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[CODE]

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 190

RIN 3038-AE67

Part 190 Bankruptcy Regulations

AGENCY: Commodity Futures Trading Commission.

ACTION: Final Rule.

SUMMARY: The Commodity Futures Trading Commission (the “Commission”) is 

amending its regulations governing bankruptcy proceedings of commodity brokers in part 

190. The amendments are meant to comprehensively update part 190 to reflect current 

market practices and lessons learned from past commodity broker bankruptcies. 

DATES: Effective date: The effective date for this final rule is [INSERT DATE 30 

DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].

The compliance date for § 1.43 is [INSERT DATE 1 YEAR AFTER DATE OF 

PUBLICATION IN THE FEDERAL REGISTER], for all letters of credit accepted,

and customer agreements entered into, by a futures commission merchant prior to 

[INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL 

REGISTER].

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Chief Counsel

and Senior Advisor, 202-418-5092, rwasserman@cftc.gov, Ward P. Griffin, Senior 

Special Counsel, 202-418-5425, wgriffin@cftc.gov, Jocelyn Partridge, 202-418-5926, 

jpartridge@cftc.gov, Abigail S. Knauff, 202-418-5123, aknauff@cftc.gov, Division of 
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Clearing and Risk; Commodity Futures Trading Commission, Three Lafayette Centre, 

1155 21st Street, NW, Washington, DC 20581. 

Table of Contents

I. Background

A. Background of the NPRM

B. Major Themes in the Revisions to Part 190

II. Finalized Regulations

A. Subpart A—General Provisions

1. Regulation 190.00: Statutory Authority, Organization, Core Concepts, Scope, 

and Construction

2. Regulation 190.01: Definitions

3. Regulation 190.02: General

B. Subpart B—Futures Commission Merchant as Debtor

1. Regulation 190.03: Notices and Proofs of Claims

2. Regulation 190.04: Operation of the Debtor’s Estate—Customer Property

3. Regulation 190.05: Operation of the Debtor’s Estate—General

4. Regulation 190.06: Making and Taking Delivery under Commodity Contracts

5. Regulation 190.07: Transfers

6. Regulation 190.08: Calculation of Funded Net Equity

7. Regulation 190.09: Allocation of Property and Allowance of Claims

8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants 

During Business as Usual

C. Subpart C—Clearing Organization as Debtor

1. Regulation 190.11: Scope and Purpose of Subpart C

2. Regulation 190.12: Required Reports and Records

3. Regulation 190.13: Prohibition on Avoidance of Transfers

4. Regulation 190.14: Operation of the Estate of the Debtor Subsequent to the 

Filing Date

5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules and 

Procedures

6. Regulation 190.16: Delivery

7. Regulation 190.17: Calculation of Net Equity

8. Regulation 190.18: Treatment of property

9. Regulation 190.19: Support of Daily Settlement

D. Appendix A Forms
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E. Appendix B Forms

F. Technical Corrections to Other Parts

1. Part 1

2. Part 4

3. Part 41

G. Additional Comments

H. Supplemental Proposal

III. Cost-Benefit Considerations

A. Introduction

1. Baseline

2. Overarching Concepts

a. Changes to Structure of Industry

b. Trustee Discretion

c. Cost Effectiveness and Promptness versus Precision

d. Unique Nature of Bankruptcy Events

e. Administrative Costs are Costs to the Estate, and Often to the Customers

f. Preference for public customers over non-public customers and for both over 

general creditors.

B. Subpart A—General Provisions

1. Regulation 190.00: Statutory Authority, Organization, Core Concepts, Scope, 

and Construction: Consideration of Costs and Benefits

2. Regulation 190.01: Definitions: Consideration of Costs and Benefits

3. Regulation 190.02: General: Consideration of Costs and Benefits

4. Section 15(a) Factors—Subpart A

C. Subpart B—Futures Commission Merchant as Debtor

1. Regulation 190.03: Notices and Proofs of Claims: Consideration of Costs and 

Benefits

2. Regulation 190.04: Operation of the Debtor’s Estate—Customer Property: 

Consideration of Costs and Benefits

3. Regulation 190.05: Operation of the Debtor’s Estate—General: Consideration 

of Costs and Benefits

4. Regulation 190.06: Making and Taking Delivery Under Commodity 

Contracts: Consideration of Costs and Benefits

5. Regulation 190.07: Transfers: Consideration of Costs and Benefits

6. Regulation 190.08: Calculation of Funded Net Equity: Consideration of Costs 

and Benefits

7. Regulation 190.09: Allocation of Property and Allowance of Claims: 

Consideration of Costs and Benefits
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8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants 

during Business as Usual: Consideration of Costs and Benefits

9. Section 15(a) Factors—Subpart B

D. Subpart C—Clearing Organization as Debtor

1. Regulation 190.11: Scope and Purpose of Subpart C: Consideration of Costs 

and Benefits

2. Regulation 190.12: Required Reports and Records: Consideration of Costs and 

Benefits

3. Regulation 190.13: Prohibitions on Avoidance of Transfers: Consideration of 

Costs and Benefits

4. Regulation 190.14: Operation of the Estate of the Debtor Subsequent to the 

Filing Date: Consideration of Costs and Benefits

5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules and 

Procedures: Consideration of Costs and Benefits

6. Regulation 190.16: Delivery: Consideration of Costs and Benefits

7. Regulation 190.17: Calculation of Net Equity: Consideration of Costs and 

Benefits

8. Regulation 190.18: Treatment of Property: Consideration of Costs and 

Benefits

9. Regulation 190.19: Support of Daily Settlement: Consideration of Costs and 

Benefits

10. Section 15(a) Factors—Subpart C

E. Changes to Appendices A and B

F. Technical Corrections to Parts 1, 4, and 41

IV. Related Matters

A. Antitrust Considerations

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

1. Reporting Requirements in an FCM Bankruptcy

2. Recordkeeping Requirements in an FCM Bankruptcy

3. Third-Party Disclosure Requirements Applicable to a Single Respondent in an 

FCM Bankruptcy

4. Reporting Requirements in a DCO Bankruptcy

5. Recordkeeping Requirements in a DCO Bankruptcy

6. Third-Party Disclosure Requirements Applicable to a Single Respondent in a 

DCO Bankruptcy

7. Third-Party Disclosure Requirements Applicable to Multiple Respondents 

During Business as Usual
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I. Background

A. Background of the NPRM

The basic structure of the Commission’s bankruptcy regulations, part 190 of title 

17 of the Code of Federal Regulations, was proposed in 1981 and finalized in 1983. In 

April of this year, the Commission proposed a comprehensive revision of part 190 (the 

“Proposal”),1 and in September of this year, the Commission issued a supplemental 

proposal (the “Supplemental Proposal”)2 addressing a particular issue involving the 

interaction between bankruptcy and resolution of a clearing organization pursuant to Title 

II of the Dodd-Frank Wall Street Reform and Consumer Protection Act3 (hereinafter, 

“Title II” and “Dodd-Frank”). 

The Commission is revising part 190 comprehensively in light of several major 

changes to the industry over the 37 years since part 190 was first finalized. These 

changes include exponential growth in the speed of transactions and trade processing, 

important lessons learned over prior bankruptcies, and the increased importance of 

derivatives clearing organizations (“DCOs”) to the financial system.

In promulgating these rules, the Commission is exercising its broad power under 

the Commodity Exchange Act (“CEA” or “Act”) to make regulations with respect to 

commodity broker debtors. Specifically, section 20(a) states:

Notwithstanding title 11, the Commission may provide, with respect to a

commodity broker that is a debtor under chapter 7 of title 11, by rule or

regulation –

 1 85 FR 36000 (June 12, 2020).

2 85 FR 60110 (Sept. 24, 2020).

3 P.L. 111-203 (July 21, 2010).
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1) that certain cash,securities, other property, or commodity

contracts are to be included in or excluded from customer property

or member property;

2)that certain cash,securities, other property, or commodity

contracts are to be specifically identifiable to a particular customer

in a specific capacity;

3)the method by which the business of such commodity broker is to

be conducted or liquidated after the date of the filing of the petition

undersuch chapter, including the payment and allocation of margin

with respect to commodity contracts notspecifically identifiable to 

a particular customer pending their orderly liquidation;

4) any persons to which customer property and commodity

contracts may be transferred under section 766 of title 11; and

5) how the net equity of a customer is to be determined.4

In developing this rulemaking, the Commission benefited from outside 

contributions. In particular, the Proposal benefited from a thoughtful and detailed model 

set of part 190 rules submitted by the Part 190 Subcommittee of the Business Law Section 

of the American Bar Association (“ABA Subcommittee”).

5 In addition, and as discussed 

further below, the Commission benefited from thoughtful, analytical, and detailed public 

comments submitted in response to the Proposal and Supplemental Proposal.

B. Major Themes in the Revisions to Part 190

The major themes in the revisions to part 190 include the following:

1) The Commission is adding § 190.00, which sets out the statutory 

authority, organization, core concepts, scope, and rules of construction for part 

 4 See CEA section 20(a), 7 U.S.C. 24(a).

5

The submission by the ABA Subcommittee cautioned that “[t]he views expressed in this letter, and the 

proposed Model Part 190 Rules, are presented on behalf of the [ABA Subcommittee]. They have not been 

approved by the House of Delegates or Board of Governors of the ABA and, accordingly, should not be 

construed as representing the policy of the ABA. In addition, they do not represent the position of the ABA 

Business Law Section, nor do they necessarily reflect the views of all members of the Committee.”
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190. More generally, this section sets out, after notice and comment rulemaking, 

the Commission’s thinking and intent regarding part 190 in order to benefit and to 

enhance the understanding of DCOs, FCMs, their customers, trustees,6 and the 

public at large.

2) Some of the provisions support the implementation of the 

requirements, established consistent with section 4d of the CEA, that shortfalls in 

segregated property should be made up from the FCM’s general assets, while 

others further the preferences, arising from both title 11 of the United States Code 

(i.e., the “Bankruptcy Code”), section 766(h), and Commission policy, that with 

respect to customer property, public customers are favored over non-public 

customers, and that public customers are entitled inter se to a pro rata distribution 

based on their respective claims.

3) Other provisions foster the longstanding and continuing policy 

preference for transferring (as opposed to liquidating) positions of public 

customers and those customers’ proportionate share of associated collateral.7

4) The Commission is promulgating a new subpart C to part 190, 

governing the bankruptcy of a clearing organization. In doing so, the Commission 

is establishing ex ante the approach to be taken in addressing such a bankruptcy, in 

order to foster prompt action in the event such a bankruptcy occurs, and in order to 

establish a more clear counterfactual (i.e., “what would creditors receive in a 

 6 Including bankruptcy and SIPA trustees, as well as the FDIC in its role as a receiver.

7 This policy preference is manifest in section 764(b) of the Bankruptcy Code, 11 U.S.C. 764(b) (protecting 

from avoidance transfers approved by the Commission up to seven days after the order for relief), and in 

current § 190.02(e).
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liquidation in bankruptcy?”) in the event of a resolution of a clearing organization 

pursuant to Title II of Dodd-Frank.

8

 The Commission’s approach toward a DCO 

bankruptcy is characterized by three overarching concepts: 

a. First, the trustee should follow, to the extent practicable and 

appropriate, the DCO’s pre-existing default management rules and 

procedures and recovery and wind-down plans that have been submitted to 

the Commission. These rules, procedures, and plans will, in most cases,9

have been developed pursuant to the Commission’s regulations in part 39, 

and subject to staff oversight. This approach relieves the trustee of the 

burden of developing, in the moment, models to address an extraordinarily 

complex situation. It would also enhance the clarity of the counterfactual 

for purposes of resolution under Title II. However, as discussed further

below, such plans are not rigid formulae. Moreover, the Commission’s 

approach gives the trustee discretion in following those plans. 

Accordingly, the approach seeks to balance advance planning with 

flexibility to tailor the implementation to the specific circumstances. 

b. Second, resources that are intended to flow through to 

members as part of daily settlement (including both daily variation 

 8 Section 210(d)(2), 12 U.S.C. 5390(d)(2), provides that the maximum liability of the FDIC, acting as a 

receiver for a covered financial company in a resolution under Title II, is the amount the claimant would 

have received if the FDIC had not been appointed receiver and the covered financial company had instead 

been liquidated under chapter 7 of the Bankruptcy Code. Thus, in developing resolution strategies for a 

DCO while mitigating claims against the FDIC as receiver, it is important to understand what would happen 

if the DCO was instead liquidated pursuant to chapter 7 of the Bankruptcy Code (and this part 190), and 

such a liquidation is the counterfactual to resolution of that DCO under Title II. 

9 Only those DCOs that are subject to subpart C of part 39 (i.e., those that have been designated as 

systemically important by the FSOC or that have elected to be subject to subpart C of part 39) are subject to 

§ 39.35 (default rules and procedures) and § 39.39 (recovery and wind-down plans).
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payments and default resources) are devoted to that purpose, rather than to 

the general estate.10

c. Third, other provisions draw, with appropriate adaptations, 

from provisions applicable to FCMs.11

5) The Commission is noting the applicability of part 190 in the 

context of proceedings under the Securities Investors Protection Act (“SIPA”) in 

the case of FCMs subject to a SIPA proceeding,12 and Title II of Dodd-Frank in the 

case of a commodity broker where the Federal Deposit Insurance Corporation 

(“FDIC”) is acting as a receiver. 

6) The Commission is enacting changes to the treatment of letters of 

credit as collateral, both during business as usual and during bankruptcy, in order 

to ensure that, consistent with the pro rata distribution principle, customers who 

post letters of credit as collateral suffer the same proportional loss as customers 

who post other types of collateral.

7) The Commission is granting trustees enhanced discretion, based on 

both practical necessity and positive experience. 

a. Recent commodity broker bankruptcies have involved many 

thousands of customers, with as many as hundreds of thousands of 

commodity contracts. Trustees must make decisions as to how to handle 

such customers and contracts in the days—in some cases, the hours—after 

 10 See generally § 190.19.

11 See, e.g., §§ 190.16, 190.17(c).

12 Those would be FCMs that are also registered as broker-dealers with the Securities and Exchange 

Commission. See generally SIPA, 15 U.S.C. 78aaa et seq.
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being appointed. Moreover, each commodity broker bankruptcy has 

unique characteristics, and bankruptcy trustees need to adapt 

correspondingly quickly to those unique characteristics. 

i. In order to foster the ability of the trustee to operate effectively, 

some of the changes would permit the trustee enhanced 

discretion generally.

ii. Others, recognizing the difficulty in treating large numbers of 

public customers on a bespoke basis, would permit the trustee to 

treat public customers on an aggregate basis. These changes 

represent a move from a model where the trustee receives and 

complies with instructions from individual public customers, to 

a model—reflecting actual practice in commodity broker 

bankruptcies in recent decades—where the trustee transfers as 

many open commodity contracts as possible on an omnibus 

basis.

b. These grants of discretion are also supported by the 

Commission’s positive experience working in cooperation and consultation 

with bankruptcy and SIPA trustees.

c. On a related note, and as discussed further as the third 

overarching concept in the section below on cost-benefit considerations,13

part 190 favors cost effectiveness and promptness over precision in certain 

respects, particularly with respect to the concept of pro rata treatment. 

 13 See the overarching concept discussed in section III.A.2.c below.
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Following the policy choice made by Congress in section 766(h) of the 

Bankruptcy Code, the Commission’s policy is that it is more important to 

be cost effective and prompt in the distribution of customer property (i.e., 

in terms of being able to treat customers as part of a class) than it is to 

value each customer’s entitlements on an individual basis. The 

Commission believes that this approach would lead to (1) in general, a 

faster administration of the proceeding, (2) customers receiving their share 

of the debtor’s customer property more quickly, and (3) a decrease in 

administrative costs (and thus, in case of a shortfall in customer property, a 

greater return to customers).

8) Many of the changes are intended to update part 190 in light of 

changes to the regulatory framework over the past three decades, including crossreferences to other Commission regulations. Some of these codify actual practice 

in prior bankruptcies, such as a requirement that an FCM notify the Commission of 

its imminent intention to file for voluntary bankruptcy. In another case, the 

Commission is addressing for the first time the interaction between part 190 and 

recent revisions to the Commission’s customer protection rules.14

9) Other changes follow from changes to the technological ecosystem, 

in particular changes from paper-based to electronic-based means of 

communication and recording, (for example, the use of communication to 

customers’ electronic addresses rather than by paper mail, as well as the use of 

websites as a means for the trustee to communicate with customers on a regular 

 14 78 FR 68506 (Nov. 14, 2013). This refers to § 190.05(f) in section II.B.3 below.
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basis). The proposal would also recognize the change from paper-based to 

electronic recording of “documents of title.” Many of these changes also 

recognize the actual practice in prior bankruptcies. 

10) Finally, many of the changes are intended to clarify language in 

existing regulations, without any intent to change substantive results. While some 

of these changes will, as discussed below, address ambiguities that have 

complicated past bankruptcies, this comprehensive revision of part 190 has also 

provided opportunities to clarify language in order to avoid future ambiguities, and 

to add provisions to address circumstances that have not yet arisen, in order to 

accomplish better and more reliably the goals of promptly and cost-effectively 

resolving commodity broker bankruptcies while mitigating systemic risk and 

protecting the commodity broker’s customers.

The Commission invited comments on all aspects of the proposed rulemaking and 

received a total of 16 substantive comment letters in response.15 The comments generally 

supported the adoption of revisions to part 190, though several provided suggestions as to 

particular elements of the proposal that should be modified, clarified, deleted, or otherwise 

 15 The Commission received comment letters submitted by the following: American Council of Life Insurers 

(ACLI); Better Markets, Inc. (Better Markets); Cboe Global Markets, Inc. (CBOE); CME Group Inc. 

(CME); Commodity Markets Council (CMC); Futures Industry Association (FIA); Investment Company 

Institute (ICI); Intercontinental Exchange Inc. (ICE); International Swaps and Derivatives, Inc. (ISDA); 

LCH Group (LCH); National Grain and Feed Association (NGFA); Options Clearing Corporation (OCC); 

Part 190 Subcommittee of the Business Law Section of the American Bar Association (ABA 

Subcommittee); Securities Industry and Financial Markets Asset Management Group and Managed Funds 

Association (SIFMA AMG / MFA); ); Kathryn Trkla; Geoffrey Goodman; and Vincent Lazar, as individuals 

(Subcommittee Members), and Vanguard Group, Inc. (Vanguard).
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improved. The Commission has adopted many, though not all, of these suggestions, and 

in some cases has sought to address the concerns raised through alternative drafting.16

II. Finalized Regulations

In the discussion below, the Commission highlights topics of interest to 

commenters and discusses comment letters that are representative of the views expressed 

on those topics. The discussion does not explicitly respond to every comment submitted; 

rather, it addresses important issues raised by the proposed rulemaking and analyzes those 

issues in the context of specific comments. 

A. Subpart A—General Provisions17

The Commission is adopting as subpart A (§§ 190.00-190.02) general provisions 

to address both debtors that are both FCMs and debtors that are DCOs. 

1. Regulation 190.00: Statutory Authority, Organization, Core 

Concepts, Scope, and Construction

The Commission is adopting § 190.00 as proposed with the addition of 

§ 190.00(c)(3)(i)(C) and the modification to § 190.00(d)(3)(v), as set forth below. The 

Commission is adopting § 190.00 to set forth general provisions that state facts and 

concepts that exist in the Commission’s bankruptcy regulations. It is applicable to all of 

part 190. The Commission’s intent is to assist trustees, bankruptcy courts, customers, 

clearing members, clearing organizations, and other interested parties in understanding the 

 16 The Commission also issued the Supplemental Proposal, which withdrew proposed §§ 190.14(b)(2) and 

(3), and proposed an alternative. The Commission received 5 substantive comment letters in response, each 

of which was from an entity that had also submitted a comment letter on the Proposal. For the reasons 

discussed in section II.H below, the Commission is not adopting the Supplemental Proposal.

17 The Commission is adopting the proposed technical corrections and updates to parts 1, 4, and 41, which 

are discussed in section II.F. below. Moreover, as discussed in section II.B.8, parts of proposed § 190.10 are 

being adopted, but codified in part 1.
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Commission’s rationale for, and intent in promulgating, the specific provisions of part 

190. The Commission also believes that the regulation may be particularly useful in a 

time of crisis for those individuals who may not have extensive experience with the CEA 

or Commission regulations. 

The Commission requested comment with respect to all aspects of proposed 

§ 190.00. The Commission also raised specific questions as to whether a regulation 

setting forth core concepts would be useful; whether the core concepts were under or over 

inclusive; and whether the definitions and discussions for each core concept would be 

helpful. The Commission received several comments expressing support for various 

aspects of proposed § 190.00, including comments from SIFMA AMG / MFA, CME, and 

the ABA Subcommittee. CME noted in particular that it believed that the regulation “may 

prove particularly useful to a trustee who has little experience with the CEA or the 

Commission’s customer funds segregation rules, as they try to get ‘up to speed’ in the 

critical early hours and days following the trustee’s appointment when the trustee is 

expected to act quickly on various matters.” 

The Commission is adopting § 190.00(a) to set forth the Commission’s statutory 

authority to adopt the proposed part 190 regulations under section 8a(5) of the CEA, 

which empowers the Commission to make and promulgate such rules and regulations as 

are necessary to effectuate any of the provisions or to accomplish any of the purposes of 

the CEA, and section 20 of the CEA, which provides that the Commission may, 

notwithstanding the Bankruptcy Code, adopt certain rules or regulations governing a 

proceeding involving a commodity broker that is a debtor under subchapter IV of chapter 

7 of the Bankruptcy Code. The Commission received comments from CME and the ABA 
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Subcommittee specifically supporting the inclusion of an explanation of the Commission’s 

authority to adopt the part 190 regulations in § 190.00. 

The Commission is adopting § 190.00(b) to explain that the part 190 regulations 

are organized into three subparts. Subpart A contains general provisions applicable in all 

cases. Subpart B contains provisions that apply when the debtor is an FCM, the definition 

of which includes acting as a foreign FCM.18 Subpart C contains provisions that apply 

when the debtor is a DCO, as defined by the CEA. The Commission received comments 

from the ABA Subcommittee, CME, and ICI in support of the reorganization of part 190. 

The Commission is adopting § 190.00(c) to set forth the core concepts19 of part 

190 that are central to understanding how a commodity broker bankruptcy works. These 

include concepts related to commodity brokers and commodity contracts, account classes,

public customers and non-public customers, Commission segregation requirements,

member property,

20 porting of public customer commodity contract positions, pro rata

distribution, and deliveries.

The Commission is adopting § 190.00(c)(1) to explain that subchapter IV of 

chapter 7 of the Bankruptcy Code applies to a debtor that is a “commodity broker,” the 

definition of which requires a “customer.”21 Paragraph § 190.00(c)(1) states that the 

 18 See CEA § 1a(28), 7 U.S.C. 1a(28). The definition of foreign FCM involves soliciting or accepting orders 

for the purchase or sale of a commodity for future delivery executed on a foreign board of trade, or by 

accepting property or extending credit to margin, guarantee or secure any trade or contract that results from 

such a solicitation or acceptance. See section 761(12) of the Bankruptcy Code, 11 U.S.C. 761(12).

19 The Commission is using to use the term “core concepts” to avoid confusion with the core principles 

applicable to registered entities. Cf. CEA § 5b(c)(2), 7 U.S.C. 7a-1(c)(2). 

20 “Member property” is defined in § 190.01 and will be used to identify cash, securities, or property 

available to pay the net equity claims of clearing members based on their house account at the clearing 

organization. Cf. 11 U.S.C. 761(16).

21 See 11 U.S.C. 101(6) (definition of “commodity broker”), 761(9) (definition of “customer” referred to in 

101(6)).
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regulations in part 190 apply to commodity brokers that are FCMs as defined by the Act, 

or DCOs as defined by the Act. 

The Commission is adopting § 190.00(c)(2) to explain that the CEA and 

Commission regulations provide separate treatment and protections for different types of 

cleared commodity contracts or account classes. The four account classes include the 

(domestic) futures account class (including options on futures),22 the foreign futures 

account class (including options on foreign futures),23 the cleared swaps account class for 

swaps cleared by a registered DCO (including cleared options other than options on 

futures or foreign futures), 24 and the delivery account class for property held in an account 

designated as a delivery account. Delivery accounts are used for effecting delivery under 

commodity contracts that provide for settlement via delivery of the underlying when a 

commodity contract is held to expiration or, in the case of an option on a commodity, is 

exercised.25

The Commission is adopting § 190.00(c)(3)(i) to prescribe the separate treatment 

of “public customers” and “non-public customers,” as defined in § 190.01, within each 

account class in the event of a proceeding in which the debtor is an FCM. It explains that,

in a bankruptcy, public customers are generally entitled to a priority distribution of cash, 

securities, or other customer property over “non-public customers,” and both are given a 

priority over all other claimants (except for claims relating to the administration of 

 22 This corresponds to segregation pursuant to section 4d(a) of the CEA, 7 U.S.C. 6d(a).

23 This corresponds to segregation pursuant to § 30.7 (enacted pursuant to section 4(b)(2)(A) of the CEA, 7 

U.S.C. 6(b)(2)(A).

24 This corresponds to segregation pursuant to section 4d(f) of the CEA, 7 U.S.C. 6d(f).

25 Delivery accounts are discussed further below in, e.g., §§ 190.00(c)(6), 190.01 (definition of delivery 

account, cash delivery property, physical delivery property) and 190.06.
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customer property) pursuant to section 766(h) of the Bankruptcy Code.26 The 

Commission is adopting § 190.00(c)(3)(ii) to address the division of customer property 

and member property in proceedings in which the debtor is a clearing organization. In 

such a proceeding, customer property consists of member property, which is distributed to 

pay member claims based on members’ house accounts, and customer property other than 

member property, which is reserved for payment of claims for the benefit of members’ 

public customers. The Commission is adopting § 190.00(c)(3)(iii) to address the 

preferential assignment of property among customer classes and account classes in 

clearing organization bankruptcies. Certain customer property, as specified in 

§ 190.18(c), will be preferentially assigned to “customer property other than member 

property” (i.e., property for the public customers of members) instead of “member 

property” to the extent that there is a shortfall in funded balances for members’ public 

customer claims. To the extent that there are excess funded balances for members’ claims 

in any customer class/account class combination, that excess will also be assigned 

preferentially to “customer property other than member property” for other account 

classes to the extent of any shortfall in funded balances for members’ public customer 

claims in such account classes. Where property will be assigned to a particular customer 

 26 Section 766(h) of the Bankruptcy Code explicitly states that:

the trustee shall distribute property ratably to customers ... in priority to all other claims, except 

claims ... that are attributable to the administration of customer property. ... Notwithstanding any 

other provision of this subsection, a customer net equity claim based on a proprietary account ... 

may not be paid either in whole or in part, directly or indirectly, out of customer property unless all 

other customer net equity claims have been paid in full.” 

Thus, all customer property will be allocated to public customers so long as the funded balance in any 

account class for public customers is less than one hundred percent of public customer net equity claims. 

Once all account classes for public customers are fully funded (i.e., at one hundred percent of net equity 

claims), any excess will be allocated to non-public customers’ net equity claims until all of those are fully 

funded. 
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class with more than one account class, it will be assigned on a least funded to most 

funded basis among the account classes.

The Commission is adopting § 190.00(c)(4) to explain that, in a proceeding in 

which the debtor is an FCM, part 190 details the policy preference for transferring to 

another FCM (commonly known as “porting”), the open commodity contract positions of 

the debtor’s customers along with all or a portion of such customers’ account equity.27

The Commission is adopting § 190.00(c)(5) to address pro rata distribution. It 

explains that, if the aggregate value of customer property in a particular account class is 

less than the amount needed to satisfy the net equity claims of public customers in that 

account class (i.e., there is a “shortfall”), customer property in that account class will be 

distributed pro rata to those public customers. The pro rata distribution principle carries 

forth the statutory direction in section 766(h) of the Bankruptcy Code. It ensures that all 

public customers within an account class will suffer the same proportional loss, including 

those public customers that post as collateral letters of credit or specifically identifiable 

property.28 Any customer property that is not attributable to any particular account class 

or which is in excess of public customer net equity claims for the account class to which it 

is attributed, will be distributed to public customers in respect of net equity claims in other 

 27 Transfer or porting of customer positions mitigates risks to both the customers of the debtor FCM and to 

the markets. Specifically, porting (rather than the alternative, liquidation) of customer positions protects 

customers’ hedges from changes in value between the time they are liquidated and the time, if any, that the 

customer may be able to re-establish them (and thus mitigates the market risk that some customers use the 

futures markets to counteract), and similarly protects customers’ directional positions. Moreover, not all 

customers may be able to re-establish positions with the same speed—in particular, smaller customers may 

be subject to longer delays in re-establishing their positions. In addition, liquidation of an FCM’s book of 

positions can increase volatility in the markets, to the detriment of all market participants (and also 

contribute to making it more expensive for customers to re-establish their hedges and other positions). 

28 In prior bankruptcies, some customers posting letters of credit or specifically identifiable property as 

collateral sought to escape pro rata treatment for these categories of collateral, contrary to the Commission’s 

intent. See discussion of § 190.04(d)(3) in section II.B.2 below.
Voting Draft – As approved by the Commission on 12/8/2020

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19

account classes where there is a shortfall. Thus, as noted in § 190.00(c)(3), all public 

customer net equity claims would receive priority over non-public customer claims.

The Commission is adopting § 190.00(c)(6) to address deliveries. It explains that 

the delivery provisions of part 190 apply to any commodity that is subject to delivery 

under a commodity contract, including agricultural commodities, other non-financial 

commodities (such as metals or energy), and commodities that are financial in nature 

(including virtual currencies). In the ordinary course of business, commodity contracts 

with delivery obligations are offset before reaching the delivery stage (i.e., prior to 

triggering bilateral delivery obligations). Nonetheless, when delivery obligations do arise, 

a delivery default could have a disruptive effect on the cash market for the commodity and 

could adversely impact the parties to the transaction. In a proceeding in which the debtor 

is an FCM, the delivery provisions in part 190 reflect the policy preferences (A) to 

liquidate commodity contracts that settle via delivery before they move into a delivery 

position and (B) when contracts do move into a delivery position, to allow the delivery to 

occur, where practicable, outside the administration of the debtor’s estate (i.e., directly 

between the debtor’s customer and the delivery counterparty assigned by the clearing 

organization).

The Commission received several comments expressing support for certain 

provisions in § 190.00(c) and two comments expressing concerns. CME expressed 

support for “limiting the scope of part 190 to the bankruptcy of a commodity broker that is 

an FCM or a DCO and to commodity contracts that are cleared” as set forth 

§ 190.00(c)(1). CME, OCC, Vanguard, and NGFA supported the concept of preferring 

the claims of public customers over non-public customers in a bankruptcy proceeding. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

20

CME agreed with the inclusion of the core concept set forth § 190.00(c)(3)(ii), noting that 

“it aids understanding to explain how the distinction between the public customer class 

and the non-public customer class is reflected at the DCO-level in the distinctions made 

between customer accounts and house accounts and between the two categories of 

customer property—customer property and member property—that are available to satisfy 

the net equity claims of each.” Better Markets supported the clarification in 

§ 190.00(c)(5)(ii) that customers relying on letters of credit must carry the same 

proportional losses as customers posting other forms of acceptable collateral. 

NGFA supported the core concept of prioritizing the prompt transfer of customer 

accounts and positions to another FCM as opposed to liquidating customer accounts. 

OCC, however, disagreed with this policy preference. OCC supported “the Commission’s 

objective to mitigate risk to an FCM’s customers and limit market volatility,” noting that 

“[p]orting positions and associated collateral in an FCM bankruptcy proceeding can be an 

effective way to achieve these objectives in some instances.” OCC believed, however, 

that the trustee should retain broad discretion to decide, on a case-by-case basis and in 

consideration of certain factors (e.g., the defaulting FCM’s total book of positions and 

market conditions) whether porting or liquidating positions will achieve the best result for 

customers involved in an FCM’s bankruptcy. OCC further commented that the market 

risk associated with closing out and reopening positions for certain customers that may be 

introduced with liquidation should be weighed against potential drawbacks of porting, 

including that “(i) a trustee (or DCO) must first identify a transferee to accept the open 

position[s] and collateral, which depending on market conditions could be a difficult and 

time consuming process; (ii) until the transfer is complete, the customer may face 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

21

uncertainty as to how its position and associated collateral will be resolved and may not be 

able to exit the position in a timely and efficient manner; and (iii) a customer may be 

required to post additional collateral at a new FCM prior to or immediately after a 

transfer.”

In response to the concerns raised by OCC, the Commission notes first that, as 

OCC forthrightly acknowledges, liquidating customer positions may introduce market risk 

associated with closing out and reopening positions for certain customers. Additionally, 

liquidating a mass of customer positions may roil the markets, if any, where those 

positions are concentrated. For these reasons, the policy preference in favor of transfer is 

both supported by statute and quite longstanding. It is supported by § 764(b) of the 

Bankruptcy Code, which explicitly permits transfers of commodity contracts that are 

authorized by the Commission up to seven calendar days after the order for relief. It is 

also embodied in current § 190.02(e), which requires the trustee to immediately use its 

best efforts to effect a transfer, and is continued in proposed (and adopted) § 190.04(a)(1).

Furthermore, paragraph 190.00(c)(4) establishes, consistent with § 764(b), a policy 

preference for porting, rather than a mandate for porting. This recognizes that finding 

willing and able transferees for all customer positions may or may not be practicable. 

Moreover, § 190.04(a)(1) requires the trustee to use its best efforts to effect a transfer no 

later than the seventh calendar day after the order for relief,29 and § 190.04(d) requires the 

trustee promptly to liquidate most remaining contracts after than time. Indeed, as a 

 29 Indeed, the preference contained § 190.00(c)(4) does not represent a departure from the existing standards 

under current part 190. It merely highlights the requirement in § 190.04(a)(1) that the trustee use its best 

efforts to effect a transfer no later than the seventh calendar day after the order for relief; that requirement is 

substantially identical to the requirement in current § 190.02(e).
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22

practical matter, there is cause for doubt that a DCO will permit the trustee of a debtor that 

is a clearing member to hold open contracts quite that long.30 Thus, despite the preference 

for porting, there are practical limits to how long contracts will be held open before being 

liquidated. This also imposes temporal limits on the uncertainty customers will face as to 

how their positions will be resolved. 

Finally, while a customer may indeed be called for additional collateral at a 

transferee FCM (particularly if less than 100% of the collateral is transferred along with 

the positions), a customer that is unwilling to meet such a call will at the least be permitted 

to have their positions liquidated. That would entitle the customer to prompt return by the 

transferee FCM of the remaining collateral that was transferred—which may well be more 

prompt than a distribution in the bankruptcy proceeding of the debtor. 

ICI expressed concerns with respect to the discretion granted to the trustee under 

the part 190 regulations. ICI agreed with the Commission “that trustees need flexibility 

given the myriad of decisions they must make in a short period of time and the unique 

circumstances that each commodity broker insolvency may present,” and that “trustees to 

date have exercised their discretion in a manner that has generally promoted customer 

protection.” ICI cautioned, however, that the Commission should take steps to help 

ensure that the trustee prioritizes the protection of public customers. ICI urged the 

Commission to make clear in § 190.00 “that the trustee must exercise [its] discretion in a 

manner that it determines will result in the greatest recovery for, and the least disruption 

 30 For example, OCC Rule 1102(a) provides that OCC may “summarily suspend any Clearing Member 

which ... (v) is in such financial or operating difficulty that [OCC] determines and so notifies the ... 

Securities and Exchange Commission or the Commodity Futures Trading Commission that suspension is 

necessary for the protection of the Corporation, other Clearing Members, or the general public.” OCC Rule 

1106 permits OCC to close out the positions of a suspended clearing member.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

23

to, public customers.” With respect to part 190 regulations that are “specifically aimed at 

protecting customers,” ICI asserted the trustee’s discretion should be more limited. While 

ICI acknowledged that, at times, compliance with such provisions “may be impractical or 

impossible or may cause harm to customers,” ICI was concerned that a “reasonable 

efforts” standard “could signal that the trustee has wider latitude to depart from the 

requirement at issue.” ICI asked the Commission to impose a “best efforts” standard in 

certain cases. 

The Commission agrees with ICI that the trustee should exercise its discretion in a 

manner that best achieves the overarching goal of protecting the interests of public 

customers as a class, and specifically should act in the manner that it determines will 

result in the greatest recovery for, and the least disruption to, public customers. The 

Commission notes that, at times, those two sub-goals may be in tension. Because the 

Commission does not believe that there is a universally optimal means to reconcile the 

two sub-goals in aid of best achieving the overarching goal of protecting the interests of 

public customers, the Commission concludes that it is best to leave the balancing of the 

two sub-goals to the discretion of the trustee. It is in that context that the Commission has 

decided to direct the trustee to exercise “reasonable efforts” rather than “best efforts” to 

achieve certain standards. In determining what efforts are “reasonable,” the trustee should 

act to achieve the overarching goal.

In light of the foregoing and to provide clarity with respect to the scope of the 

trustee’s discretion, the Commission is adopting new § 190.00(c)(3)(i)(C) which provides

that:

(C) where a provision in part 190 affords the trustee discretion, that 

discretion should be exercised in a manner that the trustee determines will best 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

24

achieve the overarching goal of protecting public customers as a class by 

enhancing recoveries for, and mitigating disruptions to, public customers as a 

class. In seeking to achieve that overarching goal, the trustee has discretion to 

balance those two subgoals when they are in tension. Where the trustee is directed 

to exercise “reasonable efforts” to meet a standard, those efforts should only be 

less than “best efforts” to the extent that the trustee determines that such an 

approach would support the foregoing goals.31

The Commission is adopting § 190.00(d)(1) to describe the scope of commodity 

broker proceedings under subchapter IV of chapter 7 of the Bankruptcy Code,

32 and the 

relationship between part 190 to SIPA proceedings (where the debtor is a commodity 

broker) and to resolution of commodity brokers under Title II of the Dodd-Frank Act.” 

Paragraph 190.00(d)(1)(i) acknowledges that, while section 101(6) of the 

Bankruptcy Code recognizes “commodity options dealers” and “leverage transaction 

merchants” (as defined in sections 761(6) and (13) of the Bankruptcy Code), as separate 

categories of commodity brokers, there are no commodity options dealers or leverage 

transaction merchants currently registered as such. In § 190.00(d)(1)(i), the Commission 

is declaring its intent to adopt regulations with respect to commodity options dealers and 

leverage transaction merchants, respectively, at such time as an entity registers as such. 

Paragraph 190.00(d)(1)(ii) explains that, pursuant to section 7(b) of SIPA,33 the 

trustee in a SIPA proceeding where the debtor is also a commodity broker has the same 

duties as a trustee in a proceeding under subchapter IV of chapter 7 of the Bankruptcy 

 31 While “‘[b]est efforts’ is a term which necessarily takes its meaning from the circumstances,” the trustee 

in exerting best efforts to meet a standard must diligently exert efforts to meet that standard “to the extent of 

its own total capabilities.” See generally Bloor v. Falstaff Brewing Corp, 454 F.Supp. 258, 266-67 aff’d 601 

F.2d 609 (2nd. Cir. 1979). By contrast, in exerting “reasonable efforts” to meet a standard, the Commission 

expects that the trustee will work in good faith to meet the standard, but will also take into account other 

considerations, including the impact of the effort necessary to meet the standard on the overarching goal of 

protecting public customers as a class.

32 12 U.S.C. 5381 et seq.

33 15 U.S.C. 78aaa et seq.
Voting Draft – As approved by the Commission on 12/8/2020

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25

Code, to the extent consistent with SIPA or as ordered by the court.34 This part 

implements subchapter IV of chapter 7 by establishing the trustee’s duties thereunder, 

consistent with the broad authority granted to the Commission pursuant to section 20 of 

the CEA. Therefore, this part also applies to a proceeding commenced under SIPA with 

respect to a debtor that is registered as a broker or dealer under section 15 of the Securities 

Exchange Act of 193435 when the debtor also is an FCM. 

Moreover, in the context of a resolution proceeding under Title II of Dodd-Frank, 

section 210(m)(1)(B)36 provides that the FDIC (in its role as resolution authority) must 

apply the provisions of subchapter IV of chapter 7 of the Bankruptcy Code in respect of 

the distribution of customer property and member property of a resolution entity37 that is a 

commodity broker as if the resolution entity were a debtor for purposes of subchapter IV.

Accordingly, § 190.00(d)(1)(iii) explains that this part shall serve as guidance with respect 

to the distribution of property in a proceeding in which the FDIC acts as a receiver for an 

FCM or DCO pursuant to Title II of Dodd-Frank.38 

The Commission is adopting § 190.00(d)(2)(i) to clarify that a trustee may not 

recognize any account classes not explicitly provided for in part 190. Paragraph

 34 See SIPA section 7(b), 15 U.S.C. 78fff-1(b) (“To the extent consistent with the provisions of [SIPA] or as 

otherwise ordered by the court, a trustee shall be subject to the same duties as a trustee in a case under 

chapter 7 of title 11, including, if the debtor is a commodity broker, as defined under section 101 of such 

title, the duties specified in subchapter IV of such chapter 7 . . . .”).

35 15 U.S.C. 78o.

36 12 U.S.C. 5390(m)(1)(B).

37 That is, the entity being resolved under Title II. Section 210(m)(1)(b) refers to “any covered financial 

company or bridge financial company.”

38 12 U.S.C. 5390(m)(1)(B) provides that the FDIC must apply the provisions of subchapter IV of chapter 7 

of the Code with respect to the distribution of customer property and member property in connection with 

the liquidation of a commodity broker that is a “covered financial company” or “bridge financial company” 

(terms defined in 12 U.S.C. 5381(a)).
Voting Draft – As approved by the Commission on 12/8/2020

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26

190.00(d)(2)(ii) provides that no property that would otherwise be included in customer 

property, as defined in § 190.01 of this part, shall be excluded from customer property 

because it is considered to be held in a constructive trust, resulting trust, or other trust that 

is implied in equity. 

Generally, in a commodity broker bankruptcy, the basis for distributing segregated 

customer property is pro rata treatment. To achieve this goal, the FCM’s segregation 

records (including account statements) and reporting to the Commission and selfregulatory organizations (“SROs”) and DCOs must reflect what is actually available for 

customers. This is necessary to enable FCMs, SROs, DCOs, and the Commission to 

ensure, during business as usual, that (a) customer property is being properly protected 

pursuant to the segregation requirements of section 4d of the CEA and the regulations 

thereunder, and (b) customer property is not subject to hidden arrangements that cannot be 

accounted for transparently and reliably. Through § 190.00(d)(2)(ii), the Commission is 

making clear that customer property cannot be burdened by equitable trusts. Attempting 

to account for such equitable trusts in a bankruptcy proceeding under part 190 would 

undermine the Commission’s implementation and enforcement of the statutory scheme 

under the CEA.

Paragraph 190.00(d)(3) provides that certain transactions, contracts, or agreements

are excluded from the term “commodity contract.”39 The excluded agreements and 

 39 The contracts that would be excluded include: options on commodities unless cleared by a DCO (or, in the 

context of a foreign futures clearing member, a foreign clearing organization); forwards (defined as such 

pursuant to the exclusions in sections 1a(27) or 1a(47)(B)(ii) of the CEA), unless they are cleared by a DCO 

(or, in the context of a foreign futures clearing member, a foreign clearing organization); security futures 

products when they are carried in a securities account; retail foreign currency transactions described in 

sections 2(c)(2)(B) or (C) of the CEA; security-based swaps or other securities carried in a securities account 

(other than security futures products carried in an enumerated account class); and retail commodity 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

27

transactions traditionally have not been considered to be commodity contracts for 

purposes of segregation and customer protection, while those that are excepted from these 

exclusions are so considered, and thus are covered by part 190.

The Commission received four comments supportive of specific provisions of 

proposed § 190.00(d) and one comment requesting a modification of the regulation. CME 

agreed that removing provisions relating to commodity option dealers and leverage 

transaction merchants would “improve the rules’ clarity.” CME and Cboe expressed 

support for the clarification in § 190.00(d)(1)(ii) of the applicability of SIPA in the 

bankruptcy proceeding of a firm that is dually registered as an FCM and a broker-dealer 

where the bankruptcy must be handled pursuant to SIPA rather than by the FCM rules. 

Cboe noted that such clarity will be “beneficial to the entire ecosystem, including 

customers of FCMs and broker-dealers” and will “further the ability of market participants 

to utilize portfolio margining and the associated efficiencies.” CME expressed support for 

§ 190.00(d)(1)(iii). CME specifically supported “setting out that Part 190 ‘shall serve as 

guidance’ to the FDIC as receiver for an FCM or DCO in a proceeding under Title II of 

Dodd Frank, with respect to the distribution of customer property and member property.”

Noting that “Title II [of the Dodd-Frank Act] directs the FDIC to apply the provisions of 

subchapter IV of chapter 7 of the [Bankruptcy] Code with respect to such distributions,” 

CME stated its belief that “it is reasonable to read Title II’s cross-reference to subchapter 

IV of chapter 7 “as indirectly bringing [p]art 190 into the scope of that provision given the 

need for Commission regulations to give specificity and meaning to the general principles 

 transactions described in section (2)(c)(2)(D) of the CEA (other than transactions executed on or subject to 

the rules of a designated contract market (“DCM”) or foreign board of trade (“FBOT”) as if they were 

futures).
Voting Draft – As approved by the Commission on 12/8/2020

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28

set out in subchapter IV.” SIFMA AMG / MFA supported the principle of excluding 

property held in a constructive trust from customer property as set forth in 

§ 190.00(d)(2)(ii), noting that this principle “serves to preserve the integrity of customer 

property.” ICI strongly supported setting forth the prohibition on excluding property from 

“customer property” because it is considered to be held in a trust implied in equity in § 

190.00(d)(2)(ii), and the exclusion from the term “commodity contract” of off-exchange 

retail foreign currency transactions in § 190.00(d)(3)(iv). 

The ABA Subcommittee recommended one modification to this regulation. It 

asked the Commission to amend proposed § 190.00(d)(3)(v) to clarify that mixed swaps 

could be commodity contracts subject to part 190. In support of its position, the ABA 

Subcommittee asserted that a DCO could theoretically provide clearing services to FCMs 

and their customers with respect to mixed swaps, where the mixed swap positions are 

carried in accounts subject to the part 22 and customers are part of the cleared swap 

account class under part 190. The ABA Subcommittee analogized the inclusion of mixed 

swaps within the “commodity contract” definition to the Commission’s proposal to not 

exclude security futures products from the commodity contract definition when the 

security futures product is carried in an account for which there is a corresponding account 

class under part 190. The Commission agrees with the ABA Subcommittee’s reasoning 

with respect to proposed § 190.00(d)(3)(v) and is amending § 190.00(d)(3)(v) to read in 

pertinent part, that “... a security futures product or mixed swap (as defined in 1a(47)(D) 

of the Act) that is, in either case, carried in an account for which there is a corresponding 

account class under part 190 is not excluded.”
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29

The Commission is adopting § 190.00(e) to explain the context in which part 190 

should be interpreted. It states that any references to other federal rules and regulations 

refer to the most current versions of these rules and regulations (i.e., “as the same may be 

amended, superseded or renumbered”) and that, where they differ, the definitions set forth 

in § 190.01 shall be used instead of the defined terms set forth in section 761 of the 

Bankruptcy Code. The Commission notes that other regulations in part 190 are designed 

to be consistent with subchapter IV of chapter 7 of the Bankruptcy Code.

Paragraph 190.00(e) addresses account classes in the context of portfolio 

margining and cross margining programs. Where commodity contracts (and associated 

collateral) that would be attributable to one account class are, instead, commingled with 

the commodity contracts (and associated collateral) in a second account class (the “home 

field”), then the trustee must treat all such commodity contracts and associated collateral 

as being held in, and consistent with the regulations applicable to, an account of the 

second account class. The approach of following the rules of the “home field” also 

pertains to securities positions held in a commodity account class (and thus treated in 

accord with the relevant commodity account class) and commodity contract positions (and 

associated collateral) held in the securities account, in which case the rules applicable to 

the securities account will apply, consistent with section 16(2)(b)(ii) of SIPA, 15 U.S.C. 

78lll(2)(b)(ii).

The Commission received two comments on proposed § 190.00(e). ICI and Cboe 

expressed support for the clarity provided by § 190.00(e) with respect to portfolio 

margining and cross margining programs. ICI strongly supported the “home field” rule in 

proposed § 190.00(e), noting that providing “clarity regarding how transactions and 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

30

margin that are portfolio margined in the same account will be treated in the event that an 

FCM or broker-dealer becomes insolvent is a “prerequisite for an effective portfolio 

margining regime.” 

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.00 as proposed with the addition of § 190.00(c)(3)(i)(C)

and the modification to § 190.00(d)(3)(v), as set forth above.

2. Regulation 190.01: Definitions

The Commission is adopting § 190.01 as proposed with modifications set forth 

below, to update the definitions for revised part 190. Most of the changes in § 190.01 are

conforming changes, such as correcting cross-references and deleting definitions of certain 

terms that are not used in part 190, as amended. Other changes tie the definitions in 

§ 190.01 more closely to the definitions in § 1.3 and other Commission regulations, to 

reflect changes in Commission regulations. In some cases, the Commission is adopting 

more substantive changes to the definitions, such as amending or adding definitions to 

further clarify and provide additional details where the current definitions are silent or 

unclear, or to reflect concepts that are new to part 190. In particular, the Commission is 

separating the delivery account class into two subclasses, a physical delivery account class 

and a cash delivery account class; the relevant terms are defined below. The definitions of 

commodity contract and physical delivery property codify positions that the Commission 

has taken in recent commodity broker bankruptcies.40

 40 Respectively, In Re Peregrine Financial Group, Inc., No. 12-B27488 (Bankr. N.D. Ill.), and MF Global, 

Inc.
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The Commission is also amending § 190.01 to replace the paragraphs identified 

with an alphabetic designation for each defined term (e.g., “§ 190.01(ll)”) with a simple 

alphabetized list, as is recommended by the Office of the Federal Register, and as recently 

implemented by the Commission with respect to, e.g., § 1.3.

41

The Commission requested comment with respect to all aspects of proposed 

§ 190.01, including the usefulness and any unintended consequences of the revised 

definitions. The Commission received a number of comments on the proposed definitions 

in § 190.01. As further detailed below, the Commission is modifying some of the 

definitions in response to comments. Unless stated otherwise below, the Commission did 

not receive any comments on a proposed definition in § 190.01 and is adopting each 

definition as proposed.42

The Commission is adopting the definition of “account class” as proposed with the

modifications described below. The current definition of the term “account class” 

specifies that it includes certain types of customer accounts, each of which is to be 

recognized as a separate class of account. The types are “futures account,” “foreign 

futures accounts,” “leverage accounts,” “delivery accounts,” and “cleared swap accounts.” 

 41 See generally 83 FR 7979, 7979 & n.6 (Feb. 23, 2018).

42 The Commission did not receive comments with respect to the following part 190 definitions as proposed 

in § 190.00: Act, Bankruptcy code, Business day, Calendar day, Cash delivery account class, Cash 

equivalents, Clearing organization, Commodity broker, Commodity contract account, Court, Cover, 

Customer, Customer claim of record, Customer class, Dealer option, Debtor, Distribution, Equity, Exchange 

Act, FDIC, Filing Date, Final net equity determination date, Foreign board of trade, Foreign clearing 

organization, Foreign future, Foreign futures commission merchant, Foreign futures intermediary, Funded 

balance, Futures and futures contract, In-the-money amount, Joint account, Leverage contract, Leverage 

transaction merchant, Member property, Net equity, Open commodity contract, Order for relief, Person, 

Premium, Primary liquidation date, Principal contract, Securities Account, SIPA, Security, Short term 

obligation, Specifically identifiable property, Strike price, Substitute customer property, Swap, Trustee, and 

Undermargined. Accordingly, the Commission is adopting those definitions as proposed, as discussed later 

in section II.A.2.
Voting Draft – As approved by the Commission on 12/8/2020

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32

The Commission is adding detail to the definition of “account class” by including therein

definitions of “futures account,” “foreign futures accounts,” “cleared swaps accounts,” and 

“delivery accounts.” However, as discussed above with respect to § 190.00(d)(1)(i), the

Commission is removing, at least temporarily, the “commodity options” and “leverage 

account” account classes. 43

The Commission is adopting the definition of “futures account” to cross-reference 

the definition of the same term in § 1.3 of the Act, while the definition of “cleared swaps 

account” cross-references the definition of “cleared swaps customer account” in § 22.1. 

These definitions apply to both FCMs and DCOs. The definition of “foreign futures 

account” cross-references the definition of “30.7 account” in § 30.1(g). As that latter 

definition is limited to FCMs, the Commission is adopting a corresponding reference to 

such accounts at a clearing organization, in the event that a clearing organization clears 

foreign futures transactions for members that are FCMs, where those accounts are 

maintained on behalf of those FCM members’ 30.7 customers (as that latter term is 

defined in § 30.1(f)). The Commission clarifies that this would not apply if a foreign 

 43 The Commission is adopting paragraph (2) of the definition of account class to address commingling 

orders and rules. Specifically, there are cases where commodity contracts (and associated collateral) that 

would be attributable to one account class are held separately from contracts and collateral associated with 

that first account class, and instead are allocated to a different account class and commingled with contracts 

and collateral in that latter account class. This would take place because the contracts in question are riskoffsetting to contracts in the latter account class. For example, this could involve portfolio margining within 

a DCO or cross-margining between a DCO and another central counterparty, which may or may not be a 

DCO. This commingling may be authorized pursuant to a Commission regulation or order, or pursuant to a 

clearing organization rule that is approved in accordance with § 39.15(b)(2). The Commission is adopting 

paragraph (2) to confirm that the trustee must treat the commodity contracts in question (and the associated 

collateral) as being held in an account of the latter account class.

The Commission is also adopting paragraph (3) of the definition of account class to address cases where the 

commodity broker establishes internal books and records in which it records a customer’s commodity 

contracts and collateral, and related activity. It confirms that the commodity broker is considered to 

maintain such an account for the customer regardless of whether it has kept such books and records current 

or accurate.
Voting Draft – As approved by the Commission on 12/8/2020

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33

clearing organization is clearing foreign futures for clearing members that are not subject 

to the requirements of § 30.7.

The ABA Subcommittee and CME recommended that the Commission expand the 

definitions of “futures account,” “foreign futures account,” and “cleared swaps account” 

within the § 190.01 definition of “account class” to cover the accounts of non-public 

customers. The ABA Subcommittee and CME stated that as proposed, the crossreferences to § 1.3, the “30.7 account” in 30.1, and the “cleared swaps customer account” 

in § 22.1 within the account class definitions, limited the scope of those definitions to only 

segregated accounts of public customers despite the Commission’s intention to use those 

same account class distinctions for non-public customers elsewhere in the part 190 rules. 

The ABA Subcommittee and CME suggested that those account class distinctions are also 

relevant for the non-public customer class (i.e., the holders of proprietary accounts carried 

by FCMs and for clearing members’ house accounts carried by DCOs).

The Commission is persuaded by the comments that there are, in at least some 

cases, account class distinctions within the customer class for non-public customers,44 and 

thus agrees that the revised definitions of “futures account,” “foreign futures account,” and 

“cleared swaps account” within the § 190.01 definition of “account class” should address 

separately non-public customers, and has amended the definitions to do so. 

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting the “account class,” “futures account,” foreign futures 

 44 See, e.g., § 190.09(c)(2)(iv) (allocating residual property “[t]o the non-public customer estate for each 

account class in the same order as is prescribed in paragraphs (c)(2)(i) to (iii) of this section for the 

allocation of the customer estate among account classes.”)
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34

account,” and “cleared swaps account” definitions in § 190.01 as proposed with the 

modifications referred to above.

The “delivery account” class is the fourth type of account class. It is the relevant 

account through which an FCM or DCO accounts for the making or taking of physical 

delivery under commodity contracts whose terms require settlement by delivery of a 

commodity. The FCM or DCO designates such account as a delivery account on its books 

and records. The Commission is adopting the definition of “delivery account” as 

proposed within paragraph (1)(iv) of the definition of account class, with a modification to 

conform to the issue addressed in the preceding paragraph: the delivery account applies to 

“both public and non-public customers, considered separately.”45 

The current definition of “delivery account” in § 190.05(a)(2) refers to an account 

that contains only property described in three of the nine categories of property in the 

current definition of “specifically identifiable property.” The Commission has determined 

to adopt a more functional definition of “delivery account” in § 190.01. This revised

definition will focus on “an account maintained on the books and records [of an FCM or 

DCO] for the purpose of accounting for the making or taking of delivery under 

commodity contracts whose terms require settlement by delivery of a commodity.”46

The Commission is thus adopting paragraph (1)(iv)(A)(1) to define delivery 

accounts for FCMs. The Commission is adopting paragraph (1)(iv)(A)(2) to incorporate 

the same concepts for clearing organizations, and also permit a clearing organization to act 

 45 This separate consideration is a consequence of the fact that, pursuant to Bankruptcy Code §766(h), public 

customer claims must be paid in full before non-public customer claims.

46 See § 190.01.
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35

as a central depository for physical delivery property represented by electronic title 

documents, or otherwise in electronic (dematerialized) form. 

As set forth in paragraph (1)(iv)(B), the delivery account class is being subdivided

into separate physical and cash delivery account classes, as provided in § 190.06(b), for 

purposes of pro rata distributions to customers for their delivery claims. The definitions 

of the terms “physical delivery property” and “cash delivery property” are addressed in 

detail later in this section.

As customer property held in a delivery account is not subject to the Commission’s

segregation requirements, the Commission believes it may be more challenging and timeconsuming to identify customer property for the cash delivery account class,

47 (and such 

cash would thus be commingled with the FCM’s own cash intended for operations). 

Consequently, the Commission believes separating (1) most cash delivery property and 

customer claims from (2) most physical delivery property and customer claims should

promote more efficient and prompter distribution of the latter to customers. For these 

reasons, the Commission is adopting the delivery account definition to be further divided 

into physical delivery and cash delivery account classes, for purposes of pro rata

distributions to customers for their delivery claims. 

 47 The Commission agrees with a point previously made by the ABA Committee: “Based on lessons learned 

from the MF Global Bankruptcy, those challenges are likely greater for tracing cash. Physical delivery 

property, in particular when held in the form of electronic documents of title as is prevalent today, is more 

readily identifiable and less vulnerable to loss, compared to cash delivery property that an FCM may hold in 

an operating bank account. See Transmittal Letter from The Part 190 Subcommittee of the Business Law 

Section of the American Bar Association accompanying Model Part 190 Rules (“ABA Cover Note"), 

available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61330&SearchText at 14. 

See also In re MF Global Inc., 2012 WL 1424670 (noting how physical delivery property was traceable).
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The claims with respect to the physical delivery and cash delivery subclasses are 

fixed on the “filing date.”48 Thus, the physical delivery account class includes, in addition 

to certain physical delivery property, cash delivery property received post-filing date in 

exchange for physical delivery property held on the filing date that has been delivered 

under a commodity contract. Conversely, the cash delivery account class includes, in 

addition to certain cash delivery property, physical delivery property that has been 

received post-filing date in exchange for cash delivery property held on the filing date.

CME and ICE supported separate subaccounts of the delivery account for physical 

property (the property being delivered) and cash property (cash used to pay for delivery).

CME agreed with the proposed definition of the delivery account class and supported the 

proposed separation of the delivery account class into the cash delivery account and 

physical delivery account classes, as they delineate the customer property that is available 

to distribute to customers in each account class on a pro rata basis. CME agreed that cash 

delivery property should include cash or cash equivalents recorded in a customer’s 

delivery account as of the filing date, along with any physical delivery property 

subsequently received in accepting a delivery, and likewise that physical delivery property 

should include any cash delivery property received subsequent to the filing date in 

exchange for making a delivery. CME also had specific comments on each of the two 

subaccount definitions as discussed below. 

CME noted that the Commission does not impose segregation requirements on 

FCMs with respect to the cash or physical delivery property that an FCM holds on behalf 

 48 “Filing date” means the date that a petition under the Bankruptcy Code or application under SIPA 

commencing a proceeding is filed or on which the FDIC is appointed as a receiver pursuant to 12 U.S.C. 

5382(a). 
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37

of its customers and records in a delivery account. As learned from the In re MF Global, 

Inc. bankruptcy (hereinafter “MF Global”),

49 CME agreed that it can be more challenging 

for a trustee to trace the cash recorded in delivery accounts than to trace physical delivery 

property. For example, the MF Global trustee could more readily identify physical 

delivery property in the form of electronic title documents, compared to identifying nonsegregated cash belonging to the delivery account class given the fungible nature of cash. 

CME recommended that the Commission address through a separate rulemaking

the broader issues around whether customer property carried in delivery accounts should 

be subject to any special customer protections, such as requirements that FCMs should 

hold such property in custody accounts or limitations on how long cash or cash 

equivalents should be held in delivery accounts that are not subject to custody 

requirements.50 

At this time, after consideration of the comments and for the reasons stated above

the Commission is adopting the definition of “delivery account” as proposed, with the 

modification to note that it applies to each of public and non-public customers, considered 

separately.

The Commission is adopting the definition of “cash delivery property” as proposed 

with the modifications described below. The Commission proposed to define cash 

delivery property to carry through the concepts from current § 190.01(ll)(4) and (5) that 

the cash or cash equivalents, or the commodity must be identified on the books and 

records of the debtor as having been received, from or for the account of a particular 

 49 In re MF Global, No. 11-2790 (MG) (SIPA) (Bankr. S.D.N.Y.).

50 This recommendation is addressed in section II.G below.
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38

customer, on or after three calendar days before the relevant (i) first delivery notice date in 

the case of a futures contract or (ii) exercise date in the case of an option.

The Commission is adopting the cash delivery property definition to mean any 

cash or cash equivalents recorded in a delivery account that is, as of the filing date: (1) 

credited to such account to pay for receipt of delivery of a commodity under a commodity 

contract; (2) credited to such account to collateralize or guarantee an obligation to make or 

take delivery of a commodity under a commodity contract, or (3) has been credited to such 

account as payment received in exchange for making delivery of a commodity under a 

commodity contract. It includes property in the form of commodities that have been 

delivered after the filing date in exchange for cash or cash equivalents held in a delivery 

account as of the filing date. The definition also requires that the cash or cash equivalents, 

or the commodity, must be identified on the books and the records of the debtor as having 

been received, from or for the account of a particular customer, on or after seven calendar 

days before the relevant (i) first delivery notice date in the case of a futures contract or 

(ii) exercise date in the case of a cleared option.51 In response to comments discussed 

below, the Commission is adopting the definition of cash delivery property to also include 

any cash transferred by a customer to the trustee on or after the filing date for the purpose 

of paying for delivery, consistent with § 190.06(a)(3)(ii)(B)(1). The Commission is also 

adopting the definition in response to comments that requested that the Commission

provide that in the case of a contract where one fiat currency is to be exchanged for 

 51 As discussed below, the proposal had specified a period of three calendar days; after consideration of the 

comments, that period has been changed to seven calendar days.
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39

another fiat currency, each currency will be considered cash delivery property to the extent 

that it is recorded in a delivery account.

Commenters generally supported separate subaccounts of the delivery account, and 

that cash delivery property should include cash or cash equivalents recorded in a 

customer’s delivery accounts as of the filing date, along with any delivery property 

subsequently received in accepting a delivery. However, the Commission also received 

several comments on three aspects of the proposed definition of cash delivery property. 

First, the ABA Subcommittee, CME, ICE, FIA, and CMC recommended that the 

Commission remove the three-calendar day restriction proposed in the definition of cash 

delivery property in § 190.01. While several of these commenters recognized the 

Commission’s intention to encourage customers and their FCMs to hold cash in a 

segregated account where it is better protected until needed to pay for a delivery that is 

effected in the delivery account, the commenters were concerned that cash or cash 

equivalents might be posted to delivery accounts sooner than three days before the first 

notice date or exercise date, and therefore this property might be denied the cash delivery 

property protection. 

FIA stated that the Federal Register release did not explain why the Commission 

proposed to restrict cash delivery property to cash and cash equivalents received no earlier 

than three calendar days before the relevant first notice day or exercise date. FIA and ICE 

could not identify any justification as to why cash or cash equivalents that may be 

received by a debtor FCM and properly deposited in a cash delivery account prior to this 

period should receive different protections under part 190 than cash and cash equivalents 

received within the three-calendar day time frame. The ABA Subcommittee noted that 
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40

their Committee eliminated this provision in the Model Part 190 Rules to avoid 

unintended consequences.

CME recognized that the three-day limitation is based on the limitation in current 

part 190, but stated that it does not make sense and if not eliminated from the definition, it

could be detrimental to customers, which is contrary to the goal of enhancing customer 

protections. CME further explained that if a customer posts cash or cash 

equivalents to its delivery account in anticipation of paying for an upcoming 

delivery or to guarantee its obligation to take delivery, the timing of the 

payment should not matter. If the parties intend to make and take delivery, CME 

believed the trustee should be able to follow the customers’ intention. CME 

explained that a customer is unlikely to leave cash in an unsegregated delivery 

account with an FCM for any extended time, without reason, when it would be 

better protected by holding the cash in a segregated account or withdrawing the 

cash if not needed to meet upcoming delivery obligations. CME noted that there 

can be times, though, when a customer will legitimately post cash to its delivery 

account sooner than the definition would allow, for example, out of caution to 

assure that the necessary funds are available to pay for a delivery when the first 

notice date or exercise date immediately follows a weekend or holiday, or to meet 

payment deadlines imposed by the FCM, or based on market convention. CME 

noted that some FCMs may require customers to post cash sooner than three days 

prior to the relevant notice or exercise date, as applicable, to satisfy a deliveryrelated obligation. CME believed it could be potentially disruptive to the delivery 

process to deny the customer the protection of having its funds classified as cash
Voting Draft – As approved by the Commission on 12/8/2020

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41

delivery property because it posted the cash or cash equivalents needed to 

complete an upcoming delivery too soon.

CME also believed the three-day timing element does not make sense with 

respect to cash recorded in a customer’s delivery account as of the filing date, 

which the customer had previously received as payment for delivering a 

commodity under an expired or exercised contract. CME believed the 

Commission intended for the timing limitation to apply to this situation, but the 

proposed definition does not exclude such cash from the requirement.

CME understood that the Commission proposed to keep the timing 

limitation to encourage FCMs and their delivery customers to hold cash intended 

to pay for a delivery in a segregated account until bilateral delivery obligations are 

near at hand. However, CME questioned whether the limitation was effective

in encouraging the desired behavior, in particular when it is contained in 

bankruptcy regulations and parties with delivery obligations may not necessarily 

be aware of it. As a result, CME recommended that the Commission address the 

protection of customer property held in delivery accounts in a more direct and 

transparent matter, through a separate rulemaking. Specifically, CME 

recommended that the Commission revise the “cash delivery property” definition 

to remove the limitation that cash delivery property must be recorded in the 

delivery account no sooner than three calendar days before the first notice date or 

exercise date. 

The Commission notes that part 190 currently contains the three-day limitation, 

which serves to limit delivery property to property that is transferred into a delivery 
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42

account shortly before the notice or exercise date. 52 Thus, the Commission considered 

whether a change in the current standard is warranted. As discussed further below, the 

Commission concludes that while the case has been made to extend the limitation from 

three calendar days to seven calendar days, the case has not been made to remove the 

limitation in its entirety at this time.

While delivery accounts provide some customer protection, in that they benefit 

from favorable treatment in bankruptcy, they lack the protection of segregation 

requirements, in contrast to futures account, foreign futures account, and cleared swaps 

accounts. In the case of the latter types of accounts, the FCM must maintain in accounts, 

protected from the claims of creditors of the FCM other than the customers for whom they 

are segregated, sufficient funds to repay the claims of such customers in full, at all times. 

Such segregation protections are a very important means of ensuring that sufficient funds 

are in fact available to pay customers in full in the (highly unlikely) event of the 

insolvency of an FCM. 

Accordingly, the Commission is of the view that changing current part 190 to 

completely remove any time limitation for protecting property transferred into a delivery 

account would, in light of this lack of segregation protection, carry the risk of significant 

unintended consequences, e.g., customers being encouraged to transfer funds prematurely 

into an account without such protection, and thus a bankruptcy where a greater number of 

 52 See current § 190.05(a)(2) (tying delivery account to portions of the definition of specifically identifiable 

property in § 190.01); § 190.01(ll)(4,5) (limiting recognition of cash as specifically identifiable property to 

cases where it is identified on the books and records of the FCM as being received from or for the account of 

a particular customer on or after three calendar days before the first notice date or exercise date specifically 

for the purpose of a delivery or exercise).
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customers receive less than the full amount of their claims, and greater total shortfalls in 

repayment of such claims. 

CME, while noting their preference for simply deleting the three-day limitation, 

observed that protection of customer property held in delivery accounts should be 

addressed in a direct and transparent manner through a separate rulemaking. The 

Commission concludes that deleting entirely the time limitation on posting cash delivery 

property should only be undertaken, if at all, in the context of a separate, dedicated, and 

explicit rulemaking, in which moving property more quickly to a delivery account is 

considered in conjunction with segregation protection for property in such an account. 

However, the Commission believes CME’s concerns about long weekends raise 

important issues. For example, in the context of an FCM’s global business, there could be 

a bank holiday on a Friday in the jurisdiction where a customer is based, a Federal holiday 

on the following Monday in the U.S., and the exercise or notice date might be on a

Tuesday; in which event three calendar days may be too short. Similarly, in the vein of 

CME’s comment, there may be legitimate reasons to transfer the funds a day or two in 

advance of when they are needed, to account for the possibility of a failure in the transfer 

process. 

Weighing the concerns of having funds for an extended time in an account that is 

not protected by segregation against the need to provide a modest amount of flexibility in 

the process, the Commission has determined that a reasonable balance can be achieved by 

changing the three-day (before notice or exercise date) period to a seven-day period. The 

Commission believes this extended time period will address completely the concern that a 

delivery date may come after a holiday weekend, and should mitigate concerns about 
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44

FCM funding requirements that extend beyond three days. If and when a separate 

rulemaking results in additional protection for delivery accounts, it will be appropriate to 

revisit this aspect of part 190 as part of such a rulemaking.

Second, the ABA Subcommittee, CME, and CMC recommended that the 

Committee revise the definition of cash delivery property to allow for the possibility that 

cash or cash equivalents could be posted after the filing date for the purpose of paying for 

a delivery, and to provide protection for such deposits. The commenters requested that the 

Commission expand the definition to allow for the rare possibility that a customer may be 

unable to post funds needed to pay for a delivery in advance of the filing date so that the 

definition should also cover cash delivery property received after the filing date in 

anticipation of taking delivery of a commodity. CME noted that as has been seen with 

other FCM bankruptcies, the days prior to actual filing can be chaotic and 

customers may not have had the opportunity to meet such a deadline. To allow 

the delivery to be completed reduces a potential disruptive situation to commodities 

markets during an otherwise tumultuous time.

This issue is illuminated by considering the interplay of other regulations that 

affect delivery. The Commission notes that while § 190.04(c) continues the preference for 

the trustee to liquidate contracts moving into delivery position before they do so, and 

§ 190.06(a)(2) continues the preference, in cases where the trustee is unable to do so, for 

the trustee to arrange for delivery to occur outside the estate, § 190.06(a)(3) acknowledges 

that there may be cases where the trustee will need to facilitate the making or taking of 

delivery. Regulation 190.06(a)(3)(ii)(B)(1) refers to cases where the trustee pays for 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

45

delivery (in whole or in part) with “cash transferred by the customer to the trustee on or 

after the filing date for the purpose of paying for delivery.” 

Thus, the Commission agrees with the arguments made by the commenters who 

suggested that the Commission expand the definition of “cash delivery property” in this 

context, and consequently is adding an explicit reference to the cash transferred from a 

customer to the trustee after the filing date, consistent with § 190.06(a)(3)(ii)(B)(1). 

Moreover, for consistency, the Commission will amend § 190.08(c)(1)(ii) as proposed to 

explicitly give such post-petition transfers treatment as 100% funded.

Finally, the ABA Subcommittee suggested that the Commission clarify that the 

delivery of two different fiat currencies for foreign currency commodity contract 

constitutes cash delivery property. CME suggested a similar technical change to clarify 

in the definition that for a commodity contract that settles by delivery of a foreign 

currency as the underlying commodity or by an exchange of a pair of currencies, 

the USD or foreign currency recorded to a delivery account in connection with 

either side of the delivery constitutes cash delivery property.

In response to the ABA Subcommittee comment regarding the delivery of two fiat 

currencies, “[g]iven the fungible nature of cash, regardless of currency denomination,” 

the Commission has determined to amend further the definition of “cash delivery 

property” to clarify that for foreign exchange contracts, i.e., contracts where one fiat 

currency is exchanged for another fiat currency, both fiat currencies will be treated as cash 

delivery property, and neither currency will be considered physical delivery property.
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Accordingly, in consideration of the comments and the reasons discussed above, 

the Commission will adopt the definition of “cash delivery property” in § 190.01 as 

modified, with the additions referred to above.

The Commission is adopting the definition of “physical delivery property” in 

§ 190.01 as proposed with modifications, as described below. The Commission is 

adopting the definition of “physical delivery property” to include, under the four specified 

sets of circumstances discussed below, a commodity, whether tangible or intangible, held 

in a form that can be delivered to meet and fulfill delivery obligations under a commodity 

contract that settles via delivery if held to a delivery position.53 The Commission is 

adopting the definition to include warehouse receipts, other documents of title, or shipping 

certificates (including electronic versions of the forgoing), for the commodity, or the 

commodity itself. 

The Commission is amending the physical deliver property definition to address 

changes in delivery practices since the 1980s. The reference to electronic versions of 

warehouse receipts, other documents of title, or shipping certificates explicitly recognizes

that “title documents for commodities are now commonly held in dematerialized, 

electronic form, in lieu of paper.” Moreover, the types of commodities that might be 

physically delivered would extend beyond tangible commodities to those that are 

intangible, including Treasury securities, foreign currencies, or virtual currencies.54 

For purposes of analytical clarity, the Commission is adopting the definition of 

physical delivery property as subdivided into four categories: 

 53 The current definition is found in § 190.01(ll)(3), and focuses on documents of title and physical 

commodities.

54 See ABA Cover Note at 10, 12-13.
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First, the commodities or warehouse receipts, other documents of title, or shipping 

certificates (including electronic versions of any of the foregoing) for the commodity that 

the debtor holds for the account of a customer for purposes of making delivery of such 

property and which, as of the filing date or thereafter, can be identified as held in a 

delivery account for the benefit of such customer on the books and records of the debtor.

55

Second, the commodities or warehouse receipts, other documents of title, or 

shipping certificates (including electronic versions of any of the foregoing) for the 

commodity that the debtor holds for the account of the customer, where the customer 

received or acquired such property by taking delivery under an expired or exercised 

commodity contract, and which, as of the filing date or thereafter, can be identified as held 

in a delivery account for the benefit of such customer on the books and records of the 

debtor.56 

The third category addresses property that (a) is in fact being used, or has in fact 

been used, for the purpose of making or taking delivery, but (b) is held in a futures, 

foreign futures, cleared swaps, or (if the commodity is a security) securities account.57 

This property would be considered physical delivery property solely for the purpose of the 

obligations, pursuant to § 190.06, to make or take delivery of physical delivery property. 

 55 These first two categories together correspond to current § 190.01(ll)(3), with the first category 

corresponding to physical delivery property held for the purpose of making delivery and the second category 

corresponding to physical delivery property held as a result of taking delivery. The property that is (or 

should be) within these two categories, as of the filing date, comprises the property that will be distributed as 

part of the physical delivery class.

56 The current definition does not prescribe or imply a limit to how long such received property can be held 

in a delivery account, because there is no principled basis to draw a bright line delineating how long is too 

long. The definition the Commission is adopting explicitly codifies that position.

57 As the ABA Cover Note explained at 13, “[w]hen the FCM has a role in facilitating delivery, deliveries 

may occur via title transfer in a futures account, foreign futures account, cleared swaps account, delivery 

account, or, if the commodity is a security . . . in a securities account.”
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The property in this category would be distributed as part of the account class in which it 

is held (futures, foreign futures, or cleared swaps, or, in the case of a securities account, as 

part of a SIPA proceeding). 

Fourth, where such commodities or documents of title are not held by the debtor, 

but are delivered or received by a customer in accordance with § 190.06(a)(2) (either by 

itself in the case of an FCM bankruptcy or in conjunction with § 190.16(a) in the case of a 

clearing organization bankruptcy), they will be considered physical delivery property, but, 

again, solely for purposes of obligations to make or take delivery of physical delivery 

property pursuant to § 190.06. As this property is held outside of the debtor’s estate (and 

there was no obligation to transmit it to the debtor’s customer accounts), it is not subject to 

pro rata distribution.

The Commission is also adding a special case to correspond with the special case 

for cash delivery property, which states that where one fiat currency is exchanged for 

another, neither such currency, to the extent that it is recorded in the delivery account, will

be considered physical delivery property. The Commission is also, as discussed further 

below, additionally amending the physical delivery property definition to address the 

possibility of a negative delivery price where the party obliged to delivery physical 

delivery property under an expiring contract or an expired options contract is also obliged 

to make a cash payment to the buyer, as such cash or cash equivalents constitute physical 

delivery property. 

CME and CMC agreed that physical delivery property should include any cash 

delivery property received subsequent to the filing date in exchange for making a delivery.
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In light of the evolving nature of intangible assets, and of the manner in which they 

may be held, custodied or transferred, ICE suggested that the definition of physical 

delivery property include, as examples (and not by way of limitation), other electronic 

representations of commodities (whether or not technically “an electronic title document”) 

or any property entitlement to a commodity (such as for a commodity held as a financial 

asset in a securities account under Article 8 of the Uniform Commercial Code (whether or 

not a security) or similar structure).

ICE strongly agreed with the Commission’s proposal to clarify that intangible 

property received or held for purposes of delivery is appropriately regarded as subject to 

the delivery account, without regard to whether it is “physical” as under the current rule. 

ICE argued that any asset, tangible or intangible, that can be delivered in settlement of a 

contract should be eligible to be treated as delivery property, as set out in the proposed 

definition of “physical delivery property.” ICE believed this proposed definition would 

avoid questions that may otherwise arise in connection with the delivery of digital 

currencies or other novel digital assets. CME also supported the decision to expand the 

delivery account class to cover intangible commodities. 

Additionally, CME supported modernizing the definition of physical delivery 

property to recognize the use of electronic delivery documents in effecting deliveries 

under physical delivery commodity contracts. CME recommended that the 

Commission further expand the physical delivery property definition to cover 

within its scope any cash or cash equivalents that a seller may deposit in its 

delivery account when its obligation to deliver physical delivery property under an 

expiring futures or exercised options contract also includes an obligation to make 
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50

a cash payment to the buyer, as could arise if the contract’s final settlement price 

is negative. CME acknowledged that this scenario would be unprecedented and 

may never occur, but believed it prudent to contemplate the possibility in light of 

events in April 2020 where certain physical-delivery oil futures contracts traded 

below zero in the days prior to establishment of the final settlement prices.

CME also recommended a technical correction to the definition relating to the 

fact that shipping certificates are not electronic title documents, and instead represent 

the contractual obligation of a facility to deliver the underlying commodity to the 

buyer. Thus, for clarity CME recommended that the Commission revise the phrase 

“including warehouse receipts, shipping certificates or other documents of title 

(including electronic title documents) for the commodity” to read “including 

warehouse receipts, shipping certificates or other similar documents (including 

electronic versions thereof).” The Commission is not amending the examples to 

explicitly address additional “electronic representations of commodities” within the 

definition of physical delivery property because the definition already broadly covers “a 

commodity, whether tangible or intangible, held in a form that can be delivered to meet 

and fulfill delivery obligations under a commodity contract. ...” 

The Commission is amending the definition of physical delivery property to 

address the technical correction recommended by CME by acknowledging that shipping 

certificates are not documents of title while avoiding the phrase “similar documents” by 

instead amending the last phrase to read “including warehouse receipts, other documents 

of title, or shipping certificates (including electronic versions of any of the foregoing) for 

the commodity, or the commodity itself.”
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The Commission is also adding a special case, corresponding to the special case 

for cash delivery property, stating that where one fiat currency is exchanged for another, 

neither such currency would be considered physical delivery property.

The Commission is further amending the physical delivery property definition with 

a second special case in response to CME’s suggestion to address the possibility of a 

negative delivery price. While negative prices for deliverable commodities are rare, they 

are not unprecedented (e.g., the price of crude oil briefly went negative in April 2020). 

While a negative price for actual delivery may be even more rare, it is theoretically 

possible. Thus, the Commission is amending the definition of “physical delivery 

property” to address this special case by adding the following: “In a case where the final 

settlement price is negative, i.e., where the party obliged to deliver physical delivery 

property under an expiring futures contract or an expired options contract is also obliged 

to make a cash payment to the buyer, such cash or cash equivalents constitute physical 

delivery property.”

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting the definition of “physical delivery property” as proposed 

with the appropriate modifications to the structure, as set forth above, to correspond to 

“(1) In general.” and to address two special cases in “(2) Special cases.” The 

Commission is adopting the definition of “allowed net equity” as proposed in 190.01 and 

as modified to become “funded net equity” as described below. The Commission 

proposed “allowed net equity” to update cross-references and allow for two definitions of 

the term (as used in subparts B and C of part 190).
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

52

The ABA Subcommittee expressed concern in their comment letter that the 

definition and the use of the term “allowed net equity” as proposed in §§ 190.01 and 

190.08(a) could create inconsistencies and confusion between part 190 and the settled 

bankruptcy law terminology in which “allowed” typically refers to the fixed amount of a 

creditor’s claim rather than the amount distributable on such claim. The ABA 

Subcommittee recommended three modifications to address this potential confusion, 

including the deletion of the definition of “allowed net equity” in proposed §§ 190.01 and 

190.08(a), as the ABA Subcommittee believes the remainder of proposed § 190.08 would 

address how to calculate a customer’s net equity claims and the funded balances for each 

such claims.58

The Commission agrees with the ABA Subcommittee that the inclusion of 

“allowed” in the defined term “allowed net equity” could cause confusion in the broader 

context of established bankruptcy law, where “allowed” refers to the trustee’s measure of 

the proper amount of a claim, rather than to the portion of a claim that is funded (in pro 

rata distribution).

Accordingly, after consideration of the comments, including the ABA 

Subcommittee’s suggestion regarding the funded portion of a customer’s allowed claim 

throughout part 190, and for the reasons stated above, the Commission is changing the 

 58 The ABA Subcommittee also recommended that the Commission further amend § 190.02 by adding new 

paragraph (g) to proposed § 190.02 to state, “The term ‘allowed’ in this part shall have the meaning ascribed 

to it in the Bankruptcy Code.” The ABA Subcommittee believed that this would confirm that “allowed” 

under part 190 equates with the use of “allowed” under the Bankruptcy Code. The ABA Subcommittee also 

recommended that the Commission add “funded balance of” before “such customer’s allowed net equity 

claim” in proposed § 190.09(d)(3). The Commission agrees that these recommended amendments would 

avoid confusion with the meaning of “allowed” in § 190.02(g) and is therefore making these suggested 

changes.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

53

defined term “allowed net equity” to “funded net equity,” and adopting the definition as so 

modified. The Commission is also adding § 190.02(g) (as discussed below) and adding

“funded balance of” before “such customer’s allowed net equity claim” in § 190.09(d)(3) 

as suggested.

The Commission is adopting the definition of “commodity contract” in § 190.01 as 

proposed, in order to amend the definition to incorporate and extend in context (through 

references to current Commission regulations) the definition in section 761(4) of the 

Bankruptcy Code.59

ICI strongly supported the proposed amendments to the definition of “commodity 

contract” to include any “futures contract” and any “swap” thereby permitting transactions 

carried in a futures or cleared swaps account in accordance with the Commission’s 

regulations to be eligible for the protections that part 190 affords. 

Accordingly, after consideration of the comment and for the reasons stated above, 

the Commission is adopting the definition of “commodity contract” as proposed.

The Commission is adopting the definition of “customer property and customer 

estate” as proposed to update the definition to clarify cross-references within part 190 and 

to note that customer property distribution is addressed in § 766(i) of the Bankruptcy Code

in addition to § 766(h).

 ICE supported the Commission’s decision to include forward contracts that are 

traded on a DCM and cleared by a DCO as customer property. 

 59 It should be noted that, consistent with § 190.00(d)(3)(iv) and the decision In re Peregrine Financial 

Group, Inc., 866 F.3d 775, 776 (7th Cir. 2017), adopting by reference Secure Leverage Group, Inc. v. 

Bodenstein, 558 B.R. 226 (N.D. Ill. 2016), retail foreign exchange contracts do not fit within the definition 

of commodity contracts.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

54

Accordingly, after consideration of the comment, and for the reasons stated above, 

the Commission is adopting the definition of “Customer property, customer estate” in 

§ 190.01 as proposed.

The Commission is adopting the definition of “house account” with modifications, 

as set forth below to modify the existing definition to (a) clarify the connection between 

the concept of a “house account” in part 190 and the concept of a proprietary account in

§ 1.3, and (b) separately define the term in relation to an FCM, a foreign futures 

commission merchant, and a DCO.

The ABA Subcommittee and CME agreed with expanding the current 

definition to cover the house accounts that DCOs maintain for clearing members. 

However, the commenters noted that “house account” is used in only three places for 

an FCM proceeding: (i) proposed § 190.06(a)(5), which addresses deliveries made or 

taken with respect to the debtor FCM’s house account under open commodity contracts; 

(ii) proposed § 190.07(c), which prohibits transfer of the debtor FCM’s house account 

after the filing date; and (iii) proposed § 190.08(b)(2)(ix), which provides that when a 

non-debtor FCM maintains an omnibus account and a house account with a debtor FCM, 

it holds the accounts in a separate capacity for purposes of calculating its net equity claims 

against the debtor FCM. Assuming the Commission intended to expand the scope of 

these provisions in each case, the ABA Subcommittee and CME suggested that the 

Commission modify the three provisions to clarify that they apply to proprietary 

accounts of FCMs, and to limit the defined term to house accounts maintained by a 

DCO for clearing members. The ABA Subcommittee believed it was unnecessary, 

potentially confusing, and could preclude porting of proprietary accounts. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

55

The Commission agrees with the commenters’ recommendation to streamline the 

“house account” definition and amend the respective subpart B provisions to limit the use 

of “house account” to the context of clearing organization bankruptcies to avoid any 

potential confusion regarding the ability to port proprietary accounts. Accordingly, after 

considering the comments, and for the reasons stated above, the Commission is adopting

the definition of “house account” in § 190.01, as modified.

The Commission is adopting the definitions of “non-public customer” and “public 

customer” as proposed to define who is considered a public versus a non-public customer 

separately for FCMs and for clearing organizations. These definitions are complements 

(i.e., every customer is either a “public customer” or a “non-public customer,” but never

both). 

In the case of a customer of an FCM, the Commission is adopting the definition of

“public customer,”60 which would be analyzed separately for each of the relevant account 

classes (futures, foreign futures, cleared swaps, and delivery) with the relevant crossreferences to other Commission regulations. For the “futures account class,” this would

be a futures customer as defined in § 1.3, whose futures account is subject to the 

segregation requirements of section 4d(a) of the Act and the Commission regulations 

thereunder; for the foreign futures account class, a § 30.7 customer as defined in § 30.1,

whose foreign futures account is subject to the segregation requirements of § 30.7; for the 

cleared swaps account class, a cleared swaps customer as defined in § 22.1, whose cleared 

 60 This is in contrast to the current definition in § 190.01(cc) and (ii), which explicitly define non-public 

customer, and define public customer as a customer that is not a non-public customer. This change is not 

substantive, but rather fosters closely tying the account classes to business-as-usual segregation 

requirements. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

56

swaps account is subject to the segregation requirements of part 22; and for the delivery 

account class, a customer that would be classified as a “public customer” if the property 

held in the customer’s delivery account had been held in an account described in one of 

the prior three categories. The Commission is tying the definition of public customer for 

bankruptcy purposes to the definitions of “customer” (and segregation requirements) that 

apply during business as usual. An FCM’s non-public customers are customers that are 

not public customers. 

As part of the process for introducing a bespoke regime for the bankruptcy of a 

clearing organization, the Commission is differentiating between public and non-public 

customers such that customers of clearing members (whether such clearing members are 

FCMs or foreign brokers) acting on behalf of their proprietary (i.e., house) accounts, 

would be non-public customers, while all other customers of clearing members would be

public customers. 

In the case of members of a DCO that are foreign brokers, the determination as to 

whether a customer of such a member is a proprietary member would be based on either 

the rules of the clearing organization or the jurisdiction of incorporation of such member: 

if either designates the customer as a proprietary member, then the customer would be

treated as a non-public customer.

Vanguard agreed that the proposed definition of public customer in § 190.01 

included any customer of an FCM whose commodity contract is subject to the 

Commission’s segregation requirements, and for a DCO, a person whose account with the 

FCM is not classified as a proprietary account. CME also supported the proposed 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

57

definitions of public customer and non-public customer as it believed they are 

more understandable than the prior part 190 definitions. 

CME, however, asked the Commission to reconsider the recommendation

of the ABA Subcommittee to include non-U.S. customers of foreign broker 

clearing members of a DCO within the public customer definition. CME noted 

that it previously considered admitting foreign brokers as clearing members to 

clear trades of their non-U.S. customers in futures or options on futures listed on 

the CME or the other designated contract markets (“DCMs”) owned by CME 

Group, which would be analogous to a foreign clearing organization admitting 

FCMs as members to clear trades of their public customers in futures or options 

on futures listed by a foreign board of trade. While that model does not currently 

exist for U.S. DCOs and the DCMs for which they provide clearing services, 

CME believed it is appropriate to include that flexibility in part 190 to 

accommodate that possibility. OCC also requested clarification as to whether 

customers of foreign brokers that access a DCO through an FCM clearing member 

affiliated with the foreign broker would be treated as public customers. 

The Commission is of the view that including non-U.S. customers of 

foreign-broker clearing members as public customers should be considered as part 

of a comprehensive review of the issues at such time as the model of admitting 

foreign brokers as clearing members for U.S. DCOs becomes empirical. Such a 

review of the issues, including issues related to both bankruptcy and risk 

management, can be more reliably, and more efficiently, be conducted in the 

context of empirical rather than hypothetical circumstances. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

58

In response to OCC’s request for clarification, the Commission notes that 

where a foreign broker clears the trades of its (foreign) customers through an 

affiliated FCM that is a clearing member, those trades would be cleared on an 

omnibus basis through the FCM’s customer account, and would be required to be 

kept separate from the proprietary trades of the affiliated foreign broker. Thus, 

those customers would be treated as public customers. If a foreign broker clears 

its own proprietary trades through an unaffiliated FCM (i.e., there is no 

proprietary relationship between the foreign broker and the FCM as set forth in §

1.3), those trades would be considered as public customer trades at the FCM, but 

would not be part of the customer omnibus account of the foreign broker at the 

FCM. 

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting the definitions of “non-public customer” and “public 

customer” as proposed in § 190.01.

The Commission is adopting the definitions of “variation settlement” as proposed

to define the payments that a trustee may make with respect to open commodity contracts. 

The definition of variation settlement includes “variation margin” as defined in § 1.3, and

also includes “all other daily settlement amounts (such as price alignment payments) that 

may be owed or owing on the commodity contract” to cover all of the potential obligations 

associated with an open commodity contract.

CME supported defining variation settlement and generally agreed with 

the substance of the definition, but recommended that the Commission adopt one 

self-contained definition that does not rely on cross-reference to another 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

59

Commission definition. CME suggested that the Commission adopt the ABA 

Subcommittee’s variation settlement definition which would cover “any amount 

paid or collected (or to be paid or collected) on an open commodity contract 

relating to changes in the market value of the commodity contract since the 

trade was executed or the previous time the commodity contract was marked to 

market along with all other daily settlement amounts (such as price alignment 

payments) that may be owed or owing on the commodity contract.”

The ABA Subcommittee believed that the definition of variation settlement 

was not used consistently in the Proposal and identified two places in proposed 190.14(b) 

where the term “variation” is used instead of “variation settlement.” The ABA

Committee recommended using “variation settlement” in both places, to avoid any 

confusion as to whether “variation” refers to the Commission’s variation margin 

definition or variation settlement definition.

The Commission notes that the cross-references in § 190.01 to definitions 

in other parts of the Commission’s rules is intentional to clarify the relationships 

with those other definitions, and thus the Commission declines to make the 

change proposed by the commenters.

61 Accordingly, after consideration of the 

comments and for the reasons stated above, the Commission is adopting the definition of 

“variation settlement” in § 190.01 as proposed.

 61 The technical correction suggested by the ABA subcommittee to § 190.14(b) (change 

“variation” to “variation settlement”) will be adopted in one case; the subsection where the 

second case was found has been removed entirely by the supplemental notice of proposed 

rulemaking.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

60

The Commission did not receive comments on the remaining definitions 

in § 190.01 and is therefore adopting them as proposed.

The Commission is adopting the definition of “Act” in § 190.01 to refer to the 

Commodity Exchange Act.

The Commission is amending the definition of “Bankruptcy Code” in § 190.01 to 

update cross-references.

The Commission is amending the definition of “Business day” to define what 

constitutes a Federal holiday and clarify that the end of a business day is one second 

before the beginning of the next business day. 

The Commission is amending the definition of “Calendar day” to include a 

reference to Washington, DC as the reference location for the Calendar day.

The Commission is adopting the definition of “Cash delivery account class” to 

cross-reference it to the new definition in “Account class.”

The Commission is adopting the definition of “Cash equivalents” to define assets 

that might be accepted as a substitute for United States dollar cash.

The Commission is amending the definition of “Cleared swaps account” in 

§ 190.01 to cross-reference it to the new definition in “Account class.”

The Commission is adopting the amended definition of “Clearing organization” to 

update cross-references. 

The Commission is amending the definition of “Commodity broker” to reflect the 

current definition of commodity broker in the Bankruptcy Code and the relevant crossreferences.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

61

The Commission is adding the definition of “Commodity contract account” to refer 

to accounts of a customer based on commodity contracts in one of the four account 

classes, as well as, for purposes of identifying customer property for the foreign futures 

account class (subject to § 190.09(a)(1)), accounts maintained by foreign clearing 

organizations or foreign futures intermediaries reflecting foreign futures or options on 

futures executed on or subject to the rules of a foreign board of trade, including any 

account maintained on behalf of the debtor’s public customers. 

The Commission is amending the definition of “Court” to clarify that the court 

having jurisdiction over the debtor’s estate may not be a bankruptcy court (e.g., in the 

event of a withdrawal of the reference).

62

The Commission is amending the definition of “Cover” to improve clarity without 

any substantive change to the current definition.

The Commission is amending the definition of “Customer” to reflect the revisions 

to part 190 through this rulemaking, specifically, noting the different meanings of 

“customer” with respect to an FCM in contrast to with respect to a DCO.

The Commission is amending the definition of “Customer claim of record” to 

improve clarity without any substantive changes to the current definition.

The Commission is amending the definition of “Customer class” to reflect the 

revisions to part 190 through this rulemaking, specifically emphasizing the difference 

between public customers and non-public customers.

The Commission is deleting the definition of “Dealer option” as this term is no 

longer used.

 62 Cf. 28 U.S.C. 157(d).
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

62

The Commission is amending the definition of “Debtor” to explicitly refer to 

commodity brokers involved in a bankruptcy proceeding, a proceeding under SIPA, or a 

proceeding under which the FDIC is appointed as a receiver.

The Commission is newly adopting a definition of “Distribution” to include the 

transfer of property on a customer’s behalf, return of property to a customer, as well as 

distributions to a customer of valuable property that is different than the property posted 

by that customer.

The Commission is amending the definition of “Equity” to update a crossreference. 

The Commission is adding definitions for “Exchange Act” and “FDIC” to 

incorporate the statute and regulator, respectively, in part 190.

The Commission is revising the definition of “Filing date” to include the 

commencement date for proceedings under SIPA or Title II of the Dodd-Frank Act.63

The Commission is revising the definition of “Final net equity determination date” 

stylistically, to provide updated cross-references, and to further clarify who the parties 

involved are intended to be.

 63 In SIPA, the term “filing date" is defined to occur earlier than the filing of an application for a protective 

decree if the debtor is the subject of a proceeding in which a receiver, trustee, or liquidator for the debtor has 

been appointed and such proceeding is commenced before the date on which the application for a protective 

decree under SIPA is filed. In such case, the term “filing date” is defined to mean the date on which such 

proceeding is commenced. By contrast, this rulemaking does not define the term “filing date” to occur 

earlier in such a case, although it would (in § 190.02(f) as discussed below) authorize such a receiver to 

themselves file a voluntary petition for bankruptcy of the FCM.

This difference is due to the different uses of the “filing date” in these rules and in SIPA. For purposes of 

part 190, “filing date” refers to the date on and after which a commodity broker is treated as a debtor in 

bankruptcy. See, e.g., §§ 190.00(c)(4), 190.06(a)(1) and (b)(1), 190.08(b)(4), and 190.09(a)(1)(ii)(A). For 

purposes of SIPA, by contrast, the “filing date” is the date on which securities are valued. See, e.g., SIPA 

sections 8(b), 8(c)(1), 8(d), 9 ff–2(b), (c)(1), (d), and 78fff–3(a)(3).
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

63

The Commission is adding the definition of “Foreign board of trade” and 

incorporating by reference the definition in § 1.3 (which is consistent with § 48.2(a)).

The Commission is adding the definition of “Foreign clearing organization” to 

refer to a clearing house, clearing association, clearing corporation or similar entity, 

facility or organization that clears and settles transactions in futures or options on futures 

executed on or subject to the rules of a foreign board of trade.

The Commission is retaining the definitions of “Foreign future” and “Foreign 

futures commission merchant” as proposed to be unchanged.

The Commission is adopting the definition of “Foreign futures intermediary” to 

refer to a foreign futures or options broker, as defined in § 30.1, acting as an intermediary 

for foreign futures contracts between a foreign futures commission merchant and a foreign 

clearing organization.

The Commission is revising the definition of “Funded balance” to the definition in 

§ 190.08(c). That definition is discussed further below in section II.B.6.

The Commission is adding a definition for “Futures” and “Futures contract,” used 

interchangeably, to clarify what these terms mean for purposes of part 190. 

The Commission is deleting the definition of “In-the-money amount” as the term 

will no longer be used and replacing it with “in-the-money,” a term that is Boolean, and is 

used in § 190.04(c). 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

64

The Commission is amending the definition of “Joint account” to reflect that a 

commodity pool must be a legal entity.

64 Thus, the Commission is removing the reference 

to a commodity pool that is not a legal entity.

The Commission is deleting the definitions of “Leverage contract” and “Leverage 

transaction merchant” consistent with the discussion above with respect to 

§ 190.00(d)(1)(i)(B).

The Commission is removing the definition of “Member property” from current 

§ 190.09(a) and addressing it in § 190.01, and clarifying that member property is the 

property that may be used to pay net equity claims based on both the members’ house 

account as well as claims on behalf of non-public customers of the member.

The Commission is revising the definition of “Net equity” to update crossreferences, including the difference between bankruptcy of an FCM and of a clearing 

organization.

The Commission is revising the definition of “Open commodity contract” to 

improve clarity without any substantive changes to the definition.

The Commission is revising the definition of “Order for relief” to update crossreferences and incorporate stylistic, non-substantive changes.

The Commission is adding the definition of “Person” to clarify what this term 

means in the context of part 190. 

The Commission is adding the definition of “Physical delivery account class” to 

be cross-referenced to the new definition in “Account class.”

 64 See § 4.20(a)(1).
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

65

The Commission is deleting the definition of “Premium” as that term is no longer 

used.

The Commission is revising the definition of “Primary liquidation date” to reflect 

the removal of the concept of accounts being held open for later transfer. As a result of 

such removal, the Commission is also deleting current § 190.03(a), which set forth 

provisions regarding the operation of accounts held open for later transfer, since there will 

no longer be any such accounts.

The Commission is deleting the definition of “Principal contract” as that term is 

no longer used. This term was previously used to refer to contracts that are not traded on 

designated contract markets, but the definition excluded cleared swaps.

The Commission is adding the definition of the “Securities account” and “SIPA” to 

address the bankruptcy of an FCM that is also subject to the Securities Investor Protection 

Act. These are based on appropriate cross-references to the Exchange Act and SIPA.

The Commission is amending the definition of “Security” to update the crossreference to the Bankruptcy Code without any substantive changes to the definition.

The Commission is removing the definition of “Short term obligation” from 

§ 190.01 as the term is no longer used within the definition of “specifically identifiable 

property.” The Commission is instead amending the “specifically identifiable property”

definition with respect to securities, as discussed immediately below.

The Commission is amending the definition of “Specifically identifiable property” 

to update and streamline the definition in current § 190.01(ll). Paragraph (1)(i) focuses on 

“futures accounts,” “foreign futures accounts,” and “cleared swaps accounts.” Paragraph 

(1)(i)(A) corresponds in major part to paragraphs (ll)(1) and (6) of the current 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

66

definition. For securities, paragraph (1)(i)(A)(1) substantially copies current paragraph 

(1)(i), but clarifies that a security, to be included as specifically identifiable property, must 

have “a duration or maturity date of more than 180 days.” Paragraph (1)(i)(A)(2) 

reformats current paragraph (6). For warehouse receipts, bills of lading, or other 

documents of title (paragraph (i)(B), corresponding to current paragraph (ll)(1)(ii)), the 

definition restates the corresponding portion of the current definition.

Paragraph (1)(ii) of the definition furthers the approach of providing discretion to 

the trustee. It includes as specifically identifiable property commodity contracts that are 

treated as such in accordance with § 190.03(c)(2). As discussed further below,65 the latter 

provision permits (but does not require) the trustee, following consultation with the 

Commission, to treat open commodity contracts of public customers as specifically 

identifiable property if they are held in a futures account, foreign futures account, or 

cleared swaps account that is designated as a hedging account in the debtor’s books and 

records, and if the trustee determines that treating the commodity contracts as specifically 

identifiable property is reasonably practicable under the circumstances of the case. In 

contrast, paragraph (ll)(2) of the current definition is more prescriptive.

The Commission is amending the definition of “Strike price” for brevity without 

any substantive change.

The Commission is adding the definition of “Substitute customer property” to refer 

to the property (in the form of cash or cash equivalents) delivered to the trustee by or on 

behalf of a customer in order to redeem either specifically identifiable property or a letter 

of credit. 

 65 See section II.B.1.c.
Voting Draft – As approved by the Commission on 12/8/2020

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67

The Commission is adopting the definition of “Swap” to replace the current 

definition of “Cleared swap”66 in part 190. The definition of reflects the current definition 

and meaning of the term “swap” in section 1a(47) of the CEA and Commission regulation 

1.3. The Commission is also adopting the definition to add as a swap, for purposes of this 

part, “any other contract, agreement or transaction that is carried in a cleared swaps 

account pursuant to a rule, regulation or order of the Commission, provided, in each case, 

that it is cleared by a clearing organization [i.e., a DCO] as, or the same as if it were, a 

swap.”67

The Commission is amending the definition of “Trustee” to include the trustee in a 

SIPA proceeding.

The Commission is adopting a definition of “Undermargined” for purposes of part 

190 to mean when the funded balance of a debtor’s futures account, foreign futures 

account, or cleared swaps account is below the minimum amount that the debtor is 

required to collect and maintain for the open commodity contracts in such account under 

the rules of the relevant clearing organization, foreign clearing organization, DCM, Swap 

Execution Facility (“SEF”), or FBOT. If any such rules establish both an initial margin 

requirement and a lower maintenance margin68 requirement applicable to any commodity 

contracts (or to the entire portfolio of commodity contracts or any subset thereof) in a 

particular commodity contract account of the customer, the trustee will use the lower 

 66 See current § 190.01(pp).

67 Cf. 11 U.S.C. 761(4)(F)(ii) (including as a commodity contract “with respect to a futures commission 

merchant or clearing organization, any other contract, option, agreement, or transaction, in each case, that is 

cleared by a clearing organization”).

68 For further discussion of maintenance margin and its relationship to initial margin, see, e.g., 

https://www.cmegroup.com/education/courses/introduction-to-futures/margin-know-what-isneeded.html.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

68

maintenance margin level to determine the customer’s minimum margin requirement for 

such account. An undermargined account may or may not be in deficit.69

Accordingly, after consideration of the comments, and for the reasons discussed 

above, the Commission will adopt § 190.01 as proposed, with the amendments discussed 

above.

3. Regulation 190.02: General

Regulation 190.02 is being adopted as proposed, with the addition of paragraph (g) 

as described below. The Commission is adopting § 190.02(a)(1) based on current

§ 190.10(b)(1) with one substantive change to permit a trustee to request an exemption 

from the Commission from any procedural provision (rather than limiting such requests to 

exemptions from, or extension of, a time limit). Such an exemption may be subject to 

conditions, and must be consistent with the purposes of this part and of subchapter IV of 

the Bankruptcy Code. The Commission is adopting § 190.02(a)(1) consistent with major 

theme 7, discussed in section I.B. above regarding enhanced trustee discretion. Paragraph

190.02(a)(1) allows the trustee to request to be permitted to extend a deadline or to amend 

a form.

The Commission is also adopting § 190.02(a)(2)(i) and (ii), (a)(3), and (b), as 

derived from current §§ 190.10(b)(2), (3), and (4) and 190.10(d), respectively, with minor 

editorial and conforming changes. 

 69 An account is in deficit if the balance is negative (i.e., the customer owes the debtor instead of the 

reverse). An account can be undermargined but not in deficit (if the balance is positive, but less than the 

required margin). See discussion of § 190.04(b)(f). For example, if the margin requirement is $100 and the 

account balance is $20, the account is undermargined by $80, but is not in deficit. If the account loses a 

further $35, the balance would be ($15). The account would be in deficit by $15, and would be 

undermargined by $115.
Voting Draft – As approved by the Commission on 12/8/2020

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69

The Commission is adopting § 190.02(b) to delegate the functions of the 

Commission set forth in part 190, other than the authority to disapprove pre-relief 

transfers pursuant to § 190.07(e)(1), to the Director of the Division of Clearing and Risk, 

after consultation with the Director of the Market Participants Division70 (with the 

possibility of further delegations to members of the respective Directors’ staffs). 

The Commission is adopting § 190.02(c) to exclude from the definition of 

“customer” entities who hold claims against a debtor solely on account of uncleared 

forward contracts. The Commission is adopting § 190.02(d) to provide that the 

Bankruptcy Code will not be construed to prohibit a commodity broker from doing certain 

combinations of business, or to permit any otherwise prohibited operation, trade or 

business. The Commission is adopting § 190.02(e) to provide that security futures 

products held in a securities account shall not be considered to be part of commodity 

futures or options accounts as those terms are used in § 761(9) of the Bankruptcy Code.

The Commission is adopting §§ 190.02(c) (forward contracts), (d) (other), and (e) (rule of 

construction) as transposed from current § 190.10(e), (g), and (h), respectively. 

The Commission continues to believe, as stated in the proposal, that § 190.02(f) 

should enhance customer protection in cases where a receiver has been appointed 

(pursuant to e.g., section 6c of the CEA) for an FCM due to a violation or imminent 

violation71 of the customer property protection requirements of section 4d of the CEA or 

 70 The Market Participants Division is the successor to the Division of Swap Dealer and Intermediary 

Oversight, the title of that division at the time of the Proposal.

71 Section 6c of the CEA provides in relevant part that “whenever it shall appear to the Commission that any 

. . . person has engaged, is engaging, or is about to engage in any act or practice constituting a violation of 

any provision of this Act or any rule, regulation, or order thereunder . . . the Commission may bring an 

action in the proper district court . . . to enjoin such act or practice, or to enforce compliance with this Act” 
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of the regulations thereunder, or of the Commission’s capital rule (§ 1.17 of this chapter). 

Paragraph § 190.02(f) explicitly permits such a receiver to file a voluntary petition for 

bankruptcy of such FCM in appropriate cases. For example, the receiver may determine 

that, due to a deficiency in property in segregation, bankruptcy is necessary to protect 

customers’ interests in customer property.

The Commission requested comment with respect to all aspects of proposed 

§ 190.02. In particular, the Commission requested comment as to whether it would be

appropriate to permit trustees to request relief from procedural provisions such as 

requirements as to forms, in addition to requesting relief from deadlines; whether it would 

be appropriate to permit receivers for FCMs to file voluntary petitions in bankruptcy; and 

whether any portion of proposed § 190.02 would likely to lead to unintended 

consequences, and, if so, how may these be mitigated. 

The Commission received two comments on proposed § 190.02. CME generally 

supported proposed § 190.02, including adding a provision that would allow the trustee to 

request an exemption from the procedural requirements of the rules. CME also favored

adding the proposed provision to clarify that a receiver appointed for an FCM due to 

segregation or net capital violations may, in an appropriate case, file a petition for 

bankruptcy of the FCM pursuant to section 301 of the Bankruptcy Code. In contrast, FIA 

recommended that the Commission require a receiver to obtain the Commission’s consent 

before the receiver may file a voluntary petition in bankruptcy on behalf of an FCM. FIA 

believed that any receiver that may be appointed by a court would be in response to a 

 (emphasis supplied). Section 6c also refers to “an order appointing a temporary receiver to administer such 

restraining order and to perform such other duties as the court may consider appropriate.” 7 U.S.C. 13a-1.
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proceeding initiated by the Commission pursuant to section 6c of the Act, which 

authorizes the Commission to file an action in the appropriate U.S. District Court when it 

appears that a person “has engaged, is engaging, or is about to engage in any act or 

practice constituting a violation of any provision of this Act or any rule, regulation, or 

order thereunder.” FIA noted that there may be circumstances in which a receiver may 

determine that a voluntary petition under the Bankruptcy Code is warranted. However, in 

light of the fact that such a petition would effectively close the FCM, FIA believed that § 

190.02(f) should provide that the receiver may file a voluntary petition only with the prior 

consent of the Commission.

The Commission notes that § 190.02(f) is limited to cases where the receiver was 

appointed due to concerns about either protection of customer property, or of capital 

inadequacy, and the appointment would be in response to a proceeding initiated by the 

Commission. In such a case, the Commission believes that it would be appropriate and 

most effective to defer to the judgment of the appointed receiver as to the necessity of the 

filing of a petition in bankruptcy. 

As a technical point, the ABA Subcommittee recommended (consistent with their 

recommendation in the definitions section, § 190.01, to more precisely use the term 

“allowed net equity”)72 that the Commission further amend § 190.02 by adding new 

paragraph (g) to proposed § 190.02 to state, “The term ‘allowed’ in this part shall have the 

meaning ascribed to it in the Bankruptcy Code.” The ABA Subcommittee believed that 

 72 See section II.A.2. (recommending that the Commission instead use “funded net equity” as the defined 

term in the § 190.01 definitions.)
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this would confirm that “allowed” under part 190 equates with the use of “allowed” under 

the Bankruptcy Code. The Commission agrees, and is making the change.

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting § 190.02 as proposed, with the addition of paragraph 

(g). 

B. Subpart B—Futures Commission Merchant as Debtor

The Commission is adopting subpart B (§§ 190.03-190.10) to address debtors that 

are FCMs.

1. Regulation 190.03: Notices and Proofs of Claims

The Commission is adopting § 190.03 as proposed with modifications to 

§ 190.03(c)(2), as set forth below. 

The Commission is adopting § 190.03 to set forth requirements for the notices and 

proofs of claim that are applicable to subpart B of part 190. It reorganizes and revises

much of current § 190.02, and incorporates some portions of current § 190.10. 

a. Regulation 190.03(a): Notices – Means of Providing

The Commission is adopting § 190.03(a) to set forth the means by which notices

required under subpart B of part 190 are to be provided. Paragraph 190.03(a)(1) is 

substantially similar to current § 190.10(a), but, in an effort to modernize part 190, the 

Commission is deleting the requirement that notices be given to it via overnight mail (i.e., 

in hard copy). The Commission is retaining the requirement that all such notices be sent 

to the it via electronic mail. The Commission believes that overnight hard copy delivery 

is unnecessary and that removing the requirement to send notices to the Commission via 

overnight mail will result in cost savings. 
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The Commission is adopting § 190.03(a)(2) to provide a generalized approach for 

giving notice to customers under part 190. In light of evolving technology, § 190.03(a)(2) 

replaces the specific procedures for providing notice to customers that appear in current § 

190.02(b) with the requirement that the trustee must establish and follow procedures 

“reasonably designed” for giving notice to customers under subpart B of part 190. Such 

notice procedures should generally include the use of a website and customers’ electronic 

addresses. In the Commission’s view, this new approach provides trustees with the 

necessary flexibility to determine the best way to provide notice and is consistent with the 

manner in which bankruptcy trustees in recent FCM bankruptcy cases have provided 

notice to customers. The Commission also believes that adopting a generalized notice 

requirement in lieu of retaining more specific notice obligations (e.g., newspaper 

publication) will result in both cost savings for the debtor’s estate, and more efficient and 

effective notification of customers.

The Commission requested comment on the approach to the notice requirements 

set forth in proposed § 190.03(a). The Commission specifically asked whether the 

proposed changes would be helpful; would be likely to lead to unintended consequences;

and how any unintended consequences could be mitigated. CME supported providing 

trustees with the flexibility, in consultation with the Commission, to establish appropriate 

procedures for giving notice to customers and moving away from outdated and impractical 

notice requirements. CME also agreed that the changes align with how trustees in recent 

FCM cases have communicated with the FCM’s customers and are more customerfriendly. 
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b. Regulation 190.03(b): Notices to the Commission and Designated SelfRegulatory Organizations.

Paragraph 190.03(b)(1) is derived from current § 190.02(a)(1), but includes revised 

notice requirements that are designed to ensure that the Commission and the relevant 

designated self-regulatory organization (“DSRO”)73 will be aware of a voluntary or 

involuntary bankruptcy filing or SIPA application as soon as is practicable and to codify 

the practices observed in recent bankruptcy and SIPA cases.74 First, § 190.03(b)(1)

provides that, in the event of a voluntary bankruptcy filing, the commodity broker must 

notify the Commission and the appropriate DSRO as soon as practicable before, and in 

any event no later than, the time of filing. Second, § 190.03(b)(1) provides that, in the 

event of an involuntary bankruptcy filing or an application for a protective decree under 

SIPA,

75 the commodity broker must notify the Commission and the appropriate DSRO 

immediately upon the filing of such petition or application. The Commission notes that, 

as a practical matter, a decision to file for bankruptcy takes measurable time, as does the 

preparation of the necessary papers. In previous FCM voluntary bankruptcy filings, the 

commodity broker has provided the Commission and its DSRO with notice ahead of the 

bankruptcy filing. Paragraph 190.03(b)(1) merely codifies the expectation that such 

advance notice should, in fact, occur to the extent practicable. Paragraph 190.03(b)(1) 

 73 For further detail regarding SROs and DSROs see generally § 1.52.

74 A voluntary case under a chapter of the Bankruptcy Code is commenced by the debtor by filing a petition 

under that chapter. Section 301(a) of the Bankruptcy Code, 11 U.S.C. 301(a). Under certain circumstances, 

creditors of a person may file an involuntary case against that person pursuant to section 303 of the 

Bankruptcy Code, 11 U.S.C. 303. In such cases, the order for relief will be granted only if the petition is not 

timely controverted or if the court makes specific findings. Id. There is no historical precedent for an 

involuntary petition in bankruptcy being filed against a commodity broker. 

75 A SIPA proceeding is commenced when the Securities Investors Protection Corporation (“SIPC”) files a 

petition for a protective order. See generally SIPA section 5, 15 U.S.C. 78eee. 
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allows the commodity broker to provide the relevant docket number of the bankruptcy or 

SIPA proceeding to the Commission and the DSRO “as soon as known,” in order to 

account for the fact that there may be a time lag between the filing of a proceeding and the 

assignment of a docket number. 

Paragraph § 190.03(b)(2) sets forth the requirements for the provision of notice to 

the Commission of an intent to transfer or to apply to transfer open commodity contracts 

in accordance with section 764(b) of the Bankruptcy Code and relevant provisions of part 

190. It is derived from current § 190.02(a)(2). While § 190.03(b)(2) retains the 

requirement that such notice be provided “[a]s soon as possible,” it removes the

requirement that such notice be provided no later than three days after the order for relief. 

The Commission believes that the three-day deadline set forth in current § 190.02(a)(2) is 

likely in many cases to be too long, but may, in some cases, be too short. 

The Commission expects that the bankruptcy trustee would begin working on 

transferring any open commodity contracts as soon as the trustee is appointed and that, by 

the end of three days following entry of the order for relief, any such transfers likely will 

be either completed, actively in process, or determined not to be possible. Indeed, the 

Commission expects that a DCO would, in most cases, be reluctant to hold a position open 

for more than three days following the entry of the order for relief unless a transfer is 

actively in process and imminent. Thus, while the Commission recognizes that the “[a]s 

soon as possible” language is somewhat vague, given past experience, the Commission 

views the current timeframe of three days after the entry of the order for relief as generally 

too long, and it is not clear what precise shorter period of time would be generally 

appropriate, given the uniqueness of each case. Under different circumstances, that is, 
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where transfer arrangements cannot be made within three days after the order for relief, a 

specified deadline for notification may in fact be harmful, in that it could be interpreted to 

prohibit notification after the expiration of such deadline (and thus, impliedly prohibit the 

trustee from forming the intent to transfer after that time). 

In the event of an FCM bankruptcy, the Commission anticipates that there will be 

frequent contact between the trustee, the relevant DSRO, any relevant clearing 

organization(s), and Commission staff. Thus, a specified deadline for such notification 

would not appear to be helpful. Paragraph 190.03(b)(2) also clarifies that notification 

should be made with respect to a transfer of customer property.

The Commission requested comment on proposed § 190.03(b). Specifically, the 

Commission asked whether proposed § 190.03 would meet the objective of ensuring that 

the Commission and the relevant DSRO will be aware of a bankruptcy filing or SIPA 

proceeding as soon as is practicable. LCH expressed support for the requirement that 

FCMs notify DSROs, in addition to the CFTC, of involuntary bankruptcy filings. LCH 

also requested that the Commission consider ways in which this information could be 

quickly transmitted to the DCOs that may be impacted, given the interconnectedness of 

the derivatives market. While, as noted above, staff would be in contact with DCOs that 

might be impacted by a bankruptcy proceeding involving an FCM as a matter of 

supervisory practice, this practice does not need to be incorporated into regulation. 

Moreover, the Commission notes that many DCOs, including LCH, require as part of their 
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77

own rules and procedures that their clearing members provide prompt notice of a 

bankruptcy filing affecting the clearing member.76

c. Regulation 190.03(c): Notices to Customers; treatment of hedging accounts 

and treatment of specifically identifiable property.

The Commission is adopting § 190.03(c) to address notices to customers and the 

treatment of hedging accounts and specifically identifiable property.

Paragraph 190.03(c)(1) requires the trustee to use all reasonable efforts to notify 

promptly any customer whose futures account, foreign futures account, or cleared swaps 

account includes specifically identifiable property, other than open commodity contracts,

which has not been liquidated, that such property may be liquidated on and after the 

seventh day after the order for relief if the customer has not instructed the trustee in 

writing before the deadline specified in the notice to return such property pursuant to the 

terms for distribution of customer property contained in part 190. It also requires that the 

trustee’s notice to customers with specifically identifiable property include, where 

applicable, a reference to substitute property. 

Paragraph 190.03(c)(1) is derived from current § 190.02(b)(1), but replaces the 

requirement that the trustee publish such notice to customers in a newspaper for two 

consecutive days prior to liquidating the specifically identifiable property with the 

requirement that the trustee notify customers in accordance with § 190.03(a)(2). This 

change is intended to provide the trustee with flexibility in notifying customers regarding 

specifically identifiable property and to modernize part 190 to allow the trustee to provide 

 76 See, e.g., LCH Ltd.: FCM PROCEDURES OF THE CLEARING House 1.6(b)(G) (“All FCM Clearing Members 

must provide the Clearing House in a prompt and timely manner with: ... notice if the FCM Clearing 

Member becomes the subject of a bankruptcy petition.”).
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notice to customers in a way that will maximize the number of customers reached. The 

timeframe in which the Commission would allow the trustee to commence liquidation of 

specifically identifiable property has been modified to reflect the revised notice 

requirements. Because § 190.03(c)(1) does not require newspaper publication of customer 

notice, the Commission is allowing the trustee to commence liquidation of specifically 

identifiable property on the seventh day after the order for relief (or such other date as 

specified by the trustee with the approval of the Commission or the court), so long as the 

trustee has used all reasonable efforts promptly to notify the customer under § 

190.03(a)(2) and the customer has not instructed the trustee in writing to return such 

specifically identifiable property. 

The Commission is adopting § 190.03(c)(2) to address how a bankruptcy trustee 

may treat open commodity contracts carried in hedging accounts. This regulation moves

from the bespoke approach of current § 190.02(b)(2) to a categorical approach, in light of 

the practical difficulties of treating large numbers of customers with similar open contracts 

on a bespoke basis.

77 The Commission notes that recent commodity broker bankruptcies 

have involved thousands of customers, with as many as hundreds of thousands of 

commodity contracts. Trustees must make decisions as to how to handle such customers 

and contracts within days—in some cases, hours—after being appointed. Therefore, the 

Commission is giving the trustee the authority (i.e., an option, but not an obligation) to 

treat open commodity contracts of public customers held in hedging accounts designated 

as such in the debtor’s records as specifically identifiable property, after consulting with 

the Commission and when practical under the circumstances. To the extent the trustee 

 77 See major theme 7 in section I.B. above.
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exercises such authority, the trustee is required to notify each relevant public customer in 

accordance with § 190.03(a)(2). As proposed, § 190.03(c)(2) would have required the 

trustee, in all cases, to request that the customer provide instructions as to whether to 

transfer or liquidate the relevant open commodity contracts.78 As discussed further below, 

in response to a comment, the Commission is modifying this proposal to address cases 

where, in the judgment of the trustee, the books and records of the debtor reveal a clear 

preference by the public customer with respect to transfer or liquidation of open 

commodity contracts. 

Paragraph 190.03(c)(2) also delineates certain information that the trustee must 

include in the notice. As proposed, the notice must inform the customer that (1) if the 

customer does not provide instructions in the prescribed manner and by the prescribed 

deadline, the customer’s open commodity contracts will not be treated as specifically 

identifiable property; (2) any transfer of the open commodity contracts is subject to the 

terms for distribution contained in § 190.09(d)(2); (3) absent compliance with any terms 

imposed by the trustee or the court, the trustee may liquidate the open commodity 

contracts; and (4) providing instructions may not prevent the open commodity contracts 

from being liquidated. The Commission is making conforming changes to this portion of 

proposed § 190.03(c)(2) to reflect the modification referenced above. To the extent the 

trustee does not exercise its authority to treat public customer positions carried in a 

 78 The Commission is also making other changes that are intended to make it simpler for the trustee to 

identify hedging positions and allow an FCM to designate an account as a hedging account by relying on 

explicit customer representations that the account contains a hedging position. See § 1.41. This would 

simplify the existing requirement that FCMs provide a hedging instructions form when a customer first 

opens up a hedging account. For commodity contract accounts opened prior to the effective date of the part 

190 revisions, the Commission is proposing that FCMs may rely on written hedging instructions received 

from the customer in accordance with current § 190.06(d). See § 1.41(c).
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hedging account as specifically identifiable property, the trustee must endeavor to, as the 

baseline expectation, treat open commodity contracts of public customers carried in 

hedging accounts the same as other customer property and effect a transfer of such 

contracts to the extent possible.79 The Commission is making these changes to reflect the 

policy preference to port all positions of public customers. Requiring a trustee to identify 

hedging accounts and provide hedging account holders the opportunity to keep their 

positions open may be a resource and time intensive process, which the Commission 

believes could interfere with the trustee’s ability to take prudent and timely action to 

manage the debtor FCM’s estate to protect all of the FCM’s customers. The Commission 

believes that allowing the FCM to rely on representations made by customers during 

business-as-usual will alleviate this concern. In cases where it may be practical, the 

trustee may elect to provide special hedging account treatment.

The Commission is adopting § 190.03(c)(3) to make minor modifications to the 

notice of the commencement of an involuntary proceeding that the trustee may provide to 

customers prior to entry of an order for relief, and upon leave of the court. Such 

modifications include clarifying that such notice must be in accordance with the notice 

provisions set forth § 190.03(a)(2), amending certain terminology, and removing 

unnecessary references. 

Paragraph 190.03(c)(4) requires the bankruptcy trustee to notify customers that an 

order for relief has been entered and instruct customers to file a proof of customer claim. 

The regulation is derived from current § 190.02(b)(4), but adds that the notice must be 

provided in accordance with § 190.03(a)(2). Paragraph 190.03(c)(4) replaces the term 

 79 See § 190.00(c)(4).
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“customer of record” with the term “customer,” as “customer of record” is not a defined 

term in part 190 and all customers should receive notice that an order of relief has been 

entered. Paragraph 190.03(c)(4) also provides that the trustee shall cause the proof of 

customer claim form to set forth the bar date for its filing consistent with the current § 

190.03(a)(2). 

The Commission requested comment on proposed § 190.03(c). It specifically 

asked whether the proposed changes to the notice requirements would be helpful; whether

the discretion granted to the trustee concerning the treatment of hedging accounts as 

specifically identifiable property is appropriately tailored; whether the proposed revisions 

appeared likely to lead to unintended consequences; and how such consequences; if any, 

could be mitigated. 

The Commission received three comments on proposed § 190.03. CME fully 

endorsed the policy preference that the trustee should use their best efforts to transfer all 

public customer positions and related customer property from the debtor FCM to one or 

more other FCMs. Accordingly, CME supported the provisions in § 190.03(c) that grant 

the trustee the discretion to not treat customer positions carried in hedge accounts as 

specifically identifiable property, unless the trustee determines that doing so would be 

practicable under the circumstances, following consultation with the Commission. CME 

asserted that this discretion will allow the trustee to devote their attention to transferring 

open positions of all public customers, along with their proportionate share of the 

customer property, in the aggregate. SIFMA AMG / MFA also generally agreed with

§ 190.03(c)(2) in that it grants to the trustee the authority (that is, the option but not the 

obligation) to treat open commodity contracts of public customers held in hedging 
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accounts designated as such in the debtor’s record as specifically identifiable property. 

SIFMA AMG / MFA stated that permitting the trustee this flexibility would serve the 

interest of customers as a whole by facilitating a more rapid transfer of customer positions 

and property. SIFMA AMG / MFA recommended, however, that the Commission 

explicitly clarify that § 190.03(c)(2) is not intended to affect the treatment of hedging 

accounts under part 39 of the Commission’s regulations and that, to the extent reasonably 

practicable, the trustee’s goal will be to maximize value to the public customer.80

Additionally, in the context of the treatment of hedging accounts, SIFMA AMG / MFA 

recommended that, if the trustee exercises the authority as granted in this provision, the 

trustee should be first required to consult the instructions (regarding preferences with 

respect to transfer or liquidation of open commodity contracts) provided by a public 

customer to the debtor at the time of opening the relevant hedging account, and only if 

such instructions are missing or unclear should the trustee require such customer to 

provide it with written instructions as contemplated by proposed § 190.03(c)(2). SIFMA 

AMG / MFA noted that the notice sent by the trustee to the customer can still provide that 

existing or previously provided instructions may not prevent the open commodity 

contracts from being liquidated. SIFMA AMG / MFA asserted that adding this first step 

would further the goal of expediency. 

The Commission agrees with the suggestion by SIFMA AMG / MFA that it is 

more efficient to endeavor to follow clear instructions previously provided rather than to 

request new instructions. Moreover, this approach mitigates the risk that a customer who 

 80 This last point is addressed with the addition of § 190.00(c)(3)(i)(C).
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has already made their preference patent will fail to reply to the request and thus be treated 

in a manner contrary to that previously expressed preference. 

Accordingly, the Commission is amending and reorganizing § 190.03(c)(2) to 

implement that suggestion. Specifically, § 190.03(c)(2)(ii)(B) is being amended to 

provide, in pertinent part:

(c) Notices to Customers

. . . . . 

(2) Open commodity contracts carried in hedging accounts. 

. . . . . 

(ii) If the trustee exercises such authority, 

. . . . 

(B) Instructions. 

(1) Where, in the judgment of the trustee, the books and 

records of the debtor reveal a clear preference by a 

relevant public customer with respect to transfer or 

liquidation of open commodity contracts, the trustee 

shall endeavor, to the extent reasonably practicable, to 

comply with that preference.

(2) Where, in the judgment of the trustee, the books and 

records of the debtor do not reveal a clear preference by 

a relevant public customer with respect to transfer or 

liquidation of open commodity contracts, the trustee will 

request the customer to provide written instructions 

whether to transfer or liquidate such open commodity 

contracts. Such notice must specify the manner for 

providing such instructions and the deadline by which 

the customer must provide instructions. 

Other conforming changes are being made to § 190.03(c)(2). With respect to 

SIFMA AMG / MFA’s request that the Commission explicitly clarify that proposed § 

190.03(c)(2) is not intended to affect the treatment of hedging accounts under part 39, the 

Commission notes that § 190.03(c)(2) governs the trustee’s actions, and does not govern

the actions a DCO may take under its default rules or otherwise. 
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ACLI recommended that the Commission amend proposed § 190.03(c)(2) to 

require a trustee to transfer a public customer’s hedge positions where the customer has 

requested the transfer and met the required terms unless, in consultation with the 

Commission, it is determined that it would be unreasonable to transfer such positions. 

ACLI further recommended that the Commission add a threshold such as “impossibility” 

or “exigent circumstances” to limit a trustee’s ability to liquidate a customer’s hedge 

position in lieu of a requested transfer. The ACLI asserts that the Commission’s oversight 

should be specifically mandated. In response to ACLI’s comment, the Commission notes 

that § 190.00(c)(4) sets forth a preference for the porting of all open commodity contract 

positions of public customers, along with all or a portion of such customers’ account 

equity, and § 190.04(a)(1) instructs the trustee promptly to use its best efforts to effect a 

transfer of such positions and property in accordance with § 190.07(c) and (d) not later 

than seven calendar days after the order for relief. The discretion granted to the trustee in 

§ 190.03(c)(2) is based on the reality that, in light of limited time and administrative 

resources, achieving porting to the maximum extent is fostered by treating customers on 

an omnibus, rather than an individualized, basis. For these reasons, the Commission 

declines to adopt ACLI’s specific suggestions.

d. Regulation 190.03(d): Notice of Court Filings

Paragraph § 190.03(d) addresses notices of court filings. It is derived from current 

§ 190.10(f), but makes modernizing changes to the terminology and method of providing 

notice to the Commission. The Commission requested comment on proposed § 190.03(d). 

The Commission specifically asked whether the proposed revisions appeared likely to lead 
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85

to unintended consequences, and, if so, how such consequences could be mitigated. The 

Commission did not receive any comments on proposed § 190.03(d).

e. Regulation 190.03(e): Proof of Customer Claim

The Commission is adopting § 190.03(e) to require a trustee to request that 

customers provide information sufficient to determine a customer’s claim in accordance 

with the regulations contained in part 190. Paragraph 190.03(e) lists certain information 

that customers shall be requested to provide, to the extent reasonably practicable, but 

grants the trustee discretion to adapt the request to the facts of the particular case. Such 

discretion is being granted to the trustee in order to enable the trustee to tailor the proof of 

claim form to the information that is most appropriate in light of the specifics of the types 

of business that the debtor did (and did not do), the way in which such types of business 

were organized, and the available records of the debtor (as well as the reliability of those 

records). Paragraph 190.03(e) is generally derived from current § 190.02(d), although 

certain items on the list of information to be requested of customers have been revised and 

reorganized to: inter alia, improve clarity; tie the questions to definitions of terms in part 

190; give the claimant an opportunity to provide a more complete picture of its claims; 

and provide its own view as to the value of such open positions, unliquidated securities or 

other unliquidated property in order to support its claim against the debtor.

The Commission requested comment on proposed § 190.03(e). Specifically, the 

Commission asked whether the proposed changes would be helpful; whether the discretion 

granted to the trustee was appropriately tailored; whether the proposed revisions appeared

likely to lead to unintended consequences; and how such consequences, if any, could be 
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mitigated. The Commission received one comment on proposed § 190.03(e). CME noted

that the proposed regulation is a major improvement over the current regulation.

f. Regulation 190.03(f): Proof of Claim Form

Regulation 190.03(f) provides that a template proof of claim form is included as 

appendix A to part 190.81 The Commission substantially revised the customer proof of 

claim form in order to streamline it and better map it to the information listed in 

§ 190.03(e). The revised customer proof of claim form now includes, in each section, 

citations to the location in the text of § 190.03(e) where such information is listed.

Paragraph 190.03(f)(1) provides that, to the extent there are no open commodity 

contracts that are being treated as specifically identifiable property, the bankruptcy trustee 

should modify the proof of claim form to delete any references to open commodity 

contracts as specifically identifiable property. For example, this would be the case if all 

open commodity contracts had been transferred or liquidated before the proof of claim 

form is sent. Paragraph 190.03(f)(2) makes clear that the trustee has discretion as to 

whether to use the template proof of claim form, and that the proof of claim form should 

be modified to reflect the specific facts and circumstances of the case. The provisions of § 

190.03(f), taken together, are meant to provide bankruptcy trustees with appropriate 

flexibility to determine the best and most efficient way to compose the customer proof of 

claim.

The Commission requested comment on proposed § 190.03(f). Specifically, the 

Commission asked whether the proposed changes to the treatment of the proof of 

customer claim form would be helpful; whether they would lead to unintended 

 81 Appendix A is discussed in section II.D below.
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consequences; and how such consequences, if any, could be mitigated. The Commission 

also asked whether the discretion granted to the trustee was appropriately tailored and, if 

not, what changes should be made. CME commented that the proof of claim form had 

been improved and supported the flexibility provided to the trustee.

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.03 as proposed, with modifications to § 190.03(c)(2), as 

set forth above. 

2. Regulation 190.04: Operation of the Debtor’s Estate—Customer 

Property

The Commission is adopting § 190.04 as proposed with modifications, as set forth 

below to address the collection of margin and variation settlement, as well as the

liquidation and valuation of positions. The Commission is adopting § 190.04 to clarify 

and update portions of § 190.02, 190.03, and 190.04.

The Commission requested comment with respect to all aspects of proposed 

§ 190.04 including: whether the revisions create any unintended conflicts with customer 

protection regulations set forth in parts 1, 22, and 30; how any such conflicts may be 

resolved; whether there are any proposed clarification changes that are likely to create 

unintended consequences; and, if so, how might those be avoided or mitigated.

a. Regulation 190.04(a): Transfers

The Commission is adopting § 190.04(a) as proposed. Regulation 190.04(a) 

largely retains the current provisions in current § 190.02(e) regarding transfers for 
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customers in a bankruptcy proceeding. It also retains the policy preference82 that the 

trustee should use its best efforts to transfer open commodity contracts and property held 

by the failed FCM for or on behalf of its public customers to one or more solvent FCMs.83 

Regulation 190.04(a)(1) provides that the trustee “shall promptly” use its best efforts to 

effect such transfers, while current § 190.02(e)(1) states that the trustee must “must 

immediately” do so. This revision signals that the trustee must take action to transfer open 

commodity contracts as soon as practicable, while avoiding potential pressure of the term 

“immediately” in light of the challenges presented in an FCM bankruptcy.

Regulation 190.04(a)(2) replaces the term “equity” with “property” to clarify that the 

trustee should endeavor to transfer all types of property that the commodity broker is 

holding on behalf of customers; the transfer is not limited to equity. The Commission is 

also adding the word “public” before “customers” to clarify that the transfers discussed in 

§ 190.04(a)(1) relate to the open commodity contracts and property of the debtor’s public 

customers.84 

The Commission is adopting § 190.04(a)(2), as derived from § 190.02(e)(2), to

remove the liquidation-only trading limitations on an FCM that is subject to an 

involuntary bankruptcy petition unless otherwise directed by the Commission, by any 

applicable self-regulatory organization, or by court. The Commission is instead adopting 

 82 The Commission discussed the rationale for this policy preference in the discussion of § 190.00(c)(4). See

section II.A.1. See also ABA Cover Note at 14 (recommending explicitly identifying in 190.04(a) a clear 

policy that the trustee should use best efforts to transfer open commodity contracts and property held by the 

failed FCM for or on behalf of its public customers to one or more solvent FCMs).

83 The Commission is also adopting cross-references in § 190.04(a) to other provisions within proposed part 

190 that discuss transfers of customer property.

84 The Commission is adopting the same change—addition of the word “public” before “customers”—to § 

190.04(a)(2), as discussed below.
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limitations on the business of an FCM in bankruptcy in § 190.04(g) to more generally 

address involuntary proceedings.

85 

The Commission is adopting § 190.04(a)(2), as derived from current 

§ 190.02(e)(2), to provide that if such commodity broker demonstrates to the Commission 

within a specified period of time that it is in compliance with the Commission’s 

segregation and financial requirements on the filing date, the Commission may determine 

to allow the commodity broker to continue in business. The Commission is retaining this 

provision because any requirement to transfer customers is properly addressed pursuant to 

§ 1.17(a)(4), which deals with FCMs that do not meet minimum financial requirements. 

The Commission is of the view that an FCM that does meet such requirements should not 

be compelled to cease business and transfer its customers absent an appropriate finding by 

a court or the Commission. 

In addition, similar to § 190.04(a)(1), as discussed above, the Commission is 

replacing the term “equity” with “property” to clarify that the transfers discussed in § 

190.04(a)(2) are for all types of property that the commodity broker is holding on behalf 

of customers, rather than limited to only equity. Also, the Commission is adding the word 

“public” before “customers” to clarify in § 190.04(a)(2) that the transfers discussed in 

§190.04(a)(1) relate to the open commodity contracts and property of the debtor’s public 

customers. 

 85 The Commission is deleting the reference to “liquidation” in § 190.02(e)(4) accordingly since the 

limitation to trading for liquidation only is being deleted from § 190.04(a)(2).
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The Commission did not receive any comments on this aspect of the Proposal. 

Accordingly, for the reasons stated above, the Commission is adopting § 190.04(a) as 

proposed.

b. Regulation 190.04(b): Treatment of open commodity contracts

The Commission is adopting § 190.04(b) as proposed to clarify and update the 

provisions in current § 190.02(g)(1), which allow a trustee to make “variation and 

maintenance margin payments” on behalf of the debtor FCM’s customers. The 

Commission is adopting § 190.04(b) to be generally consistent with the current regulation 

but with a number of substantive changes.

First, the Commission is adopting § 190.04(b) to permit the trustee to make margin 

payments pending transfer or liquidation; not just pending liquidation as required by 

current § 190.02(g)(1). The amendment is consistent with the Commission’s longstanding 

policy for the trustee to endeavor to transfer open commodity contracts. The trustee has 

two paths for the treatment of such contracts: transfer and, if transfer is not possible, 

liquidation. 

Second, the Commission is adopting § 190.04(b)(1) to delete the phrase “required 

to be liquidated under paragraph (f)(1) of this section” in current § 190.02(g)(1) to 

eliminate a complete prohibition against paying margin on open contracts. While holding 

contracts open may or may not be practicable given the particular circumstances of the 

bankruptcy, a complete prohibition against paying margin on such open contracts would 

undermine the point of having the possibility to hold those contracts open. Accordingly, 

the Commission is deleting the phrase “required to be liquidated under paragraph (f)(1) of 

this section” and thus will instead apply more broadly to any open commodity contracts. 
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The Commission is also adopting several technical amendments. Third, the 

Commission is replacing the phrase “variation and maintenance margin payments” with 

“payments of initial margin and variation settlement” which, in the Commission’s view, 

more accurately describes the types of payments being reflected in this provision. Fourth, 

the Commission is replacing the phrase “to a commodity broker” with “to a clearing 

organization, commodity broker, foreign clearing organization or foreign futures 

intermediary” to account for the various types of entities to which a margin payment 

described in this provision may be made. Lastly, the Commission is replacing the phrase 

“specifically identifiable to a particular customer” with “specifically identifiable property 

of a particular customer” in order to be consistent with the definitions in part 190, which 

includes as a defined term “specifically identifiable property.”

The Commission is adopting § 190.04(b)(1)(i), as derived from current § 

190.02(g)(1)(i), to prevent the trustee from making any payments on behalf of any 

commodity contract account that is in deficit, to the extent within the trustee’s control. 

The Commission is including the phrase “to the extent within the trustee’s control” to 

recognize that certain commodity contract accounts may be held on an omnibus basis (i.e., 

on behalf of several customers), so to the extent the trustee is making a margin payment

on behalf of the omnibus account, it may be out of the trustee’s control to identify and 

only pay on behalf of those underlying customer accounts (within the omnibus account)

that are not in deficit. The Commission is including a proviso to note that

§ 190.04(b)(1)(i) shall not be construed to prevent a clearing organization, foreign clearing 

organization, FCM, or foreign futures intermediary from exercising its rights to the extent 

permitted under applicable law. This proviso is intended to remove any doubt that the 
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right of these “upstream” entities to use collateral posted by the FCM on an omnibus basis 

is not affected by the prohibition on making margin payments on behalf of accounts that 

are in deficit. 

The Commission is adopting § 190.04(b)(1)(ii) as a new provision to prohibit the 

trustee from making an upstream margin payment with respect to a specific customer 

account that would exceed the funded balance of that account. This restriction is 

consistent with the pro rata distribution principle discussed in § 190.00(c)(5), in that any 

payment in excess of a customer’s funded balance would be to the detriment of other 

customers. 

The Commission is adopting some non-substantive clarifications in 

§ 190.04(b)(1)(iii), as derived from current § 190.02(g)(1)(ii), to retain the limitation that 

the trustee may not make payments on behalf of non-public customers of the debtor from 

funds that are segregated for the benefit of public customers. 

The Commission is adopting § 190.04(b)(1)(iv)-(v) to clarify and expand upon 

current § 190.02(g)(1)(iii),

86 to require that margin is used consistent with the 

requirements of section 4d of the CEA.87 First, the Commission is adopting 

§ 190.04(b)(1)(iv) to provide that, if the trustee receives payments from a customer in 

response to a margin call, then to the extent within the trustee’s control,88 the trustee must 

use such payments to make margin payments for the open commodity contract positions 

of such customer. Second, the Commission is adopting § 190.04(b)(1)(v) to provide that 

 86 Current §190.02(g)(1)(iii) provides that “[t]he trustee must make margin payments if payments of margin 

are received from customers after bankruptcy in response to margin calls. . . .”

87 See 7 U.S.C. 6d. 

88 The phrase “to the extent within the trustee’s control” recognizes the reality that certain accounts are held 

on an omnibus basis. See discussion of § 190.04(b)(1)(i) above.
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the trustee may not use payments received from one public customer to meet the margin 

(or any other) obligations of any other customer. Given the restriction in paragraph

(b)(1)(v), the Commission believes it may in some cases be impracticable for a trustee to 

follow paragraph (b)(1)(iv). In such a situation, therefore the trustee would hold onto the 

funds received in response to a margin payment and such funds would be credited to the 

account of the customer that made the payment.89

Regulation 190.04(b)(1)(vi) builds upon current § 190.02(g)(1)(iv), which provides

that no payments need to be made to restore initial margin, thus noting that such payments 

are not required but implicitly allowed to be made. Revised § 190.04(b)(1)(vi) explains in 

this in more detail and provides more comprehensive guidance to the trustee about when 

such payments may be made. Specifically, § 190.04(b)(1)(vi) provides that, in the event 

that the funds segregated for the benefit of public customers in a particular account class 

exceed the aggregate net equity claims for all customers in that account class, the trustee is 

permitted to use such funds to meet the margin obligations for any public customer in such 

account class whose account is undermargined, but not in deficit, and sets conditions 

around such use.

Regulation 190.04(b)(2) updates current § 190.02(g)(2), which concerns margin 

calls made by trustee with respect to undermargined accounts of public customers. The 

Commission is removing the current requirement in § 190.02(g)(2) that the trustee issue 

margin calls, by replacing the term “must issue margin calls” with “may issue a margin 

call,” in light of the possibility that the trustee will determine it impracticable or inefficient 

to do so. Current § 190.02(g)(2), which sets up a retail-level analysis on issuing 

 89 See § 190.08(c)(1)(ii). 
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mandatory margin calls based on the funded balance of the account, is based on a model 

of the FCM continuing in business. Revised § 190.04(b)(d) recognizes that an FCM in 

bankruptcy will be operated in crisis mode, and may be pending wholesale transfer or 

liquidation of open positions.90 Therefore, the Commission is allowing for the possibility 

that the trustee may issue margin calls. The specification of highly prescriptive conditions

for issuing such calls is no longer appropriate, given the Commission whether or not to 

make a margin call is now based on the trustee’s discretion. 

Regulation 190.04(b)(3), as derived from current § 190.02(g)(3) with updated 

cross-references, retains the important concept that margin payments made by a customer 

in response to a trustee’s margin call are fully credited to the customer’s funded balance. 

As these post-petition payments made by the customer are fully counted toward the 

customer’s funded net equity claims under § 190.04(b)(3), they are not subject to pro rata

distribution (in contrast to the treatment of the debtor commodity broker’s pre-petition 

obligations to customers).

Regulation 190.04(b)(4) is derived from a combination of current §§ 190.03(b)(1) 

and (2) and 190.04(e)(4), and addresses the trustee’s obligation to liquidate certain open 

commodity contracts; in particular, those in deficit and those where the customer has 

failed to promptly meet a margin call. During business-as-usual, an FCM is required to 

cover, at all times, any customer accounts in deficit (i.e., those with debit balances) with 

its own capital.91 The FCM is also required to cover with its own capital any 

undermargined amounts in customer accounts each day by no later than the Residual 

 90 See generally major theme 7 discussed in section I.B. above.

91 See, e.g., §§ 1.22(i)(4), 1.23(a)(2).
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Interest Deadline.92 These ongoing requirements are intended to protect other customers

with positive account balances. 

An FCM in bankruptcy will generally not have capital available to protect other 

customers by covering these obligations; rather, any loss suffered by customers whose 

accounts are in deficit will be at the risk of those other customers.93 The Commission 

intends for § 190.04(b)(4) to mitigate the risk to those other customers by directing the 

trustee to liquidate such accounts. 

In light of the importance of mitigating this fellow-customer risk, § 190.04(b)(4), 

in contrast to many of the other proposed changes to part 190, curtails the trustee’s 

discretion. Specifically, § 190.04(b)(4), as derived from current 190.03(b)(1) and (2),

provides that the trustee shall, as soon as practicable, liquidate all open commodity 

contract accounts in any commodity contract account (i) that is in deficit; (ii) for which 

any mark-to-market calculation would result in a deficit; or (iii) for which the customer 

fails to meet a margin call made by the trustee within a reasonable time. Pursuant to 

current § 190.03(b)(1), a trustee must liquidate open commodity contracts if “any payment 

of margin would result in a deficit in the account in which they are held.”94 Revised § 

190.04(b)(4) adds a requirement to liquidate “all open commodity contracts in any 

commodity contract account that is in deficit.” The existing language applies to an 

 92 See, e.g., § 1.22(c)(3).

93 While the trustee may seek to recover any debit balance from a customer, see § 190.09(a)(1)(ii)(E),

§ 190.04(b)(4) proceeds from the conservative assumption that such efforts will be unsuccessful.

94 An account is in deficit if the balance is negative (i.e., the customer owes the debtor instead of the 

reverse). An account can be undermargined but not in deficit (if the balance is positive, but less than the 

amount of required margin). For example, a customer may have a margin requirement of 100 and an equity 

balance of $80. Such customer is undermargined by 20, but is not in deficit, because the liquidation value of 

the commodity contracts is positive.
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account that is on the threshold of deficit; the Commission is revising the language to 

clarify that the provision also applies to an account that is already in deficit. Moreover, 

the change from “payment of margin” to “mark-to-market” calculations addresses the case 

where the trustee is aware, based on mark-to-market calculations, that the account is in 

deficit. In order to protect other customers more effectively, the trustee should begin the 

liquidation process immediately upon gaining that awareness, rather than delaying until 

the time when a margin payment is due. 

Regulation 190.04(b)(4) also provides that, absent exigent circumstances or unless 

otherwise provided, a reasonable time for meeting margin calls made by a trustee shall be 

one hour or such greater period not to exceed one business day, as determined by the 

trustee.95 This language is largely reflective of current § 190.04(e)(4), but adds the 

concept of “exigent circumstances” as a new exception to the general and long-established 

rule that a minimum of one hour is sufficient notice for a trustee to liquidate an 

undermargined account. The Commission intends this revision to provide the trustee with 

the discretion to deem a period of less than one hour as sufficient notice to liquidate an 

undermargined account if the “exigent circumstances” so require. 

 95 See Morgan Stanley & Co. Inc. v. Peak Ridge Master SPC Ltd., 930 F.Supp.2d 532, 539-540 (S.D.N.Y.

2013)(Morgan Stanley, in its business discretion, determined Peak Ridge's account had assumed overly risky 

positions, necessitating an increase in the margin requirement and giving Peak Ridge a limited amount of 

time to bring the account into compliance. “Courts have held that as little as one hour is sufficient notice 

under similar circumstances.”). See also Capital Options Invs., Inc. v. Goldberg Bros. Commodities, 

Inc., 958 F.2d 186, 190 (7th Cir. 1992) (“One-hour notice to post additional margin . . . is reasonable where 

a contract specifically provides for margin calls on options at any time and without notice.”); Prudential–

Bache Sec., Inc. v. Stricklin, 890 F.2d 704, 706–07 (4th Cir. 1989) (rejecting a claim that 24–hour notice, 

which the broker normally gave to customers, was necessary before broker could liquidate an undermargined account and upholding notice of one hour as in accordance with the customer agreement); Modern 

Settings, Inc. v. Prudential–Bache Sec. Inc., 936 F.2d 640, 645 (2d Cir. 1991) (upholding a provision of a 

customer agreement allowing Defendant-broker to liquidate an under-margined account without notice). 
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The Commission is deleting current § 190.03(b)(3) to permit the trustee to 

liquidate open commodity contracts where the trustee has received no customer 

instructions with respect to such contracts by the sixth calendar day following the entry of 

the order for relief. The Commission is adopting this change as part of a model where the 

trustee receives and complies with instructions from individual customers to a model—

that reflects actual practice in commodity broker bankruptcies in recent decades—where 

the trustee transfers as many open commodity contracts as possible.96 

The Commission is adopting new § 190.04(b)(5) to provide guidance to the trustee 

in assigning liquidating positions97 to the debtor FCM’s customers when only a portion of 

the open commodity contracts in an omnibus account are liquidated. The new guidance is 

designed to protect the customer account as a whole, in light of the fact that any losses 

which cause a customer account to go into deficit are, as discussed in connection with § 

190.04(b)(4), at the risk of other customers. To mitigate the risk of such losses, 

§ 190.04(b)(5) establishes a preference, subject to the trustee’s exercise of reasonable 

business judgment, for assigning liquidating transactions to individual customer accounts 

in a risk-reducing manner. Specifically, the trustee should endeavor to assign such 

liquidating transactions first, in a risk-reducing manner, to commodity contract accounts 

that are in deficit; second, in a risk-reducing manner, to commodity contract accounts that 

are undermargined;98 and finally to liquidate any remaining open commodity contracts. 

Where there are multiple accounts in any of these groups, the trustee is instructed to, as 

 96 Cf. major theme 7 in section I.B above.

97 A liquidating position or transaction is one that offsets a position held by the debtor, in whole or in part. 

Thus, if the debtor has three long March ’21 corn contracts, then three (or two, or one) short March ’21 corn 

contracts would be a liquidating transaction.

98 And thus are next at risk of going into deficit.
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practicable, to allocate such liquidating transactions pro rata. The term “risk-reducing 

manner” is measured by the margin methodology and parameters followed by the DCO at 

which such contracts are cleared. Specifically, where allocating a transaction to a 

particular customer account reduces the margin requirement for that account, such an 

allocation is “risk-reducing.”

The Commission requested comment on whether the revised approach in proposed 

§ 190.04(b)(4) regarding the required liquidation of certain open commodity contract 

accounts would provide the trustee with an appropriate amount of discretion and is 

practicable; whether customers, who believe they did not benefit from those decisions, 

would likely challenge the trustee’s choices given the level of discretion provided;

whether such challenges could materially slow down the distribution of customer property 

relative to a context where the trustee was granted less discretion; and whether the 

proposed approach in § 190.04(b)(5) for the assignment of liquidating positions to debtor 

FCM customers in a “risk-reducing manner” is practicable when only a portion of the 

open commodity contracts in an omnibus account are liquidated. 

SIFMA AMG / MFA supported most of the substantive amendments in subpart B

of part 190 and believed such changes are generally helpful for purposes of reducing risk 

for market participants and allowing the trustee to act as efficiently as possible. SIFMA 

AMG / MFA approved of the inclusion of transfers in addition to liquidation, and the 

clarification to apply the proposed regulation to any open commodity contracts in 

proposed § 190.04(b). 

CME agreed with the general concept of providing the trustee for a debtor FCM 

with significant flexibility to operate the FCM and favored any provision that encourages 
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the transfer of customer positions and property and continuation of margin payments on 

behalf of the debtor FCM pending transfer or liquidation of positions. ICE suggested that 

the Commission should clarify that any trustee discretion proposed in § 190.04 for 

managing a failed FCM should be subject to the obligations of the defaulting clearing 

member and the rights of the DCO as provided by the DCO’s rules. 

ICE supported the Commission’s proposal in § 190.04(b)(1) to clarify that a trustee 

may make variation margin payments on open contracts, pending their liquidation or 

transfer. ICI agreed with proposed § 190.04(b)(1)(ii), which prohibits a trustee from 

making any margin payments with respect to a customer account that would exceed the 

funded balance for that account. 

ICI and Vanguard agreed with the preservation of the existing requirement within 

proposed § 190.04(b)(3) that the trustee fully credit the customer’s funded balance for any 

margin payment made by a customer in response to trustee’s margin call. Vanguard noted

that any customer concerns as to the ability to fully recover margin would surely deincentivize customers to post additional margin in critical times. 

SIFMA AMG / MFA generally support proposed § 190.04(b), but had concerns 

regarding the calculation of whether a customer is undermargined, and the timing of 

margin calls. SIFMA AMG / MFA questioned whether the trustee would be able to 

calculate accurately whether a customer is undermargined, particularly if the FCM’s 

books and records do not accurately reflect margin amounts transferred by such customer 

to the FCM. SIFMA AMG / MFA requested that the Commission clarify how the trustee 

will try to protect customers from being called upon to provide duplicate margin amounts.

SIFMA AMG / MFA recommended that the Commission amend proposed § 190.04(b) to 
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provide customers with the opportunity to demonstrate that a margin payment was made 

even if the FCM’s books and records do not yet reflect its receipt.

 SIFMA AMG / MFA disagreed that absent exigent circumstances, a reasonable 

time for meeting margin calls made by the trustee shall be deemed to be one hour, or such 

greater period not to exceed one business day, as the trustee may determine in its sole 

discretion. SIFMA AMG / MFA stated that the necessary assets may not be readily 

available to customers and urged the Commission to require the trustee to defer to the 

margin call timings present in the applicable underlying agreements entered into by the 

customer pursuant to § 39.13 when determining a reasonable time for meeting margin 

calls. SIFMA AMG / MFA opined that this is a reasonable level of deference, since the 

trustee will have access to these agreements, which are already in place with the 

Commission regulations, and will allow for customers to satisfy margin calls without 

causing needless market panic. 

ICI and Vanguard agreed with proposed § 190.04(b)(4), which would require the 

trustee to liquidate any customer account in deficit. ICI supported maintaining the 

existing requirement that the trustee promptly liquidate any customer account when a 

customer fails to meet a margin call in a reasonable time or where any payment of margin 

from the account would result in an account deficit. ICI agreed with the proposal that a 

debtor FCM will generally not have capital available to protect other customers by 

covering account deficits, so any loss suffered by customers whose accounts are in deficit 

will be at risk of those other non-defaulting customers. As a result, ICI noted that it is 

vital that the trustee be required to swiftly crystallize, and therefore cap the losses 

resulting from, such deficits by promptly liquidating accounts in deficit or for which a 
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customer has failed to meet a margin call. ICI cautioned that if the accounts were allowed 

to remain open, additional losses on the delinquent customers’ transactions would be 

borne by the FCM’s non-defaulting customers, which could dissuade non-defaulting 

customers from continuing to meet their margin obligations post-petition.

OCC was concerned that the proposed definition of “undermargined” in § 190.01 

and § 190.04(b)(2) and (b)(4) could create a situation in which a trustee offers one public 

customer an opportunity to deposit additional margin that ultimately prevents an account 

deficit and resulting liquidation of the public customer’s account, but exercises discretion 

not to offer another public customer the same opportunity to deposit margin and 

subsequently must liquidate the account because it is in deficit, notwithstanding the 

customer’s willingness to post additional margin to keep its positions open. OCC was

concerned that the use of such trustee discretion would expose a trustee to challenge by a 

public customer that asserts, though it was similarly situated to a public customer that was 

given this opportunity, it was not given this opportunity and received inequitable 

treatment. 

In response to SIFMA AMG / MFA’s comment, the Commission notes that, in the 

case of an FCM in bankruptcy, any deficit in the account of one customer may come at the 

expense of distributions to other customers. As ICI notes, the normal buffer of the capital 

of an FCM in continuing operation cannot be relied upon. Accordingly, where a trustee 

believes, based on the records and limited time available to them, that a customer is 

undermargined, it is important that they act on that belief in order to protect other 

customers. Similarly, in a case where a customer fails to meet a margin call within what 

the trustee determines, in their sole discretion, is a reasonable time, the trustee should 
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liquidate the contracts of that customer to protect other customers. Forcing the trustee to 

defer to margin call timings in pre-bankruptcy agreements, or to give the customer an 

opportunity to demonstrate that a margin payment was made, as requested by the 

comment, may increase: (1) the risk that such customer would default; (2) the risk that 

delaying liquidation of such a customer’s positions increases the potential for and 

likelihood that they would do so with a debit balance; and (3) the risk that the size of that 

debit balance would increase as a result of that delay, thereby reducing the funded 

balances of other customers. The Commission is of the view that timeframes that may 

have been acceptable during business-as-usual cannot bind the trustee in addressing the 

context of an FCM in bankruptcy, because any post-petition losses incurred by a customer 

will be at the cost of other customers (without the normal buffer of the capital of a goingconcern FCM). Moreover, the Commission agrees with the view championed by ICI and 

Vanguard that the trustee should be required to swiftly crystallize and therefore cap the 

losses resulting from deficit balances by promptly liquidating accounts in deficit and those

for which a customer has failed to meet a margin call. OCC’s concerns about treating 

customers equitably inter se are understandable, but, in the Commission’s view, ensuring 

complete equity may not be practicable. A trustee must make decisions within a severely 

limited timeframe in a situation that is likely to be chaotic and with information that is 

limited and may be imperfect. In these circumstances, the Commission is of the view that 

it is appropriate to defer to the trustee’s discretion to make the best decisions they can 

under the circumstances. Accordingly, the Commission believes that, where a trustee 

makes in good faith decisions with regard to margin and liquidation of accounts, that are, 

in retrospect, inequitable, the Commission’s regulations should discourage challenges to 
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such a decision (and, if such a challenge is made, should reduce the likelihood that it is 

successful).

While the trustee retains discretion, as specified in, inter alia, proposed § 190.04, 

to manage the affairs of the debtor FCM, the Commission can confirm, as requested by 

ICE, that a DCO of which that FCM is a member retains its rights to act under its rules.99 

SIFMA AMG / MFA recommended that the Commission amend proposed 

§ 190.04(b) to clearly state that, to the extent gains-based haircutting has been utilized by 

a DCO in respect of customer positions, the trustee should give customers of an FCM 

credit for any gains that were haircut during such gains-based haircutting. With respect to 

this suggestion, the Commission notes that, where a DCO at which a debtor FCM is a 

member applies gains-based haircutting under that DCO’s rules, the measure of the claim 

of a customer whose account at the debtor FCM contains contracts cleared on that DCO 

will be based on the customer agreement between that customer and the debtor FCM. If, 

outside of the FCM’s bankruptcy and pursuant to that customer agreement, the customer’s 

gains would have been reduced by X% or $Y, then the amount of the customer’s claim in 

bankruptcy would be adjusted accordingly.100 Accordingly, the Commission does not 

accept that suggestion.

 99 See, e.g., § 190.04(b)(1) (while trustee shall, to the extent within its control, not make payments on behalf 

of an account in deficit, this shall not be construed to prevent a clearing organization from exercising its 

rights to the extent permitted under applicable law).

100 Moreover, there are other reasons to forego an approach that would reverse the effects of gains-based 

haircutting. As discussed in more detail in section II.C.7 below, there is a limited amount of customer 

property available. Any increase in some customers claims (and thus their distributions) due to the reversal 

of gains-based haircutting would thus come at the expense of a reduced share of that limited customer 

property, and thus reduced distributions, to other customers.
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ICI and Vanguard agreed with proposed § 190.04(b)(5) which prohibits a trustee 

from making margin payments that would exceed the customer’s funded account balance 

or transfer a customer’s transactions or property and thereby increase the exposure of 

other customers. Vanguard supported addressing situations where the trustee could allow 

certain customers to avoid the core customer protection of pro rata treatment at the 

expense of other customers.

Accordingly, after consideration of the comments, and for the reasons stated 

above, § 190.04(b) will be adopted as proposed.

c. Regulation 190.04(c): Contracts moving into delivery

The Commission is adopting § 190.04(c), as proposed, to direct the trustee to use 

its best efforts to avoid delivery obligations concerning contracts held through the debtor 

FCM by transferring or liquidating such contracts before they move into delivery position. 

The Commission is adopting § 190.04(c) based on its analog in current § 190.03(b)(5) and 

is incorporating a portion of current § 190.02(f)(1)(ii). Current § 190.03(b)(5) instructs 

the trustee to liquidate promptly, and in an orderly manner, commodity contracts that are 

not settled in cash (implicitly, those that settle via physical delivery of a commodity) 

where the contract would remain open beyond the earlier of (i) the last day of trading or 

(ii) the first day on which notice of delivery may be tendered—that is, where the contract 

would move into delivery position. The Commission intends § 190.04(c) to have the same 

purpose as its predecessors, but uses more explicit language regarding physical delivery to 

refer to “any open commodity contract that settles upon expiration or exercise via the 

making or taking of delivery of a commodity,” and that is moving into the delivery 

position. The Commission also intends § 190.04(c) to expand current § 190.03(b)(5), with 
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the incorporation of some aspects of current § 190.02(f)(1)(ii), to include an explicit 

reference to how options on commodities move into delivery position.

CME supported proposed § 190.04(c), which directs the trustee to use their best 

efforts to liquidate open physical delivery commodity contracts that have not been 

transferred before the contracts move into a delivery position as CME believed this would 

avoid unnecessary disruptions to the delivery process by customers that did not intend to 

participate in making or taking delivery. ICI supported adding provisions that clarify the 

standards applicable to an FCM’s liquidation of a debtor FCM’s transactions and the way 

a trustee must assign liquidating transactions in the context of a partial liquidation.

According, after consideration of the comments, and for the reasons stated above, 

the Commission is adopting § 190.04(c) as proposed.

d. Regulation 190.04(d): Liquidation or offset

The Commission is adopting § 190.04(d) as proposed with modifications, as set 

forth below. Regulation § 190.04(d), as derived from current §§ 190.02(f) and 190.04(d), 

sets forth the categories of commodity contracts and other property held by or for the 

account of a debtor that must be liquidated by the trustee in the market or by book entry 

offset, promptly, and in an orderly manner.101 

Importantly, the Commission is retaining the requirement, present in the header 

language to current § 190.02(f), that the trustee must effect such liquidation “in an orderly 

manner.” Regulation § 190.04(d) recognizes that any factor which, in the trustee’s 

 101 The Commission is also adopting three non-substantive changes in the header language to proposed 

§ 190.04(d) from that in current § 190.02(f): (1) the addition of the phrase “except as otherwise set forth in 

this paragraph (d)” to account for any exceptions that are included in the paragraphs under the header 

language; (2) the addition of cross-references to proposed § 190.04(e) when discussing liquidation, as that 

provision contains instructions on how to effect liquidation; and (3) the deletion of the phrase “subject to 

limit moves and to applicable procedures under the Bankruptcy Code.”
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discretion, makes it imprudent to liquidate a position at a particular point in time would 

contribute to the trustee’s judgment as to what constitutes liquidation “in an orderly 

manner.” 

Paragraph 190.04(d)(1), as derived from § 190.02(f)(1), requires that all open 

commodity contracts must be liquidated, subject to two exceptions: (1) commodity 

contracts that are specifically identifiable property and are subject to customer instructions 

to transfer as provided in proposed § 190.03(c)(2); and (2) open commodity contract 

positions that are in a delivery position.102 In the former case (specifically identifiable 

property), the Commission is adopting § 190.04(d)(1) to revise the language of current 

§ 190.02(f)(1)(ii) to add references to the provisions of § 190.03(c)(2) (concerning the 

trustee’s option to treat hedging accounts as specifically identifiable property) and 

§ 190.09(d)(2) (concerning the payments that customers on whose behalf specifically 

identifiable commodity contracts will be transferred must make to ensure that they do not 

receive property in excess of their pro rata share).103 The latter exception, for open 

commodity contract positions that are in a delivery position is new, and provides that such 

positions should be treated in accordance with § 190.06, which concerns delivery.104

Regulation 190.04(d)(2) describes when specifically identifiable property, other 

than open commodity contracts or physical delivery property, must be liquidated. The 

 102 Regulation § 190.04(d)(1) deletes the reference in current § 190.02(f)(1)(i) to dealer option contracts 

since such term is no longer used.

103 The Commission is incorporating part of current § 190.02(f)(1)(ii) into § 190.04(c), and therefore that 

will not appear in § 190.04(d)(1). 

104 As noted in section II.A.1 above in the discussion of § 190.00(c)(6), “a delivery default could have a 

disruptive effect on the cash market for the commodity and could adversely impact the parties to the 

transaction.”
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Commission derived § 190.04(d)(2) from current § 190.02(f)(2), with a number of 

revisions. 

First, the provision applies to specifically identifiable property, other than open 

commodity contracts or physical delivery property, while the current regulation applies 

only to specifically identifiable property other than open commodity contracts. The 

Commission intends for this change to provide the trustee with discretion to avoid 

interfering with the physical delivery process. 

Second, while the current regulation would require liquidation of such property if 

the fair market value of the property drops below 90% of its value on the date of the entry 

of the order for relief,105 § 190.04(d)(2)(i) changes that standard to 75% of the fair market 

value, in order to provide greater discretion to the trustee to forego or postpone liquidation 

in appropriate cases. 

Third, revised§ 190.04(d)(2)(ii) adds an additional condition that will require 

liquidation where failure to liquidate the specifically identifiable property may result in a 

deficit balance in the applicable customer account, which corresponds to the general 

policy of liquidating any accounts that are in deficit.

Lastly, § 190.04(d)(2)(iii), which is similar to current § 190.02(f)(2)(ii), includes

updated cross-references to the provisions in proposed part 190 that discuss the return of 

specifically identifiable property. 

Regulation 190.04(d)(3) is a new provision that codifies the Commission’s 

longstanding policies of pro rata distribution and equitable treatment of customers in 

bankruptcy, as described in § 190.00(c)(5) above, as applied to letters of credit posted as 

 105 See current § 190.02(f)(2)(i).
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margin.106 Accordingly, customers who post letters of credit as margin will be treated no 

differently than other customers and thus would suffer the same pro rata loss. 

The implementation of this policy in current § 190.08(a)(1)(i)(E) was challenged 

in an adversary proceeding in the MF Global bankruptcy;

107 the codification of this policy 

in §§ 190.00(c)(5) (clarifying policy), 190.04(d)(3) (treatment in bankruptcy), and 

190.10(d) (treatment during business-as-usual) are intended to implement the policy 

effectively and to forestall any future challenge.

Regulation 190.04(d)(3) provides that the trustee may request that such a customer 

deliver substitute customer property with respect to any letter of credit received, acquired 

or held to margin, guarantee, secure, purchase, or sell a commodity contract. This applies

whether the letter of credit is held by the trustee on behalf of the debtor’s estate, a DCO, a 

foreign broker, or foreign clearing organization, and whether it is held on a pass-through 

or other basis. The amount of the substitute customer property to be posted may be less 

than the full-face amount of the letter of credit, in the trustee’s discretion, if such lesser 

amount is sufficient to ensure pro rata treatment consistent with proposed §§ 190.08 and 

190.09. If required, the trustee may require the customer to post property equal to the fullface amount of the letter of credit to ensure pro rata treatment. Regulation § 

190.04(d)(3)(i) provides that, if such a customer fails to provide substitute customer 

 106 See, e.g., 48 FR 8716, 8718-19 (March 1, 1983) (Commission intends “to assure that customers using a 

letter of credit to meet original margin obligations would be treated no differently than customers depositing 

other forms of non-cash margin or customers with excess cash margin deposits. If letters of credit are 

treated differently than Treasury bills or other non-cash deposits, there would be a substantial incentive to 

use and accept such letters of credit as margin as they would be a means of avoiding the pro rata distribution 

of margin funds, contrary to the intent of the [Bankruptcy] Code [11 U.S.C. 766].”)

107 See ConocoPhillips v. Giddens, No. 12 Civ. 6014, 2012 WL 4757866 (S.D.N.Y. 2012)
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property within a reasonable time specified by the trustee, the trustee may draw upon the 

full amount of the letter of credit or any portion thereof.

Regulation 190.04(d)(3)(ii) addresses cases where a letter of credit received, 

acquired or held to margin, guarantee, secure, purchase, or sell a commodity contract is 

not fully drawn upon. The trustee is instructed to treat any portion of the letter of credit 

that is not fully drawn upon as having been distributed to the customer. However, the 

amount treated as having been distributed will be reduced by the value of any substitute 

customer property delivered by the customer to the trustee. For example, if the face 

amount of the letter of credit is $1,000,000, the customer delivers $250,000 in substitute 

customer property, and no portion of the letter of credit is drawn upon, then the trustee 

will treat the customer as having received a distribution of $750,000. In order to avoid an 

effective transfer of value, due to an expiration of the letter of credit on or after the date of 

the order for relief, to the customer who posted the letter of credit, this calculation will not 

be changed due to such an expiration. 

Regulation 190.04(d)(3)(iii) confirms that any proceeds of a letter of credit drawn 

by the trustee, or substitute customer property posted by a customer, shall be considered 

customer property in the account class applicable to the original letter of credit.

Regulation 190.04(d)(4), as derived from current § 190.02(f)(3), provides for the 

liquidation of all other property not required to be transferred or returned pursuant to 

customer instructions and which has not been liquidated. Regulation 190.04(d)(4) excepts

from the liquidation requirement any “physical delivery property held for delivery in 

accordance with the provision of” § 190.06, in order to avoid interfering with the physical 

delivery process.
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Several commenters supported proposed § 190.04(d)(3). SIFMA AMG / MFA, 

ICI, and Vanguard strongly supported proposed § 190.04(d)(3) because it permits a trustee 

to demand substitute margin so that other customers’ margin need not be accessed to meet 

any shortfall occasioned by the inability to draw on the letters of credit. SIFMA AMG / 

MFA noted that the addition of proposed § 190.04(d)(3) would ensure that customers 

using letters of credit to meet original margin obligations will be treated no differently 

from customers depositing other forms of non-cash margin or excess cash margin 

deposits. SIFMA AMG / MFA “agree[d] that most letters of credit currently in use by the 

industry follow the Joint Audit Committee forms [and believed] that the impact of these 

additional requirements concerning letters of credit will result in clearer guidance for more 

equitable treatment of customers within each account class.” However, SIFMA AMG / 

MFA “questione[d] the one-year transition period and urge[d] the Commission to shorten 

it in the interest of investor protection. For example, if an FCM were to enter bankruptcy 

proceedings during the one-year transition period,” SIFMA AMG / MFA inquired as to 

how the letters of credit would be treated in such proceeding.

OCC also supported proposed § 190.04(d)(3) and the pro rata loss policy 

objective. OCC stated that it “expects that it would generally, to the extent permitted by 

OCC’s rules and default management arrangements, draw on a defaulted member’s letter 

of credit collateral as soon as practicable after a declaration of default. OCC would 

attempt to do so, whether or not it has immediately identified a need to draw on a letter of 

credit to meet the defaulted member’s settlement obligations, as a protective action in 

anticipation of any potential increase in the credit risk associated with the letter of credit. 
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In such cases, a trustee would obtain any remaining proceeds from the drawn-down letter 

to distribute pro rata among the FCM’s customers as appropriate.”

However, several commenters including CME, FIA, and CMC believed the policy 

reasons for the trustee’s general right to demand substitute collateral do not exist with 

respect in the narrow context of a delivery letter of credit.

CME agreed “that a letter of credit posted to secure obligations under open 

commodity contracts (whether drawn upon or not) must be deemed as part of the 

customer’s property, in addition to any additional collateral posted by the customer, for 

purposes of distribution calculations. [CME agreed] that it is prudent to make clear that 

the trustee in either an FCM or DCO bankruptcy can draw upon posted letters of credit.” 

CME supported “granting the trustee the power to require a customer to deliver substitute 

customer property to the estate and allowing the trustee to draw on the letter of credit if 

the customer does not post additional collateral, provided that those conditions apply only 

to letters of credit letter that are received, acquired, or held to guarantee or secure a 

customer’s obligations under open commodity contracts, and do not apply to delivery 

letters of credit.”

With respect to a delivery letter of credit posted as collateral to secure the 

customer’s obligation to pay for delivery of a commodity it will receive, CME and CMC 

believed it was “critically important that the letter of credit be available to draw upon if 

the customer defaults or is expected to default on its obligation to pay the seller.” 

However, CME, CMC, and FIA recommended that the Commission revise proposed 

§ 190.04(d)(3) to confirm that the authority of the trustee to require a customer that posts a 
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letter of credit to deliver substitute customer property does not extend to letters of credit 

posted to a delivery account. 

CME argued that “[c]ustomers routinely post letters of credit in connection with 

delivery obligations under certain physical delivery futures contracts held to maturity.” 

CME noted that this is the case for deliveries under certain oil futures listed on the New 

York Mercantile Exchange. “The buyers are required to post collateral for the full 

payment amount owed because actual delivery is effected via physical transfer of oil and 

thus is typically completed 30 days or so after buyers and sellers are matched for bilateral 

delivery obligations. Given the substantial dollar amounts involved, often hundreds of 

millions, letters of credit are often posted as collateral.” CMC emphasized that “unlike 

other situations, a delivery [letter of credit] simply serves as collateral for delivery of a 

futures contract after expiry but before delivery is taken and while the seller still has 

possession of the commodity for delivery.” CME stated that “[t]he value available to 

CME under such a letter of credit is wholly independent from the solvency of an FCM, 

unlike a letter of credit posted as performance bond, which decays when utilized to meet 

margin or variation calls post-FCM bankruptcy.” CME posited that the delivery letter of 

credit does not pose the same issues that the Commission encountered in the MF Global

bankruptcy. FIA argued that “[a] purchaser that takes delivery under a commodity 

contract frequently is not required to take delivery for a significant period of time after the 

purchaser and seller have been matched. In these circumstances, the purchaser may be 

required to post a letter of credit as security for full payment when delivery is made.” 

CME, CMC, and FIA warned that a trustee’s decision to request substitute 

collateral of cash or cash equivalents for a delivery letter of credit or risk having the letter 
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of credit drawn down prior to the time that delivery is made would create a sudden and 

unexpected liquidity need for the delivery participant and introduce unnecessary strain 

into physical and derivatives markets. The commenters were concerned that because the 

parties’ obligations under the delivery account arise from a commodity account, a trustee’s 

authority under proposed § 190.04(d)(3) could be interpreted to apply to letters of credit 

held in a delivery account. Accordingly, CME and CMC recommended “that the 

Commission limit or eliminate the trustee’s powers to request that a market participant 

substitute other forms of collateral for a delivery letter of credit upon which the DCO is a 

beneficiary.” Specifically, CME and FIA recommended that the Commission revise 

proposed § 190.04(d)(3) to exclude delivery letters of credit, i.e., letters of credit posted by 

buyers to guarantee their payment for commodities that they are contractually obligated to 

purchase under an expired futures or exercised commodity option contract.

CME also requested clarity in the context of § 190.06 “that when a customer posts 

a delivery letter of credit directly with the DCO or with its delivery counterparty, and not 

with or through the FCM, the letter of credit is outside the delivery account class, i.e., it 

does not constitute cash delivery property (or property of the debtor’s estate), and the 

provisions in other parts of the proposed revisions regarding treatment of letters of credit 

posted with or through the debtor FCM do not apply.”

The Commission notes that, despite the comments of CME, CMC, and FIA,

there are reasons to forego excluding delivery letters of credit as a class from the 

application of § 190.04(d)(3), and to adopt § 190.04(d)(3) as proposed, as supported 

by ICI, SIFMA AMG / MFA, and Vanguard: If, at the end of the bankruptcy 

proceeding, there are shortfalls in customer property in the cash delivery account 
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class, those shortfalls will necessarily be borne by public customers. If public 

customers posting letters of credit (including in the delivery account) are shielded 

from such losses, they will be borne in greater proportion by other public customers. 

That result would be inconsistent with the Commission’s longstanding policy, 

embodied in §766(h) of the Bankruptcy Code, to treat all customers on a pro rata

basis.108

However, concerns raised by commenters regarding sudden and unexpected 

liquidity needs are important ones. They are important both in the context of delivery 

letters of credit, as discussed by some commenters, and more broadly as well.109 The

Commission agrees that these concerns can and should be mitigated. Specifically, the 

trustee has discretion in managing this process with respect to letters of credit, and 

should exercise that discretion with the goal of achieving pro rata treatment among 

customers in a manner that mitigates, to the extent practicable, the adverse effects 

upon customers that have posted letters of credit.

First, with regard to timing, the commenters expressed concern that requests 

for substitute property would cause “sudden” liquidity needs. Regulation 

190.04(d)(3)(i) states that the trustee may draw upon the letter of credit if the 

“customer fails to provide substitute customer property within a reasonable time 

specified by the trustee.” If the expiry date of the letter of credit is not imminent, the 

 108 Pursuant to § 190.08(c)(1)(ii), the customer’s funded balance includes 100% of margin posted after the 

order for relief. Accordingly, this principle would not apply to a delivery letter of credit posted after the 

order for relief (unless the letter of credit was delivered in substitution for a pre-bankruptcy letter of credit).

109 Moreover, and for the avoidance of doubt, as delivery is simply a stage in the life of a commodity 

contract, § 190.04(d)(3) applies to letters of credit in connection with delivery obligations under a 

commodity contract.
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Commission expects that a “reasonable time” would be sufficiently long to enable the 

customer to mitigate liquidity concerns (consistent with the trustee’s plans to make 

distributions). If the expiry date of the letter of credit is imminent, and the customer 

can and does arrange to have that expiry date extended, the parties could work in the 

context of that extended expiry date. However, if the expiry date is imminent, and 

cannot be extended, then the trustee will need to take promptly whatever steps are, in 

their discretion, necessary to ensure pro rata treatment among customers.

Second, with regard to the amount requested, § 190.04(d)(3) provides that the 

trustee may request that a customer deliver substitute customer property with respect 

to a letter of credit, and that the “amount of the request may equal the full face amount 

of the letter of credit or any portion thereof, to the extent required or may be required, 

in the trustee’s discretion to ensure pro rata treatment among customer claims within 

each account class, consistent with §§ 190.08 and 190.09.” Thus, the amount of the 

substitute customer property requested (or, if substitute customer property is not 

provided, the amount of the letter of credit drawn upon (if partial draws are 

permitted)) should be proportionate to the amount “required or may be required, in the 

trustee’s discretion, to ensure pro rata treatment among customer claims.” If the 

amount of the shortfall in the relevant account class (whether cash delivery property 

or otherwise) is estimated to be a small percentage, the amount of substitute customer 

property requested would also be a small percentage (subject to the trustee adding an 

appropriate buffer for later corrections in estimates, and taking into account any need 

to use the letter of credit as ongoing performance bond for the customer’s 

obligations).
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To re-enforce these concepts, the Commission is adding a new paragraph 

§ 190.04(d)(3)(iv), which states, “The trustee shall, in exercising their discretion with 

regard to addressing letters of credit, including as to the timing and amount of a 

request for substitute customer property, endeavor to mitigate, to the extent 

practicable, the adverse effects upon customers that have posted letters of credit in a 

manner that achieves pro rata treatment among customer claims .” The Commission 

intends that this new paragraph will confirm to trustees that they should steer their 

discretion in the specified manner, and will provide assurance to customers that have 

posted letters of credit that the trustees will exercise their discretion in that manner. 

The Commission believes that this provision will appropriately address concerns 

regarding the manner in which the trustee ensures that customers that have posted 

letters of credit are treated economically in the same manner as customers who have 

posted other forms of collateral

Moreover, in the context of § 190.06, CME requested that the Commission 

confirm that “when a customer posts a delivery letter of credit directly with the DCO or 

with its delivery counterparty, and not with or through the FCM, the letter of credit is 

outside the delivery account class, i.e., it does not constitute cash delivery property (or 

property of the debtor’s estate), and the provisions in other parts of the proposed revisions 

regarding treatment of letters of credit posted with or through the debtor FCM do not 

apply.” 

For example, the Commission understands that upon expiry of certain deliverable 

contracts and assignment of delivery obligation, the long/buyer of the contract must post 

collateral to the DCO against its final payment obligation on the delivery. In certain cases, 
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collateral in the form of a delivery letter of credit collateral is posted by the customer 

directly to the DCO. The delivery letters of credit in these cases are subject to uniform 

terms that name the DCO as the sole beneficiary on the instrument. These delivery letters 

of credit do not create an obligation of or to a customer’s FCM as they are posted directly 

to the DCO and the FCM is not a named beneficiary on the instrument.110

In the context of a delivery letter of credit that is posted directly with the DCO or 

with the delivery counterparty, rather than with or through the FCM, and for which the 

FCM is not a named beneficiary, the Commission confirms that the letter of credit is 

outside the delivery account class, i.e., it does not constitute cash delivery property (or 

property of the debtor’s estate), and the provisions in other parts of the proposed revisions 

regarding treatment of letters of credit posted with or through the debtor FCM do not 

apply.111

The Commission believes that this clarification, in combination with the new 

provision directing the trustee’s discretion in the context of letters of credit, will 

ameliorate the commenters concerns regarding delivery letters of credit.

The foregoing applies to the trustee. DCOs remain free to exercise any of the 

rights and powers in their rules vis-à-vis their clearing members, in particular with respect 

to risk management, limited only by requirements within the Commission’s regulations.112

However, in this context, the Commission would encourage DCOs holding letters of credit 

 110 Similarly, CMC’s concerns focus on “a delivery LOC upon which the DCO is beneficiary.”

111 The Commission was not requested to opine on whether this approach vis-à-vis letters of credit is 

permissible outside of the context of the delivery account class, and expresses no view on that question.

112 See, e.g., § 190.04(e) (Rules providing for liquidation other than on the open market shall be designed to 

achieve, to the extent feasible under market conditions at the time of liquidation, a process for liquidating 

open commodity contracts that results in competitive pricing.)
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posted by customers of FCMs in bankruptcy to exercise their rights under such letters of 

credit in a measured fashion, in order to achieve risk management goals fully but in a 

manner that mitigates, to the extent practicable, adverse effects upon customers that have 

posted letters of credit.113 

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.04(d) as proposed, with the addition of new paragraph 

§ 190.04(d)(3)(iv) as set forth above.

e. Regulation 190.04(e): Liquidation of open commodity contracts

The Commission is adopting § 190.04(e) as proposed to provide details regarding 

the liquidation and valuation of open positions.114 This paragraph is derived from current 

§ 190.04(d), subject to a number of changes. 

The Commission is adopting § 190.04(e)(1)(i), as derived from current § 

190.04(d)(1)(ii), to describe the process of liquidating open commodity contracts when the 

debtor is a member of a clearing organization. Regulation 190.04(e)(1)(i), like its 

predecessor, emphasizes the goal of competitive pricing “to the extent feasible under 

market conditions at the time of liquidation.” Treatment under the CEA of clearing 

organization rules has evolved from a pre-approval regime to a primarily self-certification 

regime. The Commission is of the view that the various processes set forth in part 40 of 

the Commission’s regulations (including self-certifications under § 40.6, voluntary 

 113 In this connection, the Commission notes that OCC Rule 1104(a)(ii) permits OCC, if the issuer of a letter 

of credit agrees to extend the irrevocability of its commitment thereunder in a manner satisfactory to OCC, 

to “demand only such amounts as it may from time to time deem necessary to meet anticipated 

disbursements.” 

114 The Commission is amending § 190.08(d) to also clarify the process by which customer positions and 

other customer property are valued for purposes of determining the amount of a customer’s claim. 
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submission for rule approval under § 40.5, and Commission review of certain rules of 

systemically important DCOs under § 40.10) are sufficient, and that a separate rule 

approval process for rules regarding settlement price in the context of a bankruptcy is no 

longer necessary. The Commission is accordingly adopting § 190.04(e)(1)(i) to delete the 

requirement contained in current § 190.04(d)(1)(i) that a clearing organization must obtain 

approval pursuant to section 5c(c) of the CEA for its rules regarding liquidation of open 

commodity contracts. 

Paragraph 190.04(e)(1)(i) also adds a provision regarding open commodity 

contracts that are futures or options on futures that were established on or subject to the 

rules of a foreign board of trade and cleared by the debtor as a member of a foreign 

clearing organization, providing that such contracts shall by liquidated pursuant to the 

rules of the foreign clearing organization or foreign board of trade or, in the absence of 

such rules, in the manner the trustee deems appropriate. This the new provision is 

analogous to the existing provision but would extend to cases where the debtor FCM is a 

member of a foreign clearing organization. 

Paragraph 190.04(e)(1)(ii) provides instructions to the trustee regarding the 

liquidation of open commodity contracts where the debtor is not a member of a DCO or 

foreign clearing organization, but instead clears through one or more accounts established 

with an FCM or a foreign futures intermediary. In such a case, § 190.04(e)(1)(ii) provides

that the trustee “shall use commercially reasonable efforts to liquidate the open 

commodity contracts to achieve competitive pricing, to the extent feasible under market 

conditions at the time of liquidation.” The Commission is adding this provision to account 
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for those circumstances where the trustee must liquidate open commodity contracts for a 

debtor that is not a clearing member. 

As with § 190.04(e)(1)(i), the Commission is adopting § 190.04(e)(2) to delete the 

rule approval requirement, for the same reasons stated above. Regulation 190.04(e)(2) is 

derived from current § 190.04(d)(1)(ii) which requires a trustee or clearing organization to 

apply to the Commission for permission to liquidate open commodity contracts by book 

entry. In such a case, the settlement price for such commodity contracts shall be 

determined by the clearing organization in accordance with its rules, which shall be 

designed to establish, to the extent feasible under market conditions at the time of 

liquidation, such settlement prices in a competitive manner. 

The Commission is adopting § 190.04(e)(3) to recognize that an FCM or foreign 

futures intermediary through which a debtor FCM carries open commodity contracts will 

generally have enforceable contractual rights to liquidate such commodity contracts. New

§ 190.04(e)(3) confirms that the upstream intermediary may exercise such rights. 

However, the liquidating FCM or foreign futures intermediary shall use commercially 

reasonable efforts to liquidate the open commodity contracts to achieve competitive 

pricing, to the extent feasible under market conditions at the time of liquidation and 

subject to any rules or orders of the relevant clearing organization, foreign clearing 

organization, DCM, SEF or foreign board of trade governing its liquidation of such open 

commodity contracts.

If the liquidating FCM or foreign futures intermediary fails to do so, the trustee 

may seek damages reflecting the difference in price(s) resulting from such failure. 
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However, such damages would be the trustee’s sole available remedy as the regulation 

makes clear that “[i]n no event shall any such liquidation be voided.”

The Commission is adopting §§ 190.04(e)(4)(i) and (ii) based on current 

§§ 190.04(d)(2) and (3), respectively, with some minor non-substantive language changes 

and updated cross-references.

The Commission requested comment in particular on the treatment of letters of 

credit in bankruptcy, as set forth in proposed § 190.04(e). The Commission did not 

receive any comments on this aspect of the Proposal. Accordingly, for the reasons stated 

above, the Commission is adopting § 190.04(e) as proposed.

f. Regulation 190.04(f): Long option contracts

The Commission is adopting § 190.04(f) as proposed to contain only minor nonsubstantive changes from the current § 190.04(e)(5), including (1) a cross-reference to the 

liquidation provisions in proposed § 190.04(d) and (e), and (2) a clarification that the 

provision is referring to commodity contracts that are long option contracts, rather than to 

long option contracts more generally. 

The Commission did not receive any comments on this aspect of the Proposal. 

Accordingly, for the reasons stated above, the Commission is adopting § 190.04(f) as 

proposed.

3. Regulation 190.05: Operation of the Debtor’s Estate—General

The Commission is adopting § 190.05 to revise parts of current § 190.04 and add 

new provisions to (1) require a trustee to use all reasonable efforts to continue to issue 

account statements for customer accounts holding open commodity contracts or other 
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property and (2) clarify the trustee’s obligation with respect to residual interest. The 

Commission requested comment with respect to all aspects of proposed § 190.05.

The Commission is adopting § 190.05(a) to amend the requirement in current § 

190.04(a) that the trustee “shall” comply with all provisions of the CEA and of the 

regulations thereunder as if it were the debtor, to state that the trustee “shall use 

reasonable efforts to comply” with all provisions of the CEA and of the regulations 

thereunder as if it were the debtor. This change is intended to provide the trustee with 

some flexibility in making decisions in an emergency bankruptcy situation, subject to the 

requirements of the Bankruptcy Code. Given that an FCM bankruptcy will likely be a 

fast-paced situation requiring the trustee to make decisions with little time for 

consideration, the Commission recognizes that there may be circumstances under which 

strict compliance with the CEA and the regulations thereunder may not be practicable. 

The Commission did not receive any comments on proposed § 190.05(a).

115

The Commission is adopting § 190.05(b) to address the computation of funded 

balances. It is derived from, and makes several revisions to, § 190.04(b). The 

Commission’s objective in making such revisions is to provide the bankruptcy trustee with 

the latitude to act reasonably given the circumstances with which the trustee is confronted, 

recognizing that information may be more reliable and/or accurate in some insolvency 

situations than in others and permitting an approach that, to an appropriate extent, favors

 115 To the extent that ICI’s comment raising concerns about trustee discretion applies here, the Commission 

notes that the addition of § 190.00(c)(3)(i)(C), which directs the trustee to use their discretion with the 

overarching goal of protecting public customers, should mitigate that concern.
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cost effectiveness and promptness over precision.

116 First, whereas current § 190.04(b) 

provides that a trustee “must” compute a daily funded balance for the relevant customer 

accounts, § 190.05(b) requires the trustee to use “reasonable efforts” to make such 

computations. Such computations are required to be “as accurate as reasonably 

practicable under the circumstances, including the reliability and availability of 

information.” Second, § 190.05(b) increases the scope of customer accounts for which the 

bankruptcy trustee is obligated to compute a funded balance from accounts that contain 

open commodity contracts to accounts that contain open commodity contracts or other 

property. In the Commission’s view, there is no reason to exclude customer accounts that 

contain only property (the value of which may change) from the scope of those for which 

bankruptcy trustees must compute a daily funded balance. Third, § 190.05(b) revises the 

length of time that the trustee is obligated to compute the funded balance of customer 

accounts from “until the final liquidation date” to until the open commodity contracts and 

other property in the account have been transferred or liquidated. This change ties the 

computation requirement to each specific account, such that a bankruptcy trustee is not 

required to continue to compute the funded balance of customer accounts that do not 

contain any open commodity contracts or other property. Lastly, the specific deadline by 

which the computation must be completed is being removed. The Commission does not 

believe that the deadline in current § 190.04(b) (by noon the next business day) is crucial 

in a bankruptcy context (as it is with respect to an FCM conducting ongoing daily 

business).

117 Such computation would, however, inherently need to be accomplished prior 

 116 See major theme 7 discussed in section I.B above.

117 See, e.g., § 1.32(d).
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to performing any action where knowledge of funded balances is essential, such as 

transfers of accounts or property.

The Commission received one comment regarding proposed § 190.05(b). CME 

agreed that allowing the trustee to compute the funded balance for customers’ accounts 

before transferring or liquidating customer positions or property using “reasonable efforts” 

to be “as accurate as reasonably practicable under the circumstances, including the 

reliability and availability of information” “should allow the trustee to act more promptly 

to transfer the positions of public customers and their pro rata share of the customer 

property than if the trustee were held to a strict standard of precision in calculating funded 

balances before it could undertake such transfers.” This is consistent with the 

Commission’s view. The Commission is adopting§ 190.05(c)(1) to amend the record

retention requirements in current § 190.04(c) to be more comprehensive. Paragraph 

190.05(c)(1) expands the referenced records from “computations required by this [p]art” 

to “records required under this chapter to be maintained by the debtor, including records 

of the computations required by this part.” To enable the trustee to mitigate the expenses 

of record retention, however, it reduces the time that records are required to be retained 

from “the greater of the period required by § 1.31 of this chapter or for a period of one 

year after the close of the bankruptcy proceeding for which they were compiled” to “until 

such time as the debtor’s case is closed.” Paragraph 190.05(c)(2) simplifies the 

corresponding portion of current § 190.04(c)(2) by omitting the requirement that the 

records required in § 190.05(c)(1) be available to the Court and parties in interest. The 

requirement that such records be available to the Commission and the United States 

Department of Justice is being retained. A court generally will not itself look at records, 
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and any parties in interest should have access to records under the discovery provisions of 

the Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure, as 

applicable. The Commission did not receive any comments on proposed § 190.05(c).

The Commission is adopting new § 190.05(d) to facilitate the ability of customers 

of the bankrupt FCM with open commodity contracts or property to keep track of such 

open commodity contracts or property even during insolvency, and promptly to make 

them aware of the specifics of the liquidation or transfer of such contracts or property. 

Paragraph 190.05(d) requires the trustee to use all reasonable efforts to continue to issue 

account statements with respect to any customer for whose account open commodity 

contracts or other property is held that has not been liquidated or transferred. Paragraph 

190.05(d) also requires the trustee to issue an account statement reflecting any liquidation 

or transfer that has taken place with respect to a customer account promptly after such 

liquidation or transfer has occurred. 

The Commission sought comment on the practicability of the proposed 

requirements regarding the issuance of account statements. ICI commented in support of 

the account statement requirements.

The Commission is adopting § 190.05(e)(1) to amend the requirement in current 

§ 190.04(e)(2) that a trustee must obtain court approval to make disbursements to 

customers, to specifically carve out transfers of customer property made in accordance 

with § 190.07. The Commission is making this change to reflect the policy preference to 

transfer as many public customer positions as practicable in the event of an FCM 
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insolvency.118 The Commission notes, however, that this carve out does not detract from 

the trustee’s ability to, in their discretion, nonetheless seek and obtain court approval for 

certain transfers of property. The Commission recognizes that there is an inherent tension 

between distributing to public customers as much customer property as possible from the 

debtor’s estate, as quickly as possible, and ensuring accuracy in distribution, and believes 

that § 190.05(e)(1) strikes the right balance between these competing objectives.119 

Paragraph § 190.05(e)(2) addresses how a bankruptcy trustee may invest the 

proceeds120 from the liquidation of open commodity contracts and specifically identifiable 

property, and other customer property. It is derived from, and retains much of, current § 

190.04(e)(3), but it expands the provision permitting the bankruptcy trustee to “invest any 

customer equity in accounts which remain open in accordance with § 190.03” to permit 

the investment of “any other customer property.” It continues to limit the permissible 

investments to obligations of, or fully guaranteed by, the United States, and to limit the 

location of permissible depositories to those located in the United States or its territories 

or possessions. The Commission did not receive any comments on proposed § 190.05(e).

The Commission is adopting new § 190.05(f) to require a bankruptcy trustee to 

apply the residual interest provisions contained in § 1.11 “in a manner appropriate to the 

context of their responsibilities as a bankruptcy trustee” and “in light of the existence of a 

 118 The Commission notes that current § 190.08(d) provides for the return of specifically identifiable 

property other than commodity contracts under certain circumstances (namely, where the customer makes 

good any pro rata loss related to that property) without court approval; however, the Commission is deleting 

this provision in favor of allowing transfers without court approval for the reasons stated above. 

119 The concept of prioritizing cost effectiveness and promptness over precision is discussed in detail in 

major theme 7 in section I.B above and in overarching concept three in the cost-benefit considerations, 

section III.A.2.iii below.

120 Paragraph § 190.05(e)(2) uses the term “proceeds” rather than the term “equity,” which is used in current 

§ 190.04(e)(3). This change in wording is not meant to be a substantive. 
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surplus or deficit in customer property available to pay customer claims.” The purpose of 

the residual interest provisions is to have the FCM maintain a sufficient buffer in 

segregated funds “to reasonably ensure that the [FCM] . . . remains in compliance with the 

segregated funds requirements at all times.”121 The Commission requested comment with 

respect to all aspects of proposed § 190.05. Specifically, the Commission sought

comment on the practicability and appropriateness of proposed § 190.05(f). 

The Commission received supportive comments from CME, SIFMA AMG /

MFA, ICI, and Vanguard. CME supported adding clarity that the trustee should use 

reasonable efforts to operate the debtor FCM’s estate in compliance with the CEA and 

CFTC regulations governing FCMs, including to apply the residual interest provisions 

in § 1.11, in a manner appropriate to the context of their responsibilities and in light of 

the existence of a surplus or deficit in customer property available to pay customer 

claims. ICI and Vanguard supported the clarification in proposed § 190.05(f) that an 

FCM’s residual interest is to be applied to public customer claims. Vanguard noted its 

belief that “FCM residual interest is a valuable buffer to insulate FCM customers from the 

risk of delayed or failed margin transfers from other customers.” Vanguard “is pleased 

that the Commission has confirmed that, while residual interest is fronted by FCMs, it 

must be used to support customers through an FCM insolvency,” noting that its “purpose 

is to enhance core customer protections.” SIFMA AMG / MFA also believed that “the 

proposed use of residual interest as contemplated by proposed §§ 190.05(f) and 190.09 is 

appropriate,” and agreed with the Commission that “the residual interest provisions 

contained in § 1.11 remain important.”

 121 Section 1.11(e)(3)(i)(D).
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Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.05 as proposed. 

4. Regulation 190.06: Making and Taking Delivery under Commodity 

Contracts

The Commission is adopting § 190.06 as proposed. The Commission is adopting

§ 190.06 to provide more specificity regarding making and taking deliveries on 

commodity contracts in the context of an FCM bankruptcy and to reflect current delivery 

practices. Paragraph 190.06 is derived from current § 190.05, but implements new 

concepts (with respect to delivery practices, intangible commodities, and separation of 

physical and cash delivery property), as discussed further below. 

Generally, open positions may enter a delivery position where the parties incur 

bilateral contractual delivery obligations.122 It is important to address deliveries to avoid 

disruption to the cash market for the commodity and to avoid adverse consequences to 

parties that may be relying on delivery taking place in connection with their business 

operations.

The delivery provisions in the current regulations largely reflect the delivery 

practices at the time current part 190 was adopted in 1983. At that time, delivery was 

effected largely by tendering paper warehouse receipts or certificates. In contrast, most 

deliverable title documents today are held and transferred in electronic form, typically 

with the clearing organization serving as the central depository for such instruments. 

 122 The timing of the entry of the order for relief in a subchapter IV proceeding relative to when physical 

delivery contracts move into a delivery positions will generally influence whether a delivery issue may arise. 

Additionally, during business as usual, market participants typically offset contracts before incurring 

delivery obligations. 
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Under the terms of some contracts (such as oil or gas futures) the party with the 

contractual obligation to make delivery will physically transfer a tangible commodity to 

meet its obligations. In other cases, intangible commodities may be delivered, including

virtual currencies. As noted previously, in the definitions section (§ 190.01), the 

Commission is dividing the delivery account class into physical delivery and cash delivery 

account subclasses to recognize the differing issues that apply to physical delivery 

property versus cash delivery property. The Commission is also recognizing that, 

consistent with current practice, physical deliveries123 may be effected in different types of 

accounts.

124 For example, when an FCM has a role in facilitating delivery, deliveries may 

occur via title transfer in a futures account, foreign futures account, cleared swaps account, 

delivery account, or, if the commodity is a security, in a securities account. 125 

Paragraph 190.06(a) applies to commodity contracts that settle upon expiration or 

exercise by making or taking delivery of physical delivery property, if such commodity 

contracts are in a delivery position on the filing date or the trustee is unable to liquidate 

such commodity contracts in accordance with § 190.04(c) to prevent them from moving 

into a delivery position.126 The Commission is adopting § 190.06(a)(2) to address 

 123 Current § 190.05 applies to the delivery of a physical commodity, or of documents of title to physical 

commodities. Paragraph 190.06 applies to any type of commodity that is subject to delivery, whether 

tangible or intangible. This is captured in the definition of physical property. Given the different ways in 

which delivery may take place, physical delivery property is not limited to property that an FCM holds for or 

on behalf of a customer in a delivery account. For a discussion of those different ways, see the third and 

fourth categories under the definition of physical delivery property in § 190.01 in section II.A.2 above.

124 See also § 190.10(c).

125 See also § 190.10(c).

126 As discussed above, § 190.04(c) directs the trustee to use its best efforts to avoid delivery obligations 

concerning contracts held through the debtor FCM by transferring or liquidating such contracts before they 

move into delivery position. 

T
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delivery made or taken on behalf of a customer outside of the administration of the 

debtor’s estate, (i.e., directly between the debtor’s customer and the delivery counterparty 

assigned by the clearing organization). It replaces current § 190.05(b). Current 

§ 190.05(b) requires a DCO, DCM, or SEF to enact rules that permit parties to make or 

take delivery under a commodity contract outside the debtor’s estate, through substitution 

of the customer for the commodity broker. The Commission believes that deliveries 

should occur in this manner only where feasible. Deliveries may not always happen in 

this manner, as customers largely rely on their FCMs to hold physical delivery property on 

their behalf in electronic form.127

Paragraph 190.06(a)(2)(i)128 directs the trustee to use “reasonable efforts” to allow 

a customer to deliver physical delivery property that is held directly by the customer in 

settlement of a commodity contract, and to allow payment in exchange for such delivery, 

to occur outside the debtor’s estate, where the rules of the exchange or clearing 

organization prescribe a process for delivery that allows delivery to be fulfilled either (A) 

in the ordinary course by the customer, (B) by substitution of the customer for the 

commodity broker, or (C) through agreement of the buyer and seller to alternative delivery 

procedures. In adopting a “reasonable efforts” standard rather than (as in current 

§ 190.05(a)(1)) “best efforts,” the Commission is recognizing that, in the event that the 

trustee is unable to transfer or earlier liquidate the positions, delivery involves a 

 127 he requirement for registered entity rules to be submitted for approval in accordance with section 5c(c) of 

the Act has been deleted for reasons discussed in section II.B.2 above with respect to §§ 190.04(e)(1) and 

(2). 

128 The Commission notes that § 190.04(c) directs the trustee to use its best efforts to avoid delivery 

obligations concerning contracts held through the debtor FCM by transferring or liquidating such contracts 

before they move into delivery position. Paragraph 190.06(a)(2) applies where the trustee is unable to do 

so.
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significant degree of bespoke administration. Moreover, requiring the trustee’s “best 

efforts” for delivery might require the trustee to spend an inordinate amount of time 

focusing on the needs of a few customers and detract from the trustee’s ability to manage 

the short term challenges of the administration of the estate in the days immediately 

following the filing date. 

Paragraph 190.06(a)(2)(ii) addresses the circumstance where, while the customer 

makes physical delivery in satisfaction of a commodity contract using property that is 

outside the administration of the estate of the debtor, the customer nonetheless has 

property held in connection with that contract at the debtor (i.e. ̧ collateral posted in 

connection with that contract pre-petition). Consistent with current § 190.05(b)(2), § 

190.06(a)(2)(ii) provides that the property held at the debtor becomes part of the 

customer’s claim and can only be distributed pro rata, despite the customer fulfilling the 

delivery obligation outside the administration of the debtor’s estate.

Paragraph 190.06(a)(3) applies when it is not practicable to effect delivery outside 

the estate. Paragraph 190.06(a)(3) clarifies that which was implied, but was not 

addressed, in current § 190.05(c)(1)-(2), by providing additional details for when delivery 

is made or taken within the debtor’s estate. It contains provisions for the trustee to 

deliver physical or cash delivery property on a customer’s behalf, or return such property 

to the customer so that the customer may fulfill its delivery obligation. The regulation

also includes restrictions designed to assure that a customer does not receive (or otherwise 

benefit from) a distribution of customer property (or other use of such property that 

benefits the customer) that exceeds the customer’s pro rata share of the relevant customer 

property pool. 
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The Commission is adopting new § 190.06(a)(4) to recognize that delivery may 

need to be made in a securities account if an open commodity contract held in a futures 

account, foreign futures account, or cleared swaps account requires the delivery of 

securities, and property from any of these accounts is transferred to the securities account 

for the purpose of effecting delivery. The value of the property transferred to the 

securities account must be limited to the customer’s funded balance for a commodity 

contract account, and only to the extent that funded balance exceeds (i.e., the surplus over) 

the customer’s minimum margin requirements for that account. Such a transfer may not 

be made if the customer is undermargined or has a deficit balance in any other commodity 

contract accounts.

Paragraph 190.06(a)(5), as proposed, addressed deliveries made or taken on behalf 

of “a house account of the debtor.” It was derived from current § 190.05(c)(3), with some 

clarifying wording. Consistent with the suggestion from the ABA Subcommittee, as 

discussed in section II.A.2 above, the Commission is deleting in this final rule the 

definition of house account as it applies to FCMs. The reference in the provision as 

proposed to “a house account of the debtor” is being replaced in the final rule with a 

reference to “the debtor’s own account or the account of any non-public customer of the 

debtor.” No substantive change vis-à-vis either the current regulation or the regulation as 

proposed is intended.

The Commission is adopting new § 190.06(b) to divide the delivery account class 

into separate physical delivery and cash delivery account subclasses, for purposes of pro 

rata distributions to customers in the delivery account class on their net equity claims. 

Because claims in each subclass are fixed as of the filing date, § 190.06(b)(1)(i) provides
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that the physical delivery account class includes physical delivery property held in 

delivery accounts as of the filing date, and the proceeds of any such physical delivery 

property received subsequently (i.e., cash received after the filing date, in exchange for 

physical delivery property on which delivery was made), and § 190.06(b)(ii) provides the 

cash delivery account class includes cash delivery property in delivery accounts as of the 

filing date, along with physical delivery property for which delivery is subsequently taken 

(i.e., in exchange for cash delivery property paid after the filing date) on behalf of a 

customer in accordance with § 190.06(a)(3). 

Paragraph190.06(b)(2) describes the customer property included in the cash 

delivery account class and in the physical delivery account class. Paragraph 190.06(b)(2) 

provides that customer property in the cash delivery account class includes cash or cash 

equivalents that are held in an account under a name, or in a manner, that clearly indicates 

that the account holds property for the purpose of making payment for taking delivery of a 

commodity under commodity contracts. Customer property in the cash delivery account 

class also includes any other property that is (A) not segregated for the benefit of 

customers in the futures, foreign futures, or cleared swaps account classes) and (B) 

traceable (through, e.g., account statements) as having been received after the filing date 

as part of taking delivery. 

Paragraph 190.06(b)(2) also provides, conversely, that customer property in the 

physical delivery account class includes cash or cash equivalents that are held in an 

account under a name, or in a manner, that clearly indicates that the account holds 

property received in payment for making delivery of a commodity under a commodity 

contract. Customer property in the physical delivery account class also includes any other 
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property that is (A) not segregated for the benefit of customers in the futures, foreign 

futures, or cleared swaps account classes) and (B) traceable (through, e.g., account 

statements) as having been held for the purpose of making delivery of a commodity under 

a commodity contract, or held as of the filing date as a result of taking delivery.

The Commission requested comment on all aspects of proposed § 190.06. In 

particular, the Commission sought comment on the implications of subdividing the 

delivery account class into separate physical delivery and cash delivery account 

subclasses, including any additional challenges or benefits that the Commission did not 

consider. CME expressed support for specific aspects of proposed § 190.06, such as: (1) 

the proposed enhancements to the delivery account class, including separating the account 

class into physical and cash delivery account classes; (2) the additional detail provided to 

the trustee on how to facilitate the completion of deliveries including, in particular, the 

requirement for the trustee to use reasonable efforts to allow delivery to occur outside 

administration of the debtor FCM’s estate when the rules of the relevant exchange or DCO 

prescribe a process for allowing deliveries to be accomplished as set forth in the proposal; 

and (3) the clarification that cash or cash equivalents held by the debtor FCM in an 

account maintained at a bank, DCO, foreign clearing organization or elsewhere constitutes 

customer property when it is held under a name or in a manner clearly indicating the 

property in the account relates to deliveries. As to the latter, CME believes that this will 

facilitate identifying cash delivery property available to distribute to customers in the cash 

delivery account class.129 .

 129 CME noted that its support was “subject to CME’s comments which request changes to the cash delivery 

property and physical delivery property definitions.” Specifically, CME requested that the Commission 
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Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.06 as proposed, with modifications to § 190.06(a)(5) as 

set forth above. 

5. Regulation 190.07: Transfers

Regulation § 190.07 was proposed to set forth detailed provisions governing 

transfers, consistent with the policy preference, explained in paragraph 190.00(c)(4), for 

transferring (or “porting”) public customer commodity contract positions, as well as all or 

a portion of such customers’ account equity. It is being adopted as proposed with 

modifications to §§ 190.07(b), (d), and (e), as set forth below.

The Commission requested comment with respect to all aspects of proposed 

§ 190.07, and raised particular questions with respect to the proposed six-month posttransfer period to complete customer diligence, partial transfers, and estimates of customer 

claims. 

Paragraph 190.07(a) addresses rules that clearing organizations and SROs may 

“adopt, maintain in effect, or enforce” that may affect transfers. 

Paragraphs 190.07(a)(1) and (a)(2) state that these organizations may not have 

such rules that, respectively, “are inconsistent with the provisions of” part 190 or that 

interfere with the acceptance by their members of commodity contracts and collateral from 

FCMs that are required to transfer accounts pursuant to § 1.17(a)(4). These provisions are 

derived from current §§ 190.06(a)(1) and (a)(2), with technical changes. No comments 

were received with respect to these provisions. 

 adopt more formal requirements with respect to delivery accounts through a separate rulemaking. That 

request is addressed in section II.G below.
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Paragraph 190.07(a)(3) is intended to promote transfers, to the extent consistent 

with good risk management. It provides that no clearing organization or other SRO may 

adopt, maintain in effect, or enforce rules that “interfere with the acceptance by its 

members of transfers of commodity contracts, and the property margining or securing 

such contracts, from [an FCM that is a debtor] if such transfers have been approved by the 

Commission ....” Paragraph (a)(3) includes a proviso, however, that it “shall not (i) Limit 

the exercise of any contractual right of a clearing organization or other registered entity to 

liquidate or transfer open commodity contracts; or (ii) Be interpreted to limit a clearing 

organization’s ability adequately to manage risk.”

FIA supported the proviso, and CME “agree[ed] that transfers should be made 

consistent with sound risk management principles, and in that regard welcome[d] the 

proposed clarification that the requirements under the proposed rule do not limit the rights 

of a DCO (or a DCM or swap execution facility as “registered entities” as defined in the 

CEA) to liquidate or transfer open commodity contracts.” ICE, by contrast, was

concerned that the term “interfere with” is overly broad, and requested that the 

Commission “clarify that a clearing organization is not precluded from managing the risks 

presented by any such transfer, including through bona fide changes in margin 

requirements and guarantee fund contributions for transferee clearing members.”

As discussed immediately above, the provision already states that “this paragraph 

(a)(3) shall not ... be interpreted to limit a clearing organization’s ability adequately to

manage risk.” Moreover, recognizing the different or additional margin requirements or 

guarantee fund contribution requirements resulting from the additional positions carried 

by a transferee clearing member is not a rule that interferes with the acceptance of a 
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transfer of commodity contracts.

130 Accordingly, the Commission concludes that 

§ 190.07(a)(3) appropriately meets the goal of promoting transfers to the extent consistent 

with good risk management.

Regulation 190.07(b) concerns requirements for transferees. Paragraph (b)(1)

clarifies that it is the duty of the transferee – not of anyone else –to assure that the transfer 

will not cause the transferee to be in violation of the minimum financial requirements. 

Paragraph (b)(2) notes that the transferee accepts the transfer subject to any loss arising 

from deficit balances that cannot be recovered from the customer, and, in the case of 

customer accounts, must keep such counts open for at least one business day (unless the 

customer fails to respond to a margin call within a reasonable time) and may not collect 

commissions with respect to the transfer.

As stated in the proposal, the Commission understands that customer diligence 

processes would have already been required to have been completed by the debtor FCM 

with respect to each of its customers as part of opening their accounts. Regulation

190.07(b)(3) thus provides that a transferee may accept open commodity contracts and 

property, and may open accounts on its records prior to completing customer diligence, 

provided that account opening diligence as required is performed as soon as practicable 

but no later than six months after transfer, unless the time is extended, by the Commission, 

for a particular account, transfer, or debtor. This provision is consistent with past practice 

in FCM bankruptcies.

 130 The Commission understands ICE’s reference to “bona fide changes in margin requirements and 

guarantee fund contributions” to mean changes that are not based on the fact that positions were acquired by 

transfer. 
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CME supported this provision as a “practical change” that should assist in finding 

willing transferees, while ICI believed that it will help mitigate or eliminate “speed 

bumps” to porting. Vanguard supported the flexibility advanced by the Commission here, 

but urged the Commission to work to harmonize that flexibility across other regulatory 

regimes applicable at FCMs, particularly for those dually registered as broker-dealers.

FIA supported the policy underlying paragraph (b)(3), and noted that it is essential 

to realize the policy of favoring porting over liquidation of customer accounts. FIA also 

agreed that six months is a reasonable period of time for this process, subject to the 

Commission’s authority to grant additional time in particular circumstances. FIA was, 

however, of the view that this regulation should “provide transferee FCMs more specific 

relief from applicable law relating to ‘customer diligence.’”

FIA encouraged the Commission to specify the customer diligence rules from 

which transferee FCMs will have temporary relief. FIA stated that 

“such rules may include, but not be limited to: (i) rules relating to antimoney laundering requirements (including rules requiring FCMs to implement 

customer identification programs and know your customer requirements and all 

corresponding self-regulatory organization (“SRO”) requirements); (ii) rules 

relating to risk and other disclosures (§§ 1.55, 30.6, 33.7 and similar SRO 

disclosure requirements); (iii) rules relating to capital and residual interest 

requirements (§§ 1.11, 1.17, 1.22, 1.23, 22.2, 22.17, 30.7 and 41.48 and related 

SRO requirements); (iv) rules relating to account statements required under § 1.33 

in the event positions transfer with inadequate contact information (§ 1.33 and 

related SRO requirements); and [(v)] rules relating to margin in the event accounts 

transfer without adequate margin (§§ 1.17, 39.13, 41.42-41.49 and related SRO 

requirements).”

The Commission has considered each of the five types of requirements discussed 

by FIA:

With respect to anti-money laundering requirements, the Commission notes that, 

for purposes of the Customer Identification Program (“CIP”) requirements applicable to 
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futures commission merchants pursuant to 31 C.F.R. 1026.220, the term “account” is 

defined to exclude “[a]n account that the futures commission merchant acquires through 

any acquisition, merger, purchase of assets, or assumption of liabilities.” 31 C.F.R.

1026.100(a)(2)(i). Thus, transferred accounts are not subject to the CIP requirements. 

However, the Customer Due Diligence (“CDD”) requirements of 31 C.F.R. 

1026.210(b)(5) do appear to apply. These include a requirement for “[a]ppropriate riskbased procedures for conducting ongoing customer due diligence, to include (i) 

Understanding the nature and purpose of customer relationships for the purpose of 

developing a customer risk profile ....” 31 C.F.R. 1026.210(b)(5)(i). The Commission is 

of the view that § 190.07(b)(3) would inform the determination of what constitutes 

appropriate risk-based procedures in the exigent context of an FCM accepting a transfer 

of accounts from an FCM that is a debtor in bankruptcy.

While FIA appears to request a reference to the account opening disclosure 

requirements in §§ 1.55, 30.6, and 33.7 of this chapter, these would appear to be addressed 

by the bulk transfer provisions of § 1.65. The Commission is amending § 190.07(b)(3) to 

include a parenthetical statement that explicitly refers to “the risk disclosures referred to in 

§ 1.65(a)(3).” This will modify the sixty-day requirement of that paragraph. 

The Commission declines to amend the regulation to extend the time to comply 

with capital and residual interest requirements. To do so would risk permitting a transfer 

of accounts to result in contagion of financial weakness. The Commission reiterates the 

importance of § 190.07(b)(1), which provides that “it is the duty of each transferee to 

assure that it will not accept a transfer that would cause the transferee to be in violation of 

the minimum financial requirements set forth in this chapter.” 
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However, to the extent that shortfalls in compliance with these requirements are 

due to errors or shortfalls in the data received by the transferee from the transferor FCM, 

and the transferee acts with reasonable and appropriate diligence in seeking to detect such 

errors or shortfalls in data, and, where detected, in investigating and correcting them, such 

shortfalls in compliance would not be considered violations of such requirements.

Similarly, where account statements required by § 1.33 do not reach the customer 

due to errors or shortfalls in the contact information provided to the transferee, there 

would be no violation so long as the transferee takes reasonable steps to detect such errors 

or shortfalls (e.g., by reacting promptly to rejected e-mail or returned postal mail, or to 

complaints by a transferred customer that they are not receiving such statements) and to 

correct the situation once detected. The proposed regulation does not need to be amended 

to achieve this result.

Finally, with respect to FIA’s request for relief with respect to regulations “relating 

to margin in the event accounts transfer without adequate margin,” the Commission 

believes that the determination of whether a transferee FCM is promptly collecting such 

margin should be informed by the exigencies of the situation. There is, however, no basis 

for a general exemption for transferee accounts from the requirements of 

§ 39.13(g)(8)(iii), providing that a DCO shall require that its members do not permit 

customers to withdraw funds from their accounts unless the accounts would be fully 

margined after such withdrawal. If the transferee FCM is not confident of the information 

it has regarding the transferred account, it would seem appropriate to risk manage with 

caution. Once the transferee FCM is confident that it fully understands the situation, the 
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transferee can act in accordance with its normal procedures.131 Similarly, there is no basis 

to provide a general exemption from undermargined account capital charges in accordance 

with § 1.17. 

In all of these cases, the Commission encourages DCOs and SROs to take similar 

approaches.

While the Commission has declined, in many of the above cases, to provide 

general relief by regulation, this is without prejudice to the possibility that more targeted 

relief may be appropriate in particular cases. Specifically, any further relief that might be 

appropriate in a particular situation could be requested by, e.g., the transferee, in light of 

the relevant facts and circumstances. 

The Commission observes that its staff have traditionally responded to requests for 

relief in emergency situations with great dispatch, and expects, and thus instructs staff, to 

continue to do so in this context in the future.

132

OCC recommended that “the Commission adopt a parallel regulation permitting a 

DCO to postpone any due diligence the DCO would typically have to perform on an FCM 

member accepting transferred positions from a bankrupt FCM.” This would include the 

requirements of, e.g., § 39.12, requiring a DCO to have “continuing participation 

requirements for clearing members of the [DCO] that are objective, publicly available, and 

risk-based.”

 131 Such normal procedures would include the “ordinary course of business” referred to in Letter 19-17, or 

any successor letter or regulation. See CFTC Letter 19-17, https://www.cftc.gov/node/217076

132 For the avoidance of doubt, the nature of the expectation and the instruction is that staff will provide a

response to such requests with great dispatch. The nature of the response, whether affirmative, affirmative 

in part, or negative, will depend on the relevant facts and circumstances.
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The Commission does not agree that the situations are parallel: An FCM is 

required to perform individualized due diligence on each of its customers, which in the 

case of a transfer such as was seen in historical situations such as MF Global, would 

amount to hundreds or even thousands of customers. By contrast, the focus of a DCO is 

on the financial and operational capability of each of its clearing members that is a 

transferee to manage, in the aggregate, the customer portfolios of which it accepts 

transfer. The number of transferee FCM clearing members is likely to be no more than a 

dozen.

In any event, the Commission expects that a DCO would, and would be permitted 

to, conduct its due diligence procedures in a manner consistent with balancing risk 

management requirements (see, e.g., § 190.07(a)(3)(ii) (restrictions on a DCO interfering 

with the acceptance of transfers from a debtor FCM “shall not be interpreted to limit a 

clearing organization’s ability adequately to manage risk”) with the exigencies of the 

situation.

Paragraph 190.07(b)(4) is designed to clarify what the account agreement between 

the transferred customer and the transferee is at and after the time the transfer becomes 

effective. This includes situations where an account is partially transferred. As proposed, 

it provides that any account agreements governing a transferred account shall be deemed 

assigned to the transferee and shall govern the customer’s relationship unless and until a 

new agreement is reached. It also provides that a breach of the agreement prior to a 

transfer does not constitute a breach on the part of the transferee. CME, ICI and Vanguard 

supported this provision.
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FIA appreciated the need for legal certainty as to the terms of the relationship 

between a transferee FCM and each transferred customer, but was concerned that the 

transferee FCM might be disadvantaged by being subject to an account agreement 

between the transferred customer and the transferor (debtor) FCM. There are two possible 

situations with respect to each customer: Either the customer does, or does not, have a 

pre-existing account agreement with the transferee FCM. 

FIA noted that many large customers, in particular, may maintain accounts at more 

than one FCM, and thus it may be the case that the customer already has an account 

agreement in place with the transferee FCM. FIA asked the Commission to confirm their 

view that, in this context, the transferee would not be required to manage the ported 

account(s) in accordance with the agreement with the transferor FCM. The Commission 

agrees with this view, and is modifying proposed § 190.07(b)(4) to state this explicitly: 

the proposed text will be renumbered as § 190.07(b)(4)(i), and paragraph (b)(4)(ii) will be 

added to state “(ii) Paragraph (b)(4)(i) shall not apply where the customer has a preexisting account agreement with the transferee futures commission merchant. In such a 

case, the transferred account will be governed by that pre-existing account agreement.” 

However, where the transferred customer does not have a pre-existing account 

agreement with the transferee FCM, FIA conceded that “the account agreement [between 

the transferor and the customer] should stay in place for a short defined interim period 

during which the parties may renegotiate....” FIA did not specify how long that “short 

defined interim period” should last, nor what should happen at the end of that period if the 

parties fail to reach agreement. The Commission notes that nothing prevents either the 

transferee FCM or customer from negotiating at any time to change the (in this case, 
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assigned) account agreement between them, and that, aside from § 190.07(b)(2)(ii)(A) 

(requiring the transferee to keep the customer’s commodity contracts open at least one 

business day after their receipt unless the customer fails to meet promptly a margin call), 

nothing in the Commission’s regulations prevents either the transferee or customer from 

terminating their relationship if they cannot reach agreement as to the terms under which 

that relationship should continue, on what either party believes is a timely basis. 

Accordingly, the Commission declines to modify § 190.07(b)(4) in this context.

Lastly, FIA observed that a customer’s account may not always be able to be 

physically transferred from the debtor FCM to the transferee FCM. The Commission 

notes that the reference in § 190(b)(4) to assignment of account agreements does not refer 

to the movement of physical documents.133 As requested by FIA, the Commission can 

thus confirm that assignment of the agreement does not depend upon such movement.

Regulation 190.07(b)(5) provides that customer instructions received by the debtor 

with respect to open commodity contracts or specifically identifiable property that has 

been, or will be, transferred in accordance with section 764(b) of the Bankruptcy Code, 

should be transmitted to any transferee, which shall comply therewith to the extent 

practicable (if the transferee subsequently enters insolvency). 

Regulation 190.07(c) addresses eligibility of accounts for transfer under section 

764(b) of the Bankruptcy Code. This provision states that “[a]ll commodity contract 

accounts (including accounts with no open commodity contract positions) are eligible for 

transfer....” This language recognizes that accounts can be transferred even if they are 

 133 To be sure, a transfer agreement would likely include transfers of records or at least copies of records as a 

matter of good practice.
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intended for trading commodities but do not include any open commodity contracts at the 

time of the order for relief.

134

Regulation 190.07(d) addresses special rules for transfers under section 764(b) of 

the Bankruptcy Code. Paragraph (d)(1) instructs the trustee to “use its best efforts to 

effect a transfer to one or more other commodity brokers of all eligible commodity 

contract accounts, open commodity contracts and property held by the debtor for or on 

behalf of its customers, based on customer claims of record, no later than the seventh 

calendar day after the order for relief.” The Commission will correct a typographical error 

in the proposal, and refer to “customer claims of record” rather than “customer claims or

record.” 

Regulation 190.07(d)(2) addresses cases of partial transfers and multiple 

transferees. It includes a requirement that “a partial transfer of contracts and property may 

be made so long as such transfer would not result in an increase in the amount of any 

customer’s net equity claim.” The added language is intended to caution against partial 

transfers that would break netting sets and make the customer worse off. The Commission 

has also decided to state that one way to accomplish a partial transfer is “by liquidating a 

portion of the open commodity contracts held by a customer such that sufficient value is 

realized, or margin requirements are reduced to an extent sufficient, to permit the transfer 

of some or all of the remaining open commodity contracts and property.” This language is 

 134 Cf. 11 U.S.C. 761(9)(A)(ii)(II) (customer means, with respect to an FCM, an entity that holds a claim 

against the FCM arising out of “a deposit or payment of cash, security, or other property with such [FCM]

for the purpose of making or margining [a] commodity contract”) (emphasis added).

Thus, where a person opens a customer account and deposits collateral on day 1, intending to trade on day 3 

(or some subsequent day when the customer determines that it is propitious to trade) and the FCM becomes 

a debtor on day 2 (or some other day when the customer has no positions open) such person nonetheless 

qualifies as a customer, and their claim would be a customer claim.
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intended to clarify that the liquidation may either crystalize gains or have the effect of 

reducing the required margin. Finally, with regards to the transfer of part of a spread or a 

straddle, § 190.07(d)(2)(ii) states that “to the extent practicable under the circumstances,” 

each side of the spread or straddle must be transferred or none of the open commodity 

contracts comprising the spread or straddle may be transferred. This language is intended 

to clarify that the trustee is required to protect customers holding spread or straddle 

positions from the breaking of netting sets, but only to the extent practicable given the 

circumstances. 

Regulation 190.07(d)(3) provides details regarding the treatment and transfer of

letters of credit used as margin, consistent with other proposed provisions related to letters 

of credit. In particular, this provision states that a transfer of a letter of credit cannot be 

made if it would result in a recovery that exceeds the amount to which the customer is 

entitled in §§ 190.08 and 190.09. If the letter of credit cannot be transferred and the 

customer does not deliver substitute property, the trustee may draw upon a portion or upon 

all of the letter of credit, the proceeds of which will be treated as customer property in the 

applicable account class. The Commission believes a regulation detailing how letters of 

credit are to be treated in a transfer will provide more certainty, as there is currently no 

such regulation, and that the proposed treatment is both practical and consistent with the 

policy of pro rata distribution.135

Regulation 190.07(d)(4) requires a trustee to use reasonable efforts to prevent 

physical delivery property from being separated from commodity contract positions under 

 135 See also discussion of treatment of letters of credit in bankruptcy under § 190.04(d)(3) in section II.B.2.
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which the property is deliverable. The Commission is proposing this regulation to clarify 

its expectations in such situations, specifically, to promote the delivery process.

Regulation 190.07(d)(5) is intended to prevent prejudice to customers generally by 

prohibiting the trustee from making a transfer that would result in insufficient customer 

property being available to make equivalent percentage distributions to all equity claim 

holders in the applicable account class. It clarifies that the trustee should make 

determinations in this context based on customer claims reflected in the FCM’s records, 

and, for customer claims that are not consistent with those records, should make estimates 

using reasonable discretion based in each case on available information as of the calendar 

day immediately preceding transfer.

Regulation 190.07(e) addresses the prohibition on avoidance of transfers under 

section 764(b) of the Bankruptcy Code. It explicitly approves specific types of transfers, 

unless such transfers are disapproved by the Commission. 

Paragraph 190.07(e)(1) approves (i) transfers that were made before the order for 

relief in compliance with § 1.17(a)(4) (FCM fails to meet capital requirements); (ii) prerelief transfers, withdrawals or settlements at the request of public customers, unless the 

customer acted in collusion with the debtor to obtain a greater share than it would 

otherwise be entitled to; and (iii) pre-relief transfers of customer accounts or commodity 

contracts and other related property, either by a clearing organization or a receiver that has 

been appointed for the FCM that is now a debtor. In this context, “public customers” 

would include a lower-level (i.e., downstream) FCM acting on behalf of its own public 

customers (e.g., cleared at the debtor on an omnibus basis).
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Regulation 190.07(e)(2) pertains to post-relief transfers. Section 764(b) of the 

bankruptcy code permits the Commission to approve, and thus protect from avoidance, 

transfers that occur up to seven days after the order for relief. Paragraph 190.07(e)(2)(i) 

approves transfers of eligible commodity contract accounts or customer property made by 

the trustee or any clearing organization. Paragraph 190.07(e)(2)(ii) approves transfers 

made at the direction of the Commission upon such terms and conditions as the 

Commission may deem appropriate and in the public interest.

Regulation 190.07(e)(3) was referred to in preamble to the proposal as derived 

from current § 190.06(g)(3). It was inadvertently omitted from the rule text in the 

proposal.

Paragraph 190.07(e)(3) pertains to pre-relief withdrawals by customers (in contrast 

to the transfers dealt with previously in paragraph 190.07(e)(1)(ii)). It states (in terms 

analogous to paragraph 190.07(e)(1)(ii)) that 

“[n]otwithstanding the provisions of paragraphs (c) and (d) of this section, the 

following transfers are approved and may not be avoided under sections 544, 546, 

547, 548, 549 or 724(a) of the Bankruptcy Code: The withdrawal or settlement of 

a commodity contract account by a public customer, including a public customer 

which is a commodity broker, prior to the filing date unless:

(i) The customer making the withdrawal or settlement acted in collusion 

with the debtor or its principals to obtain a greater share of the bankruptcy 

estate than that to which such customer would be entitled in a bankruptcy 

distribution; or

(ii) The withdrawal or settlement is disapproved by the Commission.”

Regulation 190.07(f) provides that, notwithstanding the other provisions of this 

section (with exceptions discussed below), the Commission may prohibit the transfer of a 

particular set or sets of the commodity contract accounts and customer property, or permit 
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the transfer of a particular set or sets of commodity contract accounts and customer 

property that do not comply with the requirements of the section. The exceptions are the 

policy in favor of avoiding the breaking of netting sets in § 190.07(d)(2)(ii), and the 

avoidance of prejudice to other customers in § 190.07(d)(5).

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.07 as proposed with modifications to §§ 190.07(b), (d), 

and (e), as set forth above. 

6. Regulation 190.08: Calculation of Funded Net Equity

Section 190.08 is being adopted as proposed with a number of technical 

modifications, as set forth below. 

The Commission requested comment with respect to all aspects of proposed 

§ 190.08, and raised particular questions with respect to the revisions to the calculation of 

the equity balance of a commodity contract set forth in proposed § 190.08(b)(1), and the 

appropriateness of the proposal to determine the value of an open commodity contract at 

the end of the last settlement cycle on the day preceding the transfer rather than at the end 

of the day of the transfer, as set forth in § 190.08(d)(1)-(2).

As proposed, § 190.08(a) stated that the “allowed net equity claim of a customer 

shall be equal to the aggregate of the funded balances of such customer’s net equity claim 

for each account class.” As discussed above, the ABA Subcommittee urged that there 

should be more precise use of the term “allowed claim.”136 The Commission agrees with 

this recommendation. Accordingly, the Commission is amending the language in the 

 136 See discussion of “funded claim” in section II.A.2 above.
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proposal to replace the term “allowed net equity” with the term “funded net equity” in the 

final rule in both § 190.08(a) and in the title of § 190.08.

137 

Paragraph 190.08(b) sets forth the steps for a trustee to follow when calculating 

each customer’s net equity.138 Paragraph 190.08(b)(1), equity determination, sets forth the 

steps for a trustee to follow when calculating the equity balance of each commodity 

contract account of a customer. When calculating the customer’s claim against the debtor, 

the basis for calculating such claim is the data that appears in the debtor’s records. Once 

the customer’s claim based on the debtor’s records is calculated, the customer will have 

the opportunity to dispute such claim based on their own records, and the trustee may 

adjust the debtor’s records if it is persuaded by the customer. There were no comments 

directed specifically to this provision.

Paragraph § 190.08(b)(2), customer determination (aggregation), provides

instructions to the trustee regarding how to aggregate the credit and debit equity balances 

of all accounts of the same class held by a customer. Specifically, the regulation sets forth

how to determine whether accounts are held in the same capacity or in separate capacities. 

There were two comments applicable to this provision.

As proposed, § 190.08(b)(2)(ix) referred to the fact that an omnibus customer 

accounts is held in a separate capacity from the “house account.” As noted above,139 the 

ABA Subcommittee has suggested the deletion of the term “house account” in the context 

 137 Proposed § 190.08(a) is derived from current § 190.07(a), but reflects the fact that, under the revised 

definition of the term “primary liquidation date,” all commodity contracts will be liquidated or transferred 

prior to the primary liquidation date. Since no (relevant) operations will occur subsequent to the liquidation 

date, provisions that address how to deal with commodity contracts after that time are moot.

138 Pursuant to section 20(a)(5) of the CEA, 7 U.S.C. 24(a)(5), the Commission has the power to provide 

how the net equity of a customer is to be determined.

139 See section II.A.2 above. 
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of FCM bankruptcies, and the Commission has accepted this suggestion. Consistent with 

that approach, the Commission is accepting the ABA Subcommittee’s revised drafting for 

this provision:

An omnibus customer account for public customers of a futures commission 

merchant maintained with a debtor shall be deemed to be held in a separate 

capacity from any omnibus customer account for non-public customers of such 

futures commission merchant and from any account maintained with the debtor on 

its own behalf or on behalf of any non-public customer (emphasis added only for 

illustration).

As proposed, § 190.08(b)(2)(xii) provided that “[e]xcept as otherwise provided in 

this section, an account maintained with a debtor by an agent or nominee for a principal or 

a beneficial owner shall be deemed to be an account held in the individual capacity of such 

principal or beneficial owner.”

SIFMA AMG / MFA urged the Commission to amend this provision to “treat 

accounts of the same principal or beneficial owner maintained by different agents or 

nominees as separate accounts,” noting that this approach would “reduce the 

administrative difficulties the trustee would face in consolidating all accounts of the same 

principal or beneficial owner” and would “avoid[] any confusion as to the treatment of 

separate accounts that could arise with the overlay of the time-limited relief provided by 

Letter 19-17.”140 SIFMA AMG / MFA asserted that this change would be similar to the 

approach taken by the Commission in proposed § 190.08(b)(2)(xiv), which provides that 

accounts held by a customer in separate capacities shall be deemed to be accounts of 

different customers.

 140 See CFTC Letter 19-17, https://www.cftc.gov/node/217076
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The Commission notes that CFTC Letter 19-17 conditioned such relief on the 

FCM performing “stress testing and credit limits ... on a combined account basis” and

“provid[ing] each beneficial owner using separate accounts with a disclosure that under 

CFTC Part 190 rules all separate accounts of the beneficial owner will be combined in the 

event of an FCM bankruptcy.”141 Thus, treating separate accounts of the same beneficial 

owner on a combined basis is entirely consistent with the approach taken in Letter 19-17. 

Nor is the situation of separate accounts for the same beneficial owner analogous to a 

customer holding accounts in separate capacities, as referred to in § 190.08(b)(2)(xiv) 

(e.g., in their personal capacity versus in their capacity as trustee for X, or in their capacity 

as trustee for Y versus their capacity as trustee for Z.). In those latter cases, the same legal 

owner is acting for separate beneficial owners. Accordingly, the Commission is declining

to amend § 190.08(b)(2)(xii).

Paragraph 190.08(b)(3), setoffs, sets forth instructions regarding how and when to 

set off positive and negative equity balances. 

Paragraph 190.08(b)(4), correction for distributions, provides that the value of 

property that has been transferred or distributed must be added to the net equity amount 

calculated for that customer after performing the steps contained in paragraphs 

190.08(b)(1) through 190.08(b)(3). Paragraph 190.08(b)(4) also includes a proviso that 

clarifies that the calculation of net equity for any late-filed claims (in cases where all 

accounts for which there are customer claims of record as of the filing date are transferred 

with all of the equity pertaining thereto) will be based on the allowed amount of such 

claims. 

 141 Id. at 5 (emphasis supplied).
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Paragraph 190.08(b)(5), correction for ongoing events, provides that the 

calculation of net equity will be adjusted to correct for misestimates or errors, including 

corrections for the liquidation of claims or specifically identifiable property at a value 

different from the estimate value previously used in computing net equity.

As proposed, § 190.08(c) set forth the method for calculation of a customer’s 

funded balance, i.e., “a customer’s pro rata share of the customer estate with respect to 

each account class available for distribution to customers of the same customer class.” 

Paragraph 190.08(c)(1) sets forth instructions for calculating the funded balance of any 

customer claim, while § 190.08(c)(2) requires the funded balance to be adjusted to correct 

for ongoing events.

One change is being made to this paragraph, as a result of addressing a comment 

that affected a prior section. As proposed, § 190.08(c)(1)(ii) addressed giving customers 

credit for 100% of margin payments made after the order for relief. 

As discussed above,142 a number of commenters (ABA Subcommittee, CME, 

CMC), suggested that the definition of cash delivery property be expanded to address the 

possibility of post-filing-date payments made by customers to the FCM to pay for 

delivery. Such payments should be credited in full to the customer’s funded balance. 

Indeed, § 190.06(a)(3)(ii)(B)(2) provides that the trustee could issue payment calls in this 

context and that “the full amount of any payment made by the customer in response to a 

payment call must be credited to the funded balance of the particular account for which 

such payment is made.” 

 142 See discussion of cash delivery property in section II.A.2, above.
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In order to be consistent with the principle that 100% of post-filing-date payments 

are credited to a customer’s funded balance, proposed § 190.08(c)(1)(ii) is being amended, 

with the proposed language addressing post-filing-date margin payments to be codified as 

§ 190.08(c)(1)(ii)(A), and the addition of § 190.08(c)(1)(ii)(B) to address post-filing-date

payments for deliveries, to read as follows: “[then adding 100% of] ... (B) For cash 

delivery property, any cash transferred to the trustee on or after the filing date for the 

purpose of paying for delivery.”

Paragraph § 190.08(d), valuation, sets forth instructions about how to value 

commodity contracts and other property for purposes of calculating net equity as set forth 

in the rest of § 190.08. 

Paragraph 190.08(d)(1) sets forth instructions regarding how to value commodity 

contracts, separately addressing: (i) open commodity contracts, and (ii) liquidated 

commodity contracts. 

As proposed, § 190.08(d)(1)(i), regarding the valuation of open commodity 

contracts, states that “if an open commodity contract is transferred to another commodity 

broker, its value on the debtor’s books and records shall be determined as of the end of the 

last settlement cycle on the day preceding such transfer.” The Commission noted in the 

proposal that “[t]his would allow the value of the open commodity contract to be known 

prior to the transfer,”143 and, as discussed above, specifically sought comments on this 

issue.

The Commission received contrasting comments on this provision. ICE “d[id] not 

believe that valuation is the right one, particularly because the market may move 

 143 85 Fed. Reg. at 36028.
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significantly on the date of transfer.” By contrast, CME “agree[d]” with valuation as of 

the end the last settlement cycle on the day preceding transfer, because it aligns with 

calculations of funded balances under proposed § 190.08(c), and noted that “any mark-tomarket gains or losses on the date of the transfer should be reflected by the receiving 

FCM(s) in the customer account statements as a result of that day’s settlement cycle.” 

The Commission is persuaded by the latter comment, and will adopt the provision as 

proposed, both for the reasons stated by the latter commenter, and because of concerns 

regarding practicability. Markets move on a continuous basis so long as they are open 

and, considering markets around the world, some markets on which futures, foreign 

futures, or cleared swaps are traded are moving at all times other than over a weekend.

Paragraph 190.08(d)(1)(ii)(A) allows the trustee to use the weighted average of 

liquidation prices for identical commodity contracts that are liquidated within a 24-hour 

period or business day, but not at the same price. 

Paragraph § 190.08(d)(1)(ii)(B) provides instructions on how to value commodity 

contracts that are liquidated as part of a bulk auction by a clearing organization or 

similarly outside of the open market. As proposed, this provision would value a 

commodity contract that is liquidated as part of a bulk auction at the settlement price 

calculated by the clearing organization as of the end of the settlement cycle during which 

the commodity contract was liquidated. ICE disagreed with this approach, stating that 

“the price achieved in the auction should be used.” However, as the Commission noted in 

the proposing release, the units being auctioned will often be a heterogenous (though riskrelated) set of products, tenors (e.g., contract months), and directions (e.g., long or short). 

Different auctioned portfolios may contain the same or similar contracts. In this context, 
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setting the price of a particular contract based on the auction price for a portfolio would 

require considerable interpretation. Accordingly, the Commission will implement the 

approach from the proposal.

Paragraph 190.08(d)(2) sets forth the approach for valuing listed securities, and 

incorporates the same weighted average concept discussed above with respect to 

§ 190.08(d)(1)(ii)(A).

Paragraph 190.08(d)(3) sets forth the approach for valuing commodities held in 

inventory, directing the trustee to use fair market value. If such fair market value is not 

readily ascertainable from public sources of prices, the trustee is directed to use the 

approach in paragraph 190.08(d)(5), discussed below.

Paragraph 190.08(d)(4) addresses the valuation of letters of credit. The trustee is 

directed to use the face amount (less amounts, if any, drawn and outstanding). However, 

if the trustee makes a determination in good faith that a draw is unlikely to be honored on 

either a temporary or permanent basis, they are directed to use the approach in paragraph

(d)(5). 

Paragraph 190.08(d)(5) provides the trustee with pragmatic flexibility in 

determining the value of customer property by allowing the trustee, in their sole 

discretion, to enlist the use of professional assistance to value all other customer 

property.144 This provision further notes that, if such property is sold, its value for 

purposes of the calculations required by this part is equal to the actual value realized on 

sale of such property (the trustee, of course, retains discretion to engage professional 

 144 The trustee’s employment of professionals remains subject to the requirements of section 327 of the 

Bankruptcy Code.
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assistance to allocate such value among a heterogenous set of items sold as a unit). 

Finally, the provision notes that any such sale shall be made in compliance with all 

applicable statutes, rules, and orders of any court or governmental entity with jurisdiction 

thereover.

Accordingly, after consideration of the comments and for the reasons stated above, 

§ 190.08 is being adopted as proposed, with modifications to the title and to §§ 190.08(a), 

(b), and (c), as set forth above.

7. Regulation 190.09: Allocation of Property and Allowance of 

Claims 

Section 190.09 is being adopted to set forth rules governing the scope of customer 

property, the allocation of customer property between customer and account classes, and 

distribution of customer property. It was derived from current § 190.08. It is being 

adopted as proposed with modifications to § 190.09(d)(3), as set forth below. 

The Commission requested comment with respect to all aspects of proposed 

§ 190.09. The Commission also raised particular questions with respect to: whether the 

proposed revisions to § 190.09(a)(1) would appropriately preserve customer property for 

the benefit of customers; whether proposed §§ 190.09(a)(1)(ii)(G), concerning property 

that other regulations require to be placed into segregation, and (L), concerning remaining 

shortfalls, are appropriately crafted; whether it is advisable to permit customers to post 

“substitute customer property” rather than “cash” in proposed § 190.09(d); and whether it 

is appropriate to clarify the term “like-kind securities” by reference to the concept, derived 

from SIPA, of “securities of the same class and series of an issuer?”
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There are three substantive changes in new 190.09, as compared to current 

regulations:

Paragraphs 190.09(a)(1)(ii)(G) and (L) are two categories of property that are 

defined to be included in customer property in order better to protect customers from 

shortfalls in customer property (i.e., cases where customer property is insufficient to cover 

claims for customer property). 

Paragraph (G) is a new category of property that constitutes customer property. It 

includes any cash, securities, or other property which constitutes current assets of the 

debtor, including the debtor’s trading or operating accounts and commodities of the debtor 

held in inventory, in the greater of (i) the amount of the debtor’s targeted residual interest 

amount pursuant to § 1.11 with respect to each account class, or (ii) the debtor’s 

obligations to cover debit balances or undermargined amounts as provided in §§ 1.20, 

1.22, 22.2 and, 30.7. Each of the sets of regulations referred to in proposed 

§ 190.09(a)(1)(ii)(G) requires an FCM to put certain funds into segregation on behalf of 

customers. To the extent the FCM has failed to comply with those regulatory 

requirements prior to the filing of the bankruptcy, this provision requires the bankruptcy 

trustee to fulfill that requirement, and allows the trustee to use the current assets of the 

debtor to do that. 

CME stated that this new provision is a “substantial improvement over the current 

rule,” and it was also supported by ICI and Vanguard.

Paragraph 190.09(a)(1)(ii)(L) is the analog to current § 190.08(a)(1)(ii)(J) but with 

updated cross-references (and a new second sentence, discussed in the next paragraph). It 

states that customer property includes any cash, securities, or other property in the 
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debtor’s estate, but only to the extent that the customer property under the other 

definitional elements is insufficient to satisfy in full all claims of the FCM’s public 

customers.145 

A new second sentence of § 190.09(a)(1)(ii)(L) notes explicitly that customer 

property for purposes of these regulations includes any “customer property,” as that term 

is defined in SIPA, that remains after satisfaction of the provisions in SIPA regarding 

allocation of (securities) customer property. SIPA provides that such remaining customer 

property would be allocated to the general estate of the debtor.

146 Any securities customer 

property that remains after satisfaction in full of securities claims provided for in that 

section of SIPA proceeding and would accordingly become property of the general estate 

should, to the extent otherwise provided in proposed § 190.09(a)(1)(ii)(L), and for the 

same reasons, become customer property in the FCM bankruptcy proceeding. 

Paragraph § 190.09(d) governs the distribution of customer property, and has its 

analog in current § 190.08(d). Paragraphs 190.09(d)(1)(i) and (ii) and (d)(2) require 

customers to deposit “substitute customer property,” to obtain the return or transfer of 

specifically identifiable property. “Substitute customer property” is defined in § 190.01 to 

mean (in relevant part) “cash or cash equivalents.” “Cash equivalents,” in turn, are

defined as “assets, other than United States dollar cash, that are highly liquid such that 

they may be converted into United States dollar cash within one business day without 

material discount in value.” 

 145 ICE notes that the issues with respect to this provision may be complicated, and that it may warrant 

further consideration, but ultimately expresses no view on it.

146 See generally SIPA section 8(c)(1), 15 U.S.C. 78fff-2(c)(1).
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The purpose of requiring customers to, in essence, “buy back” specifically 

identifiable property is to implement the pro rata distribution principle set forth in section 

766(h) of the Bankruptcy Code, and discussed in § 190.00(d)(5). Permitting customers to 

redeem specifically identifiable property with either cash or cash equivalents, rather than 

requiring cash, may mitigate the difficulty (and costs) such customers face in obtaining 

redemption, but will in any event fully implement the pro rata distribution principle. 

As a technical point, the ABA Subcommittee recommended (consistent with their 

recommendation in the definitions section, § 190.01, to more precisely use the term 

“allowed net equity”) that the reference in proposed § 190.09(d)(3) to the amount 

distributable on a customer’s claim be amended to add “[the] funded balance of” before 

the phrase “such customers allowed net equity claim.” The Commission agrees, and is 

making the change.

The remaining provisions of revised § 190.09 include only technical changes to the 

current regulations.

Accordingly, after consideration of the comments, and for the reasons stated 

above, § 190.09 will be adopted as proposed, with the modification to § 190.09(d)(3)

referred to above.

8. Regulation 190.10: Provisions Applicable to Futures Commission 

Merchants During Business as Usual 

The Commission proposed § 190.10 to contain new and relocated provisions that 

set forth an FCM’s obligations during business as usual. The Commission requested 

comment with respect to all aspects of proposed § 190.10, and specifically with respect to 

(1) the impact of proposed § 190.10(b) regarding the designation of hedging accounts, 
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(2) the impact of proposed § 190.10(c) regarding the establishment of delivery accounts 

during business as usual, (3) the changes in proposed § 190.10(d) to the business as usual 

requirements for acceptance of letters of credit, and in particular (a) whether its 

understanding is correct that most letters of credit currently in use by the industry follow 

the JAC forms, (b) the impact of additional requirements concerning letters of credit (as 

well as any alternative methods of achieving the goal of treating customers posting letters 

of credit consistent with the treatment of other customers), and (c) whether the proposed 

one year transition period is reasonable, and (4) the disclosure statement for non-cash 

margin set out in proposed § 190.10(e) (whether the statement is helpful, legally or 

practically, whether it should be changed, or whether it should be deleted).

Section 190.10 will be adopted as proposed with modifications. In particular, the 

ABA Subcommittee and CME suggested that the provisions in proposed § 190.10 be 

codified in part 1, along with other regulations that pertain to an FCM’s business as usual. 

The ABA Subcommittee stated that, while they had originally suggested that these 

provisions belong in § 190.10, “[u]pon further reflection, the Committee believes that such 

a rule more logically belongs in the Commission’s Part 1 Regulations, along with other 

rules that apply to FCMs during business as usual. Compliance and legal personnel could 

inadvertently overlook obligations that are not located in the Commission rule set where 

they would expect to find them.” 

The Commission agrees with the commenters that transparency would be fostered 

by putting the “business as usual” requirements proposed for § 190.10 into part 1 of the 

Commission’s regulations. Accordingly, as discussed further below, most of the 

paragraphs of the regulation that was proposed as § 190.10 are being renumbered and will 
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be codified in specified places in part 1 of this chapter. The provisions of proposed 

§ 190.10 will otherwise be adopted as proposed.

The provision proposed as § 190.10(a) notes that an FCM is required to maintain 

current records relating to its customer accounts, pursuant to §§ 1.31, 1.35, 1.36, and 1.37 

of this chapter, and in a manner that would permit them to be provided to another FCM in 

connection with the transfer of open customer contracts of other customer property. This 

provision recognizes that current and accurate records are imperative in arranging for the 

transfer of customer contracts and other property, both for the trustee of the estate of the 

defaulter and for an FCM that is accepting the transfer. Nonetheless, it does not add to an 

FCM’s obligations under the specified regulations, but rather is useful as a reference for 

the trustee. Accordingly, this provision will not be moved to part 1.

No comments were received with respect to the substance of proposed § 190.10(a). 

As the remaining paragraphs of proposed § 190.10 will be moved to part 1, this provision 

will be codified as § 190.10.

The provision proposed as § 190.10(b) concerns the designation of hedging 

accounts. It incorporates concepts contained in current §§ 190.04(e), 190.06(d), and the 

current Bankruptcy appendix form 3 instructions. As it sets forth obligations for an FCM 

during business as usual, it will be moved to part 1. As it does not fit under any existing 

part 1 regulation, it will be moved under the miscellaneous heading of part 1, and codified 

as § 1.41.

For purposes of § 1.41, a customer will not need to provide, and an FCM will not 

be required to judge, evidence of hedging intent for purposes of bankruptcy treatment. 

Rather, § 1.41 will permit the FCM to treat the account as a hedging account for such 
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purposes based solely upon the written record of the customer’s representation. Hedging 

treatment for these bankruptcy purposes will not be determinative for any other purpose.

Paragraph 1.41(a) will require an FCM to provide a customer an opportunity to 

designate an account as a hedging account when the customer first opens the account, 

rather than when the customer undertakes its first hedging contract, as specified in current 

§ 190.06(d)(1). This provision will also require that the FCM indicate prominently in its 

accounting records for each customer account whether the account is designated as a 

hedging account.

Paragraph 1.41(b) will set forth the requirements for an FCM to treat an account as 

a hedging account: if, but only if, the FCM obtains the customer’s written representation 

that the customer’s trading in the account will constitute hedging as defined under any 

relevant Commission regulation or rule of a DCO, DCM, SEF, or FBOT. CME supported 

this approach, and the clarity it adds.

In order to avoid the significant burden that would be associated with requiring 

FCMs to re-obtain hedging instructions for existing accounts, § 1.41(c) will provide that 

the requirements of § 1.41(a) and (b) do not apply to commodity contract accounts opened 

prior to the effective date of these revisions. Rather, the provision will recognize 

expressly that an FCM may continue to designate existing accounts as hedging accounts 

based on written hedging instructions obtained under former § 190.06(d). 

Finally, § 1.41(d) will permit an FCM to designate an existing futures, foreign 

futures or cleared swaps account of a particular customer as a hedging account, provided 

that the FCM obtains the representation required under § 1.41(b).
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The provision proposed as § 190.10(c) addresses the establishment of delivery 

accounts during business as usual.147 As it sets forth obligations for an FCM during 

business as usual, it will be moved to part 1. As it does not fit under any existing part 1 

regulation, it will be moved under the miscellaneous heading, and codified as § 1.42.

When a commodity contract is in the delivery phase, or when a customer has taken 

delivery of commodities that are physically delivered, associated property may be held in 

a “delivery account” rather than in the segregated accounts pursuant to, e.g., § 1.20 or 

§ 22.2. Section 1.42 recognizes that when an FCM facilitates delivery under a customer’s 

physical delivery contract, and such delivery is effected outside of a futures account, 

foreign futures account, or cleared swaps account, it must be effected through (and the 

associated property held in) a delivery account. If, however, the commodity that is subject 

to delivery is a security, the FCM may effect delivery through (and the property may be 

held in) a securities account. The regulation clarifies that the property must be held in one 

of these types of accounts. ICE and CME generally support this provision.148

The provision proposed as § 190.10(d) addresses letters of credit that an FCM 

accepts as collateral. As it sets forth obligations for an FCM during business as usual, it 

will be moved to part 1. As it does not fit under any existing part 1 regulation, it will be 

moved under the miscellaneous heading, and codified as § 1.43.

Section 1.43 will prohibit an FCM from accepting a letter of credit as collateral 

unless certain conditions (1) are met at the time of acceptance and (2) remain true through 

its date of expiration.

 147 See § 190.06 regarding the making and taking of deliveries during bankruptcy.

148 CME again recommended that the Commission consider adopting customer protection requirements with 

respect to delivery accounts via a separate rulemaking.
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First, pursuant to § 1.43(a), the trustee must be able to draw upon the letter of 

credit, in full or in part, in the event of a bankruptcy proceeding, the entry of a protective 

decree under SIPA, or the appointment of FDIC as receiver pursuant to Title II of the 

Dodd-Frank Act. Second, pursuant to § 1.43(b), if the letter of credit is permitted to be 

and is passed through to a clearing organization, the bankruptcy trustee for such clearing 

organization or (if applicable) FDIC must be able to draw upon the letter of credit, in full 

or in part, in the event of a bankruptcy proceeding, or where the FDIC is appointed as 

receiver pursuant to Title II. 

The Commission has considered the impact that implementation of this regulation 

would have on FCMs and their customers, since letters of credit are currently in use by the 

industry.149 The Commission proposed that, upon the effective date of the regulation, 

what is now codified as § 1.43 would apply only to new letters of credit and customer 

agreements. In order to mitigate the impact of implementing this regulation with respect 

to existing letters of credit and customer agreements, the Commission proposed a 

transition period of one year from the effective date until § 1.43 will apply to existing 

letters of credit and customer agreements. 

CME supported this one-year transition period. By contrast, SIFMA AMG / MFA 

urged the Commission to shorten it in the interest of investor protection. They asked how 

letters of credit would be treated if an FCM were to go into bankruptcy during the 

transition period?

 149 The Joint Audit Committee (“JAC”) forms for an Irrevocable Standby Letter of Credit (both PassThrough and Non Pass-Through) appear to be consistent with the requirements of § 1.43. 
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The provisions in this rulemaking regarding letters of credit are intended to codify 

the Commission’s longstanding policy that “customers using a letter of credit to meet 

original margin obligations [sh]ould be treated no differently than customers depositing 

other forms of non-cash margin or customers with excess cash margin deposits.”150 This

is the policy that has been advanced by the Commission, including in litigation,151 under 

the current rules. Moreover, this policy is supported by the provision in revised 

§ 190.04(d)(3)(ii) that, for a letter of credit posted as collateral, “the trustee shall treat any 

portion that is not drawn upon (less the value of any substitute customer property 

delivered by the customer) as having been distributed to the customer for purposes of 

calculating entitlements to distribution or transfer.” That provision is not subject to the 

one-year transition period.

While the Commission will decline to shorten the one-year transition period for 

existing letters of credit, trustees will be expected to treat such letters of credit in 

accordance with the Commission’s policy.

The provision proposed as § 190.10(e) concerns the disclosure statement for noncash margin. No comments were received specific to this provision.

As it sets forth obligations for an FCM during business as usual, it will be moved 

to part 1. This provision does fit under existing § 1.55 (Public disclosures by futures 

commission merchants), and will be added at the end, codified as § 1.55(p).

 150 See, e.g., 48 FR 8716, 8718 (March 1, 1983) (Adopting release for Part 190); Proposal, 86 FR at 36019 & 

n. 103.

151 See, e.g. Brief of the Commodity Futures Trading Commission In Support Of The Trustee’s Motion To 

Confirm in ConocoPhillips v. Giddens, Case No. 1:12-cv-06014-KBF, Document 33.
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Accordingly, after consideration of the comments, and for the reasons stated 

above, § 190.10 will be adopted as proposed, with modifications: proposed § 190.10(a) 

will be codified as § 190.10, proposed § 190.10(b) will be codified as § 1.41, proposed 

§ 190.10(c) will be codified as § 1.42, proposed § 190.10(d) will be codified as § 1.43, and 

proposed § 190.10(e) will be codified as § 1.55(p).

C. Subpart C—Clearing Organization as Debtor 

The Commission is adopting a new subpart C of part 190 (proposed §§ 190.11-

190.19), with certain modifications discussed below, to address the currently 

unprecedented scenario of a clearing organization as debtor.152

The customers of a clearing organization are its members, considered separately in 

two roles: (1) Each member may have a proprietary (also known as “house”) account at 

the clearing organization, on behalf of itself and its non-public customers (i.e., affiliates). 

The property that the clearing organization holds in respect of these accounts is referred to 

as “member property.” (2) Each member may have one or more accounts (e.g., futures, 

cleared swaps) for that members’ public customers. The property that the clearing 

organization holds in respect of these accounts is referred to as “customer property other 

than member property.” Many clearing members will have both such types of accounts, 

although some may have only one or the other. 

1. Regulation 190.11: Scope and Purpose of Subpart C

The Commission is adopting § 190.11 as proposed, but designated as new 

paragraph (a), and adding a new paragraph (b), as set forth below. The Commission is 

 152 After considering comments that were received on the original Proposal, the Commission subsequently 

issued a Supplemental Proposal that withdrew §§ 190.14(b)(2) and (3), and proposed other revisions to 

§ 190.14. Bankruptcy Regulations, 85 FR 60110 (Sept. 24, 2020).
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adopting § 190.11 to establish that subpart C of part 190 will apply to proceedings under 

subchapter IV to chapter 7 of the Bankruptcy Code where the debtor is a clearing 

organization.

When originally proposing part 190 in 1981, the Commission proposed to (and

ultimately did) forego providing generally applicable rules for the bankruptcy of a clearing 

organization.153 The Commission explained that it had proposed no other rules with 

respect to the operation of clearing organization debtors—other than proposing that all 

open commodity contracts, even those in a deliverable position, be liquidated in the event 

of a clearing organization bankruptcy—because the Commission viewed it as highly 

unlikely that an exchange could maintain a properly functioning futures market in the 

event of the collapse of its clearing organization. The Commission noted that, under 

section 764(b)(2) of the Bankruptcy Code, it had the power to permit a distribution of the 

proceeds of a clearing organization liquidation free from the avoidance powers of the 

trustee. The Commission further explained that it was not proposing a general rule, 

because the bankruptcy of a clearing organization would be unique. Instead, the 

Commission was inclined to take a case-by-case approach with respect to clearing 

organizations, given the potential for market disruption and disruption of the nation’s 

economy as a whole, in the case of a clearing organization bankruptcy, as well as the 

desirability of the Commission’s active participation in developing a means of meeting 

such an emergency.154

 153 At the time, the definition of clearing organization in section 761(2) of the Bankruptcy Code was an 

“organization that clears commodity contracts on, or subject to the rules of, a contract market or board of 

trade.” See Public Law 95–598 (1978), 92 Stat 2549.

154 46 FR 57535, 57545 (Nov. 24, 1981).
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Much has changed in the intervening 38 years. Markets move much more quickly, 

and thus the importance of quick action in respect to the bankruptcy of a clearing

organization has increased. The Commodity Futures Modernization Act established 

DCOs as a separate registration category.155 The bankruptcy of a clearing organization 

would remain unique—it remains the case that no clearing organization registered with the 

Commission has ever entered bankruptcy—and thus the need for significant flexibility 

remains, but the balance has shifted towards establishing ex ante the approach that would 

be taken.

Two clearing organizations for which the Commission has been designated the 

agency with primary jurisdiction have been designated as systemically important to the 

United States financial system pursuant to Title VIII of Dodd-Frank.156 If any clearing 

organization were to approach insolvency, it is possible, though not certain, that such an 

entity would be resolved pursuant to Title II of Dodd-Frank.157

 155 Commodity Futures Modernization Act of 2000 Public Law 106–554 section 1(a)(5); Appendix E, 

section 112(f).

156 See Dodd-Frank section 804 (designation of systemic importance), section 803(8) (definition of 

“supervisory agency”), 12 U.S.C. 5463, 5462(8). These are CME and ICE Clear Credit. A third clearing 

organization (Options Clearing Corporation) has also been so designated, but the SEC is the supervisory 

agency in that case.

157 Resolution under Title II would require a recommendation concerning factors specified in section 

203(a)(2) of Dodd-Frank, 12 U.S.C. 5383(a)(2), by a 2⁄3 majority of the members then serving of each of the 

Board of Governors of the Federal Reserve System and of the FDIC, followed by a determination 

concerning a related set of factors specified in section 203(b), 12 U.S.C. 5383(b), by the Secretary of the 

Treasury in consultation with the President. Thus, the choice of resolution versus bankruptcy for a DCO that 

is, in the terminology of Dodd-Frank, “in default or in danger of default,” see Dodd-Frank section 203(c)(4), 

12 U.S.C. 5383(c)(4), cannot be considered certain.

It is, however, clear that Title II applies to clearing organizations. See, e.g., Dodd-Frank section 210(m), 12 

U.S.C. 5390(m) (applying “the provisions of subchapter IV of chapter 7 of the bankruptcy code” to 

“member property” of “commodity brokers”). Pursuant to section 761(16) of the Bankruptcy Code, 

“member property” applies only to a debtor that is a “clearing organization.” 11 U.S.C. 761(16).
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Administration of a resolution under Title II of Dodd-Frank depends, in part, on 

clarity as to entitlements under chapter 7 of the Bankruptcy Code. Specifically, section 

210(a)(7)(B) of Dodd-Frank158 provides with respect to claims against the covered 

financial agency in resolution, that “a creditor shall, in no event, receive less than the 

amount that the creditor is entitled to under paragraphs (2) and (3) of subsection (d), as 

applicable.” Tracing to the cross-referenced subsection, section 210(d)(2)159 provides that 

the maximum liability of the FDIC to a claimant is the amount that the claimant would 

have received if the FDIC had not been appointed receiver, and (instead), the covered 

financial company had been liquidated under chapter 7 of the Bankruptcy Code.160 Thus, 

it is important to have a clear “counterfactual” that establishes what creditors would be 

entitled to in the case of the liquidation of a clearing organization under chapter 7 

(subchapter IV) of the Bankruptcy Code.

Although the Commission believes that the potential—albeit unprecedented—

scenario of a clearing organization as debtor would require significant flexibility, the 

Commission also believes it necessary and appropriate to establish an ex ante set of 

regulations for such a scenario.

The Commission requested comment regarding the proposed scope of subpart C, 

as set forth in proposed § 190.11. The Commission also specifically asked commenters 

 158 12 U.S.C. 5390(a)(7)(B).

159 12 U.S.C. 5390(d)(2).

160 For the sake of completeness, it should be noted that section 210(d)(2), 12 U.S.C. 5390(d)(2), provides, 

as an additional comparator, “any similar provision of State insolvency law applicable to the covered 

financial company.” Given Federal regulation of DCOs, it would appear that this phrase is inapplicable. 

Similarly, section 210(d)(3), 12 U.S.C. 5390(d)(3), which refers to covered financial companies that are 

brokers or dealers resolved by SIPC, is also inapplicable here, given the inconsistency in being both a DCO 

and a broker-dealer.
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whether they supported or opposed the establishment of an explicit, bespoke set of 

regulations for the bankruptcy of a clearing organization.

The Commission received two comments that raised concerns about how the 

proposed subpart C regulations would apply in the case of a debtor clearing organization 

that is organized and/or domiciled in a foreign country. SIFMA AMG / MFA commented 

that “Part 190 should include a clear statement of public policy . . . that if an insolvency 

proceeding is commenced in respect of a DCO located outside the United States, such 

home country proceeding should take precedence over any case under the [U.S.]

Bankruptcy Code.”

ICE commented that such a clearing organization, if insolvent, “is likely to be 

subject to an insolvency proceeding in its home jurisdiction.” ICE also commented that 

many such DCOs “have significant assets (including for this purpose, the assets of 

clearing members and their customers.” In particular, ICE stated that “a foreign DCO 

may have, in addition to the customer account classes contemplated by the CEA and 

CFTC regulations (and the Part 190 regulations), one or more classes of customer 

accounts that are required to be segregated or separately accounted for under applicable 

foreign law, generally for the protection of foreign clearing members and their customers.” 

ICE further commented that, “[t]o the extent the Part 190 rules mandate a distribution 

scheme for property of the [DCO in bankruptcy] that would be inconsistent with foreign 

law applicable to the DCO, and that could disadvantage foreign members or their 

customers, significant conflicts may arise . . . .” ICE suggested two alternative approaches 

for the Commission to consider: (1) the “Commission could provide that the new Part 190 

regulations would not apply to a foreign DCO;” or (2) “[a]lternatively, the Commission 
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could provide that the new Part 190 regulations, including the distributional regime, would 

apply only to the separate customer account class structure provided for under U.S. law 

(futures, cleared swaps and foreign futures), to the extent carried through FCM clearing 

members.”

After considering the comments, the Commission is adopting § 190.11 with 

modifications. With respect to the protection of customer property in connection with 

foreign DCOs, the Commission has traditionally focused its efforts on the protection of 

the public customers of FCM members of such foreign DCOs. While protecting public 

customers of FCM members of foreign DCOs would not be well served by disapplying 

part 190 in the case of foreign DCOs, as suggested in ICE’s first approach, as well as in 

the comment by SIFMA AMG / MFA, balancing the goal of protecting public customers 

of FCM members with the goal of mitigating conflict with foreign proceedings would 

appear to be supported by following ICE’s second approach, and limiting the applicability 

of part 190, in the case of a foreign DCO subject to a proceeding in its home jurisdiction, 

to focus on the contracts and property of public customers of FCM members. 

In order to balance the goal of protecting public customers of FCM members with 

the goal of mitigating conflict with foreign proceedings, the Commission believes it to be 

appropriate that, in a situation where a debtor clearing organization is organized outside 

the United States and is subject to a foreign bankruptcy proceeding, part 190 should apply 

as follows. First, the Commission believes it to be appropriate that subpart A should apply 

to such proceedings, given that those provisions set forth core concepts, definitions and 

general provisions. Second, the Commission believes it to be appropriate that § 190.12 

should apply to such proceedings, given that the regulation sets forth requirements for 
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records and reporting, which are critical in such proceedings. And third, the Commission 

believes it to be appropriate that three regulations should be applicable in a limited 

fashion, to focus on the contracts and property of public customers of FCM members161: 

(1) § 190.13, setting forth the prohibition on avoidance of transfers, but only with respect 

to futures and cleared swaps contracts cleared by FCM clearing members on behalf of 

their public customers; (2) § 190.17, setting forth the calculation of net equity; and (3) §

190.18, setting forth the treatment of property. In such a scenario, §§ 190.13, 190.17 and 

190.18 would only apply with respect to: (1) claims of FCM clearing members on behalf 

of their public customers; and (2) property that is or should have been segregated for the 

benefit of FCM clearing members’ public customers, or that has been recovered for the 

benefit of FCM clearing members’ public customers.

Accordingly, after consideration of the comments and for the reasons stated above,

the Commission is: (1) adopting the language of § 190.11 as proposed, but designated as 

new paragraph (a); and (2) modifying proposed § 190.11 by adding the following as new 

paragraph (b):

“If the debtor clearing organization is organized outside the United States, and is 

subject to a foreign proceeding, as defined in 11 U.S.C. 101(23), in the jurisdiction 

in which it is organized, then only the following provisions of part 190 shall apply:

“(1) Subpart A;

“(2) Section 190.12;

 161 As noted above, the Commission has traditionally focused its efforts on the protection of the public 

customers of FCM members of such foreign DCOs. In a DCO bankruptcy, the Commission believes that the 

application of these three regulations would be critical to fulfilling the agency’s mission to protect 

customers.
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“(3) Section 190.13, but only with respect to futures contracts and 

cleared swaps contracts cleared by FCM clearing members on behalf of 

their public customers and the property margining or securing such 

contracts; and

“(4) Sections 190.17 and 190.18, but only with respect to claims of FCM 

clearing members on behalf of their public customers, as well as property 

that is or should have been segregated for the benefit of FCM clearing 

members’ public customers, or that has been recovered for the benefit of 

FCM clearing members’ public customers.”

2. Regulation 190.12: Required Reports and Records

The Commission is adopting § 190.12 to establish the recordkeeping and reporting 

obligations of a debtor clearing organization and/or trustee in a bankruptcy proceeding 

under subpart C. 

The operations of a clearing organization are extremely time-sensitive. For 

example, § 39.14 requires that a clearing organization complete settlement with each 

clearing member at least once every business day. It is thus critical that the Commission 

receive notice of a DCO bankruptcy in an extraordinarily rapid manner. Similarly, the 

trustee that is appointed (as well as the Commission) must receive critical documents

rapidly, and proper notice should be provided to the DCO’s members. 

Regulation 190.12 sets forth the timing and content of notices that must be 

provided to the Commission and the DCO’s members, as well as the timing and content of 

reports and records that must be provided to the Commission and trustee. 
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Paragraph 190.12(a)(1) is analogous to § 190.03(a), as amended herein, in that it 

would provide instructions regarding how to give notice to the Commission and to a 

clearing organization’s members, where such notice would be required under subpart C of 

part 190.162 Paragraph § 190.12(a)(2) would require the clearing organization to notify the 

Commission either in advance of, or at the time of, filing a petition in bankruptcy (or 

within three hours of receiving notice of a filing of an involuntary petition against it).163 

Notice would need to include the filing date and the court in which the proceeding has 

been or will be filed. While the clearing organization would also need to provide notice of 

the docket number, if the docket number is not immediately assigned, that information 

would be provided separately as soon as available.

It is also important to permit the trustee to begin to understand the business of the 

clearing organization as soon as practicable, and within hours. Accordingly, 

§ 190.12(b)(1) requires the clearing organization to provide to the trustee copies of each of 

the most recent reports filed with the Commission under § 39.19(c), which includes 

§ 39.19(c)(1) (daily reports, including initial margin required and on deposit by clearing 

member, daily variation and end-of-day positions (by member, by house and customer 

origin), and other daily cash flows), § 39.19(c)(2) (quarterly reports, including of financial 

resources), § 39.19(c)(3) (annual reporting, including audited financial statements and a 

 162 While § 190.03(a)(2), as amended herein, applies to notice to an FCM’s customers, and § 190.12(a)(1)(ii) 

applies to notice to a clearing organization’s members, the means of giving notice are identical. For a 

discussion of how these notice provisions differ from the prior iteration of part 190, please refer to the 

discussion of § 190.03(a) above.

163 Commodity broker bankruptcies are rare, and outside the experience of most chapter 7 trustees, who are 

chosen from a panel of private trustees eligible to serve as such for all chapter 7 cases. See generally 11 

U.S.C. 701(a)(1), 28 U.S.C. 586(a)(1). Historically, Commission staff, on being notified of an impending 

commodity broker bankruptcy, have worked with the office of the relevant regional United States Trustee, 

see generally 28 U.S.C. 581 et seq., to identify, and have then briefed, the chapter 7 trustee that would then 

be appointed. This would be even more important in the context of a clearing organization bankruptcy.
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report of the chief compliance officer), § 39.14(c)(4) (event-specific reporting, which 

would include the most up-to-date version of any recovery and wind-down plans the 

debtor maintained pursuant to § 39.39(b),164 and which may well include events that 

contributed to the clearing organization’s bankruptcy), and § 39.19(c)(5) (reporting 

specially requested by the Commission or, by delegated authority, staff). In order to 

provide the trustee with an initial overview of the business and status of the clearing 

organization, with respect to quarterly, annual, or event-specific reports, the clearing 

organization would be required to provide any such reports filed during the preceding 12 

months. These reports would need to be provided to the trustee as soon as practicable, but 

in any event no later than three hours following the later of the commencement of the 

proceeding or the appointment of the trustee. It is the Commission’s expectation that in 

the event of an impending bankruptcy event, staff at the DCO would, as soon as 

practicable, be preparing these materials for transmission to the trustee.

Similarly, paragraph § 190.12(b)(2) requires the debtor clearing organization, in 

the same time-frame, to provide the trustee and the Commission with copies of the default 

management plan and default rules and procedures maintained by the debtor pursuant to § 

39.16 and, as applicable, § 39.35. While some of this information may have previously 

been filed with the Commission pursuant to § 39.19, it is important that the Commission 

have readily available what the clearing organization believes are the most up-to-date 

versions of these documents. Moreover, given that these documents must be provided to 

the trustee, providing copies to the Commission should impose minimal additional burden 

(particularly if the documents are provided in electronic form).

 164 See § 39.19(c)(4)(xxiv).
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Regulation 39.20(a) requires a DCO to maintain records of all activities related to 

its business as such, and sets forth a non-exclusive list of the records that are included in 

that term. To enable the trustee and the Commission further to understand the business of 

the clearing organization, § 190.12(c) requires the debtor clearing organization to make 

copies of such records available to the trustee and to the Commission no later than the 

business day after the commencement of the proceeding. In order to inform the trustee 

and the Commission better concerning the enforceability in bankruptcy of the clearing 

organization’s rules and procedures, the clearing organization is similarly required to 

make available any opinions of counsel or other legal memoranda provided to the debtor, 

by inside or outside counsel, in the five years preceding the commencement of the 

proceeding, relating to the enforceability of those arrangements in the event of an 

insolvency proceeding involving the debtor.165

The Commission requested comment with respect to all aspects of proposed 

§ 190.12. The Commission raised specific questions as to whether the reports and records 

identified in proposed § 190.12 to be provided to the Commission are useful and 

appropriate, and whether additional reports and records should be included. The 

Commission also asked if the proposed time deadlines are appropriate.

 165 The trustee of a corporation in bankruptcy controls the corporation’s attorney-client privilege for prebankruptcy communications. Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343 (1985). 

Production to the Commission pursuant to the proposed regulation would not waive that privilege (although 

voluntary production would). See, e.g., U.S. v. de la Jara, 973 F.2d 746, 749 (9th Cir. 1992) (“a party does 

not waive the attorney-client privilege for documents which he is compelled to produce”) (emphasis in 

original); Office of Comptroller of the Currency Interpretative Letter, 1991 WL 338409 (with respect to 

“internal Bank documents” that are “subject to the attorney-client privilege” and are “requested by OCC 

examiners for their use during examinations of the Bank,” OCC “has the power to request and receive 

materials from national banks in carrying out its supervisory duties. It follows that national banks must 

comply with such requests. That being the case, it is our position that when national banks furnish 

documents to us at our request they are not acting voluntarily and do not waive any attorney-client privilege 

that may attach to such documents.”).
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The Commission received two comments on proposed § 190.12. 

CME expressed support for proposed § 190.12, and agreed with the Commission 

that “the reports and records identified in [the proposed regulation] would be useful for the 

trustee and the Commission.” CME also agreed with the Commission that certain items, 

such as the DCO’s default rules and recovery and wind-down plans, should be furnished 

as soon as possible. 

OCC “generally support[ed] a requirement for a DCO to provide a trustee and the 

Commission with information they need for efficient resolution of the DCO,” recognizing 

that “time would be of the essence in such a proceeding.” OCC also noted that, because 

the “information is periodically reported to, or filed with, the Commission,” OCC did not 

“foresee any challenge in identifying and providing this information without delay.”

However, OCC requested that proposed § 190.12(b) be amended to require a DCO to 

provide the information delineated therein “as soon as practicable.” OCC “believe[d] that 

a specific deadline of three hours is overly prescriptive.”

After considering the comments, the Commission is adopting § 190.12 as 

proposed. As the commenters observed, the information specified in § 190.12 is 

important for the trustee and the Commission, and time would be of the essence in a DCO 

bankruptcy. Moreover, the prescribed task in § 190.12 is to gather and transmit 

documents that already exist, rather than to generate new information. The documents to 

be sent to the trustee are documents that were recently sent to the Commission, and the 

documents to be sent to the trustee and to the Commission are documents that one would 

expect, as the commenter noted, to be readily accessible. In this context, the Commission 

believes that a deadline of “as soon as practicable and in any event no later than three 
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hours following the commencement of the proceeding” (or, where appropriate, the 

appointment of the trustee) is reasonable and will set clear expectations for relevant parties 

that will facilitate DCOs’ contingency planning. 

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting § 190.12 as proposed.

3. Regulation 190.13: Prohibition on Avoidance of Transfers

The Commission is adopting § 190.13 as proposed, to implement section 764(b) of 

the U.S. Bankruptcy Code, protecting certain transfers from avoidance (sometimes 

referred to as “claw-back”) with respect to a debtor clearing organization. Regulation

190.13 is analogous to new § 190.07(e) (and current § 190.06(g)), with certain changes. 

Specifically, while § 190.07(e) allows FCM transfers unless they are explicitly 

disapproved by the Commission, § 190.13 requires explicit Commission approval for 

DCO transfers. The difference in approach is rooted in the inherent difference between 

FCM transfers and DCO transfers: whereas an FCM is capable of transferring only a 

portion of its customer positions, a DCO would be expected to transfer all of its customer 

positions (or at least all positions in a given product set) simultaneously in order to

maintain a balanced book. Given the importance of transferring all open commodity 

contracts—and the property margining such contracts—in the event of a DCO bankruptcy, 

the Commission believes that any such transfer should require explicit Commission 

approval, either before or after such transfer.

Thus, whereas § 190.07(e)(1) provides that a pre-relief transfer by a clearing 

organization cannot be avoided as long as it is not disapproved by the Commission, 

§ 190.13(a) instead provides that a pre-relief transfer of open commodity contracts and the 
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property margining or securing such contracts cannot be avoided as long as it was 

approved by the Commission, either before or after such transfer. Similarly, whereas 

§ 190.07(e)(2)(i) provides (for all commodity brokers, including clearing organizations) 

that a post-relief transfer of a customer account cannot be avoided as long as it is not 

disapproved by the Commission, § 190.13(b) instead provides that a post-relief transfer of 

open commodity contracts and the property margining or securing such contracts made to 

another clearing organization cannot be avoided as long as it was approved by the 

Commission, either before or after such transfer.

The Commission requested comment with respect to all aspects of proposed 

§ 190.13, and in particular, the Commission asked whether commenters agreed with the 

proposed approach of requiring explicit Commission approval of transfers by debtor 

DCOs.

The Commission received one comment on proposed § 190.13. CME expressed 

support for proposed § 190.13, particularly the allowance for Commission approval of 

transfers after such transfers have occurred. CME noted that porting customer positions to 

a DCO would be the preferred course of action in a bankruptcy, and a DCO may need to 

act quickly.

Accordingly, after consideration of the comments and for the reasons stated above,

the Commission is adopting § 190.13 as proposed.

4. Regulation 190.14: Operation of the Estate of the Debtor 

Subsequent to the Filing Date

The Commission is adopting § 190.14 as proposed, with certain modifications 

discussed below. 
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Paragraph 190.14(a) provides discretion to the trustee to design the proof of claim 

form and to specify the information that is required. The Commission believes that broad 

discretion is appropriate in this context, given the bespoke nature of a clearing 

organization bankruptcy.

Paragraph 190.14(b) addresses the operation of a debtor clearing organization in 

bankruptcy and provides that, after the order for relief, the DCO shall cease making calls 

for either variation or initial margin. 

As originally proposed, § 190.14(b) included additional provisions that were 

intended to provide a brief opportunity, after the order for relief, to enable paths 

alternative to liquidation—that is, resolution under Title II of the Dodd-Frank Act, or 

transfer of clearing operations to another DCO—in cases where a short delay (i.e., less 

than or equal to six days) might facilitate such an alternative path. Subsequent to the 

issuance of the Proposal, the Commission received several comments on proposed 

§ 190.14(b), and based on its consideration of those comments, the Commission 

determined it to be appropriate to issue the Supplemental Proposal. The Supplemental 

Proposal modified proposed § 190.14(b) in several respects, including the withdrawal of 

proposed §§ 190.14(b)(2) and (3) and the new proposal of an alternative approach.

166 

 166 In withdrawing proposed §§ 190.14(b)(2) and (3), the Commission determined, after considering the 

comments, that those provisions would not be a practicable and effective way to foster the transfer of 

clearing operations—to the extent that such an opportunity presents itself—at an acceptable cost. The 

Commission also endeavored to propose (in the Supplemental Proposal) a more cost-effective alternative to 

foster the resolution of a DCO—in particular, a systemically important DCO—under Title II of the DoddFrank Act. Specifically, as set forth in the Supplemental Proposal, the Commission proposed “a limited 

revision to the Proposal that would (1) stay the termination of SIDCO contracts for a brief time after 

bankruptcy in order to foster the success of a Title II Resolution, if the FDIC is appointed receiver in such a 

Resolution within that time, but (2) do so in a manner that does not undermine the QMNA status of SIDCO 

rules.” 
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Further discussion of the Supplemental Proposal, including the Commission’s 

consideration of comments received in response to the Supplemental Proposal, is set forth 

in section II.H below.

Paragraph 190.14(c)(1) requires the trustee to liquidate, no later than seven 

calendar days after the order for relief, all open commodity contracts that had not earlier 

been terminated, liquidated or transferred. However, in the Proposal, paragraph (c)(1) also

provided that such liquidation would not be required if the Commission (whether at the 

request of the trustee or sua sponte) determined that such liquidation would be 

inconsistent with the avoidance of systemic risk167 or, in the expert judgment of the 

Commission, would not be in the best interests of the debtor clearing organization’s 

estate.168 In such a situation, the trustee would be directed to carry out such liquidation in 

accordance with the rules and procedures of the debtor clearing organization, to the extent 

applicable and practicable.169 

Paragraph 190.14(c)(2) permits the trustee to make distributions to members in the 

form of securities that are equivalent (i.e., securities of the same class and series of an 

issuer) to those that were originally delivered to the debtor by the clearing member or such 

member’s customer, rather than liquidating securities and making distributions in the form 

 The Commission sought comment on the Supplemental Proposal, and in particular, whether the new 

approach could reasonably be expected to achieve the Commission’s stated goals, would be feasible, would 

be the best design for such a solution, and appropriately reflected consideration of benefits and costs.

167 See section 3(b) of the CEA, 7 U.S.C. 5(b) (“It is the purpose of [the CEA] . . . to ensure . . . the 

avoidance of systemic risk . . . .”).

168 See section 20(a)(3) of the CEA, 7 U.S.C. 24(a)(3) (“Notwithstanding title 11 . . . , the Commission may 

provide, with respect to a commodity broker that is a debtor . . . [,] the method by which the business of such 

commodity broker is to be conducted or liquidated after the date of the filing of the petition . . . .”).

169 As discussed below, § 190.14(c)(1) is being modified to remove language that commenters stated would 

raise uncertainties concerning the enforceability of close-out netting provisions in a DCO bankruptcy.
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of cash. Paragraph 190.14(c)(2) is analogous to § 190.09(d)(3), discussed above in section 

II.B.7.

Paragraph 190.14(d) requires the trustee to use reasonable efforts to compute the 

funded balance of each customer account immediately prior to the distribution of any 

property in the account, “which shall be as accurate as reasonably practicable under the 

circumstances, including the reliability and availability of information.” Paragraph

190.14(d) is analogous to § 190.05(b), discussed above in section II.B.3, but is modified 

for the context of a DCO bankruptcy. Similar to § 190.05(b), the Commission’s objective 

in § 190.14(d) is to provide the bankruptcy trustee with the latitude to act reasonably,

given the circumstances they are confronted with, recognizing that information may be 

more reliable and/or accurate in some insolvency situations than in others. However, at a 

minimum, the trustee is required to calculate each customer’s funded balance prior to 

distributing property, to achieve an appropriate allocation of property between customers.

The Commission requested comment with respect to all aspects of proposed 

§ 190.14. The Commission also raised specific questions regarding § 190.14(b)(2).170 

The comments received in response to those specific questions on § 190.14(b)(2) have

already been considered by the Commission in the Supplemental Proposal, wherein the 

Commission ultimately withdrew §§ 190.14(b)(2) and (3). Although such comments on 

the Proposal relate to proposed paragraphs that were withdrawn in the Supplemental 

 170 In particular, the Commission asked about the framing of the concepts of usefulness and practicability in 

the context of permitting the trustee to continue to operate a DCO in insolvency, in accordance with 

proposed § 190.14(b)(2), in order to facilitate the transfer of clearing operations to another DCO or placing 

the debtor DCO into resolution pursuant to Title II of the Dodd-Frank Act. The Commission also asked 

whether there is a better way to frame either of those terms, and whether it is appropriate to provide for the 

possibility that the trustee may be permitted to delay liquidating contracts.
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Proposal, the comments relating to proposed §§ 190.14(b)(2) and (3) nonetheless are 

noted below.

171

The Commission received some comments that related to § 190.14 generally. ICI 

commented in favor of the requirement proposed in § 190.14 that “any decision to 

continue operating a DCO in liquidation must be made with [the Commission’s] input and 

consent.” ICI asserted, however, that the Commission should only approve an application 

from a trustee to continue operating a DCO in liquidation if the Commission determines 

that the trustee “has the knowledge and experience to manage such operations.” Noting 

that the continued operation of a DCO has the potential to result in significant continued 

losses for customers and exacerbate stress, ICI further asserted that, “[i]n considering 

whether to grant a request to allow a failed DCO to continue operating, the Commission 

should consider the potential harm to customers and should request input from both DCO 

members and customers.” OCC commented that additional considerations should be 

considered in determining “whether continued operation of a DCO in bankruptcy would 

be practical.” Specifically, OCC stated that “a DCO may . . . maintain contractual 

arrangements with various counterparties . . . that are necessary for the DCO’s continued 

operation,” such as contract markets and other trade sources, other DCOs, banking and 

liquidity providers, and information technology vendors). OCC asserted that “a trustee 

would need to review the DCO’s recovery and wind-down plan[s] and/or consult with a

DCO to determine whether such arrangements necessary for the DCO’s continued 

operation would—or could—be terminated [by the counterparties] upon the DCO’s entry 

 171 For further discussion of the Supplemental Proposal and the Commission’s consideration of comments 

received thereto, see section II.H below.
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into bankruptcy and, if so, determine whether the counterparties . . . would continue to 

provide those necessary services for a period of time.”

The Commission also received comments on § 190.14(a). CME commented in 

support of paragraph (a). ICE commented that § 190.14(a) did not clearly account for

“non-CFTC-regulated clearing or other activity occurring at a DCO, including securitybased swaps and other securities, cleared forward contracts or spot contracts to the extent 

such instruments are not carried in a CFTC regulated futures or swap account.” ICE 

recommended that while “such activity may be outside the scope of the Part 190 

regulations, claims of members with respect to such activity, whether for their proprietary 

or customer accounts, need to be properly accounted for in a DCO’s bankruptcy and 

should not be disadvantaged.”

Several commenters expressed concern that proposed § 190.14(b) would 

inadvertently create legal uncertainty with respect to the enforceability of a DCO’s closeout netting rules and related issues, and requested that the Commission address these 

concerns in varying ways.

ICE did not object to proposed § 190.14(b), but believed that the Commission 

“should clarify that the rule does not interfere with either the automatic termination of 

contracts upon insolvency or clearing member rights to terminate contracts upon 

insolvency.” Noting “that clearing member capital and accounting often take into account 

the ability of a clearing member to terminate, or the automatic termination of, its cleared 

positions in the event of a clearinghouse insolvency,” ICE asserted that it would be

important that the final rules “not upset settled expectations of clearing members” in this 
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regard. ICE further noted that “automatic termination is common,” and thus, continuing

the operations of a clearinghouse after insolvency would likely be infeasible, in practice.

CME requested that the Commission add a provision to § 190.14 stating that: “if 

the Commission permits the trustee to continue to operate the DCO, that the action is not 

in derogation of, and clearing members fully retain and may exercise, their right under the 

DCO’s rules and procedures with respect to close-out netting.” CME stated that “[s]ome 

have expressed concern that proposed Regulation 190.14 creates uncertainty around the 

enforceability of close-out netting rules if the trustee is allowed to continue the DCO’s 

operations under the conditions as drafted.” CME asserted that it would be “critical that 

any decision to continue to operate the DCO not be contrary to the DCO’s rules or be 

construed in any way to abrogate clearing members’ close-out netting rights under the 

rules.” CME noted that the enforceability of close-out rights is of “paramount 

importance” to clearing members as part of their contract with the DCO, and that CME 

and other DCOs have obtained detailed legal analyses on the enforceability of their closeout netting rules and other features of their default rules to assure clearing members of 

their rights. CME commented that it did not believe that proposed § 190.14 would create 

an issue with respect to its own close-out netting rules or netting opinions, because its own 

rules “would compel termination of open contracts upon a CME bankruptcy event and, 

thus the conditions of Regulation 190.14(b) would not be satisfied and the trustee could 

not continue CME’s DCO operations.” Nonetheless, CME speculated that other DCOs 

“could potentially have rules that permit a clearing member to terminate open positions at 

their discretion without compelling termination.”
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ISDA supported the provision in proposed § 190.14(b) that would “prevent the

trustee from continuing operation of the DCO subsequent to the order for relief if the 

DCO’s rules contain closeout netting provisions.” However, ISDA also recommended 

that the Commission modify proposed § 190.14(c)(1) to delete the second sentence and 

amend the first sentence to affirmatively provide that: “notwithstanding anything else to 

the contrary in Subpart C, the trustee shall liquidate all open contracts in accordance with 

the close-out needing provisions in the DCO’s rules (or bylaws) and, in any event, no later 

than seven calendar days after the entry of the order for relief.” ISDA commented that it 

is “critical” that “all aspects of [the] Part 190 regulations . . . support, and in no event be 

inconsistent with, . . . exposure netting.” ISDA noted that “[e]nforceable close-out netting 

rights provide the legal basis for netting of exposures between derivative counterparties, 

which reduces costs, increases market liquidity and reduces credit and systemic risks.” 

ISDA stated that a “firm’s right to terminate outstanding transactions with a counterparty 

following an event of default and calculate the net amount due to one party by another is 

the primary means of mitigating credit risks associated with financial contracts.” ISDA

further argued that, [w]ithout enforceable close-out netting rights, firms would need to 

manage their credit risk on a gross basis, dramatically reducing liquidity and credit 

capacity.”

OCC commented that “the Commission should continue to consult with DCOs and 

market participants who rely on closeout netting opinions to ensure that the proposed 

rules[, including proposed § 190.14(b)(2),] do not raise uncertainty related to the 

enforceability of DCOs’ closeout netting rules or have other unintended consequences.”
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FIA commented that proposed § 190.14(b)(2) and proposed § 190.14(c) are 

“fundamentally flawed and should not be adopted.” FIA raised concerns that those 

provisions may inadvertently create “an unacceptable level of legal uncertainty related to 

the enforcement of closeout netting provisions” set out in DCO rulebooks, which all but 

four DCOs maintain. FIA asserted that, if proposed § 190.14(b)(2)(ii)(A) “could be read 

to provide the trustee some level of discretion to determine whether or when DCO rules

may ‘compel’ the termination of contracts, such discretion, in turn, may call into question 

whether the DCO’s rules constitute a ‘qualifying master netting agreement’ as described 

in the rules of the several bank regulatory authorities.” FIA also commented that the

“continued operation of a DCO after an order for relief would be ill-advised” and 

impracticable. FIA stated that a trustee with no familiarity or understanding of central 

clearing would be highly unlikely to be able to manage effectively the operation of a 

bankrupt DCO. In the case of SIDCOs, FIA noted that “the prospect of a bankruptcy 

trustee operating the DCO for even a brief interim period prior to commencement of Title 

II [resolution] proceedings could result in a loss of market confidence and a destabilizing 

rush to exit by clearing members and their clients, [thereby] potentially frustrat[ing] the 

successful resolution of the DCO.” In the case of other DCOs, FIA commented that “the 

post-filing transfer of . . . clearing operations to another DCO would be difficult at best,”

and “clearing members and their clients should not be expected to take the execution risk 

of being forced to continue clearing through a bankrupt DCO when successful completion 

of a transfer to a new DCO in bankruptcy is not certain.” FIA also stated its belief that 

“non-defaulting clearing members or their clients would be [unwilling] to continue to pay 

margin to the estate of a bankrupt DCO.”
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The ABA Subcommittee requested that the Commission revise proposed 

§ 190.14(b) “to clarify that the DCO’s close-out netting rules remain in effect and are 

enforceable as written, notwithstanding any decision under [proposed §] 190.14(b) by the 

Commission to allow the trustee to continue making calls for variation settlement and 

margin.” The ABA Subcommittee raised a concern that proposed § 190.14(b) “may create 

unintended ambiguity” regarding the enforceability of such rules.

After considering the comments, the Commission is adopting § 190.14(a) as 

proposed. The Commission notes that § 190.14(a) provides that the trustee shall “instruct 

each customer [a term that, in the context of a debtor DCO, includes members] to file a 

proof of claim containing such information as is deemed appropriate by the trustee.” To 

the extent that the DCO is conducting non-CFTC-regulated activity that is outside the 

scope of the part 190 regulations, the proof of claim form should include an opportunity to 

claim for debts of the DCO related to activity that is not regulated by the CFTC. These 

would be payable from the general estate (outside of customer property) or, if secured, 

from the property securing the debts. Thus, such activity will be properly accounted for in 

the DCO bankruptcy, and members will not be disadvantaged. For those reasons, the 

Commission does not believe that § 190.14(a) should be modified in the manner 

recommended by ICE.

The Commission is adopting § 190.14(b)(1) as proposed, with two modifications 

that reflect the Commission’s previous withdrawal of paragraphs (b)(2) and (3) in the 

Supplemental Proposal: (1) proposed paragraph (b)(1) is re-designated as paragraph (b); 
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and (2) new paragraph (b) is modified to remove the phrase: “except as otherwise 

explicitly provided in this paragraph (b).”172 

Several commenters expressed concern that proposed § 190.14(b) inadvertently 

creates legal uncertainty with respect to the enforceability of a DCO’s close-out netting 

rules and requested that the Commission address this concern in varying ways.173 The 

Commission considered those comments in advance of issuing the Supplemental Proposal, 

and determined that §§ 190.14(b)(2) and (3) would not be a practicable and effective way 

to foster the transfer of clearing operations—to the extent that such an opportunity 

presents itself—at an acceptable cost. Consequently, the Commission withdrew 

§§ 190.14(b)(2) and (3) in the Supplemental Proposal and instead proposed an alternative 

approach. The Supplemental Proposal, including the Commission’s consideration of 

comments thereto, is discussed below in section II.H of this adopting release.

Commenters’ concerns regarding the legal uncertainty of close-out netting rules in 

the context of § 190.14(b) also apply to § 190.14(c), as proposed, specifically the language 

that states that the trustee shall liquidate all open positions no later than seven calendar 

days after the order for relief “unless the Commission determines that liquidation would 

be inconsistent with the avoidance of systemic risk or would not be in the best interests of 

the debtor’s estate” (the “Unless Clause”). Some commenters—including FIA and 

ISDA—explicitly raised this issue in the context of § 190.14(c), to the extent that the 

proposed language would afford the trustee with some level of discretion to determine 

whether or when a DCO rule may “compel” the termination of contracts. Although the 

 172 See 85 FR at 60112 n.12 (“The Commission will make appropriate edits to the language in proposed 

§ 190.14(b)(1) as part of the process of finalizing the Part 190 rule proposal.”).

173 See comment letters from ICE, CME.
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Commission believes that commenters’ concerns were largely addressed in the 

Supplemental Proposal through the withdrawal of §§ 190.14(b)(2) and (3), the 

Commission agrees that the Unless Clause raises similar concerns, in that it suggests that 

the Commission may decide that a DCO’s contracts should not be terminated in 

bankruptcy, and accordingly that paragraph (c)(1) should be modified by removing the 

Unless Clause. Thus, after considering the comments, the Commission is adopting 

§ 190.14(c) as proposed, with a modification to paragraph (c)(1) by deleting the phrase:

“unless the Commission determines that liquidation would be inconsistent with the 

avoidance of systemic risk or would not be in the best interests of the debtor’s estate.” 

This modification—when taken in conjunction with the Commission’s prior withdrawal of 

§§ 190.14(b)(2) and (3)—should remove any lingering uncertainties in § 190.14 

concerning the enforceability of close-out netting provisions in a DCO bankruptcy. 

The Commission received no specific comments on the proposed language of

§ 190.14(d) and, thus, is adopting that paragraph as proposed.

Accordingly, after consideration of the comments and for the reasons stated above, 

the Commission is adopting § 190.14 as proposed, with the deletion of paragraphs (b)(2) 

and (b)(3) and modifications to paragraphs (b)(1) and (c)(1), as set forth above.

174

 174 The modifications to paragraph (b)(1) include both the addition of the language described above and the 

re-designation of proposed paragraph (b)(1) as new paragraph (b), in light of the withdrawal of proposed 

paragraphs (b)(2) and (3) in the Supplemental Proposal. 

For further discussion of the Supplemental Proposal and the Commission’s consideration of comments 

thereto, see section II.H below.
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5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules 

and Procedures

The Commission is adopting § 190.15 substantially as proposed (with a 

modification, as discussed below), to favor the implementation of a debtor clearing 

organization’s default rules and procedures maintained pursuant to § 39.16 and, as 

applicable, § 39.35, and any recovery and wind-down plans maintained by the debtor and 

filed with the Commission, pursuant to §§ 39.39 and 39.19, respectively. Section 39.16 

requires each DCO to, among other things, “adopt rules and procedures designed to allow 

for the efficient, fair, and safe management of events during which clearing members 

become insolvent or default on the obligations of such clearing members to the” DCO. In 

adopting § 39.35, the Commission explained that it “was designed to protect SIDCOs, 

Subpart C DCOs, their clearing members, customers of clearing members, and the 

financial system more broadly by requiring SIDCOs and Subpart C DCOs to have plans 

and procedures to address credit losses and liquidity shortfalls beyond their prefunded 

resources.”175 Similarly, in adopting § 39.39, the Commission explained that it was 

“designed to protect the members of such DCOs and their customers, as well as the 

financial system more broadly, from the consequences of a disorderly failure of such a 

DCO.”176

Paragraph 190.15(a) states that the trustee shall not avoid or prohibit any action 

taken by the debtor DCO that was reasonably within the scope of, and was provided for, in 

any recovery and wind-down plans maintained by the debtor and filed with the 

 175 78 FR 72476, 72492 (Dec. 2, 2013).

176 Id. at 72494.
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Commission, subject to section 766 of the Bankruptcy Code. The Commission’s intent is

to provide finality and legal certainty to actions taken by a DCO to implement its recovery 

and wind-down plans, which are developed subject to Commission regulations.

Paragraph § 190.15(b) instructs the trustee to implement, in consultation with the 

Commission, the debtor DCO’s default rules and procedures maintained pursuant to 

§ 39.16, and, as applicable, § 39.35, as well as any termination, close-out and liquidation 

provisions included in the rules of the debtor, subject to the trustee’s reasonable discretion 

and to the extent that implementation of such default rules and procedures is practicable. 

Similarly, § 190.15(c), as proposed, instructs the trustee, in consultation with the 

Commission, to take actions in accordance with any recovery and wind-down plans 

maintained by the debtor and filed with the Commission, to the extent reasonable and 

practicable. The Commission’s intent is to provide the trustee, who will need to take 

prompt action to manage the DCO (and any member default), with a roadmap to manage 

such action. The Commission further intends that the roadmap be based on the rules,

procedures, and plans that the DCO has developed in advance, and that are subject to the 

requirements of the Commission’s regulations.

The Commission requested comment with respect to all aspects of proposed 

§ 190.15. The Commission also raised specific questions as to whether it is appropriate to 

steer the trustee towards implementation of the debtor DCO’s default rules and procedures 

and recovery and wind-down plans, and whether the proposed language concerning 

discretion, reasonability, and practicability is appropriate and sufficient.

The Commission received several comments on proposed § 190.15. CME and ICE 

generally supported the proposal, although ICE raised concerns about the discretion 
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afforded to the trustee. In contrast, Vanguard, FIA, ACLI, SIFMA AMG / MFA, and ICI 

expressed concerns with the proposed rule, in whole or in part.

ICE, while generally supporting the proposal, objected to the language in § 190.15

that a “trustee’s obligation to [follow a DCO’s default rules and recovery and wind-down 

plans] is ‘subject to the reasonable discretion’ of the trustee or is limited ‘to the extent 

reasonable and practicable.’” While ICE acknowledged “the need for some degree of 

flexibility in the conduct of a bankruptcy proceeding,” it contended that “the Commission 

should make clear that the trustee cannot override the DCO rules . . . [or] deviate from an 

approved recovery or wind-down plan.”

Vanguard requested that proposed § 190.15(a) be removed, arguing that it would 

be “imprudent to give deference” to a DCO’s rules because such rules “do not set forth a 

comprehensive roadmap to dealing with DCO insolvency.” Vanguard noted that “DCO 

rulebooks set forth a variety of powers the DCO may employ” (e.g., “assessments, 

variation margin gains haircutting, and tear-ups”), and that such rules “lack[ the] necessary 

specificity and detail to provide certainty to FCMs and customers, or to the trustee,” with 

respect to what would follow in DCO insolvency. Vanguard was concerned that such 

uncertainty may “contribute to further market stresses during a critical time,” and that 

expressly instructing the trustee to implement a DCO’s default rules and procedures 

“where practicable,” permits a DCO to “override the fundamental customer protections 

intended by Part 190.”

FIA did not support the adoption of proposed §§ 190.15(b) and (c), commenting 

that the proposal’s post-bankruptcy implementation of all DCO default rules and 

procedures and recovery and wind-down plans is “inappropriate.” FIA was concerned that 
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the proposal’s “concept of ‘default rules and procedures” could encompass a number of 

different tools or actions, some of which would be inappropriate and risky for a 

bankruptcy trustee to attempt to execute.” In addition, “to the extent that the Commission 

would select some but not other default rules and procedures for a trustee to implement,”

uncertainty with respect to possible bankruptcy scenarios would increase. FIA stated that 

a DCO’s default rules and procedures should not be used “for any purpose other than to 

ensure enforcement of a DCO’s closeout netting provisions,” and that, “[b]y their terms, 

the default rules and procedures . . . represent contractual arrangements between a DCO 

and its members whose purpose is to provide resources and tools to the DCO to prevent its 

bankruptcy.” FIA argued that “a fundamental term” of these arrangements is that “such 

resources and tools are only available prior to bankruptcy,” and that instructing a trustee 

in bankruptcy to implement, with discretion, the DCO’s default rules and procedures 

would “undermine the long-standing and settled expectations of DCOs and their 

members.” In the alternative, FIA recommended that the Commission revise proposed 

§ 190.15(b) “to confirm that, in administering a proceeding under Subpart C, the trustee 

must implement any termination, close-out and liquidation provisions included in the rules 

(or bylaws) of the debtor” (including loss allocation provisions). FIA raised further

concerns about the treatment of a DCO’s recovery plans in proposed § 190.15. FIA 

asserted that such plans are intended to address “actions to be taken prior to the DCO’s 

bankruptcy and [are] not relevant post-filing.” FIA also stated that such plans “would 

provide no meaningful guidance to a trustee” because they “do not prescribe a particular 

course of action.” Rather, they “present a menu of options that a DCO might consider.” 

FIA asserted that reliance on a DCO’s recovery and wind-down plans is “particularly 
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inappropriate” because some of them “have been developed with no input or opportunity 

for comment by clearing members and other market participants.”

ACLI also expressed concern with the deference that a trustee in bankruptcy would 

be required to afford a DCO’s rules and procedures and recovery and wind-down plans 

under proposed § 190.15(a) and § 190.15(c). ACLI claimed that “DCO recovery and 

wind-down plans include such drastic measures as Variation Margin Gains Haircutting . . . 

and Partial Tear-Up . . . [that] are not subject to routine public input at the DCO level or at 

the Commission.” ACLI identified several circumstances in which deference to the 

DCO’s rules or recovery and wind-down plans should be reduced. ACLI asserted that: (a) 

a trustee should not be expected to defer to recovery and wind-down measures unless they 

were originally adopted with public input at the DCO level and made public for a 

reasonable period before the bankruptcy proceeding; (b) the trustee should “have 

discretion to override a DCO’s recovery or wind-down actions if they violate proposed 

Part 190’s goal of protecting customer property on no worse than a pro rata basis”; and 

(c) consistent with proposed § 190.15(b), the trustee should be able to avoid or prohibit 

any DCO action that it determines, in consultation with the Commission, is not 

“reasonable and practicable.”

SIFMA AMG / MFA commented that requiring a trustee to defer to a DCO’s 

recovery and wind-down plans as set forth in proposed §§ 190.15(a) and (c) is 

“inadvisable” and, in some cases, “unworkable,” and recommended that the provisions be 

deleted. SIFMA AMG / MFA recommend that, if the Commission retains proposed 

§ 190.15(a), the provision be amended to remove the words “was reasonably in the scope 

of” and replace references to the DCO’s recovery and wind-down plans with references to 
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the DCO’s default rules and procedures. In support of their position, SIFMA AMG / 

MFA asserted that recovery and wind-down plans are insufficiently prescriptive, and that 

because they tend to be drafted as a menu of options, such plans are not likely to provide 

the trustee with clear direction, effectively causing the trustee to defer to the judgment of 

the debtor itself. SIFMA AMG / MFA also asserted that recovery and wind-down plans 

do not require Commission approval or reflect significant input from customers, and 

because DCOs are not required to make such plans public, the plans are not a fair 

reflection of the ex ante expectations of a DCO’s stakeholders. SIFMA AMG / MFA 

further asserted that “requiring the trustee . . . to defer to the debtor’s resolution plans 

would be inconsistent with other regimes for the resolution of systemically important 

financial institutions.” SIFMA AMG / MFA requested that the Commission add a new 

clause to proposed § 190.15 requiring the trustee and Commission, in implementing 

§ 190.15, to “consider whether implementation of the debtor’s default rules and 

procedures [and recovery and wind-down plans] may undermine the core principles set 

forth in § 190.00 or may pose additional systemic risk.”177 If the trustee and Commission 

determine that such implementation would have that effect, SIFMA AMG / MFA 

suggested that the provision permit the trustee to override the rules, procedures, and plans.

SIFMA AMG / MFA further commented that, in the event that deference to a DCO’s 

default management rules and procedures and recovery and wind-down plans is mandated 

in subpart C of the proposal, the Commission should amend parts 39 and 40 of the 

Commission’s regulations “to ensure that customers have the opportunity to provide 

 177 Alteration in original.
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meaningful input during the development and application of such rules, procedures, and 

plans.”

ICI did not support the proposal’s deference to a DCO’s loss allocation, recovery, 

and wind-down rules in a DCO liquidation. ICI asserted that such rules are neither “clear”

nor “well-vetted.” ICI stated that DCO rules “do not provide the level of specificity and 

detail that is required to give certainty to market participants,” but rather, they “enumerate 

a wide variety of tools that a DCO may deploy to recover losses,” some of which “have 

the capacity to alter the entitlements of customers” under part 190 (e.g., “a customer 

would only be entitled to such a pro rata share of customer property to the extent the DCO 

rules did not modify the distribution of the DCO’s assets” through variation margin gains 

haircutting or partial tear-up). ICI recommended that, “[b]efore the Commission gives 

effect to any DCO loss allocation, recovery, and wind-down rules in a Part 190 

proceeding, . . . the Commission should develop and codify minimum principles that must 

be reflected in [those rules,] . . . review both existing DCO rules and proposed rule 

changes to ensure that they are consistent with the Commission’s minimum principles

. . . [, and] require DCOs to change their governance process for rule changes to give 

stakeholders greater opportunity for input.”

As an initial matter, the Commission notes that some commenters, including 

ACLI, FIA, ICI, and SIFMA AMG / MFA, objected to the application of DCO recovery 

and wind-down plans and rules, in particular the application of variation margin gains 

haircutting, because they believed that changes should be made to the process by which 

parts 39 and 40 permit DCOs to adopt such plans and rules. 
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Amendments to parts 39 and 40 are beyond the scope of this rulemaking, and the 

Commission does not believe that these concerns with the content and operation of parts 

39 and 40 should inhibit the use of such plans and rules in the context of part 190.

However, the Commission continues actively to review these issues, in particular with 

respect to governance, as they relate to parts 39 and 40.

The Commission also notes that other commenters, including FIA, believed that 

default rules and procedures and recovery plans are designed to avoid bankruptcy, and 

should not be applied if they fail in achieving that goal. However, the DCO’s rules,

procedures, and plans set forth ex ante the manner in which losses are allocated—that is, 

who is exposed to them, and to what extent. In the event that losses must be borne in 

bankruptcy, the Commission believes, as was noted in the preamble to the proposal, that 

“allocation of losses should not depend on the happenstance of when default management 

or recovery tools were used—e.g., when assessments were called for, or when such 

assessments were met.” The Commission does not believe that the comments offer a 

persuasive reason why the allocation of losses—who wins, who loses, and how much—

should change on the basis of when a bankruptcy is filed. 

The Commission further notes that a number of commenters, including ACLI and 

Vanguard, were concerned with the application in bankruptcy of recovery tools such as 

variation margin gains haircutting and partial tear-up. Variation margin gains haircutting, 

to the extent set forth in DCO rules, will be applied in bankruptcy, in that it represents the 

ex ante manner in which losses are allocated. 178 By contrast, partial tear-up of contracts 

 178 Moreover, as discussed in more detail in section II.C.7 below, there is a limited amount of customer 

property available. Any increase in some customers claims (and thus, their distributions) due to the 

disapplication of gains-based haircutting would come at the expense of a reduced share of that limited 
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will not be applied; rather, pursuant to § 190.14(c)(1), “the trustee shall liquidate all open 

commodity contracts that have not been terminated, liquidated or transferred no later than 

seven calendar days after entry of the order for relief” (emphasis added). 

Turning to SIFMA AMG / MFA’s suggestion that “the trustee and the 

Commission should explicitly be required to consider the core concepts set forth in 

proposed § 190.00 and systemic risk in implementing a debtor DCO’s rules procedures 

and plans”: With respect to the core concepts, § 190.00(c) states that “the specific 

requirements in [part 190] should be interpreted and applied consistently with these core 

concepts.” In short, that requirement is already present. Moreover, the Commission has 

added § 190.00(c)(3)(i)(C) to state that “[w]here a provision in this part 190 affords the 

trustee discretion, that discretion should be exercised in a manner that the trustee 

determines will best achieve the overarching goal of protecting public customers by 

enhancing recoveries for, and mitigating disruptions to, public customers as a class.” 

Thus, in exercising their discretion to determine what is “reasonable” for purposes of 

§ 190.15, the trustee is already directed to focus on the “core concepts” in § 190.00(c), 

and, in particular, the “overarching goal of protecting public customers.”

However, while a DCO’s default rules and procedures are required to be made 

public, posted on the DCO’s website,179 the same is not true for the DCO’s recovery and 

wind-down plans. Thus, in implementing the DCO’s default rules and procedures, the 

trustee would be implementing rules and procedures that, prior to the bankruptcy, were 

both subject to the supervision of the Commission and transparently available to both 

 customer property (i.e., reduced distributions) to other customers, which could total less than the amount of 

their claim arising from initial margin.

179 See § 39.21(c)(6).
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clearing members and their customers. By contrast, in implementing the DCO’s recovery 

and wind-down plans, the trustee would be implementing plans that, prior to the 

bankruptcy, were subject to the supervision of the Commission,180 but may not have been

transparently available to clearing members or their customers. In light of this distinction, 

a more customer-protective approach seems appropriate in the latter context.

Accordingly, the Commission is modifying proposed § 190.15(c), which reads 

“In administering a proceeding under this subpart, the trustee shall, in consultation 

with the Commission, take actions in accordance with any recovery and winddown plans maintained by the debtor and filed with the Commission pursuant to 

§ 39.39 of this chapter, to the extent reasonable and practicable” 

to add at the end the qualifier that these actions should also only be taken to the extent 

“consistent with the protection of customers.”181 

With respect to systemic risk, while the Commission, as a governmental agency, is 

attentive to considerations of mitigating systemic risk in all that it does,182 it may be 

difficult for a trustee to make meaningful determinations as to how to do so. Moreover, 

the trustee is the representative of the bankruptcy estate, see 11 U.S.C. 323(a), with 

fiduciary duties to estate beneficiaries,183 rather than to the financial system as a whole. 

Accordingly, the Commission does not believe it appropriate to add an explicit 

requirement concerning considerations of systemic risk, as suggested by SIFMA AMG / 

MFA.

 180 Note that § 190.15(c) only applies to recovery and wind-down plans that were “filed with the 

Commission pursuant to § 39.39 of this chapter.”

181 The “customers” of a DCO are, as noted at the top of this section II.C, the clearing members with respect 

to their public customers, as well as the clearing members with respect to their proprietary or “house” 

accounts. 

182 See CEA § 3(b), 7 U.S.C. 5(b) (purposes of the CEA include “the avoidance of systemic risk”).

183 See U.S. Department of Justice, Executive Office for United States Trustees, Handbook for Chapter 7 

Trustees Section 4.B, at 4-2.
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The Commission does not agree that FIA’s observation that DCO recovery and 

wind-down plans may “not prescribe a particular course of action but, rather, present a 

menu of options that a DCO may consider” supports FIA’s conclusion that “these plans 

would appear to provide no meaningful guidance to a trustee.” To the contrary, the 

Commission believes that providing a “menu of options” among which the trustee may 

select (and adapt) in a manner that is “reasonable and practicable” would provide the 

trustee—who would be stepping into a complex and difficult situation with little 

preparation—with a helpful roadmap to determine strategy and tactics, in order to act in a 

prompt and cost-effective manner. 

The Commission also declines to provide that the trustee cannot override the 

DCO’s rules or deviate from an approved recovery or wind-down plan. Even if part 39 

were to require that such plans be “approved”—and it does not—they are designed in the 

context of operation of the DCO outside of bankruptcy. Thus, the Commission believes it 

to be appropriate for the trustee to apply them with flexibility to the extent reasonable and 

practicable.

Accordingly, after consideration of the comments and for the reasons stated above,

the Commission is adopting § 190.15 as proposed, with the modification to 190.15(c) 

discussed above.

6. Regulation 190.16: Delivery

The Commission is adopting § 190.16 as proposed with a modification to 

paragraph (a), as set forth below.

Regulation 190.16(a) instructs the trustee to use reasonable efforts to facilitate and 

cooperate with completion of delivery in a manner consistent with § 190.06(a) (which 
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instructs trustees of FCMs in bankruptcy to foster delivery where a contract has entered 

delivery phase before the filing date or where it is not practicable for the trustee to 

liquidate a contract moving into delivery position after the filing date) and the pro rata

distribution principle in § 190.00(c)(5). The Commission believes that it is important to 

address deliveries to avoid disruption to the cash market for the commodity and to avoid 

adverse consequences to parties that may be relying on delivery taking place in connection 

with their business operations. However, given the potential for competing demands on 

the trustee’s resources, including time, this instruction is limited to requiring “reasonable 

efforts.” 

Regulation 190.16(b) carries forward, to the context of a DCO in bankruptcy, the 

delineation between the physical delivery property account class and the cash delivery 

property account class in § 190.06(b), as discussed above. Specifically, physical delivery 

property that is held in delivery accounts for the purpose of making delivery shall be 

treated as physical delivery property, as will the proceeds from any sale of such property. 

By contrast, cash delivery property that is held in delivery accounts for the purpose of 

paying for delivery shall be treated as cash delivery property, as would any physical 

delivery property for which delivery is subsequently taken.

The Commission requested comment with respect to all aspects of proposed 

§ 190.16. The Commission raised specific questions as to whether it is appropriate, in the 

context of a clearing organization bankruptcy, to separate the physical delivery account 

class from the cash delivery account class, and if so, whether the physical delivery account 

class should be further sub-divided. The Commission also asked whether the delivery 

account class should be treated as a single, undivided account class.
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CME supported the requirement in proposed § 190.16 that the trustee use 

reasonable efforts to facilitate deliveries of commodity contracts that have moved into 

delivery prior to the date and time of relief on behalf of a clearing member or customer,

but asked that the Commission “expand the rule to require the trustee to facilitate 

deliveries” under contracts that move into delivery position after the filing and that the 

trustee is unable to liquidate. CME stated that “[i]t is equally important to protect 

deliveries under [such] contracts . . . to protect against disruption to commercial markets 

and operations,” and that the trustee may not be able to terminate them.

The ABA Subcommittee similarly expressed concern that proposed § 190.16(a) 

“does not address contracts that are unable to be liquidated and that then move into 

delivery position,” noting that “it may be impossible or impracticable for a trustee to 

liquidate every” physical-delivery commodity contract that is open at the date and time of 

the order for relief before the contract moves into delivery position. The ABA 

Subcommittee recommended that the Commission “remove the timing limitation in 

Proposed Rule 190.16(a),” and add language stating that “the trustee should use 

reasonable efforts to liquidate open physical delivery commodity contracts before they 

move into a delivery position.”

The Commission agrees with comments raised by CME and the ABA 

Subcommittee that deliveries should be facilitated after the order for relief for contracts 

that are not otherwise terminated, liquidated, or transferred. The Commission believes 

that modifying the proposal to address that scenario is appropriate to avoid disruption to 

the cash market and to avoid adverse consequences to parties that may be relying on 

delivery taking place in connection with their business operations.
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Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting § 190.16 with a modification to apply paragraph (a) to 

any contract that “moves into delivery after [the date and time of the order for relief], but 

before being terminated, liquidated, or transferred.” 

7. Regulation 190.17: Calculation of Net Equity

The Commission is adopting § 190.17 as proposed, with a modification to 

§ 190.17(b)(2), as discussed below. Section 190.17 establishes net equity calculations to 

be used in determining the claims against the debtor DCO (and the allocation of losses) 

among members and their accounts. 

Paragraph 190.17(a) with respect to net equity is parallel to § 190.18(a) with 

respect to the treatment of customer property. Paragraph 190.17(a)(1) confirms that a 

member of a clearing organization may have claims in separate capacities. Specifically, a 

member may have claims on behalf of its public customers (customer account) and claims 

on behalf of itself and its non-public customers (i.e., affiliates) (house account), and, 

within those separate customer classes, the claims may be further separated by account 

class. The member shall be treated as part of the public customer class with respect to 

claims based on commodity customer accounts carried as “customer accounts” by the 

clearing organization for the benefit of the member’s public customers, and as part of the 

non-public customer class with respect to claims based on its house account. Paragraph 

190.17(a)(2) directs that net equity shall be calculated separately with respect to each 

customer capacity and, within such customer capacity, by account class. 
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Paragraph 190.17(b) sets forth how a debtor DCO’s pre-existing rules and 

procedures governing the allocation of losses—including the default rules and 

procedures—should be applied in a DCO bankruptcy. 

Paragraph 190.17(b)(1) confirms that the calculation of members’ net equity 

claims—and, thus, the allocation of losses among members and their accounts—shall be 

based on the full application of the debtors’ loss allocation rules and procedures, including 

the default rules and procedures referred to in §§ 39.16 and 39.35. These pre-existing loss 

allocation rules and procedures are the contract between and among the members and the 

DCO, and the Commission believes that it is appropriate to give them effect regardless of 

the bankruptcy of the DCO or the timing of any such bankruptcy. In other words, the preexisting loss allocation rules and procedures (such as member assessments) should be 

given the same effect in a bankruptcy, regardless of whether default management or 

recovery tools were fully applied prior to the order for relief. While certain DCOs may 

have discretion, consistent with governance procedures, as to precisely when they call for 

members to meet assessment obligations, the Commission believes that allocation of 

losses should not depend on the happenstance of when default management or recovery 

tools were used—e.g., when assessments were called for, or when such assessments were 

met.

Paragraph 190.17(b) also addresses DCO rules that govern how recoveries on 

claims against defaulting members are allocated to non-defaulting members’ accounts,184

which effectively “reverse the waterfall” by allocating recovered assets to member 

 184 These recoveries might be based on prosecution of such claims in an insolvency or receivership 

proceeding, or, in the reasonable commercial judgment of the DCO, the settlement or sale of such claims.
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accounts in reverse order of the allocation of the losses to those member accounts.185

Paragraph 190.17(b)(2) implements such DCO rules in bankruptcy, thereby adjusting 

members’ net equity claims (and the basis for distributing any such recoveries) in light of 

such recoveries. The provision similarly implements DCO loss allocation rules in other 

contexts, for example, (i) rights to portions of mutualized default resources that are either 

prefunded or assessed and collected, and, in either event, not used, as well as (ii) rules that 

would allocate to members recoveries against third parties for non-default losses that are, 

under the DCO’s rules, originally borne by members. 

Paragraph 190.17(c) incorporates by reference the equity calculations set forth in 

proposed § 190.08, to the extent applicable.

Finally, paragraph 190.17(d) implements section 766(i) of the Bankruptcy Code, 

which: (1) allocates a debtor DCO’s customer property (other than member property) to 

the DCO’s customers (i.e., clearing members) ratably based on the clearing members’ net 

equity claims based on their (public) customer accounts; and (2) allocates a debtor DCO’s 

member property to the DCO’s clearing members ratably based on the clearing members’ 

net equity claims based on their proprietary (i.e., house) accounts. To implement section 

766(i), § 190.17(d) defines “funded balance” as a clearing member’s pro rata share of 

member property (for a clearing member’s house accounts) or customer property other 

 185 For example, if the DCO rules allocate losses in excess of the defaulters’ available resources first to the 

DCO’s own contributions, second to the mutualized default fund contributions of members other than the 

defaulter, third to assessments, and fourth to gains-based haircutting (pro rata), all of which tools were in 

fact used in a particular case, then recoveries on claims against the defaulting members would be allocated 

(to the extent available) first to those member accounts for which gains were haircut, pro rata based on the 

aggregate amount of such haircuts per member account, until all such haircuts have been reversed, second to 

those members who paid assessments, pro rata based on the amount of such assessments paid, until all such 

assessments have been repaid, third to members whose mutualized default-fund contributions were 

consumed, pro rata based on such default-fund contributions, until all such contributions have been repaid, 

and fourth to the DCO to the extent of its own contribution.
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than member property (for accounts for a clearing member’s public customers). The pro 

rata amount shall be calculated with respect to each account class available for 

distribution to customers of the same customer class. Moreover, given that the calculation 

of funded balance for FCMs is an analogous exercise, the Commission intends that such 

calculations under § 190.17(d) will be made in the manner provided in § 190.08(c), to the 

extent applicable.

The Commission requested comment with respect to all aspects of proposed 

§ 190.17. The Commission raised a specific question as to whether it is appropriate to 

base the calculations proposed § 190.17 on the full application of the debtors’ loss 

allocation rules and procedures, including the DCO’s default rules and procedures.

Commenters addressed the proposed language of paragraph (b), or of § 190.17 

generally, but did not offer specific comments on the proposed language of paragraphs (a), 

(c), or (d). 

CME commented in support of § 190.17(b)(1)’s application of “the DCO’s loss 

allocation rules and procedures, including the DCO’s default rules and procedures, to the 

calculation of clearing members’ net equity claims,” but suggested a clarification to the 

proposed rule. Specifically, CME suggested that the Commission “clarify that ‘full 

application’ of the DCO’s loss allocation rules and procedures to the calculation of 

clearing members’ house net equity claims means that assessments or similar loss 

allocation arrangements thereunder are part of the calculation only if and to the extent that 

the DCO’s rules and procedures provide for post-filing assessments and payments.” CME 

noted that a “DCO’s rules are the contract between and among the members and the 

DCO,” and that, “[i]f the calculation of net equity claims deviates from the DCO’s loss 
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allocation under its rules, including determination of amounts owned under close-out 

netting rules, that could adversely affect CME’s netting opinion as to the enforceability of 

its netting rules.” CME also commented in support of “giving effect to provisions in the

debtor DCO’s loss allocation rules that entitle clearing members to return of guaranty fund 

deposits or other mutualized default resources that are not used, or to payments out of 

amounts that the DCO recovers on claims against a defaulting clearing member, through 

adjustments to clearing member’s net equity claims against member property to reflect 

their entitlement to such payments.” CME also commented in support of § 190.17(b)(2).

The ABA Subcommittee expressed concern with respect to perceived ambiguity in 

§ 190.17(b)(1) regarding “how assessments that were not called for, or that were called for 

but not paid before the filing date, would impact the calculation of a clearing member’s 

net equity claim with respect to its house account.” The ABA Subcommittee requested

that the Commission modify the proposed regulation to clarify that “house account net 

equity claims would be adjusted to reflect post-filing obligations only if and to the extent 

that the DCO’s rules and procedures impose obligations on clearing members to continue 

making such payments following the DCO’s bankruptcy.” Specifically, the ABA 

Subcommittee suggested that the following phrase be added to the end of § 190.17(b)(1): 

“if and to the extent that the debtor’s loss allocation rules and procedures impose 

obligations on clearing members to make such payments on or after the filing date.”

FIA did not support the adoption of § 190.17(b)(1). FIA stated that it would be 

“inappropriate to require a clearing member to reduce the value of its net equity claim by 

the amount of an assessment that, under the rules of the relevant DCO, either may no 

longer be made or are not required to be paid.” FIA asserted that a DCO’s default fund is 
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“a multilateral indemnification arrangement between the DCO and its members pursuant 

to which members’ contributions are used to cover the DCO’s losses resulting from 

member default(s) and thereby prevent the DCO’s bankruptcy.” FIA stated that a “DCO 

has no authority under its rules to request or to apply these funds for any other purpose, 

nor do we believe that a trustee would have any authority under the [Bankruptcy] Code to 

do so.” FIA noted further that, “by requiring that a clearing member’s net equity claim 

must include the full application of the DCO’s loss allocation rules and procedures, 

proposed Rule 190.17(b)(1) appears to have the effect of reducing a clearing member’s 

potential recovery, even when the full application of the DCO’s loss allocation rules is not 

necessary to meet the DCO’s obligations to non-defaulting clearing members,” thereby 

impermissibly benefitting the DCO’s general creditors and shareholders to the detriment 

of clearing members.

ICE commented that the Commission should refrain from adopting § 190.17(b) or 

providing “specific guidance as to what assumptions the CFTC would make and how the 

net equity claim is to be calculated hypothetically.” ICE stated that, in determining a 

clearing member’s net equity claim, it is neither appropriate nor feasible to consider a 

potential assessment that could have been called for before a bankruptcy filing but was 

not. ICE asserted that a DCO’s determination of whether “to call for an assessment and/or 

implement other loss allocation arrangements” accounts for many considerations that 

would not be appropriate to revisit in an insolvency. ICE also asserted that calculating the 

full application of loss allocation rules, or determining what would have happened in any 

full allocation, may not be possible. ICE noted, for example: (a) because a DCO is not 

obligated to impose assessments against its clearing members, it is unclear how the CFTC 
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or the trustee would determine how many assessments the DCO should have made; (b) in 

the event that “clearing members have the right to cap their liability by terminating their 

membership in a DCO,” it is unclear how the CFTC or the trustee would determine 

whether a clearing member should have terminated its membership; 186 and (c) it “may not 

be possible to determine definitively what the [DCO’s] losses . . . would have been if 

additional loss allocation steps, such as variation margin gains haircutting or tear-up, had 

been taken.”

SIFMA AMG / MFA commented that §§ 190.17 and 190.18(b)(1) should be 

modified to explicitly state that any gains that were haircut during gains-based haircutting 

will be treated as customer property and included in the net equity claims of the clearing 

members and customers whose gains were haircut. SIFMA AMG / MFA further 

commented in support of § 190.17(b) but suggested that the proposal be modified to 

provide that, if a debtor DCO either (i) does not have “reverse the waterfall” rules or (ii) 

has “reverse the waterfall” rules that do not address each level of the debtor DCO’s 

waterfall, the net equity clams of the debtor DCO’s clearing members and customers will 

be calculated as though the debtor DCO, in fact, “has ‘reverse the waterfall’ rules that 

address each level of the DCO’s waterfall. 

Vanguard commented on § 190.17(b)(1)’s requirement that a trustee’s calculation 

of DCO members’ net equity claims include the full application of DCO loss allocation 

rules and procedures. Vanguard expressed concern that the requirement would result in a 

 186 But see ICE Clear Credit Rules 806, 807. To mitigate the risk that their members will “rush to the exits” 

after a default, DCOs generally hold departing members liable for assessments due to the defaults that 

occurred before they withdrew from membership, as well as during a “cooling-off” period that extends past 

the date the member gives notice of intent to withdraw. The ICE Clear Credit rules cited, which include a 

“cooling-off period” of at least 30 days, are examples of this phenomenon. Thus, the possibility that 

clearing members would withdraw is not likely to affect their liability for assessments in this context.
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customer being entitled to only “a pro rata share to the extent the DCO rules did not 

modify the distribution of the DCO’s asset, whether pre- or post-petition, through 

measures such as variation margin gains haircutting or partial tear-up of transactions.”

Vanguard noted the possibility that, “as the DCO begins to fail,” the DCO’s rules “could 

be changed without the appropriate vetting by FCMs and customers who presently bear an 

inordinate share of the risk.” Vanguard believed that “any application of non-defaulting 

customer gains haircutting, or any other margin haircutting, should be prohibited as being 

fundamentally at odds with normal insolvency practice and highly counterproductive to 

incentivizing customers not to abandon a failing DCO.” Vanguard asserted that, if 

haircutting is to be allowed, customers should “receive full compensation in the form of a 

credit or equity claim against the DCO[ that is] superior to that of other creditors.”

Vanguard also suggested that § 190.17(b)(2) be modified in the same manner as suggested 

by SIFMA AMG / MFA, with respect to situations in which a debtor DCO does not have 

“reverse the waterfall” rules, or has “reverse the waterfall” rules that do not address each 

level of the debtor DCO’s waterfall.

ICI expressed concern that § 190.17(b)(1) would permit a DCO’s loss allocation, 

recovery, and wind-down rules “to override the fundamental customer protections that 

Part 190 and Subchapter IV [of the Bankruptcy Code] are meant to safeguard,” because 

they would “no longer guarantee to a customer a pro rata share of customer property 

based on its transactions and margin in accordance with Subchapter IV.” In that scenario, 

ICI commented that “a customer would only be entitled to such a pro rata share to the 

extent the DCO rules did not modify the distribution of the DCO’s assets, whether pre- or 
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post-petition, through measures such as variation gains haircutting or partial tear-up of 

transactions.”

Having received no specific comments on the proposed language of paragraphs 

(a), (c), and (d) of § 190.17, the Commission is adopting those paragraphs as proposed.

As described above, the Commission received several comments on paragraph (b). 

After considering the comments, the Commission notes that DCO default rules and 

procedures (also referred to as “default waterfalls”), as a general matter, first use the 

resources of the defaulter (i.e., the defaulter’s initial margin and contribution to the default 

fund) to cover a shortfall. Should those resources be insufficient to cover the shortfall, 

such default waterfalls generally proceed to use the DCO’s own capital contribution, and 

only after those resources are extinguished is the remaining shortfall mutualized among 

the clearing members: (1) first, through the prefunded default fund contributions of nondefaulting clearing members; (2) then, through limited assessment powers against those 

non-defaulting clearing members, which are generally set as a multiple of each clearing 

member’s prior contributions to the default fund; and (3) finally, through gains-based 

haircuts that affect both clearing members and (through customer agreements) the 

customers of clearing members (i.e., public customers).

The Commission notes two important takeaways from the general structure of 

default waterfalls. First, each clearing member knows, in advance of a default, the 

maximum amount of its exposure to contribute to mutualized loss through the guarantee 

fund and the DCO’s assessment powers. Second, should there be any reduction in the 

amount of funds collected through such assessments, then any losses in excess of the 

waterfall (i.e., up through the assessments) would instead be allocated to both clearing 
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members and their public customers. In other words, if the losses are large enough, a 

reduced allocation of losses to clearing members would necessarily mean that their public 

customers would bear an increased allocation of losses.

The Commission remains of the view that, as discussed in the proposal, “[w]hile 

certain DCOs may have discretion, consistent with governance procedures, as to precisely 

when they call for members to meet assessment obligations, . . . allocation of losses should 

not depend on the happenstance of when default management or recovery tools were 

used—e.g., when assessments were called for, or when such assessments were met.”187

As discussed above, the losses in a DCO bankruptcy ultimately would be allocated 

between clearing members and customers, and clearing members’ exposure to this 

allocation of losses is already capped by the ex ante limits on assessment powers. If the 

Commission were to modify the language of paragraph (b) in the manner suggested by 

multiple commenters, the modification would effectively decrease the allocation of losses 

that would be borne by clearing members—below the ex ante limits of which they are on 

notice—and correspondingly increase the allocation of losses that would be borne by 

customers. In other words, in such a scenario, the Commission believes that the suggested 

language could harm customers and run counter to the Commission’s policy that, with 

respect to customer property, public customers be favored over non-public customers. For 

those reasons, the Commission declines to adopt commenters’ suggestions to modify the

net equity calculations in § 190.17(b) by limiting (or eliminating) the allocation of 

assessments that were not exercised prior to a bankruptcy filing.

 187 85 FR at 36038.
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By contrast, gains-based haircuts are also part of the pre-bankruptcy arrangements 

for allocating losses. If that part of the “waterfall” is reached, then that ex ante

arrangement should be followed. Moreover, there is a limited amount of customer 

property available. Thus, to the extent the application of gains-based haircuts was to be

reversed, and some customers would realize increases in the allowed amounts of their 

claims (and thus a greater share of customer property), other customers would suffer a 

decreased share of customer property; indeed, the latter customers may, as a result, receive 

less than the amount of their claims for initial margin. This could have the effect of 

reducing those customers’ recoveries below the initial margin they have posted. The 

Commission stands firmly against initial margin haircutting as inimical to the principles of 

segregation. Thus, the Commission declines to adopt the suggestion by SIFMA AMG / 

MFA and Vanguard to reverse the application of gains-based haircutting in a DCO 

bankruptcy.

FIA’s comment letter raised two points that should be further addressed. First, 

FIA stated that a DCO, under its rules, lacks the authority to apply the DCO’s default fund 

for any purpose other than preventing the DCO’s bankruptcy, and a trustee would 

similarly lack the authority to do so under the Bankruptcy Code.188 FIA further argued 

that, as a result of that limitation, the DCO’s authority to make new assessments or 

otherwise require that members contribute additional funds to a DCO’s default fund would 

not continue into bankruptcy. Consequently, FIA argued that a clearing member’s net 

equity claim should not be reduced in bankruptcy by the amount of an assessment that 

would no longer be required to be paid under the DCO’s rules. However, the Commission 

 188 FIA at 9.
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notes that paragraph 190.17(b)(1) does not instruct the trustee to call any clearing member 

to pay in additional funds; rather, paragraph (b)(1) reduces the clearing member’s net 

equity claim against the estate of the DCO, to account for uncalled or uncollected 

assessments. Pursuant to section 20(a)(5) of the CEA, the Commission has the power to 

provide, with respect to a commodity broker in bankruptcy, “how the net equity of a 

customer is to be determined,”189 and the Commission believes that by setting the net 

equity calculation as proposed, the rule would appropriately set such calculations in a 

manner that does “not depend on the happenstance of when default management or 

recovery tools were used,” as discussed more fully above.

Second, FIA noted that, “by requiring that a clearing member’s net equity claim 

must include the full application of the DCO’s loss allocation rules and procedures, 

proposed [paragraph] 190.17(b)(1) appears to have the effect of reducing a clearing 

member’s potential recovery, even when the full application of the DCO’s loss allocation 

rules is not necessary to meet the DCO’s obligations to non-defaulting clearing members” 

and that “[s]uch a result would impermissibly benefit the DCO’s general creditors and 

shareholders to the detriment of clearing members.” The Commission did not intend for 

the potential outcome suggested by FIA; rather, in proposed § 190.17(b)(2)(i), the 

Commission intended to provide that, where the full amount of assessment powers is not 

needed to cover a default, an appropriate adjustment shall be made to the net equity claims 

of clearing members. The Commission believes that the rule text should be modified in 

order to communicate its intent more clearly, and avoid the possibility of the unintended 

outcome raised by FIA. Accordingly, the Commission is modifying § 190.17(b)(1) to 

 189 In the bankruptcy of a clearing organization, clearing members are a species of customer.
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clarify that the DCO’s “loss allocation arrangements shall be applied to the extent 

necessary to address losses arising from default by clearing members.”

This modification separates paragraph (b)(1) into two separate parts. First, 

paragraph (b)(1)(i) will include the following language: “The calculation of a clearing 

member’s net equity claim shall include the full application of the debtor’s loss allocation 

rules and procedures, including the default rules and procedures referred to in § 39.16 and, 

if applicable, § 39.35 of this chapter.” Second, paragraph (b)(1)(ii) will include the 

following language:

“The calculation in paragraph (b)(1)(i) will include, with respect to the clearing 

member’s house account, any assessments or similar loss allocation arrangements 

provided for under those rules and procedures that were not called for before the 

filing date, or, if called for, have not been paid. Such loss allocation arrangements 

shall be applied to the extent necessary to address losses arising from default by 

clearing members.”

The ABA Subcommittee, in its comment letter, was concerned that the proposed 

rule is ambiguous on whether assessments or similar loss allocation arrangements would 

be included in the calculation where the clearing organization’s rules do not impose 

obligations on clearing members to make such payments on or after the filing date. The 

modified structure of paragraph (b)(1), as described above, should remove that ambiguity, 

albeit not in the direction that the ABA Subcommittee would prefer: The calculation “will 

include, with respect to the clearing member’s house account, any assessments or similar 

loss allocation arrangements that were not called for before the filing date . . . to the extent 

necessary to address losses arising from default . . .” (emphasis added).

CME’s comment letter also raises a concern that should be addressed. In 

particular, CME is concerned that deviating from the DCO’s rules with respect to loss 

allocation in this context could adversely affect the DCO’s netting opinion as to the 
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enforceability of its netting rules. The Commission notes that this argument conflates 

bank capital charge calculations for cleared transactions with capital charge calculations 

for default fund contributions. Pursuant to, e.g., 12 CFR § 217.133(a)(2), a clearing 

member that is (or is part of) a bank holding company regulated by the Federal Reserve 

Board and that uses the internal ratings and advanced measurement approaches to bank 

capital requirements is required to use the methodologies described in the applicable 

paragraph of 12 CFR 217.133 to calculate its risk-weighted assets for a cleared 

transaction (that is, paragraph (c) of that section) and the methodologies described in a 

different paragraph to calculate its risk-weighted assets for its default fund contribution to 

a CCP (that is, paragraph (d) of that section).

190 Netting opinions are necessary to treat 

cleared transactions on a net basis,191 while assessments are related to default fund 

contributions. Thus, the treatment of assessment obligations is irrelevant to netting 

opinions for cleared transactions.

The Commission also received comments on proposed § 190.17(b)(2) concerning 

the treatment of “reverse the waterfall” rules in the context of a DCO bankruptcy. After 

considering the comments, the Commission continues to believe that it is useful and 

appropriate to use “reverse the waterfall” rules for recoveries made by a clearing 

organization (including a debtor clearing organization). Some commenters suggested that 

proposed § 190.17(b)(2) be modified to address situations where the debtor DCO lacks 

“reverse the waterfall” rules, or where such rules do not address each level of the debtor 

 190 There are analogous provisions for bank holding companies regulated by the Federal Reserve Board that 

use the standardized approach for calculating bank capital requirements (12 CFR § 217.35) as well as banks 

regulated by the FDIC and the Office of the Comptroller of the Currency.

191 See 12 CFR 217.3(d).
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clearing organization’s waterfall. Although the commenters did not provide specific

language that could be used to apply to such situations, the Commission believes that such 

a complicated modification is beyond the bounds of what was proposed, and thus, the 

Commission declines to make the modification here. Nonetheless, the commenters’ 

suggestion is well taken, and the Commission may consider further work on that issue in 

the future.

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is: (1) adopting § 190.17(a), (b)(1), (c), and (d) as proposed; and 

(2) adopting § 190.17(b)(2) with the modification discussed above.

8. Regulation 190.18: Treatment of property

The Commission is adopting § 190.18 to establish the allocation of the debtor 

DCO’s estate in order to satisfy claims of clearing members, as customers of the debtor. 

The Commission is adopting § 190.18 as proposed, with the following modifications: 

(1) adding new paragraph (b)(1)(iv), as described below; and (2) removing paragraph 

(c)(1) and renumbering the remaining paragraphs of paragraph (c).

Paragraph 190.18(a) with respect to customer property is parallel to § 190.17(a)

with respect to net equity. Paragraph (a) provides that property of the debtor clearing 

organization’s estate is allocated between member property, and customer property other 

than member property, in order to satisfy claims of clearing members as customers of the 

debtor. Such property would constitute a separate estate of the customer class (i.e., 

member property, and customer property other than member property) and the account 

class to which it is allocated, and would be designated by reference to such customer class 

and account class. 
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Paragraph 190.18(b) sets out the scope of customer property for a clearing 

organization,

192 and is based in large part on § 190.09(a). Specifically, 

§§ 190.18(b)(1)(i)(A) through (G) are based on §§ 190.09(a)(1)(i)(A) through (G). 

Paragraph 190.18(b)(1)(i) does not include a provision that is parallel to 

§ 190.09(a)(1)(i)(H), because loans of margin are not applicable to DCOs. Paragraphs 

190.18(b)(1)(ii)(A) through (D) are based on §§ 190.09(a)(1)(ii)(A), (D), (E), and (F), 

while § 190.18(b)(1)(ii)(E) adopts by reference § 190.09(a)(1)(ii)(H) through (K) as if the 

term debtor used therein refers to a clearing organization as debtor. Paragraph 

190.18(b)(1)(ii) does not include provisions that are parallel to §§ 190.09(a)(1)(ii)(B), (C), 

(G), and (L), because they would not be applicable due to the differences in business 

models, structures, and activities of DCOs and FCMs, respectively. Paragraph

190.18(b)(1)(iii) is unique to clearing organizations, and includes as customer property 

any guarantee fund deposit, assessment, or similar payment or deposit made by a member, 

to the extent any remains following administration of the debtor’s default rules and 

procedures. Paragraph 190.18(b)(1)(iii) also includes any other property of a member 

that, pursuant to the debtor’s rules and procedures, is available to satisfy claims made by 

or on behalf of public customers of a member. Finally, § 190.18(b)(2), which identifies 

property that is not included in customer property, adopts by reference § 190.09(a)(2) as if 

the term debtor used therein refers to a clearing organization as debtor and to the extent 

relevant to a clearing organization.

 192 This is another provision prescribed pursuant to the Commission’s authority under section 20(a)(1) of the 

CEA, 7 U.S.C. 24(a)(1).
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Paragraph § 190.18(c) allocates customer property between customer classes, 

favoring allocation to customer property other than member property over allocation to 

member property, so long as the funded balance in any account class for members’ public 

customers is less than one hundred percent of net equity claims. Once all account classes 

for customer property other than member property are fully funded (i.e., at one hundred 

percent of net equity claims), any excess could be allocated to member property. 

Paragraph 190.18(c)(1), as proposed (but not adopted herein, as discussed below), would 

allocate any property referred to in § 190.18(b)(1)(iii) (guarantee deposits, assessments, 

etc.) first to customer property other than member property, to the extent that any account 

class therein is not fully funded, and then to member property. In proposing this 

provision, the Commission intended such treatment of property to favor public customers

over non-public customers. Paragraph 190.18(c)(2) allocates any excess funds in any 

account class for members’ house accounts first to customer property other than member 

property to the extent that any account class therein is not fully funded, and then any 

remaining excess to house accounts to the extent that any account class therein is not fully 

funded. Finally, § 190.18(c)(3) allocates any excess funds in any account for members’ 

customer accounts first to customer property other than member property to the extent that 

any account class therein is not fully funded, and then any remaining excess to house 

accounts, to the extent that any account class therein is not fully funded.

Paragraph 190.18(d) allocates customer property among account classes within 

customer classes. Paragraph 190.18(d)(1) confirms that, where customer property is tied 

to a specific account class—that is, where it is segregated on behalf of, readily traceable 

on the filing date to, or recovered by the trustee on behalf of or for the benefit of an 
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account class within a customer class—the property must be allocated to the customer 

estate of that account class (that is, the account class for which it is segregated, to which it 

is readily traceable, or for which it is recovered). Paragraph 190.18(d)(2) provides that 

customer property that cannot be allocated in accordance with paragraph (d)(1) shall be 

allocated in a manner that promotes equality of percentage distribution among account 

classes within a customer class. Thus, in such a scenario, such property would be 

allocated first to the account class for which funded balance—that is, the percentage that 

each member’s net equity claim is funded—is the lowest. This would continue until the 

funded balance percentage of that account class equals the funded balance percentage of 

the account class with the next lowest percentage of funded claims. The remaining 

customer property would be allocated to those two account classes so that the funded 

balance for each such account class remains equal. This would continue until the funded 

balance percentage of those two account classes is equal to the funded balance of the 

account class with the next lowest percentage of funded claims, and so forth, until all 

account classes within the customer class are fully funded.

Paragraph 190.18(e) confirms, however, that where the debtor DCO has, prior to 

the order for relief, kept initial margin for house accounts in accounts without separation 

by account class, then member property will be considered to be in a single account class.

Paragraph 190.18(f) reserves the right of the trustee to assert claims against any 

person to recover the shortfall of property enumerated in §§ 190.18(b)(1)(i)(E), (b)(1)(ii),

and (b)(1)(iii). Paragraph (f) is analogous in the DCO context to § 190.09(a)(3) in the 

context of FCMs. The purpose of paragraph (f), as with § 190.09(a)(3), is to clarify that 

any claims that the trustee may have against a person to recover customer property will 
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not be undermined or reduced by the fact that the trustee may have been able to satisfy 

customer claims by other means.

The Commission requested comment with respect to all aspects of proposed 

§ 190.18. The Commission raised a specific question about the comprehensiveness of the 

scope of customer property for a clearing organization in proposed § 190.18(b). The 

Commission also asked specifically about the appropriateness of the proposed allocation 

of customer property between customer classes in proposed § 190.18(c) and within 

customer classes in proposed § 190.18(d). 

The Commission received several comments on the proposal. Whereas some 

commenters supported the proposal, in whole or in part, others raised concerns 

particularly with respect to the scope of customer property in proposed § 190.18(b) and 

the treatment of guarantee fund deposits and other payments in proposed § 190.18(c)(1), 

among other issues. 

ICI commented in support of the proposal and agreed with the Commission that 

the proposal is necessary to further the policy in Section 766(h) of the Bankruptcy Code of 

prioritizing the claims of public customers over the claims of non-public customers. ICI 

stated that public customers need the proposed protections because they “typically have no 

direct participation in the DCO’s risk management and no insight into the transactions 

other customers have with the DCO.” ICI also stated that public customers may have less 

access to information concerning the DCO’s financial health, and may have fewer tools 

available to protect themselves against losses, when compared to DCO members.

The ABA Subcommittee commented that the treatment of clearing members’

guaranty fund deposits and similar payments in proposed § 190.18(c)(1) represents a 
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“significant policy change” with “significant competing policy considerations and 

complex issues” that warrant consideration outside of the Proposal. The ABA 

Subcommittee contended, for example, that such payments “may be exposed to risk in 

asset classes in which [the clearing member] does not trade, and which the clearing 

member does not expect to assume based on the DCO’s rules.” Without taking a formal 

position on the proposal, the ABA Subcommittee identified issues that it believed warrant 

further attention by the Commission and market participants, including whether the 

language in paragraph (c)(1): (a) should be implemented “through a Part 190 rule that 

would have the effect of overruling inconsistent DCO rules,” or through an amendment to 

part 39 to require DCOs “to have loss allocation rules that align with [the] policy change”; 

(b) would place U.S. DCOs ”at a competitive disadvantage to non-U.S. DCOs”; (c) would 

“discourage firms from becoming or remaining direct clearing members of a DCO for the 

purpose of clearing trades solely for their own account or for non-public customers”; 

and/or (d) would “create a risk that U.S. banking regulators will want to revisit the 

methodology for determining the amount of regulatory capital that bank and bankaffiliated clearing members must hold with respect to cleared derivatives.” The ABA 

Subcommittee therefore recommended that the Commission maintain the status quo by 

revising proposed § 190.18(c)(1) “to confirm that customer property described in Rule 

190.09(b)(1) will be allocated to member property after such property is applied to cover 

losses in accordance with the DCO’s rules . . . [until] the Commission separately considers 

the merits of the [proposed] policy change.”

SIFMA AMG / MFA requested that the Commission amend proposed 

§ 190.18(b)(1) to provide explicitly “that customer property includes property a debtor 
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DCO contributes to its default waterfall,” as seemingly was intended by proposed 

§ 190.18(b)(1)(ii)(E). 

Consistent with its comments on proposed § 190.17(b), FIA commented that 

customer property should not include guaranty fund deposits as set forth in proposed 

§ 190.18(b)(1)(iii) and recommended that the Commission remove that provision. FIA 

stated that a “default fund represents a multilateral indemnification arrangement between 

the DCO and its members pursuant to which members’ contributions are used to cover the 

DCO’s losses resulting from member default(s) and thereby prevent the DCO’s 

bankruptcy.” FIA contended that a DCO has no authority under its rules, and a trustee has 

no authority under the Bankruptcy Code, “to request or to apply these funds for any other 

purpose.”

CME commented in support of the decision to set forth the elements that comprise 

customer property in proposed § 190.18(b)(1). CME specifically agreed that the scope of 

customer property should include any guaranty fund deposit, assessment or similar deposit 

made by a clearing member or recovered by the trustee, to the extent any remains 

following administration of the debtor’s default rules and procedures, and any other 

property of a member available under the debtor’s default rules and procedures to satisfy 

claims made by or on behalf of pubic customers of a member. For clarity and 

transparency, CME encouraged the Commission to expand the scope of customer property 

to explicitly include the amounts that the DCO commits to the financial resources in the 

waterfall under its rules, to the extent that those resources have not already been applied 

under the DCO’s default rules. CME stated, however, that the Commission should 

eliminate the requirement set forth in proposed § 190.18(c)(1) that the payments described 
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in proposed § 190.18(b)(1) be allocated to customer property other than member property 

for use “to cover a shortfall in the funded balances for clearing members’ customer 

accounts in any account class” and, instead, “reaffirm that guaranty fund deposits are to be 

applied to cover losses in accordance with the DCO’s rules, with any remaining funds 

allocated to member property.” In support of its view, CME stated that such requirement 

set forth in proposed § 190.18(c)(1): (1) would materially change “the definition of 

member property in current Regulation 190.10, under which any guaranty funds remaining 

after payments in accordance with the DCO’s rules would be returned to clearing 

members as member property”; (2) “may significantly alter how clearing members assess 

the risks they have assumed in joining CME,” by undermining CME’s “rules limiting use 

of clearing members’ guaranty fund deposits to cover losses in the relevant product class 

to which they have contributed to the guaranty fund and in which they participate”; and 

(3) would “compromise CME’s ability under Regulation 39.27 to ‘operate pursuant to a 

well-founded, transparent, and enforceable legal framework that addresses each aspect’ of 

CME’s obligations as a DCO, including netting arrangements and ‘other significant 

aspects’ of CME’s ‘operations, risk management procedures, and related requirements’ as 

a DCO.”193 CME also asserted that: (a) proposed § 190.18(c)(1) “is vulnerable to legal 

challenge as exceeding the Commission’s authority” in Section 20 of the CEA, because 

such authority is not being exercised consistent with the Bankruptcy Code and other 

provisions of the CEA;194 (b) the Commission does not have the authority under the CEA 

 193 Emphases in original.

194 CME commented that the proposal would be contrary to the Bankruptcy Code’s definition of “member 

property” as “customer property received, acquired, or held by or for the account of a debtor that is a 
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“to adopt rules that have the effect of directly rewriting a DCO’s rules,” and that doing so 

would be contrary to the reasonable discretion afforded to DCOs under section 5b of the 

CEA to comply with DCO core principles and Commission regulations; (c) the 

Commission may not alter or supplement the rules of a registered entity until it satisfies 

the requirement under section 8a(7) of the CEA to request that the registered entity amend 

its rules and provide the registered entity with notice and an opportunity for a hearing if it 

does not do so; (d) amending the contract between and among clearing members and the 

DCO through a Commission regulation “would call into question . . . the enforceability of 

the DCO’s rules”; and (e) “a proposed rule impacting the manner in which bank or bankaffiliated clearing members’ guaranty fund deposits and assessment obligations can be 

utilized may drive subsequent changes to the methodology and resulting amount of capital 

such members must hold for those exposures under the Cleared Transactions Framework 

in the Regulatory Capital Rules.”

ICE agreed with the Commission’s approach not to propose “that property in an 

insolvent DCO’s general estate can be treated as customer property where customer 

property is otherwise insufficient to pay customer claims.” ICE suggested that the 

Commission clarify “that any ability to use residual assets should be only to the extent

such assets are not required to be used for any other purpose under other applicable law 

(e.g.[,] for other classes of customers or for other products).” ICE suggested that “[t]he 

definition of customer property should also respect any express limitations on recourse 

that have been implemented under DCO rules.” ICE did not believe that the distributional 

 clearing organization, from or for the proprietary account of a customer that is a clearing member of the 

debtor.”
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preference for public customers over clearing members and any non-public customers of 

clearing members, as established by proposed § 190.18, is appropriate in the context of a 

DCO failure, because it could “impose losses, or greater losses, on non-defaulting clearing 

members in a manner that overrides the negotiated and approved frameworks in the 

DCO’s rules.” ICE asserted that this “change could require fundamental restructuring of 

DCO operations,” and should be “part of a separate rulemaking that addresses the 

interaction [of the proposal] with the Part 39 requirements.” ICE also noted that the 

liability caps that limit the overall amount of a clearing member’s contributions and 

assessments—and the manner in which they may be used for a particular default—are 

important for the clearing members’ risk management and are often necessary under such 

clearing members’ capital requirements. ICE stated that requiring the use of contributions 

or assessments for purposes other than what is set forth in the DCO’s rules “would render 

such caps and limitations ineffective.” ICE further posited that proposed § 190.18 is 

“unworkable for clearing houses that have separate guaranty funds for separate products, 

or other limited recourse provisions in their rulebooks [that are used] to designate 

particular default resources for particular products, and to ring-fence the liability of 

clearing members from particular products that they may choose not to clear.” ICE also 

raised a concern that proposed § 190.18’s potential subordination of the claims of the selfclearing members of a defaulting DCO to customers of other clearing members could 

serve as a “significant disincentive” to self-clearing, sponsored clearing, or direct clearing. 

ICE commented that proposed § 190.18 “should not be applied to require the use of 

clearing member guarantee fund, margin, or other resources in the context of a non-default 

loss where the rules of the DCO specifically do not contemplate (or expressly forbid) the 
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use of such assets for such purposes.” On that issue, ICE noted that many DCOs have 

sought to address separately the allocation of non-default losses through rules that “may 

allocate certain losses, and not others, to clearing members and/or to the clearing 

organization itself, and/or provide for the sharing of certain losses in certain amounts.”

After considering the comments, the Commission is adopting § 190.18 with 

modifications, specifically with respect to paragraphs (b)(1) and (c)(1).

Multiple commenters suggested that the Commission modify § 190.18(b)(1) to 

make explicit that customer property includes the amounts of its own funds that a debtor 

DCO had committed as part of its loss allocation rules. Given that the DCO’s 

commitment, in DCO rules, of a specified amount of its own funds to loss allocation sets a 

market-wide understanding and expectation that such an amount will be used for such a 

purpose, the Commission agrees that this clarification is warranted. Therefore, the 

Commission is modifying § 190.18(b)(1) by adding a new paragraph (iv), which will 

explicitly include in customer property: “Amounts of its own funds that the debtor had 

committed as part of its loss allocation rules, to the extent that such amounts have not 

already been applied under such rules.”

Multiple commenters addressed proposed § 190.18(c)(1)(i), which assigned 

guarantee funds to customer property other than member property (i.e., to the benefit of 

members’ public customers) if and to the extent that a shortfall existed in the funded 

balance for such customers. The proposal was supported by ICI, but opposed by CME, 

FIA, and ICE, while the ABA Subcommittee also noted potential issues.

The Commission separately considered each of the arguments raised by the 

commenters in opposition to proposed § 190.18(c)(1). In the discussion below, the 
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Commission reviews the arguments raised by the commenters and explains why it is 

modifying the proposal by not adopting proposed § 190.18(c)(1), and renumbering the 

remaining paragraphs of proposed § 190.18(c).

In response to concerns that the Commission lacks the authority to implement this 

provision, the Commission notes that it has the authority under section 20(a)(1) of the 

CEA to determine, “[n]otwithstanding title 11 of the United States Code” (i.e., the 

Bankruptcy Code) both “(1) that certain ... property [including, e.g., guarantee fund 

deposits] [is] to be included in or excluded from ... member property” and “(5) how the 

net equity of a customer is to be determined.” Thus, § 190.18(c)(1) is legally sound

because of the “notwithstanding title 11” clause in section 20 of the CEA.

Moreover, proposed § 190.18(c)(1) would allocate guarantee fund deposits to 

customer property other than member property only where the funded balance is less than 

one hundred percent of net equity claims for members’ public customers in an account 

class, i.e., where the DCO had failed to maintain in segregation sufficient funds to pay 

members’ public customer account balances in full. In other words, in that scenario, the 

debtor DCO would be non-compliant with Commission regulations. This is not a rewriting of the DCO’s rules,195 nor a re-writing of the contract between the DCO and its 

members, nor an undermining of the DCO’s “well-founded, transparent, and enforceable 

legal framework,” but an allocation of shortfall in a bankruptcy case where the DCO is 

non-compliant with Commission regulations. 

The use of guarantee funds in the manner specified in proposed § 190.18(c)(1) 

would not be an “unexpected loss” to non-defaulting clearing members, given that the 

 195 And, thus, does not require the Commission to invoke or follow the procedures of CEA section 8(a)(7).
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regulation would be transparently available to all. To the extent that the consequences of 

the application of the regulation (re-allocation of their default fund contributions to cover 

a shortfall in customer property for members’ public customers) would be unexpected by 

clearing members, and unpredicted by their risk management systems, it is equally the 

case that the public customers of clearing members would be surprised by a shortfall in 

customer property, which their risk management systems would also see as unexpected.196 

Thus, the choice is not simply whether to impose an unexpected loss to clearing members 

or not, but rather a choice of who should bear that unexpected loss, clearing members (as a 

group) or their customers (as a group). To that point, in addition to the statutory authority 

that is provided in the CEA, the Commission agrees with the comment from ICI that 

§ 190.18(c)(1) would further the policy goal—stated in section 766(h) of the Bankruptcy 

Code, but also running throughout the Commission’s approach to part 190—of prioritizing 

the claims of public customers over the claims of non-public customers. 

However, despite the foregoing analysis supporting adoption of § 190.18(c)(1), the 

Commission is concerned about bank regulators’ potential analysis of § 190.08(c)(1). In 

particular, the Commission has considered that bank regulators may conclude that, 

because § 190.08(c)(1) directs the use of DCO default funds for reasons other than 

addressing mutualized member defaults, member contributions to DCO default funds do 

not fit within the definition (in bank capital regulations) of “default fund contribution,” 

see, e.g., 12 C.F.R. 217.2. Specifically, such member contributions may not constitute

 196 Indeed, the risk would be even more unexpected by public customers: Clearing members are entirely 

aware that their default fund contributions are at risk of use to cover a mutualized default. Their customers, 

on the other hand, expect that their customer funds are fully protected by the CEA’s and the Commission’s 

segregation requirements.
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“funds contributed or commitments made by a clearing member to a CCP's mutualized 

loss sharing arrangement,” see, e.g., id. If this were the case, members’ default fund 

contributions would be subject to more onerous capital treatment than they would receive 

if such contributions did fit within the definition of “default fund contributions.”197 That 

more onerous capital treatment would have a direct, negative impact on normal day-to-day 

activities for bank-affiliated clearing members, and not merely in the uncertain future 

event of a DCO bankruptcy. In other words, as discussed further below in section III.D.8, 

while the benefits to public customers of § 190.18(c)(1) in case of bankruptcy would be 

balanced by the costs to clearing members, the present-day costs to (bank-affiliated) 

clearing members of more onerous capital treatment would not be offset by significant 

benefits to public customers. 

The Commission acknowledges that the decision not to adopt proposed 

§ 190.18(c)(1) differs from the Commission’s approach to § 190.17(b)(1). In 

§ 190.17(b)(1), uncalled or unmet assessments would be applied to address default losses, 

with the only difference being the timing of the bankruptcy relative to the timing of the 

calls for, or payment of, the assessments. In short, the Commission concludes in that 

context that the default fund contributions would be treated as such for bank capital 

purposes, and thus would not be subject to more onerous capital treatment. In contrast, 

 197 That treatment could be significantly more onerous: For example, under the FDIC’s regulations, the 

capital requirement for a clearing member’s prefunded default fund contribution to a qualifying CCP can be 

as low as 0.16% of that default fund contribution. See 12 C.F.R. § 324.133(d)(4). By contrast, the capital 

requirement for a clearing member’s prefunded default fund contribution to a non-qualifying CCP is 100% 

of that default fund contribution. See 12. C.F.R. §§ 324.10(a)(1)(iii), (b)(3) (requiring capital of 8% of riskweighted asset amount, 324.133(d)(2) (setting risk-weighted asset amount for default fund contributions to 

non-qualifying CCP at 1,250% of the contribution). (1250% * 8% = 100%). The Federal Reserve and 

Office of the Comptroller of the Currency have similar regulations.

Default fund contributions to DCOs total many billions of dollars. While not all default fund contributions to 

DCOs come from bank-affiliated clearing members, the majority of them do. 
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proposed § 190.18(c)(1) would apply guarantee funds to cases that are distinct from a 

member default. As discussed above, it seems entirely plausible that doing so would take 

such contributions outside of the definition (in bank capital regulations) of “default fund 

contribution,” and thus subject them to more onerous capital treatment. The Commission 

believes that this distinction is significant and forms the basis for the difference in the 

Commission’s respective approaches to § 190.17(b)(1) and proposed § 190.18(c)(1).

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting § 190.18 as proposed, with the following 

modifications, as set forth above: (1) adding new paragraph (b)(1)(iv), as described above; 

and (2) by removing paragraph (c)(1) and renumbering the remaining paragraphs of 

paragraph (c).

9. Regulation 190.19: Support of Daily Settlement

The Commission is adopting § 190.19 as proposed, with a modification to 

paragraph (b)(1), as discussed below.

As the Commission noted in proposing § 39.14(b), “[t]he daily settlement of 

financial obligations arising from the addition of new positions and price changes with 

respect to all open positions is an essential element of the clearing process at a DCO.”198 

Indeed, Congress confirmed this by requiring that each DCO complete money settlements 

not less frequently than once each business day.199

 198 76 FR 3608, 3708 (Jan. 11, 2011).

199 See Core Principle E(i), 7 U.S.C. 7a-1(c)(2)(E)(i).
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In the ordinary course of business, variation settlement payments are, at a set time 

or times each day,200 sent to the DCO from the customer and proprietary accounts of each 

clearing member with net losses in such accounts (since the last point of computation of 

settlement obligations for that member), and then sent from the DCO to the customer and 

proprietary accounts of each clearing member with net gains in such accounts over that 

time period.

There is no necessary relationship between the aggregate amount of payments to 

the DCO from all clearing member customer accounts with net losses and the aggregate 

amount of payments from the DCO to clearing members’ customer accounts with net

gains. On the other hand, it is the case that, for each business day, the sum of variation 

settlement payments to the clearinghouse from clearing members’ customer and house 

accounts with net losses will equal the sum of variation settlement payments from the

clearinghouse to clearing members’ customer and house accounts with net gains.201 Those 

variation settlement payments will be received into the DCO’s accounts at one or more

settlement banks from the accounts of the clearing members with net losses and 

subsequently be disbursed from the DCO’s accounts at settlement banks to the accounts of 

the clearing members with net gains.202 Depending on the settlement bank and operational

 200 DCOs are required to effect settlement with each clearing member at least once each business day. They 

are additionally required to have the capability to effect a settlement with each clearing member on an 

intraday basis. See § 39.14(b).

201 Thus, while (for each settlement cycle), customer account losses (x) plus house account losses (y) will 

equal customer account gains (p) plus house account gains (q) (that is, x + y = p + q), x would only equal p 

by random chance. 

202 In some cases, the DCO will use one settlement bank, and all settlement funds will flow into and out of 

that bank. In other cases, the DCO may use a system of settlement banks, and the DCO may, after receiving 

payments from members with payment obligations, move funds between and among the settlement banks 

(possibly through a “concentration bank”) to match the settlement funds at each bank to the DCO’s 

settlement obligations to members who are entitled to settlement payments.
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arrangements of the particular DCO, the variation settlement funds will remain in the 

DCO’s accounts between receipt and disbursement for a time period of between several 

minutes and several hours.

The Commission believes that it is crucial to the settlement process that the 

variation settlement payments that flow into the DCO from accounts with net losses are 

available promptly to flow out of the DCO as variation settlement to accounts with net 

gains.

The Commission is adopting § 190.19(a), pursuant to section 20(a)(1) of the 

CEA,203 to provide that, upon and after an order for relief, variation settlement funds shall

be included in the customer property of the DCO, and that they shall be considered 

traceable to—and shall promptly be distributed to—member and customer accounts 

entitled to payment with respect to the same daily settlement.204 This customer property 

would be allocated to (i) member property and (ii) customer property other than member 

property, in proportion to the ratio of total gains in member accounts with net gains, and 

total gains in customer accounts with net gains, respectively.

The Commission is adopting § 190.19(b) to address cases where there is a shortfall 

in funds received pursuant to paragraph (a) (i.e., settlement payments received by the 

DCO), such as in the case of a member default. Paragraph (b)(1) sets forth how such a 

shortfall shall be supplemented, to the extent necessary, and further states that such funds 

 203 7 U.S.C. 24(a)(1) (“Notwithstanding title 11 of the United States Code, the Commission may provide, 

with respect to a commodity broker that is a debtor under chapter 7 of title 11 of the United States Code, by 

rule or regulation . . . that certain cash, securities, other property, or commodity contracts are to be included 

in or excluded from customer property or member property.”).

204 Because deposits of initial margin described in § 39.14(a)(1)(iii) are separate from the variation 

settlement process, they are treated separately in § 190.19(a). Such funds would be member property to the 

extent that they are deposited on behalf of members’ house accounts, and customer property other than 

member property to the extent that they are deposited on behalf of members’ customer accounts.
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shall be allocated in the same proportion as referred to in paragraph (a). Paragraph (b)(1) 

provides that four types of property shall be included as customer property: (i) Initial 

margin held for the account of a member that has defaulted on a daily settlement, 

including initial margin segregated for the customers of such member;205 (ii) Assets of the

debtor to the extent dedicated to such use as part of the debtor’s default rules and 

procedures, or as part of any recovery and wind-down plans described in the paragraph (a) 

(i.e., the debtor DCO’s “skin in the game”); (iii) Prefunded guarantee or default funds 

maintained pursuant to the DCO debtor’s default rules and procedures; and (iv) Payments

made by members pursuant to assessment powers maintained pursuant to the debtor

DCO’s default rules and procedures. Paragraph (b)(2) provides that, to the extent that the 

funds that are included as customer property pursuant to paragraph (a), supplemented as 

described in paragraph (b)(1), such funds would be allocated between (i) member 

property; and (ii) customer property other than member property, in proportion to the ratio 

of total gains in member accounts with net gains, and total gains in customer accounts 

with net gains, respectively.

The Commission requested comment with respect to all aspects of proposed 

§ 190.19.

CME expressed support for proposed § 190.19, commenting that the provisions in 

the proposal “are appropriate to support the daily settlement cycle when the trustee obtains 

the Commission’s approval to continue operating the DCO.” FIA commented that it did 

not support proposed § 190.19(b), stating that the provision’s reliance on a debtor DCO’s 

 205 This is restricted to the extent that such margin may only be used to the extent that such use is permitted 

pursuant to parts 1, 22, and 30 of the Commission’s regulations, which include provisions restricting the use 

of customer margin. 
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recovery and wind-down plans post-bankruptcy would be inappropriate.206 SIFMA AMG 

/ MFA requested that the Commission modify proposed § 190.19(b)(1) to clarify the 

Commission’s presumed intent that “the debtor’s recovery and wind-down plans shall 

only apply with respect to proposed § 190.19(b)(1)(ii)—the debtor’s “skin in the game”

[(i.e., its own capital contributions)]—and not with respect to the other” categories of 

customer property that are enumerated in § 190.19(b)(1). The Commission agrees that its 

intent should be clarified to reflect the comment from SIFMA AMG / MFA,207 and is 

modifying the language of § 190.19 to reflect that clarification. 

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting § 190.19 as proposed, with a modification to clarify 

that the reference to the debtor’s recovery and wind-down plans in paragraph (b)(1) 

applies only to paragraph (b)(1)(ii), as set forth above.

D. Appendix A Forms

The Commission is deleting forms 1 through 3 contained in appendix A and is 

replacing form 4 with a streamlined proof of claim form. Current forms 1 through 3 

contain outdated provisions that require unnecessary information to be collected. The 

 206 FIA’s concerns with the language in § 190.19(b) are the same as its concerns with §§ 190.15(b) and (c), 

discussed in greater detail above. See supra section II.C.5. However, for the reasons noted in section II.C.5, 

the Commission believes that providing a “menu of options” among which a trustee may select (and adapt) 

in a manner that is “reasonable and practicable” would provide the trustee with a helpful roadmap to 

determine strategy and tactics, given that the trustee will likely face a complex and difficult situation with 

little preparation.

207 As SIFMA AMG / MFA correctly suggested, the Commission intends for the debtor DCO’s recovery and 

wind-down plans to apply to the property described in paragraph 190.19(b)(1)(ii), and not to the property 

described in paragraphs (b)(1)(i), (iii) or (iv), in the manner and to the extent described in paragraph (b)(1). 

As noted in the preamble to the proposal, and as found in the regulation itself, § 190.19(b)(1)(ii) contains an 

explicit reference to “recovery and wind-down plans,” whereas §§ 190.19(b)(1)(i), (iii) and (iv) do not 

contain such references.
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Commission believes these changes will provide a trustee with flexibility to act based on 

the specific circumstances of the case, while still acting consistently with the rules. 

As noted in § 190.03(f), the trustee will be permitted, but not required, to use the 

revised template proof of claim form included as new appendix A. That template is 

intended to implement § 190.03(e), and includes cross-references to the detailed 

paragraphs of that section. Similarly, the instructions for this template form that are 

included in appendix A are also designed to aid customers in providing information and 

documentation to the trustee that will enable the trustee to decide whether, and in what 

amount, to allow each customer’s claim consistent with part 190.

The Commission received one comment with respect to Appendix A, from CME, 

which opined that “the proposed template proof of claim form included as Appendix A[ is 

a] major improvement[] over the current ... proof of claim template. CME also 

support[ed] giving the trustee the flexibility to tailor the proof of claim form to request 

information of customers as appropriate under the circumstances.”

Accordingly, after consideration of this comment, and for the reasons stated above, 

Appendix A to part 190 will be adopted as proposed.

E. Appendix B Forms

Appendix B to part 190 contains special bankruptcy distribution rules. These rules 

are broken into two frameworks. Framework 1 provides special rules for distributing 

customer funds when the debtor FCM participated in a futures-securities cross-margining 

program that refers to that framework. Framework 2 provides special rules for allocating 

as shortfall in customer funds to customers when the shortfall is incurred with respect to 

funds held in a depository outside the U.S. or in a foreign currency.
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The Commission proposed clarifying changes to framework 1. No comments were 

received with respect to framework 1. Accordingly, and for the reasons stated above, the 

Commission is adopting appendix B, framework 1 as proposed.

The Commission proposed to retain framework 2 with some clarifying changes to 

the opening paragraph, but without proposing any substantive change. It proposed to

retain the current instructions and examples following the first paragraph in appendix B, 

framework 2 entirely unchanged. It requested comment with respect to framework 2. The 

Commission received two comments on framework 2: From the ABA Subcommittee, and 

from a number of individual members of that subcommittee writing on their own behalf.

The ABA Subcommittee expressed the concern that “[f]ramework 2 creates some 

ambiguity on when and how the special distribution framework it prescribes should 

apply.” First, the ABA Subcommittee stated that “framework 2 could be read to apply 

whenever there is a loss resulting from a sovereign action, even if there is sufficient 

customer property to otherwise pay all customer net equity claims in full.” The ABA 

Subcommittee suggested that an additional sentence be added to the opening paragraph of 

framework 2 clarifying that it applies only when there is a loss due to sovereign action and

there is insufficient customer property to pay all customer net equity claims in full. 

Second, the ABA Subcommittee (in conjunction with a clarifying comment from the 

Subcommittee Members) noted that framework 2 uses the term “reduction in claims” in a 

potentially confusing manner – framework 2 is intended to reduce distributions allocated 

to those customers who are allocated losses due to sovereign risk; those customers claims 

are not reduced. If the sovereign action is later reversed or modified, those customers 

whose distributions were reduced will receive increased distributions on their claims.
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Third, the existing instructions to framework 2 “establish the ‘Final Net Equity 

Determination Date’ as the date for both converting customer claims to U.S. dollars and 

determining the amount of the Sovereign Loss.” However, in prior bankruptcies of 

FCM/commodity brokers, “claims stated in foreign currencies were either valued on the 

date of transfer (where porting was available), or converted to U.S. dollars as of either as 

of the petition date or the date on which the foreign currency reflected in the customer’s 

account was liquidated (and thus the customer bore the risk of interim currency 

fluctuations).” Furthermore, “a sovereign action could take place at any time after the 

petition date, and the trustee is required to make funded balance calculations throughout 

the course of the bankruptcy case for purposes of porting and/or making interim 

distributions.”

The Commission finds the comments on framework 2 of the ABA Subcommittee, 

as clarified by the comment of the Subcommittee Members, persuasive. First, framework 

2 is indeed only intended to address cases where there is insufficient customer property to 

pay all customer net equity claims in the relevant account class in full (if there is no 

shortfall, then there is no need to allocate losses), and that point should be made clear. 

Second, it is correct that framework 2 is intended to reduce distributions, it is not intended 

to reduce claims, and it is indeed appropriate to change the language used in framework 2 

to clarify this fact.208 Third, the relevant date is the date of the calculation, not the “Final 

Net Equity Determination Date,” and this should be clarified as well.

 208 The fact that sovereign action reduces distributions rather than claims means that, if the sovereign action 

is later reversed or modified (e.g., by appeal in the foreign courts, or due to recovery of assets in the foreign 

insolvency proceeding) resulting in reduced losses due to sovereign action in a particular jurisdiction, those 

customers whose distributions have been reduced due to sovereign action in that jurisdiction will receive 

increased distributions on their claims (with those distributions adjusted to reflect the revised amount of 
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Accordingly, the Commission is: 

(1) modifying the first paragraph of framework 2 to include the statement that: “If a 

futures commission merchant enters into bankruptcy and maintains futures 

customer funds or Cleared Swaps Customer Collateral in a depository outside the 

U.S. or in a depository located in the U.S. in a currency other than U.S. dollars, 

and a sovereign action of a foreign government or court has occurred that 

contributes to shortfalls in the amounts of futures customer funds or Cleared 

Swaps Customer Collateral, the trustee shall use the following allocation 

procedures” (emphasis added solely for illustration).

(2) Amending the instructions and examples within the whole of framework 2 to 

replace references to “reduction in claims” with references to “reduction in 

distributions,” and with conforming changes to other text.

(3) Deleting the phrase “Final Net Equity Determination Date” from current section 

II.B.2.b of framework 2, and replacing it with the phrase “date of the calculation.” 

Accordingly, after consideration of the comments, and for the reasons stated 

above, the Commission is adopting Appendix B, framework 2 as proposed, with the 

modifications described above.

F. Technical Corrections to Other Parts

1. Part 1

The Commission is making as proposed several technical corrections and updates 

to part 1 in order to update cross-references. These are as follows:

 losses due to sovereign action). Thus, in this case, the claims remain constant, while the distributions 

increase. 
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• In § 1.25(a)(2)(ii)(B) the Commission will revise the cross-reference to 

specifically identifiable property, since the definition will be updated in 

§ 190.01. 

• In §§ 1.55(d), (d)(1) and (d)(2), references to current § 190.06 will be 

removed consistent with the revisions to new § 1.41 (which was proposed 

as § 190.10(b) and renumbered).

• In §§ 1.55(f), 1.65(a)(3) and 1.65(a)(3)(iii) the Commission will update

references to the customer acknowledgment in § 1.55(p) (which was 

proposed as § 190.10(e) and renumbered).

2. Part 4

In part 4, the Commission is making as proposed minor technical corrections: In 

§§ 4.5(c)(2)(iii)(A), 4.12(b)(1)(i)(C) and 4.13(a)(3)(ii)(A) the Commission will change the 

cross-references to the defined term for “in-the-money-amount.”

3. Part 41

In part 41, the Commission is making as proposed one technical correction. In 

§ 41.41(d), the Commission will delete the cross-reference to the recordkeeping 

obligations in current § 190.06, pursuant to the revisions to § 1.41 (which was proposed as 

§ 190.10(b) and renumbered).

No comments were received with any of these technical corrections and 

accordingly, for the reasons stated above, they are being adopted as proposed.

G. Additional Comments

In addition to the comments discussed above, the Commission received several 

general comments that addressed matters outside the scope of the Proposal. The 
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Commission appreciates the additional feedback. Because these comments do not address 

proposed changes and are therefore outside the scope of this rulemaking, the Commission 

may take the comments under advisement for future rulemakings.

ISDA encouraged the Commission to continue working on DCO recovery and 

resolution issues alongside the Federal Deposit Insurance Corporation (FDIC) in the 

United States, and with global standard setters such as CPMI-IOSCO and the Financial 

Stability Board and other CCP supervisors and resolution authorities internationally. The 

Commission notes that staff are actively doing each of those things.

ISDA also noted that it would be advisable to engage in workshops with both 

market participants (including DCOs, FCMs and other clearing members and customers) 

and the FDIC prior to finalizing the Proposal to develop examples that illustrate both how 

net equity claims would be calculated in a hypothetical DCO insolvency under various 

loss scenarios and how the claims of creditors and equity would be treated in a resolution 

of the DCO under Title II of the Dodd-Frank Act. ISDA observed that the Proposal’s 

treatment of a DCO’s insolvency contains significant subtleties and nuances that could 

have implications for the counterfactual in a DCO resolution. ISDA suggested that further 

engagement could help ensure that these subtleties and nuances would not result in any 

unintended consequences, and that they are broadly understood by all entities that could 

be impacted by a DCO’s insolvency or resolution. 

While the Commission is finalizing the Proposal, it agrees that workshops and 

similar interactions between staff and other agencies, as well as with industry participants, 

are an excellent way to expose subtleties and nuances, build common understanding, and 

enhance planning.
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CME and CMC commented on various issues relating to delivery, and requested 

that “the Commission consider, in a separate rulemaking, the merits of imposing custody 

requirements or other customer protection requirements with respect to delivery accounts, 

along with the possibility of further subdividing delivery accounts and delivery account 

classes by underlying asset class or delivery mechanism, e.g., electronic transfer versus 

physical load-out.”209 CME recommended that the separate rulemaking consider 

requirements such as whether FCMs should hold such property in custody accounts or 

limitations on how long cash or cash equivalents should be held in delivery accounts that 

are not subject to custody requirements.210 CME believed that any such rules would fit 

best in the Commission’s part 1 regulations and not in part 190 as parties with delivery 

obligations may not necessarily be aware of requirements in the bankruptcy regulations. 

CME recommended that the part 190 provisions relating to the delivery account class 

should be consistent with any such rules the Commission may ultimately adopt. Thus, 

CME believed that the Commission may have to revisit the delivery account class 

definition, and any appropriate subdivisions within the account class, along with the 

definitions of cash delivery property and physical delivery property definitions, based on 

the outcome of such a rulemaking. 

As noted above, the Commission recognizes the importance of addressing 

deliveries and delivery accounts, in order to protect customer funds in delivery accounts,

to avoid disruptions to cash markets for delivered commodities, and to avoid adverse 

 209 See CMC, CME.

210 See CME. CME believed that the Commission has authority to adopt such a rule pursuant to its antifraud authority under CEA section 4b and its plenary authority to regulate commodity options under CEA 

section 4c(b).
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consequences to parties that may be relying on delivery taking place in connection with 

their business operations. The Commission notes that there potentially would be benefits 

to requiring segregation for delivery accounts, but there would be corresponding costs as 

well. The Commission expects to continue its consideration of such delivery and delivery 

account issues in the future.

SIMFA AMG / MFA understood the Commission’s decision, due to limited 

resources, not to amend certain key definitions and concepts outside part 190, as proposed 

by the ABA Subcommittee in its model set of part 190 rules, within this rulemaking.

These amendments include, e.g., the definitions of foreign option and variation margin, as 

well as regulations concerning non-swap and non-futures over-the-counter transactions 

cleared by a DCO and concerning leverage transaction merchants. However, SIFMA 

AMG / MFA recommended that the Commission make these amendments as soon as 

possible, given the beneficial impact such changes will have on the administration of an 

FCM or DCO insolvency. The Commission may consider these proposed changes in the 

future.

ICI and Vanguard encouraged the Commission to work with other regulators to 

minimize existing barriers to porting, particularly for FCMs dually registered as brokerdealers, FCMs within consolidated groups that are subject to certain due diligence 

requirements, and FCMs that are subject to the FDIC’s Orderly Liquidation Authority 

proceedings. The commenters encouraged the Commission to work with regulators to 

permit similar six-month grace periods and remove the requirement to port “all or none” 

of the positions instead of allowing partial transfers of customer positions, including those 

of separately managed accounts. 
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ICI also recommended that the Commission engage with SIPC or the relevant 

bankruptcy court to ensure that any selected trustee has the experience and knowledge to 

act in accordance with the duties contained in part 190 and Subchapter IV of the 

Bankruptcy Code. 

Commission staff have and will continue to work with staff of other regulators to 

minimize barriers to porting, and have worked and will, if and when necessary in future, 

work with SIPC and the office of the U.S. Trustee, to promote the appointment of the most 

knowledgeable trustees available in the context of SIPA or Chapter 7 proceedings, 

respectively, involving a commodity broker.

ICI recommended that the Commission continue its portfolio margining 

harmonization efforts with the SEC to further facilitate portfolio margining, including 

with respect to security-based swaps and swaps. The Commission notes that the two 

Commissions are actively engaging in such efforts, and, on October 22, 2020, held a joint

meeting during which they jointly approved a “Request for Comment: Portfolio Margining 

of Uncleared Swaps and Non-Cleared Security-Based Swaps.”211

ICI and Vanguard recommended that the Commission extend the “legally 

segregated operationally commingled” (“LSOC”) model applied to cleared swaps 

contracts (and associated collateral) within part 22 to also apply to futures, foreign futures, 

and options thereon (and associated collateral) to limit non-defaulting customer exposure 

to defaulting customers. 

ICI also requested that the Commission or Commission staff provide guidance, 

such as an interpretive letter, that interprets part 22 to require that OTC transactions 

 211 85 Fed. Reg. 70536 (November 5, 2020).
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cleared by DCOs and carried in a cleared swaps account be treated as cleared swaps 

subject to part 22.212

ICI and Vanguard recommended that the Commission prohibit non-defaulting 

customer gains haircutting, or any other margin haircutting, and if such gains haircutting is 

allowed at all, it should be limited in scope and duration, overseen by the DCO’s 

resolution authority and/or the systemic risk authority, and the customer must receive full 

compensation in the form of a credit or equity claim against the DCO, superior to that of 

other creditors. 

ICI and Vanguard also requested that the Commission require DCOs to increase 

their “skin-in-the-game” as a foundational incentive for the DCO to set appropriate margin 

levels and avoid clearing illiquid or highly volatile products. Vanguard also 

recommended that a DCO’s capital should be required to backstop clearing risk, should 

the assets available for DCO recovery prove inadequate. 

FIA requested that the Commission confirm that amendments to part 190, 

including to Appendix B, framework 2, would not prohibit the Commission from 

amending § 1.49 at a later date to expand the definition of “money center currency.”

 212 Such an interpretation may be superfluous. Previously, the Commission issued an “Interpretative 

Statement Regarding Funds Related to Cleared-Only Contracts Determined To Be Included in a Customer’s 

Net Equity.” 73 FR 57235 (October 2, 2008). At the time, prior to Dodd-Frank, there were questions as to 

whether cleared-only transactions were commodity contracts. The Commission noted that, in cases where

such contracts are held in a futures account at an FCM and margined as a portfolio with exchange-traded 

futures, assets margining that portfolio are likely to be includable within “net equity” even if such contracts 

were found not to be commodity contracts: Where the assets in an entity’s account collateralize a portfolio 

containing both commodity contracts and other contracts, the entirety of those serves as performance bond 

for each type of contracts. See id. at 57236. See also 17 CFR § 22.1 (defining “Cleared Swaps Customer 

Collateral,” in relevant part, as all property that “[i]s intended to or does margin, guarantee, or secure a 

Cleared Swap . . . .”).
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The Commission confirms that the amendments to part 190 that are being made 

herein will not prohibit the Commission from amending any other regulation, including 

§ 1.49, in the future. If future amendments to other parts of the Commission’s regulations 

lead to a situation where it would be advisable to make conforming changes to part 190, 

the Commission will consider such conforming changes along with those amendments.

H. Supplemental Proposal

In the Supplemental Proposal, the Commission noted a problem to be solved: 

There is a possibility that a SIDCO could file for bankruptcy before the process for 

placing that SIDCO into Title II resolution is complete. Due to closeout netting rules 

adopted by many DCOs, including the SIDCOs, that filing could have the consequence of 

terminating all of the SIDCO’s cleared contracts. Terminating those contracts could 

undermine the success of any subsequent Title II resolution.

The Supplemental Proposal suggested one approach to solve the problem, and 

requested comment, inter alia, on better ways to do so. In light of concerns raised in the 

comments received in response to the Supplemental Proposal, and for reasons discussed 

below, the Commission has determined not to finalize the alternative that was proposed in 

the Supplemental Proposal.

The process for placing a financial company into Title II Resolution is deliberate 

and intricate.213 By contrast, a voluntary petition in bankruptcy commences the case, 

 213 In the case of a SIDCO, this would include a written recommendation by each of the FDIC and the 

Federal Reserve covering eight statutory factors. Following that recommendation, the Secretary of the 

Treasury would then need to make a determination, in consultation with the President, that each of seven 

statutory factors is met. (The FDIC, Federal Reserve, and Secretary of the Treasury are often referred to as 

the “key turners” for Title II resolution). Following such a determination, the board of directors of the 

financial company may acquiesce or consent to the appointment of the FDIC as receiver, or there may be a 

period of judicial review which may extend to 24 hours.
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which in turn constitutes an order for relief. Accordingly, there exists a possibility that, in 

the highly unlikely event that a SIDCO would consider bankruptcy, the SIDCO could file 

for bankruptcy before a process to place that SIDCO into a Title II Resolution would have 

completed. While the appointment of the FDIC as receiver under Title II would 

automatically result in the dismissal of the prior bankruptcy, if the bankruptcy filing were 

to necessarily result in the termination of the SIDCO’s derivatives contracts with its 

members, that would undermine the potential success of any subsequent Title II 

Resolution.

To address the problem, the Commission proposed, in the Supplemental Proposal, 

to adopt a provision that would stay the termination of SIDCO contracts for a brief time 

after bankruptcy in order to provide advance notice to the Commission (and, thus, to 

enable the Commission to notify the key turners) of the point at which the SIDCO’s 

contracts could be terminated, in order to foster the success of a Title II resolution by 

avoiding that termination, if the FDIC is appointed receiver in such a Resolution within 

that time. During this stay, variation margin would neither be collected nor paid. Due to 

concerns raised by commenters to the original Proposal regarding the effect of any 

restriction on termination of DCO contracts on treatment, under the capital regulations of 

Prudential Regulators of the banks that many clearing members are affiliated with, of 

SIDCO rules, the proposal provided that this provision would become effective only if the 

Commission were to find that the Prudential Regulators (i.e., the Federal Reserve, the 
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FDIC, and the Office of the Comptroller of the Currency) have taken steps to make such a 

stay consistent with SIDCO rules retaining status as QMNAs.

214

The Commission requested comment on all aspects of the Supplemental Proposal, 

including as to whether the approach proposed “is the best design for such a solution.”

The Commission received five comments on the Supplemental Proposal, each of 

which was from an entity that commented on the Proposal.215

Many of the commenters argued that the proposed stay is unnecessary, because the 

Commission would inevitably have received notice of the impending bankruptcy. For 

instance, ICI (2) commented that:

Although it may indeed take some time for the relevant agencies to “turn the three 

keys,” a DCO’s recovery tools should give the agencies more than enough time. 

DCOs have clearing fund provisions, operational default provisions, and a variety 

of other risk management tools at their disposal. In practice, these tools may not 

be completely effective to preclude an insolvency. However, it seems 

extraordinarily unlikely that they would be so ineffective as to fail to give the 

FDIC, Federal Reserve Board, and Secretary of the Treasury enough time to 

decide whether to trigger OLA proceedings.

Similarly, SIFMA AMG / MFA (2) stated that “the possibility of a surprise 

bankruptcy filing [is] implausible given the regulatory oversight framework.” 

FIA (2) agreed, stating that:

 214 Any stay (in bankruptcy) on the termination of the SIDCO’s derivatives contracts would—under the 

regulations of the Prudential Regulators of the banks and bank holding companies that SIDCO clearing 

members may be affiliated with or part of—be inconsistent with the status of a DCO’s rules as a qualifying 

master netting agreement (“QMNA”). Qualification of DCO rules as a QMNA is necessary in order for the 

banks and bank holding companies that clearing members are affiliated with or part of to net the exposures 

of their contracts cleared with the DCO in calculating bank capital requirements. If they cannot net such 

exposures, there would be significantly increased bank capital requirements associated with such contracts. 

Such an increase in bank capital requirements would disrupt both proprietary and customer clearing. See 

generally Supplemental Proposal, 85 FR 60110, 60112 (Sept. 24, 2020).

215 Comments on the Supplemental Proposal were submitted by: CME Group Inc. (“CME (2)”); Futures 

Industry Association (“FIA (2)”); Intercontinental Exchange Inc. (“ICE (2)”); Investment Company Institute 

(“ICI (2)”), and Securities Industry and Financial Markets Asset Management Group and Managed Funds 

Association (“SIFMA AMG / MFA (2)”).
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A determination with regard to invoking Title II will almost certainly be made 

before a SIDCO is subject to an order for relief. . . . [W]e fully anticipate that the 

Commission, the FRB, the FDIC, and the Department of the Treasury will be 

making an assessment regarding the necessity and feasibility of recommending 

that the President invoke Title II and taking appropriate action before the SIDCO 

concludes that it must file a petition for bankruptcy.

CME (2) argued that:

under the CEA oversight framework, including a SIDCO’s reporting obligations, 

surely it is reasonable to expect that the Commission, FDIC, FRB and Treasury 

will be well aware of any circumstances that could portend a SIDCO’s failure, 

whatever the cause, and will be closely monitoring the situation. If the relevant 

parties are contemplating placing the SIDCO into a Title II resolution proceeding, 

and doing so is feasible, it is hard to imagine that a SIDCO could file a voluntary 

petition for relief under subchapter IV of Chapter 7 of the Bankruptcy Code 

without their prior knowledge.

* * *

In the highly unlike event a SIDCO were to face a decision whether to file for 

bankruptcy, it would be one of last resort, taken only after careful deliberation. 

The decision to file a voluntary petition for relief is certainly not one that CME, or 

any DCO, would take lightly.

The Commission agrees that, pursuant to the DCO oversight framework, including 

a SIDCO’s reporting obligations under § 39.19, the Commission would promptly be 

notified of a DCO’s financial distress. Upon learning of such distress—whether through 

notification by the DCO or by risk surveillance by Commission staff—the Commission 

and staff would monitor the situation closely, and, in appropriate cases, promptly contact 

and act in coordination with fellow regulators, including the Federal Reserve and FDIC 

(and, as appropriate, the Department of the Treasury). Moreover, DCOs have strong and 

effective “clearing fund provisions, operational default provisions, and other risk 

management tools at their disposal,” as noted in the comment letter from ICI (2). The 

Commission believes it to be “extraordinarily unlikely” that these tools would fail, let 

alone fail before the “key turners” have time to act.
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It is also true that, given prior experience with discussions with DCOs concerning 

defaults of clearing members (none of which resulted in financial distress to the DCOs), 

the Commission fully expects that any DCO that is in financial distress would be in close 

contact with Commission staff. The Commission also appreciates the sentiment expressed 

by CME and quoted above, implying that “it is hard to imagine” that a SIDCO would not 

provide the Commission with prior knowledge of a voluntary bankruptcy filing. Finally, 

the Commission is confident that the decision to file a voluntary petition for relief in 

bankruptcy is “not one that . . . any DCO would take lightly.”

Nevertheless, given the destructive impact that termination of the derivatives 

contracts of a SIDCO would cause, the Commission remains concerned about the effects 

that a bankruptcy filing would have on the ability to resolve the SIDCO pursuant to Title 

II successfully. In this context, it is not enough that such an event is “implausible,” “hard 

to imagine,” or “extraordinarily unlikely.” Knowledge of the SIDCO’s financial distress 

is distinct from knowledge of the timing of a potential bankruptcy filing. While the 

Commission would most likely be aware of the SIDCO’s distress, it is at this point not 

certain that there would be clear communication of the SIDCO’s intention to file for 

bankruptcy sufficiently in advance that the key turners would have time to act.

As noted in the Supplemental Proposal, the destructive impact of a full tear-up of a 

SIDCO’s contracts would be significant. The FSOC has found that a significant 

disruption or failure of either SIDCO could have a major adverse impact on the U.S. 

financial markets, the impact of which would be exacerbated by the limited number of 

clearing alternatives currently available for the products cleared by each SIDCO. A 

failure or disruption of either SIDCO would likely have a significant detrimental effect on 
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the liquidity of the futures and options markets (for CME) or swaps markets (for ICC), 

and on clearing members, which include large financial institutions, and other market 

participants. These significant effects would, in turn, likely threaten the stability of the 

broader U.S. financial system.216 For those reasons, inter alia, the Commission continues 

to be concerned about avoiding a circumstance where the derivatives contracts of a 

SIDCO are irrevocably terminated because the SIDCO files for bankruptcy before a 

process to place that SIDCO into a Title II Resolution.

However, the comments expressed strong concerns about achieving those goals 

through the use of a bankruptcy stay, especially in light of the fact that variation margin 

would neither be collected nor paid during that period. 

The Supplemental Proposal acknowledged that risk levels would increase during 

the stay period. Commenters argued that such increase in risk exposures during the stay 

period would pose unacceptable risks. For example, CME (2) stated that “permitting the 

accumulation of uncovered risk for 48 hours during an extremely volatile time would pose 

a risk to financial stability.” Similarly, SIFMA AMG / MFA (2) warned that the proposed 

part 190 stay, in conjunction with the Title II stay, “would result in extraordinary market 

exposures to market participants during highly volatile market conditions. The nonpayment of margin could also result in a multiple day liquidity problem for market 

participants clearing at the SIDCO.”

The Supplemental Proposal also acknowledged that there is a significant cost to 

the proposed stay, in that “[f]or the duration of the stay period, clearing members and 

clients will be uncertain whether their contracts will continue (as part of a Resolution) or 

 216 See 2012 FSOC Annual Report, Appendix A, at 163, 178.
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be terminated (and thus would need to be replaced). That uncertainty would mean that 

clearing members and clients would be disadvantaged in determining how best to protect 

their positions.” Again, commenters agreed that this cost would ensue, and argued that it 

would be unacceptable. For example, ICI (2) observed that during the stay:

the price of the relevant underlying assets could (and if a SIDCO is insolvent, 

likely would) move dramatically. However, customers would be precluded from 

entering into risk-reducing or replacement transactions to stem potential losses, 

since they will not know whether their contracts will be terminated or reinstated. 

Such a freeze not only threatens to cause public customers significant losses that 

they cannot mitigate; it would also create a liquidity event because customers will 

need to preserve as much liquidity as possible during the pendency of the stay in 

order to meet potential margin calls.

Commenters also raised issues relating to legal uncertainty. For instance, FIA (2) 

acknowledged that section 20 “authorizes the Commission to adopt rules 

‘[n]otwithstanding title 11 of the United States Code’” (i.e., the Bankruptcy Code). 

However, FIA observed that “[w]hether a stay contemplated under the Supplemental 

Proposal would conflict with section 404(a) of FDICIA . . . is unclear.”

In light of the persuasive arguments of the commenters, the Commission concludes 

that a bankruptcy stay is not an appropriate means of achieving the goal of fostering the 

success of a Title II Resolution by avoiding the possibility that the SIDCO could file for 

bankruptcy before a process to place that SIDCO into a Title II Resolution would have 

completed with the result that all of the SIDCO’s contracts were terminated. This would 

be true even if action was taken by the Prudential Regulators to avoid having such a stay 

undermine the QMNA status of SIDCO rules. Thus, while the goal remains important, the 

Commission will not adopt such a stay. 

A number of the comments answered the Commission’s call for a better way of 

achieving that goal. SIFMA AMG / MFA(II) stated that “[a]s an alternative to the 
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proposed stay, the Commission could require, as part of its Part 39 or Part 190 rules, that a 

SIDCO provide a 1 or 2 day notice to the Commission of any bankruptcy petition by a 

SIDCO. We believe this notice requirement would achieve the same goal in a materially 

less detrimental manner.” 

CME (2) suggested the same alternative approach to achieve the same regulatory 

goal, in somewhat more detail. CME (2) urged that the Commission should address the 

problem:

in a more direct manner, consistent with its rulemaking authority. For example, 

the Commission could require a DCO to notify the CFTC in advance of its plan to 

file a voluntary petition for relief under subchapter IV of Chapter 7 of the Code, to 

allow Treasury time to determine whether to appoint the FDIC as receiver before 

the SIDCO files its petition. We note that before a commodity broker may file a 

voluntary petition for relief under subchapter IV, its board of directors must 

approve a resolution authorizing the debtor to take that step.

The Commission agrees that the alternative suggested by the commenters in 

response to the Commission’s request—providing the advance notice sought by the 

Commission, but before a bankruptcy filing rather than thereafter—is one that, as FIA (2) 

observed, “deserves the Commission’s strong consideration.” It appears that it may 

achieve the regulatory goals specified in the Supplemental Proposal while avoiding the 

concerns raised by the commenters: By providing advance notice to the Commission, it 

appears that it may allow the Commission, which will be coordinating with the “keyturners,” to advise those agencies of the imminence of a bankruptcy filing, and to provide 

them with warning at a time that may be sufficient to enable them to act with dispatch to 

complete the process. 

Because the alternative approach would not involve a post-bankruptcy stay, it 

would appear to avoid affecting the QMNA status of SIDCO rules (and, thus, would 
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appear not to require any action by the Prudential Regulators).217 Moreover, because this 

notice would occur in advance of a bankruptcy filing, the suspension of payments and 

collections of variation margin would not occur, and there would appear to be no 

ambiguity concerning the status of the cleared contracts of market participants. By 

avoiding the mechanism of a bankruptcy stay, the Commission would also appear to avoid 

the legal uncertainty issues raised by the commenters with respect to that mechanism. 

Instead, this notice approach would appear to be, as noted by CME, well within the 

Commission’s rulemaking authority.218

However, in light of the concerns raised with the previous approaches to 

addressing this problem, both the one advanced in the Supplemental Proposal as well as 

one advanced in the Proposal, the Commission concludes that, at this point, it should 

engage in further analysis and development before proposing this, or any other, alternative 

approach. Such further analysis and development might better enable the Commission to 

propose, in detail, a solution that is effective, and that mitigates any attendant costs. Thus, 

the Commission will, at present, keep this issue under advisement.

III. Cost-Benefit Considerations

A. Introduction 

Section 15(a) of the CEA requires the Commission to consider the costs and 

benefits of its actions before promulgating a regulation under the CEA or issuing certain 

 217 This also avoids the issue, raised by ICE (2), that action by the Prudential Regulators with respect to 

QMNA status may not be sufficient to address netting issues for non-U.S. clearing members.

218 See, e.g., CEA section 5b(c)(2)(J), 7 U.S.C. 7a-1(c)(2)(J) (reporting core principle); CEA section 3(b), 7 

U.S.C. 5(b) (purpose of the CEA is to ensure the financial integrity of transactions subject to the CEA and 

the avoidance of systemic risk); CEA section 8a(5), 7 U.S.C. 12a(5) (general rule-making authority).
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orders.219 Section 15(a) further specifies that the costs and benefits shall be evaluated in 

light of the following five broad areas of market and public concern: (1) protection of 

market participants and the public; (2) efficiency, competitiveness, and financial integrity 

of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other 

public interest considerations. The Commission considers the costs and benefits resulting 

from its discretionary determinations with respect to the section 15(a) factors (collectively 

referred to herein as “Section 15(a) Factors”) below.

In the Proposal, the Commission endeavored to assess the expected costs and 

benefits of the proposed rulemaking in quantitative terms, including costs related to 

matters addressed in the Paperwork Reduction Act220 (“PRA-related costs”), where 

possible. In situations where the Commission was unable to quantify the costs and 

benefits, the Commission identified and considered the costs and benefits of the applicable 

proposed rules in qualitative terms. The lack of data and information to estimate those 

costs was attributable in part to the nature of the proposed rules. None of the comments 

identified quantifiable costs or benefits.

In a number of cases, commenters suggested alternative approaches or 

modifications to the proposed provisions. The Commission has carefully considered these 

alternatives and modifications and in a number of instances, for reasons discussed in detail 

above, has adopted such alternative approaches or modifications where, in the 

Commission’s judgment, the alternative or modified approach is more appropriate to 

 219 CEA section 15(a), 7 U.S.C. 19(a).

220 44 U.S.C. 3501 et seq.
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accomplish the regulatory objectives. The rationale in these cases was discussed in detail 

above.

1. Baseline

The baselines for the Commission’s consideration of the costs and benefits of this 

rulemaking are: (1) the Commission’s current regulations in part 190, which establish 

bankruptcy rules in the event of an FCM bankruptcy; (2) current appendix A to part 190,

which contains four bankruptcy forms (form 1—Operation of the Debtor’s Estate—

Schedule of Trustee’s Duties; form 2—Request for Instructions Concerning Non-Cash 

property Deposited with (Commodity Broker); form 3—Request for Instructions 

Concerning Transfer of Your Hedging Contracts Held by (Commodity Broker); and form 

4—Proof of Claim); and (3) current appendix B to part 190, which contains two 

frameworks setting forth rules concerning distribution of customer funds or allocation of 

shortfall to customer claims in specific circumstances. 

2. Overarching Concepts

a. Changes to Structure of Industry

The Commission is making several revisions to part 190 in order to reflect the 

changes to the structure of the industry since part 190 was originally published in 1983. In 

particular, FCMs and DCOs now operate in a different world, where matters such as 

market moves, transactions, and movements of funds tend to happen much more quickly, 

in part due to the advances in technology and the global nature of underlying markets. 

These changes include major structural changes in the financial markets, including

regulatory reforms following the 2008 financial crisis and consequent changes to the 

structure of the derivatives markets, changes in the governance of the market utilities, such 
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as DCOs, from non-profit organizations to public companies, and major reforms in the 

banking sector, followed by the creation of large, publicly held financial holding 

companies with different attitudes towards risk.

As a result, several of the changes to part 190 will address these changed 

circumstances. The Commission believes that the revisions in proposed part 190 that 

address the computerized and fast-paced nature of the industry will benefit all parties 

involved in a bankruptcy proceeding, since the rules would reflect how the industry 

actually works today and will avoid unnecessary delay to the administration of a 

bankruptcy proceeding.

b. Trustee Discretion

In several places in revised part 190, the Commission provides additional 

flexibility and discretion to the bankruptcy trustee in taking certain actions.221 This 

principles-based approach is in contrast to the customer notice procedures in current part 

190, which are more prescribed and depend on the type of notice being given.

The Commission has concluded that, in general, affording more discretion to the 

bankruptcy trustee in appropriate circumstances is beneficial, and indeed necessary, where 

matters are unique and fast-paced, as they often are in commodity broker bankruptcy 

proceedings. In many areas, it is unlikely that a prescriptive approach can be designed 

that will reliably be “fit for purpose” in all plausible future circumstances.

Granting the trustee discretion is expected to decrease, though it certainly does not 

eliminate, the number and extent of cases in which the trustee will petition the bankruptcy 

 221 The alternative, to forego providing such flexibility or discretion, would invert the benefits and costs 

discussed below.
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court for formal approval of an action. Each formal approval the trustee is required to 

obtain – i.e., each time the trustee moves for an order from the bankruptcy court 

authorizing the trustee to take a particular action in a particular way – takes significant 

time and involves significant administrative costs – in particular, the time of professionals 

such as attorneys and financial experts to draft legal pleadings and analyses. These 

professionals charge significant hourly fees, and thus their time leads to significant 

administrative costs. As discussed further below, administrative costs can be charged 

against customer property, leading to reduced recoveries by public customers.

Therefore, increased discretion of the trustee will benefit the estate by allowing the 

trustee to make principles-based decisions that are uniquely tailored to the facts and 

circumstances of the particular case, rather than compelling the trustee to follow a 

procrustean framework, or requiring the trustee to request formal approval from the 

bankruptcy court or the Commission before implementing those decisions. This approach 

leads to approaches that are better tailored to the specifics of the circumstances, reductions 

in administrative costs (leaving more funds available for distribution to public customers 

and/or other creditors) and faster distributions of customer property (to the benefit of 

public customers). It is also intended to mitigate the negative externalities arising from 

the distressed circumstances that tend to result in further reduction in the value of 

customer assets.

222

The Commission recognizes, however, that with increased discretion comes a risk 

of trustee mistake or misfeasance; in other words, a trustee making decisions that turn out 

 222 As discussed above, see section II.B.2, while the trustee has discretion as to how they administer the 

affairs of the bankruptcy estate, a DCO of which that FCM is a member retains its rights to act under its 

rules. 
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not to be in the best interests of public customers as a class, or other creditors.223 While 

this is certainly a potential cost in situations where the trustee is given increased discretion 

or flexibility, the Commission believes that this potential cost will be mitigated by (1) the 

high degree of informal (and, where necessary, formal) involvement of Commission staff 

in FCM and DCO bankruptcy matters,224 and (2) the fact that such discretion would not be 

unbounded and would apply only in particular circumstances, as discussed below. 

Moreover, in response to a comment by ICI, and as discussed further below, the 

Commission is adding a clarification in § 190.00 that “[w]here a provision in this part 190 

affords the trustee discretion, that discretion should be exercised in a manner that the 

trustee determines will best achieve the overarching goal of protecting public customers as 

a class by enhancing recoveries for, and mitigating disruptions to, public customers as a 

class.” The Commission is of the view that adding this principles-based provision will 

further clarify the duty of trustees in commodity broker bankruptcy proceedings to act in a 

manner that adds benefits, and reduces costs, to public customers as a class by, 

respectively, enhancing their recoveries and mitigating disruptions to them.

However, channeling the trustee’s discretion towards protecting public customers 

as a class may well work to the detriment of (and thus impose costs upon) individual 

public customers, or classes of public customers, whose interests differ from that of the 

class in general. For example, certain customers may have a particular need for current 

 223 Certain discretionary decisions a trustee may take, for example, the frequency with which the trustee 

provides information. 

224 As a formal matter, the Commission has the right to appear and be heard on any issue in any such case. 

See 11 U.S.C. 762(b). As a practical matter, trustees and their counsel have, in previous commodity broker 

bankruptcies, consulted with Commission staff frequently and on an ongoing basis, particularly in making 

and implementing important decisions.
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and precise information about their account balances and positions.225 It is possible 

(though unlikely) that the trustee might determine that it is inordinately costly to do so for 

a particular time, looking at the interests of public customers as a class. Such a decision 

would not be a mistake or malfeasance, though one would expect the trustee to endeavor 

to avoid the necessity for doing so. 

An additional risk related to increased discretion is the possibility that parties that 

are dissatisfied with the trustee’s exercise of discretion may challenge it in court, 

potentially leading to increased litigation costs. The Commission believes that this risk is 

mitigated by (1) the fact that certain of these decisions would be made in contexts where 

the trustee would be seeking an order of the bankruptcy court approving the trustee’s 

approach (and thus the trustee’s discretion would be subject to judicial review within a 

proceeding in which interested parties already have an opportunity to object) and (2) the 

likelihood that bankruptcy courts would respect the Commission’s rules granting the 

trustee discretion, rendering such litigation less likely to succeed, and quicker to resolve. 

Litigation that is less likely to succeed is less likely to be brought, and litigation that is 

quicker to resolve is likely to cost less. Thus, by granting the trustee discretion, the 

Commission mitigates the cost of such litigation.

Instances where the revisions to proposed part 190 will afford more flexibility or 

discretion to the bankruptcy trustee are discussed in further detail where they appear in 

each provision below. 

 225 See ICI at 22 (failure of trustee to provide account statements or information about funded balances could 

“hinder the ability of a regulated fund to confirm the existence and value of its transactions and associated 

margin.”)
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c. Cost Effectiveness and Promptness versus Precision

In revising part 190, the Commission has endeavored to effect a proper balance 

between cost effectiveness and promptness, on the one hand, and precision, on the other 

hand. Current part 190 favors cost effectiveness and promptness over precision in certain 

respects, particularly with respect to the concept of pro rata treatment. As a result of the 

policy choice made by Congress in section 766(h) of the Bankruptcy Code, part 190 

proceeds from the principle that it is more important to be cost effective and prompt in the 

distribution of customer property (i.e., in terms of being able to treat public customers as 

part of a class) than it is to value each customer’s entitlements on an individual basis. The 

revisions to part 190 take this concept further, recognizing that there are additional 

circumstances where cost effectiveness and promptness in the administration of a 

bankruptcy proceeding should have higher priority than precision. However, in response 

to ICI’s comment, the Commission has clarified that where the trustee is directed to 

exercise “reasonable efforts” to meet a standard, those efforts should only be less than 

“best efforts” to the extent that the trustee determines that such an approach would support 

the goal of protecting public customers by enhancing recoveries for, and mitigating 

disruptions to, public customers as a class.226 Thus, the Commission recognizes that there 

are limits to the extent to which cost effectiveness and promptness will be favored over 

precision as discretion must be exercised in furtherance of the overarching goal of 

protecting the interests of public customers as a class.

The Commission believes that these revisions favoring cost effectiveness and 

promptness over precision further the policy embodied in section 766(h) of the 

 226 See comparison of best efforts to reasonable efforts in section II.A.1 above.
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Bankruptcy Code and benefit parties involved in a bankruptcy proceeding overall, in that 

they will in general lead to: (1) a faster administration of the proceeding; (2) public 

customers receiving their share of the debtor’s customer property more quickly; and (3) a 

decrease in administrative costs. 

There could, however, be corresponding costs to this approach for some public 

customers in that they may lose out on being treated precisely in terms of their individual 

circumstances (and, for example, may receive a smaller distribution of customer property 

than otherwise).

d. Unique Nature of Bankruptcy Events

The Commission recognizes in revised part 190 that there is no one-size-fits-all 

approach to the administration of the bankruptcy of an FCM or a DCO, and that it is 

important that the rules allow the trustee, in conducting that administration, to take into 

account the unique nature of each of these events. The revisions to proposed part 190, 

therefore, address the uniqueness of these bankruptcy events and allow for the bankruptcy 

trustee to tailor their approach in the way that most makes sense given the individual 

circumstances of the case at hand.227 History has shown that FCM bankruptcies play out 

in very different ways, and several of the Commission’s revisions to part 190 address that 

reality. These new provisions reflect the fact that each FCM and DCO bankruptcy 

presents individual circumstances, and that the proof of claim form will likely have to be 

modified to fit the unique facts and circumstances of each case. The Commission believes 

 227 Circumstances that may vary include: the accuracy of the commodity broker’s records at the time of 

bankruptcy; whether the bulk of an FCM’s customer accounts were transferred in the days after the filing 

date (or otherwise migrated in the days before); the number of customer accounts; the existence and extent 

of a shortfall in customer funds; and the complexity of the positions carried by the commodity broker.
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that the revisions of this type will benefit all parties involved in a bankruptcy proceeding 

by better tailoring such a proceeding to the unique needs of the particular case.

However, by providing for a bespoke tailoring of the approach to commodity 

broker bankruptcy, the Commission inherently provides less transparency, and thus less 

certainty, of the particulars of the approach that will be followed. 

e. Administrative Costs are Costs to the Estate, and Often to the Customers

In many instances in this adopting release, the Commission is noting that a certain 

provision will impose or reduce administrative costs, that is, the actual and necessary costs 

of preserving the bankruptcy estate and administering the case. In each of these cases, 

administrative costs will be a cost to the estate of the debtor, since administrative expenses 

that the bankruptcy trustee incurs in administering the estate (including for the time of the 

trustee, accountants, counsel, consultants, etc.) 228 will be passed onto the estate itself. This

means that, in the event of a shortfall, such costs will ultimately be borne by the public 

customers of the debtor, who will receive smaller dividends on their claims as the value of 

the debtor’s estate decreases.229 By a parity of reasoning, reducing such administrative 

costs will reduce the shortfall, and increase recoveries by public customers.

 228 Pursuant to § 503(b)(1) of the Code, administrative costs include the actual, necessary costs and expenses 

of preserving the estate; and pursuant to § 330(a)(1)(A) of the Code, the Court may award “reasonable 

compensation for actual, necessary services rendered by the trustee . . . professional person, or attorney 

. . . .” Factors that are considered in determining “reasonable compensation” include the time spent on the 

services, the rates charged, the customary compensation charged by comparably skilled practitioners, and 

whether the services were necessary to the administration of the case. See generally 11 USC § 330(a)(3). 

229 While such costs may in certain cases be borne instead by general creditors, section 766(h) permits 

customer property to be used to meet “claims of a kind specified in section 507(a)(2)” of the Bankruptcy 

Code (which in turn include claims for the expenses of administering the estate) “that are attributable to the 

administration of customer property.”
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To be sure, the actions taken to achieve these cost efficiencies that enhance the 

value of the estate for public customers as a whole may impose costs on individual public 

customers. 

f. Preference for public customers over non-public customers and for both over 

general creditors.

As noted repeatedly above, and consistent with the requirements of section 766(h) 

of the Bankruptcy Code and longstanding Commission policy, many provisions in part 

190 favor public customers over non-public customers, and both over general creditors,

whenever there is a shortfall in customer property in any account class for public 

customers (or, with reference to general creditors, for non-public customers). 

The preference for public customers benefits them, and provides them with 

incentives to participate in transactions protected by part 190, and to post collateral 

willingly. However, this preference correspondingly disfavors non-public customers. 

Accordingly, it arguably provides them with incentives to participate less in transactions 

protected by part 190 – or, perhaps, to clear through unaffiliated FCMs (and thus, to do so 

as public customers of those FCMs).

Similarly, the preference for both public and non-public customers over general 

creditors may incentivize general creditors to be less willing to extend credit to 

commodity brokers. However, in light of the fact that commodity brokers are highly 

regulated entities subject to stringent capital or resource requirements, this incentive effect 

with respect to general creditors is not likely to be strong.
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B. Subpart A—General Provisions 

1. Regulation 190.00: Statutory Authority, Organization, Core 

Concepts, Scope, and Construction: Consideration of Costs and Benefits

Section 190.00 contains general provisions applicable to all of part 190. These

provisions set forth the concepts that guide the Commission’s bankruptcy regulations. All 

of § 190.00 is new, in that current part 190 does not contain an analogous regulation. 

However, only certain provisions within § 190.00 have cost-benefit implications, since the 

bulk of § 190.00 is designed to explain concepts that are either (1) not different from those 

contained in current part 190, but are simply stated more explicitly in the revised rules, or 

(2) new, in that they are not contained in current part 190, but are concepts that are meant 

to clarify how revised substantive provisions operate. In the latter case, cost and benefit 

considerations are addressed with respect to the substantive provisions.

The Commission requested comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.00. 

There are potential costs associated with § 190.00(c)(4) which promotes the

transfer or porting of the open commodity contract positions of a bankrupt FCM’s public 

customers rather than the liquidation of these positions. For example, OCC commented

that while liquidating customer positions may introduce market risk associated with 

closing out and reopening positions for certain customers, those risks should be weighed 

against the potential drawbacks of porting, especially if an FCM to accept the transfer is 

not immediately identified. Specifically, OCC identified three potential drawbacks with 

the proposed § 190.00(c)(4). First, that it could be difficult for a trustee (or DCO) to 

identify a transferee to accept the open positions and collateral, which depending on the 
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market conditions could be a difficult and time-consuming process. Second, a customer 

could face uncertainty as to how its position and associated collateral will be resolved 

until a transfer is complete and also may be unable to exit a position in a timely and 

efficient manner. Third, a customer might need to post additional collateral at a new FCM 

prior to or immediately after a transfer.

In considering the costs and benefits of the preference for transfer versus 

liquidation, the Commission notes first that, as OCC forthrightly acknowledges, 

liquidating customer positions may introduce market risk associated with closing out and 

reopening positions for certain customers. Additionally, liquidating a mass of customer 

positions may roil the markets, if any, where those positions are concentrated. 

Furthermore, § 190.00(c)(4) establishes a preference for transfer rather than a 

mandate. Thus, if after exerting their best efforts, the trustee finds that the process of 

transfer is indeed too “difficult and time-consuming,” the trustee is not obligated to 

implement a transfer. Moreover, as a practical matter, there are narrow limits to how long 

a trustee will have to endeavor to transfer before being compelled to liquidate positions by 

the DCO at which they are held, or, if applicable, an FCM through which they are held. 

(Either the DCO or the FCM, whichever is applicable, will have the discretion to liquidate 

positions that are being cleared/carried for an FCM that is in bankruptcy). 230 Pursuant to 

§ 190.04(d), if the trustee is not successful in transferring an open contract by the seventh 

calendar day after the order for relief consistent with § 190.04(a), the trustee is directed to 

liquidate such contract promptly and in an orderly manner. Thus, while a customer could 

 230 For example, as noted above in section II.A.1, OCC’s own rules would appear to permit it to liquidate 

such positions.
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face uncertainty as to how its position and associated collateral will be resolved until a 

transfer is complete (or until the customer’s positions are otherwise liquidated), the time

of that uncertainty is both practically and legally limited. Finally, a customer who does 

not wish to post additional collateral at a new FCM would be entitled to have the new 

FCM liquidate their positions, and promptly receive any remaining transferred collateral. 

In this light, the Commission believes that the benefits of continuing the preference for 

transfer remain significant, while the costs of this preference are mitigated.

There are potential benefits arising from reduced uncertainty as a result of 

clarifications provided in several provisions. For example, § 190.00(d)(1)(ii), clearly 

expresses that part 190 applies to a proceeding commenced under SIPA with respect to a 

debtor that is registered as a broker or dealer under the CEA when the debtor also is an 

FCM. Similarly, § 190.00(e) clarifies how transactions and collateral that are portfolio 

margined are treated as an important prerequisite to an effective portfolio margining 

program. Cboe’s comment letter expressed the view that the clarity provided in 

§ 190.00(d)(1)(ii) will be beneficial to the entire ecosystem, including customers of FCMs 

and broker-dealers, as it furthers the ability of market participants to utilize portfolio 

margining and the associated efficiencies. CME also sees benefits to “remov[ing] any 

doubt” that part 190 applies to a SIPA proceeding involving an FCM that is also registered 

with the SEC as a broker-dealer

Similarly, ICI’s comment letter considered that the “home field” rule in 

§ 190.00(e) is highly beneficial. 

With respect to the remaining provisions within proposed §190.00, the 

Commission has not received comment letters that identify costs or benefits explicitly 
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attributed to these provisions, and does not believe that there are material cost-benefit 

implications with respect to them:

• Proposed § 190.00(a), which sets forth the statutory authority pursuant to 

which the Commission is proposing to adopt proposed part 190.

• Proposed § 190.00(b), which describes how the proposed rules are 

organized into three subparts. While the addition of DCO-specific rules in

this proposal is new, the cost-benefit implications of the DCO-specific 

provisions (§§ 190.11 through 190.18) are discussed separately below.

• Paragraph 190.00(c)(2), which provides that part 190 establishes four 

separate account classes, each of which is treated differently under the 

regulations. In the Commission’s view, this provision is a mere 

clarification, as current part 190 also establishes different account classes 

for different types of cleared commodity contracts, and treats each account 

class differently.

• Paragraph 190.00(c)(5), which explains that part 190 applies the concept of 

pro rata distribution when it comes to shortfalls of property in a particular 

account class. This provision is merely explanatory. 

• Paragraph 190.00(d)(1)(i)(A), which provides that the definition of 

“commodity broker” in proposed part 190 covers both “futures commission 

merchants” and “foreign futures commission merchants” because both are 

required to register as FCMs under the CEA and Commission regulations.
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• Paragraph 190.00(d)(2)(i), which states that the bankruptcy trustee may not 

recognize any account class that is not one of the account classes 

enumerated in proposed § 190.01. 

• Paragraph 190.00(d)(3), which sets forth the transactions that are excluded 

from the definition of “commodity contract.” This provision explains and 

carries over concepts that are already embedded in current part 190. 

While the Commission has not received comment letters that identify costs or 

benefits explicitly attributed to the following provisions in § 190.00, it believes that there

will be cost-benefit implications to these provisions:

• Paragraph 190.00(c)(1) states that part 190 is limited to a commodity 

broker that is (1) an FCM as defined by the CEA and Commission 

regulations, or (2) a DCO under the CEA and Commission regulations. 

Current part 190 applies to a broader set of “commodity brokers,” 

including FCMs, clearing organizations, commodity options dealers, and 

leverage transaction merchants. This narrowing of the application of part 

190 (by excluding the empty categories of commodity options dealers and 

leverage transaction merchants) benefits the bankruptcy estate, and the 

customers, by allowing the Commission to promulgate regulations that are 

less complex and better tailored to the narrower, set of commodity brokers 

that are covered by the revised regulations.231 

 231 Moreover, prescribing regulations that are intended to be applicable to entities that, at some unknown 

point in the future, enter these empty categories risks poor tailoring due to lack of data concerning the 

characteristics of those unknown future entrants.
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• Paragraph 190.00(c)(3) explains the distinction between “public 

customers” and “non-public customers,” and the priority that public 

customers (and, after them, non-public customers) enjoy over all other 

claimants with respect to distributions of customer property. Both of these 

concepts exist in current part 190 and are clarified and explained further in 

§ 190.00(c)(3). In its comment, ICI urged the Commission to take steps “to 

help ensure that the trustee prioritizes the protection of [public] customers.” 

In response, Commission has added a provision, § 190.00(c)(3)(i)(C), 

directing the trustee to exercise its discretion (where it has such discretion) 

in a manner that will best achieve the overarching goal of protecting public 

customers by enhancing recoveries for, and mitigating disruptions to, 

public customers as a class.232 This approach has the benefit of guiding the 

trustee’s discretion in a manner consistent with the Commission’s 

regulatory and statutory goals. However, it has the limitation of still 

leaving the trustee with discretion. As noted above in section III.A.2 

above, with discretion comes a risk of trustee mistake or misfeasance. 

• Paragraph 190.00(c)(6) addresses the treatment of commodity contracts 

that require delivery performance. The revised regulations, in allowing the 

trustee more flexibility in how a customer could effect delivery outside of 

the debtor’s estate, will benefit customers by allowing for a more bespoke 

approach to effecting delivery when customers incur delivery obligations 

 232 As noted above in section III.A.2.vi, the preference for public customers over non-public customers 

creates incentives for both groups.
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under their open commodity contracts. There will, however, be costs in 

acting in such a bespoke fashion in contrast to following standards 

established during business as usual. 

• Paragraph § 190.00(d)(1)(i)(B) notes that while there are currently no 

registered leverage transaction merchants or commodity options dealers, 

the Commission intends to adopt rules with respect to leverage transaction 

merchants or commodity options dealers at such time as an entity registers 

as one of those categories of commodity brokers. This forward-looking 

flexibility will generate benefits by fostering bankruptcy rules specifically 

tailored to leverage transaction merchants or commodity options dealers 

when and if an entity registers as such. 

• Paragraph 190.00(d)(1)(iii), provides that part 190 shall serve as guidance 

as to the distribution of customer property and member property in a 

proceeding in which the FDIC is acting as receiver pursuant to Title II of 

Dodd-Frank.233 This provision has the benefits associated with

transparently providing to FDIC during business-as-usual the expertise and 

guidance of the agency with regulatory and supervisory responsibility for 

commodity brokers (i.e., FCMs and DCOs).234

 233 Section 210(m)(1)(B) of title II,12 U.S.C. 5390(m)(1)(B), requires the FDIC, where the covered financial 

company or bridge financial company is a commodity broker, to apply the provisions of subchapter IV as if 

the financial company were a debtor for purposes of such subchapter.

234 DCOs operate nearly 24-hours a day, between Sunday afternoon and Friday evening. Moreover, the risks 

that a DCO is required to manage are based on market movements and events (including in OTC markets) 

that may occur whether or not the DCO is able to operate. Accordingly, Commission staff (in cooperation 

with FDIC staff) have engaged, and will continue to engage, in significant efforts to plan for the unlikely 

event that resolution under Title II would be necessary for a DCO. 
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• Paragraph 190.00(d)(2)(ii) provides that no property that would otherwise 

be included in customer property shall be excluded from customer property 

because it is considered to be held in a constructive, resulting, or other trust 

that is implied in equity. It prevents public customers from evading pro 

rata exposure to shortfalls in customer property by keeping their collateral 

in a trust structure. This provision has the benefit of supporting the 

statutory policy of pro rata distribution for the pool of customers, by 

ensuring that all property that properly belongs in the category of 

“customer property” would be considered such customer property. It 

should mitigate costs in cases where particular customers might structure

their relationships with their FCMs in order to establish such a trust for the 

purpose of thwarting their exposure to pro rata distribution, rather than 

structuring those relationships in ways that otherwise make sense for their 

business. It would also reduce those customers’ incentives to do so, and 

would mitigate the costs of litigation within the bankruptcy proceeding 

over the effectiveness of such structures in achieving that goal. It also 

benefits the remaining customers, since if such litigation were successful, it 

would spread the pro rata shortfall over a smaller volume of customer 

claims.

• However, this approach will impose costs on those customers, if any there 

be, who would otherwise endeavor to rely on the trust concept to shield 

 Thus, there is a public benefit to facilitating FDIC’s efforts in resolution planning for DCOs by setting forth 

clear guidance as to the distribution of customer property and member property in a DCO resolution 

proceeding.
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certain of their property from entering the pool of customer property. Such 

customers might (despite opposition from the Commission and the trustee) 

otherwise be successful in litigation over the effectiveness of such 

arrangements, or may obtain settlements that would benefit their individual 

claims (albeit to the detriment of other customers, and to the policy of pro 

rata distribution). Such customers may view the inability to protect their 

collateral under a trust concept as an incentive to reduce their use of 

transactions subject to part 190.

2. Regulation 190.01: Definitions: Consideration of Costs and 

Benefits

Section 190.01 sets forth definitions as they are used for purposes of part 190. In 

the Commission’s view, only certain of the definitions in proposed § 190.01 will have 

cost-benefit implications, and these are discussed in more detail below, as are any 

definitions concerning which there were comments. The remainder of the definitions set 

forth in revised § 190.01 do not, in the Commission’s view, impose any costs or benefits, 

as the changes to the definitions are minor (in the vein of, for example, updating crossreferences or updating language to reflect the changes in the rest of revised part 190) or 

merely clarify the current definition. 

Where, in the Commission’s view, a definition in revised § 190.01 has cost-benefit 

implications, and/or where comments have identified costs or benefits concerning such a 

definition, those implications are discussed in more detail below:

• “Account class,” “cash delivery property,” and “physical delivery 

property”: The definition of the term “account class” is expanded to 
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include definitions of each type of account class set forth in proposed part 

190: futures account, foreign futures account, cleared swaps account, and 

delivery account. The ABA Subcommittee recommended that the 

Commission clarify that these types of account classes apply to non-public 

customers in addition to public customers. The Commission agrees that it 

is appropriate to clarify this point, and to include a specific definition for 

each type of account class. Doing so will benefit all parties involved in a 

bankruptcy proceeding by ensuring that all have a common understanding 

of how these various types of accounts are defined for purposes of part 190. 

Accordingly, the Commission is adopting the ABA Subcommittee’s 

recommendation.

• The definition of “account class” also removes the category in current part 

190 of “leverage account” because, as noted above, there are currently no 

registered leverage transaction merchants. Rather, the Commission intends 

to adopt rules with respect to leverage transaction merchants (and, 

accordingly, with respect to leverage accounts) at such time as an entity 

registers as such. Removal of the category of “leverage account” from the 

“account class” definition benefits market participants by allowing the 

Commission to promulgate bankruptcy rules specifically tailored to 

leverage transaction merchants (and, accordingly, to leverage accounts) in 

the event an entity registers as such. 

• The definition of “account class” also splits “delivery accounts” into 

separate physical and cash delivery account classes. Because cash delivery 
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property is, in some cases, more difficult to trace to specific customers and 

more vulnerable to loss,235 this separate treatment of physical delivery 

property and cash delivery property should benefit customers with physical 

delivery property by allowing for more prompt distribution of such 

physical delivery property. This separation should also benefit the estate, 

because the trustee will not have to wait to distribute physical delivery 

property to customers while attempting to trace cash delivery property, 

which could result in a more prompt resolution of the bankruptcy as a 

whole. However, there may be costs as a result of complications, since the 

trustee will have to deal with two delivery account subclasses rather than 

one delivery account class. Moreover, in the event of a shortfall, some 

customers could ultimately obtain larger recoveries than they would have if 

the delivery account had not been split into two subclasses, while others 

could obtain smaller recoveries.

The ABA Subcommittee and CME suggested changes to the 

definition of “cash delivery property.” Under the current definition, cash 

falls within the delivery class if, inter alia, it is received on or after three 

calendar days before the first notice date or exercise date. The definition of 

cash delivery property in the Proposal continued that limitation. CME

suggested that the three-day limitation should be removed to address cases 

where 

 235 These reasons for this difficulty and vulnerability are discussed above in section II.B.4 in the explanation 

of the changes to proposed § 190.06(b).
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“a customer will legitimately post cash to its delivery account 

sooner than the definition would allow, for example, out of caution

to assure that the necessary funds are available to pay for a delivery 

when the first notice date or exercise date immediately follows a 

weekend or holiday, or to meet payment deadlines imposed by the 

FCM, or based on market convention.”

The comments acknowledged that the Commission’s policy 

objective is to “encourage FCMs and their delivery customers to hold cash 

intended to pay for delivery in a segregated account until bilateral delivery 

obligations are near at hand” (the segregation obligations that apply to 

futures, foreign futures, and cleared swaps accounts do not apply to 

delivery accounts), but express some doubt that the limitation is effective in 

encouraging the desired behavior, because parties with delivery obligations 

may not be aware of it.

Thus, the benefit of retaining the three-calendar day limitation is 

mitigating the time during which cash delivery property is held in an 

account that is not subject to the protection of segregation requirements, 

and in encouraging business models that take that approach. The cost of 

doing so is the risk that funds may nonetheless be transferred earlier into a 

delivery account, and would then be denied protection as delivery property 

in an FCM bankruptcy.236

As discussed above,237 the Commission has determined to take a 

middle-ground approach by expanding the three-calendar day limitation to 

 236 The Commission also notes CME’s suggestion that it “consider adopting more formal requirements with 

respect to delivery accounts through separate rulemaking.” 

237 See section II.A.2 above.
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a seven-calendar day limitation. This approach has the benefit of 

addressing fully the possibility that delivery property is transferred slightly

early because of, e.g., a holiday weekend (and especially cases where 

FCMs and their customers or contracts span across jurisdictions with 

different holidays). By expanding the period by four days, it should 

address most of the cases where there are legitimate reasons to transfer the 

funds in advance of when they are needed, to account for the possibility of 

a failure in the transfer process.238 Significantly, it avoids the cost of

encouraging the use of the delivery account (that is not subject to 

segregation requirements) as a long-term place to hold cash. 

Commenters also suggested technical additions to the definitions of 

cash delivery property (to address cash provided post-petition to facilitate 

taking deliveries in cases where necessary) to physical delivery property (to 

address the possibility of a negative final settlement price), and (in the case 

of both cash delivery property and physical delivery property) to provide 

that, for contracts exchanging one fiat currency for another, both ends of 

the transaction would be considered cash delivery property. The 

Commission incorporated these suggestions in the definitions as adopted. 

The benefit of these approaches is to deal properly with these scenarios; 

there are no discernable material costs.

 238 The commenters have not identified any legitimate reason for an FCM to impose a payment deadline of 

more than seven days before first notice or exercise date, or any relevant market convention that would 

require earlier payment, which in either case would require that the funds be held in a delivery account. 
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• Pursuant to section 4d of the CEA, certain contracts and associated 

collateral that would be associated with one account class may instead 

(pursuant to Commission regulation239 or order) be commingled with a 

different account class.

240 The purpose of these arrangements, referred to 

as portfolio-margining, is to associate such contracts with an account class 

in which they are risk-reducing related to other contracts in that latter 

account class. 

Paragraph 2 of the definition of account class confirms that these 

portfolio-margining arrangements will be respected in bankruptcy, that is, 

such contracts and associated collateral will be treated as being part of the 

account class into which they are commingled. The benefit of this 

treatment in bankruptcy is to foster and incentivize such risk-reducing (and 

capital-efficient) arrangements during business as usual; there should be no 

associated costs in bankruptcy.

Finally, paragraph 3 of the definition of account class addresses 

cases where a commodity broker’s account for a customer is non-current, 

or otherwise inaccurate. These are situations over which public customers

have, at best, limited control, and thus it is ineffective to endeavor to create 

incentives for public customers to police the behavior of their FCM. 

Paragraph 3 confirms that a commodity broker is considered to maintain an 

 239 See § 39.15(b)(2), which provides a mechanism for these arrangements to be implemented pursuant to 

clearing organization rules.

240 Securities positions may also be commingled in an account class subject to section 4d of the CEA. 

7 U.S.C. 6d.
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account for a customer where it establishes internal books and records for 

the customer’s contracts and collateral and related activity, regardless of 

whether the commodity broker has kept those internal books or records 

current or accurate. The benefit of this treatment will be to treat customers 

in accordance with their entitlements, regardless of whether the commodity 

broker has maintained its books and records current or accurate.

• “Customer,” “Customer class,” “public customer,” and “non-public 

customer:” The definition of the terms “public customer” and “non-public 

customer” is being revised to include separate definitions of those terms for 

FCMs and DCOs. This change reflects the new organization of part 190, 

which includes separate provisions for when the debtor is (1) an FCM 

(subpart B) and (2) a DCO (subpart C). The “public customer” definition 

for FCMs is also being revised to define that term with respect to each of 

the relevant account classes.241

These changes will generate benefits as they bring clarity to the 

question of who qualifies as a “public” versus a “non-public” customer, 

and transparency to the distribution of property to which each customer is 

entitled. Furthermore, this clarity and transparency is likely to reduce the 

administrative costs to the estate, and the costs to claimants, associated 

with the claims allowance process, as well as the likelihood of litigation by 

 241 CME suggested that the Commission should include non-U.S. customers of foreign broker clearing 

members of a DCO within the public customer definition. As discussed above, the Commission has 

determined to consider this suggestion as part of a comprehensive review of the issues, to be conducted at 

such time as the model of admitting foreign brokers as clearing members for U.S. DCOs becomes empirical.
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dissatisfied claimants (and associated costs). These changes could, 

however, impose costs on customers for whom, under current part 190, it 

will not be clear which category they fall into. The pool of customer 

property would be different for public and non-public customers under the 

new policy regime. Thus, a hypothetical customer who could have been 

considered “public” under current part 190 but will be categorized as “nonpublic” under revised part 190 could receive less in the distribution of 

customer property (with other customers receiving more).

• “Futures, futures contract:” The Commission is adding a definition for the 

terms “futures” and “futures contract” to clarify what those terms mean for 

purposes of part 190. This clarification will lower administrative costs by 

providing clarity and transparency to the types of transactions that are 

considered “futures” for purposes of proposed part 190 and therefore form 

part of the futures account or foreign futures account. 

• “House account:” The definition of the term “house account” will be 

revised to include a definition of that term solely for DCOs. This change 

will reflect the new organization of part 190, which is revised to include 

separate provisions for when the debtor is (1) an FCM (subpart B) or (2) a 

DCO (subpart C). CME and the ABA Subcommittee urged that the term 

“house account” be deleted in the few cases where it was proposed to be 

used in subpart B in order to avoid the implication that the accounts of nonpublic customers could not be ported. This change would enhance clarity 

and transparency (and, thus, would reduce administrative costs) by (1) 
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avoiding that incorrect implication, while (2) clarifying what precisely 

constitutes a house account for a DCO bankruptcy proceeding.

• “Primary liquidation date:” The definition of the term “primary liquidation 

date” is being revised to delete references to holding accounts open for 

later transfer. This is consistent with the policy of transferring as many 

open commodity contracts as possible within seven calendar days after 

entry of an order for relief or, if that is not possible, liquidating such 

commodity contracts. 242 This change in policy should benefit some 

customers, who will more quickly have clarity as to how their positions and 

associated collaterals will be resolved.

243 There may, however, be costs to 

customers who might have preferred having their open commodity 

contracts held open for transfer after the primary liquidation date. 244 In the 

event that a larger number of contracts is liquidated rather than transferred, 

there will be costs resulting from additional downward pressure on prices. 

• “Specifically identifiable property:” The Commission is revising the 

definition of the term “specifically identifiable property” to clarify and 

streamline the current definition of that term. The use of definitions that 

are clearer should reduce administrative costs. Of course, increasing clarity 

 242 See § 190.04(a)(1).

243 See discussion of § 190.00(c)(4) in section II.B.1 above for concerns about customers lacking such clarity 

for an extended time.

244 Given that the clearing organization for such contracts may not be willing to permit such contracts to be 

held open for an extended period of time, the existence of such customers is quite hypothetical.
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may be to the detriment of those customers for whom such clarity results in 

assignment to a category that they view as less favorable.

• “Substitute customer property:” The definition of the term “substitute 

customer property” is being added to refer to cash or cash equivalents 

delivered to the trustee by or on behalf of a customer in order to redeem 

specifically identifiable property or a letter of credit. This provision will

benefit customers who, in a bankruptcy event, seek to redeem their 

specifically identifiable property or letters of credit.245 Introducing the 

concept of substitute customer property may impose administrative costs, 

however, because the trustee may have to expend time and resources on 

tracking the substitute customer property and ensuring that such property 

ends up in the proper pool of customer property once received. 

• “Swap:” The Commission is amending the definition of “cleared swap” that 

appears in the current rules in order to clarify what this term means for 

purposes of proposed part 190. This clarification should serve the goals of 

clarity and transparency (and, consequently, reducing administrative costs).

3. Regulation 190.02: General: Consideration of Costs and Benefits

Paragraph 190.02(a)(1) is revised to provide that the bankruptcy trustee may, for 

good cause shown, request from the Commission an exemption from the requirements of 

any procedural provision in proposed part 190. This is in contrast to current 

§ 190.10(b)(1), which provides only that a bankruptcy trustee may request an exemption 

 245 Benefits and costs associated with the use of substitute customer property are addressed further below in 

connection with § 190.04(d)(3) in section III.C.2.
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from, or extension of, any time limit prescribed in current part 190. This expanded 

mechanism for a trustee to request exemptions should benefit the estate and customers by 

allowing the trustee to request an exemption that lowers administrative costs and increases

timeliness. This change, however, may impose administrative costs if the trustee’s request 

is ill-founded and the Commission were nonetheless to grant the request. 

The Commission does not believe that there will be any cost-benefit implications 

to §§ 190.02(a)(2), (a)(3), (b), (c), (d), and (e), as those provisions largely align with the 

provisions in current part 190 from which they are derived. 

Regulation 190.02(f) is a new section which addresses the context of a receiver for 

an FCM appointed due to a violation or imminent violation of the customer property 

protection requirements of section 4d of the CEA or of the regulations thereunder, or of 

the FCM’s minimum capital requirements in § 1.17 of this chapter. In this context, the 

FCM has been found to be in precarious financial condition. This provision will permit 

the receiver to file a petition for bankruptcy of such an FCM in appropriate cases. This 

provision may benefit public customers, in that a bankruptcy proceeding may be necessary 

to protect those customers’ interests in customer property from losses in value. However, 

this provision may have distributional effects as there may be some customers who do not 

receive as much in bankruptcy as they otherwise would have under the receivership. In 

addition, there could be additional administrative costs that result from this provision, as 

the bankruptcy trustee would have to spend time and resources overseeing a bankruptcy 

proceeding that might not be entered into absent the power granted to the receiver under 

this regulation. These costs could possibly be greater than the costs of continuing to 

administer the FCM under receivership. 
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Indeed, FIA suggested that the Commission should require that the receiver must 

receive permission from the Commission before filing a voluntary petition, given that this 

action “would effectively close the FCM.” Closing the FCM would impose significant 

costs on the FCM and, in a case where the Commission would have denied permission, 

those costs could be unnecessary. 

In considering the costs (discussed above) of what could be an unnecessary 

voluntary filing for bankruptcy in contrast to the benefits of avoiding delay in filing a 

necessary filing for bankruptcy, the Commission determines that the context where this 

rule would be applicable—only cases where a receiver has been appointed due to violation 

or imminent violation of customer property protection requirements, or of the FCM’s 

minimum capital requirements—minimizes the likelihood that a filing would turn out to 

be unnecessary, and counsels in favor of avoiding delay.

4. Section 15(a) Factors—Subpart A

No comments were received on the application of the section 15(a) factors to 

Subpart A.

i. Protection of Market Participants and the Public

Subpart A of the proposed rules should increase the protection of market 

participants and the public by clearly setting forth how customers of FCMs and DCOs will 

be classified and treated, and how their accounts will be categorized and treated, in the 

event of an FCM or DCO insolvency. The goal of subpart A of the proposed rules is to 

promote an orderly and cost-effective resolution of the insolvency of an FCM or DCO, 

and to increase transparency to the customers of FCMs and DCOs as to how their property 

would be treated in the event of such an insolvency. However, as noted above, some of 
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the provisions of Subpart A provide discretion to the trustee. While enhanced discretion 

for the trustee has the benefit of permitting a more tailored approach, it also has the cost of 

increasing the possibility of trustee mistake or misfeasance. 

ii. Efficiency, Competitiveness, and Financial Integrity

Subpart A of the proposed rules should promote efficiency (in the sense of both 

cost effectiveness and timeliness) in the administration of insolvency proceedings of 

FCMs and DCOs and the financial integrity of derivatives transactions carried by FCMs 

and/or cleared by DCOs by clearly communicating the goals and core concepts involved 

in such insolvencies, and by setting forth clear definitions that have been updated to 

account for current market practices. These effects should, in turn, enhance the 

competitiveness and financial integrity of U.S. FCMs and DCOs, by enhancing market 

confidence in the protection of public customer funds and positions entrusted to U.S. 

FCMs and DCOs, even if such an entity were to become insolvent. 

iii. Price Discovery

Price discovery is the process of determining the price level for an asset through 

the interaction of buyers and sellers and based on supply and demand conditions. To the 

extent that the revised regulations should mitigate the need for liquidations in conditions 

of distress, they will help avoid negative impacts on price discovery. 

iv. Sound Risk Management Practices

Subpart A of the proposed rules should generally promote sound risk management 

practices by setting forth the core concepts to which the bankruptcy trustee must adhere in 

administering an FCM or DCO bankruptcy. 
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v. Other Public Interest Considerations

Some of the FCMs or DCOs that might enter bankruptcy are very large financial 

institutions, and some are (or are part of larger groups that are) considered to be 

systematically important. A bankruptcy process that effectively facilitates the proceedings 

is likely to help to attenuate the detrimental effects of the bankruptcy on the financial 

marketplace and thus benefit the financial system and thus the public interest. 

C. Subpart B—Futures Commission Merchant as Debtor

1. Regulation 190.03: Notices and Proofs of Claims: Consideration 

of Costs and Benefits

Paragraph 190.03(a)(1) replaces the requirement in current § 190.10(a) that all 

mandatory or discretionary notices be sent to the Commission via overnight mail with the 

requirement of sending the notices by electronic mail.246 This change is expected to result 

in a benefit to all parties required to provide notices to the Commission because they will 

be able to avoid the costs of sending such notice in hardcopy form via overnight mail. 

These revisions will also allow the Commission to receive such notices – and thus, to act –

much more expeditiously.

Paragraph 190.03(a)(2) is a new, principles-based provision that replaces the more 

specific procedures for providing notice to customers that appear in current § 190.02(b) by

allowing the trustee to establish and follow procedures “reasonably designed” for giving 

adequate notice to customers. This paragraph also provides that the trustee’s procedures 

for providing notice to customers should include “the use of a prominent website as well 

 246 See also § 190.03(d), which is adopting this new method of providing notice to the Commission for any 

court filings filed in a bankruptcy. 
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as communication to customers’ electronic addresses that are available in the debtor’s 

books and records.” A generalized and more modernized approach to notifying customers 

will benefit the debtor’s estate, as the process allows the trustee to choose cost effective 

means of providing notice to customers within the more flexible bounds of the proposed 

regulation, resulting in savings of administrative costs. Similarly, it will benefit parties 

interested in the proceedings, by permitting the trustee flexibly to choose methods of 

notification that are more prompt and effective. On the other hand, affording the trustee 

increased discretion in how to provide notice to customers will carry the potential cost of 

trustee misfeasance and abuse of such discretion, as discussed above in section III.A.2.ii. 

Paragraph 190.03(b)(1) will revise the time in which a commodity broker must 

notify the Commission of a bankruptcy filing. These revisions codify procedures whereby

(1) in a voluntary bankruptcy proceeding, the commodity broker will provide advance 

notice to the Commission ahead of the filing to the extent practicable, and (2) in an 

involuntary bankruptcy proceeding, the commodity broker will notify the Commission 

immediately upon the filing. These revisions will foster the ability of the Commission and 

its staff to perform their duties to protect customers by providing the Commission with 

notice of any bankruptcy proceeding as soon as possible.

Paragraph 190.03(b)(2) removes the current deadline of three days after the order 

for relief by which the trustee, the relevant DSRO or a clearing organization must notify 

the Commission of an intent to transfer or to apply to transfer open commodity contracts 

in accordance with section 764(b) of the Bankruptcy Code. It instead instructs such 

parties to give such notice of an intent to transfer “[a]s soon as possible.” To the extent 

that the three-day deadline was limiting transfer arrangements, this revision will benefit 
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the estate and some customers by removing time constraints that could be construed to 

prohibit notification after expiration of the deadline (and thus, allow the trustee to form the 

intent to transfer after such time). 

The revision will also enhance the orderly functioning of the marketplace at a time 

of severe market disruption by facilitating prompt notice of intent to transfer. On the other 

hand, by giving the trustee, DSRO, or clearing organization more latitude for providing 

notice of an intent to transfer, there will be the potential cost of misfeasance in waiting an 

unreasonable amount of time to provide such notice (or to form such intent), which could 

ultimately impose additional costs on customers who would have benefited from an earlier 

transfer.247

Paragraph 190.03(c)(1) removes the requirement that the trustee must publish 

notice to customers with specifically identifiable property in a newspaper of general 

circulation serving the location of each branch office of the debtor prior to liquidating 

such property and instead establishes a requirement to notify the customers with 

specifically identifiable property in accordance with § 190.03(a)(2). The Commission 

believes that this change will result in lower administrative costs, as the trustee will be 

relieved of the cost of identifying, and publishing notice in, such newspapers. Moreover, 

the trustee will no longer be required to wait seven days after the second publication date 

to commence liquidation of specifically identifiable property. Rather, the trustee will be 

free to commence liquidation of specifically identifiable property starting on the seventh 

day after entry of the order for relief. This will benefit the estate, and potentially the 

affected customers, by allowing the trustee more freedom (from the time constraints set 

 247 See discussion of 190.00(c)(4) in section III.b.1 above.
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forth in the current regulations) in liquidating the specifically identifiable property, which,

in turn, is expected ultimately to result in a better price. Moreover, the provisions in 

§ 190.03(a)(2) that describe the notification of customers with specifically identifiable 

property will benefit public customers by allowing them to receive notice on a “prominent 

website” and, more specifically, at their electronic addresses (to the extent such addresses 

are in the debtor’s books and records), thereby enhancing their ability to request the return 

of their specifically identifiable property within the specified timeframe.

Paragraph 190.03(c)(2) provides the bankruptcy trustee with authority to treat open 

commodity contracts of public customers held in hedging accounts designated as such in 

the debtor’s records as specifically identifiable property.248 This is a change from the 

current framework, under which the trustee treats customers with specifically identifiable 

property on a bespoke basis. Specifically, to the extent the trustee does not receive 

transfer instructions regarding a customer’s specifically identifiable open commodity 

contracts, the trustee will be required to liquidate such contracts within a certain time 

period. To the extent the trustee exercises the authority derived from revised 

§ 190.03(c)(2), they will (subject to the revision discussed in the next paragraph) be 

required to notify each relevant customer and request instructions whether to transfer or 

liquidate the open commodity contracts. To the extent the trustee would not exercise such 

authority, the trustee will treat these open commodity contracts the same as other customer 

property and effect a transfer of such contracts. This new framework should reduce 

administrative costs and benefit the bankruptcy estate by allowing the trustee to rely on 

hedging designations made during business as usual, thereby allowing the trustee to make 

 248 See proposed § 190.10(b)(2) for the process of designating an account as a “hedging account.”
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swift and cost effective decisions regarding the treatment of open commodity contracts 

during a bankruptcy situation. 

ACLI suggested that § 190.03(c)(2) should express a preference for transfer over 

liquidation with respect to specifically identifiable property in the form of positions that 

are identified as hedging positions, and consult (on an individual basis) each customer’s 

expressed preferences. However, § 190.00(c)(4) sets forth a preference for porting 

(transfer) of all open commodity contract positions of public customers. Thus, while 

treating customers with hedging positions on a bespoke basis may benefit some of them, it 

may be at the cost of effectively transferring a larger group of customer positions. Some 

of those may be customers with hedging positions whose positions are not transferred due 

to limited time and resources available to be devoted to bespoke treatment. Indeed, 

SIFMA AMG / MFA noted that “permitting the trustee this flexibility (subject to the 

additional customer protections [of consulting existing instructions, as described 

immediately below]) serves the interest of customers as a whole by facilitating a more 

rapid transfer of customer positions and property.”

SIFMA AMG / MFA suggested that it would “further the goal of expediency” if 

the regulation would require the trustee to “first consult the instructions (regarding 

preferences with respect to transfer or liquidation of open commodity contracts) provided 

by a public customer to the debtor at the time of opening the relevant hedging account, 

and only if such instructions are missing or unclear, to then require such customer to 

provide the trustee with written instructions as contemplated by proposed § 190.03(c)(2).” 

The Commission agrees, and has made corresponding changes to the regulation. While 

there is a cost involved in scanning to determine if there are instructions, there is a 
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significant benefit in avoiding duplication, and in avoiding cases where the customer, 

having already provided instructions, does not reply to a duplicative request in time for 

that reply to be acted upon.

The Commission does not believe that there are any cost-benefit implications to 

§§ 190.03(c)(3) or (c)(4) (other than those discussed above with respect to the new notice 

provision referenced in each) or to § 190.03(d). 

Paragraph 190.03(e), sets forth the information required from customers regarding 

their claims against the debtor. As revised, § 190.03(e), reorganizes and adds certain 

information items to those listed in the current regulation. The Commission anticipates 

that, while customers are likely to have this information at their disposal, there could be 

costs associated with gathering it all in one place. However, this additional and more 

detailed information should benefit the estate, the bankruptcy court and customers alike by 

allowing all parties to have a fuller, more detailed and more transparent picture of the 

customer claims against the debtor. It should foster the reduction of administrative costs

and the prompt administration of the estate. Moreover, the Commission is of the view that 

clarifying several of the information items listed in proposed § 190.03(e) and revising the 

proof of claim form to match more closely the text of the regulation should result in 

benefits to all parties involved in an FCM bankruptcy—the estate, the bankruptcy court, 

and the customers—by making the bankruptcy claims process more prompt and cost 

effective. CME sees §§ 190.03(e) and (f), and the revised proof of claim form, as “major 

improvements over the current rules and proof of claim template.”

This regulation also provides that the specific items referred to are to be included 

“in the discretion of the trustee.” This discretion will permit the trustee to tailor the 
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information requested to the specifics of the debtor’s prior business, as well as the alreadyavailable records. This will permit the trustee to limit or to increase the information 

requested, in appropriate cases, with a corresponding increase in cost effectiveness. To be 

sure, there may be corresponding costs (both in administrative expense and time) if the set 

of information requested by the trustee in the exercise of their discretion turns out, in 

retrospect, to be overly narrow (or broad).

Proposed § 190.03(f) is a new section which provides the trustee with flexibility to 

modify the customer proof of claim form set forth in appendix A to part 190. Specifically, 

§ 190.03(f) allows the trustee to modify the proof of claim form to take into account the 

particular facts and circumstances of the case. This provision should benefit the estate

because the trustee will be able to modify the proof of claim form in a way that gathers the 

information necessary in a manner that is both effective and cost effective based on the 

specific facts of the case, and the trustee no longer will be required to get an order from 

the bankruptcy court to make such modifications, thereby saving time and resources. This 

new section should also benefit customers, who will be able to take advantage of the more 

streamlined and tailored proof of claim forms developed by the trustee, and should,

therefore, spend less time filling out such forms. It should also benefit the estate, which 

should bear less administrative cost in evaluating such forms. Again, there may be 

corresponding administrative costs if the set of information in a modified proof of claim 

form turns out, in retrospect, to be overly narrow (or broad).
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2. Regulation 190.04: Operation of the Debtor’s Estate—Customer 

Property: Consideration of Costs and Benefits

Regulation 190.04(a) explicitly provides a policy and a direction by which the 

trustee should use best efforts to transfer open commodity contracts and property held by 

the failed FCM for or on behalf of its public customers. This policy and direction is 

substantially similar to the policy and direction under current regulations.249 The changes 

set forth a clear policy for trustees to follow, which should benefit customers of the failed 

FCM in a streamlined description of the transfer process that is consistent with the core 

concepts set forth in this part. The costs and benefits of the preference for transfer are 

discussed in section III.B.1 above, in the context of § 190.00(c)(4).

In § 190.04(a)(1), the Commission is clarifying language; these clarifications

should benefit customers of the failed FCM by minimizing the likelihood of future 

disputes concerning qualification of property for transfer. The Commission is also 

changing the direction in current § 190.02(e) that the trustee “must immediately use its 

best efforts to effect a transfer” to a direction that the trustee “shall promptly use its best

efforts to effect a transfer.” This modest change in focus will benefit public customers by 

recognizing that, while effecting transfer is an extraordinarily high priority, it is possible 

that there may be higher priorities at the inception of the bankruptcy proceeding, e.g., it 

may be necessary to preserve some portion of customer property from an immediate 

 249 See current § 190.02(e).
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threat.250 Once again, by enhancing the trustee’s discretion as to how to manage the 

liquidation, there is the cost that the trustee will make a mistake.

Paragraph 190.04(a)(2) directs the FCM (or a trustee, if one has been appointed) in 

a case where an involuntary petition for bankruptcy is filed against the FCM to use best 

efforts to effect a transfer within seven calendar days. The current regulation limits the 

commodity broker to trading for liquidation unless otherwise directed by the Commission, 

by any applicable self-regulatory organization or by the court. Revised § 190.04(a)(2) 

removes this limitation. Rather, revised § 190.04(e)(4) more generally covers limitations 

on the business of an FCM in bankruptcy. Similarly, any requirement to transfer customer

positions would more properly be addressed by § 1.17(a)(4). The Commission believes 

that these changes will benefit the estate and the public customers by mitigating the 

administrative costs by removing a redundant regulation. The Commission does not 

anticipate any resulting increase in cost. 

In § 190.04(b)(1), the Commission is clarifying and updating conditions under 

which the trustee may make payments of variation settlement and initial margin. In sum, 

the revisions clarify that payments can be made prior to pending transfers or liquidation, 

not just pending liquidation. The revision should benefit the customers of the FCM debtor 

in clarifying that the trustee has two paths in treating open commodity contracts—transfer, 

and if transfer is not possible, liquidation. The changes describe more accurately the types 

of payments that the trustee will be permitted to make and account specifically for the 

types of entities to which the trustee is permitted to make the types of payments referred to 

 250 The Commission is implementing the same change—the addition of the word “public” before 

“customers” – to § 190.04(a)(2). The anticipated cost and benefit analysis of the change is the same as in 

§ 190.04(a)(1).
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in this section. The revisions clarify the current regulatory text, which should benefit 

stakeholders. The Commission does not anticipate any increased cost from these changes.

Paragraph 190.04(b)(1)(i) prevents the trustee from making any payments of 

behalf of any commodity contract account that is in deficit, to the extent within the 

trustee’s control. The revised provision recognizes that certain accounts may be held on 

an omnibus basis on behalf of many customers. To the extent the trustee is making a 

margin payment with respect to such an omnibus account, it may be out of the trustee’s 

control to only make payment with respect to those customer accounts that are not in 

deficit. The proviso similarly will clarify that this prohibition on making margin 

payments on behalf of accounts in deficit is not intended to prohibit “upstream” entities 

(e.g., a CCP or an intermediary through which the debtor clears) from exercising legal 

rights to margin under applicable law. Due to the structure of omnibus accounts and the 

explicit requirement of lack of trustee control, any payments that are made under the 

revised provision would have been made pursuant to Commission authorization under the 

current regulation. Thus, neither provision should add any new regulatory burden and the 

Commission does not estimate that there will be any additional cost associated with the 

proposed changes.

Paragraph 190.04(b)(1)(ii) is a new regulation that adds an explicit restriction, that 

the trustee cannot make a margin payment with respect to a specific customer account that 

would exceed the funded balance of that account. ICI agrees that this restriction supports

the pro rata distribution principle, and should benefit the other customers of the FCM 
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debtor – any payment of customer property in excess of a particular customer’s funded 

balance is to the detriment of other customers.251

Paragraph 190.04(b)(1)(iii) is a minor, non-substantive clarification of current 

§ 190.02(g)(1)(ii), that should not create any changes from the status quo with regards to 

costs and benefits.

In § 190.04(b)(1)(iv)-(v), the Commission is clarifying that margin must only be 

used (i.e., paid to a clearing organization or upstream intermediary) consistent with 

section 4d of the CEA. Paragraph 190.04(b)(1)(vi) states explicitly the conditions under 

which the trustee may make payments to meet margin obligations. 

Together, these changes protect customers who make payments after the order for 

relief by ensuring that they fully benefit from those payments (and thus incentivize

customers to make such payments in appropriate circumstances). Moreover, more clearly 

permitting the trustee, for the purpose of curing customer margin deficiencies, to use funds 

in an account class that exceed the sum of all of the net equity claims for that account 

class, should facilitate the orderly transfer of positions and contracts following the default, 

lessening the potential for further roiling markets. Finally, these changes taken together 

also benefit the broader group of customers of the FCM debtor by clarifying the treatment 

of funds in segregated accounts, and thus mitigating administrative costs. 

These changes are designed to clarify the statutory requirements applicable to 

funds in the customer account. While there may be accounting requirements associated 

 251 While there will be a corresponding detriment to the customers who may have benefited from such 

excess payments, those customers would only be losing something that runs counter to the statutory goal of 

pro rata distribution. Moreover, there are no likely incentive effects because, on this issue, customers stand 

behind the “veil of ignorance” – it is difficult to identify, ex ante, which customers would be in the group of 

gaining customers (or in the group of losing customers). 
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with funds in segregated accounts, substantially all of the costs of such accounting are 

already incurred pursuant to the segregation rules. Thus, the Commission does not 

anticipate that there should be any material additional costs associated with this change.

Paragraph 190.04(b)(2) allows the trustee discretion as to whether to issue margin 

calls to customers who are undermargined, deleting highly prescriptive conditions from 

the current rule. The revision should benefit public customers of the FCM debtor by 

giving the trustee the flexibility to recognize that there may be situations in which issuing 

a margin call is impracticable because the trustee is operating the FCM in “crisis mode”

and may be pending wholesale transfer of liquidation of open positions. 

It is, however, possible that the trustee would exercise their discretion poorly, or in 

a manner that, in retrospect, would be seen to be to the detriment of the estate, and that the 

trustee would have failed to issue a margin call in a situation in which a public customer 

would have paid the call (and in which the balance of administrative cost and amount 

recovered would mean that, in retrospect, it would have profited the estate if the call was 

made). Such failure could result in a cost to the estate of the FCM debtor to the extent that 

such funds are not available. The balance of the revisions should cause no change to the 

related costs and benefits. 

Paragraph 190.04(b)(3) retains the concept in current § 190.02(g)(3), with updated 

cross-references. The Commission does not anticipate that there will be any costs or 

benefits to the proposed minor revisions.

Paragraph 190.04(b)(4) addresses the trustee’s obligation to liquidate accounts in 

deficit, or where a mark-to-market calculation would result in a deficit, or where the 

customer fails to meet a margin call within a reasonable time. The revision will clarify the 
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applicability of current authority to a situation that is already implicit in the current rule. 

The regulation does not require the trustee to make additional calculations but, if a 

calculation made by the trustee reveals that the mark-to-market value of the account is a 

deficit, the trustee is instructed to liquidate the account as soon as practicable rather than 

to wait for the time that payment would be due. The benefit of this change should be to 

liquidate accounts in deficit more promptly (thus mitigating potential further losses); the 

cost will be the cost of engaging in such liquidation, as well as the possibility that, absent 

prompt liquidation, the deficit would have been mitigated due to favorable intervening 

changes in market value (or, potentially, an intervening deposit of additional collateral by 

the customer).

252 

Second, the Commission is adding the concept of “exigent circumstances” as a 

new exception to the general and long-established rule that a minimum of one hour is 

sufficient notice for a trustee to liquidate an undermargined account. 

SIFMA AMG / MFA urge the Commission to curtail the trustee’s discretion in 

§ 190.04(b)(4) in a number of ways: by requiring the trustee to defer to the margin call 

timings present in applicable underlying agreements between the customer and the (prebankruptcy) debtor, and by providing customers with the opportunity to demonstrate that a 

margin payment was made even if the FCM’s books and records do not yet reflect its 

receipt. By contrast, ICI noted that it is vital that the trustee be required to swiftly 

crystallize, and therefore cap the losses resulting from, such deficits by promptly 

liquidating accounts in deficit or for which a customer has failed to meet a margin call. 

 252 This change may also provide incentives for a customer whose account is in, or is approaching, deficit to 

promptly make such payments to avoid liquidation of their positions.
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ICI further stated that if the accounts were allowed to remain open, additional losses on 

the delinquent customers’ transactions would be borne by the FCM’s non-defaulting 

customers. 

The Commission has determined not to make the requested changes. While 

making those changes would benefit those customers who are treated on a more bespoke it 

would, all to the detriment of the FCM’s other customers. Enhancing the trustee’s 

discretion to determine how long a customer has to meet a margin call, and to rely on the 

FCM’s books and records in doing – and refusing to curtail that discretion (by forcing the 

trustee to defer to margin call timings in pre-bankruptcy agreements, or to give the 

customer an opportunity to demonstrate that the a margin payment was made) as requested 

by the comment – will benefit other customers of the debtor FCM by giving the trustee 

flexibility to respond to market conditions following an FCM default. It is important to 

recognize that in stressed markets or in situations where communication protocols cannot 

practicably be followed, permitting a customer time to post margin in accordance with a 

pre-bankruptcy agreement – or, in some cases, even notice of one hour – may be 

insufficiently prompt to mitigate appropriately (1) the risk that such customers would 

default, (2) the risk that delaying liquidation of such a customer’s positions increases the 

potential for and likelihood that they would do so with a debit balance, and (3) the risk 

that the size of that debit balance would increase as a result of that delay, thereby reducing

the funded balances of those other customers. However, customers who are required to 

make payments more promptly would bear associated costs, from making such payments 

in a reduced time frame, from having to make duplicate payments (while these would 

ultimately be returned in full, this would be without interest) or from having contracts 
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liquidated that would otherwise not have been liquidated if the customer had more time to 

make payment.253

The Commission is adding § 190.04(b)(5) to guide the trustee in assigning 

liquidating positions to the FCM debtor’s customers when only a portion of the open 

contracts are liquidated. The benefit of this new provision is that it presents a clear and 

transparent mechanism by which the trustee is to allocate the positions. This mechanism 

will protect the customer account as a whole, by establishing a preference for assigning 

liquidating transactions to individual customer accounts in a risk-reducing manner. The 

allocation mechanism will, however, be subject to the trustee’s exercise of reasonable 

business judgement. It is possible that such judgment could be exercised in a poor manner

(or in a manner that, in retrospect, turns out to be regrettable), with resultant cost to the 

FCM debtor estate. 

Paragraph § 190.04(c) requires the trustee to use its best efforts to liquid open 

commodity contracts that are not settled in cash (i.e., those that settle via physical delivery 

of a commodity) where the contract would move into delivery position. These 

clarifications are likely to reduce administrative costs, to the benefit of the estate (and, 

ultimately, customers). CME believed that this provision would have the benefit of 

avoiding unnecessary disruptions to the delivery process by customers that did not intend 

to participate in making or taking delivery. There should be no cost associated with the 

revision because, while there may be some customers who would prefer to hold their 

 253 SIFMA AMG and MFA also suggested that the regulation should be amended to give customers credit 

for any gains that were haircut due to gains-based haircutting by a DCO. Any such haircutting of a 

customer’s gains is due to application of the customer’s agreement with the FCM. Moreover, giving some 

customers credit despite such agreements would increase their recovery, but at the expense of other 

customers, as discussed in detail in section II.C.7 above. 
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contracts through delivery, the current regulations, just as the revised regulations, direct 

the trustee to liquidate contracts coming into delivery position.

254 

Paragraph 190.04(d) will clarify requirements concerning the liquidation and 

valuation of open positions. Paragraphs 190.04(d)(1) and (2) clarify requirements for 

liquidating open commodity contracts and specifically identifiable property other than 

commodity contracts.

Paragraph 190.04(d)(3) codifies the Commission’s longstanding policies of pro 

rata distribution and equitable treatment of customers in bankruptcy, as described in 

§ 190.00(c)(5) above, as applied to letters of credit posted as margin. Under the new 

provision, the trustee may request that a customer deliver substitute customer property 

with respect to any letter of credit received, acquired or held to margin, guarantee, secure, 

purchase, or sell a commodity contract. The amount of the substitute customer property to 

be posted may, in the trustee’s discretion, be less than the full-face amount of the letter of 

the credit, if such lesser amount is sufficient to ensure pro rata treatment consistent with 

§§ 190.08 and 190.09. If necessary, the trustee may require the customer to post property 

equal to the full-face amount of the letter of credit to ensure pro rata treatment. Pursuant 

to paragraph (d)(3)(i), if such a customer fails to provide substitute customer property 

within a reasonable time specified by the trustee, the trustee may draw upon the full 

amount of the letter of credit or any portion thereof (if the letter of credit has not expired). 

Under paragraph (d)(3)(ii), the trustee is instructed to treat any portion of the letter of 

credit that is not fully drawn upon as having been distributed to the customer. However, 

the amount treated as having been distributed will be reduced by the value of any 

 254 See, e.g., current § 190.03(b)(5).
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substitute customer property delivered by the customer to the trustee. Any expiration of 

the letter of credit after the date of the order for relief would not affect this calculation. 

Pursuant to paragraph (d)(3)(iii), letters of credit drawn by the trustee, or substitute 

customer property posted by a customer, are to be considered customer property in the 

account class applicable to the original letter of credit. 

ICI, SIFMA AMG / MFA, and Vanguard supported § 190.04(d)(3) on the grounds 

that it has the benefit of treating customers equitably by avoiding a more favorable 

treatment of customers who post letters of credit than those who post cash and securities.

These proposed new provisions could impose costs on customers who use letters 

of credit as collateral for their positions. Such customers could be considered to have 

received distributions up to the full amount of the letter of credit, or the trustee may draw 

upon a portion or possibly the full amount of the letter of credit. 

Moreover, a number of commenters,

255 expressed the concern that requests for 

substitute customer property in the special context of delivery letters of credit could cause 

sudden liquidity needs, and substantial hardship to customers. For example, CME noted 

that, while they support § 190.04(d)(3) outside the context of delivery letters of credit, 

they see difficulties in that context, specifically in the case of deliveries for certain energy 

contracts, often which take place over 30 days. The delivery letters of credit for these 

contracts can involve hundreds of millions of dollars in face amounts, and CME is of the 

view that it would cause substantial liquidity hardship for buyers to have to substitute cash 

in such amounts. 

 255 CMC, CME, FIA.
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While the discussion above represents potentially important costs, the Commission 

is noting factors that can alleviate these costs, and is implementing provisions that it 

believes substantially mitigate these costs: First, the Commission is adding a new 

paragraph § 190.04(d)(3)(iv), which states that “The trustee shall, in exercising their 

discretion with regard to addressing letters of credit, including as to the timing and amount 

of a request for substitute customer property, endeavor to mitigate, to the extent 

practicable, the adverse effects upon customers that have posted letters of credit, in a 

manner that achieves pro rata treatment among customer claims .” Second, the 

Commission notes the likelihood that requests for substitute customer property may not 

apply to the particular delivery letters of credit the commenters have expressed concerns 

about: As requested by CME, the Commission confirms that (1) a delivery letter of credit 

that is posted directly with the DCO or with the delivery counterparty, rather than with or 

through the FCM, and for which the FCM is not a named beneficiary, is outside the 

delivery account class, i.e., it does not constitute cash delivery property (or property of the 

debtor’s estate), and (2) the provisions in other parts of the part 190 regulations regarding 

treatment of letters of credit posted with or through the debtor FCM do not apply such a 

letter of credit. 

The Commission’s priority in this context is to ensure the customers using letters 

of credit to meet margin obligations are treated in an economically equivalent manner to 

those who have posted other types of collateral, so that there is no incentive to use such 

letters of credit to circumvent the pro rata distribution of margin funds as set forth in 
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section 766(h) of the Bankruptcy Code.256 Moreover, if there are shortfalls in customer 

property in a particular account class, and public customers posting letters of credit are 

protected from sharing in those shortfalls, those public customers would benefit. 

However, the shortfalls would, inevitably, instead be allocated to other public customers, 

who would suffer corresponding losses. Regulation 190.04(d)(3) supports the policy of 

pro rata treatment of public customers embodied in section 766(h) of the Bankruptcy 

Code by clarifying that letters of credit cannot be used to avoid pro rata distribution of 

margin funds. It therefore avoids concentrating losses on those public customers (who are 

likely to be smaller customers) that cannot qualify for, or cannot afford the cost of, letters 

of credit, or otherwise do not use letters of credit as collateral. Moreover, by directing the 

trustee to exercise their discretion, including with respect to amounts and timing of 

requests for customer property, in a manner that mitigates adverse effects on those 

customers that have posted letters of credit, it will mitigate the liquidity costs to such 

customers.

Paragraph 190.04(e)(1) concerns liquidation of open commodity contracts in the 

market, while paragraph (e)(2) addresses liquidation by book entry offset. Both of these 

revised regulations delete the requirement in the current regulations that a clearing 

organization must obtain approval for its rules regarding liquidation of open commodity 

contracts, a requirement that is superfluous in light of the regulatory framework set forth 

in part 40 of the Commission’s regulations, and in light of the notice-filing regime 

established by Congress in §5c(c) of the CEA.

257 This has the benefit of enabling clearing 

 256 See, e.g., 48 FR at 8718-19.

257 7 USC 7a-2(c).
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organizations to avoid the cost of filing a request for rule approval, pursuant to CEA 

§5c(c)(4) and § 40.5. There are potential costs, in that an ill-conceived rule could be more 

readily identified, and addressed, in a rule approval process. However, Commission staff, 

as a matter of practice, closely reviews all notice-filed clearing organization rules.

Paragraph § 190.04(e)(3) is new, and confirms that an FCM or foreign futures 

intermediary through which a debtor FCM carries open commodity contracts may exercise 

any enforceable contractual rights that the FCM or foreign futures intermediary has to 

liquidate such commodity contracts. It provides that the liquidating FCM or foreign 

futures intermediary must use “commercially reasonable efforts” in the liquidation and 

provides the trustee a damages remedy if the FCM or foreign futures intermediary fails to 

do so. Damages are the only remedy; under no circumstance can the liquidation be 

voided. 

This new provision will benefit carrying FCMs by confirming explicitly that

carrying FCMs are allowed to exercise enforceable contractual rights to liquidate 

contracts, which reduces ambiguity and thus will reduce administrative costs. At the same 

time, clarification of the availability of the damages remedy will help to protect creditors 

of the debtor FCM’s estate in the event that the carrying FCM does not use commercially 

reasonable efforts in liquidating the open contracts (and thus will incentivize carrying 

FCMs to act in a commercially reasonable manner). Thus, the regulation itself provides

the estate with a potential mitigant for the costs in the form of a damages remedy. 

The remainder of the revisions to §§ 190.04(e)(4) and (f) are non-substantive 

language changes and clarifications and updated cross-references and should not have 

associated costs or benefits.
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3. Regulation 190.05: Operation of the Debtor’s Estate—General: 

Consideration of Costs and Benefits

In § 190.05, the Commission is addressing general issues regarding the operation

of the debtor’s estate. In both §§ 190.05(a) and 190.05(b), the Commission is making

revisions providing the trustee with more flexibility to act in a bankruptcy situation. 

Paragraph 190.05(a), for example, provides that the trustee “shall use reasonable efforts” 

to comply with the CEA and the Commission’s regulations. Paragraph 190.05(b) requires

the trustee to “use reasonable efforts” to compute a funded balance for each customer 

account that contains open commodity contracts or other property as of the close of 

business each business day until such open commodity contracts and other property in 

such account have been transferred or liquidated, “which shall be as accurate as 

reasonably practicable under the circumstances, including the reliability and availability of 

information.” These two revisions will benefit the estate by recognizing that a bankruptcy 

could be an emergency event, that perfectly reliable information could be unavailable or 

inordinately expensive to obtain, and that therefore the trustee should be allowed some 

measure of flexibility to act reasonably given the particular circumstances of the case. 

CME noted that § 190.05(b) will have the benefit of allowing the trustee to transfer more 

promptly public customers’ positions and property than if the trustee were held to a strict 

standard of precision. On the other hand, affording the trustee increased discretion in 

complying with the CEA and the Commission’s regulations, and in computing a funded 

balance for each customer account, may carry the potential cost of trustee mistake, 

misfeasance, or abuse of such discretion, as discussed above. 
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Whereas current § 190.04(b) requires a trustee to compute a funded balance only 

for those customer accounts with open commodity contracts, revised § 190.05(b) expands

the scope of customer accounts for which a trustee is required to compute a funded 

balance to those accounts with open commodity contracts or other property (including, but 

not limited to, specifically identifiable property). This expansion of the trustee’s duties 

represents an administrative cost, as the trustee will have to expend time and resources at 

the close of business each business day to compute the funded balance of all customer 

accounts. However, this revision should also result in a benefit to those customers whose 

accounts hold property but no open commodity contracts, in the form of enhanced 

information about their financial position (including with regard to collateral, the value of 

which may change on a daily basis, and with regard to the percentage distribution 

currently available). These customers will, under the revised provision, receive daily 

computations of the funded balance of their accounts with the debtor.

However, revised § 190.05(b) also narrows the trustee’s duty compared to current 

§ 190.04(b): While the current provision states that the trustee “must compute a funded 

balance for each customer account ... each day,” the revised provision only requires the 

trustee to “use reasonable efforts” to do so. Regulation 190.00(c)(3)(i)(C) provides that 

“reasonable efforts” should only be less than “best efforts” to the extent that this would 

benefit public customers as a class. Exercises of discretion by a trustee that, on a net 

basis, benefit public customers as a class may, on a net basis, impose costs on individuals 

or groups within that class. For example, there theoretically may be cases where, because 

the administrative cost of computing a funded balance would outweigh the benefit of 

doing so to public customers as a class, the trustee, in exerting “reasonable efforts,” 
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determines not to do so on a particular day or for a particular time. As ICI points out in 

their comment letter, that decision would harm certain customers, i.e., regulated funds, 

who have a particular need to confirm the existence and value of their transactions and 

associated margin. 

Paragraph § 190.05(c) requires the debtor to maintain “records required under this 

chapter to be maintained by the debtor, including records of the computations required by 

this part” “until such time as the debtor’s case is closed.” This revision expands the scope 

of records that must be maintained, thereby imposing certain administrative costs, but 

should benefit the estate, because it will limit the amount of time the trustee will have to 

maintain the relevant records. 

Paragraph § 190.05(d) requires the bankruptcy trustee to use all reasonable efforts 

to continue to issue account statements for customer accounts that contain open 

commodity contracts or other property, and to issue account statements reflecting any 

liquidation or transfer of open commodity contracts or other property promptly after such 

liquidation or transfer. This provision will likely result in administrative costs, as the 

trustee will have to expend time and resources issuing account statements to customers. It

will benefit customers because it should help them to keep track of their commodity 

contracts (and the continued availability of hedges) and the property in their accounts, 

including in particular when such contracts and property are liquidated or transferred, even 

during a bankruptcy. ICI noted that this is of particular benefit to regulated funds, 

providing them with a basis to confirm the existence and value of their transactions and 

associated margin. 
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Paragraph 190.05(e)(1) allows a bankruptcy trustee to effect transfers of customer 

property in accordance with § 190.07, but requires the trustee to obtain court approval 

prior to making any other disbursements to customers. This provision should benefit the 

estate and customers by allowing the trustee, without court approval, to port customers’ 

positions and associated property to a solvent FCM as quickly as possible in a bankruptcy 

situation. In the event that too much customer property (that is, an amount in excess of the 

ultimate pro rata share) is transferred for those customers whose positions are being 

ported, and cannot be offset or clawed back, it could result in costs to other customers, for 

whom less than their pro rata share would be available.

Paragraph 190.05(e)(2) allows the bankruptcy trustee to invest the proceeds from 

the liquidation of commodity contracts or specifically identifiable property, and any other 

customer property, in obligations of or guaranteed by the United States, so long as the 

obligations are maintained in depositories located in the United States or its territories or 

possessions. The revised regulation expands the scope of customer property that the 

trustee is permitted to invest in such a manner to include “any other customer property.” 

This change should benefit customers, in that additional customer property could be 

invested (in this limited manner).

Paragraph § 190.05(f) requires the trustee to apply the residual interest provisions 

contained in § 1.11 “in a manner appropriate to the context of their responsibilities as a 

bankruptcy trustee pursuant to” the Bankruptcy Code and “in light of the existence of a 

surplus or deficit in customer property available to pay customer claims.” This explicit 

requirement to continue to apply the residual interest requirements set forth in § 1.11 may 

result in administrative costs, since the trustee would require resources to do so. However, 
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this provision should benefit customers by making it more likely that they would receive 

what they are entitled to receive from the debtor’s estate. Indeed, Vanguard noted that the 

residual interest requirement is a valuable buffer to protect customers.

4. Regulation 190.06: Making and Taking Delivery Under 

Commodity Contracts: Consideration of Costs and Benefits

Section 190.06 addresses the making and taking of deliveries under commodity 

contracts. 

Specifically, § 190.06(a)(2) requires the trustee to use “reasonable efforts” (in 

contrast to the current “best efforts”) to allow a customer to deliver physical delivery 

property that is held directly by the customer in settlement of a commodity contract, and 

to allow payment in exchange for such delivery, and for both of these to occur outside the 

debtor’s estate, where the rules of the exchange or clearing organization prescribe a 

process for delivery that allows this. 

Management of contracts in the delivery positions involves a significant degree of 

tailored administration. Under the best efforts standard, the trustee may spend more time 

(and thus incur higher costs) focusing on the needs of a few customers, which could 

detract from the trustee’s ability to manage the estate more broadly. Accordingly, the 

change from “best efforts” to “reasonable efforts” should benefit creditors of the estate (as 

a whole) as the trustee should not need to provide a disproportionate amount of 

individualized treatment to such contracts.258 However, particular customers that would 

 258 As discussed above in section II.A.1, the trustee in exerting best efforts to meet a standard must diligently 

exert efforts to meet that standard “to the extent of its own total capabilities.” By contrast, in exerting 

“reasonable efforts” to meet a standard, the Commission expects that the trustee will work in good faith to 
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otherwise have received the trustee’s focused treatment under the “best efforts” standard 

could suffer a cost from the change.

Paragraph 190.06(a)(3) provides guidance to address situations when the trustee 

determines that it is not practicable to effect delivery outside the estate and therefore, 

delivery is made or taken within the debtor’s estate. The revisions provide the trustee with 

the flexibility to act “as it deems reasonable under the circumstances of the case,” but set 

an outer bound to the trustee’s discretion in requiring them to act “consistent with the pro 

rata distribution of customer property by account class.” This provision again will have

the benefits and costs of enhanced discretion discussed above, but includes an outer bound 

to that discretion.

In § 190.06(a)(4), the Commission adds a new provision to reflect that delivery 

may need to be made in a securities account.259 The new provision should benefit 

customers who require the delivery of securities, and the trustee, by permitting those 

securities to be delivered to the proper type of account. By setting limits, the provision 

should mitigate the risk of transferring too much value out of the commodity contract 

account (and creating a risk of an undermargin or deficit balance).

Paragraph § 190.06(b) is also new. It creates an account class for physical delivery 

property held in delivery accounts and the proceeds of such physical delivery property. 

This account class is further be sub-divided into separate physical delivery and cash 

delivery account subclasses. In general, creating the delivery account class should help 

protect customers with property in delivery accounts following a default, because delivery 

 meet the standard, but will also take into account other considerations, including the impact of the effort 

necessary to meet the standard on the overarching goal of protecting public customers as a class.

259 This is only relevant for debtor FCMs that are also broker-dealers.
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accounts are not subject to the Commission’s segregation requirements. The further subdivision into sub-classes recognizes that cash is more vulnerable to loss, and more difficult 

to trace, as compared to physical delivery property. This will likely benefit those with 

physical delivery claims; customers in the cash delivery sub-class would be likely get a 

pro rata distribution that is less. The benefits and costs of creating these sub-classes were 

discussed more fully above in reference to the definition of account class in proposed 

§ 190.01.

5. Regulation 190.07: Transfers: Consideration of Costs and Benefits

Section 190.07(a) works to promote transfers of commodity contracts from a 

debtor FCM. It does so by prohibiting any clearing organization or self-regulatory 

organization from adopting, maintaining in effect, or enforcing rules that interfere with the 

acceptance by its members of transfers of open commodity contracts and the equity 

margining or securing of such contracts from FCMs with respect to which a petition in 

bankruptcy has been filed, if the transfers have been approved by the Commission. 

The revised regulation includes the provisos that it (1) does not limit the exercise 

of any contractual right of a clearing organization or other registered entity to liquidate or 

transfer open commodity contracts, and (2) should not be interpreted to limit a DCO’s 

ability adequately to manage risk. The revision modifies, in a balanced fashion, the 

standard for clearing organization and SRO rules that are adopted, maintained, in effect, 

and enforced and where transfers are approved by the Commission. While clearing 

organizations and SROs will need to comply with the revised standard, the compliance 

cost should not be different than under the prior standard. The clarification that the 

regulations do not limit contractual risk management rights should provide a benefit to 
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clearing organizations and their members in clarifying that the regulation will not nullify 

the contracts in this regard, and will not have an associated cost.

In § 190.07(b)(1), the Commission clarifies that it is the transferee FCM itself who 

has the responsibility to determine whether it would be in violation of regulatory 

minimum financial requirements upon accepting a transfer. It is not the trustee’s duty. 

The Commission does not anticipate any material cost from this revision. 

Paragraph 190.07(b)(3) permits a transferee to accept open commodity contracts 

and associated property prior to completing customer diligence requirements, provided 

that such diligence is completed as soon as practicable thereafter, and no later than six 

months after transfer. It is intended to incentivize potential transferees to accept transfers 

by making it more practicable to do so. It recognizes that customer diligence processes 

would have already been required to have been completed by the debtor FCM with respect 

to each of its customers as part of opening their accounts. CME, ICI and Vanguard agree 

that the proposal would provide a benefit to customers and transferee clearing members 

and trustees, by facilitating the transfer process.260 If such flexibility were not provided, 

under the current regulations, transfer might not be accomplished, or may not be 

accomplished promptly. The provision recognizes the importance of the account opening 

diligence requirements and would mitigate the risk from delay by requiring the diligence 

 260 The customer diligence requirements in question focus on anti-money-laundering requirements and 

ensuring that risk disclosures have been provided to customers and acknowledgements of such disclosures 

have been received. The corresponding costs would arise from the possibility that the transferee’s diligence 

would have revealed problems that had been missed by the debtor FCM’s customer diligence process, or 

arose subsequent to the time that the original process was conducted, and that conducting the revised 

diligence more promptly would sooner reveal the concerns, thus permitting them to be addressed more 

expeditiously.
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to be performed as soon as practicable and setting an outer limit at six months, unless that 

time is extended by the Commission.

FIA has requested that the Commission provide transferee FCMs with more 

specific relief from applicable law relating to “customer diligence” and to add specific 

references to certain rules, in order to provide certainty, and to mitigate regulatory risk, to 

a transferee. FIA requested various points of specific relief under five headings: (i) rules 

relating to anti-money laundering requirements; (ii) rules relating to risk and other 

disclosures; (iii) rules relating to capital and residual interest requirements; (iv) rules 

relating to account statements; and (v) rules relating to margin. 

As discussed in more detail in Section II.B.5 above, the Commission has decided 

that, with respect to certain points of the requested relief, providing the relief is warranted, 

and there are no material associated costs from doing so. Thus, for example, 

§ 190.07(b)(3) is being amended to refer explicitly to the risk disclosure requirements in 

§ 1.65(a)(3). 

With respect to the other points of requested relief, the comment requests relief 

that the Commission has decided carries unacceptable costs. Thus, the Commission is not 

providing a general exemption from undermargined account capital charges in accordance 

with § 1.17, nor is the Commission extending the time to comply with capital or residual 

interest requirements. While such relief might have the advantage of further incentivizing

FCMs to accept transferred accounts, it would do so at the cost of potentially causing or 

accepting financial weakness at transferee FCMs.

In a third group of points of requested relief, the Commission notes that 

interpretations of existing regulations should adequately address the concerns. Thus, 
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transferred accounts are (based on the terms of the regulations) excluded from the 

Customer Identification Program requirements of 31 C.F.R. § 1026.220, while the 

provisions of § 190.07(b)(3) adequately inform what constitutes “appropriate risk-based 

procedures for conducting ongoing customer due diligence” (emphasis supplied) in the 

context of 31 C.F.R. § 1026.210(b)(5)(i). While providing more specific regulatory 

provisions might enhance regulatory certainty (and thus redound to the benefit of 

transferee FCMs, and potentially incentivize FCMs to accept transferred accounts), it 

carries the risk of being under-inclusive or over-inclusive, and thus failing to achieve the 

regulatory goals.

Moreover, as to both the second and third categories, there may be a more tailored 

approach to achieving the goal: As the Commission explicitly notes above, any further 

relief that might be appropriate in a particular situation can be requested by the transferee 

in light of the relevant facts and circumstances. The Commission observed that its staff 

have traditionally responded to requests for relief in emergency situations with great 

dispatch, and expects, and has instructed staff, to continue to do so in this context in the 

future.

261 While this approach provides less certainty in advance, it has the benefit of 

making tailored relief available (and mitigating the possibility that relief leads to 

unintended consequences).

Paragraph 190.07(b)(4) clarifies that account agreements governing a transferred 

account are deemed assigned to the transferee until and unless a new agreement is 

reached. At the request of FIA, the Commission is confirming that if there is a preexisting account agreement between a transferred customer and the transferee FCM, that 

 261 See discussion in Section II.B.5 above.
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pre-existing agreement will govern the relationship rather than the agreement between the 

customer and the transferor (debtor) FCM. The provision also confirms that consequences 

for breaches pre-transfer are borne by the transferor rather than the transferee. Paragraph

190.07(b)(4) provides important transparency regarding the agreement between a 

transferred customer and a transferee FCM pending the negotiation of a new agreement 

between them, or, if such negotiation is unsuccessful, until either party decides to 

terminate the relationship. 

Paragraph 190.07(b)(5) provides that in the event of transfer, customer instructions 

that are received by the debtor with respect to any open commodity contracts or 

specifically identifiable property should be transmitted to the transferee, who should 

comply with such instructions to the extent practicable. The slight revisions to current 

§ 190.02(c) are merely clarifications, and there should be no costs or benefits associated 

with such revisions. 

Paragraph 190.07(c) provides that “all commodity contract accounts (including 

accounts with no open commodity contract positions) are eligible for transfer. . . .” This 

recognizes explicitly that accounts can be transferred if the accounts are intended for 

trading commodities, but do not include any open commodity contracts at the time of the 

order for relief. The revision clarifies the current language and will not change the types 

of accounts that can be transferred. Accordingly, the Commission does not anticipate that 

there will be material added cost associated with the revision.

Paragraph 190.07(d) revises special rules for transfers under section 764(b) of the 

Bankruptcy Code. The revision is being made to promote transfer. Cost and benefit 
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considerations related to transfer are as discussed above.262 The revised regulation 

permits partial transfers, but (to the extent practicable) not in cases where netting sets for 

spreads or straddles would be broken or where customers’ net equity claims would 

increase. The revised regulation should provide a benefit to customers by codifying this 

limitation. This recognizes that there may be circumstances where partial transfer is not 

practicable and implies that the trustee makes that decision. It is therefore possible that 

certain customers holding spread or straddle positions could have positions liquidated or 

not transferred under the revised provision, or could have spreads or straddles broken

because of the trustee’s exercise of discretion.

The Commission has declined to adopt ICI’s suggestion to provide guidance to the 

effect that the trustee should not effectuate a transfer that will result in a separately 

managed account having a significant deficit following the porting, in order to avoid a 

circumstance where “the manager of that account would likely need to liquidate the bulk 

of the account’s portfolio and other positions in order to eliminate or reduce the deficit.” 

While adopting such a suggestion might benefit the beneficial owner by enabling the 

account manager to manage the separate account in accord with the account manager’s 

investment program, it may instead have the opposite effect, in that it may prevent any 

transfer of the customer’s positions before the seventh calendar day after the order for 

relief, in which event the trustee will be required to liquidate the entirety of the customer’s 

account, promptly and in an orderly manner, causing the very disruptions that the transfer 

provisions (and ICI’s suggestion) are designed to avoid. Moreover, many FCMs carry 

hundreds or even thousands of separately managed accounts. It may well not be practical 

 262 See section III.B.1 above.
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for a trustee, in addition to their numerous other responsibilities (and in a context where 

they need to learn those responsibilities in a compressed timeframe) to take “due account” 

of the particular circumstances of each of these separately managed accounts in the hours, 

or perhaps a small number of days, that the trustee may be allowed by the clearing 

organizations carrying the FCMs accounts to negotiate and effectuate a transfer. 

Endeavoring to do so might well have the cost of diverting the trustee and their assistants 

from carrying out more pressing tasks.

Paragraph 190.07(d)(3) permits a letter of credit associated with a commodity 

contract to be transferred with an eligible commodity contract account. If the letter of 

credit cannot be transferred and the customer does not deliver substitute property, the 

provision will permit the trustee to draw upon all or a portion of the letter of credit and 

treat the proceeds as customer property in the applicable account class. The revised

regulation ensures that letters of credit are treated in an economically similar fashion to 

other types of collateral and that customers using letters of credit will not receive any 

differential economic advantages, thus serving the goal of pro rata distribution. If the 

trustee does draw upon the letter of credit, there may be administrative costs incurred by 

the estate, as well as costs to the customer that posted the letter of credit as collateral. 

These costs may be mitigated if the customer delivers substitute property, as set forth in 

the proposed regulation. Moreover, consistent with § 190.04(d)(3)(iv), the trustee is 

directed to “endeavor to achieve pro rata treatment among customer claims in a manner 
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that mitigates, to the extent practicable, the adverse effects upon customers that have 

posted letters of credit.”263

Paragraph 190.07(d)(4) will require a trustee to use reasonable efforts to prevent 

physical delivery property from being separated from commodity contract positions under 

which the property is deliverable. While this provision will impose an administrative cost 

on the estate, it is already a best practice for trustees; keeping delivery property with the 

underlying contract positions is necessary for (and thus should benefit) the delivery 

process. Therefore, the additional administrative cost from the revised regulation should 

be minimal. 

In § 190.07(d)(5), the Commission prohibits the trustee from making a transfer that 

would result in insufficient remaining customer property to make an equivalent percentage 

distribution to all customers in the applicable account class (taking into account all 

previous transfers and distributions). The Commission is further clarifying that the trustee 

should make determinations in this context based on customer claims reflected in the 

FCM’s records, and, for customer claims that are not consistent with those records, should 

make estimates using reasonable discretion based in each case on available information as 

of the calendar day immediately preceding transfer. This will support achieving the 

statutory policy of pro rata distribution and give the trustee discretion to make decisions 

based on the overarching principle set forth above, valuing cost effectiveness over precise 

values of entitlement. However, this is designed to work to the detriment of any customer 

 263 The costs and benefits of allowing the trustee to draw upon the letter of credit have been discussed above 

in section III.C.2 with respect to § 190.04(d)(3).
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who, absent the provision, would otherwise benefit from a larger distribution. Moreover, 

in giving the trustee discretion, it carries the risk of mistake or misfeasance.

Paragraph 190.07(e) will add language to clarify that certain transfers are approved 

by the Commission pursuant to the procedure set forth in the Bankruptcy Code (and thus 

protected from avoidance) and will prohibit the trustee from avoiding such transfers, 

unless the transfer is disapproved by the Commission. These include a transfer made by

“a receiver that has been appointed for the FCM that is now a debtor.” The new provision 

is being added in order to respect the actions of a receiver that is acting to protect the 

property of the FCM that has become the debtor in bankruptcy. It will provide certainty to 

the actions of such a receiver, whose duties, among others, include protecting the 

customer property of the FCM. However, to the extent that the receiver takes actions that 

are, considered in retrospect, mistaken or ill-advised, the revised provision will prevent the 

correction of such actions unless the Commission acts affirmatively to disapprove them.

264 

Paragraph 190.07(f) will clarify that the Commission may prohibit the transfer of a 

particular set or sets of the commodity contract accounts, or permit the transfer of a 

particular set or sets of commodity contract accounts that do not comply with the 

requirements of the section. In addition, the Commission is clarifying that the transfers of 

the commodity contract accounts include the associated customer property. These 

revisions are clarifications and should not have any associated costs.

 264 Regulation 190.02(b)(1) explicitly excepts from the delegation to the Director of the Division of Clearing 

and Risk the authority to disapprove a pre-relief transfer pursuant to § 190.07(e)(1).
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6. Regulation 190.08: Calculation of Funded Net Equity: 

Consideration of Costs and Benefits

In § 190.08, the Commission addresses calculation of funded net equity. 

Paragraph 190.08(a) simply states that a customer’s funded net equity claim is equal to the 

aggregate of such customers funded net equity claims for each account class.

Paragraph § 190.08(b) sets forth the steps for a trustee to follow when calculating 

each customer’s net equity. SIFMA AMG / MFA requested that the Commission amend 

proposed § 190.08(b)(2)(xii) to treat accounts of the same principal or beneficial owner 

maintained by different agents or nominees as separate accounts and not all held in the 

individual capacity of such principal or beneficial owner, suggesting that this would have 

the benefit of reducing the administrative difficulties the trustee would face in 

consolidating all accounts of the same principal or beneficial owner, and it would have the 

further benefit of avoiding any confusion as to treatment of separate accounts that could 

arise with the overlay of the time-limited relief provided by Letter 19-17.

The Commission declined to make this change. The change would not achieve 

those benefits and would have associated costs: First, the FCM, to the extent it does treat 

such accounts separately pursuant to the relief set forth in Letter 19-17, will already be 

consolidating (for purposes of certain calculations) all accounts of the same principal or 

beneficial owner, in that the Letter conditions its relief on the FCM applying credit limits 

and stress testing on a combined account basis.265 Second, given that Letter 19-17 also 

conditions relief on the FCM disclosing that “under CFTC Part 190 rules all separate 

accounts of the beneficial owner will be combined in the event of an FCM bankruptcy,” 

 265 See CFTC Letter 19-17, https://www.cftc.gov/node/217076 at 4.
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amending § 190.08(b)(2)(xii) to treat them separately would be inconsistent with that 

disclosure, and would cause, rather than relieve, inconsistency with the approach taken 

under the Letter.

While the Commission is making certain revisions in §§ 190.08(b)(3), (b)(4) and 

(b)(5), the Commission views such revisions as non-substantive and merely clarifying the 

text in the current analogous provisions. Thus, the Commission does not expect these 

changes to result in any costs or benefits. 

Paragraph § 190.08(c) sets forth instructions for calculating each customer’s 

funded balance, while in § 190.08(d), the Commission is in general implementing changes 

to provide more flexibility to the trustee in valuing commodity contracts and other 

property held by or for a commodity broker. For instance, in § 190.08(d)(5), the 

Commission is deleting the requirement that the trustee seek approval of the court prior to 

enlisting professional assistance to value customer property. These changes should

benefit the estate by providing the trustee with more flexibility to determine how to value 

certain customer property, including whether or not to enlist professional assistance in 

doing so. Likewise, these revisions should serve the goal of a pro rata distribution to 

customers, as the accurate valuation of customer property can benefit from the input of a 

professional. On the other hand, affording the trustee increased discretion in how to value 

commodity contracts and other property held by a debtor carries the potential cost of 

mistake, misfeasance, or abuse of discretion by the trustee, as discussed above, or possibly 

by the professional whose service is retained. 

With respect to commodity contracts that have been transferred, § 190.08(d)(1)(i) 

provides that such contracts be valued at the end of the last settlement cycle on the day 
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preceding such transfer, rather than at the end of the settlement cycle in which it is 

transferred. Again, this revision should benefit both the estate and customers by making it 

practical to calculate the value of the transferred commodity contracts prior to the transfer. 

The Commission has declined to accept ICE’s suggestion that it adopt a “more 

flexible approach” because “the market may move significantly on the date of the 

transfer.” While prices may move intra-day during the period between opening and the 

time of auction, they may also move between the time of auction and closing. Therefore, 

there is no ex ante reason to expect that the previous day’s price is less reflective of the 

price at the time of the auction than the closing price on the auction day. Moreover, an 

alternative approach, using the price set in the auction as the price for individual contracts, 

is unlikely to be practicable. Units auctioned will frequently contain a heterogenous 

(though risk-related) set of products, tenors (e.g., contract months), and directions (e.g., 

long or short). Thus, it will often be impracticable to translate an auction price for a 

portfolio to prices for individual contracts within that portfolio. 

7. Regulation 190.09: Allocation of Property and Allowance of 

Claims: Consideration of Costs and Benefits

In § 190.09, the Commission is addressing allocation of property and allowance of 

claims. Paragraph 190.09(a)(1) defines the scope of “customer property” that is available 

to pay the claims of a debtor FCM’s customers, and § 190.09(a)(1)(i) sets forth the 

categories of “cash, securities, or other property or the proceeds of such cash, securities, or 

other property received, acquired, or held by or for the account of the debtor, from or for 

the account of a customer” that are included in customer property. In § 190.09(a)(1)(i), 
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the Commission is making certain substantive changes to the categories listed in current 

§ 190.08(a)(1)(i), as discussed below: 

• First, § 190.09(a)(1)(i)(D) is a new paragraph that provides that customer 

property includes any property “received by the debtor as payment for a 

commodity to be delivered to fulfill a commodity contract from or for the 

commodity customer account of a customer.” Clarifying this point

explicitly should benefit both the estate and customers by avoiding 

confusion or potential litigation.

• Second, § 190.09(a)(1)(i)(F) provides that letters of credit, including 

proceeds of letters of credit drawn by the trustee, or substitute customer 

property, constitute “customer property.” This section is being revised to 

be consistent with the other letters of credit provisions that are being added 

throughout part 190. The Commission does not anticipate that this 

provision will result in any material costs or benefits, as current 

§ 190.08(a)(1)(i) already includes a provision regarding letters of credit.266 

Paragraph 190.09(a)(1)(ii) sets forth the categories of “[a]ll cash, securities, or 

other property” that would be included in customer property. In § 190.09(a)(1)(ii), the 

Commission is making certain substantive changes to the categories listed in current 

§ 190.08(a)(1)(ii), as discussed below: 

 266 The costs and benefits of the underlying policy decision to take steps to ensure that customers posting 

letters of credit are treated (with respect to pro rata allocation of losses) in a manner consistent with the 

manner in which customers posting other forms of collateral are treated are discussed in connection with 

§ 190.04(d)(3) in section III.C.2 above.
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• First, § 190.09(a)(1)(ii)(D) provides that any cash, securities, or other 

property that was property received, acquired or held to margin, guarantee, 

secure, purchase, or sell a commodity contract and that is subsequently 

recovered by the avoidance powers of the trustee or is otherwise recovered 

by the trustee on any other claim or basis constitutes customer property. 

The current version of this provision refers only to the trustee’s avoidance 

powers (leaving out the possibility for recovery other than through 

avoidance powers). The Commission’s revisions to this section will benefit 

the estate, by assuring that any property they recover will be included in the

pool of customer property, rather than going to some other creditor (to be 

sure, those other creditors will receive correspondingly less). 

• Second, § 190.09(a)(1)(ii)(G) is new, and provides that any current assets 

of the debtor in the greater of (i) the amount that the debtor is obligated to 

be set aside as its targeted residual interest amount, pursuant to § 1.11, or 

(ii) the debtor’s obligations to cover debit balances or undermargined 

amounts, pursuant to §§ 1.20, 1.22, 22.2, or 30.7, constitute customer 

property. This new provision will result in administrative costs, because 

the trustee will need to take the extra step of determining whether any 

current assets of the debtor need to be set aside as customer property and, if 

so, how much. This provision should benefit public customers (and serve 

the policy of protecting customer collateral), however, because it will 

mitigate the risk of a shortfall in customer funds by ensuring that the trustee 

fulfills the Commission’s regulations that require an FCM to put certain 
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funds into segregation on behalf of customers. ICI and Vanguard agree 

that this provision will benefit customers, while CME considers it a 

“substantial improvement over the current rule.” This approach will result 

in such funds being included in the pool of customer property, rather than 

going to some other creditor. It will, to the same extent, operate to the 

detriment of general creditors.

• Third, § 190.09(a)(1)(ii)(K) is also new, and provides that any cash, 

securities, or other property that is payment from an insurer to the trustee 

arising from or related to a claim related to the conversion or misuse of 

customer property constitutes customer property. This provision should

benefit customers (and, again, the policy of protecting customer collateral), 

since any insurance payment as described in this proposed section will 

enlarge the pool of customer property, rather than going to general 

creditors.

267 It could result in administrative costs, however, as the trustee 

will need to spend time and resources in order to determine whether any 

such insurance payments exist, and in prosecuting such insurance claims.

• Fourth, the second sentence of § 190.09(a)(1)(ii)(L) is new, and will 

provide that customer property for purposes of these regulations includes 

any “customer property,” as that term is defined in SIPA, that remains after 

satisfaction of the provisions in SIPA regarding allocation of customer 

property constitutes customer property. This provision should benefit 

commodity customers (and act to the detriment of general creditors) 

 267 It will, again, to the same extent, act to the detriment of general creditors.
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because any securities customer property remaining after full allocation to 

securities customers will enlarge the pool of commodity customer property. 

It could result in administrative costs, however, since the trustee could need 

to spend time and resources determining the extent to which such property 

is left over after allocation to customers in a SIPA proceeding.268

Paragraph § 190.09(a)(2) sets forth the categories of property that are not included 

in customer property. In § 190.09(a)(2), the Commission has made certain substantive 

changes to the categories listed in current § 190.08(a)(2), as discussed below: 

• First, in § 190.09(a)(2)(iii), the Commission is adding explicit language to 

state that only those forward contracts that are not cleared by a clearing 

organization are excluded from the pool of customer property. This 

revision will benefit customers (and act to the detriment of general 

creditors), since the pool of customer property would increase by explicitly 

including any cleared forward contracts. 

• Second, § 190.09(a)(2)(v) provides that any property deposited by a 

customer with a commodity broker after the entry of an order for relief that 

is not necessary to meet the margin requirements of such customer is not 

customer property. The deletion of the word “maintenance” before 

“margin” will eliminate any distinction between initial and variation 

margin; this deletion will benefit customers by ensuring that any amount 

 268 The Commission further notes that the first sentence of § 190.09(a)(1)(ii)(L), which provides that 

customer property includes any cash, securities, or other property in the debtor’s estate, but only to the 

extent that the customer property under the other definitional elements is insufficient to satisfy in full all 

claims of the debtor’s public customers, will impose no new costs or benefits because such provision already 

appears in current § 190.08, and the only changes to the provision would be non-substantive updates to 

cross-references.
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deposited by a customer after the entry of an order for relief that is 

necessary to meet that customer’s margin requirements will be included in 

the pool of customer property. This provision would correspondingly act 

to the detriment of general creditors. 

• Third, § 190.09(a)(2)(viii), which is new, provides that any money, 

securities, or other property held in a securities account to fulfill delivery, 

under a commodity contract that is a security futures product, from or for 

the account of a customer, is excluded from customer property. This 

provision avoids conflict with the resolution, under SIPA, of claims for 

securities and related collateral. 

Paragraph 190.09(a)(3), which is new, gives the trustee the authority to assert 

claims against any person to recover the shortfall of customer property enumerated in 

certain paragraphs elsewhere in § 190.09(a). This provision could impose administrative 

costs, since the trustee could have to expend time and resources to assert and prosecute 

such claims to make up for any shortfall in customer property. The provision will, 

however, benefit customers, since it will ensure that the trustee is in a position to recover 

any such shortfalls and gives the trustee authority to act to do so. Moreover, since this 

provision makes explicit what is implicit in current part 190, an additional benefit of this 

provision may be reduced litigation costs over a trustee’s authority to engage in attempts 

to recover shortfalls in customer property.269 

 269 Of course, these recoveries are derived from persons against whom such claims are successfully asserted. 

The transfer to customers from these individuals advances the goal of pro-rata distribution.
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Paragraph 190.09(b) adds the phrase “or attributable to” to the language that is in 

current § 190.08(b), when describing how to treat property segregated on behalf of or 

attributable to non-public customers, namely, as part of the public customer estate; the 

addition of this phrase, as described above, will clarify that § 190.09(b)(1) applies both to 

property that is in the debtor’s estate at the time of the bankruptcy filing, as well as 

property that is later recovered by the trustee and becomes part of the debtor’s estate at the 

time of recovery. This additional phrase would benefit public customers and the statutory 

policy in favor of them (and correspondingly act to the detriment of non-public customers

and general creditors), since it could increase the amount of property that is treated as part 

of the public customer estate. It could impose administrative costs because it could take 

time and resources to properly allocate any property that is recovered after the time the 

bankruptcy is filed.270

Paragraph § 190.09(c)(1)(ii) is a new provision that instructs the trustee, in the 

event there is property remaining allocated to a particular account class after payment in 

full of all allowed customer claims in that account class, to allocate the excess in 

accordance with proposed § 190.09(c)(2), which in turn sets forth the order of allocation 

for any customer property that cannot be traced to a specific customer account class. 

These provisions will benefit public customers who would otherwise face shortfalls (and 

then, non-public customers who would otherwise face shortfalls). Since these provisions

make explicit what is implicit in current part 190, an additional benefit of these provisions

 270 Paragraph 190.09(c)(1) will have a similar change in the addition of the phrase “or recovered by the 

trustee on behalf of or for the benefit of an account class,” which is meant to clarify that any property 

recovered by the trustee on behalf of or for the benefit of a particular account class after the bankruptcy 

filing must be allocated to the customer estate of that account class. This revision will present similar costs 

and benefits to those discussed above. 
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will result from the increased clarity over what to do with any excess customer property. 

However, the provisions will act to the detriment of non-public customers (relative to 

public customers) and general creditors (relative to both) who, under the current regime, 

could have been more likely to receive any excess customer property in the absence of an 

explicit provision providing what to do with any such excess customer property.271 

Paragraph § 190.09(d) governs the distribution of customer property. The only 

substantive change in § 190.09(d) from its analog in current § 190.08(d) is in 

§§ 190.09(d)(1)(i) and (ii), which import the concept of “substitute customer property.” 

Whereas current §§ 190.08(d)(1)(i) and (ii) require customers to deposit cash in order to 

obtain the return of specifically identifiable property, §§ 190.09(d)(1)(i) and (ii) allow the 

posting of “substitute customer property.” This term, which is defined in § 190.01, means

cash or cash equivalents. This revision will benefit customers because it makes it easier 

for customers to redeem their specifically identifiable property by no longer limiting 

customers to only using cash to do so. It could, however, impose administrative costs in 

the form of time and resources of the trustee, who, in the event a customer chooses to post 

cash equivalents to redeem their specifically identifiable property, will be required to 

value (and potentially to liquidate) such cash equivalents. Moreover, while “cash 

equivalents” are required to be assets “that are highly liquid such that they may be 

converted into United States dollar cash within one business day without material discount 

in value,” it is possible that such assets could nonetheless decrease in value, potentially to 

the detriment of other customers.

 271 The incentive effects of such preferences are discussed in section III.A.2.vi, above.
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8. Regulation 190.10: Provisions Applicable to Futures Commission 

Merchants during Business as Usual: Consideration of Costs and Benefits

As proposed, section 190.10 addresses provisions applicable to FCMs during 

business as usual. The ABA Subcommittee and CME recommended that these ordinary 

course provisions should be codified in part 1 of the Commission’s regulations, to be more 

transparent to FCM compliance personnel. As discussed further below, the Commission 

has accepted that suggestion and is adopting in part 1 of its regulations the provisions that 

were proposed as §§ 190.10 (b), (c), (d), and (e).

In the regulation proposed as § 190.10(a), the Commission notes that an FCM is 

required to maintain current records related to its customer accounts, consistent with 

current Commission regulations, and in a manner that will permit them to be provided to 

another FCM in connection with the transfer of open customer contracts and other 

customer property. This regulation does not impose new obligations, but rather informs

the trustee regarding their duties by incorporating references to the Commission’s existing 

regulations. Thus, this provision is remaining in part 190, and, as the sole remaining 

paragraph, will be codified as § 190.10.

The regulation proposed as § 190.10(b) addresses designation of accounts as 

intended for the purpose of hedging. It is being codified as § 1.41. An FCM will be

permitted to rely upon a customer’s written representation of hedging intent regarding the 

designation of a hedging account, without being required to look behind that 

representation, thus mitigating administrative costs. 

§ 1.41(a) requires an FCM to provide a customer an opportunity to designate an 

account as a hedging account when the customer first opens the account, allowing for 
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clear instruction to FCMs at the outset of the relationship. Clear instruction at the outset 

will facilitate the ability properly to account for customer property. There will be some 

disclosure and accounting costs associated with this provision. For those customers that 

do engage in hedging, it will be more cost effective to designate the account at opening 

than to monitor the transactions for the first qualifying transaction to provide the 

opportunity to make the designation, as applicable under the current regulation. Thus, the 

proposed regulation should reduce the probability that the opportunity to designate the 

account as a hedging account will be missed. 

Paragraph 1.41(b) sets forth the conditions for treating an account as a hedging

account, permitting such treatment upon the customer’s written representation that their 

trading would constitute hedging as defined under any relevant Commission rule or the 

rule of a DCO, DCM, SEF, or FBOT. There will be record-keeping costs for FCMs and 

customers associated with the provision. 

Paragraph 1.41(c) provides that the foregoing requirements do not apply to 

commodity contract accounts opened prior to the effective date of this final rulemaking,

and that an FCM can continue to designate such existing accounts as hedging accounts 

based on written hedging instructions obtained under current regulations. This provision 

should mitigate the impact of the changes to current requirements in § 1.41(a) and (b) by 

not applying those provisions to already opened hedging accounts, instead relying upon 

the information collected and maintained during the current regulatory framework. 

Paragraph § 1.41(d) will permit an FCM to designate an existing customer account 

as a hedging account for purposes of bankruptcy treatment, provided that the FCM obtains 

the necessary customer representation. This provision will give FCMs and customers 
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flexibility to apply the proposed regulations to existing accounts where the impact would 

not be overly burdensome.

The regulation proposed as § 190.10(c) addresses the establishment of delivery 

accounts during business as usual. It is being codified as § 1.42, and recognizes that when 

an FCM facilitates delivery under a customer’s physical delivery contract and such 

delivery is effected outside of a futures account, foreign futures account, or cleared swaps 

account, it must be effected through (and the associated property held in) a delivery 

account. While there are costs associated with the opening and maintenance of delivery 

accounts, the Commission views that the use of such accounts is cost effective in 

facilitating delivery.

272 The benefit of using such accounts is twofold: to protect customer 

assets during the delivery process, and to foster the well-functioning of the delivery 

process. 

The regulation proposed as 190.10(d) addresses letters of credit, and will prohibit 

an FCM from accepting a letter of credit as collateral during business as usual unless 

certain conditions are met at the time of acceptance and remain true through the date of 

expiration. It is being codified as § 1.43. 

The first condition is that the trustee must be able to draw upon the letter of credit 

in full or in part in the event of a bankruptcy proceeding, the entry of a protective decree 

under SIPA, or the appointment of FDIC as receiver pursuant to Title II of the DoddFrank Act. Second, if the letter of credit is permitted to be and in fact is passed through to 

a clearing organization, the trustee for such clearing organization (or the FDIC) must be 

 272 The Commission further understands that it is already industry practice to use such accounts, therefore, as 

a practical matter, the cost associated with mandating the use of such accounts should be mitigated.
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able to draw upon the letter of credit in full or in part in the event of a bankruptcy 

proceeding for such clearing organization (or where the FDIC is appointed as receiver). 

Paragraph 1.43 will ensure that an FCM’s treatment and acceptance of letters of 

credit during business as usual is consistent with and does not preclude the trustee’s 

treatment of letters of credit in accordance with §§ 190.00(c)(5) and 190.04(d)(3). The 

Commission understands that under industry practice, most existing letter of credit 

arrangements are consistent with the Joint Audit Committee Forms of Irrevocable Standby 

Letter of Credit, both Pass-Through and Non Pass-Through,273 and that these forms are 

consistent with these new requirements. Nevertheless, FCMs will need to review the 

existing letters of credit for consistency with the regulation, and it is plausible that some 

could need to be re-negotiated to be consistent therewith. 

To mitigate the costs of this change, the Commission has considered the extent of 

the use of letters of credit in the industry and has determined that upon the effective date 

of the regulation, § 1.43 will apply only to new letters of credit and customer agreements. 

The Commission further is including a transition period of one year from the effective 

date until § 1.43 will apply to existing letters of credit and customer agreements. The 

transition period is intended to give FCMs an adequate opportunity to conduct the 

necessary review of existing letters of credit and customer agreements, and to make any 

necessary changes. SIFMA AMG / MFA have urged the Commission to shorten that oneyear transition period, questioning how a (non-conforming) letter of credit would be 

treated if an FCM that is holding such a letter of credit went into bankruptcy during that 

period. Nonetheless, the Commission has concluded that the one-year time period 

 273 See section II.B.8 above.
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appropriately balances the goals of mitigating burden on FCMs who are required to 

conduct such reviews, and make such changes, with the goal of mitigating the risk that an 

FCM that has accepted one or more letters of credit that do not conform to the new 

requirements becomes a debtor during that transition period. Even if such a situation 

occurs, the risk that the customer who posted that letter of credit would obtain treatment 

that is not consistent with (i.e., better than) pro rata treatment (at the expense of other 

public customers) is mitigated by the provision in § 190.04(d)(3)(ii) – which is not subject 

to the one-year transition period – that, for a letter of credit posted as collateral, “the 

trustee shall treat any portion that is not drawn upon (less the value of any substitute 

customer property delivered by the customer) as having been distributed to the customer 

for purposes of calculating entitlements to distribution or transfer.”

It is possible that some letters of credit could become more expensive for 

customers to obtain, as there will be an increased likelihood that the letter of credit will be 

drawn upon. (As discussed above, this appears to not apply to the majority of existing 

arrangements). As noted in the discussion of § 190.04(d)(3), the benefit of the regulation 

is ensuring that letters of credit are treated in an economically consistent manner with 

other types of collateral, thus promoting the goal of pro rata distribution. However, it 

could create incentives for customers who had, or who would prefer to, post letters of 

credit that could not be drawn upon unless the customer defaulted, to reduce their 

participation in transactions cleared through FCMs.

The provision proposed as § 190.10(e) concerns the disclosure statement for noncash margin, and is being codified as § 1.55(p). It largely aligns with the provisions in 
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current part 190 from which it was derived; there will be no additional cost or benefit 

implications. 

9. Section 15(a) Factors—Subpart B 

a. Protection of Market Participants and the Public

Subpart B of the revised regulations will increase the protection of market 

participants and the public by clarifying certain provisions (thereby promoting 

transparency for customers, other claimholders, and the general public), by providing, in 

certain other provisions, discretion to the trustee in determining how best to achieve the 

goal of protecting public customers as a class, by fostering transfer (and therefore 

mitigating the market risk associated with closing out and reopening positions for certain 

customers), by enhancing the likelihood that customer net equity claims will be fully 

funded, and by promoting fairness to customers as a class by achieving pro rata 

distribution.

b. Efficiency, Competitiveness, and Financial Integrity

Subpart B of the revised regulations will promote efficiency (in the sense of both 

cost effectiveness and timeliness) in the administration of insolvency proceedings of 

FCMs and the financial integrity of derivatives transactions carried by FCMs by setting 

forth clear and well-thought-out instructions for a bankruptcy trustee to follow in the event 

of an FCM insolvency, and by ensuring that these instructions are and remain consistent 

with current market practices. Moreover, subpart B will provide the bankruptcy trustee 

with discretion, in certain circumstances, to react flexibly to the particulars of the 

insolvency proceeding, guided by the goal of protecting public customers as a class, 
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thereby promoting cost-effective administration of the proceeding. These effects will, in 

turn, enhance the competitiveness of U.S. FCMs, by enhancing market confidence in the 

protection of customer funds and positions entrusted to U.S. FCMs, even in the case of 

insolvency. 

c. Price Discovery

Price discovery is the process of determining the price level for an asset through 

the interaction of buyers and sellers and based on supply and demand conditions. The 

revised regulations work to promote the transfer, rather than liquidation, of customer 

positions. To the extent that they therefore mitigate the likelihood of the need for 

liquidations of customer positions, particularly in conditions of market distress, they will 

mitigate the negative impacts of bankruptcy proceedings on price discovery.

d. Sound Risk Management Practices

Subpart B of the revised regulations will promote sound risk management practices 

by facilitating the bankruptcy trustee’ effective management of the risk of the debtor 

FCM. Subpart B will accomplish this by revising the bankruptcy regulations for an FCM 

insolvency to reflect current market practices and thereby make it easier for the trustee to 

act effectively to protect customer property in the event of such an insolvency. 

e. Other Public Interest Considerations

Subpart B of the revised regulations supports the implementation of statutory 

policy such as promoting protection of public customers and ensuring pro rata distribution 

of customer funds. Moreover, some of the FCMs that might enter bankruptcy are very 

large financial institutions, and some are (or are part of larger groups that are) considered 

to be systematically important. A well-structured and effective bankruptcy process that 
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efficiently facilitates the proceedings is likely to benefit the financial system (and thus the 

public interest), as that process will help to attenuate the detrimental effects of the 

bankruptcy on the financial system and reduce the likelihood that uncertainty as to the 

outcome of the insolvency could cause disruption to financial markets.

D. Subpart C—Clearing Organization as Debtor

Subpart C to part 190 is intended to create a tailored set of regulations to govern a 

proceeding under subchapter IV of chapter 7 of the Bankruptcy Code in which the debtor 

is a clearing organization. As discussed further below, while these regulations are fitted to 

the context of a commodity broker that is a clearing organization, they are principlesbased rather than prescriptive, and flexible rather than rigid.

The overarching benefits of this approach include the following. First, uncertainty 

will be reduced during business-as-usual (thus enhancing the ability of both clearing 

members and their customers better to understand their exposures to the possible 

insolvency of a clearing organization, and to tailor their risk management practices (and 

use of clearing services) in light of this enhanced understanding). This better 

understanding may well foster greater trust in the cleared derivatives marketplace, and 

thus greater participation therein. To be sure, it is also possible that some market 

participants, upon achieving a greater understanding, may decide not to participate. There 

are other limitations to these benefits, noted below. Second, by developing a more 

detailed, yet flexible, framework and procedures for the bankruptcy of a DCO, the costs 

(to the estate, to clearing members, and to public customers) of the case should be 

reduced. 
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Third, the resolution regime established under Title II of Dodd-Frank provides that 

the maximum liability of FDIC as receiver of a covered financial company to a claimant is 

the amount the claimant would have received if the FDIC had not been appointed receiver 

and the covered financial company had been liquidated under chapter 7 of the Bankruptcy 

Code. By establishing a clearer counterfactual, subpart C will: (a) enhance the ability of 

FDIC to plan for and to execute its responsibilities as receiver; (b) enhance the ability of 

market participants to predict in advance their exposures in the unlikely event of the 

resolution as a DCO; and (c) mitigate the cost of litigation over the value of such claims. 

The Commission notes that there can, to a certain extent, be costs imposed by proposed 

subpart C, in that there may be a corresponding reduction in flexibility with the addition of 

rules specifically tailored to address a DCO bankruptcy, but the Commission has drafted

these proposed rules with the intent of maintaining significant flexibility, where 

warranted. 

It is apposite to note an important issue that affects incentives: a significant group 

of commenters have expressed strong concerns, both in comments to this rulemaking274

and elsewhere,275 that clearing members and their customers have no meaningful role in 

DCO risk governance, and, most relevant here, that DCOs’ default rules and procedures 

and recovery and wind-down plans are developed without sufficient input from members 

and their customers. As discussed in detail in section II.C above and in this section II.D, 

subpart C is based, in large part, on a debtor DCO’s ex ante default rules and procedures 

 274 See ACLI, FIA, ICI, SIFMA AMG / MFA, and Vanguard.

275 See, e.g., A Path Forward for CCP Resilience, Recovery, and Resolution (published by a group of 

prominent clearing members and money managers).
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and recovery and wind-down plans, though applied flexibly by the trustee – that is, only to 

the extent they determine is “reasonable” and “practicable.”

Most of those concerns transcend the topic of this rulemaking: As a general 

matter, risk governance is intended to mitigate the possibility of default and, where default 

does occur, to foster the result that it is the defaulter that pays for all of the losses; skin-inthe-game provides an additional layer of loss-absorbency that (i) comes before 

mutualizing costs to non-defaulters and (ii) creates incentives for DCOs to engage in 

successful risk management. Default rules and procedures are intended to, inter alia, 

ensure that the DCO can take timely action to contain losses and liquidity pressures and to 

continue meeting its obligations in the event of a clearing member default. Recovery 

plans address credit losses that exceed the DCO’s available resources, as well as other 

risks, as necessary to maintain the derivatives clearing organization’s viability as a going 

concern, while wind-down involves the actions of the DCO to effect the permanent

cessation or sale or transfer of one or more services.

Commission regulations require DCOs to: take steps to ensure their resilience, 

have effective rules and procedures to manage defaults, address fully any individual or 

combined default loss, and maintain viable plans for recovery in the event that they suffer 

a default loss or any other (non-default) loss.276 

DCOs’ rules and arrangements for default management and their recovery plans 

work to allocate losses that are not covered by the resources of the defaulter between the 

 276 See generally part 39 of the Commission’s regulations. Only SIDCOs, or other DCOs that have elected 

to become subject to the provisions of subpart C of part 39, are required to address fully any default loss, or 

to maintain recovery and wind-down plans. However, among DCOs based in the United States, the vast 

majority of activity is conducted on DCOs that fall within one of those two categories.
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DCOs themselves, their clearing members, and (in some cases such as gains-based 

haircutting), will have the effect (along with clearing agreements between FCMs and their 

public customers) of allocating certain losses to public customers. These include default 

losses that are not covered by margin posted by the defaulter (or the defaulter’s own 

contribution to mutualized loss arrangements) or by the DCO’s “skin-in-the-game,” as 

well as certain investment or custody losses. All of this would occur outside of 

bankruptcy.277

Those rules, plans, and arrangements – and the extent to which they are considered 

helpful or noxious – thus influence the incentives of DCOs, their clearing members, and 

the customers of those clearing members. Thus, the concerns that these clearing members 

and money managers have raised with respect to their limited ability to influence these 

rules, plans, and arrangements that have effects outside of bankruptcy are likely to have 

important incentive effects on how, and the extent to which, clearing members and their 

public customers (including money managers) are willing to and do participate in cleared 

markets. 

To the extent that subpart C of part 190 applies those rules, plans and 

arrangements, even if flexibly, then the incentive effects described above may be felt more 

strongly by clearing members and their public customers, albeit only marginally so.

278 

The level of that enhanced incentive is difficult to measure, since it depends, in significant 

part, on the perception of those entities as to the effect of referring to those rules, plans, 

 277 Moreover, among U.S. DCOs (and among all DCOs registered with the Commission), no loss has ever 

been so large that it was mutualized. 

278 The effects of those rules on incentives for DCOs is even more difficult to measure, since a chapter 7 

liquidation (the only bankruptcy available to a commodity broker, see 11 U.S.C. 109(d)) is highly likely to 

reduce severely, if it does not eliminate, the DCO’s value to its shareholders.
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and procedures in bankruptcy under part 190, subpart C: those rules, plans, and 

procedures, which they dislike, are and will be applicable in cases where the DCO 

engages in either default management or recovery outside of bankruptcy. The references 

to these rules, plans, and procedures in part 190 increases the likelihood that they will be 

used (because bankruptcy represents an additional circumstance in which they would be 

applicable). The incentive effects also depend on the perception of clearing members and 

their public customers on the effect of such use in bankruptcy.

A note on terminology: as discussed above in section II.C, the customers of a 

clearing organization are its members, considered separately in two roles: (1) Each 

member may have a proprietary (also known as “house”) account at the clearing 

organization, on behalf of itself and its non-public customers (i.e., affiliates). The 

property that the clearing organization holds in respect of these accounts is referred to as 

“member property.” (2) Each member may have an account for that members’ public 

customers. The property that the clearing organization holds in respect of these accounts 

is referred to as “customer property other than member property.” Many clearing 

members will have both such accounts, although some may have only one or the other. 

1. Regulation 190.11: Scope and Purpose of Subpart C: Consideration 

of Costs and Benefits

Section 190.11(a) will simply state that the new subpart C of part 190 will apply to 

a proceeding commenced under subchapter IV of chapter 7 of the Bankruptcy Code in 

which the debtor is a clearing organization. Therefore, the costs and benefits of 

§ 190.11(a) are the overarching costs and benefits stated above. 
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ICE and SIFMA AMG / MFA noted that, in the case of the bankruptcy of a DCO 

organized outside the United States, there may be conflicts with a bankruptcy proceeding 

in the home jurisdiction unless the applicability of part 190 is limited. For example, there 

may be differing – and irreconcilable – rules for distributing property. Such differing 

rules could incentivize, e.g. ̧ a customer of a non-FCM clearing member to bring litigation 

seeking to apply part 190’s customer protection rules to what they might describe as the 

customer claims of their non-FCM clearing member.279

The Commission has determined to adopt a suggestion by ICE and, in a newly 

created § 190.11(b), to limit the applicability of part 190, in the case of a foreign DCO 

subject to a proceeding in its home jurisdiction, to provisions that (a) focus on the 

contracts and property of public customers of FCM members280 or (b) general provisions, 

and those that provide notice and reports to the Commission and a U.S. bankruptcy 

trustee.281 By limiting the applicability of part 190 in this manner, the Commission will 

foster the goal of mitigating such conflicts,282 while by including those provisions (rather 

 279 As noted immediately below, public customers of FCM clearing members will benefit from protection 

under part 190.

280 I.e., §§ 190.13, 190.17, and 190.18, but only with respect to: (1) claims of FCM clearing members on 

behalf of their public customers; and (2) property that is or should have been segregated for the benefit of 

FCM clearing members’ public customers, or that has been recovered for the benefit of FCM clearing 

members’ public customers.

281 I.e., subpart A, and §190.12.

282 The Commission notes that conflicts involving a DCO based outside the United States with the 

insolvency law in that DCO’s home jurisdiction as applied to claims of FCM clearing members on behalf of 

their public customers should be mitigated by the fact that, pursuant to § 39.27(c)(3) and Exhibit R to 

Appendix A to part 39, the DCO is required to submit and to keep current a memorandum demonstrating, 

inter alia, the basis for the conclusion that the DCO’s arrangements to ring-fence the customer funds of 

FCM clearing member are effective under the relevant non-U.S. law in the event of the insolvency of the 

DCO, and the basis for the conclusion that a local court or insolvency official in the DCO’s jurisdiction of 

domicile would respect the choice of U.S. law in that context, and the basis for the conclusion that the DCO 

would be able to comply with relevant provisions of the Bankruptcy Code and Commission regulations with 

respect to pro rata distribution and relevant orders of a U.S. court regarding the distribution of customer 

funds.
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than disapplying part 190 entirely to the bankruptcy of a foreign-based clearing 

organization), the Commission will foster the goal of protecting customers of U.S. FCM 

members of such a foreign-based DCO.

2. Regulation 190.12: Required Reports and Records: Consideration 

of Costs and Benefits

Paragraph 190.12(a)(1) is analogous to § 190.03(a), in that it provides instructions 

regarding how to give notice to the Commission and to a clearing organization’s members, 

where such notice is required under subpart C. For a discussion of the costs and benefits 

of this section, please refer to the discussion of the cost and benefit implications of 

§ 190.03(a).

Paragraph 190.12(a)(2) will revise the time in which a debtor clearing organization 

must notify the Commission of a bankruptcy filing. In particular: (1) in the event of a 

voluntary bankruptcy filing, the debtor will be required to notify the Commission at or 

before the time of filing, and (2) in the event of an involuntary bankruptcy filing, the 

debtor must notify the Commission as soon as possible, but in any event no later than 

three hours after the receipt of the notice of such filing. These revisions codify 

expectations that (1) in a voluntary bankruptcy proceeding, the debtor clearing 

organization will provide advance notice to the Commission ahead of the filing to the 

extent practicable, and (2) in an involuntary bankruptcy proceeding, the debtor clearing 

organization will notify the Commission immediately upon receiving notice of the filing, 

or within at the most three hours thereafter. 

With respect to a voluntary bankruptcy filing, the Commission expects that the 

DCO will have reported its financial distress in the lead-up to a bankruptcy filing in 
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accordance with the mandatory reporting requirements in § 39.19(c)(4); the revision in 

proposed § 190.12(a) merely codifies the expectation that the clearing organization will 

notify the Commission of an intent to file for bankruptcy protection as soon as practicable 

before, and in no event later than, the time of the filing. In addition, § 190.12(a) also will 

allow a debtor clearing organization to provide the relevant docket number of the 

bankruptcy proceeding to the Commission “as soon as available,” while not delaying

notifying the Commission of the filing itself, to account for the potential for a time lag 

between the filing of a proceeding and the assignment by the relevant court of a docket 

number. These revisions will enhance the ability of the Commission to perform its 

responsibilities to support the interests of clearing members, customers of clearing 

members, markets, and the broader financial system, by providing the Commission with 

prompt notice of any DCO bankruptcy proceeding.

Paragraphs 190.12(b) and (c) involve the provision of certain reports and records 

to the trustee and/or the Commission by the debtor clearing organization. In particular: 

§ 190.12(b) sets forth the reports and records that the clearing organization will be 

required to provide to the Commission and to the trustee within three hours following the 

later of the commencement of the proceeding or the appointment of the trustee, and 

§ 190.12(c) sets forth the records to be provided to the Commission and to the trustee no 

later than the next business day following commencement of a bankruptcy proceeding. 

These provisions will impose administrative costs on the debtor clearing organization 

and/or the trustee, which will be obligated to spend time and resources transmitting copies 

of the required reports and records to the trustee and/or Commission. However, these 

provisions should both benefit the estate, and enhance the Commission’s ability to fulfil 
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its responsibilities, by providing them with the most current information about the clearing 

organization, and by allowing the trustee to begin to understand the business of the

clearing organization as soon as possible following a bankruptcy filing, which is critically 

necessary to the administration of the debtor clearing organization’s estate. This would in 

turn promote confidence in the clearing system in particular, and financial markets more 

broadly.

OCC indicated that, while they “maintain[] this information in a readily accessible 

place and do[] not foresee any challenge in identifying and providing this information 

without delay,” they believe that the three hour time period is “overly prescriptive” 

because of the possibility of “unforeseen delays that could occur on the day in which a 

DCO enters bankruptcy.” The Commission has declined to modify the proposal, because 

the Commission believes that setting this specific deadline will result in significant 

benefits: providing this information to the trustee and the Commission with much-needed 

expediency, and facilitating DCOs’ contingency planning. By comparison, the burden of 

providing the reports, which as the commenter notes, are already in existence and are 

readily accessible, appears modest. 

3. Regulation 190.13: Prohibitions on Avoidance of Transfers: 

Consideration of Costs and Benefits

Section 190.13 implements section 764(b) of the Bankruptcy Code with respect to 

DCOs, and prohibits the avoidance of certain transfers made either before or shortly after 

entry of the order for relief. While the prohibition of avoidance of pre- and post-relief 

transfers in the context of FCM debtors in § 190.07(e) applies so long as the transfer is not 

disapproved by Commission, the same prohibition on avoidance of pre- and post-relief 
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transfers in §§ 190.13(a) and (b) will require the affirmative approval of the Commission 

(though such approval can be given either before or after the transfer is made). This 

distinction will impose administrative costs on the clearing organization or the trustee, 

who will have to expend time and resources to seek affirmative approval from the 

Commission for such a transfer in the context of administering a DCO, respectively, either 

before or after bankruptcy. As noted above,283 a clearing organization is mandated to

maintain a “balanced book.” Thus, a transferee clearing organization may only accept 

transfer of all of the transferor’s customer positions (or at least all positions in a given 

product set).284 Any such transfer will have significant effects on the markets cleared, and 

on the broader financial system. There are important benefits from requiring the 

Commission’s approval of such a significant transaction, and thus permitting the 

administrative agency responsible for oversight of the derivatives markets to maintain a 

level of discretion which will help accomplish the goal of an orderly functioning of the 

marketplace.

4. Regulation 190.14: Operation of the Estate of the Debtor 

Subsequent to the Filing Date: Consideration of Costs and Benefits

Paragraph § 190.14(a) provides that the trustee may, in their discretion based upon 

the facts and circumstances of the case, instruct each customer to file a proof of claim 

containing such information as is deemed appropriate by the trustee. Allowing the 

bankruptcy trustee to use their discretion in tailoring the proof of claim form to the 

specific facts and circumstances of the case should benefit both the trustee and customers 

 283 See section II.C.3 above.

284 If the transferor clearing organization does not have a balanced book, e.g., because of a member default, 

it could nonetheless only transfer a balanced book.
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by limiting the information requested to only that which is necessary for purposes of 

administering the debtor’s estate and thereby increasing cost effectiveness, particularly 

given the bespoke nature of a clearing organization bankruptcy. Thus, the Commission 

has not proposed a prescribed proof of claim form. There could, however, be 

corresponding administrative costs to both the estate and the customers if the set of 

information requested by the trustee in the exercise of their discretion turns out in 

retrospect to be overly narrow or broad.

ICE believes that the proposal did not clearly take into account non-CFTCregulated clearing, and that claims of members with respect to such activity should be 

properly accounted for in bankruptcy and should not be disadvantaged. As the 

Commission noted above,285 to the extent that the DCO is conducting non-CFTCregulated activity, the Commission expects that the proof of claim form will include the 

opportunity to claim for debts of the DCO related to activity that is not regulated by the 

CFTC. Thus, no change is necessary to address this concern. 

Paragraph 190.14(b) provides that a debtor clearing organization will cease making 

calls for variation settlement or initial margin.

286 Under current regulations, it would not 

be possible to continue the operations of a debtor clearing organization for any amount of 

time after entry of the order for relief, as there is no clear and coherent mechanism to do 

 285 See § II.C.4.

286 As originally proposed, § 190.14(b) also contained provisions that were intended to provide a brief 

opportunity, after the order for relief, to enable paths alternative to liquidation—that is, resolution under 

Title II of the Dodd-Frank Act, or transfer of clearing operations to another DCO—in cases where a short 

delay (i.e., less than or equal to six days) might facilitate such an alternative path. The Commission 

subsequently issued the Supplemental Proposal, which withdrew those proposed provisions—

§§ 190.14(b)(2) and (3)—and proposed a new alternative to facilitate the potential resolution of a SIDCO 

pursuant to Title II of the Dodd-Frank Act. As discussed in section II.C.4 above, the Commission is not 

adopting the Supplemental Proposal.
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so. Thus, § 190.14(b) affirms current legal requirements and maintains the status quo.

Paragraph 190.14(c)(1) provides that the trustee shall liquidate all open commodity 

contracts that have not been terminated, liquidated or transferred no later than seven 

calendar days after the entry of the order for relief. This provision will impose 

administrative costs in that the trustee will have a hard deadline for terminating, 

liquidating or transferring any open commodity contracts within a certain timeframe, 

whereas under current part 190 there was no specified timeframe for such termination, 

liquidation or transfer. It could, however, benefit clearing members and customers, who 

will have certainty that their open commodity contracts would be liquidated within a 

particular timeframe rather than being held open for an undetermined amount of time. A 

deadline for liquidation or transfer of open contracts may benefit the broader financial 

markets by mitigating uncertainty.

Paragraph 190.14(c)(2), which is derived from current § 190.08(d)(3), will provide 

that the trustee may, at their discretion, make distributions in the form of securities that are 

equivalent to the securities originally delivered to the debtor by a clearing member or such 

clearing member’s customer, rather than liquidating the securities and making 

distributions in cash. Unlike current § 190.08(d)(3), § 190.14(c)(2) will not allow the 

customer to request that the trustee purchase like-kind securities and distribute those 

instead of cash, but instead will leave it to the discretion of the trustee whether to do so. 

This change could impose costs on customers who would prefer to have a distribution of 

equivalent securities rather than cash, since it will remove their option to request such a 

distribution. However, it could benefit the estate by allowing the trustee to use their
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discretion as to whether to purchase and distribute equivalent securities, rather than being 

obligated to do so at the request of a customer.

Paragraph 190.14(d) will require the trustee to use reasonable efforts to compute 

the funded balance of each customer account immediately prior to the distribution of any 

property in the account, “which shall be as accurate as reasonably practicable under the 

circumstances, including the reliability and availability of information.” This requirement 

applies with respect to accounts of the customers of the clearing organization: that is, its 

members, separately in respect of each such member’s (1) house account (on behalf of the 

member and its non-public customers and (2) customer account or accounts (on behalf of 

the member’s public customers, one such account for each account class, to the extent 

relevant).

This requirement will impose administrative costs due to the time and effort 

involved in making such calculations. However, the regulation gives the trustee a certain 

amount of discretion, and this calculation will be necessary to achieve the goal of making 

distributions that are consistent with each customer’s proportionate share. 

5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules 

and Procedures: Consideration of Costs and Benefits

Section § 190.15 provides that (1) the trustee shall not avoid or prohibit any action 

taken by a debtor that was within the scope of and was provided for in the debtor’s 

recovery and wind-down plans; (2) in administering a DCO bankruptcy, the trustee shall, 

subject to the reasonable discretion of the trustee and to the extent practicable, implement 

the default rules and procedures maintained by the debtor; and (3) in administering a DCO 
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bankruptcy, the trustee shall, to the extent reasonable and practicable, and consistent with 

the protection of customers, take actions in accordance with the debtor’s recovery and 

wind-down plans. 

The Commission considered two alternatives to directing the trustee to implement 

the debtor’s own default rules and procedures and recovery and wind-down plans: first, 

continuing to allow a bankruptcy trustee to develop, in the moment, a plan for liquidating 

the debtor clearing organization, and second, prescribing an across-the-board method for 

liquidating a debtor clearing organization. 

A number of commenters appeared to support the first alternative approach. Some 

(e.g., ACLI, FIA, ICI, SIFMA AMG / MFA, Vanguard) expressed concern that they lack 

transparency with regard to the DCO risk management decisions and DCOs’ default rules 

and procedures and recovery and wind-down plans are developed without sufficient input 

from clearing members and their customers. For example, Vanguard argues that the 

existing DCO governance regime provides them with no meaningful voice in critical DCO 

risk management practices and new cleared product introductions; and since public 

customers have only a very limited ability to mitigate clearing risks contractually, they 

“rely heavily on the Commission to protect the interests of [their] investors in the 

mandated cleared market.” Commenters also express the concern that there is a risk that, 

as a DCO begins to fail, otherwise prudent DCO rules could be changed without the 

appropriate vetting by clearing members and public customers who, given mutualized 
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allocation of losses, bear the risk of poor risk management choices undertaken by the 

DCO.

287

The Commission has considered the potential interplay of the amendments to part 

190 with other Commission regulations and applicable statutes. As noted above, these 

commenters’ concerns predominantly relate to the economic interests of clearing members 

and their customers in contexts outside of bankruptcy. 

A DCO’s operations and rules outside of bankruptcy are governed by parts 39 and 

40 of the Commission’s regulations. The Commission, in particular through its Division of 

Clearing and Risk, applies these regulations and conducts a rigorous program of oversight 

of DCOs designed to protect the interests of market participants and of the financial 

system, including through careful reviews of their rules (including default rules) and their 

recovery and wind-down plans, through detailed daily and periodic risk surveillance, and 

through in-depth remote and on-site examinations addressing a wide spectrum of risk 

management issues. 

As noted by a commenter above, they “rely heavily on the Commission to protect 

the interests of our investors in the mandated cleared market.” Over the years, the 

Commission has taken seriously its responsibilities in this regard, through its regulatory, 

surveillance, and examinations programs.

 287 With respect to DCO rules adopted as the DCO is on the threshold of failure: DCO rules are subject to 

review by the Commission. In all cases, they are subject to review for consistency with the CEA and 

Commission regulations (see § 40.6). In the case of SIDCOs, they are additionally subject to review for 

consistency with the purposes of the Dodd-Frank Act or any applicable rules, orders, or standards prescribed 

under §805(a) thereof. Moreover, to the extent commenters are concerned that such late-enacted rules will

be unfair to clearing members or their customers, the Commission expects that such unfairness would affect 

the trustee’s judgment of the extent to which it is “reasonable” to apply those rules.
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As discussed above, there are important costs to addressing, in the context of part 

190, market participants’ concerns regarding DCOs’ rules, procedures, and plans for 

allocating losses that apply outside of a DCO bankruptcy: Establishing a bankruptcy 

regime where some market participants would be allocated a smaller amount of losses in 

bankruptcy than outside of bankruptcy would risk creating incentives for those 

participants to act in a manner that promotes the likelihood that the DCO will enter

bankruptcy.

In view of these considerations, the Commission believes the commenters’

concerns are effectively mitigated by the existing provisions of parts 39 and 40 of its 

regulations and by the Commission’s supervision of DCOs.288 Therefore, the adoption of 

part 190, subpart C, which is applicable to a DCO’s potential bankruptcy, appropriately 

complements parts 39 and 40 and the Commission’s ongoing supervision, which apply to 

a DCO’s operations and rules outside of bankruptcy.

Other commenters are concerned with the inclusion in those DCO rules and plans 

of “drastic measures as Variation Margin Gains Haircutting (VMGH) and Partial Tear-Up 

(PTU) of open positions.” Gains haircutting, however, is part of the ex ante allocation of 

losses, and thus is an inherent part of the way in which losses will be allocated in 

bankruptcy. Moreover, there is a limited amount of customer property available. Thus, to 

the extent the application of VMGH were to be disallowed, and some customers would 

realize corresponding benefits through increases in the allowed amounts of their claims 

(and thus a greater share of customer property), other customers would suffer 

 288 Nonetheless, the Commission is sensitive to the concerns raised by commenters with respect to the 

development and maintenance of DCO recovery and wind-down plans and default rules and procedures, and 

is actively reviewing these issues, in particular with respect to governance, as they relate to parts 39 and 40.
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corresponding costs, through a decreased share of customer property – indeed, the latter 

customers may receive less than the amount of their claims for initial margin.289 

Accordingly, the Commission concludes that it is inadvisable to prohibit VMGH, or to 

mandate that its effects be reversed, in cases of DCO bankruptcy.

Partial tear-up, on the other hand, is inapplicable in a clearing organization 

bankruptcy: § 190.14(b) prohibits further collection of variation margin, while 

§ 190.14(c) requires the trustee to liquidate all open commodity contracts. Together, they 

effectively mandate full tear-up of open positions. Thus, the question of whether partial 

tear-up should be prohibited is moot. 

Other commenters are concerned that these plans do not prescribe a specific course 

of action, but rather “present a menu of options.” See, e.g., FIA, Vanguard. The 

Commission is of the view that, given the complexity of the operations of a DCO, and the 

need for extremely prompt action, having the trustee develop an entire plan in the moment 

would be likely to turn out to be impracticable. By contrast, being presented with a “menu 

of options” among which the trustee may select (and adapt) in a manner that is 

“reasonable and practicable” provides the benefit of a helpful roadmap to determine 

strategy and tactics. 

The commenters, and potentially other clearing members and public customers 

who share the concerns of the commenters, appear to view DCO default rules and 

procedures and recovery and wind-down plans that they believe have been adopted with 

inadequate input from them as noxious, and thus they may already be incentivized to 

 289 Cf. ISDA: Safeguarding Clearing: The Need for a Comprehensive CCP Recovery and Resolution 

Framework (2017) at 2 (“Initial margin haircutting should never be permitted.”)
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reduce their exposure to such DCOs. Those incentives may be (marginally) increased by

the fact that the Commission is establishing in § 190.15 a model for the trustee that is 

based on those rules, procedures, and plans.

Other commenters (CME and ICE) support the second alternative, specifically, a 

requirement that the trustee cannot override the DCO’s default rules or deviate from the 

DCO’s recovery or wind-down plans. However, given that these rules and plans are 

designed to operate outside of bankruptcy, a requirement to follow them in procrustean 

fashion would have the cost of compelling the trustee to adopt an approach that may be 

poorly tailored to the situation, and the Commission will accordingly not adopt such a 

requirement. 

Finally, given the differences between DCOs (and potential bankruptcy situations), 

a one-size-fits-all approach prescribed by the Commission is likely to prove too rigid, and 

thus will not be adopted. 

The Commission is accordingly of the view that, relative to these alternatives,

directing a trustee to implement the DCO’s own default rules and procedures, and 

recovery and wind-down plans, would benefit the estate by providing the trustee with a 

menu of purpose-built rules, procedures and plans to liquidate a DCO, which rules, 

procedures and plans the DCO has developed subject to the requirements of the 

Commission’s regulations and supervision of the Commission. Adding concepts of 

reasonability and practicability will give the trustee the discretion to modify those rules, 

procedures, and plans where and to the extent appropriate. Hence, the Commission 

believes that an approach whereby the trustee would follow the DCO’s own purpose-built 
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default rules and procedures and recovery and wind-down plans, but have the discretion to 

vary them as appropriate, would be the most cost effective. 

6. Regulation 190.16: Delivery: Consideration of Costs and Benefits

Regulation 190.16 addresses delivery in the context of a clearing organization 

bankruptcy. Current part 190 does not contain any regulations specific to delivery in that

context.

Paragraph 190.16(a) provides that a bankruptcy trustee is required to use 

“reasonable efforts” to facilitate and cooperate with the completion of the delivery on 

behalf of the clearing organization’s clearing member or the clearing member’s customer. 

This has the benefit of mitigating disruption to the cash market for the commodity and 

mitigating adverse consequences to parties that may be relying on delivery taking place in 

connection with their business operations. While the exertion of such reasonable efforts 

will necessarily involve administrative costs (predominantly, time of the trustee or their 

agents), the Commission is of the view that this approach has important benefits relative to 

the two alternatives. Given the importance of reliable delivery to physical markets, it 

would be inappropriate to relieve the trustee of the obligation to endeavor to facilitate and 

cooperate with the members’ or members’ customers’ efforts to accomplish delivery. On 

the other hand, mandating that the trustee go beyond reasonable efforts would risk 

compelling the trustee to expend unwarranted amounts of resources in this endeavor. 

While proposed § 190.16(a) applied this approach only to contracts that had moved 

into delivery position prior to the date and time of the order for relief, the ABA 

Subcommittee and CME suggested that this approach should be extended to contracts that 

move into delivery position after that date and time, with the CME noting that “it is 
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equally important to protect deliveries under [such contracts] to avoid disruption to 

commercial markets and operations.” The Commission has accepted this suggestion and 

notes that, if any contracts move into delivery position after the order for relief, but before 

being terminated, liquidated, or transferred, the benefits and costs of this approach are 

analogous to those of contracts that move into delivery position prior to the order for 

relief. 

Paragraph 190.16(b) clarifies which property will be part of the physical delivery 

account class and which will be part of the cash delivery account class. It is analogous to 

§ 190.06(b) in the FCM context, and carries forward the concepts in that section, but has 

been modified for the context of a DCO bankruptcy. Clearly delineating between the 

physical delivery account class and the cash delivery account class will benefit customers 

because it will increase transparency in terms of which account class their property 

belongs in. Paragraph 190.16(b) will likely impose administrative costs, since accounting 

separately for physical delivery property and cash delivery property will take the trustee’s 

time and resources. As noted above,290 the sub-division of the delivery account class into 

the physical and cash delivery account classes will recognize that cash is more vulnerable 

to loss, and more difficult to trace, as compared to physical delivery property. Therefore, 

this sub-division will likely benefit those with physical delivery claims. Since cash is 

more vulnerable to loss and more difficult to trace, then under this approach, clearing 

members and customers with claims in the cash delivery sub-class will be more likely to 

 290 See discussion of § 190.06(b) in section II.B.4 above. 
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get a pro rata distribution that would be less than those with claims in the physical 

delivery property sub-class.291

7. Regulation 190.17: Calculation of Net Equity: Consideration of 

Costs and Benefits

Paragraph 190.17(a) clarifies that a member of a debtor clearing organization may 

have claims against the clearing organization in separate capacities: on behalf of its public 

customers (customer accounts) and on behalf of its non-public customers (house 

accounts). It further states that net equity shall be calculated separately for each customer 

capacity in which the clearing member has a claim against the debtor. In the 

Commission’s view, the provisions in § 190.17(a) are clarifications that reflect customer 

classifications set forth in §766(i) of the Bankruptcy Code, and account classifications that 

have long been used in other contexts, and will not impose any costs or benefits on any 

parties. 

Paragraph 190.17(b)(1) provides that the calculation of a clearing member’s net 

equity claim in the bankruptcy of a clearing organization shall include the full application 

of the debtor’s loss allocation rules and procedures. It also provides that, with respect to a 

clearing member’s house account, this will include any assessments or similar loss 

allocation arrangements provided for under those rules and procedures that were not called 

for before the filing date, or, if called for, have not been paid.

A number of commenters, including the ABA Subcommittee, CME, FIA, and ICE,

objected to including assessments that had not been called for before the order for relief in 

 291 Costs and benefits of the separation of the delivery account class into physical delivery and cash delivery 

subclasses were also addressed in respect to the costs and benefits section addressing the definition of 

“account class” in § 190.01, section II.A.2 above.
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the calculation of net equity claims where the debtor clearing organization’s rules provide 

that assessments cannot be called for after bankruptcy. Taking these commenters’

preferred approach would benefit the clearing members in circumstances where there are 

both uncalled assessments, and remaining default losses. As FIA noted in its comment 

letter, the inclusion of uncalled assessments ‘appears to have the effect of reducing a 

clearing member’s potential recovery.” However, all losses will ultimately be allocated, 

and if uncalled assessments are not taken into account, any remaining losses that haven’t 

been covered by other default resources will be allocated through gains-based haircutting. 

Thus, the commenters’ preferred approach would be at the cost of the customers of 

clearing members, who would bear additional losses even as the clearing members would 

benefit.

Relative to the alternative suggested by these commenters, the direct effect of 

Paragraph 190.17(b)(1) is to ensure that the uncalled assessment will make up more of the 

default losses, and conversely that haircutting of the gains (of both clearing members and 

customers) will make up less of that loss. Hence, the rule could harm clearing members, 

and correspondingly benefit their customers. In addition, there can be indirect effects. 

While the maximum amount of assessments that clearing members are exposed to will not 

increase, there is a marginally292 increased likelihood that those assessments will be 

used.293 Because clearing members’ potential assessments are more likely to be used, they 

 292 “Marginal” because this happens only if (a) there is a DCO bankruptcy, (b) there is a default loss suffered 

by the DCO in connection with the bankruptcy, and (c) not all of the assessments necessary to address that 

default loss were called before that bankruptcy.

293 While § 190.17(b)(1) will not result in uncalled assessments being “called” – the clearing members will 

not have to pay them to the estate – uncalled assessments will be “used” to reduce the clearing member’s net 

equity claim.
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will have a marginally increased incentive to reduce their level of exposure to assessments 

– for example, by reducing their clearing activity for themselves or on behalf of their 

customers. While it is conceivable that clearing members could work to influence DCOs 

to reduce their own assessment powers as a result of these incentives, there are mitigants 

in the Commission’s regulations.294 

Paragraph 190.17(b)(2) provides that where the debtor’s loss allocation rules and 

procedures provide that clearing members are entitled to payments due to portions of 

mutualized default resources that are either prefunded, or assessed and collected, but in 

either case not used, or to the clearing organization’s recoveries on claims against others 

(including recoveries on claims against defaulting clearing members), then “appropriate 

adjustments shall be made to the net equity claims of clearing members that are so 

entitled.” These provisions will benefit the estate by providing the trustee with tools to act 

promptly and efficiently, with lower administration costs. The trustee will have a clear 

roadmap to calculate net equity in the bankruptcy of a clearing organization and will not 

be obligated to come up with an ad hoc methodology for doing so. The provisions would

also benefit clearing members (and, therefore, their customers) by providing transparency 

as to how their net equity will be calculated, as well as facilitating the efficient 

administration of the estate.

295 

 294 For example, § 39.39(b)(1) requires SIDCOs and Subpart C DCOs to have viable plans for recovery 

necessitated by uncovered credit losses, and the extent of a DCO’s assessment power contributes to the 

viability of its recovery plan. Moreover, the two SIDCOs, CME and ICE Clear Credit, already have 

significant assessment powers, and any proposed rule change to reduce those powers would need to 

withstand review under § 40.10 for consistency with inter alia, the purposes of the CEA and the Dodd-Frank 

Act, which include the mitigation of systemic risk and the promotion of financial stability.

295 See also 17 CFR 39.16 (requiring each DCO to, among other things, “adopt rules and procedures 

designed to allow for the efficient, fair, and safe management of events during which clearing members 

become insolvent or default on the obligations of such clearing members to the” DCO).
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In those cases where the debtor has excess mutualized default funds, or recovers 

on claims against defaulters, application of the debtor’s “reverse waterfall” rules will 

benefit clearing members (and, in certain cases, their customers) by increasing the net 

equity claims of the entitled clearing members

In addition to the potential for these transfers between general creditors and 

clearing members and their customers, this rule can create incentives for clearing members

and their customers. In particular, it makes clearing members’ contributions to mutualized 

resources (and the possibility that gains-based haircutting will affect clearing members 

and their customers) less onerous, because they enhance the possibility that if the clearing 

member’s contribution to mutualized default resources (or gains-based haircutting 

affecting clearing members or their customers) is used to meet a default, it ultimately will 

come back to the clearing member or their customers as it is recovered by the DCO (or the 

DCO’s trustee) from the (bankruptcy) estate of the defaulter.

Paragraph 190.17(c) incorporates by reference the net equity calculations set forth 

in proposed § 190.08, to the extent applicable.296

Paragraph 190.17(d) sets forth a definition of the term “funded balance” that is 

taken directly from the relevant Bankruptcy Code provisions. Clarifying the meaning of 

the term “funded balance” in the context of a clearing organization bankruptcy will benefit 

clearing members, in that they will know ex ante what is and is not included in their 

funded balance and how that amount is calculated. In addition, § 190.17(d) incorporates

 296 For a discussion of the cost and benefit considerations for § 190.08, please see section IV.C.6 above.
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by reference the methodology for calculating funded balance that is set forth in 

§ 190.08(c).297

8. Regulation 190.18: Treatment of Property: Consideration of Costs 

and Benefits

Paragraph § 190.18(a) is analogous to § 190.17(a), in that it will provide that 

property of the debtor clearing organization’s estate will be allocated between member 

property and customer property other than member property in order to satisfy the 

proprietary and customer claims, respectively, of clearing members. In the Commission’s 

view, the provisions in § 190.18(a) are mere clarifications and do not impose any costs or 

benefits on any parties.

Paragraphs 190.18(b)(1)(i) and (ii) set out the scope of customer property for a 

clearing organization, and are largely based on § 190.09(a).298

Paragraph 190.18(b)(1)(iii) provides that customer property for a clearing 

organization includes any guaranty fund deposit, assessment or similar payment or deposit 

made by a clearing member or recovered by a trustee, to the extent any remains following 

administration of the debtor’s default rules and procedures, and any other property of a 

member available under the debtor’s rules and procedures to satisfy claims made by or on 

behalf of public customers of a member. This provision supports the goal of making 

customers of the clearing organization whole, since it clarifies that any property described 

in this section will be included in the scope of customer property, rather than ultimately 

going to some other creditor of the debtor. It would result in corresponding costs to non-

 297 For a discussion of the cost and benefit considerations for § 190.08(c), please see section III.C.6 above.

298 For a discussion of the cost and benefit considerations for § 190.09(a), please see section III.C.7 above.
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customer creditors, and could result in administrative costs, however, since the trustee 

could need to spend time and resources in order to determine whether any such property 

exists in order to properly allocate such property to customers. 

A number of commenters (CME, SIFMA AMG / MFA) have suggested that the 

Commission make it explicit that customer property should include the amounts of its own 

funds a debtor DCO had committed as part of its loss allocation rules. The Commission 

has accepted this suggestion in the final rule, incorporating this provision in 

§ 190.18(b)(1)(iv). This will benefit customers, who will have additional funds allocated 

to their claims, thereby increasing the payment that they receive on their claims and/or 

increasing the likelihood of full payment of their claims (due to an increase in customer 

property). However, this benefit would accrue at the possible expense of general 

creditors, as there will be an equivalent reduction in assets in the general estate. An 

indirect consequence of this change might be to marginally incentivize customers to retain 

open positions in contracts that are cleared by a potentially-failing DCO, which might 

marginally contribute to preserving liquidity in those markets. 

Regulation 190.18(b)(2) incorporates by reference, in the context of a DCO as a 

debtor, the exclusions from customer property applied in the context of debtor FCMs in

§ 190.09(a)(2), as if the term debtor used therein would refer to a clearing organization as 

debtor and to the extent relevant to a clearing organization.299

Regulation 190.18(c) sets forth the allocation of customer property among 

customer classes (i.e., allocation between (1) customer property other than member 

 299 For a discussion of the cost and benefit considerations for proposed § 190.09(a)(2), please see section 

III.C.7 above.
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property, and (2) member property). This provision, in general, applies the principle, 

consistent with the Commission’s policy to favor public customers over non-public 

customers, that allocation to customer property other than member property is favored 

over allocation to member property, so long as the funded balance in any account class for 

members’ public customers is less than one hundred percent of net equity claims. This 

provision would, in the event and at the time it applied, benefit the public customers of the 

debtor’s clearing members, since it makes clear that allocation to such customers is

preferred over allocation to the clearing members’ house accounts. It imposes

corresponding costs on the debtor’s clearing members and affiliates to the extent that, 

under the current regime, there is a possibility that more customer property would be 

allocated to their house accounts. Overall, this provision provides the benefit of ex ante

transparency to the estate, the debtor’s clearing members, and their customers, who would

know during business-as-usual how customer property would be allocated in the event of a 

bankruptcy. 

However, the ABA Subcommittee, CME, FIA, and ICE objected to proposed 

§ 190.18(c)(1), which would apply the debtor’s mutualized (and, in general, memberfunded) default fund to customer property other than member property, that is, to the 

customer class for members’ public customers, to the extent the funded balance is less 

than one hundred percent for members’ public customers in any account class. CME

raised a particularly trenchant point: Devoting member-funded guarantee funds to 

purposes other than mutualizing member defaults may result in more onerous capital 
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treatment for the contributions of bank- or bank-affiliated-members to such funds, 

increasing the capital charges for such exposures manifold.

300 

As noted, the costs and benefits discussed above will only accrue if there is both a 

clearing organization bankruptcy and a shortfall in customer funds in one or more of the 

account classes for members’ public customers for that clearing organization in that 

bankruptcy. The costs and benefits at that potential future time would be balanced, in that

the costs to clearing members (whose guarantee funds were devoted to claims of the 

clearing members’ customers) would be benefits to those customers. By contrast, less 

favorable capital treatment would have a present-day effect, in the form of higher capital 

costs for clearing members. Moreover, those higher costs would not create any direct 

benefit (present day or otherwise) for, e.g., customers. In light of these factors, the 

Commission has decided not to adopt proposed § 190.18(c)(1) and to renumber the 

remaining paragraphs of § 190.18(c).

Paragraph 190.18(d) sets forth the allocation of customer property among account 

classes. This provision is similar in concept to § 190.09(c). This provision will benefit 

clearing members and their customers, who will have increased transparency, ex ante, into 

how customer property will be allocated. Prescribing this allocation will, however, 

impose administrative costs, because the trustee will lose some amount of flexibility in 

terms of how to allocate customer property between account classes. 

Paragraph 190.18(e) provides that, where the debtor has, prior to the order for 

relief, kept initial margin for house accounts in accounts without separation by account 

 300 As discussed in detail in a footnote in section II.C.8, those capital charges could increase by literally 

hundreds of times, for a total impact of billions of dollars in increased capital charges.
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class, then member property will be considered to be in a single account class.301 This 

provision will benefit the estate in those cases, because the trustee will not be put to the 

considerable task of separating in bankruptcy that which was treated as a single account 

during business-as-usual. This paragraph will also benefit the debtor’s clearing members, 

who will have increased transparency as to how their member property will be treated. 

Paragraph 190.18(f) gives the trustee the authority to assert claims against any 

person to recover the shortfall of customer property enumerated in certain paragraphs 

elsewhere in § 190.18, analogous to § 190.09(a)(3). This provision could impose 

administrative costs, since the trustee will need to expend time and resources to assert 

claims to make up for any shortfall in customer property. The provision will, however, 

benefit customers, since it will support the trustee’s efforts to recover any such shortfalls 

by giving the trustee authority to act to do so. Moreover, since this provision will make

explicit what is implicit in current part 190, an additional benefit of this provision is a 

reduction in potential litigation costs over a trustee’s attempts to recover shortfalls in 

customer property.302

9. Regulation 190.19: Support of Daily Settlement: Consideration of 

Costs and Benefits

Section 190.19 deals with the treatment of variation settlement in a clearing 

organization bankruptcy, and sets forth the approach for the trustee to follow when there is 

a shortfall in variation settlement owed to a debtor clearing organization’s clearing 

 301 “Account class” is defined in § 190.01 as meaning one or more of each of the following types of 

accounts, as described in greater detail in that provision: (1) futures account; (2) foreign futures account; (3) 

cleared swaps account; and (4) delivery account. 

302 As discussed above in section III.C.7, while the persons against whom claims are successfully asserted 

may perceive a subjective cost, the Commission does not find these costs relevant to the analysis.
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members and customers. Specifically, § 190.19(a) provides that any variation settlement 

payments received by the clearing organization after entry of an order for relief shall be 

included in customer property, and shall promptly be distributed to the member and 

customer accounts entitled to such payments. Paragraph 190.19(b) deals with a situation 

where there is a shortfall in variation settlement received by the clearing organization, and 

provides that such funds shall be supplemented with four specified categories of funds 

(margin, to the extent permissible under parts 1, 22, and 30, assets of the debtor, to the 

extent dedicated to such purpose, prefunded guarantee funds, and assessments) in 

accordance with the clearing organization’s default rules and procedures and (with respect 

to assets of the debtor) any recovery and wind-down plans maintained by the clearing 

organization. 

Section 190.19 will benefit clearing members and their customers because it will 

ensure that any variation settlement received by the clearing organization will be sent to 

those member and customer accounts that would be entitled to payment of variation 

settlement, and that the trustee would be able to supplement any shortfall in variation 

settlement amounts with the property listed in proposed § 190.19(b). This approach will 

also benefit the financial system more broadly, by mitigating the effect of the bankruptcy 

of the debtor on settlement payments. There will be corresponding costs to general 

creditors of the clearing organization since, under current part 190, it is conceivable that, 

contrary to the Commission’s interpretation of the current rules, variation settlement 

received by the clearing organization could be diverted to the pool of general creditors 

rather than becoming customer property (even though such diversion would be contrary to 

the expectations of both the Commission and the industry). In clarifying how variation 
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settlement received by the clearing organization is to be treated by the bankruptcy trustee, 

§ 190.19 will also benefit clearing members and their customers by providing enhanced 

transparency. 

10. Section 15(a) Factors—Subpart C

i. Protection of Market Participants and the Public

Subpart C of the part 190 regulations will increase the protection of market 

participants and the public by setting forth a bespoke framework for how the bankruptcy 

trustee is expected to treat the property of DCO clearing members and their customers in 

the event of a DCO insolvency, thereby promoting ex ante transparency for such clearing 

members and customers, and by providing, in certain provisions, discretion to the trustee 

in determining how best to address the bankruptcy of the DCO, and to achieve the goal of 

protecting public customers as a class. Moreover, the addition in part 190 of bespoke 

bankruptcy rules for a DCO bankruptcy will provide better protections to market 

participants by accounting for the unique position of clearing members (and the customers 

of such clearing member) of a DCO that is going through an insolvency proceeding. 

Finally, provisions such as § 190.18(c), which preferentially allocate excess property in 

any account class to the customer class that benefits public customers, to the extent there 

is a shortfall in any account class in that customer class, will further protect public 

customers.

ii. Efficiency, Competitiveness, and Financial Integrity

Subpart C of the part 190 regulations will promote efficiency (in the sense of both 

cost effectiveness and timeliness) in the administration of insolvency proceedings of 
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DCOs, and the financial integrity of transactions cleared by DCOs by setting forth clear 

instructions for a bankruptcy trustee to follow in the event of a DCO insolvency. 

Moreover, subpart C will provide the bankruptcy trustee with discretion, in certain 

circumstances, to react flexibly to the particulars of the insolvency proceeding, guided by 

the goal of protecting public customers as a class, thereby promoting efficiency of the 

administration of the proceeding. These effects will, in turn, enhance the competitiveness 

of U.S. DCOs and their FCM clearing members, by enhancing market confidence in the 

protection of customer funds and positions entrusted to U.S. DCOs through their clearing 

members, even in the case of insolvency.

iii. Price Discovery

Price discovery is the process of determining the price level for an asset through 

the interaction of buyers and sellers and based on supply and demand conditions. Because 

a DCO bankruptcy inevitably leads to full close-out of the positions carried at the DCO, 

the part 190 regulations will not contribute to avoiding the resultant negative impacts on 

price discovery.

iv. Sound Risk Management Practices

Subpart C of the part 190 regulations will promote sound risk management 

practices by facilitating the bankruptcy trustee’s efforts to manage effectively the risk of 

the debtor DCO. Subpart C will accomplish this by adding bankruptcy regulations to part 

190 for a DCO insolvency that reflect current market practices and thereby make it easier 

for the trustee to act effectively to protect customer property in the event of such an 

insolvency. Moreover, subpart C will promote sound risk management practices by 

instructing a bankruptcy trustee to implement the debtor DCO’s default rules and 
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procedures and to take actions in accordance with the debtor DCO’s recovery and winddown plans, which rules, procedures and plans are developed and overseen by the 

Commission, though subject to the trustee’s discretion. Some portions of subpart C may 

make additional resources available to the trustee. On the other hand, some commenters 

expressed concern about changes (such as § 190.15) that they believe might lead to 

inappropriate risk management choices by DCOs. 

v. Other Public Interest Considerations

By favoring the implementation of the clearing organization’s default rules, 

recovery plans, and procedures established ex ante under the supervision of the 

Commission, and by supporting daily settlement, the part 190 regulations will support 

financial stability. Moreover, some of the DCOs that might enter bankruptcy are very 

large financial institutions, and some are considered to be systematically important. An 

effective bankruptcy process that efficiently facilitates the proceedings is likely to benefit 

the financial system (and thus the public interest), as that process will help to attenuate the 

detrimental effects of the bankruptcy on the financial network. 

E. Changes to Appendices A and B

The Commission is deleting forms 1 through 3 contained in appendix A, which 

contain outdated provisions that require the collection of unnecessary information, and is 

replacing form 4 with a streamlined template proof of claim form, which the trustee can 

use in a flexible manner. CME considered the template proof of claim “a major 

improvement” over the current version. These changes have the benefit of reducing 

administrative costs, and there are no obvious increased costs.
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Similarly, the Commission is making clarifying changes to framework 1 of 

Appendix B, and making, consistent with the suggestions of the ABA Subcommittee and 

the Subcommittee Members, a significant set of clarifying changes to framework 2. These 

changes have the benefit of having framework 2 work in a more accurate, and less 

confusing manner, thus reducing administrative costs, and there are no obvious increased 

costs.

F. Technical Corrections to Parts 1, 4, and 41

The Commission is making technical corrections to parts 1, 4, and 41 to update 

cross-references. These corrections are clarifying and do not have any impact on the 

substantive obligations related to these sections. Thus, there are no increased costs 

associated with these minor technical updates.

IV. Related Matters

A. Antitrust Considerations

Section 15(b) of the CEA requires the Commission to take into consideration the 

public interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the purposes of the CEA in issuing any order or 

adopting any Commission rule or regulation.303

The Commission believes that the public interest to be protected by the antitrust 

laws is the promotion of competition. The Commission has considered this rulemaking to 

determine whether it might have anticompetitive effects, and has not identified any effect 

this rulemaking, which would apply only in the rare instance of an FCM or DCO 

 303 Section 15(b) of the CEA, 7 U.S.C. 19(b).
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bankruptcy, would have on competition. Accordingly, the Commission has not identified 

any less anticompetitive means of achieving the purposes of the CEA. 

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) requires that agencies consider whether 

the regulations they propose will have a significant economic impact on a substantial 

number of small entities and, if so, provide a regulatory flexibility analysis on the 

impact.304 The regulations being adopted by the Commission affect clearing 

organizations, FCMs, bankruptcy trustees, and customers. The Commission has 

previously established certain definitions of “small entities” to be used in evaluating the 

impact of its regulations in accordance with the RFA.

305 

The Commission has previously determined that clearing organizations and FCMs 

are not small entities for purposes of the RFA.306 In the event of a bankruptcy, a trustee is 

appointed as receiver to manage the estate of the insolvent FCM or clearing organization. 

Accordingly, since the trustee is representing the estate of either an FCM or clearing 

organization, the trustee is not a small entity for purposes of the RFA. The Commission 

recognizes that many customers of an FCM or DCO in bankruptcy could be considered to 

be small entities for purposes of the RFA. The Commission believes, however, that the 

amendments to part 190 are designed so that they can be implemented without imposing a 

significant economic burden on a substantial number of small entities. These regulations 

 304 5 U.S.C. 601 et seq.

305 47 FR 18618 (Apr. 30, 1982).

306 See 66 FR 45604, 45609 (Aug. 29, 2001); 67 FR 53146, 53171 (Aug. 14, 2002).
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take into account existing trading practices and the logistical considerations of 

implementing the regulations. 

Accordingly, the Commission Chairman, on behalf of the Commission, hereby 

certifies pursuant to 5 U.S.C. 605(b), that the rule adopted herein will not have a 

significant economic impact on a substantial number of small entities.

C. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) 307 imposes certain requirements on

Federal agencies (including the Commission) in connection with their conducting or 

sponsoring a collection of information as defined by the PRA. The regulations adopted 

herein would result in such a collection, as discussed below. A person is not required to 

respond to a collection of information unless it displays a currently valid control number 

issued by the Office of Management and Budget (OMB). The regulations include a 

collection of information for which the Commission has previously received control 

numbers from OMB. The title of this collection of information is: OMB Control Number 

3038-0021, “Regulations Governing Bankruptcies of Commodity Brokers.”

Information Collection 3038-0021308 contains the reporting, recordkeeping and 

third-party disclosure requirements in the Commission’s bankruptcy regulations for 

 307 44 U.S.C. 3501 et seq.

308 There are two information collections associated with OMB Control No. 3038-0021. The first includes 

the reporting, recordkeeping, and third-party disclosure requirements applicable to a single respondent in a 

commodity broker liquidation (e.g., a single FCM, DCO, or trustee) within the relevant time period. This 

includes both (1) requirements on a single FCM or a single trustee in an FCM bankruptcy which correspond 

to current requirements on a single FCM or a single trustee in an FCM bankruptcy, as provided for in 

§§ 190.03(b)(1), 190.03(b)(2), 190.03(c)(1), 190.03(c)(2), 190.03(c)(4), 190.05(b), 190.05(d), and 

190.07(b)(5); and (2) new requirements on a single DCO or a single trustee in a DCO bankruptcy as 

provided for in §§ 190.12(a)(2), 190.12(b)(1), 190.12(b)(2), 190.12(c)(1), 190.12(c)(2), 190.14(a), and 

190.14(d). The second information collection includes the third-party disclosure requirements that are 

applicable during business as usual to multiple respondents (e.g., multiple FCMs). These requirements were 

proposed as §§ 190.10(b) and 190.10(e) (which are analogs to current §§ 190.06(d) and 190.10(c)), as well 
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commodity broker liquidations (17 C.F.R. part 190). These regulations apply to 

liquidations under chapter 7, subchapter IV of the Bankruptcy Code.

309 The Commission

promulgated part 190 pursuant to the authority of 7 U.S.C. 24. The Commission is 

amending Information Collection 3038-0021 as a result of these final regulations to (1) 

accommodate new information collection requirements for FCMs and DCOs, and (2) 

revise the existing information collection requirements for FCMs and DCOs. The 

Commission did not receive any comments regarding its PRA burden analysis in the 

preamble to the proposal. 

1. Reporting Requirements in an FCM Bankruptcy

Regulation 190.03(b)(1) requires FCMs that file a petition in bankruptcy to notify 

the Commission and the relevant DSRO, as soon as practicable before and in any event no 

later than the time of such filing, of the anticipated or actual filing date, the court in which 

the proceeding will be or has been filed and, as soon as known, the docket number 

assigned to that proceeding. It further requires an FCM against which an involuntary 

bankruptcy petition or application for a protective decree under SIPA is filed to notify the 

Commission and the relevant DSRO immediately upon the filing of such petition or 

application.

Regulation § 190.03(b)(2) requires the trustee, the relevant DSRO, or an applicable 

clearing organization to notify the Commission if such person intends to transfer or apply 

to transfer open commodity contracts or customer property on behalf of the public 

customers of the debtor. 

 as a new third-party disclosure requirement provided for in § 190.10(d) (regarding letters of credit); 

however, the third-party disclosure requirements are being adopted as §§ 1.41, 1.43 and 1.55(p). 

309 11 U.S.C. 761 et seq.
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Based on its experience, the Commission anticipates that an FCM bankruptcy 

would occur once every three years.310 The Commission has estimated the burden hours 

for the reporting requirements in an FCM bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 1311

Estimated total annual number of responses for all respondents: 1

Estimated annual number of burden hours per respondent: 1312

Estimated total annual burden hours for all respondents: 1

2. Recordkeeping Requirements in an FCM Bankruptcy

Regulation 190.05(b) requires the trustee to use reasonable efforts to compute a 

funded balance for each customer account that contains open commodity contracts or 

other property as of the close of business each business day subsequent to the order for 

relief until the date all open commodity contracts and other property in such account has 

been transferred or liquidated.

Regulation 190.05(d) requires the trustee to use reasonable efforts to continue to 

issue account statements with respect to any customer for whose account open commodity 

contracts or other property is held that has not been liquidated or transferred. 

 310 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

311 The Commission estimates that (1) under § 190.03(b)(1), an FCM would make two notifications per 

bankruptcy (one to the Commission and one to its DSRO), and (2) under § 190.03(b)(2), an FCM would 

make one notification per bankruptcy. Dividing those numbers by three (since the Commission anticipates 

an FCM bankruptcy occurring once every three years) results in 0.67 notifications annually pursuant to 

§ 190.03(b)(1), and 0.33 notifications annually pursuant to § 190.03(b)(2), for a total of one notification 

annually per respondent. 

312 The Commission estimates that (1) the notifications required under § 190.03(b)(1) would take 0.5 hours 

to make, and (2) the notification required under § 190.03(b)(2) would take 2 hours to make. In terms of 

burden hours, this amounts to (0.5*0.67 under § 190.03(b)(1)) plus (2*0.33 under § 190.03(b)(2)), or a total 

of one burden hour annually per respondent. 
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Based on its experience, the Commission anticipates that an FCM bankruptcy 

would occur once every three years.313 The Commission has estimated the burden hours 

for the recordkeeping requirements in an FCM bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 26,666.67314

Estimated total annual number of responses for all respondents: 26,666.67

Estimated annual number of burden hours per respondent: 266.67315

Estimated total annual burden hours for all respondents: 266.67

3. Third-Party Disclosure Requirements Applicable to a Single 

Respondent in an FCM Bankruptcy

Regulation 190.03(c)(1) requires the trustee to use all reasonable efforts to 

promptly notify any customer whose futures account, foreign futures account, or cleared 

swaps account includes specifically identifiable property, and that such specifically 

identifiable property may be liquidated on and after the seventh day after the order for 

relief if the customer has not instructed the trustee in writing before the deadline specified 

in the notice to return such property pursuant to the terms for distribution of customer 

property contained in part 190.

 313 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

314 The Commission estimates that (1) under § 190.05(b), a trustee would compute a funded balance for 

customer accounts 40,000 times; and (2) under § 190.05(d), a trustee would issue 40,000 account statements 

for customer accounts. Dividing those numbers by three (since the Commission anticipates an FCM 

bankruptcy occurring once every three years) results in 13,333.33 records annually pursuant to § 190.05(b), 

and 13,333.33 records annually pursuant to § 190.05(d), for a total of 26,666.67 records annually per

respondent.

315 The Commission estimates that each record required under § 190.05(b) and 190.05(d) would take 0.01 

hours to prepare. In terms of burden hours, this amounts to (0.01*13,333.33 under § 190.05(b)) plus 

(0.01*13,333.33 under § 190.05(d)), or a total of 266.67 burden hours annually per respondent.
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Regulation 190.03(c)(2) allows the trustee to treat open commodity contracts of 

public customers identified on the books and records of the debtor has held in an account 

designated as a hedging account as specifically identifiable property of such customer.316

Regulation 190.03(c)(4) requires the trustee to promptly notify each customer that 

an order for relief has been entered and instruct each customer to file a proof of customer 

claim containing the information specified in § 190.03(e).

Regulation 190.07(b)(5) requires the trustee, in the event that specifically 

identifiable property has been or will be transferred, to transmit any customer instructions 

previously received by the trustee with respect to such specifically identifiable property to 

the transferee of such property. 

Based on its experience, the Commission anticipates that an FCM bankruptcy 

would occur once every three years.317 The Commission has estimated the burden hours 

for the third-party disclosure requirements applicable to a single respondent in an FCM 

bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 10,003.32318

 316 The Commission no longer assigns burden hours to the discretionary notice that a trustee may provide to 

customers in an involuntary FCM bankruptcy proceeding pursuant to § 190.03(c)(3). There have been no 

involuntary FCM liquidations and none are anticipated. Accordingly, continuing to assign burden hours to 

this voluntary requirement would inappropriately inflate the burden hours of this information collection. 

317 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

318 The Commission estimates that a trustee would make the required disclosures under each of 

§§ 190.03(c)(1), 190,03(c)(2) and 190.03(c)(4) 10,000 times per bankruptcy. Dividing those numbers by 

three (since the Commission anticipates an FCM bankruptcy occurring once every three years) results in 

3,333.33 disclosures annually pursuant to each of §§ 190.03(c)(1), 190,03(c)(2), and 190.03(c)(4). The 

Commission further estimates that a trustee would make the required disclosure under § 190.07(b)(5) 10 

times per bankruptcy. Dividing this number by three results in 3.33 disclosures annually pursuant to 

§ 190.07(b)(5). This amounts to a total of 10,003.32 disclosures annually per respondent. 
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Estimated total annual number of responses for all respondents: 10,003.32

Estimated annual number of burden hours per respondent: 1,336.67319

Estimated total annual burden hours for all respondents: 1,336.67

4. Reporting Requirements in a DCO Bankruptcy

Regulation 190.12(a)(2) requires a clearing organization that files a petition in 

bankruptcy to notify the Commission, at or before the time of such filing, of the filing 

date, the court in which the proceeding will be or has been filed and, as soon as known, 

the docket number assigned to that proceeding. It further requires a clearing organization 

against which an involuntary bankruptcy petition is filed to similarly notify the 

Commission within three hours after the receipt of notice of such filing.

Regulation 190.12(b)(1) requires the debtor clearing organization to provide to the 

trustee, no later than three hours following the later of the commencement of a bankruptcy 

proceeding or the appointment of the trustee, copies of each of the most recent reports that 

the debtor was required to file with the Commission under § 39.19(c).

Regulation 190.12(b)(2) requires the debtor clearing organization to provide to the 

trustee and the Commission, no later than three hours following the commencement of a 

bankruptcy proceeding, copies of (1) the most recent recovery or wind-down plans of the 

debtor maintained pursuant to § 39.39(b), and (2) the most recent version of the debtor’s 

default management plan and default rules and procedures maintained pursuant to § 39.16 

and, as applicable, § 39.35. 

 319 The Commission estimates that (1) each disclosure required under §§ 190.03(c)(1) and 190.03(c)(2) (b) 

would take 0.1 hours to prepare; (2) each disclosure required under § 190.03(c)(4) would take 0.2 hours to 

prepare; and (3) each disclosure required under § 190.07(b)(5) would take 1 hour to prepare. In terms of 

burden hours, this amounts to (0.1*3,333.33 under § 190.03(c)(1)) plus (0.1*3,333.33 under § 190.03(c)(2)) 

plus (0.2*3,333.33 under § 190.03(c)(4)) plus (1*3.33 under § 190.07(b)(5)), or a total of 1336.66 burden 

hours annually per respondent.
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Regulations 190.12(c)(1) and (c)(2) require the debtor clearing organization to 

make available to the trustee and the Commission, no later than the next business day 

following commencement of a bankruptcy proceeding, copies of (1) all records 

maintained by the debtor pursuant to § 39.20(a), and (2) any opinions of counsel or other 

legal memoranda provided to the debtor in the five years preceding the bankruptcy 

proceeding relating to the enforceability of the rules and procedures of the debtor in the 

event of an insolvency proceeding involving the debtor.

Based on its experience, the Commission anticipates that a clearing organization 

bankruptcy would occur once every fifty years.320 The Commission has estimated the 

burden hours for the reporting requirements in a DCO bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 2.98321

Estimated total annual number of responses for all respondents: 2.98

Estimated annual number of burden hours per respondent: 0.61322

 320 No U.S. clearing organization has ever been the subject of a bankruptcy proceeding, and none has come 

anywhere near insolvency. While there have been less than a handful of central counterparties worldwide 

that became functionally insolvent during the twentieth century, none of those were subject to modern 

resiliency requirements. Accordingly, the Commission believes that an estimate of one DCO bankruptcy 

every fifty years is an appropriate estimate. These burden estimates express the burdens in terms of those 

that would be imposed on one respondent during the fifty-year period. 

321 The Commission estimates that (1) under § 190.12(a)(2), a clearing organization would make two 

notifications per bankruptcy; (2) under § 190.12(b)(1), a clearing organization would provide 40 reports to 

the trustee; (3) under § 190.12(b)(2), a clearing organization would provide 5 reports to the trustee and the 

Commission; (4) under § 190.12(c)(1), a clearing organization would provide 100 records to the trustee and 

the Commission; and (5) under § 190.12(c)(2), a clearing organization would provide 2 records to the trustee 

and the Commission. Dividing those numbers by 50 (since the Commission anticipates a clearing 

organization bankruptcy occurring once every 50 years) results in (1) 0.04 reports annually pursuant to 

§ 190.12(a)(2); (2) 0.8 reports annually pursuant to § 190.12(b)(1); (3) 0.1 reports annually pursuant to 

§ 190.12(b)(2); (4) 2 reports annually pursuant to § 190.12(c)(1); and (5) 0.04 reports annually pursuant to 

§ 190.12(c)(2), for a total of 2.98 reports annually per respondent. 

322 The Commission estimates that (1) each notification required under §§ 190.12(a)(2) and 190.12(d)(2) 

would take 0.5 hours to make; (2) gathering the reports required under § 190.12(b)(1) would take 0.2 hours; 
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Estimated total annual burden hours for all respondents: 0.61

5. Recordkeeping Requirements in a DCO Bankruptcy

Regulation 190.14(d) requires the trustee to use reasonable efforts to compute a 

funded balance for each customer account that contains open commodity contracts or 

other property as of the close of business each business day subsequent to the order for 

relief on which liquidation of property within the account has been completed or 

immediately prior to any distribution of property within the account.

Based on its experience, the Commission anticipates that a clearing organization 

bankruptcy would occur once every fifty years.323 The Commission has estimated the 

burden hours for the recordkeeping requirements in a DCO bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 9324

Estimated total annual number of responses for all respondents: 9

Estimated annual number of burden hours per respondent: 0.9325

 (3) gathering the reports required under § 190.12(b)(2) would take 0.2 hours; (4) gathering the reports 

required under § 190.12(c)(1) would take 0.2 hours; and (5) gathering the reports required under 

§ 190.12(c)(2) would take 0.2 hours. In terms of burden hours, this amounts to (0.5*0.04 under 

§ 190.12(a)(2)) plus (0.2*0.8 under § 190.12(b)(1)) plus (0.2*0.1 under § 190.12(b)(2)) plus (0.2*2 under 

§ 190.12(c)(1)) plus (0.2*0.04 under § 190.12(c)(2)), or a total of 0.61 burden hours annually per 

respondent.

323 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the fifty-year period. 

324 The Commission estimates that, under § 190.14(d), a clearing organization would compute a funded 

balance for customer accounts 450 times during a bankruptcy. This number is based on an average of 45 

clearing members, each with two accounts (house and customer). Dividing that number by 50 (since the 

Commission anticipates a clearing organization bankruptcy occurring once every 50 years) results in 9 

records annually per respondent. 
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Estimated total annual burden hours for all respondents: 0.9

6. Third-Party Disclosure Requirements Applicable to a Single 

Respondent in a DCO Bankruptcy

Regulation 190.14(a) allows the trustee, in their discretion based upon the facts 

and circumstances of the case, to instruct each customer to file a proof of claim containing 

such information as is deemed appropriate by the trustee, and seek a court order 

establishing a bar date for the filing of such proofs of claim. 

Based on its experience, the Commission anticipates that a clearing organization 

bankruptcy would occur once every fifty years.326 The Commission has estimated the 

burden hours for the third-party disclosure requirements applicable to a single respondent 

in a DCO bankruptcy as follows:

Estimated number of respondents: 1

Estimated annual number of responses per respondent: 0.9327

Estimated total annual number of responses for all respondents: 0.9

Estimated annual number of burden hours per respondent: 0.18328

Estimated total annual burden hours for all respondents: 0.18

 325 The Commission estimates that computing the funded balance of customer accounts pursuant to 

§ 190.14(d) would take 0.1 hours per computation. In terms of burden hours, this amounts to (0.1*9), or 0.9 

burden hours annually per respondent.

326 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the fifty-year period. 

327 The Commission estimates that, under § 190.14(a), a trustee would make the disclosure 45 times during a 

bankruptcy. This number is based on an average of 45 clearing members. Dividing that number by 50 

(since the Commission anticipates a clearing organization bankruptcy occurring once every 50 years) results 

in 0.9 records annually per respondent. 

328 The Commission estimates that instructing customers to file a proof of claim pursuant to § 190.14(a) 

would take 0.2 hours. In terms of burden hours, this amounts to (0.2*0.9), or 0.18 burden hours annually per 

respondent.
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7. Third-Party Disclosure Requirements Applicable to Multiple Respondents During 

Business as Usual

As discussed in Section II.B.8 above, the Commission is codifying the provisions 

proposed as §§ 190.10(b), 190.10(d) and 190.10(e) in part 1, along with other regulations 

that pertain to an FCM’s business as usual. Regulation 1.41, which was proposed as §

190.10(b), requires an FCM to provide an opportunity to each of its customers, upon first 

opening a futures account or cleared swaps account with such FCM, to designate such 

account as a hedging account.

Regulation 1.43, which was proposed as § 190.10(d), prohibits an FCM from 

accepting a letter of credit as collateral unless such letter of credit may be exercised under 

certain conditions specified in the regulation.

Regulation 1.55(p), which was proposed as § 190.10(e), requires an FCM to 

provide any customer with the disclosure statement set forth in § 1.55(p) prior to accepting 

property other than cash from or for the account of a customer to margin, guarantee, or 

secure a commodity contract. 

The requirements described above are applicable on a regular basis (i.e., during 

business as usual) to multiple respondents. The Commission has estimated the burden 

hours for the third-party disclosure requirements applicable to multiple respondents during 

business as usual as follows:

Estimated number of respondents: 125

Estimated annual number of responses per respondent: 3,000329

 329 The Commission estimates that under §§ 1.41, 1.43 and 1.55(p), an FCM would make the required 

disclosures 1,000 times per year. This amounts to a total of 3,000 responses annually per respondent. 
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Estimated total annual number of responses for all respondents: 375,000

Estimated annual number of burden hours per respondent: 60330

Estimated total annual burden hours for all respondents: 7,500

 330 The Commission estimates that each disclosure required under §§ 1.41, 1.43 and 1.55(p) would take 0.02 

hours to make. In terms of burden hours, this amounts to (0.02*1,000 under § 1.41) plus (0.02*1,000 under 

§ 1.43 plus (0.02*1,000 under § 1.55(p)), or 60 burden hours annually per respondent.
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List of Subjects

17 CFR Part 1

Brokers, Commodity futures, Consumer protection, Reporting and recordkeeping 

requirements.

17 CFR Part 4

Brokers, Commodity futures, consumer protection, Reporting and recordkeeping 

requirements.

17 CFR Part 41

Brokers, Reporting and recordkeeping requirements, Securities.

17 CFR Part 190

Bankruptcy, Brokers, Reporting and recordkeeping requirements.

For the reasons stated in the preamble, the Commodity Futures Trading Commission 

amends 17 CFR chapter I as follows:

PART 1 – GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE 

ACT

1) The authority citation for part 1 continues to read as follows: Authority: 7 U.S.C. 

1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a–1, 

7a–2, 7b, 7b–3, 8, 9, 10a, 12, 12a, 12c, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 24 

(2012).

2) In § 1.25 of this chapter, revise paragraph (a)(2)(ii)(B) to read as follows
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* * * * *

(B) Securities subject to such repurchase agreements must not be “specifically identifiable 

property” as defined in §190.01 of this chapter.

* * * * *

3) Add § 1.41 to read as follows:

§1.41 Designation of hedging accounts. 

(a) A futures commission merchant must provide an opportunity to each customer, 

when it first opens a futures account, foreign futures account or cleared swaps account 

with such futures commission merchant, to designate such account as a hedging account. 

The futures commission merchant must indicate prominently in the accounting records in 

which it maintains open trade balances whether, for each customer account, the account is 

designated as a hedging account.

(b) A futures commission merchant may permit the customer to open an account as a 

hedging account only if it obtains the customer’s written representation that the 

customer’s trading of futures or options on futures, foreign futures or options on foreign 

futures, or cleared swaps (as applicable) in the account constitutes hedging as such term 

may be defined under any relevant Commission regulation or rule of any clearing 

organization, designated contract market, swap execution facility or foreign board of trade. 

(c) The requirements set forth in paragraphs (b)(1) and (2) do not apply to a futures 

commission merchant with respect to any commodity contract account that the futures 

commission merchant opened prior to [insert Effective Date]. The futures commission 

merchant may continue to designate as a hedging account any account with respect to 

which the futures commission merchant received written hedging instructions from the 

customer in accordance with former § 190.06(d).

(d) A futures commission merchant may designate an existing futures account, foreign 

futures account or cleared swaps account of a particular customer as a hedging account, 

provided that it has obtained the representation set out in paragraph (b)(2) of this section 

from such customer.

4) Add § 1.42 to read as follows:

§1.42 Delivery accounts. 

In connection with the making or taking of delivery of a commodity under a 

commodity contract whose terms require settlement via physical delivery, if a futures 

commission merchant facilitates or effects the transfer of the physical delivery property 

and payment therefor on behalf of the customer, and does so outside the futures account, 

foreign futures account or cleared swaps account in which the commodity contract was 
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held, the futures commission merchant must do so in a delivery account, provided, 

however, that when the commodity subject to delivery is a security, a futures commission 

merchant may, consistent with any applicable regulatory requirements, do so in a 

securities account.

5) Add § 1.43 to read as follows:

§1.43 Letters of credit as collateral. 

A futures commission merchant shall not accept a letter of credit as collateral unless 

such letter of credit may be exercised, through its stated date of expiry, under the 

following conditions, regardless of whether the customer posting that letter of credit 

is in default in any obligation: 

(a) In the event that an order for relief under Chapter 7 of the Bankruptcy Code or a 

protective decree pursuant to section 5(b)(1) of SIPA is entered with respect to the 

futures commission merchant, or if the FDIC is appointed as receiver for the futures 

commission merchant pursuant to 12 U.S.C. 5382(a), the trustee for that futures 

commission merchant (or, as applicable, FDIC) may draw upon such letter of credit, 

in full or in part, in accordance with § 190.04(d)(3).

(b) If the letter of credit is passed through to a clearing organization, then in the 

event that an order for relief under chapter 7 of the Bankruptcy Code is entered with 

respect to the clearing organization, or if the FDIC is appointed as receiver for the 

clearing organization pursuant to 12 U.S.C. 5382(a), the trustee for that clearing 

organization (or, as applicable, FDIC) may draw upon such letter of credit, in full or 

in part, in accordance with § 190.04(d)(3).

A futures commission merchant shall not accept a letter of credit from a customer as 

collateral if it has any agreement with the customer that is inconsistent with the 

foregoing.

6) In § 1.55, revise paragraphs (d), (d)(1), (d)(2), and (f), and add subsection (p), to 

read as follows:

* * * * *

(d) Any futures commission merchant, or (in the case of an introduced account) any 

introducing broker, may open a commodity futures account for a customer without 

obtaining the separate acknowledgments of disclosure and elections required by this 

section and by §§ 1.33(g) and 33.7 of this chapter, provided that:

(1) Prior to the opening of such account, the futures commission merchant or 

introducing broker obtains an acknowledgement from the customer, which may consist of 

a single signature at the end of the futures commission merchant's or introducing broker's 

customer account agreement, or on a separate page, of the disclosure statements, consents 
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and elections specified in this section and § 1.33(g), and in §§ 33.7, 155.3(b)(2), and 

155.4(b)(2) of this chapter, and which may include authorization for the transfer of funds 

from a segregated customer account to another account of such customer, as listed directly 

above the signature line, provided the customer has acknowledged by check or other 

indication next to a description of each specified disclosure statement, consent or election 

that the customer has received and understood such disclosure statement or made such 

consent or election; and

(2) The acknowledgment referred to in paragraph (d)(1) of this section is accompanied 

by and executed contemporaneously with delivery of the disclosures and elective 

provisions required by this section and § 1.33(g), and by § 33.7 of this chapter.

* * * * *

(f) A futures commission merchant or, in the case of an introduced account, an 

introducing broker, may open a commodity futures account for an “institutional customer” 

as defined in § 1.3 without furnishing such institutional customer the disclosure statements 

or obtaining the acknowledgments required under paragraph (a) of this section, or 

§§ 1.33(g), 1.55(p), and 1.65(a)(3), and §§ 30.6(a), 33.7(a), 155.3(b)(2), and155.4(b)(2) of 

this chapter.

* * * * *

(p) Disclosure statement for non-cash margin.

(1) Except as provided in § 1.65 of this chapter, no commodity broker (other than a 

clearing organization) may accept property other than cash from or for the account of a

customer, other than a customer specified in subsection (f) of this section, to margin, 

guarantee, or secure a commodity contract unless the commodity broker first furnishes the 

customer with the disclosure statement set forth in paragraph (p)(2) of this section in 

boldface print in at least 10 point type which may be provided as either a separate, written 

document or incorporated into the customer agreement, or with another statement 

approved under subsection (c) of this section and set forth in appendix A to this section 

which the Commission finds satisfies this requirement.

(2) The disclosure statement required by paragraph (p)(1) of this section is as follows:

THIS STATEMENT IS FURNISHED TO YOU BECAUSE REGULATION 1.55(p)

OF THE COMMODITY FUTURES TRADING COMMISSION REQUIRES IT FOR 

REASONS OF FAIR NOTICE UNRELATED TO THIS COMPANY'S CURRENT 

FINANCIAL CONDITION.

1. YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS

COMPANY'S BANKRUPTCY, PROPERTY, INCLUDING PROPERTY 

SPECIFICALLY TRACEABLE TO YOU, WILL BE RETURNED, TRANSFERRED 

OR DISTRIBUTED TO YOU, OR ON YOUR BEHALF, ONLY TO THE EXTENT 

OF YOUR PRO RATA SHARE OF ALL PROPERTY AVAILABLE FOR 
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DISTRIBUTION TO CUSTOMERS.

2. THE COMMISSION'S REGULATIONS CONCERNING BANKRUPTCIES OF 

COMMODITY BROKERS CAN BE FOUND AT 17 CODE OF FEDERAL 

REGULATIONS PART 190.

(3) The statement contained in paragraph (p)(2) of this section need be furnished only 

once to each customer to whom it is required to be furnished by this section

7) In § 1.65, revise paragraphs (a)(3) and (a)(3)(iii) to read as follows:

(a)

* * * *

(3) Where customer accounts are transferred to a futures commission merchant or 

introducing broker, other than at the customer's request, the transferee introducing broker 

or futures commission merchant must provide each customer whose account is transferred 

with the risk disclosure statements and acknowledgments required by § 1.55 (domestic 

futures and foreign futures and options trading), and §§ 33.7 (domestic exchange-traded 

commodity options) and 190.10(e) (non-cash margin—to be furnished by futures 

commission merchants only) of this chapter and receive the required acknowledgments 

within sixty days of the transfer of accounts. This requirement shall not apply:

* * * *

(iii) If the transfer of accounts is made from one introducing broker to another 

introducing broker guaranteed by the same futures commission merchant pursuant to a 

guarantee agreement in accordance with the requirements of § 1.10(j) and such futures 

commission merchant maintains the relevant acknowledgments required by 

§§ 1.55(a)(1)(ii) and 33.7(a)(1)(ii) of this chapter and can establish compliance with 

§ 190.10(e) of this chapter.

PART 4—COMMODITY POOL OPERATORS AND COMMODITY TRADING 

ADVISORS

8) The authority citation for part 4 continues to read as follows: Authority: 7 U.S.C. 

1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 23.

9) In § 4.5, revise paragraph (c)(2)(iii)(A) to read as follows:

* * * *

(A) Will use commodity futures or commodity options contracts, or swaps solely for 

bona fide hedging purposes within the meaning and intent of the definition of bona fide 

hedging transactions and positions for excluded commodities in §§ 1.3 and 151.5 of this 

chapter; Provided however, That, in addition, with respect to positions in commodity 
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futures or commodity options contracts, or swaps which do not come within the meaning 

and intent of the definition of bona fide hedging transactions and positions for excluded 

commodities in §§ 1.3 and 151.5 of this chapter, a qualifying entity may represent that the 

aggregate initial margin and premiums required to establish such positions will not exceed 

five percent of the liquidation value of the qualifying entity's portfolio, after taking into 

account unrealized profits and unrealized losses on any such contracts it has entered into; 

and, Provided further, That in the case of an option that is in-the-money at the time of the 

purchase, the in-the-money amount as defined in § 190.01of this chapter may be excluded 

in computing such five percent; or

* * * *

10) In § 4.12, revise paragraph (b)(1)(i)(C) to read as follows:

* * * *

(C) Will not enter into commodity interest transactions for which the aggregate initial 

margin and premiums, and required minimum security deposit for retail forex transactions 

(as defined in § 5.1(m) of this chapter) exceed 10 percent of the fair market value of the 

pool's assets, after taking into account unrealized profits and unrealized losses on any such 

contracts it has entered into; Provided, however, That in the case of an option that is inthe-money at the time of purchase, the in-the-money amount as defined in § 190.01 of this 

chapter may be excluded in computing such 10 percent; and

* * * *

11) In § 4.13, revise paragraph (a)(3)(ii)(A) to read as follows:

* * * *

(A) The aggregate initial margin, premiums, and required minimum security deposit for 

retail forex transactions (as defined in § 5.1(m) of this chapter) required to establish such 

positions, determined at the time the most recent position was established, will not exceed 

5 percent of the liquidation value of the pool's portfolio, after taking into account 

unrealized profits and unrealized losses on any such positions it has entered 

into; Provided, That in the case of an option that is in-the-money at the time of purchase, 

the in-the-money amount as defined in § 190.01 of this chapter may be excluded in 

computing such 5 percent; or

* * * *

PART 41—SECURITY FUTURES PRODUCTS
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12) The authority citation for part 41 continues to read as follows: Authority: Sections 

206, 251 and 252, Pub. L. 106–554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a–2, 

12a; 15 U.S.C. 78g(c)(2).

13) In § 41.41, revise paragraph (d) to read as follows:

* * * *

(d)

Recordkeeping requirements. The Commission's recordkeeping rules set forth in 

§§ 1.31, 1.32, 1.35, 1.36, 1.37, 4.23, 4.33, and 18.05 of this chapter shall apply to security 

futures product transactions and positions in a futures account (as that term is defined in 

§1.3 of this chapter). These rules shall not apply to security futures product transactions 

and positions in a securities account (as that term is defined in § 1.3 of this 

chapter); provided, that the SEC's recordkeeping rules apply to those transactions and 

positions.

* * * *

14) Replace Part 190 with the following:

PART 190—BANKRUPTCY RULES

II. Subpart A—General Provisions

Sec.

190.00 Statutory authority, organization, core concepts, scope, and construction.

190.01 Definitions.

190.02 General.

III.Subpart B—Futures Commission Merchant as Debtor 

Sec.

190.03 Notices and proofs of claims.

190.04 Operation of the debtor’s estate— customer property.

190.05 Operation of the debtor’s estate— general.

190.06 Making and taking delivery under commodity contracts.

190.07 Transfers.

190.08 Calculation of allowed net equity.
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190.09 Allocation of property and allowance of claims.

190.10 Provisions applicable to futures commission merchants during business as usual.

IV. Subpart C—Clearing Organization as Debtor

Sec.

190.11 Scope and purpose of this subpart.

190.12 Required reports and records.

190.13 Prohibition on avoidance of transfers.

190.14 Operation of the estate of the debtor subsequent to the filing date.

190.15 Recovery and wind-down plans; default rules and procedures.

190.16 Delivery.

190.17 Calculation of net equity.

190.18 Treatment of property.

190.19 Support of daily settlement. 

Appendix A to Part 190—Customer Proof of Claim Form

Appendix B to Part 190—Special Bankruptcy Distributions

Authority: 7 U.SC. 1a, 2, 6c, 6d, 6g, 7a-1, 12, 12a, 19, and 24; 11 U.S.C. 362, 546, 548, 

556, and 761-767, unless otherwise noted. 

Subpart A—General Provisions

§ 190.00 Statutory authority, organization, core concepts, scope, and construction.

(a) Statutory authority. The Commission has adopted the regulations in this part 

pursuant to its authority under sections 8a(5) and 20 of the Act. Section 8a(5) provides 

general rulemaking authority to effectuate the provisions and accomplish the purposes of 

the Act. Section 20 provides that the Commission may, notwithstanding title 11 of the 

United States Code, adopt certain rules or regulations governing a proceeding involving a 

commodity broker that is a debtor under subchapter IV of chapter 7 of the Bankruptcy 

Code. Specifically, the Commission is authorized to adopt rules or regulations specifying 

(1) that certain cash, securities or other property, or commodity contracts, are to be 

included in or excluded from customer property or member property; (2) that certain cash, 

securities or other property, or commodity contracts, are to be specifically identifiable to a 

particular customer in a particular capacity; (3) the method by which the business of the 
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commodity broker is to be conducted or liquidated after the date of the filing of the 

petition under chapter 7 of the Bankruptcy Code, including the payment and allocation of 

margin with respect to commodity contracts not specifically identifiable to a particular 

customer pending their orderly liquidation; (4) any persons to which customer property 

and commodity contracts may be transferred under section 766 of the Bankruptcy Code; 

and (5) how a customer’s net equity is to be determined. 

(b) Organization. This part is organized into three subparts. Subpart A contains 

general provisions applicable in all cases. Subpart B contains provisions that apply when 

the debtor is a futures commission merchant (as that term is defined in the Act or 

Commission regulations). This includes acting as a foreign futures commission merchant, 

as defined in section 761(12) of the Bankruptcy Code, but excludes a person that is 

“notice-registered” as a futures commission merchant pursuant to section 4f(a)(2) of the 

Act. Subpart C contains provisions that apply when the debtor is registered as a 

derivatives clearing organization under the Act.

(c) Core concepts. The regulations in this part reflect several core concepts. The 

following descriptions of core concepts in this § 190.00(c) are subject to the further 

specific requirements set forth in this part, and the specific requirements in this part should 

be interpreted and applied consistently with these core concepts.

(1) Commodity brokers. Subchapter IV of chapter 7 of the Bankruptcy Code applies to 

a debtor that is a commodity broker, against which a customer holds a “net equity” claim 

relating to a commodity contract. This part is limited to a commodity broker that is (i) a 

futures commission merchant, or (ii) a derivatives clearing organization registered under 

the Act and Commission regulations promulgated thereunder.

(2) Account classes. The Act and Commission regulations provide differing treatment 

and protections for different types of cleared commodity contracts. This part establishes 

three account classes that correspond to the different types of accounts that futures 

commission merchants and clearing organizations are required to maintain under 

Commission regulations, specifically, the futures account class (including options on 

futures), the foreign futures account class (including options on foreign futures) and the 

cleared swaps account class (including cleared options other than options on futures or 

foreign futures). This part also establishes a fourth account class, the delivery account 

class (which may be further subdivided as provided in this part), for property held in an 

account designated within the books and records of the debtor as a delivery account, for 

effecting delivery under commodity contracts whose terms require settlement via delivery 

when the commodity contract is held to expiration or, in the case of a cleared option, is 

exercised. 

(3) Public customers and non-public customers; Commission segregation 

requirements; member property.

(i) Public customers and non-public customers. This part prescribes separate 

treatment of “public customers” and “non-public customers” (as these terms are defined in 

§ 190.01) within each account class in the event of a proceeding under this part in which 
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the debtor is a futures commission merchant. Public customers of a debtor futures 

commission merchant are entitled to a priority in the distribution of cash, securities or 

other customer property over non-public customers, and both have priority over all other 

claimants (except for claims relating to the administration of customer property) pursuant 

to section 766(h) of the Bankruptcy code. 

(A) The cash, securities or other property held on behalf of the public customers of a 

futures commission merchant in the futures, foreign futures or cleared swaps account 

classes are subject to special segregation requirements imposed under Commission 

regulations for each account class. Although such segregation requirements generally are 

not applicable to cash, securities or other property received from or reflected in the 

futures, foreign futures or cleared swaps accounts of non-public customers of a futures 

commission merchant, such transactions and property are customer property within the 

scope of this part.

(B) While Commission regulations do not impose special segregation requirements 

with respect to treatment of cash, securities or other property of public customers carried 

in a delivery account, such property does constitute customer property. Thus, the 

distinction between public and non-public customers is, given the priority for public 

customers in section 766(h) of the Bankruptcy code, relevant for the purpose of making 

distributions to delivery account class customers pursuant to this part.

(C) Where a provision in this part 190 affords the trustee discretion, that discretion 

should be exercised in a manner that the trustee determines will best achieve the 

overarching goal of protecting public customers as a class by enhancing recoveries for, 

and mitigating disruptions to, public customers as a class. In seeking to achieve that 

overarching goal, the trustee has discretion to balance those two sub-goals when they are 

in tension. Where the trustee is directed to exercise “reasonable efforts” to meet a 

standard, those efforts should only be less than “best efforts” to the extent that the trustee 

determines that such an approach would support the foregoing goals. 

(ii) Clearing organization bankruptcies: member property and customer property 

other than member property. In the event of a proceeding under this part in which the 

debtor is a clearing organization, the classification of customers as public customers or 

non-public customers also is relevant, in that each member of the clearing organization 

will have separate claims against the clearing organization (by account class) with respect 

to (A) commodity contract transactions cleared for its own account or on behalf of any of 

its non-public customers (which are cleared in a “house account” at the clearing 

organization), and (B) commodity contract transactions cleared on behalf of any public 

customers of the clearing member (which are cleared in accounts at the clearing 

organization that is separate and distinct from house accounts). Thus, for a clearing 

organization, “customer property” is divided into “member property” and “customer 

property other than member property.” The term member property is used to identify the 

cash, securities or property available to pay the net equity claims of clearing members

based on their house account at the clearing organization.
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(iii) Preferential assignment among customer classes and account classes for clearing 

organization bankruptcies. Section 190.18 is designed to support the interests of public 

customers of members of a debtor that is a clearing organization. 

(A)Certain customer property is preferentially assigned to “customer property other 

than member property” instead of “member property” to the extent that there is a shortfall 

in funded balances for members’ public customer claims. Moreover, to the extent that 

there are excess funded balances for members’ claims in any customer class/account class 

combination, that excess is also preferentially assigned to “customer property other than 

member property” to the extent of any shortfall in funded balances for members’ public 

customer claims.

(B) Where property is assigned to a particular customer class with more than one 

account class, it is assigned to the account class for which the funded balance percentage 

is the lowest until there are two account classes with equal funded balance percentages, 

then to both such account classes, keeping the funded balance percentage the same, and so 

forth following the analogous approach if the debtor has more than two account classes 

within the relevant customer class. 

(4) Porting of public customer commodity contract positions. In a proceeding in 

which the debtor is a futures commission merchant, this part sets out a policy preference 

for transferring to another futures commission merchant, or “porting,” open commodity 

contract positions of the debtor’s public customers along with all or a portion of such 

customers’ account equity. Porting mitigates risks to both the customers of the debtor 

futures commission merchant and to the markets. To facilitate porting, this part addresses 

the manner in which the debtor’s business is to be conducted on and after the filing date, 

with specific provisions addressing the collection and payment of margin for open 

commodity contract positions prior to porting.

(5) Pro rata distribution. The commodity broker provisions of the Bankruptcy Code, 

subchapter IV of Chapter 7, in particular section 766(h), have long revolved around the 

principle of pro rata distribution. If there is a shortfall in the cash, securities or other 

property in a particular account class needed to satisfy the net equity claims of public 

customers in that account class, the customer property in that account class will be 

distributed pro rata to those public customers (subject to appendix B of this part). Any 

customer property not attributable to a specific account class, or that exceeds the amount 

needed to pay allowed customer net equity claims in a particular account class, will be 

distributed to public customers in other account classes so long as there is a shortfall in 

those other classes. Non-public customers will not receive any distribution of customer 

property so long as there is any shortfall, in any account class, of customer property 

needed to satisfy public customer net equity claims.

The pro rata distribution principle means that, if there is a shortfall of customer 

property in an account class, all customers within that account class will suffer the same 

proportional loss relative to their allowed net equity claims. This principle applies to all 

customers, including those who post as collateral specifically identifiable property or 

letters of credit. The pro rata distribution principle is subject to the special distribution 
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provisions set forth in Framework 1 for cross-margin accounts and Framework 2 for funds 

held outside of the U.S. or held in non-U.S. currency. 

(6) Deliveries.

(i) Commodity contracts may have terms that require a customer owning the contract 

(A) to make or take delivery of the underlying commodity if the customer holds the 

contract to a delivery position or, (B) in the case of an option on a commodity, (1) to make 

delivery upon exercise (as the buyer of a put option or seller of a call option) or (2) to take 

delivery upon exercise (as seller of a put option or buyer of a call option). Depending 

upon the circumstances and relevant market, delivery may be effected via a delivery 

account, a futures account, a foreign futures account or a cleared swaps account, or, when 

the commodity subject to delivery is a security, in a securities account (in which case 

property associated with the delivery held in a securities account is not part of any 

customer account class for purposes of this part). 

(ii) Although commodity contracts with delivery obligations are typically offset before 

reaching the delivery stage (i.e., prior to triggering bilateral delivery obligations), when 

delivery obligations do arise, a delivery default could have a disruptive effect on the cash 

market for the commodity and adversely impact the parties to the transaction. This part 

therefore sets out special provisions to address open commodity contracts that are settled 

by delivery, when those positions are nearing or have entered into a delivery position at 

the time of or after the filing date. The delivery provisions in this part are intended to 

allow deliveries to be completed in accordance with the rules and established practices for 

the relevant commodity contract market or clearing organization, as applicable and to the 

extent permitted under this part.

(iii) In a proceeding in which the debtor is a futures commission merchant, the 

delivery provisions in this part reflect policy preferences to (A) liquidate commodity 

contracts that settle via delivery before they move into a delivery position, and (B) when 

such contracts are in a delivery position, to allow delivery to occur, where practicable, 

outside administration of the debtor’s estate. 

(iv) The delivery provisions in this part apply to any commodity that is subject to 

delivery under a commodity contract, as the term commodity is defined in section of 1a(9) 

of the Act, whether the commodity itself is tangible or intangible, including agricultural 

commodities as defined in § 1.3 of this chapter, other non-financial commodities (such as 

metals or energy commodities) covered by the definition of exempt commodity in section 

1a(20) of the Act, and commodities that are financial in nature (such as foreign currencies) 

covered by the definition of excluded commodity in section 1a(19) of the Act. The 

delivery provisions also apply to virtual currencies that are subject to delivery under a 

commodity contract.

(d) Scope.

(1) Proceedings.
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(i) Certain commodity broker proceedings under subchapter IV of chapter 7 of the 

Bankruptcy Code.

(A) Section 101(6) of the Bankruptcy Code recognizes “futures commission 

merchants” and “foreign futures commission merchants,” as those terms are defined in 

section 761(12) of the Bankruptcy Code, as separate categories of commodity broker. The 

definition of commodity broker in § 190.01 of this part, as it applies to a commodity 

broker that is a futures commission merchant under the Act, also covers foreign futures 

commission merchants because a foreign futures commission merchant is required to 

register as a futures commission merchant under the Act.

(B) Section 101(6) of the Bankruptcy Code recognizes “commodity options dealers,” 

and “leverage transaction merchants” as defined in sections 761(6) and (13) of the 

Bankruptcy Code, as separate categories of commodity brokers. There are no commodity 

options dealers or leverage transaction merchants as of the date of the adoption of these 

regulations. The Commission intends to adopt rules with respect to commodity options 

dealers or leverage transaction merchants, respectively, at such time as an entity registers 

as such.

(ii) Futures commission merchants subject to a SIPA proceeding. Pursuant to section 

7(b) of SIPA, 15 U.S.C. 78fff-1(b), the trustee in a SIPA proceeding, where the debtor 

also is a commodity broker, has the same duties as a trustee in a proceeding under 

subchapter IV of chapter 7 of the Bankruptcy Code, to the extent consistent with the 

provisions of SIPA or as otherwise ordered by the court. This part therefore also applies to 

a proceeding commenced under SIPA with respect to a debtor that is registered as a broker 

or dealer under section 15 of the Securities Exchange Act of 1934 when the debtor also is 

a futures commission merchant. 

(iii) Commodity brokers subject to an FDIC proceeding. Section 5390(m)(1)(B) of 

title 12 of the United States Code provides that the FDIC must apply the provisions of 

subchapter IV of chapter 7 of the Bankruptcy Code in respect of the distribution of 

customer property and member property in connection with the liquidation of a covered 

financial company or a bridge financial company (as those terms are defined in section 

5381(a) of title 12) that is a commodity broker as if such person were a debtor for 

purposes of subchapter IV, except as specifically provided in section 5390 of title 12. 

This part therefore shall serve as guidance as to such distribution of property in a 

proceeding in which the FDIC is acting as a receiver pursuant to title II of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act with respect to a covered financial 

company or bridge financial company that is a commodity broker whose liquidation 

otherwise would be administered by a trustee under subchapter IV of chapter 7 of the 

Bankruptcy Code. 

(2) Account class and implied trust limitations.

(i) The trustee may not recognize any account class that is not one of the account 

classes enumerated in § 190.01 of this part.
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(ii) No property that would otherwise be included in customer property, as defined in 

§ 190.01 of this part, shall be excluded from customer property because such property is 

considered to be held in a constructive, resulting, or other trust that is implied in equity.

(3) Commodity contract exclusions. For purposes of this part, the following are 

excluded from the term “commodity contract”:

(i) options on commodities (including swaps subject to regulation under part 32 of this 

chapter) that are not centrally cleared by a clearing organization or foreign clearing 

organization; 

(ii) transactions, contracts or agreements that are classified as “forward contracts” 

under the Act pursuant to the exclusion from the term “future delivery” set out in section 

1a(27) of the Act or the exclusion from the definition of a “swap” under section 

1a(47)(B)(ii) of the Act, in each case that are not centrally cleared by a clearing 

organization or foreign clearing organization;

(iii) security futures products as defined in section 1a(45) of the Act when such 

products are held in a securities account. 

(iv) any off-exchange retail foreign currency transaction, contract or agreement 

described in sections 2(c)(2)(B) or (C) of the Act.

(v) any security-based swap or other security (as defined in section 3 of the Exchange 

Act), but a security futures product or a mixed swap (as defined in 1a(47)(D) of the Act) 

that is, in either case, carried in an account for which there is a corresponding account 

class under this part is not so excluded.

(vi) any off-exchange retail commodity transaction, contract or agreement described in 

section 2(c)(2)(D) of the Act, unless such transaction, contract or agreement is traded on 

or subject to the rules of a designated contract market or foreign board of trade as, or as if, 

such transaction, contract or agreement is a futures contract.

(e) Construction.

(1) A reference in this part to a specific section of a federal statute or specific 

regulation refers to such section or regulation as the same may be amended, superseded or 

renumbered.

(2) Where they differ, the definitions set forth in § 190.01 shall be used instead of 

defined terms set forth in section 761 of the Bankruptcy Code. In many cases, these 

definitions are based on definitions in parts 1, 22, and 30 of chapter 17 of the CFR. 

Notwithstanding the use of different defined terms, the regulations in this part are intended 

to be consistent with the provisions and objectives of subchapter IV of chapter 7 of the 

Bankruptcy Code.
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(3) In the context of portfolio margining and cross margining programs, commodity 

contracts and associated collateral will be treated as part of the account class in which, 

consistent with Commission regulations, they are held. 

(i) Thus, as noted in paragraph (2) of the definition of account class in §190.01, where 

open commodity contracts (and associated collateral) that would be attributable to one 

account class are, instead, commingled with the commodity contracts (and associated 

collateral) in a second account class (the “home field”), then the trustee must treat all such 

commodity contracts and collateral as part of, and consistent with the regulations 

applicable to, the second account class. 

(ii) This concept, that the rules of the “home field” will apply, also pertains to 

securities positions that are, pursuant to an approved cross margining program, held in a 

commodities account class (in which case the rules of that commodities account class will 

apply) and to commodities positions that are, pursuant to an approved cross-margining 

program, held in a securities account (in which case, the rules of the securities account

will apply, consistent with section 16(2)(b)(ii) of SIPA, 15 U.S.C. 78lll(2)(b)(ii)).

§ 190.01 Definitions.

For purposes of this part:

Account class (1) means one or more of each of the following types of accounts

maintained by a futures commission merchant or clearing organization (as applicable), 

each type of which must be recognized as a separate account class by the trustee: 

(i) Futures account means

(A)With respect to public customers, the same definition as set forth in § 1.3 of 

this chapter.

(B) With respect to non-public customers, 

(1) With respect to a futures commission merchant, an account 

maintained on the books and records of the futures commission 

merchant for the purpose of accounting for a person’s transactions 

in futures or options on futures contracts executed on or subject to 

the rules of a designated contract market registered under the Act

(and related cash, securities or other property); and

(2) With respect to a clearing organization, an account maintained on 

the books and records of the clearing organization for the purpose 

of accounting for transactions in futures or options on futures 

contracts cleared or settled by the clearing organization for a 

member or a member’s non-public customers (and related cash, 

securities or other property).

(ii) Foreign futures account means:
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(A) With respect to public customers, 

(1) With respect to a futures commission merchant, a 30.7 account, as 

such term is defined in § 30.1(g) of this chapter; and 

(2) With respect to a clearing organization, an account maintained on 

the books and records of the clearing organization for the purpose 

of accounting for transactions in futures or options on futures 

contracts executed on or subject to the rules of a foreign board of 

trade, cleared or settled by the clearing organization for a member

that is a futures commission merchant (and related cash, securities 

or other property), on behalf of that member’s 30.7 customers (as 

that latter term is defined in § 30.1(f) of this Chapter).

(B) With respect to non-public customers, 

(1) With respect to a futures commission merchant, an account 

maintained on the books and records of the futures commission 

merchant for the purpose of accounting for a person’s transactions 

in futures or options on futures contracts executed on or subject to 

the rules of a foreign board of trade (and related cash, securities or 

other property); and

(2) With respect to a clearing organization, an account maintained on 

the books and records of the clearing organization for the purpose 

of accounting for transactions in futures or options on futures 

contracts executed on or subject to the rules of a foreign board of 

trade, cleared or settled by the clearing organization for a member

or a member’s non-public customers (and related cash, securities or 

other property).

(ii) Cleared swaps account means

(A)With respect to public customers, a cleared swaps customer account, as 

such term is defined in § 22.1 of this Chapter.

(B) With respect to non-public customers, 

(1) With respect to a futures commission merchant, an account 

maintained on the books and records of the futures commission 

merchant for the purpose of accounting for a person’s transactions 

in cleared swaps (as defined in § 22.1of this chapter) (and related 

cash, securities or other property)

(2) With respect to a clearing organization, an account maintained on 

the books and records of the clearing organization for the purpose 

of accounting for transactions in cleared swaps (as defined in § 22.1 
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of this chapter) (or in other contracts permitted to be cleared in the 

account) cleared or settled by the clearing organization for a 

member or a member’s non-public customers (including any 

property related thereto)

(iv)(A) Delivery account means (for both public and non-public customers, considered 

separately):

(1) An account maintained on the books and records of a futures commission 

merchant for the purpose of accounting for the making or taking of delivery under 

commodity contracts whose terms require settlement by delivery of a commodity, and 

which is designated as a delivery account on the books and records of the futures 

commission merchant; and

(2) An account maintained on the books and records of a clearing organization for a 

clearing member (or a customer of a clearing member) for the purpose of accounting for 

the making or taking of delivery under commodity contracts whose terms require 

settlement by delivery of a commodity, as well as any account in which the clearing 

organization holds physical delivery property represented by electronic title documents or 

otherwise existing in an electronic (dematerialized) form in its capacity as a central 

depository, in each case where the account is designated as a delivery account on the 

books and the records of the clearing organization.

(B) The delivery account class is further divided into a “physical delivery account 

class” and a “cash delivery account class,” as provided in § 190.06(b) of this part, each of 

which shall be recognized as a separate class of account by the trustee.

(2) (i) If open commodity contracts that would otherwise be attributable to one account 

class (and any property margining, guaranteeing, securing or accruing in respect of such 

commodity contracts) are, pursuant to a Commission rule, regulation, or order, or a 

clearing organization rule approved in accordance with § 39.15(b)(2) of this chapter, held 

separately from other commodity contracts and property in that account class and are 

commingled with the commodity contracts and property of another account class, then the 

trustee must treat the former commodity contracts (and any property margining, 

guaranteeing, securing or accruing in respect of such commodity contracts), for purposes 

of this part, as being held in an account of the latter account class.

(ii) The principle in paragraph 2(i) will be applied to securities positions and 

associated collateral held in a commodity account class pursuant to a cross margining 

program approved by the Commission (and thus treated as part of that commodity account 

class) and to commodity positions and associated collateral held in a securities account 

pursuant to a cross margining program approved by the Commission (and thus treated as 

part of the securities account).

(3) For the purpose of this definition, a commodity broker is considered to maintain an 

account for another person by establishing internal books and records in which it records 

the person’s commodity contracts and cash, securities or other property received from or 
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on behalf of such person or accruing to the credit of such person’s account, and related 

activity (such as liquidation of commodity contract positions or adjustments to reflect 

mark-to-market gains or losses on commodity contract positions), regardless whether the 

commodity broker has kept such books and records current or accurate. 

Act means the Commodity Exchange Act.

Bankruptcy Code means, except as the context of the regulations in this part otherwise 

requires, those provisions of title 11 of the United States Code relating to ordinary 

bankruptcies (chapters 1 through 5) and liquidations (chapter 7 with the exception of 

subchapters III and V), together with the federal rules of bankruptcy procedure relating 

thereto.

Business day means weekdays, not including federal holidays as established annually 

by 5 U.S.C. 6103. A business day begins at 8:00 a.m. in Washington DC, and ends at 

7:59:59 a.m. on the next day that is a business day.

Calendar day means the time from midnight to midnight in Washington, DC.

Cash delivery account class. See definition under account class.

Cash delivery property means any cash or cash equivalents recorded in a delivery 

account that is, as of the filing date, (1) credited to such account to pay for receipt of 

delivery of a commodity under a commodity contract, (2) credited to such account to 

collateralize or guarantee an obligation to make or take delivery of a commodity under a 

commodity contract, or (3) has been credited to such account as payment received in 

exchange for making delivery of a commodity under a commodity contract. It also 

includes property in the form of commodities that have been delivered after the filing date 

in exchange for cash or cash equivalents held in a delivery account as of the filing date. 

The cash or cash equivalents must be identified on the books and the records of the debtor 

as having been received, from or for the account of a particular customer, on or after seven 

calendar days before the relevant (i) first notice date in the case of a futures contract or (ii) 

exercise date in the case of a (cleared) option. 

Cash delivery property also includes any cash transferred by a customer to the trustee 

on or after the filing date for the purpose of paying for delivery, consistent with 

190.06(a)(3)(ii)(B)(1).

In the case of a contract where one fiat currency is exchanged for another fiat 

currency, each such currency, to the extent that it is recorded in a delivery account, will be 

considered cash delivery property.

Cash equivalents means assets, other than United States dollar cash, that are highly 

liquid such that they may be converted into United States dollar cash within one business 

day without material discount in value.

Cleared swaps account. See definition under account class.
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Clearing organization means a derivatives clearing organization that is registered with 

the Commission as such under the Act.

Commodity broker means any person that is (1) a futures commission merchant under 

the Act, but excludes a person that is “notice-registered” as a futures commission 

merchant under section 4f(a)(2) of the Act, or (2) a clearing organization, in each case 

with respect to which there is a “customer” as that term is defined in this section. 

Commodity contract means (1) a futures or options on futures contract executed on or 

subject to the rules of a designated contract market, (2) a futures or option on futures 

contract executed on or subject to the rules of a foreign board of trade, (3) a swap as 

defined in section 1a(47) of the Act and § 1.3 of this chapter, that is directly or indirectly 

submitted to and cleared by a clearing organization and which is thus a cleared swap as 

that term is defined in section 1a(7) of the Act and § 22.1 of this chapter, or (4) any other 

contract that is a swap for purposes of this part under the definition in this § 190.01 and is 

submitted to and cleared by a clearing organization. Notwithstanding the foregoing, a 

security futures product as defined in section 1a(45) of the Act is not a commodity 

contract for purposes of this part when such contract is held in a securities account. 

Moreover, a contract, agreement, or transaction described in § 190.00(d)(3) as excluded 

from the term “commodity contract” is excluded from this definition. 

Commodity contract account means (1) a futures account, foreign futures account, 

cleared swaps account, or delivery account, or (2) if the debtor is a futures commission 

merchant, for purposes of identifying customer property for the foreign futures account 

class (subject to § 190.09(a)(1)), an account maintained for the debtor by a foreign 

clearing organization or a foreign futures intermediary reflecting futures or options on 

futures executed on or subject to the rules of a foreign board of trade, including any 

account maintained on behalf of the debtor’s public customers.

Court means the court having jurisdiction over the debtor’s estate.

Cover has the meaning set forth in § 1.17(j) of this chapter.

Customer means:

(1)(i) With respect to a futures commission merchant as debtor (including a foreign 

futures commission merchant as that term is defined in section 761(12) of the Bankruptcy 

Code), the meaning set forth in sections 761(9)(A) and (B) of the Bankruptcy Code. 

(ii) With respect to a clearing organization as debtor, the meaning set forth in section 

761(9)(D) of the Bankruptcy Code.

(2) The term customer includes the owner of a portfolio cross-margining account 

covering commodity contracts and related positions in securities (as defined in section 3 of 

the Exchange Act) that is carried as a futures account or cleared swaps customer account 

pursuant to an appropriate rule, regulation, or order of the Commission.
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Customer claim of record means a customer claim that is determinable solely by 

reference to the records of the debtor.

Customer class means each of the following two classes of customers, which must be 

recognized as separate classes by the trustee: public customers and non-public customers; 

provided, however, that when the debtor is a clearing organization the references to public 

customers and non-public customers are based on the classification of customers of, and in 

relation to, the members of the clearing organization.

Customer property, customer estate are used interchangeably to mean the property 

subject to pro rata distribution in a commodity broker bankruptcy in the priority set forth 

in sections 766(h) or (i), as applicable, of the Bankruptcy Code, and includes cash, 

securities, and other property as set forth in § 190.09(a).

Debtor means a person with respect to which a proceeding is commenced under 

subchapter IV of chapter 7 of the Bankruptcy Code or under SIPA, or for which the 

Federal Deposit Insurance Corporation is appointed as a receiver pursuant to 

12 U.S.C. 5382, provided, however, that this part applies only to such a proceeding if the 

debtor is a commodity broker as defined in this section.

Delivery account. See definition under account class.

Distribution of property to a customer includes transfer of property on the customer’s 

behalf, return of property to a customer, as well as distributions to a customer of valuable 

property that is different than the property posted by that customer.

Equity means the amount calculated as equity in accordance with § 190.08(b)(1).

Exchange Act means the Securities Exchange Act of 1934, as amended, 15 U.S.C. 78a 

et seq.

FDIC means the Federal Deposit Insurance Corporation.

Filing date means the date a petition under the Bankruptcy Code or application under 

SIPA commencing a proceeding is filed or on which the FDIC is appointed as a receiver 

pursuant to 12 U.S.C. 5382(a).

Final net equity determination date means the latest of:

(1) The day immediately following the day on which all commodity contracts held by 

or for the account of customers of the debtor have been transferred, liquidated or satisfied 

by exercise or delivery,

(2) The day immediately following the day on which all property other than 

commodity contracts held for the account of customers has been transferred, returned or 

liquidated,
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(3) The bar date for filing customer proofs of claim as determined by rule 3002(c) of 

the Federal Rules of Bankruptcy Procedure, the expiration of the six-month period 

imposed pursuant to section 8(a)(3) of SIPA, or such other date (whether earlier or later) 

set by the court (or, in the case of the FDIC acting as a receiver pursuant to 

12 U.S.C. 5382(a), the deadline set by the FDIC pursuant to 12 U.S.C. 5390(a)(2)(B) or

(4) The day following the allowance (by the trustee or by the bankruptcy court) or 

disallowance (by the bankruptcy court) of all disputed customer net equity claims.

Foreign board of trade has the same meaning as set forth in § 1.3 of this chapter.

Foreign clearing organization means a clearing house, clearing association, clearing 

corporation or similar entity, facility or organization clears and settles transactions in 

futures or options on futures executed on or subject to the rules of a foreign board of trade.

Foreign future shall have the same meaning as that set forth in section 761(11) of 

the Bankruptcy Code.

Foreign futures account. See definition under account class.

Foreign futures commission merchant shall have the same meaning as that set forth in 

section 761(12) of the Bankruptcy Code

Foreign futures intermediary refers to a foreign futures and options broker, as such 

term is defined in § 30.1(e) of this title, acting as an intermediary for foreign futures 

contracts between a foreign futures commission merchant and a foreign clearing 

organization.

Funded balance means, for purposes of this part 190, the amount calculated as funded 

balance in accordance with § 190.08(c) and, as applicable, § 190.17(d).

Funded net equity means, for purposes of subpart B, the amount calculated as funded 

net equity in accordance with § 190.08(a), and for purposes of subpart C, the amount 

calculated as funded net equity in accordance with § 190.17(c).

Futures, futures contract are used interchangeably to mean any contract for the 

purchase or sale of a commodity (as defined in section 1a(9) of the Act) for future delivery 

that is executed on or subject to the rules of a designated contract market or on or subject 

to the rules of a foreign board of trade. The term also covers, for purposes of this part, 

(1) any transaction, contract or agreement described in section 2(c)(2)(D) of the Act

and traded on or subject to the rules of a designated contract market or foreign board of 

trade, to the extent not covered by the foregoing definition, and 

(2) any transaction, contract or agreement that is classified as a “forward contract” 

under the Act pursuant to the exclusion from the term “future delivery” set out in section 

1a(27) of the Act or the exclusion from the definition of a “swap” under section 

1a(47)(B)(ii) of the Act, provided that such transaction, contract or agreement is traded on 
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or subject to the rules of a designated contract market or foreign board of trade and is 

cleared by, respectively, a clearing organization or foreign clearing organization the same 

as if it were a futures contract.

Futures account. See definition under account class.

House account means, in the case of a clearing organization, any commodity contract 

account of a member at such clearing organization maintained to reflect trades for the 

member’s own account or for any non-public customer of such member.

In-the-money means:

(1) With respect to a call option, when the value of the underlying interest (such as a 

commodity or futures contract) which is the subject of the option exceeds the strike price 

of the option; and

(2) With respect to a put option, when the value of the underlying interest (such as a 

commodity or futures contract) which is the subject of the option is exceeded by the strike 

price of the option.

Joint account means any commodity contract account held by more than one person.

Member property means, in connection with a clearing organization bankruptcy, the 

property which may be used to pay that portion of the net equity claim of a member which 

is based on the member’s house account at the clearing organization, including any claims 

on behalf of non-public customers of the member.

Net equity means, for purposes of subpart B, the amount calculated as net equity in 

accordance with § 190.08(b), and for purposes of subpart C, the amount calculated as net 

equity in accordance with § 190.17(b).

Non-public customer means:

(1) With respect to a futures commission merchant, any customer that is not a public 

customer, and 

(2) With respect to a clearing organization, any person whose account carried on the 

books and records of (i) a member of the clearing organization that is a futures 

commission merchant, is classified as a proprietary account under § 1.3 of this chapter (in 

the case of the futures or foreign futures account class) or as a cleared swaps proprietary 

account under § 22.1 of this chapter (in the case of the cleared swaps account class), or (ii) 

a member of the clearing organization that is a foreign broker, is classified or treated as 

proprietary under and for purposes of (A) the rules of the clearing organization or (B) the 

jurisdiction of incorporation of such member.

Open commodity contract means a commodity contract which has been established in 

fact and which has not expired, been redeemed, been fulfilled by delivery or exercise, or 

been offset (i.e., liquidated) by another commodity contract.
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Order for relief has the same meaning set forth in section 301 of the Bankruptcy Code, 

in the case of the filing of a voluntary bankruptcy petition, and means the entry of an order 

granting relief under section 303 of the Bankruptcy Code in an involuntary case. It also 

means, where applicable, the issuance of a protective decree under section 5(b)(1) of SIPA 

or the appointment of the FDIC as receiver pursuant to 12 U.S.C. 5382(a)(1)(A).

Person means any individual, association, partnership, corporation, trust or other form 

of legal entity.

Physical delivery account class. See definition under account class.

Physical delivery property means

(1) In general: a commodity, whether tangible or intangible, held in a form that can be 

delivered to meet and fulfill delivery obligations under a commodity contract that settles 

via delivery if held to a delivery position (as described in § 190.06(a)(1) of this part), 

including warehouse receipts, other documents of title, or shipping certificates (including 

electronic versions of any of the foregoing) for the commodity, or the commodity itself:

(i) That the debtor holds for the account of a customer for the purpose of making 

delivery of such commodity on the customer’s behalf, which as of the filing date or 

thereafter, can be identified on the books and records of the debtor as held in a delivery 

account for the benefit of such customer. Cash or cash equivalents received after the filing 

date in exchange for delivery of such physical delivery property shall also constitute 

physical delivery property;

(ii) That the debtor holds for the account of a customer and that the customer received 

or acquired by taking delivery under an expired or exercised commodity contract and 

which, as of the filing date or thereafter, can be identified on the books and records of the 

debtor as held in a delivery account for the benefit of such customer, regardless how long 

such property has been held in such account; 

(iii) Where property that the debtor holds in a futures account, foreign futures account 

or cleared swaps account, or, if the commodity is a security, in a securities account, would 

meet the criteria listed in paragraph (1) or (2) of this section, but for the fact of being held 

in such account rather than a delivery account, such property will be considered physical 

delivery property solely for purposes of the obligations to make or take delivery of 

physical delivery property pursuant to § 190.06 of this part. 

(iv) Commodities or documents of title that are not held by the debtor and are 

delivered or received by a customer in accordance with § 190.06(a)(2) (or in accordance 

with § 190.06(a)(2) in conjunction with § 190.16(a) if the debtor is a clearing 

organization) to fulfill a customer’s delivery obligation under a commodity contract will 

be considered physical delivery property solely for purposes of the obligations to make or 

take delivery of physical delivery property pursuant to § 190.06 of this part. As this 

property is held outside of the debtor’s estate, it is not subject to pro rata distribution.
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(2) Special cases: 

(i) In the case of a contract where one fiat currency is exchanged for another fiat 

currency, neither such currency, to the extent that it is recorded in a delivery account, will 

be considered physical delivery property.

(ii) In a case where the final settlement price is negative, i.e., where the party obliged 

to deliver physical delivery property under an expiring futures contract or an expired 

options contract is also obliged to make a cash payment to the buyer, such cash or cash 

equivalents constitute physical delivery property.

Primary liquidation date means the first business day immediately following the day 

on which all commodity contracts (including any commodity contracts that are 

specifically identifiable property) have been liquidated or transferred.

Public customer means: (1) With respect to a futures commission merchant and in 

relation to:

(i) the futures account class, a futures customer as defined in § 1.3 of this chapter

whose futures account is subject to the segregation requirements of section 4d(a) of the 

Act and Commission regulations thereunder, including as applicable §§ 1.20-1.30 of this 

chapter;

(ii) the foreign futures account class, a § 30.7 customer as defined in § 30.1 of this 

chapter whose foreign futures accounts is subject to the segregation requirements of § 30.7 

of this chapter;

(iii) the cleared swaps account class, a Cleared Swaps Customer as defined in § 22.1 of 

this chapter whose cleared swaps account is subject to the segregation requirements of part 

22 of this chapter;

(iv) the delivery account class, a customer that is or would be classified as a public 

customer if the property reflected in the customer’s delivery account had been held in an 

account described in paragraphs (1)(i), (ii) or (iii).

(2) With respect to a clearing organization, any customer of that clearing organization 

that is not a non-public customer.

Securities account means, in relation to a futures commission merchant that is 

registered as a broker or dealer under the Exchange Act, an account maintained by such 

futures commission merchant in accordance with the requirements of section 15(c)(3) of 

the Exchange Act and § 240.15c3-3 of this title. 

Security has the meaning set forth in section 101(49) of the Bankruptcy Code.

SIPA means the Securities Investor Protection Act of 1970, 15 U.S.C 78aaa et seq.

Specifically identifiable property: (1) This term means:
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(i) The following property received, acquired, or held by or for the account of the 

debtor from or for the futures account, foreign futures account or cleared swaps account of 

a customer:

(A) Any security which as of the filing date is:

(1)(i) Held for the account of a customer;

(ii) Registered in such customer’s name;

(iii) Not transferable by delivery; and

(iv) Has a duration or maturity date of more than 180 days; or

(2)(i) Fully paid;

(ii) Non-exempt; and

(iii) Identified on the books and records of the debtor as held by the debtor for or on 

behalf of the commodity contract account of a particular customer for which, according to 

such books and records as of the filing date, no open commodity contracts were held in the 

same capacity

(B) Any warehouse receipt, bill of lading or other document of title which as of the 

filing date:

(1) Can be identified on the books and records of the debtor as held for the account of 

a particular customer; and

(2) Is not in bearer form and is not otherwise transferable by delivery; 

(ii) Any open commodity contracts treated as specifically identifiable property in 

accordance with § 190.03(c)(2); and

(iii) Any physical delivery property described in paragraphs (1) through (3) of the 

definition of physical delivery property in this § 190.01.

(2) Notwithstanding any other provision of this definition of specifically identifiable 

property, security futures products, and any money, securities or property held to margin, 

guarantee or secure such products, or accruing as a result of such products, shall not be 

considered specifically identifiable property for the purposes of subchapter IV of the 

Bankruptcy Code or this part, if held in a securities account.

(3) No property that is not explicitly included in this definition may be treated as 

specifically identifiable property.
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Strike price means the price per unit multiplied by the total number of units at which a 

person may purchase or sell a futures contract or a commodity or other interest underlying 

an option that is a commodity contract.

Substitute customer property means cash or cash equivalents delivered to the trustee 

by or on behalf of a customer in connection with (1) the return of specifically identifiable 

property by the trustee, or (2) the return of, or an agreement not to draw upon, a letter of 

credit received, acquired or held to margin, guarantee, secure, purchase or sell a 

commodity contract. 

Swap has the meaning set forth in section 1a(47) of the Act and § 1.3 of this chapter, 

and, in addition, for purposes of this part, also means any other contract, agreement or 

transaction that is carried in a cleared swaps account pursuant to a rule, regulation or order 

of the Commission, provided, in each case, that it is cleared by a clearing organization as, 

or the same as if it were, a swap.

Trustee means, as appropriate, the trustee in bankruptcy or in a SIPA proceeding,

appointed to administer the debtor’s estate and any interim or successor trustee, or the 

FDIC, where it has been appointed as a receiver pursuant to 12 U.S.C. 5382. 

Undermargined. A futures account, foreign futures account or cleared swaps account 

carried by the debtor is considered undermargined if the funded balance for such account

is below the minimum amount that the debtor is required to collect and maintain for the 

open commodity contracts in such account under the rules of the relevant clearing 

organization, foreign clearing organization, designated contract market, swap execution 

facility or foreign board of trade. If any such rules establish both an initial margin 

requirement and a lower maintenance margin requirement applicable to any commodity 

contracts (or to the entire portfolio of commodity contracts or any subset thereof) in a 

particular commodity contract account of the customer, the trustee will use the lower 

maintenance margin level to determine the customer’s minimum margin requirement for 

such account.

Variation settlement means variation margin as defined in § 1.3 of this chapter plus all 

other daily settlement amounts (such as price alignment payments) that may be owed or 

owing on the commodity contract. 

§ 190.02 General. 

(a) Request for exemption.

(1) The trustee (or, in the case of an involuntary petition pursuant to section 303 of the 

Bankruptcy Code, any other person charged with the management of a commodity broker) 

may, for good cause shown, request from the Commission an exemption from the 

requirements of any procedural provision in this part, including an extension of any time 

limit prescribed by this part or an exemption subject to conditions, provided that the 

Commission shall not grant an extension for any time period established by the 

Bankruptcy Code.
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(2) A request pursuant to paragraph (a)(1) of this section 

(i) may be made ex parte and by any means of communication, written or oral, 

provided that the trustee must confirm an oral request in writing within one business day 

and such confirmation must contain all the information required by paragraph (b)(3) of 

this section. The request or confirmation of an oral request must be given to the 

Commission as provided in paragraph (a) of this section.

(ii) must state the particular provision of this part with respect to which the exemption 

or extension is sought, the reason for the requested exemption or extension, the amount of 

time sought if the request is for an extension, and the reason why such exemption or 

extension would not be contrary to the purposes of the Bankruptcy Code and this part.

(3) The Director of the Division of Clearing and Risk, or members of the Commission 

staff designated by the Director, shall grant, deny or otherwise respond to a request, on the 

basis of the information provided in any such request and after consultation with the 

Director of the Market Participants Division or members of the Commission staff 

designated by the Director, unless exigent circumstances require immediate action 

precluding such prior consultation, and shall communicate that determination by the most 

appropriate means to the person making the request.

(b) Delegation of authority to the Director of the Division of Clearing and Risk.

(1) Until such time as the Commission orders otherwise, the Commission hereby 

delegates to the Director of the Division of Clearing and Risk, and to such members of the 

Commission’s staff acting under the Director’s direction as they may designate, after 

consultation with the Director of the Market Participants Division, or such members of the 

Commission’s staff under the Director’s direction as they may designate, unless exigent 

circumstances require immediate action, all the functions of the Commission set forth in 

this part, except the authority to disapprove a pre-relief transfer of a public customer 

commodity contract account or customer property pursuant to § 190.07(e)(1).

(2) The Director of the Division of Clearing and Risk may submit to the Commission 

for its consideration any matter which has been delegated to the Director pursuant to 

paragraph (b)(1) of this section.

(3) Nothing in this section shall prohibit the Commission, at its election, from 

exercising its authority delegated to the Director of the Division of Clearing and Risk 

under paragraph (b)(1) of this section.

(c) Forward contracts. For purposes of this part, an entity for or with whom the debtor 

deals who holds a claim against the debtor solely on account of a forward contract, that is 

not cleared by a clearing organization, will not be deemed to be a customer.

(d) Other. The Bankruptcy Code will not be construed by the Commission to prohibit 

a commodity broker from doing business as any combination of the following: futures 

commission merchant, commodity options dealer, foreign futures commission merchant or 
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leverage transaction merchant, nor will the Commission construe the Bankruptcy Code to 

permit any operation, trade or business, or any combination of the foregoing, otherwise 

prohibited by the Act or by any rule, regulation or order of the Commission thereunder.

(e) Rule of construction. Contracts in security futures products held in a securities 

account shall not be considered to be “from or for the commodity futures account” or 

“from or for the commodity options account” of such customers, as such terms are used in 

section 761(9) of the Bankruptcy Code.

(f) Receivers. In the event that a receiver for an FCM is appointed due to the violation 

or imminent violation of the customer property protection requirements of section 4d of 

the Act, or of the regulations thereunder, or of the FCM’s minimum capital requirements 

in §1.17 of this chapter, such receiver may, in an appropriate case, file a petition for 

bankruptcy of such FCM pursuant to Section 301 of the Bankruptcy Code.

(g) The term “allowed” in this part shall have the meaning ascribed to it in the 

Bankruptcy Code.

Subpart B—Futures Commission Merchant as Debtor

§ 190.03 Notices and proofs of claims. 

(a) Notices – means of providing.

(1) To the Commission. Unless instructed otherwise by the Commission, all 

mandatory or discretionary notices to be given to the Commission under this subpart B

shall be directed by electronic mail to bankruptcyfilings@cftc.gov. For purposes of this 

subpart B, notice to the Commission shall be deemed to be given only upon actual receipt.

(2) To Customers. The trustee, after consultation with the Commission, and unless 

otherwise instructed by the Commission, will establish and follow procedures reasonably 

designed for giving adequate notice to customers under this subpart B and for receiving 

claims or other notices from customers. Such procedures should include, absent good 

cause otherwise, the use of a prominent website as well as communication to customers’ 

electronic addresses that are available in the debtor’s books and records. 

(b) Notices to the Commission and Designated Self-Regulatory Organizations.

(1) Of commencement of a proceeding. Each commodity broker that is a futures 

commission merchant and files a petition in bankruptcy shall as soon as practicable

before, and in any event no later than, the time of such filing, notify the Commission and 

such commodity broker’s designated self-regulatory organization of the anticipated or 

actual filing date, the court in which the proceeding will be or has been filed and, as soon 

as known, the docket number assigned to that proceeding. Each commodity broker that is 

a futures commission merchant and against which a bankruptcy petition is filed or with 

respect to which an application for a protective decree under SIPA is filed shall

immediately upon the filing of such petition or application notify the Commission and 
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such commodity broker’s designated self-regulatory organization of the filing date, the 

court in which the proceeding has been filed, and, as soon as known, the docket number 

assigned to that proceeding. 

(2) Of transfers under section 764(b) of the Bankruptcy Code. As soon as possible, the 

trustee of a commodity broker that is a futures commissions merchant, the relevant 

designated self-regulatory organization, or the applicable clearing organization must 

notify the Commission, and in the case of a futures commission merchant, the trustee shall 

also notify its designated self-regulatory organization and clearing organization(s), if such 

person intends to transfer or to apply to transfer open commodity contracts or customer 

property on behalf of the public customers of the debtor in accordance with section 764(b) 

of the Bankruptcy Code and §§ 190.07(c) or (d). 

(c) Notices to customers.

(1) Specifically identifiable property other than open commodity contracts. In any 

case in which an order for relief has been entered, the trustee must use all reasonable 

efforts to promptly notify, in accordance with § 190.03(a)(2), any customer whose futures 

account, foreign futures account or cleared swaps account includes specifically 

identifiable property, other than open commodity contracts, which has not been liquidated, 

that such specifically identifiable property may be liquidated commencing on and after the 

seventh day after the order for relief (or such other date as is specified by the trustee in the 

notice with the approval of the Commission or court) if the customer has not instructed the 

trustee in writing before the deadline specified in the notice to return such property 

pursuant to the terms for distribution of specifically identifiable property contained in 

§ 190.09(d)(1). Such notice must describe the specifically identifiable property and

specify the terms upon which that property may be returned, including if applicable and to 

the extent practicable any substitute customer property that must be provided by the 

customer. 

(2) Open commodity contracts carried in hedging accounts. To the extent reasonably 

practicable under the circumstances of the case, and following consultation with the 

Commission, the trustee may treat open commodity contracts of public customers 

identified on the books and records of the debtor as held in a futures account, foreign 

futures account or cleared swaps account designated as a hedging account in the debtor’s 

records, as specifically identifiable property of such customer. 

(i) If the trustee does not exercise such authority, such open commodity contracts do 

not constitute specifically identifiable property. 

(ii) If the trustee exercises such authority, 

(A) The trustee shall use reasonable efforts to promptly notify, in accordance with 

§ 190.03(a)(2), each relevant public customer of such determination.

(B) Instructions. 
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(3) Where, in the judgment of the trustee, the books and records of the debtor 

reveal a clear preference by a relevant public customer with respect to 

transfer or liquidation of open commodity contracts, the trustee shall 

endeavor, to the extent reasonably practicable, to comply with that 

preference.

(4) Where, in the judgment of the trustee, the books and records of the debtor 

do not reveal a clear preference by a relevant public customer with respect 

to transfer or liquidation of open commodity contracts, the trustee will 

request the customer to provide written instructions whether to transfer or 

liquidate such open commodity contracts. Such notice must specify the

manner for providing such instructions and the deadline by which the 

customer must provide instructions. 

(C) Such notice must also inform the customer that 

(1) (Where instructions have been requested pursuant to paragraph (B)(2)), if 

the customer does not provide instructions in the prescribed manner and by 

the prescribed deadline, the customer’s open commodity contracts will not 

be treated as specifically identifiable property under this part, 

(2) Any transfer of the open commodity contracts is subject to the terms for 

distribution contained in § 190.09(d)(2), 

(3) Absent compliance with any terms imposed by the trustee or the court, the 

trustee may liquidate the open commodity contracts, and 

(4) Providing (or having provided) instructions may not prevent the open 

commodity contracts from being liquidated.

(3) Involuntary cases. Prior to entry of an order for relief, and upon leave of the court, 

a trustee appointed in an involuntary proceeding pursuant to section 303 of the Bankruptcy 

Code may notify customers, in accordance with § 190.03(a)(2), of the commencement of 

such proceeding and may request customer instructions with respect to the return, 

liquidation or transfer of specifically identifiable property.

(4) Notice of bankruptcy and request for proof of customer claim. The trustee shall

promptly notify, in accordance with § 190.03(a)(2), each customer that an order for relief 

has been entered and instruct each customer to file a proof of customer claim containing 

the information specified in paragraph (e) of this section. Such notice may be given 

separately from any notice provided in accordance with paragraph (c) of this section. The 

trustee shall cause the proof of customer claim form referred to in paragraph (e) of this 

section to set forth the bar date for its filing.

(d) Notice of court filings. The trustee shall promptly provide the Commission with 

copies of any complaint, motion, or petition filed in a commodity broker bankruptcy 
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which concerns the disposition of customer property. Court filings shall be directed to the 

Commission addressed as provided in paragraph (a)(1) of this section.

(e) Proof of customer claim. The trustee shall request that customers provide, to the 

extent reasonably practicable, information sufficient to determine a customer’s claim in 

accordance with the regulations contained in this part, including in the discretion of the 

trustee:

(1) The class of commodity contract account upon which each claim is based (i.e., 

futures account, foreign futures account, cleared swaps account, or delivery account (and, 

in the case of a delivery account, how much is based on cash delivery property and how 

much is based on the value of physical delivery property);

(2) Whether the claimant is a public customer or a non-public customer;

(3) The number of commodity contract accounts held by each claimant, and, for each 

such account: 

(i) the account number; 

(ii) the name in which the account is held; 

(iii) the balance as of the last account statement for the account, and information 

regarding any activity in the account from the date of the last account statement up to and 

including the filing date that affected the balance of the account;

(iv) the capacity in which the account is held;

(v) whether the account is a joint account and, if so, the amount of the claimant’s 

percentage interest in that account and whether participants in the joint account are 

claiming jointly or separately;

(vi) whether the account is a discretionary account;

(vii) whether the account is an individual retirement account for which there is a 

custodian; and 

(viii) whether the account is a cross-margining account for futures and securities.

(4) A description of any accounts held by the claimant with the debtor that are not 

commodity contract accounts;

(5) A description of all claims against the debtor not based upon a commodity contract 

account of the claimant or an account listed in response to subsection (e)(4) above;

(6) A description of all claims of the debtor against the claimant not included in the 

balance of a commodity contract account of the claimant;
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(7) A description of and the value of any open positions, unliquidated securities or 

other unliquidated property held by the debtor on behalf of the claimant, indicating the 

portion of such property, if any, which was included in the information provided in 

paragraph (e)(3) of this section, and identifying any such property which would be 

specifically identifiable property as defined in § 190.01;

(8) Whether the claimant holds positions in security futures products, and, if so, 

whether those positions are held in a futures account, a foreign futures account or a 

securities account; 

(9) Whether the claimant wishes to receive payment in kind, to the extent practicable, 

for any claim for unliquidated securities or other unliquidated property; and

(10) Copies of any documents which support the information contained in the proof of 

customer claim, including without limitation, customer confirmations, account statements, 

and statements of purchase or sale.

(f) Proof of claim form. A template customer proof of claim form which may (but is 

not required to) be used by the trustee is set forth in appendix A to this part. 

(1) If there are no open commodity contracts that are being treated as specifically 

identifiable property (e.g., if the customer proof of claim form was distributed after the 

primary liquidation date), the trustee should modify the customer proof of claim form to 

delete references to open commodity contracts as specifically identifiable property.

(2) In the event the trustee determines that the debtor’s books and records 

reflecting customer transactions are not reasonably reliable, or account statements are not 

available from which account balances as of the date of transfer or liquidation of customer 

property may be determined, the proof of claim form used by the trustee should be 

modified to take into account the particular facts and circumstances of the case.

§ 190.04 Operation of the debtor’s estate—customer property.

(a) Transfers.

(1) All cases. The trustee for a commodity broker shall promptly use its best efforts to 

effect a transfer in accordance with §§ 190.07(c) and (d) no later than the seventh calendar 

day after the order for relief of the open commodity contracts and property held by the 

commodity broker for or on behalf of its public customers.

(2) Involuntary cases. A commodity broker against which an involuntary petition in 

bankruptcy is filed, or the trustee if a trustee has been appointed in such case, shall use its 

best efforts to effect a transfer in accordance with §§ 190.07(c) and (d) of all open 

commodity contracts and property held by the commodity broker for or on behalf of its 

public customers and such other property as the Commission in its discretion may 

authorize, on or before the seventh calendar day after the filing date, and immediately 

cease doing business; provided, however, that if the commodity broker demonstrates to the 
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Commission within such period that it was in compliance with the segregation and 

financial requirements of this chapter on the filing date, and the Commission determines, 

in its sole discretion, that such transfer is neither appropriate nor in the public interest, the 

commodity broker may continue in business subject to applicable provisions of the 

Bankruptcy Code and of this chapter.

(b) Treatment of open commodity contracts.

(1) Payments by the trustee. Prior to the primary liquidation date, the trustee may 

make payments of initial margin and variation settlement to a clearing organization, 

commodity broker, foreign clearing organization or foreign futures intermediary, carrying 

the account of the debtor, pending the transfer or liquidation of any open commodity 

contracts, whether or not such contracts are specifically identifiable property of a 

particular customer, provided, that:

(i) To the extent within the trustee’s control, the trustee shall not make any payments 

on behalf of any commodity contract account on the books and records of the debtor that 

is in deficit; provided, however, that this provision shall not be construed to prevent a 

clearing organization, foreign clearing organization, futures commission merchant or 

foreign futures intermediary carrying an account of the debtor from exercising its rights to 

the extent permitted under applicable law;

(ii) Any margin payments made by the trustee with respect to a specific customer 

account shall not exceed the funded balance for that account;

(iii) The trustee shall not make any payments on behalf of non-public customers of the 

debtor from funds that are segregated for the benefit of public customers; 

(iv) If the trustee receives payments from a customer in response to a margin call, then 

to the extent within the trustee’s control, the trustee must use such payments to make 

margin payments for the open commodity contract positions of such customer; 

(v) The trustee may not use payments received from one public customer to meet the 

margin (or any other) obligations of any other customer; and

(vi) If funds segregated for the benefit of public customers in a particular account class 

exceed the aggregate net equity claims for all public customers in such account class, the 

trustee may use such excess funds to meet the margin obligations for any public customer 

in such account class whose account is under-margined (as described in § 190.04(b)(4)) 

but not in deficit, provided that the trustee issues a margin call to such customer and 

provided further that the trustee shall liquidate such customer’s open commodity contracts 

if the customer fails to make the margin payment within a reasonable time as provided in 

§ 190.04(b)(4).

(2) Margin calls. The trustee (or, prior to appointment of the trustee, the debtor 

against which an involuntary petition was filed) may issue a margin call to any public 
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customer whose commodity contract account contains open commodity contracts if such 

account is under-margined. 

(3) Margin payments by the customer. The full amount of any margin payment by a 

customer in response to a margin call under paragraph (b)(2) of this section must be 

credited to the funded balance of the particular account for which it was made.

(4) Trustee obligation to liquidate certain open commodity contracts. The trustee 

shall, as soon as practicable under the circumstances, liquidate all open commodity 

contracts in any commodity contract account that is in deficit, or for which any mark-tomarket calculation would result in a deficit, or for which the customer fails to meet a 

margin call made by the trustee within a reasonable time. Except as otherwise provided in 

this part, absent exigent circumstances, a reasonable time for meeting margin calls made 

by the trustee shall be deemed to be one hour, or such greater period not to exceed one 

business day, as the trustee may determine in its sole discretion.

(5) Partial liquidation of open commodity contracts by others. In the event that a 

clearing organization, foreign clearing organization, futures commission merchant, foreign 

futures intermediary or other person carrying a commodity customer account for the 

debtor in the nature of an omnibus account has liquidated only a portion of open 

commodity contracts in such account, the trustee will exercise reasonable business 

judgment in assigning the liquidating transactions to the underlying commodity customer 

accounts carried by the debtor. Specifically, the trustee should endeavor to assign the 

contracts as follows: first, to liquidate open commodity contracts in a risk-reducing 

manner in any accounts that are in deficit; second, to liquidate open commodity contracts 

in a risk-reducing manner in any accounts that are undermargined; third, to liquidate open 

commodity contracts in a risk-reducing manner in any other accounts, and finally to 

liquidate any remaining open commodity contracts in any accounts. If more than one 

commodity contract account reflects open commodity contracts in a particular account 

class for which liquidating transactions have been executed, the trustee shall to the extent 

practicable allocate the liquidating transactions to such commodity contract accounts pro 

rata based on the number of open commodity contracts of such commodity contract 

accounts. For purposes of this section, the term “a risk-reducing manner” is measured by 

margin requirements set using the margin methodology and parameters followed by the 

derivatives clearing organization at which such contracts are cleared.

(c) Contracts Moving Into Delivery Position. After entry of the order for relief and 

subject to paragraph (a) of this section, which requires the trustee to attempt to make 

transfers to other commodity brokers permitted by § 190.07 and section 764(b) of the 

Bankruptcy Code, the trustee shall use its best efforts to liquidate any open commodity 

contract that settles upon expiration or exercise via the making or taking of delivery of a 

commodity: (i) if such contract is a futures contract or a cleared swaps contract, before the 

earlier of the last trading day or the first day on which notice of intent to deliver may be 

tendered with respect thereto, or otherwise before the debtor or its customer incurs an 

obligation to make or take delivery of the commodity under such contract; (ii) if such 

contract is a long option on a commodity and has value, before the first date on which the 

contract could be automatically exercised or the last date on which the contract could be 
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exercised if not subject to automatic exercise; or (iii) if such contract is a short option on a 

commodity that is in-the-money in favor of the long position holder, before the first date 

on which the long option position could be exercised.

(d) Liquidation or offset. After entry of the order for relief and subject to paragraph 

(a) of this section, which requires the trustee to attempt to make transfers to other 

commodity brokers permitted by § 190.07 and section 764(b) of the Bankruptcy Code, and 

except as otherwise set forth in this paragraph (d), the following commodity contracts and 

other property held by or for the account of a debtor must be liquidated in the market in 

accordance with § 190.04(e)(1) or liquidated via book entry in accordance with 

§ 190.04(e)(2) by the trustee promptly and in an orderly manner:

(1) Open commodity contracts. All open commodity contracts, except for (i) 

commodity contracts that are specifically identifiable property (if applicable) and are 

subject to customer instructions to transfer (in lieu of liquidating) as provided in 

§ 190.03(c)(2), provided that the customer is in compliance with the terms of 

§ 190.09(d)(2), and (ii) open commodity contract positions that are in a delivery position, 

which shall be treated in accordance with the provisions of § 190.06. 

(2) Specifically identifiable property, other than open commodity contracts or physical 

delivery property. Specifically identifiable property, other than open commodity contracts 

or physical delivery property, to the extent that:

(i) the fair market value of such property is less than 75% of its fair market value on 

the date of entry of the order for relief; 

(ii) failure to liquidate the specifically identifiable property may result in a deficit 

balance in the applicable customer account; or

(iii) the trustee has not received instructions to return pursuant to § 190.03(c)(1), or 

has not returned such property upon the terms contained in § 190.09(d)(1).

(3) Letters of credit. The trustee may request that a customer deliver substitute 

customer property with respect to any letter of credit received, acquired or held to margin, 

guarantee, secure, purchase or sell a commodity contract, whether the letter of credit is 

held by the trustee on behalf of the debtor’s estate or a derivatives clearing organization or 

a foreign intermediary or foreign clearing organization on a pass-through or other basis, 

including in cases where the letter of credit has expired since the date of the order for 

relief. The amount of the request may equal the full face amount of the letter of the credit 

or any portion thereof, to the extent required or may be required in the trustee’s discretion 

to ensure pro rata treatment among customer claims within each account class, consistent 

with §§ 190.08 and 190.09. 

(i) If a customer fails to provide substitute customer property within a reasonable time 

specified by the trustee, the trustee may, if the letter of credit has not expired, draw upon 

the full amount of the letter of credit or any portion thereof.
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(ii) For any letter of credit referred to in this subsection, the trustee shall treat any 

portion that is not drawn upon (less the value of any substitute customer property 

delivered by the customer) as having been distributed to the customer for purposes of 

calculating entitlements to distribution or transfer. The expiration of the letter of credit on 

or at any time after the date of the order for relief shall not affect such calculation.

(iii) Any proceeds of a letter of credit drawn by the trustee, or substitute customer 

property posted by a customer, shall be considered customer property in the account class 

applicable to the original letter of credit.

(iv) The trustee shall, in exercising their discretion with regard to addressing letters of 

credit, including as to the timing and amount of a request for substitute customer property, 

endeavor to mitigate, to the extent practicable, the adverse effects upon customers that 

have posted letters of credit, in a manner that achieves pro rata treatment among customer 

claims 

(4) All other property. All other property, other than physical delivery property held 

for delivery in accordance with the provisions of § 190.06, which is not required to be 

transferred or returned pursuant to customer instructions and which has not been 

liquidated in accordance with paragraphs (d)(1)-(3) of this section.

(e) Liquidation of open commodity contracts.

(1) By the trustee or a clearing organization in the market.

(i) Debtor as a clearing member. For open commodity contracts cleared by the 

debtor as a member of a clearing organization, the trustee or clearing organization, as 

applicable, shall liquidate such open commodity contracts pursuant to the rules of the

clearing organization, a designated contract market, or a swap execution facility, if and as 

applicable. Any such rules providing for liquidation other than on the open market shall 

be designed to achieve, to the extent feasible under market conditions at the time of 

liquidation, a process for liquidating open commodity contracts that results in competitive 

pricing. For open commodity contracts that are futures or options on futures that were 

established on or subject to the rules of a foreign board of trade and cleared by the debtor 

as a member of a foreign clearing organization, the trustee shall liquidate such open 

commodity contracts pursuant to the rules of the foreign clearing organization or foreign 

board of trade or, in the absence of such rules, in the manner the trustee determines 

appropriate.

(ii) Debtor not a clearing member. For open commodity contracts submitted by the 

debtor for clearing through one or more accounts established with a futures commission 

merchant (as defined in § 1.3 of this chapter) or foreign futures intermediary, the trustee 

shall use commercially reasonable efforts to liquidate the open commodity contracts to 

achieve competitive pricing, to the extent feasible under market conditions at the time of 

liquidation and subject to any rules or orders of the relevant clearing organization, foreign 

clearing organization, designated contract market, swap execution facility or foreign board 

of trade governing the liquidation of open commodity contracts.
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(2) By the trustee or a clearing organization via book entry offset. Upon application 

by the trustee or clearing organization, the Commission may permit open commodity 

contracts to be liquidated, or settlement on such contracts to be made, by book entry. 

Such book entry shall offset open commodity contracts, whether matched or not matched 

on the books of the commodity broker, using the settlement price for such commodity 

contracts as determined by the clearing organization in accordance with its rules. Such 

rules shall be designed to establish, to the extent feasible under market conditions at the 

time of liquidation, such settlement prices in a competitive manner. 

(3) By a futures commission merchant or foreign futures intermediary. For open 

commodity contracts cleared by the debtor through one or more accounts established with 

a futures commission merchant or a foreign futures intermediary, such futures commission 

merchant or foreign futures intermediary may exercise any enforceable contractual rights 

it has to liquidate such commodity contracts, provided, that it shall use commercially 

reasonable efforts to liquidate the open commodity contracts to achieve competitive 

pricing, to the extent feasible under market conditions at the time of liquidation and 

subject to any rules or orders of the relevant clearing organization, foreign clearing 

organization, designated contract market, swap execution facility or foreign board of trade 

governing its liquidation of such open commodity contracts. If a futures commission 

merchant or foreign futures intermediary fails to use commercially reasonable efforts to 

liquidate open commodity contracts to achieve competitive pricing in accordance with this 

§ 190.04(e)(3), the trustee may seek damages reflecting the difference between the price 

(or prices) at which the relevant commodity contracts would have been liquidated using 

commercially reasonable efforts to achieve competitive pricing and the price (or prices) at 

which the commodity contracts were liquidated, which shall be the sole remedy available 

to the trustee. In no event shall any such liquidation be voided.

(4) Liquidation only.

(i) Nothing in this part shall be interpreted to permit the trustee to purchase or sell new 

commodity contracts for the debtor or its customers except to offset open commodity 

contracts or to transfer any transferable notice received by the debtor or the trustee under 

any commodity contract; provided, however, that the trustee may, in its discretion and 

with approval of the Commission, cover uncovered inventory or commodity contracts of 

the debtor which cannot be liquidated immediately because of price limits or other market 

conditions, or may take an offsetting position in a new month or at a strike price for which 

limits have not been reached.

(ii) Notwithstanding paragraph (e)(4)(i) of this section, the trustee may, with the 

written permission of the Commission, operate the business of the debtor in the ordinary 

course, including the purchase or sale of new commodity contracts on behalf of the 

customers of the debtor under appropriate circumstances, as determined by the 

Commission.

(f) Long option contracts. Subject to paragraphs (d) and (e) of this section, the trustee 

shall use its best efforts to assure that a commodity contract that is a long option contract 

with value does not expire worthless.
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§ 190.05 Operation of the debtor’s estate—general.

(a) Compliance with the Act and regulations. Except as specifically provided 

otherwise in this part, the trustee shall use reasonable efforts to comply with all of the 

provisions of the Act and of the regulations thereunder as if it were the debtor.

(b) Computation of funded balance. The trustee shall use reasonable efforts to 

compute a funded balance for each customer account that contains open commodity 

contracts or other property as of the close of business each business day subsequent to the 

order for relief until the date all open commodity contracts and other property in such 

account have been transferred or liquidated, which shall be as accurate as reasonably 

practicable under the circumstances, including the reliability and availability of 

information. 

(c) Records.

(1) Maintenance. Except as otherwise ordered by the court or as permitted by the 

Commission, records required under this chapter to be maintained by the debtor, including 

records of the computations required by this part, shall be maintained by the trustee until 

such time as the debtor’s case is closed.

(2) Accessibility. The records required to be maintained by paragraph (c)(1) of this 

section shall be available during business hours to the Commission and the U.S. 

Department of Justice. The trustee shall give the Commission and the U.S. Department of 

Justice access to all records of the debtor, including records required to be retained in 

accordance with § 1.31 of this chapter and all other records of the commodity broker, 

whether or not the Act or this chapter would require such records to be maintained by the 

commodity broker.

(d) Customer statements. The trustee shall use all reasonable efforts to continue to 

issue account statements with respect to any customer for whose account open commodity 

contracts or other property is held that has not been liquidated or transferred. With respect 

to such accounts, the trustee must also issue an account statement reflecting any 

liquidation or transfer of open commodity contracts or other property promptly after such 

liquidation or transfer. 

(e) Other matters.

(1) Disbursements. With the exception of transfers of customer property made in 

accordance with § 190.07, the trustee shall make no disbursements to customers except 

with approval of the court.

(2) Investment. The trustee shall promptly invest the proceeds from the liquidation of 

commodity contracts or specifically identifiable property, and may invest any other 

customer property, in obligations of the United States and obligations fully guaranteed as 

to principal and interest by the United States, provided that such obligations are 

maintained in a depository located in the United States, its territories or possessions.
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(f) Residual interest. The trustee shall apply the residual interest provisions of § 1.11 

of this chapter in a manner appropriate to the context of their responsibilities as a 

bankruptcy trustee pursuant subchapter IV of chapter 7 of the Bankruptcy Code and this 

part, and in light of the existence of a surplus or deficit in customer property available to 

pay customer claims.

§ 190.06 Making and taking delivery under commodity contracts.

(a) Deliveries.

(1) General. The provisions of this § 190.06(a) apply to commodity contracts that 

settle upon expiration or exercise by making or taking delivery of physical delivery 

property, if such commodity contracts are in a delivery position on the filing date, or the 

trustee is unable to liquidate such commodity contracts in accordance with § 190.04(c) to 

prevent them from moving into a delivery position, i.e., before the debtor or its customer 

incurs bilateral contractual obligations to make or take delivery under such commodity 

contracts.

(2) Delivery made or taken on behalf of a customer outside of the administration of the 

debtor’s estate. (i) The trustee shall use reasonable efforts to allow a customer to deliver 

physical delivery property that is held directly by the customer and not by the debtor (and 

thus not recorded in any commodity contract account of the customer) in settlement of a 

commodity contract, and to allow payment in exchange for such delivery, to occur outside 

the administration of the debtor’s estate, when the rules of the exchange or other market 

listing the commodity contract, or the clearing organization or the foreign clearing 

organization clearing the commodity contract, as applicable, prescribe a process for 

delivery that allows the delivery to be fulfilled (A) in the normal course directly by the 

customer, (B) by substitution of the customer for the commodity broker, or (C) through 

agreement of the buyer and seller to alternative delivery procedures.

(ii) Where a customer delivers physical delivery property in settlement of a 

commodity contract outside of the administration of the debtors’ estate in accordance with 

paragraph (a)(2)(i) of this section, any property of such customer held at the debtor in 

connection with such contract must nonetheless be included in the net equity claim of that 

customer, and, as such, can only be distributed pro rata at the time of, and as part of, any 

distributions to customers made by the trustee.

(3) Delivery as part of administration of the debtor’s estate. When the trustee 

determines that it is not practicable to effect delivery as provided in § 190.06(a)(2):

(i) To facilitate the making or taking of delivery directly by a customer, the trustee 

may, as it determines reasonable under the circumstances of the case and consistent with 

the pro rata distribution of customer property by account class: 

(A) When a customer is obligated to make delivery, return any physical delivery 

property to the customer that is held by the debtor for or on behalf of the customer under 
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the terms set forth in § 190.09(d)(1)(ii), to allow the customer to deliver such property to 

fulfill its delivery obligation under the commodity contract, or

(B) When a customer is obligated to take delivery:

(1) Return any cash delivery property to the customer that is reflected in the 

customer’s delivery account, provided that cash delivery property returned under this 

subsection shall not exceed the lesser of (i) the amount the customer is required to pay for 

delivery of the commodity, or (ii) the customer’s net funded balance for all of the 

customer’s commodity contract accounts; 

(2) Return cash, securities or other property held in the customer’s non-delivery 

commodity contract accounts, provided that property returned under this section shall not 

exceed the lesser of (i) the amount the customer is required to pay for delivery of the 

commodity, or (ii) the net funded balance for all of the customer’s commodity contract 

accounts reduced by any amount returned to the customer pursuant to 

§ 190.06(a)(3)(i)(B)(1), and provided further, however, that the trustee may distribute 

such property only to the extent that the customer’s funded balance for each such account 

exceeds the minimum margin obligations for such account (as described in 

§ 190.04(b)(2)); and

(C) Impose such conditions on the customer as it considers appropriate to assure that 

property returned to the customer is used to fulfill the customer’s delivery obligations.

(ii) If the trustee does not return physical delivery property, cash delivery property or 

other property in the form of cash or cash equivalents to the customer as provided in 

§ 190.06(a)(3)(i), subject to § 190.06(a)(4):

(A) To the extent practical, the trustee shall make or take delivery of physical delivery 

property in the same manner as if no bankruptcy had occurred, and when making delivery, 

the party to which delivery is made must pay the full price required for taking such 

delivery; or 

(B) When taking delivery of physical delivery property:

(1) The trustee shall pay for the delivery first using the customer’s cash delivery 

property or other property, limited to the amounts set forth in § 190.06(a)(3)(i)(B), along 

with any cash transferred by the customer to the trustee on or after the filing date for the 

purpose of paying for delivery.

(2) If the value of the cash or cash equivalents that may be used to pay for deliveries as 

described in § 190.06(a)(3)(i)(B) is less than the amount required to be paid for taking 

delivery, the trustee shall issue a payment call to the customer. The full amount of any 

payment made by the customer in response to a payment call must be credited to the 

funded balance of the particular account for which such payment is made. 
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(3) If the customer fails to meet a call for payment under § 190.06(a)(3)(ii)(B)(2) 

before payment is made for delivery, the trustee must convert any physical delivery 

property received on behalf of the customer to cash as promptly as possible.

(4) Deliveries in a securities account. If an open commodity contract held in a futures 

account, foreign futures account or cleared swaps account requires delivery of a security 

upon expiration or exercise of such commodity contract, and delivery is not completed 

pursuant to §§ 190.06(a)(2) or 190.06(a)(3)(i), the trustee may make or take delivery in a 

securities account in a manner consistent with § 190.06(a)(3)(ii), provided, however, that 

the trustee may transfer property from the customer’s commodity contract accounts to the 

securities account to fulfill the delivery obligation only to the extent that the customer’s 

funded balance for such commodity contract account exceeds the customer’s minimum 

margin obligations for such accounts (as described in § 190.04(b)(2)) and provided further 

that the customer is not under-margined or does not have a deficit balance in any other 

commodity contract accounts.

(5) Delivery made or taken on behalf of proprietary account. If delivery of physical 

delivery property is to be made or taken on behalf of the debtor’s own account or the 

account of any non-public customer of the debtor, the trustee shall make or take delivery, 

as the case may be, on behalf of the debtor’s estate, provided that if the trustee takes 

delivery of physical delivery property it must convert such property to cash as promptly as 

possible.

(b) Special account class provisions for delivery accounts. 

(1) Within the delivery account class, the trustee shall treat (i) physical delivery 

property held in delivery accounts as of the filing date, and the proceeds of any such 

physical delivery property subsequently received, as part of the physical delivery account 

class, and (ii) cash delivery property in delivery accounts as of the filing date, along with 

any physical delivery property for which delivery is subsequently taken on behalf of a 

customer in accordance with § 190.06(a)(3), as part of a separate cash delivery account 

class. 

(2) (i) If the debtor holds any cash or cash equivalents in an account maintained at a 

bank, clearing organization, foreign clearing organization or other person, under a name or 

in a manner that clearly indicates that the account holds property for the purpose of 

making payment for taking delivery, or receiving payment for making delivery, of a 

commodity under commodity contracts, such property shall (subject to § 190.09) be 

considered customer property (A) in the cash delivery account class if held for making 

payment for taking delivery, (B) in the physical delivery account class, if held as a result 

of receiving such payment for a making delivery after the filing date. 

(ii) Any other property (excluding property segregated for the benefit of customer in 

the futures, foreign futures or cleared swaps account class) that is traceable as having been 

held or received for the purpose of making delivery, or as having been held or received as 

a result of taking delivery, of a commodity under commodity contracts, shall (subject to 

§ 190.09) be considered customer property (A) in the cash delivery account class if 
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received after the filing date in exchange for taking delivery, (B) otherwise shall be 

considered customer property in the physical delivery account class.

§ 190.07 Transfers. 

(a) Transfer rules. No clearing organization, or self-regulatory organization may 

adopt, maintain in effect, or enforce rules that:

(1) Are inconsistent with the provisions of this part;

(2) Interfere with the acceptance by its members of transfers of commodity contracts, 

and the property margining or securing such contracts, from futures commission 

merchants that are required to transfer accounts pursuant to § 1.17(a)(4) of this chapter; or

(3) Interfere with the acceptance by its members of transfers of commodity contracts, 

and the property margining or securing such contracts, from a futures commission 

merchant that is a debtor as defined in §190.01, if such transfers have been approved by 

the Commission, provided, however, that this paragraph shall not (i) limit the exercise of 

any contractual right of a clearing organization or other registered entity to liquidate or 

transfer open commodity contracts, or (ii) be interpreted to limit a clearing organization’s 

ability adequately to manage risk.

(b) Requirements for transferees.

(1) It is the duty of each transferee to assure that it will not accept a transfer that would 

cause the transferee to be in violation of the minimum financial requirements set forth in 

this chapter.

(2) Any transferee that accepts a transfer of open commodity contracts from the estate 

of the debtor

(i) accepts the transfer subject to any loss that may arise in the event the transferee 

cannot recover from the customer any deficit balance that may arise related to the 

transferred open commodity contracts. 

(ii) if the commodity contracts were held for the account of a customer, 

(A) must keep such commodity contracts open at least one business day after their 

receipt, unless the customer for whom the transfer is made fails to respond within a 

reasonable time to a margin call for the difference between the margin transferred with 

such commodity contracts and the margin which such transferee would require with 

respect to a similar set of commodity contracts held for the account of a customer in 

the ordinary course of business, and

(B) may not collect commissions with respect to the transfer of such commodity 

contracts.
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(3) A transferee may accept open commodity contracts and property, and open 

accounts on its records, for customers whose commodity contracts and property are 

transferred pursuant to this part prior to completing customer diligence, provided that 

account opening diligence as required by law (including the risk disclosures referred to in 

§1.65(a)(3)) is performed, and records and information required by law are obtained, as 

soon as practicable, but in any event within six months of the transfer, unless this time is 

extended for a particular account, transferee, or debtor by the Commission.

(4) (i) Any account agreements governing a transferred account (including an account 

that has been partially transferred) shall be deemed assigned to the transferee by operation 

of law and shall govern the transferee and customer’s relationship until such time as the 

transferee and customer enter into a new agreement; provided, however, that any breach of 

such agreement by the debtor existing at or before the time of the transfer (including but 

not limited to any failure to segregate sufficient customer property) shall not constitute a 

default or breach of the agreement on the part of the transferee, or constitute a defense to 

the enforcement of the agreement by the transferee.

(ii) Paragraph (b)(4)(i) shall not apply where the customer has a pre-existing account 

agreement with the transferee futures commission merchant. In such a case, the 

transferred account will be governed by that pre-existing account agreement. 

(5) If open commodity contracts or any specifically identifiable property has been, or 

is to be, transferred in accordance with section 764(b) of the Bankruptcy Code and this 

section, customer instructions previously received by the trustee with respect to open 

commodity contracts or with respect to specifically identifiable property, shall be 

transmitted to the transferee of property, which shall comply therewith to the extent 

practicable.

(c) Eligibility for transfer under section 764(b) of the Bankruptcy Code—Accounts 

eligible for transfer. All commodity contract accounts (including accounts with no open 

commodity contract positions) are eligible for transfer after the order for relief pursuant to 

section 764(b) of the Bankruptcy Code, except:

(1) The debtor’s own account or the accounts of general partners of the debtor if the 

debtor is a partnership; and

(2) Accounts that are in deficit. 

(d) Special rules for transfers under section 764(b) of the Bankruptcy Code.

(1) The trustee for a commodity broker shall use its best efforts to effect a transfer to 

one or more other commodity brokers of all eligible commodity contract accounts, open 

commodity contracts and property held by the debtor for or on behalf of its customers, 

based on customer claims or record, no later than the seventh calendar day after the order 

for relief.
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(2) Partial transfers; multiple transferees.

(i) Of the customer estate. If all eligible commodity contract accounts held by a debtor 

cannot be transferred under this section, a partial transfer may nonetheless be made. The 

Commission will not disapprove such a transfer for the sole reason that it was a partial 

transfer. Commodity contract accounts may be transferred to one or more transferees, and, 

subject to § 190.07(d)(4), may be transferred to different transferees by account class. 

(ii) Of a customer’s commodity contract account. If all of a customer’s open 

commodity contracts and property cannot be transferred under this section, a partial 

transfer of contracts and property may be made so long as such transfer would not result in 

an increase in the amount of any customer’s net equity claim. One, but not the only, 

means to effectuate a partial transfer is by liquidating a portion of the open commodity 

contracts held by a customer such that sufficient value is realized, or margin requirements 

are reduced to an extent sufficient, to permit the transfer of some or all of the remaining 

open commodity contracts and property. If any open commodity contract to be transferred 

in a partial transfer is part of a spread or straddle, to the extent practicable under the 

circumstances, each side of such spread or straddle must be transferred or none of the 

open commodity contracts comprising the spread or straddle may be transferred.

(3) Letters of Credit. A letter of credit received, acquired or held to margin, guarantee, 

secure, purchase or sell a commodity contract may be transferred with an eligible 

commodity contract account if it is held by a derivatives clearing organization on a passthrough or other basis or is transferable by its terms, so long as the transfer will not result 

in a recovery which exceeds the amount to which the customer would be entitled under 

§§ 190.08 and 190.09. If the letter of credit cannot be transferred as provided for in the 

foregoing sentence, and the customer does not deliver substitute customer property to the 

trustee in accordance with § 190.04(d)(3), the trustee may draw upon a portion or all of 

the letter of credit, the proceeds of which shall be treated as customer property in the 

applicable account class. 

(4) Physical delivery property. The trustee shall use reasonable efforts to prevent 

physical delivery property held for the purpose of making delivery on a commodity 

contract from being transferred separate and apart from the related commodity contract, or 

to a different transferee.

(5) No prejudice to other customers. No transfer shall be made under this part by the 

trustee if, after taking into account all customer property available for distribution to 

customers in the applicable account class at the time of the transfer, such transfer would 

result in insufficient remaining customer property to make an equivalent percentage 

distribution (including all previous transfers and distributions) to all customers in the 

applicable account class, based on (i) customer claims of record and (ii) estimates of other 

customer claims made in the trustee’s reasonable discretion based on available 

information, in each case as of the calendar day immediately preceding transfer.
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(e) Prohibition on avoidance of transfers under section 764(b) of the Bankruptcy 

Code.

(1) Pre-relief transfers. Notwithstanding the provisions of paragraphs (c) and (d) of 

this section, the following transfers are approved and may not be avoided under sections 

544, 546, 547, 548, 549 or 724(a) of the Bankruptcy Code:

(i) the transfer of commodity contract accounts or customer property prior to the entry 

of the order for relief in compliance with § 1.17(a)(4) of this chapter unless such transfer 

is disapproved by the Commission; 

(ii) the transfer, withdrawal, or settlement, prior to the order for relief at the request of 

a public customer, including a transfer, withdrawal, or settlement at the request of a public 

customer that is a commodity broker, of commodity contract accounts or customer 

property held from or for the account of such customer by or on behalf of the debtor 

unless:

(A) the customer acted in collusion with the debtor or its principals to obtain a greater 

share of customer property or the bankruptcy estate than that to which it would be entitled 

under this part; or

(B) the transfer is disapproved by the Commission; or

(iii) the transfer prior to the order for relief by a clearing organization, or by a receiver 

that has been appointed for the FCM that is now a debtor, of one or more accounts held for 

or on behalf of customers of the debtor, or of commodity contracts and other customer 

property held for or on behalf of customers of the debtor, provided that the transfer is not 

disapproved by the Commission.

(2) Post-relief transfers. Notwithstanding the provisions of paragraphs (c) and (d) of 

this section, the following transfers are approved and may not be avoided under sections 

544, 546, 547, 548, 549 or 724(a) of the Bankruptcy Code:

(i) The transfer of a commodity contract account or customer property eligible to be 

transferred under paragraphs (c) and (d) of this section made by the trustee or by any 

clearing organization on or before the seventh calendar day after the entry of the order for 

relief, as to which the Commission has not disapproved the transfer; or

(ii) The transfer of a commodity contract account or customer property at the direction 

of the Commission on or before the seventh calendar day after the order for relief, upon 

such terms and conditions as the Commission may deem appropriate and in the public 

interest.

(f) Commission action. Notwithstanding any other provision of this section (other than 

§§ 190.07(d)(2)(ii) and 190.07(d)(5)), in appropriate cases and to protect the public 

interest, the Commission may:
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(1) prohibit the transfer of a particular set or sets of commodity contract accounts and 

customer property; or

(2) permit transfers of a particular set or sets of commodity contract accounts and 

customer property that do not comply with the requirements of this section. 

§ 190.08 Calculation of funded net equity. 

For purposes of this subpart, funded net equity shall be computed as follows:

(a) Funded claim. The funded net equity claim of a customer shall be equal to the 

aggregate of the funded balances of such customer’s net equity claim for each account 

class.

(b) Net equity. Net equity means a customer’s total customer claim of record against the 

estate of the debtor based on the customer property, including any commodity contracts, 

held by the debtor for or on behalf of such customer less any indebtedness of the customer 

to the debtor. Net equity shall be calculated as follows:

(1) Step 1-Equity determination.

(i) Determine the equity balance of each commodity contract account of a customer by 

computing, with respect to such account, the sum of:

(A) The ledger balance;

(B) The open trade balance; and

(C) The realizable market value, determined as of the close of the market on the last 

preceding market day, of any securities or other property held by or for the debtor from or 

for such account, plus accrued interest, if any.

(ii) For the purposes of this paragraph (b)(1), the ledger balance of a customer account 

shall be calculated by 

(A) Adding:

(1) Cash deposited to purchase, margin, guarantee, secure, or settle a commodity 

contract;

(2) Cash proceeds of liquidations of any securities or other property referred to in 

paragraph (b)(1)(i)(C) of this section; 

(3) Gains realized on trades; and

(4) the face amount of any letter of credit received, acquired or held to margin, 

guarantee, secure, purchase or sell a commodity contract; and
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(B) Subtracting from the result:

(1) Losses realized on trades;

(2) Disbursements to or on behalf of the customer (including, for these purposes,

transfers made pursuant to §§ 190.04(a) and 190.07); and

(3) The normal costs attributable to the payment of commissions, brokerage, interest, 

taxes, storage, transaction fees, insurance and other costs and charges lawfully incurred in 

connection with the purchase, sale, exercise, or liquidation of any commodity contract in 

such account. 

(iii) For purposes of this paragraph (b)(1), the open trade balance of a customer’s 

account shall be computed by subtracting the unrealized loss in value of the open 

commodity contracts held by or for such account from the unrealized gain in value of the 

open commodity contracts held by or for such account. 

(iv) For purposes of this paragraph (b)(1), in calculating the ledger balance or open 

trade balance of any customer, exclude any security futures products, any gains or losses 

realized on trades in such products, any property received to margin, guarantee or secure 

such products (including interest thereon or the proceeds thereof), to the extent any of the 

foregoing are held in a securities account, and any disbursements to or on behalf of 

such customer in connection with such products or such property held in a securities 

account.

(2) Step 2-Customer determination (aggregation). Aggregate the credit and debit 

equity balances of all accounts of the same class held by a customer in the same capacity. 

Paragraphs (b)(2)(i) through (b)(2)(xii) of this section prescribe which accounts must be 

treated as being held in the same capacity and which accounts must be treated as being 

held in a separate capacity.

(i) Except as otherwise provided in this paragraph (b)(2), all accounts that are 

maintained with a debtor in a person’s name and that, under this paragraph (b)(2), are 

deemed to be held by that person in its individual capacity shall be deemed to be held in 

the same capacity.

(ii) An account maintained with a debtor by a guardian, custodian, or conservator for 

the benefit of a ward, or for the benefit of a minor under the Uniform Gift to Minors Act, 

shall be deemed to be held in a separate capacity from accounts held by such guardian, 

custodian or conservator in its individual capacity.

(iii) An account maintained with a debtor in the name of an executor or administrator 

of an estate in its capacity as such shall be deemed to be held in a separate capacity from 

accounts held by such executor or administrator in its individual capacity.
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(iv) An account maintained with a debtor in the name of a decedent, in the name of the 

decedent’s estate, or in the name of the executor or administrator of such estate in its

capacity as such shall be deemed to be accounts held in the same capacity.

(v) An account maintained with a debtor by a trustee shall be deemed to be held in the 

individual capacity of the grantor of the trust unless the trust is created by a valid written 

instrument for a purpose other than avoidance of an offset under the regulations contained 

in this part. A trust account which is not deemed to be held in the individual capacity of its 

grantor under this paragraph (b)(2)(v) shall be deemed to be held in a separate capacity 

from accounts held in an individual capacity by the trustee, by the grantor or any 

successor in interest of the grantor, or by any trust beneficiary, and from accounts held by 

any other trust.

(vi) An account maintained with a debtor by a corporation, partnership, or 

unincorporated association shall be deemed to be held in a separate capacity from 

accounts held by the shareholders, partners or members of such corporation, partnership or 

unincorporated association, if such entity was created for purposes other than avoidance of 

an offset under the regulations contained in this part.

(vii) A hedging account of a person shall be deemed to be held in the same capacity as 

a speculative account of such person.

(viii) Subject to paragraph (b)(2)(ix) and (xiv) of this section, the futures accounts, 

foreign futures accounts, delivery accounts, and cleared swaps accounts of the same 

person shall not be deemed to be held in separate capacities: provided, however, that such 

accounts may be aggregated only in accordance with paragraph (b)(3) of this section.

(ix) An omnibus customer account for public customers of a futures commission 

merchant maintained with a debtor shall be deemed to be held in a separate capacity from 

any omnibus customer account for non-public customers of such futures commission 

merchant and from any account maintained with the debtor on its own behalf or on behalf 

of any non-public customer.

(x) A joint account maintained with the debtor shall be deemed to be held in a separate 

capacity from any account held in an individual capacity by the participants in such

account, from any account held in an individual capacity by a commodity pool operator or 

commodity trading advisor for such account, and from any other joint account; provided, 

however, that if such account is not transferred in accordance with §§ 190.04(a) and 

190.07, it shall be deemed to be held in the same capacity as any other joint account held 

by identical participants and a participant’s percentage interest therein shall be deemed to 

be held in the same capacity as any account held in an individual capacity by such 

participant.

(xi) An account maintained with a debtor in the name of a plan that is subject to the 

terms of the Employee Retirement Income Security Act of 1974 and the regulations 

thereunder, or similar state, federal or foreign laws or regulations applicable to retirement 

or pension plans, shall be deemed to be held in a separate capacity from an account held in 
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an individual capacity by the plan administrator, any employer, employee, participant, or 

beneficiary with respect to such plan.

(xii) Except as otherwise provided in this section, an account maintained with a debtor 

by an agent or nominee for a principal or a beneficial owner shall be deemed to be an 

account held in the individual capacity of such principal or beneficial owner.

(xiii) With respect to the cleared swaps account class, each individual cleared swaps 

customer account within each cleared swap omnibus customer account referred to in 

paragraph (b)(2)(viii) of this section shall be deemed to be held in a separate capacity from 

each other such individual cleared swaps customer account, subject to the provisions of 

paragraphs (b)(2)(i) through (xi) of this paragraph (b)(2).

(xiv) Accounts held by a customer in separate capacities shall be deemed to be 

accounts of different customers. The burden of proving that an account is held in a 

separate capacity shall be upon the customer.

(3) Step 3-Setoffs.

(i) The net equity of one customer account may not be offset against the net equity of 

any other customer account.

(ii) Any (x) obligation to the debtor owed by a customer which is not required to be 

included in computing the equity of that customer under paragraph (b)(1) of this section, 

must be deducted from (y) any obligation to the customer owed by the debtor which is not 

required to be included in computing the equity of that customer. If the former amount (x) 

exceeds the latter (y), the excess (x-y) must be deducted from the equity balance of the 

customer obtained after performing the preceding calculations required by paragraph (b) 

of this section, provided, that if the customer owns more than one class of accounts with a 

positive equity balance, the excess (again, x-y) must be allocated and offset against each 

positive equity balance in the same proportion as that positive equity balance bears to the 

total of all positive equity balances of accounts of different classes held by such customer.

(iii) A negative equity balance obtained with respect to one customer account class 

must be set off against a positive equity balance in any other account class of such 

customer held in the same capacity, provided, that if a customer owns more than one class 

of accounts with a positive equity balance, such negative equity balance must be offset 

against each positive equity balance in the same proportion as that positive equity balance 

bears to the total of all positive equity balances in accounts of different classes held by 

such customer.

(iv) To the extent any indebtedness of the debtor to the customer which is not required 

to be included in computing the equity of such customer under paragraph (b)(1) of this 

section exceeds such indebtedness of the customer to the debtor, the customer claim 

therefor will constitute a general creditor claim rather than a customer property claim, and 

the net equity therefor shall be separately calculated.
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(v) The rules pertaining to separate capacities and permitted setoffs contained in this 

section shall only be applied subsequent to the entry of an order for relief; prior to that 

date, the provisions of § 1.22 of this chapter and of sections 4d(a)(2) and 4d(f) of the Act 

(and, in each case, the regulations promulgated thereunder) shall govern what setoffs are 

permitted.

(4) Step 4-Correction for distributions. The value on the date of transfer or 

distribution of any property transferred or distributed subsequent to the filing date and 

prior to the primary liquidation date with respect to each class of account held by a 

customer must be added to the equity obtained for that customer for accounts of that class 

after performing the steps contained in paragraphs (b)(1)-(3) of this section: provided, 

however, that if all accounts for which there are customer claims of record and 100% of 

the equity pertaining thereto is transferred in accordance with § 190.07 and section 764(b) 

of the Bankruptcy Code, net equity shall be computed based solely upon those allowed 

customer claims, if any, filed subsequent to the order for relief which are not claims of 

record on the filing date.

(5) Step 5-Correction for ongoing events. Compute any adjustments to Steps 1 

through 4 of this paragraph (b) required to correct misestimates or errors including, 

without limitation, corrections for ongoing events such as the liquidation of unliquidated 

claims or specifically identifiable property at a value different from the estimated value 

previously used in computing net equity.

(c) Calculation of funded balance. Funded balance means a customer’s pro rata share 

of the customer estate with respect to each account class available for distribution to 

customers of the same customer class.

(1) The funded balance of any customer claim shall be computed (separately by 

account class and customer class) by:

(i) Multiplying the ratio of (x) the amount of the net equity claim of such customer less 

(y) the amounts referred to in paragraph (c)(1)(ii) of this section of such customer for any 

account class divided by (p) the sum of the net equity claims of all customers for accounts 

of that class less (q) the amounts referred to in paragraph (c)(1)(ii) of this section of all 

customers for accounts of that class (thus, ((x-y)/(p-q)) by the sum of:

(A) The value of letters of credit received, acquired or held to margin, guarantee, 

secure, purchase or sell a commodity contract relating to all customer accounts of the 

same class;

(B) The value of the money, securities, or other property segregated on behalf of all 

customer accounts of the same class less the amounts referred to in paragraph (c)(1)(ii) of 

this section;

(C) The value of any money, securities or other property which must be allocated 

under § 190.09 to all customer accounts of the same class; and
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(D) The amount of any add-back required under paragraph (b)(4) of this section; and

(ii) Then adding 100% of 

(A) Any margin payment made between the entry of the order for relief (or, in an 

involuntary case, the date on which the petition for bankruptcy is filed) and the 

primary liquidation date; provided, however, that if margin is posted to 

substitute for a letter of credit, such margin does not increase the funded 

balance; and

(B) For cash delivery property, any cash transferred to the trustee on or after the 

filing date for the purpose of paying for delivery.

(2) Corrections to funded balance. The funded balance must be adjusted to correct for 

ongoing events including, without limitation:

(i) Added claimants;

(ii) Disallowed claims;

(iii) Liquidation of unliquidated claims at a value other than their estimated value; and

(iv) Recovery of property.

(d) Valuation. In computing net equity, commodity contracts and other property held 

by or for a commodity broker must be valued as provided in this paragraph (d).

(1) Commodity contracts.

(i) Open contracts. Unless otherwise specified in this paragraph (d), the value of an 

open commodity contract shall be equal to the settlement price as calculated by the 

clearing organization pursuant to its rules; provided, however, that if an open commodity 

contract is transferred to another commodity broker, its value on the debtor’s books and 

records shall be determined as of the end of the last settlement cycle on the day preceding 

such transfer. 

(ii) Liquidated contracts. Except as specified below, the value of a commodity 

contract liquidated on the open market shall equal the actual value realized on liquidation 

of the commodity contract. 

(A) Weighted average. If identical commodity contracts are liquidated within a 24-

hour period or business day (or such other period as the bankruptcy court may determine 

is appropriate) as part of a general liquidation of commodity contracts, but cannot be 

liquidated at the same price, the trustee may use the weighted average of the liquidation 

prices in computing the net equity of each customer for which the debtor held such 

commodity contracts.
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(B) Bulk liquidation. The value of a commodity contract liquidated as part of a bulk 

auction, taken into inventory or under management by a clearing organization, or similarly

liquidated outside of the open market shall be equal to the settlement price calculated by 

the clearing organization as of the end of the settlement cycle during which the 

commodity contract was liquidated.

(2) Securities. The value of a listed security shall be equal to the closing price for such 

security on the exchange upon which it is traded. The value of all securities not traded on 

an exchange shall be equal in the case of a long position, to the average of the bid prices 

for long positions, and in the case of a short position, to the average of the asking prices 

for the short positions. If liquidated, the value of such security shall be equal to the actual 

value realized on liquidation of the security; provided, however, that if identical securities 

are liquidated within a 24-hour period or business day (or such other period as the 

bankruptcy court may determine is appropriate) as part of a general liquidation of 

securities, but cannot be liquidated at the same price, the trustee may use the weighted 

average of the liquidation prices in computing the net equity of each customer for which 

the debtor held such securities. Securities which are not publicly traded shall be valued by 

the trustee pursuant to paragraph (d)(5) of this subsection.

(3) Commodities held in inventory. Commodities held in inventory, as collateral or 

otherwise, shall be valued at their fair market value. If such fair market value is not 

readily ascertainable based upon public sources of prices, the trustee shall value such 

commodities pursuant to paragraph (d)(5) of this subsection.

(4) Letters of Credit. The value of any letter of credit received, acquired or held to 

margin, guarantee, secure, purchase or sell a commodity contract shall be its face amount, 

less the amount, if any, drawn and outstanding, provided that, if the trustee makes a 

determination in good faith that a draw on a letter of credit is unlikely to be honored on 

either temporary or permanent basis, the trustee shall value the letter of credit pursuant to 

paragraph (d)(5) of this subsection.

(5) All other property. Subject to the other provisions of this paragraph (d), all other 

property shall be valued by the trustee using such professional assistance as the trustee 

deems necessary in its sole discretion under the circumstances; provided, however, that if 

such property is sold, its value for purposes of the calculations required by this part shall 

be equal to the actual value realized on the sale of such property; and, provided further, 

that the sale shall be made in compliance with all applicable statutes, rules and orders of 

any court or governmental entity with jurisdiction there over.

§ 190.09 Allocation of property and allowance of claims. 

The property of the debtor’s estate must be allocated among account classes and between 

customer classes as provided in this section. (Property connected with certain crossmargining arrangements is subject to the provisions of appendix B, framework 1 of this 

part.) The property so allocated will constitute a separate estate of the customer class and 

the account class to which it is allocated, and will be designated by reference to such 

customer class and account class.
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(a) Scope of customer property.

(1) Customer property includes the following:

(i) All cash, securities, or other property or the proceeds of such cash, securities or 

other property received, acquired, or held by or for the account of the debtor, from or for 

the account of a customer, including a non-public customer, which is:

(A) Property received, acquired or held to margin, guarantee, secure, purchase or sell a 

commodity contract;

(B) Open commodity contracts;

(C) Physical delivery property as that term is defined in paragraphs (1) through (3) in 

the definition of that term in § 190.01;

(D) Cash delivery property, or other cash, securities or other property received by the 

debtor as payment for a commodity to be delivered to fulfill a commodity contract from or 

for the commodity customer account of a customer;

(E) Profits or contractual rights accruing to a customer as the result of a commodity 

contract;

(F) Letters of credit, including any proceeds of a letter of credit drawn by the trustee,

or substitute customer property posted by the customer, pursuant to § 190.04(d)(3) of this 

part;

(G) Securities held in a portfolio margining account carried as a futures account or a 

cleared swaps customer account;

(H) Property hypothecated under § 1.30 of this chapter to the extent that the value of 

such property exceeds the proceeds of any loan of margin made with respect thereto, and

(ii) All cash, securities, or other property which:

(A) Is segregated for customers on the filing date;

(B) Is a security owned by the debtor to the extent there are customer claims for 

securities of the same class and series of an issuer;

(C) Is specifically identifiable to a customer;

(D) Was property of a type described in paragraph (a)(1)(i)(A) of this section that is 

subsequently recovered by the avoidance powers of the trustee or is otherwise recovered 

by the trustee on any other claim or basis;

(E) Represents recovery of any debit balance, margin deficit, or other claim of the 

debtor against a customer;
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(F) Was unlawfully converted but is part of the debtor’s estate;

(G) Constitutes current assets of the debtor (as of the date of the order for relief) 

within the meaning of § 1.17(c)(2) of this chapter, including the debtor’s trading or 

operating accounts and commodities of the debtor held in inventory, in the greater of (i) 

the amount that the debtor is obligated to set aside as its targeted residual interest amount 

pursuant to § 1.11 of this chapter and the debtor’s residual interest policies adopted 

thereunder, with respect to each of the futures account class, the foreign futures account 

class, and the cleared swaps account class, or (ii) the debtor’s obligations to cover debit 

balances or under-margined amounts as provided in §§ 1.20, 1.22, 22.2 and 30.7 of this 

chapter.

(H) Is other property of the debtor that any applicable law, rule, regulation, or order 

requires to be set aside for the benefit of customers;

(I) Is property of the debtor’s estate recovered by the Commission in any proceeding 

brought against the principals, agents, or employees of the debtor;

(J) Is proceeds from the investment of customer property by the trustee pending final 

distribution;

(K) Is a payment from an insurer to the trustee arising from or related to a claim 

related to the conversion or misuse of customer property; or

(L) Is cash, securities or other property of the debtor’s estate, including the debtor’s 

trading or operating accounts and commodities of the debtor held in inventory, but only to 

the extent that the property enumerated in paragraphs (a)(1)(i)(F) and (a)(1)(ii)(A) through 

(K) of this section is insufficient to satisfy in full all claims of public customers. Such 

property includes ‘customer property,’ as defined in section 16(4) of SIPA, 15 U.S.C. 

78lll(4), that remains after allocation in accordance with section 8(c)(1)(A)-(D) of SIPA, 

15 U.S.C. 78fff-2(c)(1)(A)-(D) and that is allocated to the debtor’s general estate in 

accordance with section 8(c)(1) of SIPA, 15 U.S.C. 78fff-2(c)(1).

(2) Customer property will not include:

(i) Claims against the debtor for damages for any wrongdoing of the debtor, including 

claims for misrepresentation or fraud, or for any violation of the Act or of the regulations 

thereunder;

(ii) Other claims for property which are not based upon property received, acquired or 

held by or for the account of the debtor, from or for the account of the customer;

(iii) Forward contracts (unless such contracts are cleared by a clearing organization or, 

in the case of forward contracts treated as foreign futures, a foreign clearing organization);

(iv) Physical delivery property that is not held by the debtor, and is delivered or 

received by a customer in accordance with §§ 190.06(a)(2) or 190.16(a) to fulfill the 

customer’s delivery obligation under a commodity contract;
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(v) Property deposited by a customer with a commodity broker after the entry of an 

order for relief which is not necessary to meet the margin requirements applicable to the 

accounts of such customer;

(vi) Property hypothecated pursuant to § 1.30 of this chapter to the extent of the loan 

of margin with respect thereto; 

(vii) Money, securities or property held to margin, guarantee or secure security futures 

products, or accruing as a result of such products, if held in a securities account; and

(viii) Money, securities or property held in a securities account to fulfill delivery, 

under a commodity contract from or for the account of a customer, as described in 

§ 190.06(b)(2). 

(3) Nothing contained in this section, including, but not limited to, the satisfaction of 

customer claims by operation of this section, shall prevent a trustee from asserting claims 

against any person to recover the shortfall of property enumerated in paragraphs 

(a)(1)(i)(F) and (a)(1)(ii)(A) through (L) of this section.

(b) Allocation of customer property between customer classes. No customer property 

may be allocated to pay non-public customer claims until all public customer claims have 

been satisfied in full. Any property segregated on behalf of or attributable to non-public 

customers must be treated initially as part of the public customer estate and allocated in 

accordance with paragraph (c)(2) of this section.

(c) Allocation of customer property among account classes.

(1) Property identified to an account class.

(i) Segregated property. Subject to paragraph (b) of this section, property held by or 

for the account of a customer, which is segregated on behalf of a specific account class, or 

readily traceable on the filing date to customers of such account class, or recovered by the 

trustee on behalf of or for the benefit of an account class, must be allocated to the 

customer estate of the account class for which it is segregated, to which it is readily 

traceable, or for which it is recovered.

(ii) Excess property. If, after payment in full of all allowed customer claims in a 

particular account class, any property remains allocated to that account class, such excess 

shall be allocated in accordance with paragraph (c)(2) of this section.

(2) All other property. Money, securities and property received from or for the 

account of customers which cannot be allocated in accordance with paragraph (c)(1)(i) of 

this section, must be allocated in the following order:

(i) To the estate of the account class for which, after the allocation required in 

paragraph (c)(1) of this section, the percentage of each public customer net equity claim 

which is funded is the lowest, until the funded percentage of net equity claims of such 
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class equals the percentage of each public customer’s net equity claim which is funded for 

the account class with the next lowest percentage of the funded claims; and then

(ii) To the estate of the two account classes referred to in paragraph (c)(2)(i) of this 

section so that the percentage of the net equity claims which are funded for each class 

remains equal until the percentage of each public customer net equity claim which is 

funded equals the percentage of each public customer net equity claim which is funded for 

the account class with the next lowest percentage of funded claims, and so forth, until the 

percentage of each public customer net equity claim which is funded is equal for all 

classes of accounts; and then,

(iii) Among account classes in the same proportion as the public customer net equity 

claims for each such account class bears to the total of public customer net equity claims 

of all account classes until the public customer claims of each account class are paid in 

full; and, thereafter,

(iv) To the non-public customer estate for each account class in the same order as is 

prescribed in paragraphs (c)(2)(i) to (iii) of this section for the allocation of the customer 

estate among account classes.

(d) Distribution of customer property.

(1) Return or transfer of specifically identifiable property. Specifically identifiable 

property not required to be liquidated under § 190.04(d)(2) may be returned or transferred 

on behalf of the customer to which it is identified:

(i) If it is margining an open commodity contract, only if substitute customer property 

is first deposited with the trustee with a value equal to the greater of the full fair market 

value of such property on the return date or the balance due on the return date on any loan 

by the debtor to the customer for which such property constitutes security; or

(ii) If it is not margining an open commodity contract, at the option of the customer, 

either pursuant to the terms of paragraph (d)(1)(i) of this section, or pursuant to the 

following terms: such customer first deposits substitute customer property with the trustee 

with a value equal to the amount by which the greater of the value of the specifically 

identifiable property to be transferred or returned on the date of such transfer or return or 

the balance due on the return date on any loan by the debtor to the customer for which 

such property constitutes security, together with any other disbursements made, or to be 

made, to such customer, plus a reasonable reserve in the trustee’s sole discretion, exceeds 

the estimated aggregate of the funded balances for each class of account of such customer 

less the value on the date of its transfer or return of any property transferred or returned 

prior to the primary liquidation date with respect to the customer’s net equity claim for 

such account; provided, however, that adequate security to assure the recovery of any 

overpayments by the trustee is provided to the debtor’s estate by the customer.

(2) Transfers of specifically identifiable commodity contracts under section 766 of the 

Bankruptcy Code. Any open commodity contract that is specifically identifiable property 
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and which is not required to be liquidated under § 190.04(d), and which is not otherwise 

liquidated, may be transferred on behalf of a public customer, provided, however, that 

such customer must first deposit substitute customer property with the trustee with a value 

equal to the amount by which the equity to be transferred to margin such contract together 

with any other transfers or returns of specifically identifiable property or disbursements 

made, or to be made, to such customer, plus a reasonable reserve in the trustee’s sole 

discretion, exceeds the estimated aggregate of the funded balances for each class of 

account of such customer less the value on the date of its transfer or return of any property 

transferred or returned prior to the primary liquidation date with respect to the customer’s 

net equity claim for such account; and, provided further, that adequate security to assure 

the recovery of any overpayments by the trustee is provided to the debtor’s estate by the 

customer.

(3) Distribution in kind of specifically identifiable securities. If any securities of a 

customer are specifically identifiable property as defined in paragraph (1)(i)(A) of the 

definition of that term in § 190.01 of this chapter, but the customer has no open 

commodity contracts, the customer may request that the trustee purchase or otherwise 

obtain the largest whole number of like-kind securities (i.e., securities of the same class 

and series of an issuer), with a fair market value (inclusive of transaction costs) which 

does not exceed that portion of the funded balance of such customer’s allowed net equity 

claim that constitutes a claim for securities, if like-kind securities can be purchased in a 

fair and orderly manner.

(4) Proof of customer claim. No distribution shall be made pursuant to paragraphs 

(d)(1) and (d)(3) of this section prior to receipt of a completed proof of customer claim as 

described in §§ 190.03(e) or (f).

(5) No differential distributions. No further disbursements may be made to customers 

with respect to a particular account class for whom transfers have been made pursuant to 

§ 190.07 and paragraph (d)(2) of this section, until a percentage of each net equity claim 

equivalent to the percentage distributed to such customers is distributed to all public 

customers in such account class. Partial distributions, other than the transfers referred to 

in § 190.07 and paragraph (d)(2) of this section, with respect to a particular account class 

made prior to the final net equity determination date must be made pursuant to a 

preliminary plan of distribution approved by the court, upon notice to the parties and to all 

customers, which plan requires adequate security to the debtor’s estate to assure the 

recovery of any overpayments by the trustee and distributes an equal percentage of net 

equity to all public customers in such account class.

§ 190.10 Current records during business as usual.

A person that is a futures commission merchant is required to maintain current 

records relating to its customers’ accounts, including copies of all account 

agreements and related account documentation, and “know your customer” 

materials, pursuant to §§ 1.31, 1.35, 1.36, and 1.37 of this chapter, which may be 
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provided to another futures commission merchant to facilitate the transfer of open 

commodity contracts or other customer property held by such person for or on 

behalf of its customers to the other futures commission merchant, in the event an 

order for relief is entered with respect to such person.

Subpart C—Clearing Organization as Debtor

§ 190.11 Scope and purpose of subpart C.

(a) This subpart C applies to a proceeding commenced under subchapter IV of chapter 

7 of the Bankruptcy Code in which the debtor is a clearing organization.

(b) If the debtor clearing organization is organized outside the United States, and is 

subject to a foreign proceeding, as defined in 11 U.S.C. 101(23), in the jurisdiction 

in which it is organized, then only the following provisions of part 190 shall apply:

(1) Subpart A.

(2) Section 190.12.

(3) Section 190.13, but only with respect to futures contracts and cleared swaps 

contracts cleared by FCM clearing members on behalf of their public customers

and the property margining or securing such contracts.

(4) Sections 190.17 and 190.18, but only with respect to claims of FCM clearing 

members on behalf of their public customers, as well as to property that is or 

should have been segregated for the benefit of FCM clearing members’ public 

customers, or that has been recovered for the benefit of FCM clearing members’ 

public customers.

§ 190.12 Required reports and records.

(a) Notices.

(1) Notices – means of providing.

(i) To the Commission. Unless instructed otherwise by the Commission, all mandatory 

or discretionary notices to be given to the Commission under this subpart C shall be 

directed by electronic mail to bankruptcyfilings@cftc.gov. For purposes of this subpart C, 

notice to the Commission shall be deemed to be given only upon actual receipt.

(ii) To members. The trustee, after consultation with the Commission, and unless 

otherwise instructed by the Commission, will establish and follow procedures reasonably 

designed for giving adequate notice to members under this subpart C and for receiving 

claims or other notices from members. Such procedures should include, absent good 

cause otherwise, the use of a prominent website as well as communication to members’ 

electronic addresses that are available in the debtor’s books and records. 
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(2) Of commencement of a proceeding. A debtor that files a petition in bankruptcy

that is subject to this subpart shall, at or before the time of such filing, and a debtor against 

which such a petition is filed shall, as soon as possible, but in any event no later than three 

hours after the receipt of notice of such filing, notify the Commission of the filing date, 

the court in which the proceeding has been or will be filed, and, as soon as available, the 

docket number assigned to that proceeding by the court.

(b) Reports and records to be provided to the trustee and the Commission within three 

hours.

(1) As soon as practicable following the commencement of a proceeding that is subject 

to this subpart and in any event no later than three hours following the later of the 

commencement of such proceeding or the appointment of the trustee, the debtor shall 

provide to the trustee copies of each of the most recent reports that the debtor was required 

to file with the Commission under § 39.19(c) of this chapter, including copies of any 

reports required under §§ 39.19(c)(2), (c)(3) and (c)(4) of this chapter (including the most 

up-to-date version of any recovery and wind-down plans of the debtor maintained 

pursuant to § 39.39(b) of this chapter) that the debtor filed with the Commission during

the preceding 12 months.

(2) As soon as practicable following the commencement of a proceeding that is subject 

to this subpart and in any event no later than three hours following the commencement of 

such proceeding (or, with respect to the trustee, the appointment of the trustee), the debtor 

shall provide to the trustee and the Commission copies of the most up-to-date versions of 

the default management plan and default rules and procedures maintained by the debtor 

pursuant to § 39.16 and, as applicable, § 39.35 of this chapter.

(c) Records to be provided to the trustee and the Commission by the next business day. 

As soon as practicable following commencement of a proceeding that is subject to this 

subpart and in any event no later than the next business day, the debtor shall make 

available to the trustee and the Commission copies of the following records:

(1) All records maintained by the debtor described in § 39.20(a) of this chapter;

(2) Any opinions of counsel or other legal memoranda provided to the debtor (whether 

by external or internal counsel) in the five years preceding the commencement of such 

proceeding relating to the enforceability of the rules and procedures of the debtor in the 

event of an insolvency proceeding involving the debtor.

§ 190.13 Prohibition on avoidance of transfers.

The following transfers are approved and may not be avoided under sections 544, 546, 

547, 548, 549, or 724(a) of the Bankruptcy Code:

(a) Pre-relief transfers. Any transfer of open commodity contracts and the property 

margining or securing such contracts made to another clearing organization that was 
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approved by the Commission, either before or after such transfer, and was made prior to 

entry of the order for relief; and

(b) Post-relief transfers. Any transfers of open commodity contracts and the property 

margining or securing such contracts made to another clearing organization on or before 

the seventh calendar day after the entry of the order for relief, that was made with the 

approval of the Commission, either before or after such transfer.

§ 190.14 Operation of the estate of the debtor subsequent to the filing date.

(a) Proofs of Claim. The trustee may, in its discretion based upon the facts and 

circumstances of the case, instruct each customer to file a proof of claim containing such 

information as is deemed appropriate by the trustee, and seek a court order establishing a 

bar date for the filing of such proofs of claim. 

(b) Operation of the derivatives clearing organization. 

Subsequent to the order for relief, the derivatives clearing organization shall cease 

making calls for variation settlement or initial margin.

(c) Liquidation. 

(1) The trustee shall liquidate all open commodity contracts that have not been 

terminated, liquidated or transferred no later than seven calendar days after entry of the 

order for relief. Such liquidation of open commodity contracts shall be conducted in 

accordance with the rules and procedures of the debtor, to the extent applicable and 

practicable. 

(2) In lieu of liquidating securities held by the debtor and making distributions in the 

form of cash, the trustee may, in its reasonable discretion, make distributions in the form 

of securities that are equivalent (i.e., securities of the same class and series of an issuer) to 

the securities originally delivered to the debtor by a clearing member or such clearing 

member’s customer.

(d) Computation of funded balance. The trustee shall use reasonable efforts to 

compute a funded balance for each customer account immediately prior to any distribution 

of property within the account, which shall be as accurate as reasonably practicable under 

the circumstances, including the reliability and availability of information.

§ 190.15 Recovery and wind-down plans; default rules and procedures.

(a) Prohibition on avoidance of actions taken pursuant to recovery and wind-down 

plans. Subject to the provisions of section 766 of the Bankruptcy Code and §§ 190.13 and 

190.18, the trustee shall not avoid or prohibit any action taken by a debtor subject to this 

subpart that was reasonably within the scope of and was provided for in any recovery and 

wind-down plans maintained by the debtor and filed with the Commission pursuant to 

§ 39.39 of this chapter.
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(b) Implementation of debtor’s default rules and procedures. In administering a 

proceeding under this subpart, the trustee shall implement, in consultation with the 

Commission, the default rules and procedures maintained by the debtor under § 39.16 and, 

as applicable, § 39.35 of this chapter and any termination, close-out and liquidation 

provisions included in the rules of the debtor, subject to the reasonable discretion of the 

trustee and to the extent that implementation of such default rules and procedures is 

practicable.

(c) Implementation of recovery and wind-down plans. In administering a proceeding 

under this subpart, the trustee shall, in consultation with the Commission, take actions in 

accordance with any recovery and wind-down plans maintained by the debtor and filed 

with the Commission pursuant to § 39.39 of this chapter, to the extent reasonable and 

practicable, and consistent with the protection of customers.

§ 190.16 Delivery.

(a) General. In the event that a commodity contract, cleared by the DCO, that settles 

upon expiration or exercise by making or taking delivery of physical delivery property, (i) 

has moved into delivery position prior to the date and time of the order for relief, or (ii) 

moves into delivery position after that date and time, but before being terminated, 

liquidated, or transferred, then, in either such event, the trustee must use reasonable efforts 

to facilitate and cooperate with the completion of delivery on behalf of the clearing 

member or the clearing member’s customer in a manner consistent with § 190.06(a) and 

the pro rata distribution principle addressed in § 190.00(c)(5).

(b) Special provisions for delivery accounts.

(1) Consistent with the separation of the physical delivery property account class and 

the cash delivery account class set forth in § 190.06(b), the trustee shall treat (i) physical 

delivery property held in delivery accounts as of the filing date, along with the proceeds 

from any subsequent sale of such physical delivery property in accordance with 

§ 190.06(a)(3) to fulfill a clearing member’s or its customer’s delivery obligation or any 

other subsequent sale of such property, as part of the physical delivery account class, and 

(ii) cash delivery property in delivery accounts as of the filing date, along with any 

physical delivery property for which delivery is subsequently taken on behalf of a clearing 

member or its customer in accordance with § 190.06(a)(3), as part of the separate cash 

delivery account class. 

(2) If the debtor holds any cash or property in the form of cash equivalents in an 

account with a bank or other person under a name or in a manner that clearly indicates that 

the account holds property for the purpose of making payment for taking physical 

delivery, or receiving payment for making physical delivery, of a commodity under any 

commodity contracts, such property shall (subject to § 190.19) be considered customer 

property in the cash delivery account class if held for making payment for taking delivery, 

or in the physical delivery account class, if held for the purpose of receiving such payment

.
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§ 190.17 Calculation of net equity.

(a) Net equity – separate capacities and calculations.

(1) If a member of the clearing organization clears trades in commodity contracts 

through a commodity contract account carried by the debtor as a customer account for the 

benefit of the clearing member’s public customers and separately through a house account, 

the clearing member shall be treated as having customer claims against the debtor in 

separate capacities with respect to the customer account and house account at the clearing 

organization, and by account class. A member shall be treated as part of the public 

customer class with respect to claims based on any commodity customer accounts carried 

as “customer accounts” by the clearing organization for the benefit of the member’s public 

customers, and as part of the non-public customer class with respect to claims based on its 

house account.

(2) Net equity shall be calculated separately for each separate customer capacity in 

which the clearing member has a claim against the debtor, i.e., separately by the member’s 

customer account and house account and by account class.

(b) Net equity – application of debtor’s loss allocation rules and procedures.

(1) (i) The calculation of a clearing member’s net equity claim shall include the full 

application of the debtor’s loss allocation rules and procedures, including the default rules 

and procedures referred to in § 39.16 and, if applicable, § 39.35 of this chapter. (ii) The 

calculation in paragraph (b)(1)(i) will include, with respect to the clearing member’s house 

account, any assessments or similar loss allocation arrangements provided for under those 

rules and procedures that were not called for before the filing date, or, if called for, have 

not been paid. Such loss allocation arrangements shall be applied to the extent necessary 

to address losses arising from default by clearing members.

(2) Where the debtor’s loss allocation rules and procedures would entitle clearing 

members to additional payments of cash or other property due to (i) portions of 

mutualized default resources that are prefunded, or assessed and collected, but in either 

event not used, or (ii) the debtor’s recoveries on claims against others (including, but not 

limited to, recoveries on claims against clearing members who have defaulted on their 

obligations to the debtor), appropriate adjustments shall be made to the net equity claims 

of the clearing members that are so entitled.

(c) Net equity – general. Subject to paragraph (b) of this section, net equity shall be 

calculated in the manner provided in § 190.08 of this part, to the extent applicable.

(d) Calculation of funded balance. Funded balance means a clearing member’s pro 

rata share of customer property other than member property (for accounts for a clearing 

member’s customer accounts) or member property (for a clearing member’s house 

accounts) with respect to each account class available for distribution to customers of the 

same customer class, calculated in the manner provided in § 190.08(c) of this chapter to 

the extent applicable.
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§ 190.18 Treatment of property.

(a) General. The property of the debtor’s estate must be allocated between member 

property and customer property other than member property as provided in this section to 

satisfy claims of clearing members, as customers of the debtor. The property so allocated 

will constitute a separate estate of the customer class (i.e., member property, and 

customer property other than member property) and the account class to which it is 

allocated, and will be designated by reference to such customer class and account class. 

(b) Scope of customer property. Customer property is the property available for 

distribution within the relevant account class in respect of claims by clearing members, as 

customers of the clearing organization, based on customer accounts carried by the debtor 

for the benefit of (x) such members’ public customers or (y) such members’ house 

accounts. 

(1) Customer property includes the following:

(i) All cash, securities, or other property, or the proceeds of such cash, securities or 

other property, received, acquired or held by or for the account of the debtor, from or for 

any commodity contract account of a clearing member carried by the debtor, which is:

(A) Property received, acquired or held to margin, guarantee, secure, purchase or sell a 

commodity contract;

(B) Open commodity contracts;

(C) Physical delivery property as that term is defined in paragraphs (1) through (3) of 

the definition of that term in § 190.01;

(D) Cash, securities or other property received by the debtor as payment for a 

commodity to be delivered to fulfill a commodity contract from or for the commodity 

customer account of a clearing member or a customer of a clearing member;

(E) Profits or contractual rights accruing as a result of a commodity contract;

(F) Letters of credit, including any proceeds of a letter of credit drawn upon by the 

trustee, or substitute customer property posted by a clearing member or a customer of a 

clearing member, pursuant to § 190.04(d)(3) of this part;

(G) Securities held in a portfolio margining account carried as a futures account or a 

cleared swaps customer account;

(ii) All cash, securities, or other property which:

(A) Is segregated by the debtor on the filing date for the benefit of clearing members’ 

house accounts or clearing members’ public customer accounts;
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(B) Which was of a type described in paragraph (b)(1)(i)(A) that is subsequently 

recovered by the avoidance powers of the trustee or is otherwise recovered by the trustee 

on any other claim or basis;

(C) Represents a recovery of any debit balance, margin deficit or other claim of the 

debtor against any commodity contract account carried for the benefit of a member’s 

house accounts or a member’s public customer accounts;

(D) Was unlawfully converted but is part of the debtor’s estate;

(E) Of a type described in paragraph (a)(1)(ii) (H) through (K) of § 190.09 (as if the 

term debtor used therein refers to a clearing organization as debtor); and

(iii) Any guaranty fund deposit, assessment, or similar payment or deposit made by a 

clearing member, or recovered by the trustee, to the extent any remains following 

administration of the debtor’s default rules and procedures, and any other property of a 

member available under the debtor’s rules and procedures to satisfy claims made by or on 

behalf of public customers of a member.

(iv) Amounts of its own funds that the debtor had committed as part of its loss 

allocation rules, to the extent that such amounts have not already been applied under such 

rules.

(2) Customer property will not include property of the type described in 

§ 190.09(a)(2), as if the term debtor used therein refers to a clearing organization and to 

the extent relevant to a clearing organization.

(c) Allocation of customer property between customer classes.

(1) Where the funded balance for members’ house accounts is greater than one 

hundred percent with respect to any account class, 

(i) any excess should be allocated to customer property other than member property to 

the extent that the funded balance is less than one hundred percent of net equity claims for 

members’ public customers in any account class.

(ii) any remaining excess after the application of paragraph (i) should be allocated to 

member property to the extent that the funded balance is less than one hundred percent of 

net equity claims for members’ house accounts in any other account class.

(2) Where the funded balance for members’ public customers in any account class is 

greater than one hundred percent, 

(i) any excess should be allocated to customer property other than member property to 

the extent that the funded balance is less than one hundred percent of net equity claims for 

members’ public customers in any other account class. 
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(ii) Any remaining excess after the application of paragraph (i) should be allocated to 

member property to the extent that the funded balance is less than one hundred percent of 

net equity claims for members’ house accounts in any account class.

(d) Allocation of customer property among account classes.

(1) Segregated property. Subject to paragraph (b) of this section, property held by or 

for the account of a customer, which is segregated on behalf of a specific account class

within a customer class, or readily traceable on the filing date to customers of such 

account class within a customer class, or recovered by the trustee on behalf of or for the 

benefit of an account class within a customer class, must be allocated to the customer 

estate of the account class for which it is segregated, to which it is readily traceable, or for 

which it is recovered.

(2) All other property. Customer property which cannot be allocated in accordance 

with paragraph (d)(1) of this section, shall be allocated within customer classes, but 

between account classes, in the following order:

(i) To the estate of the account class for which the percentage of each members’ net 

equity claim which is funded is the lowest, until the funded percentage of net equity 

claims of such account class equals the percentage of each members’ net equity claim 

which is funded for the account class with the next lowest percentage of the funded 

claims; and then

(ii) To the estate of the two account classes so that the percentage of the net equity 

claims which are funded for each such account class remains equal until the percentage of 

each net equity claim which is funded equals the percentage of each net equity claim 

which is funded for the account class with the next lowest percentage of funded claims, 

and so forth, until all account classes within the customer class are fully funded.

(e) Where the debtor has, prior to the order for relief, kept initial margin for house 

accounts in accounts without separation by account class, then member property will be 

considered to be in a single account class.

(f) Nothing in this section, including but not limited to the satisfaction of customer 

claims by operation of this section, shall prevent a trustee from asserting claims against 

any person to recover the shortfall of property enumerated in paragraphs (b)(1)(i)(E), 

(b)(1)(ii), and (b)(1)(iii) of this § 190.18.

§ 190.19 Support of Daily Settlement. 

(a) Notwithstanding any other provision of this part, funds received (whether from 

clearing members’ house or customer accounts) by a debtor clearing organization as part 

of the daily settlement required pursuant to § 39.14 of this title shall, upon and after an 

order for relief, be included as customer property that is reserved for and traceable to, and

promptly shall be distributed to, members entitled to payments of such funds with respect 

to such members’ house and customer accounts as part of that same daily settlement. 
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Such funds when received, other than deposits of initial margin described in 

§ 39.14(a)(iii), shall be considered (1) member property and (2) customer property other 

than member property, in proportion to the ratio of total gains in member accounts with 

net gains, and total gains in customer accounts with net gains, respectively. Deposits of 

initial margin described in § 39.14(a)(iii) shall be considered (1) member property and (2) 

customer property other than member property, to the extent deposited on behalf of, 

respectively, clearing members’ house accounts and customer accounts.

(b) To the extent there is a shortfall in funds received pursuant to paragraph (a) of this 

section:

(1) such funds shall be supplemented with the property described in paragraphs 

(b)(1)(i) through (iv) of this section, as applicable, to the extent necessary to meet the 

shortfall, in accordance with the derivatives clearing organization’s default rules and 

procedures adopted pursuant to § 39.16 and, as applicable, § 39.35 of this chapter, and 

(with respect to paragraph (b)(1)(ii)) any recovery and wind-down plans maintained 

pursuant to § 39.39 and submitted pursuant to § 39.19 of this chapter. Such funds shall be 

included as member property and customer property other than member property in the 

proportion described in paragraph (a), and shall be distributed promptly to members’ 

house accounts and members’ customer accounts which accounts are entitled to payment 

of such funds as part of that daily settlement.

(i) Initial margin held for the account of a member, including initial margin segregated 

for the customers of such member, that has defaulted on payments required pursuant to a

daily settlement, but only to the extent that such margin is permitted to be used pursuant to 

parts 1, 22 and 30 of this title.

(ii) Assets of the debtor, to the extent dedicated to such use as part of the debtor’s 

default rules and procedures, and any recovery and wind-down plans, described in this 

paragraph. 

(iii) Prefunded guarantee or default funds maintained pursuant to the debtor’s default 

rules and procedures.

(iv) Payments made by members pursuant to assessment powers maintained pursuant 

to the debtor’s default rules and procedures

(2) If the funds that are included as customer property pursuant to paragraph (a), 

supplemented as described in paragraph (b)(1), are insufficient to pay in full members 

entitled to payment of such funds as part of daily settlement, then such funds shall be 

distributed pro rata to such members’ house accounts and customer accounts in proportion 

to the ratio of total gains in member accounts with net gains, and total gains in customer 

accounts with net gains, respectively.
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Appendix A to Part 190 – Proof of Claim Form

15) Replace Appendix A, Forms 1-4, with the following:

Appendix A to Part 190—Customer Proof of Claim Form

[CASE CAPTION]

CLAIM FORM FOR COMMODITY BROKER CUSTOMERS OF [DEBTOR]

Debtor: [INSERT]

Customer Name:

COURT USE ONLY

Account Number(s):

Daytime Telephone number: 

Email:

❐ Check this box if this claim 

amends a previously filed claim.

Court Claim 

Number:____________________

(If known)

Filed on:_____________________

Name and address where payment should be sent (if 

different from above):

Telephone number: 

Email:

❐ Check this box if you are aware 

that anyone else has filed a proof 

of claim relating to this claim. 

Attach copy of statement giving 

particulars.

THIS CLAIM FORM SHOULD BE USED ONLY IF YOU ARE A CUSTOMER 

HOLDING A CLAIM BASED ON A COMMODITY CONTRACT ACCOUNT (A 

FUTURES, FOREIGN FUTURES, CLEARED SWAPS OR DELIVERY 

ACCOUNT) AT THE DEBTOR. A DIFFERENT CLAIM FORM MUST BE USED

TO ASSERT OTHER TYPES OF CLAIMS AGAINST THE DEBTOR. 
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THE DEADLINE FOR FILING ALL CUSTOMER CLAIMS BASED ON 

COMMODITY CONTRACT ACCOUNTS IS [BAR DATE]. NO CUSTOMER 

CLAIM WILL BE ALLOWED IF IT IS RECEIVED AFTER THIS DATE. 

CLAIMS MUST BE RECEIVED BY 11:59 P.M. ([TIME ZONE]) ON 

__________________ TO BE CONSIDERED TIMELY.

[Include case-specific instructions for how to file a claim] 

If you require additional space to answer any question, please attach separate pieces of 

paper and label the answers to the corresponding questions. 

I. CLAIM AMOUNT

For each type of commodity contract account that is applicable, state the amount of your 

claim against the Debtor.

(1) Futures account claim: $__________[§ 190.03(e)(1)]331

(2) Foreign futures account claim: $__________[§ 190.03(e)(1)]

(3) Cleared swaps account claim: $__________[§ 190.03(e)(1)]

(4) Delivery account claim: $__________[§ 190.03(e)(1)]

Of the amount in (4), please note how much is in the form of cash or cash equivalents 

($ ) and how much is the value of commodities that have been or were/are to be 

delivered ($_________)

(5) Total claim: $__________________________

(6) Date on which your claim is valued (see instructions): _____________________

II. ACCOUNT INFORMATION

For each commodity contract account with the Debtor, please provide the following 

information. To the extent you have multiple commodity contract accounts with the 

Debtor, please provide the following information for each account separately in an 

attachment. 

(1) Account number: ___________________[§ 190.03(e)(3)(i)]

(2) Name in which the account is held: ______________________[§ 190.03(e)(3)(ii)]

 331 Bracketed references are to the corresponding provision in § 190.03(e) where the relevant information 

item is listed. 
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(3) Please specify all capacities in which you hold the account (check all that are 

applicable) [§ 190.03(e)(3)(iv)]:

a. Individual capacity

b. Guardian, custodian, or conservator for the benefit of a ward or a 

minor under the Uniform Gift to Minors Act

c. Executor or administrator of an estate

d. Trustee for a trust beneficiary

e. Corporation, partnership, or unincorporated association

f. Omnibus customer account of a futures commission merchant

g. Part owner of a joint account

h. Individual retirement account

 i. Agent or nominee for a principal or beneficial owner (and not 

described in Items (a)-(h))

 j. In any other capacity not described above in Items (a)-(i) (please 

specify the capacity): ___________________________________

If you selected more than one box, please attach an explanation.

(4) Please specify whether the account is a joint account [§ 190.03(e)(3)(v)]:

Check one: YES NO

If you selected “YES,” please specify your percentage interest in the account, and 

whether all participants in the joint account are claiming jointly. In addition, 

please see the instructions for additional information required for joint accounts.

a. My percentage interest in the joint account is: _______%

b. Participants in the joint account are claiming:

Check one: SEPARATELY JOINTLY

(5) Please specify whether the account is a discretionary account (i.e., does another 

person have trading authority over the account) [§ 190.03(e)(3)(vi)]:

Check one: YES NO

If you selected “YES,” please see the instructions for additional information 

required for discretionary accounts. 
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(6) Please specify whether the account is an individual retirement account for which 

there is a custodian [§ 190.03(e)(3)(vii)]: 

Check one: YES NO

1. If you selected “YES,” please see the instructions for additional information 

required for individual retirement accounts for which there is a custodian.

(7) Please specify whether the account is a cross-margining account for futures and 

securities [§ 190.03(e)(3)(viii)]:

Check one: YES NO

If you selected “YES,” please see the instructions for additional information 

required for cross-margining accounts for futures and securities.

III. ACCOUNT STATEMENT: OPEN POSITIONS, UNLIQUIDATED 

SECURITIES AND OTHER UNLIQUIDATED PROPERTY

(1) Account balance per most recent account statement: 

$_______ [§ 190.03(e)(3)(iii)]

a. Date of the most recent account statement: __________________________

PLEASE ATTACH A COPY OF THIS STATEMENT (NOT THE ORIGINAL)

b. Do you agree with the account balance(s) on your most recent account 

statement(s), as set forth above?

Check one: YES NO 

If you selected “NO,” please explain in an attachment the reasons why you 

disagree with the account balance reflected on your most recent statement.

c. Has there been activity in the account since the date of the last account 

statement up to and including the filing date that has affected the balance of 

the account (“subsequent activity”)?

Check one: YES NO 

If you selected “YES,” please provide full information regarding any such 

subsequent activity in an attachment.

(2) On the date on which your claim is valued, did you have any open positions, 

unliquidated securities and/or other unliquidated property in or associated with any 

of your commodity contract accounts? [§ 190.03(e)(7)]
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2. Check one: YES NO

If you selected “YES,” please state below the value of your open positions, 

unliquidated securities and/or other unliquidated property. In addition, please see 

the instructions for additional information required regarding open positions, 

unliquidated securities and other unliquidated property.

Value of all open positions, unliquidated securities and/or other unliquidated 

property: $_________________________

(3) To the extent you are claiming unliquidated securities or other unliquidated 

property held in your account, do you wish to receive payment in kind, if possible? 

[§ 190.03(e)(9)]

Check one: YES NO

If you selected “YES,” please see the instructions for additional required 

information.

IV. CONNECTIONS WITH THE DEBTOR [§ 190.03(e)(2)]

(1) Is the customer making this claim one of the following persons (check all that are 

applicable): 

a. Officer, director, general partner or owner of ten percent or more of 

the capital stock of the Debtor.

b. An employee, limited partner or special partner of the Debtor whose 

duties include (1) the management of the business of the Debtor or 

any part thereof; (2) the handling of the trades or customer funds; 

(3) the keeping of records pertaining to the trades or funds of 

customers; or (4) the signing or cosigning of checks or drafts on 

behalf of Debtor.

c. A spouse or minor dependent living in the same household as any 

person listed in this section.

d. A business affiliate that directly or indirectly controls the Debtor, or 

is directly or indirectly controlled by or is under common control 

with the Debtor. 

(2) Is the customer making the claim on behalf of any account that is owned 10% or 

more by the Debtor or by any of the persons, alone or jointly, identified in IV.(1)?

Check one: YES NO
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If you selected “YES,” please identify such person(s) and the category identified in 

IV.(1) under which they fit.

V. SECURITY FUTURES PRODUCTS [§ 190.03(e)(8)]332

Is any portion of your claim based on security futures products (i.e. futures whose 

underlying instrument is either a single security or a narrow-based security index) held in 

a securities account with the Debtor?

Check one: YES NO

If you selected “YES,” you will need to file a separate claim in accordance with 

the procedures established for claims based on securities accounts at the Debtor. 

VI. OTHER ACCOUNTS WITH DEBTOR [§ 190.03(e)(4)]

Do you have any accounts with the Debtor that are not commodity contract accounts listed 

in response to Section III above?

Check one: YES NO

If you selected “YES,” specify the other account number(s) and the type of each 

such account. 

Account Number Type of Account

1. _______________________ ____________________________

2. ________________________ ____________________________

(Attach additional page(s) if necessary)

 332 This section is for use only in cases where the debtor is jointly registered as a futures commission 

merchant and securities broker-dealer.
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VII. OTHER CLAIMS AGAINST DEBTOR [§ 190.03(e)(5)]

Do you have any other claims against the Debtor not already taken into account in the 

claim and account information provided in response to Sections I, II, III and VI above?

Check one: YES NO

If you selected “YES,” please provide a detailed description in an attachment of 

any such claim or claims, and attach any supporting documentation you have.

VIII. AMOUNTS OWED TO DEBTOR [§ 190.03(e)(6)]

Do you owe any amounts to the Debtor not already taken into account in the claim and 

account balance information provided in response to the questions in sections I and II 

above?

Check one: YES NO 

If you selected “YES,” please provide a detailed description in an attachment of 

any such claim or claims, and attach any supporting documentation you have. 

IX. VERIFICATION

CHECK THE APPROPRIATE BOX:

❐ I am the customer ❐ I am the customer’s authorized agent. 

❐ I am a guarantor, surety, indorser 

 or other (See Bankruptcy Rule 3005.)

I declare under penalty of perjury that the information provided in this claim is true and 

correct to the best of my knowledge, information, and reasonable belief.

Print Name: ________________________________________

Title: _____________________________________________

Company: _________________________________________

Address and telephone number (if different from notice address above):

_________________________________________________

_________________________________________________

_________________________________________________
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Telephone number: _________________________________ 

Email:_____________________________________________ 

_________________________________________________

Signature (Date)

Penalty for presenting fraudulent claim: Fine of up to $500,000 or imprisonment for up to 

5 years, or both. 18 U.S.C. §§ 152 and 3571.

INSTRUCTIONS FOR CUSTOMER PROOF OF CLAIM FORM

Customer’s Name and Address:

Fill in the name of the person or entity asserting the claim, 

and the name and address of the person who should 

receive notices issued during the bankruptcy case. A 

separate space is provided for the payment address if it 

differs from the notice address. The customer has a 

continuing obligation to keep the court informed of its 

current address. See Federal Rule of Bankruptcy 

Procedure (FRBP) 2002(g).

Date on Which Claim is Valued:

Your claim should be valued as of [the last date on which 

any contracts or property not liquidated to cash balances 

remained in your account. Do not include the value of 

any contracts, funds or other property transferred to 

another commodity broker] [^, the date established by the 

Court as the date on which customer accounts should be 

valued].

• Types of Customer Accounts: 

• A “futures account” is an account 

opened for the purpose of trading futures or 

options on futures on a U.S. futures exchange . 

Your account statement for a “futures account” 

would typically include the term “SEG” in the 

title or description of the account. 

• A “foreign futures account” is an 

account opened for the purpose of trading futures 

or options on futures on an exchange located 

outside the U.S. Your account statement for a 

“foreign futures account” would typically include 

the term “30.7” in the title or description of the 

account. 

• A “cleared swaps account” is an account 

opened for the purpose of holding swaps traded 

bilaterally or in off-exchange markets that are 

submitted to a CFTC-registered derivatives 

clearing organization for settlement and clearing. 

A “cleared swaps account” also is an account 

opened for the purpose of trading swaps or 

options on swaps on a designated contract market 

or swap execution facility and cleared by a 

CFTC-registered derviatives clearing 

organization. Your account statement for a 

Estimated Claim Amount: If you cannot compute the 

amount of your claim, you must file an estimated claim. 

In that case, please be sure to indicate that your claim is 

an estimated claim.

Joint Accounts: If any commodity contract account for 

which you are making a claim is a joint account, please 

include an attachment listing the account number and the 

name, address and contact information for each joint 

account holder other than yourself. 

If you are making a claim with respect to multiple joint 

accounts, and those joint accounts are not owned by the 

same holders in the same legal capacities and in identical 

ownership percentages, please complete a separate claim 

form for each joint account.

Discretionary Accounts: If any commodity contract 

account for which you are making a claim is a 

discretionary account, please include an attachment 

listing the account number and the name, address, and 

contact information for all persons with trading authority 

over any of those accounts. If different persons have 

trading authority over different accounts, please provide 

this information for each such account, listing applicable 

account numbers. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

460

“cleared swaps account” would typically include 

the term “swap” in the title or description of the 

account. 

• A “delivery account” is an account 

denominated as such and through which 

deliveries of commodities, whether tangible or 

intangible, occur or have occurred under expiring 

futures contracts. A delivery account also may 

hold cash balances, title documents for 

commodities such as metals warehouse receipts, 

or other commodities, whether tangible or 

intangible, that are deliverable under an 

exchange’s futures contract.

• Your account statement may include 

multiple types of customer accounts in a single 

account statement.

Other types of derivatives trading accounts that you may 

have with the debtor, such as accounts holding offexchange retail forex positions subject to part 5 of the 

regulations of the CFTC and funds to margin such 

positions, are not customer accounts entitled to special 

protection under the Bankruptcy Code. 

Claim in foreign currencies: If some or all of your claim 

is based on a currency other than U.S. dollars, please file 

you claim in U.S. dollars based on the exchange rate in 

effect as of the petition date ([INSERT]), and identify the 

exchange rate used in calculating your claim in a separate 

attachment.

Individual Retirement Accounts for which there is a 

Custodian: If any commodity contract account for 

which you are making a claim is an individual retirement 

account for which there is a custodian, please include an 

attachment listing the account number and the name, 

address, and contact information for both the custodian 

and the account owner.

Cross-Margining Accounts for Futures and 

Securities: If any commodity contract account for which 

you are making a claim is a cross-margining account for 

futures and securities, please include an attachment 

listing the account number and whether the securities 

positions are held in an account with the debtor or in an 

account with an affiliate of the debtor. If such positions 

are held in an account with an affiliate of the debtor, 

please identify and include contact information for such 

affiliate. 
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

461

Open positions, Unliquidated Securities and Other 

Unliquidated Property: To the extent you have any open 

positions, unliquidated securities and/or other unliquidated 

property in a commodity contract account, please include 

an attachment (i) describing each such open position, 

unliquidated security and/or other item of unliquidated 

property (e.g., for positions, by contract, delivery date, 

long/short, quantity, and strike price for options; for 

securities, by CUSIP and quantity); (ii) identifying 

whether such open position, unliquidated security and/or 

other unliquidated property is specifically identifiable 

property; and (iii) identifying whether you would prefer, if 

practicable, payment in kind for each unliquidated security 

or other item of unliquidated property or to have it 

liquidated. 

If the position, unliquidated security or other item of 

unliquidated property is already reflected in the account 

statement that you attached in response to Section III of 

this form, and you agree with the quantity and any value 

set forth therein, please say so. Otherwise, please (i) state 

the quantity and value you claim with respect to such open 

position, unliquidated security and/or other unliquidated 

property, and explain the basis for that quantity and value; 

and (ii) attach any documentary evidence supporting such 

value.

• Documentation:

• Please attach a copy (not the original) of the 

most recent account statement for each account on which 

this claim is based. 

• Please enclose copies (not originals) of any 

documentation or correspondence you believe will be of 

assistance in processing your claim, including, but not 

limited to, customer confirmations, account statements, 

and statements of purchase or sale.

If, at any time, you complained in writing about the 

handling of your account to any person or entity or 

regulatory authority, and the complaint relates to the 

claim that you are asserting in this claim form, please 

provide copies of the complaint and all related 

correspondence, as well as any replies that you received.
Voting Draft – As approved by the Commission on 12/8/2020

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462

Verification:

The individual completing this proof of claim must sign 

and date it. If the claim is filed electronically, the 

Bankruptcy Code authorizes courts to establish local rules 

specifying what constitutes a signature. If you sign this 

form, you declare under penalty of perjury that the 

information provided is true and correct to the best of your 

knowledge, information, and reasonable belief. Your 

signature is also a certification that the claim meets the 

requirements of FRBP 9011(b). Whether the claim is filed 

electronically or in person, if your name is on the signature 

line, you are responsible for the declaration. 

• Print the name and title, if any, of the 

customer or other person authorized to file this claim. 

State the filer’s address and telephone number if it differs 

from the address given on the top of the form for purposes 

of receiving notices. If the claim is filed by an authorized 

agent, provide both the name of the individual filing the 

claim and the name of the agent. Criminal penalties apply 

for making a false statement on a proof of claim.

Credits:

An authorized signature on this proof of claim serves as 

an acknowledgment that when calculating the amount of 

the claim, the customer gave the Debtor credit for any 

obligations of the customer to the Debtor.

ADDITIONAL INFORMATION

Acknowledgment of Receipt of Claim

[Instructions for acknowledgment of filing]

Offers to Purchase a Claim

Certain entities are in the business of purchasing claims 

for an amount less than the face value of the claims. One 

or more of these entities may contact you and offer to 

purchase the claim. Some of the written communications 

from these entities may easily be confused with official 

court documentation or communications from the Debtor. 

These entities do not represent the Bankruptcy Court or 

the Debtor. A customer has no obligation to sell its claim. 

However, if a customer decides to sell its claim, any 

transfer of such claim is subject to FRBP 3001(e), any 

applicable provisions of the Bankruptcy Code (11 U.S.C. 

§ 101 et seq.), and any applicable orders of the 

Bankruptcy Court.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

463

Appendix B to Part 190—Special Bankruptcy Distributions

16) Replace the title and first three paragraphs of Framework 1 with the following

Framework 1—Special Distribution Of Customer Funds When The CrossMargining Account Is A Futures Account

This distributional rule applies when a debtor futures commission merchant has 

participated in a cross-margining (“XM”) program for futures and securities under which 

the cross-margined positions of its futures customers (as defined in § 1.3 of this chapter) 

and the property received to margin, secure or guarantee such positions are held in one or

more accounts pursuant to a Commission order that requires such positions and property 

to be segregated, pursuant to section 4d(a) of the Act, from the positions and property of 

(a) the futures commission merchant, (b) if applicable, any affiliate carrying the securities 

positions as a participant in the XM program (“Affiliate”), and (c) other futures 

customers of the futures commission merchant (such segregated accounts, the “XM 

accounts”). The futures commission merchant may, and any Affiliate that holds the 

securities positions in an XM account that it directly carries will, be registered as a 

broker-dealer under the Exchange Act. The Commission order approving the XM 

program may limit participating customers to market professionals and will require a 

participating customer to sign an agreement, in a form approved by the Commission, that 

refers to this distributional rule.

A futures commission merchant is deemed to receive securities held in an XM account, 

including securities and other property held by an Affiliate in an XM account, as “futures 

customer funds” (as defined in § 1.3 of this chapter) that margin, guarantee or secure 

commodity contracts in the XM account (or paired XM accounts at the futures 

commission merchant and an Affiliate). Under the agreement signed by the customer, in 

the event that the futures commission merchant (or Affiliate) is the subject of a SIPA 

proceeding, the customer agrees that securities in an XM account are excluded from the 

securities estate for purposes of SIPA, and that its claim for return of the securities will not 

be treated as a customer claim under SIPA. These restrictions apply to the customer only, 

and should not be read to limit any action that the trustee may take to seek recovery of 

property in an XM account carried by an Affiliate as part of the customer estate of the 

futures commission merchant.

XM accounts, and other futures accounts that are subject to segregation under section 

4d(a) of the Act (pursuant to the Commission’s regulations thereunder) (“non-XM 

accounts”), are treated as two subclasses of futures account with two separate pools of 

segregated futures customer property, an XM pool and a non-XM pool, each of which 

constitutes a segregated pool under section 4d(a) of the Act. If the futures commission 

merchant has participated in multiple XM programs, the XM accounts in the different 

programs are combined and treated as part of the same XM subclass of futures accounts. 

A futures customer could hold both non-XM and XM accounts.
Voting Draft – As approved by the Commission on 12/8/2020

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Customer claims under Part 190 arising out of the XM subclass of accounts are 

subordinated to customer claims arising out of the non-XM subclass of accounts in certain 

circumstances in which the futures commission merchant does not meet its segregation 

requirements. The segregation requirement is the amount of futures customer funds that 

the futures commission merchant is required by the Act and Commission regulations or 

orders to hold on deposit in segregated accounts on behalf of its futures customers 

(exclusive of its targeted residual amount obligations pursuant to § 1.3 of this chapter).

If there is a shortfall in the non-XM pool and no shortfall in the XM pool, all customer 

net equity claims, whether or not they arise out of the XM subclass of accounts, will be 

combined and paid pro rata out of the combined XM and non-XM pools of futures 

customer property. If there is a shortfall in the XM pool and no shortfall in the non-XM 

pool, customer net equity claims arising from the XM subclass of accounts must be 

satisfied first from the XM pool, and customer net equity claims arising from the non-XM 

subclass of accounts must be satisfied first from the non-XM pool. If there is a shortfall in 

both the non-XM and XM pools: (1) if the non-XM shortfall as a percentage of the 

segregation requirement for the non-XM pool is greater than or equal to the XM shortfall 

as a percentage of the segregation requirement for the XM pool, all customer net equity 

claims will be paid pro rata out of the combined XM and non-XM pools of futures 

customer property; and (2) if the XM shortfall as a percentage of the segregation 

requirement for the XM pool is greater than the non-XM shortfall as a percentage of the 

segregation requirement for the non-XM pool, non-XM customer net equity claims will 

be paid pro rata out of the available non-XM pool, and XM customer net equity claims 

will be paid pro rata out of the available XM pool. In this way, non-XM customers will 

never be adversely affected by an XM shortfall.

The following examples illustrate the operation of this rule. The examples assume that the 

FCM has two futures customers, one with exclusively XM accounts and one with 

exclusively non-XM accounts.
Voting Draft – As approved by the Commission on 12/8/2020

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17)Replace Framework 2 with the following:

Framework 2 Special Allocation of Shortfall To Customer Claims When Customer 

Funds For Futures Contracts And Cleared Swaps Customer Collateral Are Held In 

A Depository Outside Of The United States Or In A Foreign Currency

The Commission has established the following allocation convention with respect 

to futures customer funds (as § 1.3 of this chapter defines such term) and Cleared Swaps 

Customer Collateral (as § 22.1 of this chapter defines such term) (both of which are 

customer funds (as § 1.3 of this chapter defines such term) that are segregated pursuant to 

the Act and Commission rules thereunder), which applies in certain circumstances when 

futures customer funds or Cleared Swaps Customer Collateral are held by a futures 

commission merchant in a depository outside the United States (“U.S.”) or in a foreign 

currency. If a futures commission merchant enters into bankruptcy and maintains futures 

customer funds or Cleared Swaps Customer Collateral in a depository outside the U.S. or 

in a depository located in the U.S. in a currency other than U.S. dollars, the trustee shall 

use the following allocation procedures to calculate the claim of each public customer in 

the futures account class or each public customer in the cleared swaps account class, as 

applicable, when a sovereign action of a foreign government or court has occurred that 

contributes to shortfalls in the amounts of futures customer funds or Cleared Swaps 

Customer Collateral. In the event a sovereign action creates or contributes to a shortfall in 

customer property, applying the allocation convention will result in a reallocation of 

distributions of futures customer funds or Cleared Swaps Collateral to take into account 

the impact of the sovereign action. For purposes of this bankruptcy convention, sovereign 

action of a foreign government or court would include, but not be limited to, the 

application or enforcement of statutes, rules, regulations, interpretations, advisories, 

decisions, or orders, formal or informal, by a federal, state, or provincial executive, 

legislature, judiciary, or government agency. The trustee should perform the allocation 

procedures separately with respect to each public customer in the futures account class or 

cleared swaps account class.

I. Reduction In Distributions For General Shortfall

A. Determination of losses not attributable to sovereign action

1. Convert the claim of each futures customer or Cleared Swaps Customer in each 

currency to U.S. Dollars at the exchange rate in effect on the Final Net Equity 

Determination Date, as defined in §190.01(s) (the “Exchange Rate”).

2. Determine the amount of assets available for distribution to futures customers or 

Cleared Swaps Customers. In making this calculation, include customer funds for futures 

contracts and Cleared Swaps Customer Collateral that would be available for distribution 

but for the sovereign action.

3. Convert the amount of customer funds for futures contracts and Cleared Swaps 

Customer Collateral available for distribution to U.S. Dollars at the Exchange Rate.
Voting Draft – As approved by the Commission on 12/8/2020

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4. Determine the Shortfall Percentage that is not attributable to sovereign action, as 

follows:

Shortfall Percentage = ( 1- [

Total Customer Assets

] )

Total Customer Claims

B. Allocation of Losses Not Attributable to Sovereign Action 

1. Reduce the claim of each futures customer or Cleared Swaps Customer by the 

Short fall Percentage.

II. Reduction in Distributions for Sovereign Loss

A. Determination of Losses Attributable to Sovereign Action (“Sovereign Loss”)

1. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

required to be kept in U.S. dollars in the U.S., that portion of the claim is not exposed to 

Sovereign Loss.

2. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in only one location and that location is:

a. The U.S. or a location in which there is no Sovereign Loss, then that portion 

of the claim is not exposed to Sovereign Loss.

b. A location in which there is Sovereign Loss, then that entire portion of the 

claim is exposed to Sovereign Loss.

3. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in only one currency and that currency is:

a. U.S. dollars or a currency in which there is no Sovereign Loss, then that 

portion of the claim is not exposed to Sovereign Loss.

b. A currency in which there is Sovereign Loss, then that entire portion of the 

claim is exposed to Sovereign Loss.

4. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to he kept in more than one location and:

a. There is no Sovereign Loss in any of those locations, then that portion of the 

claim is not exposed to Sovereign Loss.
Voting Draft – As approved by the Commission on 12/8/2020

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467

b. There is Sovereign Loss in one of those locations, then that entire portion of 

the claim is exposed to Sovereign Loss.

c. There is Sovereign Loss in more than one of those locations, then an equal 

share of that portion of the claim will be exposed to Sovereign Loss in each such location.

5. If any portion of the claim of a futures customer or Cleared Swaps Customer is 

authorized to be kept in more than one currency and:

a. There is no Sovereign Loss in any of those currencies, then that portion of 

the claim is not exposed to Sovereign Loss.

b. There is Sovereign Loss in one of those currencies, then that entire portion of 

the claim is exposed to Sovereign Loss.

c. There is Sovereign Loss in more than one of those currencies, then an equal 

share of that portion of the claim will be exposed to Sovereign Loss.

B. Calculation of Sovereign Loss

1. The total Sovereign Loss for each location is the difference between:

a. The total customer funds for futures contracts or Cleared Swaps Customer 

Collateral deposited in depositories in that location and

b. The amount of customer funds for futures contracts or Cleared Swaps 

Customer Collateral in that location that is available to be distributed to futures customers 

or Cleared Swaps Customers, after taking into account any sovereign action.

2. The total Sovereign Loss for each currency is the difference between:

a. The value, in U.S. dollars, of the customer funds for futures contracts or 

Cleared Swaps Customer Collateral held in that currency on the day before the sovereign 

action took place and

b. The value, in U.S. dollars, of the customer funds for futures contracts or 

Cleared Swaps Customer Collateral held in that currency on the date of the calculation.

C. Allocation of Sovereign Loss

1. Each distribution on account of the claim of a futures customer or Cleared Swaps 

Customer exposed to Sovereign Loss in a location will be reduced by:

Total Sovereign Loss x

Portion of the customer’s claim exposed to loss in that 

location

All portions of customer claims exposed to loss in that 

location
Voting Draft – As approved by the Commission on 12/8/2020

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2. Each distribution on account of the claim of a futures customer or Cleared Swaps 

Customer exposed to Sovereign Loss in a currency will be reduced by:

Total Sovereign Loss x

Portion of the customer’s claim exposed to loss in that 

currency

All portions of customer claims exposed to loss in that 

currency

3. A distribution to a futures customer or Cleared Swaps Customer exposed to 

Sovereign Loss in a location or currency will not be reduced below zero. (The above 

calculations might yield a result below zero where the FCM kept more customer funds for 

futures contracts or Cleared Swaps Customer Funds in a location or currency than it was 

authorized to keep.)

4. Any amount of Sovereign Loss from a location or currency in excess of the total 

amount of customer funds for futures contracts or Cleared Swaps Customer Funds 

authorized to be kept in that location or currency (calculated in accord with section II.1 

above) (“Total Excess Sovereign Loss”) will be allocated among all futures customers or 

Cleared Swaps Customer that have authorized funds to be kept outside the U.S., or in 

currencies other than U.S. dollars, with each such futures customer or Cleared Swaps 

Customer distribution reduced by the following amount:

Total Excess Sovereign 

Loss x

This customer’s total claim – The portion of 

this Customer’s claim required to be kept in 

U.S. dollars, in the U.S.

Total customer claims – Total of all 

customer claims required to be kept in U.S. 

dollar, in the U.S.

The following examples illustrate the operation of this convention. 

Example 1. No shortfall in any location.

Customer Claim Location(s) customer has consented to having funds held

A $50 U.S.

B €50 U.K.

C €50 Germany

D £300 U.K.
Voting Draft – As approved by the Commission on 12/8/2020

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469

Location Actual asset balance

U.S. $50

U.K. £300

U.K. €50

Germany €50

Note: Conversion Rates: £1 = $1; £1=$1.5.

Convert the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. 

Dollars:

Customer Claim Conversion rate Claim in U.S. dollars

A $50 1.0 $50

B €50 1.0 50

C €50 1.0 50

D £300 1.5 450

Total $600

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversion 

rate

Assets in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $50 1.0 $50 $50

U.K. £300 1.5 450 450

U.K. €50 1.0 50 50

Germany €50 1.0 50 50

Total $600 0 $600

There are no shortfalls in funds held in any location. Accordingly, there will be no reduction in 

distributions to holders of futures or Cleared Swaps Customer claims.

Claims:

Customer

Claim in U.S. dollars after 

allocated non-sovereign 

shortfall

Allocation of shortfall 

due to sovereign action

Distributions after 

all reductions

A $50 $0 $50

B 50 0 50

C 50 0 50

D 450 0 450

Total $600 $0 $600

Example 2. Shortfall in funds held in the U.S.
Voting Draft – As approved by the Commission on 12/8/2020

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Customer Claim Location(s) customer has consented to having funds held

A $100 U.S.

B €50 U.K.

C €100 U.S., Germany, or Japan

Location Actual asset balance

U.S. $50

U.K. €100

Germany €50

Note: Conversion Rates: €1=$1.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

There is a shortfall in the funds held in the U.S. such that only 1/2 of the finds are available. 

Convert the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. 

Dollars:

Convert each customer’s claim in each currency to U.S. Dollars:

Customer Claim Conversion rate Claim in US$

A $100 1.0 $100

B €50 1.0 50

C €100 1.0 100

Total $250

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversion 

rate

Assets in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $50 1.0 $50 $50

U.K. €100 1.0 100 100

Germany €50 1.0 50 50

Total $200 $200

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1–(200/250)) = (1–80%) = 20%.

Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage:

Customer Claim in 

US$

Allocation shortfall 

(non-sovereign)

Distribution in U.S. dollars 

after allocated shortfall

A $100 $20 $80

B 50 10 40

C 100 20 80

Total $250 $50 $200
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

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REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION

There is no shortfall due to sovereign action. Accordingly, distributions to holders of futures or 

Cleared Swaps Customer claims will not be further reduced.

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of

sovereign shortfall

Allocation of shortfall 

due to sovereign action

Distribution after 

all reductions

A $80 $80

B 40 40

C 80 80

Total $200 $0 $200

Example 3. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, not due to 

sovereign action.

Customer Claim Location(s) customer has consented to having funds held

A $150 U.S.

B €100 U.K.

C €50 Germany

D $100 U.S.

D €100 U.K. or Germany

Location Actual asset balance

U.S. $250

U.K. €50

Germany €100

Note: Conversion Rates: €1=$1.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

Convert the claim of each futures customer or Cleared Swaps Customer in each currency to U.S. 

Dollars:

Customer Claim Conversion rate Claim in US$

A $150 1.0 $150

B €100 1.0 100

C €50 1.0 50

D $100 1.0 100

D €100 1.0 100

Total $500
Voting Draft – As approved by the Commission on 12/8/2020

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Determine assets available for distribution to futures customers or Cleared Swaps 

Customers, converting to U.S. dollars:

Location Assets Conversion 

rate

Assets in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $250 1.0 $250 $250

U.K. €50 1.0 50 50

Germany €100 1.0 100 100

Total $400 $0 $400

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1–400/500) = (1–80%) = 20%.

Reduce each distribution to the holder of a futures customer or Cleared Swaps Customer by the 

Shortfall Percentage:

Customer Claim in 

US$

Allocation shortfall 

(non-sovereign)

Distribution in U.S. dollars 

after allocated shortfall

A $150 $30 $120

B 100 20 80

C 50 10 40

D 200 40 160

Total $500 $100 $400

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION

There is no shortfall due to sovereign action. Accordingly, the distributions will not be further 

reduced.

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of

sovereign shortfall

Allocation of shortfall 

due to sovereign action

Distribution after 

all reductions

A $120 $120

B 80 80

C 40 40

D 160 0 160

Total $400 $0 $400

Example 4. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due to 

sovereign action.

Customer Claim Location(s) customer has consented to having funds held

A $50 U.S.

B €50 U.K.
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473

C €50 Germany

D $100 U.S.

D €100 U.K. or Germany

Location Actual asset balance

U.S. $150

U.K. 100

Germany 100

Notice: Conversion Rates: €1 = $1; ¥1 = $0.01, £1 = $1.5.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. Dollars:

Customer Claim Conversion rate Claim in US$

A $50 1.0 $50

B €50 1.0 50

C €50 1.0 50

D $100 1.0 100

D €100 1.0 100

Total $350

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversion 

rate

Assets in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $150 1.0 $150 $150

U.K. €100 1.0 100 100

Germany €100 1.0 100 50% 50 50

Total $350 $50 $300

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1–350/350) = (1–100%) = 0%.

Reduce each distribution to the holder of a futures customer or Cleared Swaps Customer claim by 

the Shortfall Percentage:

Customer Claim in US$ Allocation shortfall 

(non-sovereign)

Distribution in U.S. dollars 

after allocated shortfall

A $50 $0 $50

B 50 0 50

C 50 0 50

D 200 0 200

Total $350 $0 $350
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

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REDUCTION IN DISTRIBUTIONS FOR DUE TO SOVEREIGN ACTION 

Due to sovereign action, only 1/2 of the funds in Germany are available.

Customer Presumed location of funds

U.S. U.K. Germany

A $50

B $50

C $50

D 100 100

Total $150 $50 $150

Calculation of the allocation of the shortfall due to sovereign action—Germany ($50 shortfall to be 

allocated):

Customer Allocation 

share

Allocation share of 

actual shortfall

Actual shortfall 

allocated

C $50/$150 33.3% of $50 $16.67

D $100/$150 66.7% of $50 33.33

Total $50.00

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of

sovereign shortfall

Allocation of shortfall 

due to sovereign action 

from Germany

Distribution after 

all reductions

A $50 $50

B 50 50

C 50 $16.67 33.33

D 200 33.33 166.67

Total $350.00 $50.00 $300.00

Example 5. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due 

to sovereign action and a shortfall in funds held in the U.S.

Customer Claim Location(s) customer has consented to having funds held

A $100 U.S.

B €50 U.K.

C €150 Germany

D $100 U.S.

D £300 U.K.

D €150 U.K. or Germany

Location Actual asset balance

U.S. $100

U.K. £300

U.K. €200

Germany €150
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

475

Conversion Rates: €1 = $1; £1 = $1.5.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. Dollars:

Customer Claim Conversion rate Claim in US$

A $100 1.0 $100

B €50 1.0 50

C €150 1.0 150

D $100 1.0 100

D £300 1.5 450

D €150 1.0 150

Total $1000

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversion 

rate

Assets 

in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $100 1.0 $100 $100

U.K. £300 1.5 450 450

U.K. €200 1.0 200 200

Germany €150 1.0 150 100% $150 0

Total $900 $150 $750

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1 – 900 / 1000) = (1 – 90%) = 10%.

Reduce each distribution to the holder of a futures customer or Cleared Swaps Customer claim by 

the Shortfall Percentage:

Customer Claim in 

US$

Allocation shortfall 

(non-sovereign)

Distribution in U.S. dollars 

after allocated shortfall

A $100 $10 $90

B 50 5 45

C 150 15 135

D 700 70 630

Total $1000 $100 $900
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

476

REDUCTION IN DISTRIBUTIONS FOR SHORTFALL DUE TO SOVEREIGN ACTION

Due to sovereign action, none of the money in Germany is available.

Customer Presumed location of funds

U.S. U.K. Germany

A $100

B $50

C $150

D 100 450 150

Total $200 $500 $300

Calculation of the allocation of the shortfall due to sovereign action Germany ($150 shortfall to be 

allocated):

Customer Allocation 

share

Allocation Share of actual 

shortfall

Actual shortfall 

allocated

C $150/$300 50% of $150 $75

D $150/$300 50% of $150 75

Total $150

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of 

sovereign shortfall

Allocation of shortfall 

due to sovereign action 

from Germany

Distributions 

after all 

reductions

A $90 $90

B 45 45

C 135 $75 60

D 630 75 555

Total $900 $150 $750

Example 6. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollars, due 

to sovereign action, shortfall in funds held outside the U.S., or in a currency other than U.S. 

dollars, not due to sovereign action, and a shortfall in funds held in the U.S.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

477

Customer Claim Location(s) customer has consented to having funds held

A $50 U.S.

B €50 U.K.

C $20 U.S.

C €50 Germany

D $100 U.S.

D £300 U.K.

D €100 U.K., Germany, or Japan

E $80 U.S.

E ¥10,000 Japan

Location Actual asset balance

U.S. $200

U.K. £200

U.K. €100

Germany €50

Japan ¥10,000

Conversion Rates: £1 = $1; ¥1 = $0.01, £1 = $1.5.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. Dollars:

Customer Claim Conversion rate Claim In US$

A $50 1.0 $50

B €50 1.0 50

C $20 1.0 20

C €50 1,0 50

D $100 1.0 100

D €300 1.5 450

D £100 1.0 100

E $80 1.0 80

E ¥10,000 0.01 100

Total $1000

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversio

n rate

Assets in 

U.S. 

dollars

Shortfall 

due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign

action

Amount 

actually 

available

U.S. $200 1.0 $200 $200

U.K. £200 1.5 300 300

U.K. €100 1.0 100 100

Germany €50 1.0 50 100% $50 0

Japan ¥10,000 0.01 100 50% 50 50

Total $750 $100 $650

Determine the percentage of shortfall that is not attributable to sovereign action: 

Shortfall Percentage = (1=750/1000) = (1=75%) = 25%.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

478

Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage:

Customer Claim in US$ Allocation shortfall 

(non-sovereign)

Distributions in U.S. dollars 

after allocated shortfall

A $50 $12.50 $37.50

B 50 12.50 37.50

C 70 17.50 52.50

D 650 162.50 487.50

E 180 45.00 135.00

Total $1000.00 $250.00 $750.00

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION

Due to sovereign action, none of the money in Germany and only 1/2 of the funds in Japan are 

available.

Customer

Presumed location of funds

U.S. U.K. Germany Japan

A $50

B $50

C 20 $50

D 100 450 50 $50

E 80 100

Total $250 $500 $100 $150

Calculation of the allocation of the shortfall due to sovereign action—Germany ($50 shortfall to be 

allocated):

Customer 

Allocation

Allocation 

share

Allocation Share of 

actual shortfall Actual shortfall allocated

C $50/$100 50% of $50 $25

D 50/100 50% of 50 25

Total 50

Japan ($50 shortfall to be allocated):

Customer 

Allocation

Allocation 

share

Allocation Share of 

actual shortfall Actual shortfall allocated

D $50/$150 33.3% of $50 $16.67

E 100/150 66.6% of 50 33.33

Total $50.00
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

479

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of

sovereign shortfall

Allocation of 

shortfall due to 

sovereign action 

from Germany

Allocation of 

shortfall due to 

sovereign action 

from Japan

Distributi

on after 

all 

reductions

A $37.50 37.50

B 37.50 37.50

C 52.50 $25 27.50

D 487.50 $25 16.67 445.83

E 135.00 33.33 101.67

Total $750.00 $50.00 $50.00 $650.00

Example 7. Shortfall in funds held outside the U.S., or in a currency other than U.S. dollar, due to 

sovereign action, where the FCM kept more funds than permitted in such location or currency.

Customer Claim Location(s) customer has consented to having funds held

A $50 U.S.

B 50 U.S.

B €50 U.K.

C €50 Germany

D 100 U.S.

C €100 U.K. or Germany

E 50 U.S.

E €50 U.K.

Location Actual asset balance

U.S. $250

U.K. €50

Germany €200

Conversion Rates: 1 = $1.

REDUCTION IN DISTRIBUTIONS FOR GENERAL SHORTFALL

Convert each futures customer or Cleared Swaps Customer claim in each currency to U.S. Dollars:

Customer Claim Conversion rate Claim in US$

A $50 1.0 $50

B 50 1.0 50

B €50 1.0 50

C €50 1.0 50

D €100 1.0 100

D €100 1.0 100

E 50 1.0 50

E €50 1.0 50

Total 500.00
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

480

Determine assets available for distribution to futures customers or Cleared Swaps Customers, 

converting to U.S. dollars:

Location Assets Conversion 

rate

Assets in 

U.S. 

dollars

Shortfall due 

to sovereign 

action 

percentage

Actual 

shortfall due 

to sovereign 

action

Amount 

actually 

available

U.S. $250 1.0 $250 $250

U.K. €50 1.0 50 50

Germany €200 1.0 200 100% 200 0

Total $500 $200 $300

Determine the percentage of shortfall that is not attributable to sovereign 

Shortfall Percentage = (1–500/500) = (1–100%) = 0%.

Reduce each distribution to the holder of a futures or Cleared Swaps Customer claim by the 

Shortfall Percentage:

Customer Claim in 

US$

Allocation shortfall (nonsovereign)Disttribution in U.S. dollars 

after allocated shortfall

A $50 $0 $50

B 100 0 100

C 50 0 50

D 200 0 200

E 100 0 100

Total $500 $0 $500

REDUCTION IN DISTRIBUTIONS DUE TO SOVEREIGN ACTION

Due to sovereign action, none of the money in Germany is available.

Customer

Presumed location of funds

U.S. U.K. Germany

A $50

B 50 50

C 50

D 100 100

E 50 50

Total $250 $100 $150

Calculation of the allocation of the shortfall due to sovereign action—Germany ($200 shortfall to 

be allocated):

Customer

Allocation 

share

Allocation Share of 

actual shortfall

Actual shortfall 

allocated

C $50/$150 33.3% of $200 $66.67

D $100/$150 66.7% of $200 $133.33

Total $200.00

This would result in the distributions to customers C and D being reduced below zero.
Voting Draft – As approved by the Commission on 12/8/2020

(subject to technical corrections)

481

Accordingly, the distributions to customer C and D will only be reduced to zero, or $50 allocated 

to C and $100 allocated to D. This results in a Total Excess Shortfall of $50.

Actual 

shortfall

Allocation of shortfall 

for customer C

Allocation of shortfall 

for customer D

Total excess 

shortfall

$200 $50 $100 $50

This shortfall will be allocated among the remaining futures customers or Cleared Swaps 

Customers who have authorized funds to be held outside the U.S. or in a currency other than U.S. 

dollars.

Customer

Total claims 

of customers 

permitting 

funds to be 

held outside 

the U.S.

Portion of 

claim 

required to 

be in the 

U.S.

Allocation share 

(column BC/column B 

Total—all 

customer claims 

in U.S.)

Allocation 

share of 

actual total 

excess 

shortfall

Actual 

total 

excess 

shortfall 

allocated

B $100 $50 $50/$200 25% of $50 $12.50

C 50 0 (1) 0

D 200 100 $100/200 50% of $50 25

E 100 50 50/100 25% of $50 12.50

Total $450.00 $50.00

1

Claim already reduced to $0.

DISTRIBUTIONS AFTER REDUCTIONS

Customer

Distribution in US$ 

before allocation of

sovereign shortfall

Allocation of 

shortfall due to 

sovereign action 

Germany

Allocation of 

total excess 

shortfall

Distribution 

after all 

reductions

A $50 $50.00

B 100 12.50 87.50

C 50 50 0

D 200 100 25 75.00

E 100 12.50 87.50

Total $500.00 $150.00 $50.00 $300.00