

depositing FCM. This uncertainty could cause the Depository to delay acting upon the 

Commission instruction as it seeks clarification from a court. 

We note that the proposed amendments set no guidelines the Commission would follow or 

standards that would have to be met before the Commission, or the Director of Clearing and 

Intermediary Oversight by delegated authority, could issue an instruction to release customer 

funds. Without such guidelines or standards, we are concerned that any such instruction may be 

susceptible to challenge. 

We also recommend that the Commission establish a reasonable methodology for authentication 

so that a Depository can timely comply with an instruction from the Commission or a DCO in 

accordance with revised Rules 1.20(d)(l)(iv) and l.26(e)(l)(v). Especially in circumstances in 

which the Commission's instruction is provided orally, a Depository must be afforded a means to 

authenticate such instruction. Separately, we ask the Commission to confirm that, in the event an 

FCM files a petition for relief under the Bankruptcy Code, a Depository will have no obligation 

to release customer funds except upon the instruction of the Trustee in Bankruptcy or pursuant to 

the order of the Bankruptcy Court. 

Further, we request that the Commission provide additional guidance on a Depository's 

obligation to release customer funds "immediately" upon receipt of an instruction from the 

Commission, as proposed in Rules 1.20(d)(l)(iv) and 1.26(e)(l)(v). As the Commission 

recognized in the Federal Register release accompanying the proposed rules, procedures and 

time deadlines for compliance with any such instruction are market-driven and are not always 

within the control of the Depository. For example, while many transactions are settled at the end 

of the business day, redemptions of customer investments may be delayed in accordance with the 

terms of a fund's redemption requirements, the late receipt of an instruction, or aforce majeure 

event. The Commission may want to consider using the term "promptly" instead of 

"immediately." At the least, we suggest that the Commission make clear that a Depository will 

be deemed to have acted "immediately" if it releases customer funds as soon as reasonably 

practical and without undue delay following receipt of such notice. 

Finally, the proposed amendments to Rules 1.20(d)(l)(iii) and 1.26(e)(l)(iii) require the 

Depository to explicitly acknowledge that customer funds will not be subject to any right of setoff or lien for any obligations of the FCM. Although we generally agree with the principle 

underlying this requirement, we believe the revised rules should confirm the rights of a 

Depository with respect to the obligations incurred to the Depository by ah FCM on behalf of its 

customers. 
Mr. David A. Stawick 

April 8, 2009 

Page3 

Katten 

KattenMuchinRosenman LLP 

Depositories frequently contract with an FCM deposit9r to advance monies to the FCM intraday, with the understanding that the FCM will deposit in the customer segregated account prior 

to the end of the business day (or by the start of the next business day), sums sufficient to repay 

the advance? Advances are made in the ordinary course of business, for example, to satisfy 

margin, premium, settlement or other obligations of the FCM's customers to a DCO, or to 

purchase permitted investments under Commission Rule 1.25. In these circumstances, we ask 

the Commission to confirm that, upon receipt of a Commission instruction to release customer 

funds to another Depository, the initial Depository may withhold the amount of any such 

advance that has not been repaid. More generally, we request the Commission to confirm that, in 

the event the FCM fails to repay the funds advanced by the end of the business day (or by the 

start of the next business day), or in the event of the FCM's bankruptcy, a Depository is entitled 

to recourse against the customer funds account for the amount of such funds advanced. 

Thank you again for the opportunity to submit these comments. If any member of the 

Commission or its staff has any questions concerning our comments, please feel free to contact 

me at312.902.5241. 

Respectfully submitted, 

cc: Honorable Michael Dunn, Acting Chairman 

Honorable Walter Lukken, Commissioner 

Honorable Jill E. Sommers, Commissioner 

Honorable Bart Chilton, Commissioner 

Division of Clearing and Intermediary Oversight 

Ananda K. Radhakrishnan, Director 

Eileen A. Donovan, Special Counsel 

Advances are repaid either by the sale of securities held in the customer funds account at the Depository or 

by a deposit received from a customer funds account held at another Depository or from the FCM's own account.