Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Q & A – Protection of Cleared Swaps Customer Contracts and Collateral 

What is the goal of the proposed rulemaking? 

The goal of the proposed rules is to implement Section 724 of the Dodd-Frank Act, which prescribes the manner that 

cleared swaps (and related collateral) must be treated prior to and after bankruptcy. Section 724(a) amends the CEA by 

inserting a new section 4d(f), which imposes the following requirements on FCMs and depositories (including DCOs): 

1. FCMs must treat and deal with all cleared swaps customer collateral (including accruals thereon) deposited by a 

customer to margin its cleared swaps as belonging to such customer; 

2. FCMs may not commingle cleared swaps customer collateral (including accruals thereon) with its own property 

and may not, with certain exceptions, use such collateral to margin the cleared swaps of any person other than 

the customer depositing such collateral; and 

3. DCOs may not hold or dispose of customer collateral that an FCM deposits as belonging to the FCM or any 

person other than the customer. 

Section 724(b) governs the bankruptcy treatment of cleared swaps (and associated collateral) by clarifying that cleared 

swaps are “commodity contracts” within the meaning of section 761(4)(F) of the Bankruptcy Code, and that associated 

collateral, when deposited by customers, would be subject to the protections of Subchapter IV of Chapter 7 of the 

Bankruptcy Code and Commission Regulation Part 190 (Bankruptcy Rules). 

What stakeholders may be affected by the proposed regulations 

Swaps customers, futures commission merchants, and derivatives clearing organizations are likely to be affected by these 

proposed rules. 

By when must responses to the request for comments be submitted? 

Comments on the proposed rules must be submitted within sixty (60) days of the publication of such rules in the Federal 

Register. 

What model is the Commission proposing? 

After considering comments that it received, the Commission is proposing a model entitled “Complete Legal 

Segregation” (referred to in the ANPR as the “Legal Segregation with Commingling” model). This model would allow 

the collateral of all of an FCM’s swaps customers to be kept together pre-bankruptcy in one account. But, in the event 

of a default by a clearing member of both an FCM and one or more of its cleared swaps customers, a DCO would not 

have recourse to the collateral posted by non-defaulting customers. The DCO would only have recourse against the 

collateral of the defaulting customers of that clearing member (as well as resources of the clearing member itself). 

Under the Complete Legal Segregation Model must an FCM’s swaps customer accounts be 

segregated pre-bankruptcy? 

The Complete Legal Segregation Model requires that swaps customer collateral be segregated from the FCM’s own 

property, but permits the cleared swaps collateral of all FCM customers to be kept together pre-bankruptcy in one 

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 
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Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

account. The proposed rules, to the extent applicable, parallel (in updated language) the regulations governing the 

segregated accounts in which FCMs currently hold futures customer collateral pre-bankruptcy. 

Are any other models being considered? 

Yes. Because the Commission is still evaluating the costs and benefits associated with the Complete Legal Segregation 

Model, the Commission is also considering a model entitled Legal Segregation with Recourse (referred to in the ANPR 

as the “Moving Customers to the Back of the Waterfall” model), in which the DCO would have recourse to collateral 

posted by non-defaulting customers of the defaulting FCM clearing member, but only after exhausting its own 

contribution to its default resources, as well as the guaranty fund contributions of non-defaulting clearing members. In 

addition, the Commission is seeking additional comment on the Futures Model (referred to in the ANPR as the 

“Baseline Model”) and a number of Optional Approaches (namely, permitting clearing organizations to choose between 

models). 

Does this rulemaking affect futures? 

None of the segregation provisions in Part 22 have any effect on segregation for exchange-traded futures. Some of the 

technical changes to Part 190, however, will affect both swaps and futures, but only with respect to an FCM in 

bankruptcy. 

What types of investments does the Commission propose to permit for cleared swaps customer 

collateral? 

The proposed rules provide that cleared swaps customer collateral may only be invested pursuant to Commission 

Regulation1.25 (as it may be amended from time to time), which governs investment of customer property of futures 

customers. The proposed regulations do not, however, limit the types of collateral that a customer may post. 

How did the Commission evaluate the costs and benefits of the proposal? 

The proposed rule contains an analysis of the costs and benefits of each model described in the ANPR. This analysis 

incorporates estimates and observations regarding costs and benefits found in the comments that the Commission 

received to the ANPR. Because the Commission is still considering these costs and benefits, the proposal requests 

additional information on the costs and benefits of the Complete Legal Segregation Model, the Legal Segregation with 

Recourse Model, the Futures Model, and the Optional Approaches. 

What other matters do the proposed rules address? 

The Commission is proposing amendments to its Regulation Part 190 to implement changes wrought by the DoddFrank Act, including the inclusion of swaps cleared with a DCO as customer contracts for all commodity brokers, the 

inclusion of swaps execution facilities as a category of trading venue, and additional conforming changes to time periods. 

The proposed rules also include changes to conform Regulation Part 190 to current swaps market practices. 

When will final rules implementing the requirements of the statute be published? 

The Commission will consider the comments promptly after the deadline for responses closes, and will expeditiously 

move to publish final rules.