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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: Notice of proposed rulemaking.

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

proposing amendments to its regulations governing bankruptcy proceedings of 

commodity brokers in part 190. The proposed amendments are meant to 

comprehensively update part 190 to reflect current market practices and lessons learned 

from past commodity broker bankruptcies. 

DATES: Comments must be received on or before [INSERT DATE 90 DAYS 

AFTER DATE OF APPROVAL OF THE PROPOSAL BY THE COMMISSION].

ADDRESSES: You may submit comments, identified by “Part 190 Bankruptcy 

Regulations” and RIN number 3038-AE67, by any of the following methods:

• CFTC Comments Portal: https://comments.cftc.gov. Select the “Submit 

Comments” link for this rulemaking and follow the instructions on the Public 

Comment Form.

• Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity 

Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, DC 20581.

• Hand Delivery/Courier: Follow the same instructions as for Mail, above.
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Please submit your comments using only one of these methods. To avoid possible 

delays with mail or in-person deliveries, submissions through the CFTC Comments 

Portal are encouraged.

All comments must be submitted in English, or if not, accompanied by an English 

translation. Comments will be posted as received to https://comments.cftc.gov. You 

should submit only information that you wish to make available publicly. If you wish the 

Commission to consider information that you believe is exempt from disclosure under the 

Freedom of Information Act (FOIA), a petition for confidential treatment of the exempt 

information may be submitted according to the procedures established in § 145.9 of the 

Commission’s regulations.1

The Commission reserves the right, but shall have no obligation, to review, prescreen, filter, redact, refuse or remove any or all of your submission from 

https://comments.cftc.gov that it may deem to be inappropriate for publication, such as 

obscene language. All submissions that have been redacted or removed that contain 

comments on the merits of the rulemaking will be retained in the public comment file and 

will be considered as required under the Administrative Procedure Act and other 

applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Chief 

Counsel and Senior Advisor, 202-418-5092, rwasserman@cftc.gov or Kirsten Robbins, 

Associate Director, 202-418-5313, krobbins@cftc.gov, Division of Clearing and Risk;

Andrée Goldsmith, Special Counsel, 202-418-6624, agoldsmith@cftc.gov or Carmen 

 1 17 CFR 145.9. Commission regulations referred to in this release are found at 17 CFR chapter I (2019), 

and are accessible on the Commission’s website at 

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
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Moncada-Terry, Special Counsel, 202-418-5795, cmoncadaterry@cftc.gov, Division of 

Swap Dealer and Intermediary Oversight, in each case at the Commodity Futures Trading 

Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. 

Table of Contents

I. Background

A. The Part 190 Subcommittee Proposal

B. Background of the NPRM

II. Proposed 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 Allowed 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
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8. Regulation 190.18: Treatment of property

9. Regulation 190.19: Support of Daily Settlement

D. Appendix A Forms

E. Appendix B Forms

F. Technical Corrections to Other Parts

1. Part 1

2. Part 4

3. Part 41

III. Revisions proposed by the ABA Committee that have not been proposed by 

the Commission.

IV. Cost-Benefit Considerations

A. Introduction

B. Baseline

C. Overarching Concepts

1. Changes to Structure of Industry

2. Trustee Discretion

3. Cost Effectiveness and Promptness versus Precision

4. Unique Nature of Bankruptcy Events

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

6. Request for Comment

D. 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

4. Section 15(a) Factors—Subpart A

E. 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 Allowed Net Equity

7. Regulation 190.09: Allocation of Property and Allowance of Claims
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8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants 

during Business as Usual

9. Section 15(a) Factors—Subpart B

F. 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: Prohibitions 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

10. Section 15(a) Factors—Subpart C

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

H. Antitrust Considerations

V. Related Matters

A. Regulatory Flexibility Act

B. 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. 

While there have been a number of rulemakings that have amended part 190 in light of 

specific issues or statutory changes, this is the first comprehensive revision of part 190. 

The Commission is proposing to revise part 190 comprehensively in light of several 

major changes to the industry over the past 37 years, including the exponential growth in 

the speed of transactions and trade processing. In addition, important lessons have been 

learned over prior bankruptcies, including the need for administrative arrangements that 

are specific to the circumstances of the individual bankruptcy and the success of an 

approach, consistent with applicable statutes, that prioritizes cost effectiveness and 

promptness over precision.2

 Finally, derivatives clearing organizations (“DCOs”) have 

become increasingly important to the financial system.

In proposing 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) that certain cash,securities, other property, or commodity

contracts are to be included in or excluded from customer property

or member property;

 2 The concept of prioritizing cost effectiveness and promptness over precision is discussed in detail in 

overarching concept three in the cost-benefit considerations, section IV.C.3 below.
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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 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 title 11;  and

5) how the net equity of a customer is to be determined.3

In developing this rulemaking, the Commission benefited from outside 

contributions. 

On September 29, 2017, the Part 190 Subcommittee of the Business Law Section 

of the American Bar Association (“ABA Committee”) submitted a model set of part 190 

rules (the “ABA Submission”) in response to the Commission’s Project KISS (“Request 

for Information”).4

As the ABA Committee noted, 

The [part 190 regulations] have generally served the industry, bankruptcy 

professionals and customers well. That said, the [ABA] Committee 

believes there is a need to update [p]art 190 in a comprehensive manner, 

as the markets – and how they are regulated – have changed dramatically 

in the intervening decades. At the same time, it is important to stay true to 

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

4 82 FR 23765 (May 3, 2017). The ABA Submission can be found at: 

https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61331&SearchText; the 

accompanying cover note (“ABA Cover Note”) can be found at:

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

The ABA Cover Note cautions that “[t]he views expressed in this letter, and the proposed Model Part 190 

Rules, are presented on behalf of the [ABA] Committee. 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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the sound conceptual elements of the existing rules with respect to account 

class distinctions, porting of customer positions, and pro rata distribution 

of customer property by account class, with priority given to public 

customers. The Committee was also spurred to act by the MF Global and 

Peregrine Financial Group bankruptcies, and the lessons they revealed on 

the challenges of liquidating a large [futures commission merchant 

(“FCM”)] that is severely under-segregated.5

The ABA Committee started its work in 2015, conducting a review of the 

Commission’s part 190 regulations to identify potential areas for improvement, with the 

plan to draft comprehensive revisions in the form of model rules that the Commission 

could consider for potential agency rulemaking. The ABA Committee included

participants who represented a broad cross-section of interested parties, in particular 

attorneys who work extensively in the areas of derivatives law, bankruptcy law, or both, 

including at law firms, futures commission merchants, clearing houses and exchanges, 

government agencies,6 and industry associations. The ABA Committee also included 

attorneys for the trustees in the commodity broker bankruptcy cases of MF Global and 

Peregrine Financial Group, as well as attorneys who were formerly staff at the 

Commission, including one of the drafters of the original rules.

7

 Each of the members 

devoted significant amounts of time to this project.

 5 ABA Cover Note at 2.

6 The Committee members included staff at government agencies other than the Commission. Current 

Commission staff participated in a few meetings of the Committee (in the form of “brainstorming 

exercises”) to discuss their understanding of the current regulations. Commission staff “expressly 

conveyed that they did not want to direct the Committee’s deliberations, and they were careful not to offer 

comments that could be construed as trying to persuade the Committee to any particular viewpoint on any 

particular issue. They were also clear that their comments did not represent the views of the Commission, 

or of anyone other than the person expressing them.” ABA Cover Note at 3 n. 5.

7 See generally id. at 3.
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The resulting ABA Submission represents a consensus across this broad range of 

interests, thoughtfully and comprehensively addressing the issues presented in part 190, 

and assisting the Commission in developing a deeper understanding of the practical 

issues involved in commodity broker bankruptcy proceedings. Today’s notice of 

proposed rulemaking (“NPRM”) has benefited significantly from the ABA Submission, 

as well as conversations between Commission staff and members of the ABA 

Committee, both individually and collectively, to understand their thinking with respect 

to various aspects of the ABA Submission. 

B. Major themes in the proposed revisions to part 190

While the proposed revised part 190 carries forward significant portions of 

existing part 190, there are important changes that are proposed. The major themes in 

changes to part 190 include the following:

1) The Commission is proposing to add § 190.00, which is designed to set 

out the statutory authority, organization, core concepts, scope, and rules of 

construction for part 190. This section is intended to set out, subject to 

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,8 and the public at large.

2) Some of the changes would further 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, established in title 11 

 8 Including bankruptcy and SIPA trustees, as well as the FDIC in its role as a receiver.
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of the United States Code (i.e., the “Bankruptcy Code”), section 766(h), 

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 changes would 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.9 Some of the benefits, for both customers and the markets as a 

whole, arising from this policy are addressed in the discussion of proposed 

§ 190.00(c)(4) in section II.A.1 below. 

4) The Commission is proposing a new subpart C to part 190, governing the 

bankruptcy of a clearing organization. As explained in further detail in 

connection with proposed § 190.11, the Commission is proposing to 

establish 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 clear counterfactual (i.e., “what would creditors 

receive in a liquidation in bankruptcy?”) in the event of a resolution of a 

clearing organization pursuant to Title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act10 (hereinafter, “Title II” and “Dodd-

 9 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); see also 

current § 190.06(g) (approving a wide variety of pre-relief and post-relief transfers).

10 P.L. 111-203 (July 21, 2010).
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Frank”).

11 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.12 These rules, procedures, and plans 

will, in most cases,13 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.

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

part of daily settlement (including both daily variation payments 

and default resources) should be devoted to that purpose, rather than 

to the general estate.14

 11 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. 

12 See generally proposed § 190.15.

13 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).

14 See generally proposed § 190.19.
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c. Third, other provisions would draw, with appropriate adaptations, 

from provisions applicable to FCMs.15

5) The Commission is proposing to note 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,16 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) In light of lessons learned from the MF Global bankruptcy, the 

Commission is proposing 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 discussed in 

proposed § 190.00(c)(5) in section II.A.1 below, 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 proposing in a number of areas to grant 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, 

 15 See, e.g., proposed §§ 190.16, 190.17(c).

16 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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the hours—after 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 

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

them on an aggregate basis. These changes represent a move 

from a model where the trustee receives/complies with 

instructions from individual 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

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,17 both 

the current and proposed versions of part 190 favor cost 

effectiveness and promptness over precision in certain respects, 

 17 See the overarching concept discussed in section IV.C.3 below.
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particularly with respect to the concept of pro rata treatment. 

Following the policy choice made by Congress in section 766(h) of 

the Bankruptcy Code, the Commission is proposing 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. Doing so fosters transfer rather than 

liquidation of customer positions, and return of most funds to 

customers in time periods of days or weeks rather than months or 

years. Similarly, calculations of each customer’s funded balance 

are directed in proposed § 190.05 to be “as accurate as reasonably 

practicable under the circumstances, including the reliability and 

availability of information.” The quoted language would allow the 

trustee to avoid more precise calculations where such precision 

would not be cost effective or could not reasonably be 

accomplished on a prompt basis (for example, in a situation where 

price information for particular assets or contracts at particular 

times was not readily available). 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).
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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.18

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

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

communication, (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 basis). The proposal would also recognize the change from paperbased to electronic recording of “documents of title.” Many of these 

changes also recognize the actual practice in prior bankruptcies. 

10) As discussed further below, 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 

 18 78 FR 68506 (Nov. 14, 2013). This refers to proposed new § 190.05(f) in section II.B.3 below.
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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 seeks comment on these major themes. Do commenters agree 

or disagree with these themes and the analysis presented? Do commenters view proposed 

revised part 190 as appropriately implementing these major themes, or are some of the 

proposed changes inconsistent with (or does the proposal in some areas insufficiently 

address) these themes? General comments concerning these major themes are welcome, 

however, adding more specific suggestions for changes to the proposed regulations would 

be most helpful. 

II. Proposed Regulations

A. Subpart A—General Provisions19

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

Construction

The Commission is proposing a new § 190.00, which would contain general 

provisions applicable to all of part 190. Proposed § 190.00 is intended to assist trustees, 

bankruptcy courts, customers, clearing members, clearing organizations, and other 

interested parties in understanding the Commission’s rationale for, and intent in 

promulgating, the specific provisions of this proposed part. Moreover, this regulation

may be particularly useful in a time of crisis for those individuals who may not have 

 19 The Commission is proposing technical corrections and updates to parts 1, 4 and 41, which are discussed 

in II.F. below
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extensive experience with the CEA or Commission regulations. This provision generally 

would state facts and concepts that exist in the Commission’s bankruptcy regulations.20

To the extent there are changes reflected in this proposed § 190.00, these changes will be 

identified and the reasoning for these changes will be further detailed in the relevant 

section below. 

Proposed § 190.00(a) would 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 

 20 See ABA Cover Note at 6:

The Committee recommends adding a rule to Subpart A that provides context and sets 

forth the general framework for the Part 190 Rules to assist a trustee or bankruptcy court 

in understanding the reasons for the specific requirements set forth in the other rules. If 

the individual appointed as the trustee, or the bankruptcy court, does not have extensive 

experience with the CEA or CFTC rules, in particular with requirements relating to 

clearing and customer funds segregation, the Part 190 Rules may well prove difficult to 

comprehend, particularly in the critical early days when the trustee is expected to act in

circumstances that are likely chaotic and stressful. This context and description of the 

general framework will also be important to customers and other stakeholders that may 

not have experience with a subchapter IV proceeding.

Thus, the Committee has proposed Rule 190.00, which explains:

• The Commission’s statutory authority to adopt the Part 190 Rules.

• The organization of the rules into the three subparts described above.

• The core principles reflected in the rules.

• The scope of the rules in terms of proceedings, account classes, customer property and

commodity contracts.

Although Rule 190.00 adds to the length of the rules, on balance, we believe it provides 

useful explanation that will benefit trustees, bankruptcy judges, customers and other 

stakeholders applying the rules in practice.
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commodity broker that is a debtor under subchapter IV of chapter 7 of the Bankruptcy 

Code. 

Proposed § 190.00(b) would explain that the proposed part 190 regulations are 

organized into three subparts. Subpart A would contain general provisions applicable in 

all cases. Subpart B would contain provisions that apply when the debtor is a FCM, the 

definition of which includes acting as a foreign FCM.

21 Subpart C would contain 

provisions that apply when the debtor is a DCO as defined by the CEA. 

Proposed § 190.00(c) would present the core concepts22 of proposed part 190. 

These core concepts are central to understanding how a commodity broker bankruptcy 

works. These include those related to commodity brokers and commodity contracts; 

account classes; public customers and non-public customers, Commission segregation 

requirements, and member property23; porting of public customer commodity contract 

positions; pro rata distribution; and deliveries. More specifically, this section would

explain the following concepts:

• Proposed § 190.00(c)(1) would 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.”24 Proposed § 190.00(c)(1) 

 21 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).

22 The Commission is proposing 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). 

23 “Member property” would be defined in proposed § 190.01 and would 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).

24 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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would further state that the rules in proposed part 190 apply to commodity 

brokers that are FCMs as defined by the Act, or DCOs as defined by the 

Act. 

• Proposed § 190.00(c)(2) would 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 would include the (domestic) futures account class (including 

options on futures),25 the foreign futures account class (including options 

on foreign futures),26 the cleared swaps account class for swaps cleared by 

a registered DCO (including cleared options other than options on futures 

or foreign futures),27 and the delivery account class for property held in an 

account designated as a delivery account. Delivery accounts would be

used for effecting delivery under commodity contracts that provide for

settlement via delivery of the underlying when a commodity contract 

would be held to expiration or, in the case of an option on a commodity, 

would be exercised.

28 

• Proposed § 190.00(c)(3)(i) would explain that in a bankruptcy, public 

customers are generally entitled to a priority distribution of cash, 

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

26 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).

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

28 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.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

20

securities, or other customer property over “non-public customers,”29 and 

both are given a priority over all other claimants (except for claims 

relating to the administration of customer property) pursuant to section 

766(h) of the Bankruptcy Code.30 That provision of the Code states 

explicitly that 

the trustee shall distribute customer 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. 

As noted in proposed § 190.00(c)(3)(i)(A), the cash, securities, or other 

property of public customers are subject to special segregation 

requirements under the CEA31 and Commission regulations32 for each 

class of account except delivery accounts. Although the transactions and 

property of non-public customers are not subject to segregation 

requirements, such transactions and property are deemed part of customer 

property. In the distribution of customer property, customer net equity 

 29 Non-public customers are customers who bear certain proprietary or other “insider” relationships to an 

FCM. This term would be more precisely defined in § 190.01.

30 Thus, as discussed further below, 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 would be allocated to non-public customers’ net equity 

claims until all of those are fully funded. 

31 See, e.g., section 4d of the CEA, 7 U.S.C. 6d.

32 See, e.g., §§ 1.20-1.29, part 22, § 30.7.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

21

claims of public customers are prioritized over those of non-public 

customers. 

As noted in proposed § 190.00(c)(3)(i)(B), the property in delivery 

accounts nonetheless constitutes “customer property,” and thus claims of 

public customers enjoy the same priority over claims of non-public 

customers in the distribution of delivery account property.

• Proposed § 190.00(c)(3)(ii) would address the division of customer 

property and member property in proceedings in which the debtor is a 

clearing organization.

o the classification of customers as non-public customers in contrast 

to public customers also would be relevant, in that each member of 

the clearing organization would have separate claims against the 

clearing organization with respect to (A) transactions cleared for 

its own account or for any of its non-public customers and (B) 

transactions cleared on behalf of the public customers of the 

member. In such a proceeding, customer property would consist of 

member property, which could be distributed to pay member 

claims based on members’ house accounts, and customer property 

other than member property, which would be reserved for payment 

of claims for the benefit of members’ public customers. 

• Proposed § 190.00(c)(3)(iii) would address preferential assignment of 

property among customer classes and account classes in clearing 

organization bankruptcies:
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

22

o Certain customer property, as specified in § 190.18(c), would be

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 also would 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.

o Where property would be assigned to a particular customer class 

with more than one account class, it would be assigned on a least 

funded to most funded basis among the account classes. 

• Proposed § 190.00(c)(4) would 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”) open commodity contract 

positions of the debtor’s customers along with all or a portion of such 

customers’ account equity. 

o Porting 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 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

23

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 reestablishing 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). 

• Proposed § 190.00(c)(5) would address pro rata distribution. It would

explain 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 would 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 would ensure 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.33 

 33 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. below.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

24

Moreover, any customer property that would not be 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, would be distributed 

to public customers in respect of net equity claims in other 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.

• Proposed § 190.00(c)(6) would address deliveries. It would explain 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. 34

In a proceeding in which the debtor is an FCM, the delivery provisions in 

proposed part 190 would reflect the policy preferences (A) to liquidate 

commodity contracts that settle via delivery before they move into a 

 34 See ABA Cover Note at 12 (“It is important to address deliveries to avoid disruption to the cash market 

for the commodity or adverse consequences to parties that may be relying on delivery taking place in 

connection with their business operations.”).
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

25

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).

Proposed § 190.00(d)(1)(i) would acknowledge that 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. However, since there are no commodity options

dealers or leverage transaction merchants currently registered,

35 in proposed 

§ 190.00(d)(1), the Commission would declare 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. 

Proposed § 190.00(d)(1)(ii) would provide that, pursuant to the Securities Investor 

Protection Act (“SIPA”),

36 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 Code, to the extent consistent with SIPA or as ordered by 

the court.37 This part would implement subchapter IV of chapter 7 by establishing the 

 35 See ABA Cover Note at 5 (“To our knowledge, no person is currently registered or operating as a 

commodity option dealer or leverage transaction merchant. ... Thus, we recommend uncluttering the rules 

by limiting their scope to subchapter IV proceedings of commodity brokers that are FCMs or DCOs, with 

respect to commodity contracts that are cleared.”).

36 15 U.S.C. 78aaa, et. seq.

37 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 . . . .”).
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

26

trustee’s duties thereunder, consistent with the broad authority granted to the Commission

pursuant to section 20 of the CEA. Therefore, this part also would apply 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 193438 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)39 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 entity40 that is 

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

IV. Proposed § 190.00(d)(1)(iii) would explain that this part shall serve as guidance with 

respect to 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.41

Proposed § 190.00(d)(2)(i) would clarify that a trustee may not recognize any

account classes not explicitly provided for in proposed part 190. 

Proposed § 190.00(d)(2)(ii) would provide that no property that would otherwise 

be included in customer property, as defined in proposed § 190.01 of this part, shall be 

excluded from customer property because it is considered to be held in a constructive

 38 15 U.S.C. 78o.

39 12 U.S.C. 5390(m)(1)(B).

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

company or bridge financial company.”

41 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 4/14/2020

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27

trust, resulting trust, or other trust that is implied in equity.

42 Generally, in a commodity 

broker bankruptcy, the basis for distributing segregated customer property is pro rata 

treatment and transparency. To achieve this goal, the FCM’s segregation records 

(including account statements) and reporting to the Commission and self-regulatory 

organizations (“SROs”) and DCOs must reflect what is actually available for customers. 

This allows 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 this regulation, 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.

43

 42 This is in contrast to the (ultimately unsuccessful) claims of certain retail customers in the Peregrine 

bankruptcy, who claimed that their off-exchange retail foreign currency transactions and associated margin 

collateral were held in a constructive or resulting trust by Peregrine. An off-exchange retail foreign 

currency transaction is not defined as “commodity contract” under section 761(4) of the Bankruptcy code. 

Accordingly, counterparties that engage in off-exchange retail transactions with an FCM are not subject to 

the protections provided by part 190 with respect to their accounts in the event of the FCM’s bankruptcy. 

See generally Secure Leverage Group, Inc. v. Bodenstein, 558 B.R. 226 (N.D. Ill. 2016) aff’d 866 F.3d 775 

(7th Cir. 2017).

43 The ABA Submission included a more complex approach to this subsection:

Absent extraordinary circumstances and upon application by the trustee (such as to 

address transfers of funds initiated prior to, but completed after, the entry of the order for 

relief), so long as there is any shortfall of customer property needed to satisfy customer 

net equity claims in the classes enumerated in § 190.01 of this part, no person is entitled 

to a distribution of any property in which the debtor holds any interest on the basis that 

the debtor holds such property in a ‘constructive trust’ for such person. The foregoing 

does not restrict any rights a person may have to distribution of property held by the 

debtor that is not covered by an account class on a ‘custodial’ or express trust basis 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

28

Proposed § 190.00(d)(3) would provide that certain transactions, contracts or 

agreements are excluded from the term “commodity contract.” 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 account44

(other than security futures products carried in an enumerated account class); and retail 

commodity 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). The agreements and 

transactions that would be so excluded have traditionally 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.

45

 

pursuant to statute, governmental rule, regulation or order, or legally binding written 

agreement between the debtor and such person.

The Commission concludes that the ABA Submission’s approach here is overly complicated (both in the 

level of detail and, in particular, with relation to evaluating what constitutes “extraordinary 

circumstances”), and has instead determined to propose the more direct approach discussed above.

44 Security-based swaps and securities that are carried in a securities account are part of this exclusion 

because they are protected under SIPA.

45 As the ABA Cover Note explains: 

The Committee believes it is important for the rules to cover cleared OTC transactions in 

contracts that may be outside the swap definition and futures contract classification, such 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

29

Positions or transactions that would be covered by part 190 include:

• As part of the cleared swaps account class (discussed in further detail in 

the definitions section), “swaps” as defined in section 1a(47) of the CEA 

and § 1.3 that are cleared by a DCO, including options on commodities 

cleared by a DCO unless otherwise excluded, and non-swap/non-futures 

contracts that are traded over-the-counter on a swap execution facility and 

cleared by a DCO as if they were swaps (cleared swaps account class).46

• As part of the futures or foreign futures account class (discussed in further 

detail in the definitions section), futures or options on futures executed on 

or subject to the rules of a DCM or FBOT, including retail commodity 

contracts if they were traded on such market “as if” they are futures and 

forward contracts which are cleared by a DCO as if they were futures.47

Proposed § 190.00(e) would address the context in which proposed 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”). Moreover, where they differ, the definitions set 

 

as foreign exchange forwards or foreign exchange swaps excluded by the Treasury 

Department or spot forex transactions, because such transactions are already being 

cleared by DCOs as if they are swaps. It is the Committee’s understanding that the 

DCOs are clearing such OTC transactions under the account structure, and subject to the 

customer funds segregation rules, for cleared swaps prescribed in the CFTC Part 22 

Rules. Thus, we have included such commodity contracts in the cleared swaps account 

class.

ABA Cover Note at 8 (footnote omitted).

46 See the definition of commodity contract in proposed § 190.01in conjunction with the definition of swap 

in proposed § 190.01. 

47 See the definition of commodity contract in proposed § 190.01 in conjunction with the definition of swap 

in proposed § 190.01.
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30

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

761 of the Bankruptcy Code. It should be noted that the other regulations in proposed 

part 190 are designed to be consistent with subchapter IV of chapter 7 of the Bankruptcy 

Code.

Proposed § 190.00(e) also 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 requests comment with respect to all aspects of proposed 

§ 190.00. In particular, is a regulation setting forth core concepts useful? Are the core 

concepts that are addressed under or over inclusive? Are the definitions and discussions 

for each core concept helpful?

2. Regulation 190.01: Definitions

The Commission would update the definitions for proposed revised part 190. The 

current and proposed definitions are in § 190.01. Most of the changes in proposed 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

31

§ 190.01 would be conforming changes, such as correcting cross-references and deleting

definitions of certain terms that are not used in proposed part 190. Other changes would

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 proposing 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 proposed 

part 190. In particular, the Commission is proposing to separate the delivery account 

class into two sub-classes, a physical delivery account class and a cash delivery account 

class; the relevant terms are defined below. The proposed definitions of commodity 

contract and physical delivery property would codify positions that the Commission has 

taken in recent commodity broker bankruptcies.48 

The Commission is also proposing to amend the current § 190.01 to replace the 

paragraphs currently 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., 

§ 1.3.49 

The Commission is proposing the following definitions in proposed § 190.01: 

“Account Class”: 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,” 

 48 Respectively, In Re Peregrine Financial Group and In Re MF Global, Inc.

49 See generally 83 FR 7979, 7979 & n.6 (Feb. 23, 2018).
Voting Draft – As approved by the Commission on 4/14/2020

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32

“leverage accounts,” “delivery accounts,” and “cleared swaps accounts.” The proposed 

definition of the term “account class” would be expanded to include definitions of each of 

these account classes. However, as discussed above with respect to proposed 

§ 190.00(d)(1)(i), the “commodity options” and “leverage account” account classes are

proposed to be removed, at least temporarily.

The definition of “futures account” would cross-reference the definition of the 

same term in § 1.3 of the Act, while the definition of “cleared swaps account” crossreferences the definition of “cleared swaps customer account” in § 22.1. Each of these 

definitions applies 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, a corresponding reference to such accounts at a clearing organization 

would be included, 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)). This 

would not apply to the case where a foreign clearing organization is clearing foreign 

futures for clearing members that are not subject to the requirements of § 30.7.

Paragraph (1)(iv) of the definition of account class would address the delivery 

account class. The delivery account class is relevant when an FCM or DCO establishes 

delivery accounts through which it accounts for the making or taking of physical delivery 

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

in either case in an account designated as a delivery account on the books and records of 

the entity. 
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33

Paragraph (1)(iv)(A)(1) would define delivery accounts for FCMs, and would be

based on current § 190.05(a)(2). Paragraph (1)(iv)(A)(2) would incorporate the same 

concepts for clearing organizations, and also adds in additional concepts. Specifically, a 

clearing organization may act 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 would be

subdivided into separate physical and cash delivery account classes, as provided in 

proposed § 190.06(b).50 Customer property held in a delivery account is not subject to 

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

As the ABA Committee noted:

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.

51

(and such cash would thus be commingled with the FCM’s own cash intended for 

operations). Thus, separating (1) cash delivery property and customer claims therefor 

from (2) physical delivery property and customer claims therefor, would promote the 

more efficient and prompt distribution of the latter to customers.

 50 It should be noted that under the proposed regulations, “physical delivery property” refers to a 

commodity that is held in a form that can be delivered, including, e.g., virtual currencies, and (in contrast to 

current § 190.01(ll)(3)), is not limited to physical (i.e., tangible) commodities.

51 ABA Cover Note at 14. See also In re MF Global Inc., 2012 WL 1424670 (noting how physical delivery 

property was traceable).
Voting Draft – As approved by the Commission on 4/14/2020

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34

For these reasons, the Commission is proposing that the delivery account class be 

further divided into physical delivery and cash delivery account classes, for purposes of 

pro rata distributions to customers for their delivery claims. 

The claims with respect to these subclasses are fixed on the filing date. 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.

Paragraph (2) of the definition of account class would 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 such account 

class. This would take place because the contracts in question are risk-offsetting to 

contracts in the latter account class.52 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). Paragraph (2) would 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.

 52 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 derivatives clearing organization.
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35

Paragraph (3) of the definition of account class would 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 would confirm 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.

“Act” is proposed to be added to the definitions in proposed § 190.01 to refer to 

the Commodity Exchange Act. 

“Allowed net equity” is proposed to be revised to update cross-references and to 

allow for two definitions of the term (as used in subparts B and C of part 190).

“Bankruptcy code” is proposed to be revised to update cross-references.

“Business day” is proposed to be described further by defining what constitutes a 

Federal holiday. The definition also would clarify that the end of a business day is one 

second before the beginning of the next business day. 

“Calendar day” is proposed to be amended to include a reference to Washington, 

DC as the location of the Calendar day.

“Cash delivery account class” is proposed to be cross-referenced to the new 

definition in “account class.”

“Cash delivery property” and “physical delivery property” are proposed to be

added.

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

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

definition of “specifically identifiable property.” Following the suggestion of the ABA 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

36

Committee,53 the Commission is proposing to define directly a delivery account class, 

taking elements of the definition from the current definition of “specifically identifiable 

property,” as discussed below with reference to the proposed changes to that definition.

The proposed regulation will separate delivery property into subcategories, with separate 

definitions of “cash delivery property” and “physical delivery property.” 

Defining these terms would also be relevant for proposed § 190.06, which would 

address the process for making or taking physical delivery under commodity contracts, 

including deliveries that may occur outside a delivery account. 

The proposed definition of cash delivery property would 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 the records of the debtor as having been 

received, from or for the account of a particular 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 proposed definition of physical delivery property includes, 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.

54 The 

definition would note that this includes warehouse receipts, shipping certificates or other 

documents of title (including electronic title documents) for the commodity, or the 

commodity itself. 

 53 See ABA Cover Note at 10.

54 The current definition is found in § 190.01(ll)(3), and focuses on documents of title and physical 

commodities.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

37

Some of the changes in the definition address changes in delivery practices since 

the 1980s. The reference to electronic title documents explicitly would recognize 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.55 

For purposes of analytical clarity, the definition of physical delivery property 

would be separated into four categories: 

First, commodities or documents of title for commodities 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.

56

Second, commodities or documents of title for commodities 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.57 

 55 See ABA Cover Note at 10, 12-13.

56 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 account class.

57 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 proposed definition explicitly would codify that position.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

38

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.58 

This property would be considered physical delivery property solely for the purpose of 

the obligations, pursuant to proposed § 190.06, to make or take delivery of physical 

delivery property. 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 proposed § 190.06(a)(2) 

(either by itself in the case of an FCM bankruptcy or in conjunction with proposed 

§ 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 proposed § 190.06.59 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.

“Cash equivalents” is proposed to be added to define assets that might be 

accepted as a substitute for United States dollar cash.

 58 See ABA Cover Note at 13 (“When 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.”).

59 As noted immediately above, the third and fourth categories of physical delivery property are not part of 

the physical delivery account class. They are included because the Commission is proposing, consistent 

with the suggestion in the ABA Submission for § 190.06 and the ABA Cover Note “to provide more 

specificity than is found in current [§] 190.05 on how to accomplish delivery” where “[o]pen positions ... 

get caught in delivery position where parties incur bilateral contractual obligations.” Id. at 13. This more 

ramified approach to setting out obligations in connection with delivery requires a correspondingly broader 

definition of physical delivery property.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

39

“Cleared swaps account” is proposed to be cross-referenced to the new definition 

in “account class.”

“Clearing organization” is proposed to be revised to update cross-references. 

“Commodity broker” is proposed to be updated to reflect the current definition of 

commodity broker in the Bankruptcy Code and the relevant cross-references.

“Commodity contract” is proposed to be amended to incorporate and extend in 

context (through references to current Commission regulations) the definition in 

section 761(4) of the Bankruptcy Code.60

“Commodity contract account” is proposed to be added to refer to accounts of a 

customer based on commodity contracts in one of the account classes, as well as, for 

purposes of identifying customer property for the foreign futures account class, accounts 

maintained by foreign futures intermediaries or foreign clearing organizations reflecting 

foreign futures. 

“Court” is proposed to be clarified to refer to the court having jurisdiction over 

the debtor’s estate, reflecting that such court may not be a bankruptcy court (e.g., in the 

event of a withdrawal of the reference.)

61

“Cover” is proposed to be reworded to improve clarity; no substantive change is 

intended.

 60 It should be noted that, consistent with proposed § 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.

61 Cf. 28 U.S.C. 157(d).
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

40

“Customer” is proposed to be revised 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.

“Customer claim of record” is proposed to be reworded to improve clarity; no 

substantive change is intended.

“Customer class” is proposed to be revised to reflect the revisions to part 190 

through this rulemaking, specifically emphasizing the difference between public 

customers and non-public customers.

“Customer property, customer estate” is proposed to be updated to clarify crossreferences and to note that customer property distribution is also addressed in § 766(i) of 

the Bankruptcy Code.

“Dealer option” is proposed to be eliminated as this term is no longer used.

“Debtor” is proposed to be revised 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.

“Delivery account” is proposed to be cross-referenced to the new definition in 

“account class.” 

“Distribution” is proposed to be defined to include 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.

“Equity” is proposed to be amended to update a cross-reference. 

“Exchange Act” and “FDIC” definitions are proposed to be added as the 

Commission is taking into account both in these proposed rules.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

41

“Filing Date” is proposed to be revised to include the commencement date for 

proceedings under SIPA or Title II of the Dodd-Frank Act.

62

“Final net equity determination date” is proposed to be revised stylistically, to 

provide updated cross-references, and to further clarify who the parties involved are 

intended to be.

“Foreign board of trade” is proposed to be added, and incorporates by reference 

the definition in § 1.3 (which is consistent with § 48.2(a)).

“Foreign clearing organization” is proposed to be added 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.

“Foreign future” and “Foreign futures commission merchant” are unchanged.

“Foreign futures account” is proposed to be cross-referenced to the new definition 

in “account class.”

“Foreign futures intermediary” is proposed 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.

 62 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 proposal does not define the term “filing date” to 

occur earlier in such a case, although it would (in proposed § 190.02(f), 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., proposed §§ 190.00(c)(4), 190.06(a)(1), 190.06(b)(1), 190.08(b)(4), 

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(a)(3), 15 U.S.C. 78fff-2(b), (c)(1), (d), 78fff-3(a)(3).
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

42

“Funded balance” is proposed to be revised to refer to the definition in proposed 

§ 190.08(c). That definition is discussed further below.

“Futures, futures contract” is proposed to be added to clarify what these terms 

mean for purposes of part 190. 

“Futures account” is proposed to be cross-referenced to the new definition in 

“account class.”

“House account” is proposed to be modified to replace the current definition with 

one that (a) clarifies 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 defines the term in 

relation to an FCM, in relation to a foreign futures commission merchant, and in relation 

to a DCO.

“In-the-money amount” is proposed to be deleted as the term will no longer be 

used. It is proposed to be replaced by “in-the-money,” a term that is Boolean, and is used 

in proposed § 190.04(c). 

“Joint account” is proposed to be edited to reflect the fact that a commodity pool 

must be a legal entity.63 Thus, the reference to a commodity pool that is not a legal entity 

is removed.

“Leverage contract” and “Leverage transaction merchant” are proposed to be 

deleted, consistent with the discussion above with respect to proposed 

§ 190.00(d)(1)(i)(B).

 63 See § 4.20(a)(1). 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

43

“Member property” is proposed to be moved from current § 190.09(a), and 

clarified to note that member property may be used to pay net equity claims based on 

claims on behalf of non-public customers of the member.

“Net equity” is proposed to be revised to update cross-references, including the 

difference between bankruptcy of an FCM and of a clearing organization.

“Non-public customer” and “public customer”: These definitions are 

complements (i.e., every customer is either a public customer or a non-public customer, 

but not both). The Commission is proposing to define who is considered a public versus 

a non-public customer separately for FCMs and for clearing organizations. 

In the case of a customer of an FCM, the proposed regulation would explicitly 

define “public customer.”64 The definition of public customer would be analyzed 

separately for each of the relevant account classes (futures, foreign futures, cleared 

swaps, and delivery) with the relevant cross-references 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 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 

 64 This is in contrast to the current definitions 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 proposed 

change would not be intended to be substantive, but rather would be intended to foster closely tying the 

account classes to business-as-usual segregation requirements.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

44

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. This would tie 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 would be defined as customers that are not public customers. 

As part of the process for introducing a bespoke regime for the bankruptcy of a 

clearing organization, the proposed definitions also would differentiate between public 

and non-public customers for those purposes. Specifically, 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 proprietary member, then the customer would be

treated as a proprietary member.

“Open commodity contract” is proposed to be reworded to improve clarity; no 

substantive change is intended.

“Order for relief” is proposed to be revised to update cross-references and to be 

reworded for stylistic purposes.

“Person” is proposed to be added as a definition to clarify what this term means. 

“Physical delivery account class” is proposed to be cross-referenced to the new 

definition in “account class.”
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

45

“Physical delivery property” See discussion above under “cash delivery 

property.”

“Premium” is proposed to be deleted as that term is no longer used. 

“Primary liquidation date” is proposed to be revised to reflect the removal of the 

concept of accounts being held open for later transfer. As a result of such removal, the 

Commission would also delete current § 190.03(a), which sets forth provisions regarding 

the operation of accounts held open for later transfer, since there will no longer be any 

such accounts. 

“Principal contract” is proposed to be deleted 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.

“Public customer” is discussed under non-public customer.

“Securities Account” and “SIPA” are proposed to be added 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.

“Security” is proposed to be changed to update the cross-reference to the 

Bankruptcy Code.

“Short term obligation” is proposed to be removed as the term is no longer used. 

It would be removed from the definition of specifically identifiable property, and the 

concept of a duration or maturity date of 180 days or less would be stated explicitly in the 

text of that latter definition.

“Specifically identifiable property” The Commission is proposing a new 

definition that updates and streamlines the definition in current § 190.01(ll). 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

46

The proposal in paragraph (1)(i) would focus on “futures accounts,” “foreign 

futures accounts,” and “cleared swaps accounts.” Paragraph (1)(i)(A) of the proposed 

definition corresponds in major part to paragraphs (1) and (6) of the current definition. 

For securities, paragraph (1)(i)(A)(1) of the proposal substantially copies current 

paragraph (1)(i), but would clarify that a security is not a short term obligation when it 

has “a duration or maturity date of more than 180 days.” Paragraph (1)(i)(A)(2) of the 

proposal simply would reformat current paragraph (6). For warehouse receipts, bills of 

lading, or other documents of title (paragraph (i)(B), corresponding to current paragraph

(ii)), the proposal would restate the corresponding portion of the current definition. 

Paragraph (1)(ii) of the definition in the proposal would further the approach of 

providing discretion to the trustee. It would include as specifically identifiable property 

commodity contracts that are treated as such in accordance with proposed § 190.03(c)(2). 

As discussed further below,65 the latter provision would permit (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 (2) of the current definition is more 

prescriptive. It refers to open commodity contracts that meet the following criteria: they 

(A) have not been transferred, (B) are identified on the books and records of the debtor 

FCM as held for the account of a particular customer, and (C) are either bona fide 

 65 See section II.B.1.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

47

hedging positions or transactions as defined in § 1.3 or are commodity option transactions 

that have been determined by the registered entity to be appropriate to the reduction of 

risks in the conduct and management of a commercial enterprise pursuant to rules that 

have been approved by the Commission pursuant to section 5c(c) of the CEA. 

Paragraph (3) of the current definition refers to documents of title, including 

warehouse receipts or bills of lading, or physical commodities that, as of the filing date, 

can be identified on the books and records of the debtor as received from or for the 

account of a particular customer as held specifically for the purpose of delivery or 

exercise. These types of property, to the extent included in the debtors estate, would be

transposed in the proposed regulations to paragraphs (1) through (3) of the definition of 

physical delivery property, in this proposed § 190.01, above, and discussed in that 

context.

Paragraph (4) of the current definition refers to cash or other property deposited 

prior to the entry of the order for relief to pay for the taking of physical delivery on a long 

commodity contract, or the payment of the strike price upon exercise of a short put or a 

long call option contract on a physical commodity. Correspondingly, paragraph (5) of 

the current definition refers to the cash price tendered, for property deposited prior to the 

entry of the order for relief, where such property (i) has been deposited to make physical 

delivery on a short commodity contract, or for exercise of a long put or a short call option 

contract on a physical commodity, and (ii) is identified on the books and records of the 

debtor as received from or for the account of a particular customer on or after three 

calendar days before the first notice date (for delivery) or exercise date (for exercise). In 

either case, current paragraph (5) requires the customer to make delivery or exercise the 
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

48

option in accordance with the applicable contract market rules. These items both refer to 

cash, which is fungible, and thus are excluded from the definition of specifically 

identifiable property, but are instead proposed to be addressed in the definition of cash 

delivery property, the proper treatment of which is addressed in proposed 

§ 190.06(a)(3)(i)(B), discussed below.

Current paragraph (7), which refers to open commodity contracts that have been 

transferred, would be deleted, in that open commodity contracts that have been 

transferred are no longer part of the debtor’s estate, and thus no longer subject to 

liquidation as part of a bankruptcy. While the customer may well have to provide margin 

to the transferee in order to collateralize the contract, that requirement does not deny the 

customer the protection applicable to specifically identifiable property.

Current paragraph (8), limiting treatment as specifically identifiable property to 

the items specified in the definition thereof would be transposed to proposed paragraph 

(3), while current paragraph (9), which excludes security futures products and related 

collateral from specifically identifiable property, if they are held in a securities account, 

would be transposed to proposed paragraph (2).

“Strike price” is proposed to be reworded for brevity. No substantive change is 

intended.

“Substitute customer property” The Commission is proposing to add this 

definition 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. 
Voting Draft – As approved by the Commission on 4/14/2020

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49

“Swap” is proposed as the term used to refer to what is in the current regulation

referred to as a “Cleared swap.”66 The definition is proposed to be updated to reflect the 

current definition and meaning of the term “swap” under the Commission’s rules and 

regulations outside of part 190. The definition also would 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 

“Trustee” is proposed to be amended to include the trustee in a SIPA proceeding.

“Undermargined” The Commission proposes to define “undermargined” for 

purposes of part 190 as follows: 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, 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 maintenance 

 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-is-needed.html.
Voting Draft – As approved by the Commission on 4/14/2020

(subject to technical corrections)

50

margin level to determine the customer’s minimum margin requirement for such account. 

An undermargined account may or may not be in deficit.69

“Variation Settlement” is proposed to be added to define the payments a trustee 

may make with respect to open commodity contracts. It would include “variation 

margin” as defined in § 1.3, and, in order to cover all of the potential obligations 

associated with an open commodity contract, also includes “all other daily settlement 

amounts (such as price alignment payments) that may be owed or owing on the 

commodity contract.”

The Commission requests comment with respect to all aspects of proposed 

§ 190.01. In particular, are the revised definitions useful? Do any appear likely to lead to 

unintended consequences, and, if so, how may these best be mitigated? 

3. Regulation 190.02: General

Proposed § 190.02(a)(1) is derived from current § 190.10(b)(1). There is one 

substantive change: the proposed section would permit a request to the Commission for 

exemption 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. This change would further major theme 7, discussed in section I.B 

 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 proposed § 190.04(b)(4).

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 4/14/2020

(subject to technical corrections)

51

above, of enhancing trustee discretion. It would allow, e.g., the trustee to request to be 

permitted to extend a deadline or to amend a form.

Proposed §§ 190.02(a)(2)(i), (a)(2)(ii), and (a)(3), and 190.02(b), are derived from 

current §§ 190.10(b)(2), (3), and (4), and § 190.10(d), respectively, with minor editorial 

and conforming changes. 

Proposed §§ 190.02(c) (forward contracts), (d) (other), and (e) (rule of 

construction) would be transposed from current §§ 190.10(e), (g), and (h), respectively.

Proposed § 190.02(f) would be added to 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 violation70 of the customer property protection 

requirements of section 4d of the CEA or of the regulations thereunder, or of the 

Commission’s capital rule (§ 1.17 of this chapter). It would explicitly permit 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 in order to protect customers’ interests in customer property.

The Commission requests comment with respect to all aspects of proposed 

§ 190.02. In particular, is it appropriate to permit trustees to request relief from 

procedural provisions such as requirements as to forms, in addition to requesting relief 

from deadlines? Is it appropriate to permit receivers for FCMs to file voluntary petitions 

 70 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” 

(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.
Voting Draft – As approved by the Commission on 4/14/2020

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52

in bankruptcy? Does any portion of proposed § 190.02 appear likely to lead to 

unintended consequences, and, if so, how may these be mitigated? 

B. Subpart B—Futures Commission Merchant as Debtor

The provisions of subpart B (proposed §§ 190.03-190.10) address debtors that are 

FCMs. 

1. Regulation 190.03: Notices and Proofs of Claims

In proposed § 190.03, the Commission is proposing to reorganize and revise much 

of current § 190.02. Moreover, some portions of current § 190.10 have been reorganized 

into proposed § 190.03, and have been revised.

a. Regulation 190.03(a): Notices – Means of Providing

Proposed § 190.03(a)(1) is substantially similar to current § 190.10(a). In an 

effort to modernize part 190, the Commission proposes to delete the current requirement 

that all mandatory or discretionary notices to be given to the Commission under part 190 

be sent to the Commission via overnight mail (i.e., hard copy). Proposed § 190.03(a)(1) 

would retain the requirement that all such notices be sent to the Commission via 

electronic mail. Overnight hard copy delivery is unnecessary, and removing the 

requirement to send notices to the Commission via overnight mail will result in cost 

savings. 

Proposed § 190.03(a)(2) is a new section proposed by the Commission to provide 

a general means of providing notice to customers under part 190. Proposed 

§ 190.03(a)(2) would replace the specific procedures for providing notice to customers 

that currently appear in § 190.02(b) and, in light of evolving technology since the original 

issuance of part 190, implement a more generalized approach for giving notice to 
Voting Draft – As approved by the Commission on 4/14/2020

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53

customers, whereby the trustee must establish and follow procedures “reasonably 

designed” for giving notice to customers under part 190. In addition, in an effort to 

modernize part 190, the Commission proposes to state that 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 to customers under part 190 and is consistent 

with the manner in which bankruptcy trustees in recent FCM bankruptcy cases have 

provided notice to customers. The Commission anticipates that adopting the more 

generalized approach to notifying customers set forth in proposed § 190.03(a)(2), rather 

than retaining the specific notice requirements in the existing regulations, including 

newspaper publication, will result in both cost savings for the debtor’s estate, and more 

efficient and effective notification of customers. 

The Commission requests comment as to the proposed approach to notice 

requirements set forth in proposed § 190.03(a). Are the proposed changes helpful? Do

the proposed revisions appear likely to lead to unintended consequences, and, if so, how 

may such consequences be mitigated?

b. Regulation 190.03(b): Notices to the Commission and Designated SelfRegulatory Organizations. 

Proposed § 190.03(b)(1) is derived from current § 190.02(a)(1). The time 

requirements set forth in proposed § 190.03(b)(1) are meant to ensure that the 

Commission and the relevant designated SRO (“DSRO”)71 will be aware of a bankruptcy 

 71 For further detail regarding SROs and DSROs see generally § 1.52.
Voting Draft – As approved by the Commission on 4/14/2020

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54

filing or SIPA application as soon as is practicable. These changes to the regulation are 

designed to codify the practices observed in recent bankruptcy and SIPA cases.

The Commission proposes to revise the time within which a commodity broker 

must notify the Commission in the event of a voluntary or involuntary bankruptcy 

filing.72 First, proposed § 190.03(b)(1) would provide that, in the event of a voluntary 

bankruptcy filing, the commodity broker must notify the Commission and the appropriate 

designated SRO (“DSRO”) as soon as practicable before, and in any event no later than, 

the time of filing.73

Second, proposed § 190.03(b)(1) would provide that, in the event of an 

involuntary bankruptcy filing or an application for a protective decree under SIPA74, the 

commodity broker must notify the Commission and the appropriate DSRO immediately 

upon the filing of such petition or application. 

Moreover, as a practical matter, a decision to file for bankruptcy takes measurable 

time, as does the preparation of the necessary papers. The Commission notes that, in 

previous FCM voluntary bankruptcy filings, the commodity broker has provided the 

Commission and its DSRO with notice ahead of the bankruptcy filing. Proposed 

§ 190.03(b)(1) merely would codify the expectation that such advance notice should, in 

fact, occur to the extent practicable. 

 72 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). (A commodity broker may 

only be a debtor under chapter 7. See generally section 109 of the Bankruptcy Code, 11 U.S.C. 109.) 

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. 

73 The historical background of such notice is discussed below in section II.C.1. 

74 A SIPA proceeding is commenced when SIPC files a petition for a protective order. See generally SIPA 

section 5, 15 U.S.C. 78eee. 
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55

Proposed § 190.03(b)(1) further would amend current § 190.02(a)(1) by allowing 

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. It is better that the Commission promptly be notified of 

the filing, rather than waiting for assignment and communication of the docket number.

Proposed § 190.03(b)(2), concerning intent to transfer customer accounts, is 

derived from current § 190.02(a)(2). Current § 190.02(a)(2) provides that the trustee, the 

applicable DSRO, or the commodity broker 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 and relevant provisions of current part 190 no later than 

three days after the order for relief. Proposed § 190.03(b)(2) would remove the deadline 

for such notification because three days 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 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 entry of the order for relief as generally 
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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, 

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 the Commission; thus, a specified deadline for such notification to 

occur would not appear to be helpful under such circumstances. The proposal also 

clarifies that notification should be made with respect to a transfer of customer property.

The Commission requests comment on proposed § 190.03(b). As proposed, 

would § 190.03 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? 

Why or why not?

c. Regulation 190.03(c): Notices to Customers; treatment of hedging accounts and

specifically identifiable property.

Proposed § 190.03(c) would address notices to customers and treatment of 

hedging accounts and specifically identifiable property. 

Proposed § 190.03(c)(1) would deal with notices to customers concerning 

specifically identifiable property other than open commodity contracts, and is derived 

from current § 190.02(b)(1). Proposed § 190.03(c)(1) would require the trustee to use all 

reasonable efforts to notify promptly any customer whose futures account, foreign futures 
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57

account, or cleared swaps account includes specifically identifiable property, 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 proposed part 190.

The Commission would remove the requirement that the trustee publish notice to 

customers regarding specifically identifiable property in a newspaper for two consecutive 

days prior to liquidating such property. Instead, the new notice requirement to customers 

under part 190 are contained in proposed § 190.03(a)(2), which would provide that a 

trustee must establish and follow procedures “reasonably designed for giving adequate 

notice to customers.” As noted above, this change is meant to provide the trustee with 

flexibility in notifying customers regarding specifically identifiable property, and to 

modernize part 190 to allow the trustee to provide notice to customers in a way that will 

maximize the number of customers reached. 

Pursuant to current § 190.02(b)(1), the trustee may commence liquidation of 

specifically identifiable property on the sixth calendar day following the second 

publication date of the notice to customers. Because proposed § 190.03(c)(1) would not 

require newspaper publication of customer notice, the Commission would allow 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. 
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With respect to the return of specifically identifiable property, proposed 

§ 190.03(c)(1) would add that the trustee’s notice to customers whose futures accounts, 

foreign futures accounts, or cleared swaps accounts include specifically identifiable 

property must specify the terms upon which such property may be returned, “including, if 

applicable and to the extent practicable, any substitute customer property that must be 

provided by the customer.” This addition is meant to make clear that the trustee’s notice 

to customers with specifically identifiable property should include, where applicable, a 

reference to substitute customer property.75 

Proposed § 190.03(c)(2) would change how a bankruptcy trustee may treat open 

commodity contracts carried in hedging accounts to a categorical approach; it would 

replace the bespoke approach of current § 190.02(b)(2). Part 190 currently treats hedging

positions as a type of specifically identifiable property, where the customer is given 

special rights, namely, to have the trustee endeavor to avoid liquidating its hedging 

positions.76 Under current § 190.02(b)(2), the trustee treats customers with specifically 

identifiable open commodity contracts 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 is required to liquidate such contracts 

within a certain time period.

Proposed § 190.03(c)(2) would take a more categorical approach with respect to 

open commodity contracts. As discussed in major theme 7 in section I.B above, recent 

commodity broker bankruptcies have involved many thousands of customers, with as 

 75 For an explanation of why proposed 190.03(c)(1) would refer to “substitute customer property” rather 

than “cash,” please see discussion below, section II.B.7, in connection with proposed § 190.09(d)(1).

76 See current §§ 190.01(ll), 190.02(f)(1)(ii), and 190.04(e)(1).
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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.

In light of the practical difficulties of treating such large numbers of customers 

with similar open commodity contracts on a bespoke basis, under proposed 

§ 190.03(c)(2), the Commission is proposing instead to give the trustee 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. 77 To the extent the trustee exercises such authority, proposed 

§ 190.03(c)(2) would provide that the trustee must notify each relevant public customer 

in accordance with proposed § 190.03(a)(2) and request that the customer provide 

instructions whether to transfer or liquidate the relevant open commodity contracts. 78 

 77 See also discussion of “Changing the Special Treatment for Hedge Positions” in the ABA Cover Note: 

Given the policy preference set out in the Model Part 190 Rules that the trustee should 

attempt to port positions of public customers, which in practice is what typically occurs 

in actual subpart IV proceedings, we question the need to provide special protection to 

assure that hedge positions are transferred. We are also concerned that if a trustee is 

required to identify hedge accounts and provide the hedge account holders the 

opportunity to keep their positions open, that could interfere with the trustee’s ability to 

take prudent and timely action to manage the debtor FCM’s estate to protect all 

customers. We have attempted to strike a balance by allowing the trustee to provide 

special hedge account treatment when it is practical to do so.

ABA Cover Note at 11-12.

78 The Commission also would make 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 proposed § 190.10(b). 

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 proposed 

§ 190.10(b)(3).
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Proposed § 190.03(c)(2) would also require the notice to customers to inform the 

customer that (i) 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; (ii) any transfer of the open commodity 

contracts is subject to the terms for distribution contained in proposed § 190.09(d)(2); 

(iii) absent compliance with any terms imposed by the trustee or the court, the trustee 

may liquidate the open commodity contracts; and (iv) providing instructions may not 

prevent the open commodity contracts from being liquidated. 

To the extent the trustee does not exercise its authority to treat public customer 

positions carried in a hedging account as specifically identifiable property, the trustee 

would 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. The Commission is proposing to make

these changes to reflect the policy preference to port all positions of public customers. 

Requiring a trustee to identify hedging accounts and provide the hedging account holders 

the opportunity to keep their positions open may be a resource and time intensive 

process, which 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. By allowing 

the FCM to rely on representations made by customers during business-as-usual, the 

trustee will be able to take timely and prudent action to manage the debtor FCM’s estate 

and protect all customers. In cases where it may be practical, the trustee may elect to

provide special hedging account treatment.
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Proposed § 190.03(c)(3) would address notice of an involuntary bankruptcy 

proceeding, and is derived from current § 190.02(b)(3). Both sections provide that a

trustee appointed in an involuntary proceeding may notify customers of the 

commencement of such a proceeding prior to entry of an order for relief, and upon leave 

of the court, and that a trustee in an involuntary proceeding may request customer 

instructions with respect to the return, liquidation or transfer of specifically identifiable 

property. Proposed § 190.03(c)(3) would add a specific reference to proposed 

§ 190.03(a)(2), which would set forth the procedure the trustee must follow in providing 

notice to customers. This change is intended to make clear that the notice described in 

proposed § 190.03(c)(3) must be in accordance with the notice provisions set forth in 

proposed § 190.03(a)(2). In addition, the Commission proposes to change the reference 

to “the trustee” in current § 190.02(b)(3) to “a trustee” in proposed § 190.03(c)(3) since 

appointment of a trustee in an involuntary bankruptcy proceeding is not automatic.79 

Lastly, the Commission would delete the specific reference to “open commodity 

contracts at the end of current § 190.02(b)(3); given that the treatment of open 

commodity contracts as specifically identifiable property is likely to be less relevant 

under the proposed regulations, the Commission is proposing that such specific reference 

is unnecessary. 

Proposed § 190.03(c)(4) would require the bankruptcy trustee to notify customers 

that an order for relief has been entered and instruct customers to file a proof of customer 

claim and is derived from current § 190.02(b)(4). Proposed § 190.03(c)(4) would add a 

specific reference to proposed § 190.03(a)(2), which would set forth the procedure the 

 79 See 11 U.S.C. 303(g).
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trustee must follow in providing notice to customers. This change would make clear that 

the notice described in proposed § 190.03(c)(4) must be in accordance with the notice 

provisions set forth in proposed § 190.03(a)(2).

In addition, the Commission would replace the term “customer of record” in 

current § 190.02(b)(4) with “customer” in proposed § 190.03(c)(4). The term “customer 

of record” is not a defined term in part 190, and the Commission notes that whether or 

not a customer qualifies as a “customer of record,” all customers should receive notice 

that an order for relief has been entered. Specifically, those customers for whom the 

debtor has contact information in its records should be notified using such contact 

information. For those customers whose contact information is not available in the 

debtor’s records, notice is effectively given via the use of a website pursuant to proposed 

§ 190.03(a)(2). 

Proposed § 190.03(c)(4) also would provide that the trustee shall cause the proof 

of customer claim form to set forth the bar date for its filing, a requirement that exists in 

current § 190.02(d). 

The Commission requests comment on proposed § 190.03(c). Are the proposed 

changes to the notice requirements helpful? Is the grant of discretion to the trustee 

concerning whether hedging accounts should be treated as specifically identifiable 

property (based on a policy of facilitating cost effective and prompt administration of the 

debtor’s estate) appropriately tailored? Do the proposed revisions appear likely to lead to 

unintended consequences, and, if so, how may such consequences be mitigated?
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d. Regulation 190.03(d): Notice of Court Filings

Proposed § 190.03(d) addresses notice of court filings and is derived from current 

§ 190.10(f). The Commission would replace the term “court papers” in current 

§ 190.10(f) to “court filings” in proposed § 190.03(d), as, in the Commission’s view, the 

term “court filings” is a more accurate description, given that the modernization of court 

filings means that many are filed electronically rather than in paper form. In addition, 

whereas current § 190.10(f) provides that all court papers must be directed to the 

Washington, DC headquarters of the Commission, in an effort to modernize this section, 

proposed § 190.03(d) would refer back to proposed § 190.03(a)(1), which requires 

notices to the Commission to be sent by electronic mail.

The Commission requests comment on proposed § 190.03(d). Do the proposed 

revisions appear likely to lead to unintended consequences, and, if so, how may such 

consequences be mitigated?

e. 190.03(e): Proof of Customer Claim

Proposed § 190.03(e) would set forth the requirement for a trustee to request that 

customers provide information sufficient to determine a customer’s claim in accordance 

with the regulations contained in part 190, and is derived from current § 190.02(d). The 

proposed regulation would list certain information that customers shall be requested to 

provide, to the extent reasonably practicable, but would grant the trustee discretion to 

adapt the request to the facts of the particular case. This discretion would be granted to 

the trustee in order to enable them to tailor the proof of claim form to the information 

that, in the considered view of the trustee, 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 
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64

business were organized, and the available records of the debtor (as well as the reliability 

of those records).

Proposed § 190.03(e) would reorganize and revise certain information items that 

are listed in current § 190.02(d), though most of the information items listed in proposed 

§ 190.03(e) correspond to those listed in current § 190.02(d). The changes to the listed 

information items are as follows:

• Proposed § 190.03(e)(1) corresponds to current § 190.02(d)(1). Proposed 

§ 190.03(e)(1) would add, for clarity, the four types of commodity 

contract accounts as defined in proposed § 190.01.

• Proposed § 190.03(e)(2) corresponds to current § 190.02(d)(4). Proposed 

§ 190.03(e)(2) would ask whether the claimant itself is a public or nonpublic customer, rather than asking whether the account is a public or nonpublic customer account, as current § 190.02(d)(4) does. In the 

Commission’s view, such a revision corresponds to the fact that “public 

customer” and “non-public customer” are the terms that would be defined 

in proposed part 190, and the information provided by customers should 

correspond to those defined terms.

• Proposed § 190.03(e)(3) would gather certain information that should be 

collected with respect to commodity contract accounts held by each 

claimant with the debtor. Much of the information that would be 

requested in proposed § 190.03(e)(3) is included in current § 190.02(d), 

though it would be reorganized and several information items would be 

revised. Proposed § 190.03(e)(3) would ask for (i) the account number; 
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65

(ii) the name in which the account is held; (iii) the balance as of the last 

account statement and any subsequent activity that would affect the 

balance of the account as stated on the last account statement; (iv) the 

capacity in which the account is held; (v) whether the account is a joint 

account and, if so, the claimant’s percentage interest in the account; (vi) 

whether the account is discretionary; (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.

• Proposed § 190.03(e)(4) would seek information regarding any accounts 

held by the claimant with the debtor that are not commodity contract 

accounts. Proposed § 190.03(e)(4) would be added in order for a claimant 

to provide a full picture of all accounts it holds with the debtor beyond 

those classified as commodity contract accounts that are listed in response 

to paragraph (e)(3) of this section. 

• Proposed § 190.03(e)(5) is derived from current § 190.02(d)(6). Proposed 

§ 190.03(e)(5) would seek information regarding all claims against the 

debtor not based upon a commodity contract account or an account listed 

in response to paragraph (e)(4) of this section. This provision is meant for 

a claimant to provide a full picture of all claims it has against the debtor 

beyond those arising from its commodity accounts with the debtor.

• Proposed § 190.03(e)(6) is the same as current § 190.02(d)(7). Proposed 

§ 190.03(e)(6) would seek information regarding any claims of the debtor 
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against the claimant. Proposed § 190.03(e)(6) would be included in order 

for a claimant to provide any information about amounts it might owe to 

the debtor. 

• Proposed § 190.03(e)(7) is derived from current § 190.02(d)(8), though 

the wording would be revised from that in current part 190. While current 

§ 190.02(d)(8) asks about any “deposits of money, securities or property” 

that the claimant holds with the debtor, proposed § 190.03(e)(7) would 

seek information regarding “any open positions, unliquidated securities or 

other unliquidated property” that the claimant may hold with the debtor. 

This change is meant to correspond to the various forms that specifically 

identifiable property may take. In addition, proposed § 190.03(e)(7) 

explicitly would ask for the value of any open positions, unliquidated 

securities or other unliquidated property. A claimant in an FCM 

bankruptcy should 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. 

• Proposed § 190.03(e)(8) corresponds to current § 190.02(d)(11). The 

Commission is proposing slight revisions to the text in the proposed 

regulation and would ask the claimant to first identify whether it holds 

positions in security futures products and, only if so, to specify the type of 

account(s) in which such positions are held. 

• Proposed § 190.03(e)(9) corresponds to current § 190.02(d)(12). The 

Commission would change the word “possible” to “practicable” to clarify 
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that there may be situations where payment in kind is indeed possible but 

not practicable, and thus to manage expectations. 

• Proposed § 190.03(e)(10) is the same as current § 190.02(d)(13). The 

Commission continues to believe that a claimant in an FCM bankruptcy 

proceeding should provide copies of any documents that support the 

information contained in the proof of customer claim. 

There is one information item listed in current § 190.02(d) that would not appear 

in proposed § 190.03(e). Proposed § 190.03(e) would not include current § 190.02(d)(9), 

which asks whether the claimant is or was an “affiliate,” “insider,” or “relative” of the 

debtor as those terms are defined by sections 101(2), (25), and (34) of the Bankruptcy 

Code. This deletion is proposed due to the fact that proposed § 190.03(d)(4) now asks 

whether the claimant is a public or non-public customer, terms that are defined within 

proposed part 190. Therefore, a reference to terms as defined in the Bankruptcy Code is 

no longer necessary. 

Finally, the header language to proposed § 190.03(e), unlike that to current 

§ 190.02(d), would not contain a requirement that the proof of customer claim form set 

forth the bar date for its filing because such requirement would be moved to proposed 

§ 190.03(c)(4), as discussed above.

The Commission requests comment on proposed § 190.03(e). Are the proposed 

changes helpful? Is the grant of discretion to the trustee concerning the data to be 

requested appropriately tailored? Do the proposed revisions appear likely to lead to 

unintended consequences, and, if so, how may such consequences be mitigated?
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f. Regulation 190.03(f): Proof of Claim Form

Proposed § 190.03(f) is a new section which would provide that a template proof 

of claim form is included as appendix A to part 190.80 The Commission would

substantially revise the customer proof of claim form referred to in proposed § 190.03(f), 

and that is described above in the discussion of proposed § 190.03(e). In revising the 

customer proof of claim form, the Commission has endeavored to streamline the form, 

and to better map it to the information listed in proposed § 190.03(e). In that respect, the 

revised customer proof of claim form now would include, in each section, citations to the 

location in the text of proposed § 190.03(e) where such information is listed.

Proposed § 190.03(f)(1) would provide 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. This would be the case, 

if, e.g., all open commodity contracts had been transferred or liquidated before the proof 

of claim form is sent. Proposed § 190.03(f)(2) would make clear that the trustee has 

discretion 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 proposed § 190.03(f), taken together, are meant to provide bankruptcy 

trustees with the appropriate flexibility to determine the best and most efficient way to 

compose the customer proof of claim form.

The Commission requests comment on proposed § 190.03(f). Are the proposed 

changes to the treatment of the proof of customer claim form helpful? Do the revisions 

 80 Appendix A is discussed in section II.D below.
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appear likely to lead to unintended consequences, and, if so, how may such consequences 

be mitigated? Is the discretion granted to the trustee appropriately tailored? If not, what 

changes should be made?

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

Proposed § 190.04 would address the collection of margin and variation 

settlement, as well as the liquidation and valuation of positions. The Commission is 

proposing to clarify and update portions of current §§ 190.02, 190.03, and 190.04 in its 

proposed § 190.04. Changes from the current to the proposed regulation text are 

discussed below.

The Commission is proposing to revise current § 190.02(e) regarding transfers for 

customers in a bankruptcy proceeding in proposed § 190.04(a). It would largely retain 

the current provisions, including the identification of a clear policy preference81 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.82 Proposed § 190.04(a)(1) would provide that the trustee “shall promptly” use its 

best efforts to effect such transfers, while current § 190.02(e)(1) states that the trustee 

“must immediately” do so. This revision would be a minor change, designed to signal to 

the trustee to take action to transfer open commodity contracts as soon as practicable, 

while avoiding the potential pressure of the term “immediately” in light of the challenges 

 81 The rationale for this policy preference is addressed in the discussion of proposed § 190.00(c)(4) in 

section II.A.1 above. See also ABA Cover Note at 14 (“We recommend explicitly identifying in proposed 

Rule 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.”

82 Proposed § 190.04(a) also would contain updated cross-references to other provisions within proposed 

part 190 that discuss transfers of customer property. 
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presented in an FCM bankruptcy. In addition, in proposed § 190.04(a)(2), the 

Commission is proposing a clarifying change to replace the term “equity” with 

“property.” In doing so, the Commission would 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 also would add the 

word “public” before “customers” to clarify that the transfers discussed in proposed 

§ 190.04(a)(1) relate to the open commodity contracts and property of the debtor’s public 

customers.83 

Proposed § 190.04(a)(2) is derived from current § 190.02(e)(2), and would 

address transfers in the case of involuntary proceedings. In proposed § 190.04(a)(2), the 

Commission would strike language from current § 190.02(e)(2), addressing involuntary

cases, that would limit a commodity broker against which an involuntary petition in 

bankruptcy is filed to trading for liquidation only unless otherwise directed by the 

Commission, by any applicable self-regulatory organization or by the court. Limitations 

on the business of an FCM in bankruptcy would be dealt with more generally in proposed 

§ 190.04(e)(4); there is no need to separately address involuntary cases.84 Proposed 

§ 190.04(a)(2), like current § 190.02(e)(2), also would provide that if such a 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 

 83 The Commission is proposing the same change—addition of the word “public” before “customers”—to 

proposed § 190.04(a)(2), discussed below. 

84 The reference to “liquidation” further down in current § 190.02(e)(4) accordingly would be deleted, since 

the limitation to trading for liquidation only would be deleted from the proposed provision. 
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business. The Commission would retain this provision because, in the Commission’s 

view, 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 preliminarily 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, similarly to proposed 

§ 190.04(a)(1), discussed above, the Commission would replace the term “equity” with 

“property” to clarify that the transfers discussed in proposed § 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, as in proposed § 190.04(a)(1), discussed above, the 

Commission would add the word “public” before “customers” to clarify that the transfers 

discussed in proposed § 190.04(a)(1) relate to the open commodity contracts and property 

of the debtor’s public customers.

In proposed § 190.04(b)(1), the Commission would clarify and update the 

provisions in current § 190.02(g)(1) allowing a trustee to make “variation and 

maintenance margin payments” on behalf of the debtor FCM’s customers. While the 

proposed regulation is intended to be consistent with the current regulation, there are a 

number of substantive changes to the proposed regulation from the current regulation

text. 

First, the current regulation limits margin payments to “pending liquidation.” In 

fact, the approach consistent with the Commission’s longstanding policy is 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. The 
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regulation would accordingly be revised to permit the trustee to make margin payments 

pending transfer or liquidation, not just pending liquidation.

Second, the current provision could be read to prohibit margin payments for 

contracts that are being held open. 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 proposed regulation would 

delete the phrase “required to be liquidated under paragraph (f)(1) of this section” and 

thus would instead apply more broadly to any open commodity contracts. 

The following changes are more technical in nature.

Third, the proposed regulation would replace 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 proposed regulation would 

replace 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 proposed regulation would replace 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 proposed part 190, which includes as a 

defined term “specifically identifiable property.”

Proposed § 190.04(b)(1)(i), which is derived from current § 190.02(g)(1)(i), 

would prevent the trustee from making any payments on behalf of any commodity 
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contract account that is in deficit, to the extent within the trustee’s control. The 

Commission also would add the phrase “to the extent within the trustee’s control” as 

recognition of the fact 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, lastly, would add a proviso 

noting that proposed § 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. The Commission is 

proposing this addition to remove any doubt that the 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. 

Proposed § 190.04(b)(1)(ii) is new and would add a restriction that the trustee 

cannot make an upstream margin payment with respect to a specific customer account 

that would exceed the funded balance of that account. This revision would be consistent 

with the pro rata distribution principle discussed in proposed § 190.00(c)(5), in that any 

payment in excess of a customer’s funded balance would be to the detriment of other 

customers. 

Proposed § 190.04(b)(1)(iii) would make some minor non-substantive 

clarifications of the language in current § 190.02(g)(1)(ii), but retains 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. 
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Proposed §§ 190.04(b)(1)(iv)-(v) would expand and clarify current 

§ 190.02(g)(1)(iii)85 to provide that margin must be used consistent with the requirements 

of section 4d of the CEA.86 First, proposed § 190.04(b)(1)(iv) would 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,87 the trustee must use such payments to make margin 

payments for the open commodity contract positions of such customer. Second, proposed 

§ 190.04(b)(1)(v) would provide that 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 (v), it may be impracticable for a trustee to follow 

paragraph (iv); in such a situation, 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.88

Proposed § 190.04(b)(1)(vi) has its analog in current § 190.02(g)(1)(iv), but 

would build upon the concept in the current regulation. Current § 190.02(g)(1)(iv) 

provides that no payments need be made to restore initial margin, thus noting that such 

payments are not required but implicitly allowing such payments to be made. Proposed 

§ 190.04(b)(1)(vi) would explicate this in more detail and provides more comprehensive 

guidance to the trustee about when such payments may be made. Specifically, proposed 

§ 190.04(b)(1)(vi) would provide that, in the event that the funds segregated for the 

 85 Current § 190.02(g)(1)(iii) provides that “The trustee must make margin payments if payments of margin 

are received from customers after bankruptcy in response to margin calls . . . .”

86 See 7 U.S.C. 6d. 

87 The Commission’s proposal to use the phrase “to the extent within the trustee’s control” would recognize 

the reality that certain accounts are held on an omnibus basis. See discussion of proposed § 190.04(b)(1)(i) 

above.

88 See proposed § 190.08(c)(1)(ii). 
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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 under-margined, but not in deficit, and sets conditions around such use.

In proposed § 190.04(b)(2), the Commission would update existing 

§ 190.02(g)(2), which concerns margin calls made by a trustee with respect to undermargined accounts of public customers. The Commission would remove the current 

requirement that the trustee issue such 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 mandatory margin calls based on the funded balance 

of the account, is based on a model of the FCM continuing in business. The proposed 

changes, as reflected in proposed § 190.04(b)(2), would recognize that an FCM in 

bankruptcy will be operated in crisis mode, and may be pending wholesale transfer or 

liquidation of open positions.89 Therefore, the Commission would allow 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’s proposal that whether or not to make such a call is now based on the 

trustee’s discretion.

Proposed § 190.04(b)(3) is largely similar to current § 190.02(g)(3), with updated 

cross-references. The Commission would retain in proposed § 190.04(b)(3) the 

important concept that margin payments made by a customer in response to a trustee’s 

 89 See generally major theme 7 discussed in section I.B above. 
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margin call are fully credited to the customer’s funded balance. Since these post-petition 

margin payments by the customer are fully counted toward the customer’s net allowed 

equity claims, under proposed § 190.04(b)(3), they would not be subject to pro rata 

distribution (in contrast to the treatment of the debtor commodity broker’s pre-petition 

obligations to customers). 

Proposed § 190.04(b)(4) addresses the trustee’s obligation to liquidate certain 

open commodity contracts, in particular, those in deficit and those where the customer 

has failed promptly to meet a margin call. It would be a combination of current 

§§ 190.03(b)(1), 190.03(b)(2) and 190.04(e)(4). 

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.90 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 Interest Deadline.91 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.92 Proposed 

§ 190.04(b)(4) is intended to mitigate the risk to those other customers by directing the 

trustee to liquidate such accounts. 

 90 See, e.g., §§ 1.22(i)(4), 1.23(a)(2).

91 See, e.g., § 1.22(c)(3).

92 While the trustee may seek to recover any debit balance from a customer, see proposed 

§ 190.09(a)(1)(ii)(E), proposed § 190.04(b)(4) proceeds from the conservative assumption that such efforts 

will be unsuccessful.
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In light of the importance of mitigating this fellow-customer risk, proposed 

§190.04(b)(4) would, in contrast to many of the other proposed changes to part 190, act 

to cabin the trustee’s discretion. Specifically, it would first provide 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. This requirement, in part, would reflect current 

§§ 190.03(b)(1) and (b)(2). 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.”93 In proposed § 190.04(b)(4), the Commission would 

add a requirement to liquidate “all open commodity contracts in any commodity contract 

account that is in deficit.” The existing language applies to an account that is on the 

threshold of deficit; the proposed revised language would 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” calculation 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 proposed regulation would direct the trustee to 

begin the liquidation process immediately upon gaining that awareness, rather than 

delaying until the time when a margin payment is due. 

 93 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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Proposed § 190.04(b)(4) further would provide 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.94 This proposed language is largely reflective of current 

§ 190.04(e)(4), though it would add 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. This revision would

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. 

The Commission would delete current § 190.03(b)(3), which would 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. This change is being proposed as part of a move from 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.95 

 94 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 undermargined 

account without notice). 

95 Cf. major theme 7 in section I.B above.
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Proposed § 190.04(b)(5) is new, and would provide guidance to the trustee in 

assigning liquidating positions96 to the debtor FCM’s customers when only a portion of 

the open commodity contracts in an omnibus account are liquidated. It is intended 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 proposed 

§ 190.04(b)(4) above, at the risk of other customers. To mitigate the risk of such losses, 

the provision would establish 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 under-margined;97 and finally to liquidate any remaining open commodity contracts. 

Where there are multiple accounts in any of these groups, the trustee would be instructed 

to, to the extent practicable, allocate such liquidating transactions pro rata. The proposed 

section would explain that 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.”

Proposed § 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 

 96 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.

97 And thus are next at risk of going into deficit.
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liquidating such contracts before they move into delivery position. It has its analog in 

current § 190.03(b)(5) and would incorporate 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. Proposed 

§ 190.04(c) would have the same purpose, but would use more explicit language 

regarding physical delivery, referring to “any open commodity contract that settles upon 

expiration or exercise via the making or taking of delivery of a commodity,” and moving 

into the delivery position. In addition, proposed § 190.04(c) would expand on current 

§ 190.03(b)(5) to include explicit reference to how options on commodities move into 

delivery position, some of which is taken from current § 190.02(f)(1)(ii).

Proposed § 190.04(d) is derived from current §§ 190.02(f) and 190.04(d). 

Specifically, proposed § 190.04(d) would set 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.98 

Importantly, the Commission would retain the requirement, present in the header 

language to current § 190.02(f), that the trustee effect such liquidation “in an orderly 

manner.” This is to recognize that any factor which, in the trustee’s discretion, makes it 

 98 The Commission is proposing three non-substantive changes in the header language to proposed 

§ 190.04(d) from that in current § 190.02(f): (1) addition of the phrase “except as otherwise set forth in this 

paragraph (d)” to account for any exceptions that are included in the subsections under the header 

language; (2) addition of cross-references to proposed § 190.04(e) when discussing liquidation, as that 

provision contains instructions on how to effect liquidation; and (3) deletion of the phrase “subject to limit 

moves and to applicable procedures under the Bankruptcy Code.”
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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.” 

Proposed § 190.04(d)(1) derives from current § 190.02(f)(1), and would provide 

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.99 In the former case 

(specifically identifiable property), proposed § 190.04(d)(1) would revise the language of 

current § 190.02(f)(1)(ii) to add references to the provisions of proposed § 190.03(c)(2) 

(concerning the trustee’s option to treat hedging accounts as specifically identifiable 

property) and proposed § 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).100 The latter 

exception, for open commodity contract positions that are in a delivery position is new, 

and would provide that such positions should be treated in accordance with proposed 

§ 190.06, which concerns delivery.101

Proposed § 190.04(d)(2) would describe when specifically identifiable property,

other than open commodity contracts or physical delivery property must be liquidated. 

 99 Proposed § 190.04(d)(1) would also delete the reference in current § 190.02(f)(1)(i) to dealer option 

contracts since such term is no longer used.

100 As noted above in the discussion of proposed § 190.04(c), part of current § 190.02(f)(1)(ii) would be 

incorporated into proposed § 190.04(c), and therefore would not appear in proposed § 190.04(d)(1). 

101 As noted in section II.A.1 above in the discussion of proposed § 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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This provision derives from current § 190.02(f)(2), but would contain a number of 

revisions. 

First, the proposed provision would apply 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. This change is intended 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,102 the proposed regulation (in paragraph (d)(2)(i)) changes that 

figure 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, the proposed regulation (in paragraph (d)(2)(ii)) would add an additional 

condition that would 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, the proposed regulation (in paragraph (d)(2)(iii)), while similar to current 

§ 190.02(f)(2)(ii), would include updated cross-references to the provisions in proposed 

part 190 that discuss the return of specifically identifiable property. 

Proposed § 190.04(d)(3) is new, and is intended to codify 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 

 102 See current § 190.02(f)(2)(i).
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margin.103 Accordingly, customers who post letters of credit as margin would 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;

104 the codifications of this 

policy in proposed §§ 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 

effectively implement the policy and to forestall any future challenge.

Proposed paragraph (d)(3) would provide 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 would apply whether the letter of credit is held by the trustee on behalf of the 

debtor’s estate or a DCO or 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 full face amount of the letter of credit 

to ensure pro rata treatment. Proposed paragraph (d)(3)(i) would provide that, if such a

customer fails to provide substitute customer property within a reasonable time specified

 103 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].”)

104 See ConocoPhillips v. Giddens, No. 12 Civ. 6014, 2012 WL 4757866 (S.D.N.Y. 2012)
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by the trustee, the trustee may draw upon the full amount of the letter of credit or any 

portion thereof. 

Proposed paragraph (d)(3)(ii) would address 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 would be 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 would 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 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. 

Paragraph (d)(3)(iii) would confirm 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.

Proposed § 190.04(d)(4), which would provide for the liquidation of all other 

property not required to be transferred or returned pursuant to customer instructions and 

which has not been liquidated, is derived from current § 190.02(f)(3). Proposed 

§ 190.04(d)(4) would except from the liquidation requirement any “physical delivery 

property held for delivery in accordance with the provision of” proposed § 190.06, in 

order to avoid interfering with the physical delivery process.
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In proposed § 190.04(e), the Commission would provide details regarding the 

liquidation and valuation of open positions.105 This paragraph is derived from current 

§ 190.04(d), subject to a number of changes. 

Proposed § 190.04(e)(1)(i), which would describe the process of liquidating open 

commodity contracts when the debtor is a member of a clearing organization, is derived 

from current § 190.04(d)(1)(ii). Both the current and the proposed regulations include an 

emphasis on achieving 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 selfcertification regime. The Commission is of the view that the various processes set forth 

in part 40 of the Commission’s regulations (including self-certification under § 40.6, 

voluntary 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 proposing in § 190.04(e)(1)(i) to 

delete the requirement, contained in current § 190.04(d)(1)(i), that a clearing organization 

obtain approval pursuant to section 5c(c) of the CEA for its rules regarding liquidation of 

open commodity contracts.

Proposed § 190.04(e)(1)(i) also would add 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 

 105 In proposed § 190.08(d), the Commission would 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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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 new provision would be

analogous to the current one, but would additionally extend to cases where the debtor 

FCM is a member of a foreign clearing organization. 

Proposed § 190.04(e)(1)(ii) is new. It would provide 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, the 

proposed regulation would provide 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 

would add this provision in order to account for those circumstances where the trustee 

must liquidate open commodity contracts for a debtor that is not a clearing member. 

As with proposed § 190.04(e)(1)(i), the Commission would delete the rule 

approval requirement in proposed § 190.04(e)(2) for the same reasons stated above. 

Proposed § 190.04(e)(2) is derived from current § 190.04(d)(1)(ii). The proposed 

regulation would provide for 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.” 
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Proposed § 190.04(e)(3) is new. It would 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. The 

proposed rule would confirm that the upstream intermediary may exercise such rights. 

However, there would be a proviso: 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, 

designated contract market, swap execution facility 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. However, such 

damages are the trustee’s sole available remedy; the proposed regulation makes clear that 

“[i]n no event shall any such liquidation be voided.”

Proposed §§ 190.04(e)(4)(i) and (ii) derive from current §§ 190.04(d)(2) and (3), 

respectively, with some minor non-substantive language changes and updated crossreferences.

Proposed § 190.04(f) derives from current § 190.04(e)(5). Proposed § 190.04(f) 

would contain only minor non-substantive changes from the current regulation text, 

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 requests comment with respect to all aspects of proposed 

§ 190.04. Specifically, do the revisions create any unintended conflicts with customer 

protection regulations set forth in parts 1, 22, and 30? If so, how may such conflicts be 
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resolved? Are any of the proposed clarification changes (here or elsewhere) likely to 

create unintended consequences? If so, how might those be avoided or mitigated?

The Commission specifically seeks comment on whether the revised approach in 

proposed § 190.04(b)(4) regarding the required liquidation of certain open commodity 

contract accounts provides the trustee with an appropriate amount of discretion and is 

practicable. Given the level of discretion provided, are the trustee’s choices likely to be 

challenged by customers who believe they did not benefit from those decisions? Could 

such challenges materially slow down the distribution of customer property relative to a 

context where the trustee was granted less discretion? Also, is the approach set forth in 

proposed § 190.04(b)(5), regarding the assignment of liquidating positions to debtor 

FCM customers in a “risk-reducing manner” when only a portion of the open commodity 

contracts in an omnibus account are liquidated, practicable? The Commission also seeks 

comment in particular on the treatment of letters of credit in bankruptcy, as set forth in 

proposed § 190.04(e).

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

The Commission would revise parts of current § 190.04 in proposed § 190.05, and 

would add two 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 property, and (2) clarify the trustee’s obligations with respect to 

residual interest.

Proposed § 190.05(a) is derived from current § 190.04(a). 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 
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circumstances under which strict compliance with the CEA and the regulations 

thereunder may not be practicable. Accordingly, while current § 190.04(a) states that the 

trustee “shall” comply with all provisions of the CEA and of the regulations thereunder as 

if it were the debtor, the Commission would amend the language in proposed § 190.05(a) 

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 some flexibility in making decisions in an emergency bankruptcy 

situation, subject, of course, to the requirements of the Bankruptcy Code.

Proposed § 190.05(b) is derived from current § 190.04(b). In revising this 

provision, the Commission’s objective 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 and permitting an approach that, to an appropriate extent, favors cost 

effectiveness and promptness over precision.

106 Whereas current § 190.04(b) provides 

that a trustee “must” compute a funded balance for each customer account which contains 

open commodity contracts as of the close of each business day, proposed § 190.05(b) 

would require that 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 has been transferred or liquidated. Proposed § 190.05(b) further 

would provide that such computations “shall be as accurate as reasonably practicable 

under the circumstances, including the reliability and availability of information.” 

 106 See major theme 7.c discussed in section I.B above.
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In addition, proposed § 190.05(b) would increase the scope of customer accounts 

for which the bankruptcy trustee is obligated to compute a funded balance to accounts 

that contain open commodity contracts or other property, as opposed to just accounts that 

contain open commodity contracts. In the Commission’s view, this broadened scope is 

appropriate; 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. Moreover, proposed § 190.05(b) would revise the 

length of time the trustee has the obligation to compute the funded balance of customer 

accounts. In current § 190.04(b), the trustee must compute a funded balance for certain 

customer accounts “until the final liquidation date.” In proposed § 190.05(b), however, 

the trustee must compute a funded balance only 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, while current 

§ 190.04(b) required the computation to be completed by noon on the next business day, 

the Commission does not believe that a noon deadline is crucial in a bankruptcy context 

(as it is with respect to an FCM conducting ongoing daily business107); proposed 

§ 190.05(b) therefore would not contain a specific deadline. Of course, such computation 

would inherently need to be accomplished prior to performing any action where 

knowledge of funded balances is essential, such as transfer of accounts or property.

Proposed § 190.05(c) is derived from current § 190.04(c). 

 107 See, e.g., § 1.32(d).
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Proposed § 190.05(c)(1) concerns record retention, and is derived from current 

§ 190.04(c)(1). It is intended to be more comprehensive than the current provision, and 

thus would expand the records referred to from “computations required by this part” to 

“records required under this chapter to be maintained by the debtor, including records of 

the computations required by this part.” It is also, on the other hand, intended to enable 

the trustee to mitigate the expenses of record retention by permitting them to end their 

record retention responsibilities effectively when they close the bankruptcy case. The 

proposed provision would thus reduce 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.” 

Proposed § 190.05(c)(2) would simplify the corresponding portion of current 

§ 190.04(c)(2) by omitting the requirement that the records required in proposed 

§ 190.05(c)(1) be available to the Court and parties in interest. It would retain the 

requirement that such records be available to the Commission and the United States 

Department of Justice. A court will generally not itself look at records, 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. 

Proposed § 190.05(d) is new. It is intended 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. It would

require the trustee to use all reasonable efforts to continue to issue account statements 
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with respect to any customer for whose account open commodity contracts or other 

property is held that has not been liquidated or transferred. The provision also would

require 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. 

Proposed § 190.05(e)(1) concerns disbursements to customers. It is derived from 

current § 190.04(e)(2). The Commission is proposing to change this provision to reflect 

the policy preference to transfer as many public customer positions as practicable in the 

event of an FCM insolvency.108 Proposed § 190.05(e)(1) would provide that a trustee 

needs court approval to make disbursements to customers, but (in contrast to the current 

regulation) would specifically carve out disbursements made in connection with a 

transfer of customer property made in accordance with proposed § 190.07. The 

Commission notes, however, that specifically carving out transfers made in accordance 

with proposed § 190.07 from requiring court approval does not detract from the trustee’s 

ability to, in their discretion, nonetheless seek and obtain court approval for certain 

transfers of customer 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 

 108 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 would 

delete this provision in favor of allowing transfers without court approval for the reasons stated above. 
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believes that proposed § 190.05(e)(1) strikes the right balance between these competing 

objectives.109 

Proposed § 190.05(e)(2) is derived from current § 190.04(e)(3). It concerns how 

a bankruptcy trustee may invest the proceeds110 from the liquidation of open commodity 

contracts and specifically identifiable property, and other customer property. Proposed 

§ 190.05(e)(2) would retain much of current § 190.04(e)(3), although the Commission 

would expand the provision in current § 190.04(e)(3) 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,” albeit continuing to strictly 

limit the permissible investments to obligations of, or fully guaranteed by, the United 

States, and limiting the location of permissible depositories to those located in the United 

States or its territories or possessions.

Proposed § 190.05(f) is new. It would 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 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 

 109 The concept of prioritizing cost effectiveness and promptness over precision is discussed in detail in 

major theme 7.c in section I.B above and in overarching concept three in the cost-benefit considerations, 

section IV.C.3 below.

110 Proposed § 190.05(e)(2) would use the term “proceeds” rather than the term “equity,” which is used in 

current § 190.04(e)(3). This would be simply a change in wording and would not be meant to be a 

substantive difference. 
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funds “to reasonably ensure that the [FCM] . . . remains in compliance with the 

segregated funds requirements at all times.”111 

In the Commission’s view, the residual interest provisions contained in § 1.11 

remain important, even in bankruptcy, in order to facilitate the goal of having each 

customer of the debtor receive in distributions from the debtor’s estate all that the 

customer is entitled to, and therefore a trustee should be obligated to continue to apply 

such provisions, as appropriate, during the course of an FCM bankruptcy proceeding. 

The context of the trustee’s responsibilities—to wind down operations, and to 

transfer or liquidate positions and assets—will have a significant impact on how the 

trustee should apply the residual interest provisions. The references to a surplus or deficit 

in customer property in proposed § 190.05(f) are meant to apply the residual interest 

provisions to the bankruptcy context. Specifically, the Commission expects that, to the 

extent there is a surplus of segregated customer funds in a particular account class, a 

trustee would apply the residual interest provisions to minimize the risk that there could 

be a deficit and, to the extent there is a deficit of segregated customer funds in a 

 111 Section 1.11(e)(3)(i)(D).

The ABA Submission would instead have provided: 

Residual interest. The trustee is not required to transfer cash, securities, or other property 

of the debtor into a segregated account to maintain the debtor’s ongoing compliance with 

its targeted residual amount obligations pursuant to § 1.11 of this chapter and the debtor’s 

residual interest policies adopted thereunder or its related obligations to cover debit 

balances or under-margined amounts as provided in §§ 1.22, 22.2 or 30.7 of this chapter; 

provided, however, that any property not segregated under this exception shall 

nonetheless constitute customer property as provided in § 190.09(a)(1). 

The ABA Cover Note explains that “It seems impractical to require the trustee to continue to assure that 

funds of the debtor FCM are transferred into segregation to meet the FCM’s top up obligations after the 

order for relief.” Id. at 15.

For the reasons explained in the text, the Commission is instead proposing to require the trustee to apply 

the residual interest provisions, but on a modified basis.
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particular account class, the trustee would apply the residual interest provisions to 

minimize such deficit and to promote the fair distribution of customer property consistent 

with the pro rata principle. 

The Commission requests comment with respect to all aspects of proposed 

§ 190.05. Specifically, the Commission seeks comment on the practicability of the 

proposed requirements in proposed § 190.05(d) regarding the issuance of account 

statements. The Commission also requests comment on the practicability and 

appropriateness of § 190.05(f), which proposes to require the application of the residual 

interest provisions set forth in § 1.11 in order to minimize risks of deficit of customer 

property during bankruptcy.

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

The issues concerning delivery in bankruptcy are discussed in some detail in 

proposed 190.00(c)(6). 

As discussed above,112 proposed § 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. 

Where the trustee is unable to do so, proposed § 190.06(a)(2), discussed below, would 

direct the trustee to use reasonable efforts to permit the relevant customer to make or take 

delivery outside the administration of the debtor’s estate. Where that is not practicable, 

proposed § 190.06(a)(3) would address delivery as part of the administration of the 

debtor’s estate. Proposed §§190.06(a)(4) and (5) discuss, respectively, issues relating to 

 112 Section II.B.2.
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deliveries in a securities account and in a house account, while proposed §190.06(b) 

addresses the issues concerning special account class provisions for delivery accounts.113 

In proposed § 190.06, the Commission is proposing to make significant changes 

to current § 190.05 regarding making and taking deliveries on commodity contracts to 

provide more specificity and to reflect current delivery practices. Generally, open 

positions may get caught in a delivery position where the parties incur bilateral 

contractual delivery obligations.114 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 current delivery provisions 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. Under the terms of 

some contracts (such as energy futures) the party with the contractual obligation to make 

delivery will physically transfer a tangible commodity to meet its obligations.115 In other 

cases, intangible commodities may be delivered, including virtual currencies. 

 113 These issues are also addressed in the definitions of account class, delivery account class, cash delivery 

property and physical delivery property, discussed in section II.A.2 (§ 190.01 (definitions)).

114 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 determine whether a delivery issue may 

arise. Additionally, during business as usual, market participants typically offset contracts before incurring 

delivery obligations. 

115 See ABA Cover Note at 15.
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As noted previously, in the definitions section (proposed § 190.01), the 

Commission is proposing to divide the delivery account class into physical delivery and 

cash delivery account classes to recognize the differing obligations for the different types 

of delivery.

The Commission is also proposing to recognize that, consistent with current 

practice, physical deliveries116 may be effected in different types of accounts in proposed 

§ 190.06.117 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.

Proposed § 190.06(a)(2), which would replace current § 190.05(b), addresses 

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). 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 

 116 Current § 190.05 applies to delivery of a physical commodity. Proposed § 190.06 would apply to any 

type of commodity that is subject to physical delivery, whether tangible or intangible. This would be 

captured in the definition of physical property discussed earlier. 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 category under the 

definition of physical delivery property in § 190.01 in section II.A.2 above.

117 See also proposed § 190.10(c).
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largely rely on their FCMs to hold physical delivery property on their behalf in electronic 

form.118 

Thus, proposed § 190.06(a)(2)(i) would direct 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 requiring the trustee to use “reasonable efforts,” rather than (as in 

current § 190.06(a)(1)) “best efforts,” to allow a customer to deliver physical property 

that is held directly by the customer and not by the debtor to occur outside the 

administration of the debtor’s estate, the Commission would recognize that in the event 

that the trustee is unable to transfer or earlier liquidate the positions, delivery involves a 

significant degree of bespoke administration. Moreover, requiring the trustee’s best 

efforts for delivery might require the trustee to spend more 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. 

Proposed § 190.06(a)(2)(ii) would address 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 

 118 The proposed regulation again would delete the requirement for registered entity rules to be submitted 

for approval in accordance with section 5c(c) of the Act for reasons discussed in proposed §§ 190.04(e)(1) 

and (2). 
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property held in connection with that contract at the debtor (i.e. ̧ collateral posted in 

connection with that contract pre-petition). Consistent with existing § 190.05(b)(2), the 

proposed paragraph 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.

Proposed § 190.06(a)(3) would apply when it is not practicable to effect delivery 

outside the estate. The Commission would revise current § 190.05(c)(1)-(2) in proposed 

§ 190.06(a)(3) by providing additional details for when delivery is made or taken within 

the debtor’s estate. Proposed § 190.06(a)(3) would clarify that which was implied and 

was not addressed in current § 190.5(c)(1)-(2). It would contain 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. This 

regulation would include 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. 

Proposed § 190.06(a)(4) is new and would 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. Nonetheless, 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 
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over) the customer’s minimum margin requirements for that account. Moreover, such 

transfer may not be made if the customer is under-margined or has a deficit balance in 

any other commodity contract accounts.

Proposed § 190.06(a)(5) is derived from current § 190.05(c)(3), with some 

clarifying rewording. No substantive change is intended.

Proposed § 190.06(b) is new, and would create separate account subclasses for 

physical delivery property held in delivery accounts and the proceeds of such physical 

delivery property separate from cash delivery property.

119 As noted by the ABA 

Committee:

Customer property held in a delivery account is not subject to Commission

segregation requirements. Thus, it may be more difficult to identify 

customer property for the delivery account class. Based on lessons 

learned from the MF Global bankruptcy, it appears that those challenges 

are greater for tracing cash. Physical delivery property, in particular when 

held in the form of electronic title documents 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.120

For these reasons, the Commission proposal would 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. 

Proposed § 190.06(b)(1)(i) would provide 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., after the 

 119 See reference to discussion of physical delivery property above in proposed § 190.00. In particular, 

recall that “physical delivery property” can include any deliverable commodity, and is not limited to 

commodities that are tangible.

120 ABA Cover Note at 14. See generally discussion of the delivery account class in the discussion of the 

definition of account class in § 190.01 in section II.A.2 (definitions) above.
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filing date), and (ii) 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., after the filing date) on behalf of a customer in 

accordance with proposed § 190.06(a)(3).

Proposed § 190.06(b)(2) would provide 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 would also include any 

other property that is (x) not segregated for the benefit of customers in the futures, 

foreign futures, or cleared swaps account classes) and (y) traceable (through, e.g., 

account statements) as having been received after the filing date as part of taking 

delivery. 

Proposed §190.06(b)(2) would also provide, 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 would also include 

any other property that is (x) not segregated for the benefit of customers in the futures, 

foreign futures, or cleared swaps account classes) and (y) 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.
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The Commission requests comment with respect to all aspects of proposed 

§ 190.06. In particular, the Commission seeks comment on the implications of the 

proposal in § 190.06(b) to subdivide the delivery account class into separate physical 

delivery and cash delivery account subclasses. Are there additional challenges or 

benefits that the Commission has not considered?

5. Regulation 190.07: Transfers

The policy preference for transferring (or “porting”) public customer commodity 

contract positions, as well as all or a portion of such customers’ account equity, is 

discussed in proposed § 190.00(c)(4). In proposed § 190.07, the Commission is 

proposing to make changes to current § 190.06 governing transfers.

Proposed § 190.07(a) would revise current § 190.06(a), which sets forth general 

provisions for transfers. 

Proposed § 190.07(a)(1) derives from current § 190.06(a)(1), with a few technical 

changes. 

In proposed § 190.07(a)(2), which derives from current § 190.06(a)(2), the 

Commission would make minor changes to improve readability, although no substantive 

changes are intended. In addition, in § 190.07(a)(2), the Commission would delete “or 

persons which are required to be registered as futures commission merchants” because 

such persons are included within the definition of futures commission merchants in § 1.3. 

The changes in proposed § 190.07(a)(3) from current § 190.06(a)(3) focus on the 

goal of promoting transfers, but only to the extent consistent with good risk management. 

Specifically, the current regulation provides that no clearing organization or other selfregulatory organization may adopt, maintain in effect, or enforce rules that prevent the 
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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. It 

also states that this provision shall not limit the exercise of any contractual right of a 

clearing organization or other registered entity to liquidate open commodity contracts. 

In proposed § 190.07(a)(3), the Commission would change the word “prevent” to 

“[i]nterfere with” to focus on the goal of promoting transfers consistent with good risk 

management. Further, the Commission would re-word the current regulation and 

specifically would clarify that the regulations do not limit a clearing organization or other 

registered entity’s contractual right adequately to manage risk or to liquidate or transfer

open commodity contracts.

121

Proposed § 190.07(b) would revise current § 190.06(c), regarding requirements 

for transferees. In proposed § 190.07(b)(1), the Commission would clarify current 

§ 190.06(c)(1) to establish that it is the duty of the transferee – not of anyone else –to 

assure that the transferee is not in violation of the minimum financial requirements upon 

accepting a transfer. The Commission would reframe current § 190.06(c)(2) in proposed 

§ 190.07(b)(2)(i), but the changes would not be substantive. Similarly, proposed 

§§ 190.07(b)(2)(ii)(A) and (B) would transpose current §§ 190.06(c)(3) and (4), 

respectively, with conforming and non-substantive wording changes.

 121 See ABA Cover Note at 14 (“recommend[ing] ... [c]larification that the rule does not limit a DCO’s (or 

other registered entity’s) contractual right to liquidate or transfer open commodity contracts.”)

Separately, the Commission would delete current § 190.06(b) regarding notice to the Commission 

regarding an intention to transfer commodity contracts held by or for a commodity broker from or for the 

account of a customer to another person registered as an FCM after a bankruptcy petition has been filed. In 

the Commission’s view, this provision would be duplicative of the notice provision in proposed 

§ 190.03(b)(2) and therefore would be unnecessary.
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Proposed §§ 190.07(b)(3) and (4) are new common sense provisions to guide the 

transfer of open commodity contracts and property. 

Proposed § 190.07(b)(3) 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. It thus would provide 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. The Commission believes that this proposal is entirely consistent with past 

practice in FCM bankruptcies, and provides the flexibility that is likely to be needed in a 

bankruptcy situation by allowing transfers to occur before customer due diligence is 

completed, while still retaining the requirement that due diligence be performed as soon 

as practicable thereafter.

Proposed § 190.07(b)(4) is intended to further clarify what the governing 

agreement between the transferred customer and the transferee is at and after the time the 

transfer becomes effective. It is intended to make clear that any consequences for 

breaches pre-transfer would be borne by the transferor rather than the transferee. It would

provide 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, and would also provide that a breach of the agreement prior to 

a transfer does not constitute a breach on the part of the transferee. 
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Proposed § 190.07(b)(5) carries forward current § 190.02(c), and would provide

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, who shall comply therewith to the extent practicable (if the transferee 

subsequently enters insolvency). 

The Commission would revise current § 190.06(e), eligibility for transfer under 

section 764(b) of the Bankruptcy Code (accounts eligible for transfer), in proposed 

§ 190.07(c). Sections and references pertaining to dealer option accounts and leverage 

accounts would be deleted because those account types are no longer being addressed in 

this regulation.122 The proposed revision in § 190.07(c) would change the language “all 

accounts are eligible for transfer” in current § 190.06(e)(1) to “[a]ll commodity contract 

accounts (including accounts with no open commodity contract positions) are eligible for 

transfer. . . .” The new language would focus on the commodities business and 

recognizes that accounts can be transferred even if the accounts are intended for trading 

commodities but do not include any open commodity contracts at the time of the order 

for relief.

123

 122 This refers to the entirety of current §§ 190.06(e)(1)(ii)-(iii) and (f)(1) and the reference to dealer option 

contracts in §190.06(f)(3)(i). Accounts for trading commodities are used to purchase or sell a commodity.

123 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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Proposed § 190.07(d), special rules for transfers under section 764(b) of the 

Bankruptcy Code, primarily would revise current § 190.06(f). Current § 190.06(f)(1)

concerning dealer options would not be covered in this regulation. 

Proposed § 190.07(d)(1) would be relocated from current § 190.02(e)(1).

Proposed § 190.07(d)(2) would be drawn from current § 190.06(f)(3), with

revision intended to more generally promote transfers. 

Currently § 190.06(f)(3)(i) provides that “[t]he Commission will not disapprove 

such a transfer for the sole reason that it was a partial transfer if it would prefer the 

transfer of accounts, the liquidation of which could adversely affect the market or the 

bankrupt estate.” The Commission would revise the language in proposed 

§ 190.07(d)(2)(i) to state that “[t]he Commission will not disapprove such a transfer for 

the sole reason that it was a partial transfer.” The proposed revision would be consistent 

with the policy of promoting the transfer of customer commodity accounts.

In proposed § 190.07(d)(2)(ii), the Commission would clarify that the open 

commodity contracts and the associated property are to be transferred, thus the term 

“property” has been inserted throughout the section. The Commission would propose to 

add to current § 190.06(f)(2)(ii) 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 would caution against 

partial transfers that would break netting sets and make the customer worse off. The 

Commission also would add language that clarifies 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 
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sufficient, to permit the transfer of some or all of the remaining open commodity 

contracts and property.” The revisions are 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, the Commission would insert 

language in § 190.07(d)(2)(ii) that states “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 would be added 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. 

Proposed § 190.07(d)(3) is new. It would provide details regarding the treatment 

and transfer of letters of credit used as margin, consistent with other proposed provisions 

related to letters of credit. Generally, this provision states that a letter of credit associated 

with a commodity contract may be transferred with an eligible commodity contract 

account if it is held by a DCO on a pass-through basis or if it is transferable by its terms. 

This transfer cannot be made if it would result in a recovery that exceeds the amount to 

which the customer is entitled in proposed §§ 190.08 and 190.09 (note that, pursuant to 

proposed § 190.04(d)(3)(ii), any portion of such a letter of credit that is not drawn upon is 

treated as having been distributed to the customer, except to the extent that the customer

delivers substitute customer property).

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 
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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.124

Proposed § 190.07(d)(4) is new and would 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. The Commission is proposing 

this regulation to clarify its expectations in such situations, specifically, to promote the 

delivery process. 

Proposed § 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 would revise current 

§ 190.06(e)(2), changing the framing of the current regulation and focusing on transfers 

as a whole. The Commission further would clarify that the trustee should make 

determinations 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.

The Commission would revise current § 190.06(g) in proposed § 190.07(e), 

regarding the prohibition on avoidance of transfers under section 764(b) of the 

 124 See also discussion of treatment of letters of credit in bankruptcy under proposed § 190.04(d)(3) in 

section II.B.2.
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Bankruptcy Code. Throughout proposed § 190.07(e), the Commission would insert “or 

customer property” following “the transfer of commodity contract accounts” to clarify 

that transfers of commodity contract accounts include the associated customer property, 

and that customer property may be transferred even if the customer has no open 

commodity contracts (as was done in the MF Global bankruptcy).

In proposed § 190.07(e)(1), concerning transfers that were made pre-relief,125 the 

Commission would add language that transfers “are approved” to clarify that the 

Commission is following the procedure set forth in the Bankruptcy Code and adding 

specific citations to the Bankruptcy Code. Proposed § 190.07(e)(1)(ii) also would apply

to withdrawals or settlements at the request of public customers, in addition to transfers, 

in order to incorporate current § 190.06(g)(3). 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).

Proposed § 190.07(e)(1)(iii) would add a provision to respect the actions of a 

receiver acting to protect the interests of customers in their property. Specifically, the 

provision would prohibit the avoidance of a transfer from “a receiver that has been 

appointed for the FCM that is now a debtor.”126 

Proposed § 190.07(e)(2) would pertain to post-relief transfers. In proposed

§ 190.07(e)(2)(i), which is derived from current § 190.06(g)(2)(i), the Commission would

 125 Proposed § 190.07(e) refers to transfers that were made “pre-relief” rather than “pre-filing date” because 

section 764(b) is based on the date of relief, not the filing date. The difference is attributable to the fact 

that, unlike voluntary bankruptcy cases, where the filing of the case constitutes an order for relief, see

11 U.S.C. 301(b), the order for relief in an involuntary bankruptcy will issue only if the petition is not 

timely controverted, or after trial. See 11 U.S.C. 303(h).

126 A receiver might be appointed pursuant to, e.g., section 6c(a) of the CEA, 7 U.S.C. 13a-1(a).
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modify the term “SRO/commodity broker” to “clearing organization” because the only 

entities who can perform the transfers that are subject to the provision are the trustee, 

and, in certain circumstances, clearing organizations. Proposed § 190.07(e)(2)(ii) is 

derived from current § 190.06(g)(2)(ii). Similarly, proposed § 190.07(e)(3) is derived 

from current § 190.06(g)(3), dealing with withdrawals (in contrast to the transfers dealt 

with previously).

Proposed § 190.07(f) is a revision to current § 190.06(h) regarding Commission 

action. The Commission would clarify that, notwithstanding the other provisions of this 

section (with exceptions discussed below), it 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 would clarify that the transfers of the commodity 

contract accounts includes the associated customer property. 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).

The Commission requests comment with respect to all aspects of proposed 

§ 190.07. Specifically, the Commission seeks comment on proposed § 190.07(b)(3), 

which permits transferees to accept open commodity contracts and property prior to 

completing customer diligence. Does the proposed provision with a maximum six-month 

period post-transfer (absent Commission action) for diligence requirements provide 

FCMs with sufficient flexibility to accept transfers following an FCM bankruptcy? Are 

there additional constraints on the requirements to perform diligence imposed by other 

regulators that the Commission should take into account? The Commission also seeks 
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comment on proposed § 190.07(d)(2)(ii). Are there better ways to structure the 

provisions regarding partial transfers of a customer’s commodity contract account? Is the 

discretion granted to the trustee concerning estimates of other customer claims 

appropriate?

6. Regulation 190.08: Calculation of Allowed Net Equity

Proposed § 190.08 is derived from current § 190.07, with a significant number of 

technical changes. 

Proposed § 190.08(a) is derived from current § 190.07(a), but changed to reflect 

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.127 Since no (relevant) operations will occur subsequent to the liquidation date, 

current § 190.07(d), a provision that sets forth instructions on how to adjust a customer’s 

funded balance due to operations subsequent to the primary liquidation date, is rendered 

moot, and the reference to such section would be removed in proposed § 190.08(a).128

Proposed § 190.08(b), like current § 190.07(b), would set forth the steps for a 

trustee to follow when calculating each customer’s net equity.129 This proposed revision 

is meant to clarify that, when calculating the customer’s claim against the debtor, the 

 127 See definition of “primary liquidation date” in proposed § 190.01.

128 For the same reason, two other provisions in current § 190.07 also would be deleted. First, current 

§ 190.07(b)(6), which instructs the trustee how to adjust the calculation of net equity of accounts remaining 

open subsequent to the primary liquidation date, would be deleted from proposed part 190. Second, current 

§ 190.07(c)(2)(v), which provides that the calculation of funded balance must be adjusted by deficits 

generated by the continued operation of accounts after the primary liquidation date which cannot be fully 

adjusted under current § 190.07(d), has also would be deleted. Since, under the revised definition of the 

term “primary liquidation date,” no accounts will remain open subsequent to the primary liquidation date, 

these two provisions would no longer be necessary.

129 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.
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basis for calculating such claim should be what 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. However, for purposes of the 

calculations set forth in proposed § 190.08(b), the focus should be on the numbers that 

appear in the debtor’s own records. In the header language to proposed § 190.08(b), the 

text would accordingly refer to “a customer’s total customer claim of record” rather than 

“the total claim of a customer” against the estate of the debtor.”

In addition, the header language to proposed § 190.08(b) would clarify that the 

calculation of a customer’s claim against the debtor is based on all types of customer 

property, including any commodity contracts, held by the debtor for or on behalf of the 

customer. While this was always the Commission’s intent, the language in current 

§ 190.07(b) could be construed more narrowly to exclude any customer property other 

than commodity contracts. 

Proposed § 190.08(b)(1), which would set forth the steps for a trustee to follow 

when calculating the equity balance of each commodity contract account of a customer, is 

derived from current § 190.07(b)(1), with the following changes (to the extent not 

addressed below, the provisions in proposed § 190.08(b)(1) are the same as those in 

current § 190.07(b)(1)). 

First, in proposed § 190.08(b)(1)(i), which corresponds to current § 190.07(b)(1), 

the revised text would instruct the trustee to determine the equity balance of “each 

commodity contract account,” rather than “each customer account.” The term 

“commodity contract account” would be a defined term and, in the Commission’s view, 
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using such defined term in this context would be more precise because a customer may 

have other types of accounts (e.g., securities accounts) with the debtor that are not 

relevant for the purposes of calculating net equity. 

Second, in proposed § 190.08(b)(1)(i)(C), which corresponds with current 

§ 190.07(b)(1)(iii), the Commission would replace the term “current realizable market 

value” with “realizable market value” in order to avoid confusion, since, according to the 

regulation text, the realizable market value is determined as of the close of the market on 

the last preceding market day. 

Third, proposed § 190.08(b)(1)(ii)(A)(2), which corresponds with current 

§ 190.07(b)(1)(iii)(A)(2), would be simplified to more clearly refer to the cash proceeds 

from the liquidation of the customer securities or other property referred to earlier in 

proposed § 190.08(b)(1)(i)(C). 

Fourth, proposed § 190.08(b)(1)(ii)(A)(4) regarding letters of credit is new, and 

would be added to be consistent with other new provisions regarding how letters of credit 

are to be treated in the event of an FCM bankruptcy. This provision would treat the face 

amount of any letter of credit received, acquired or held to margin, guarantee, secure, 

purchase, or sell a commodity contract as part of the posting customer’s ledger 

balance.130

Lastly, in proposed § 190.08(b)(1)(ii)(B)(2), which corresponds with current 

§ 190.07(b)(1)(iii)(B)(2), the Commission would add a reference to transfers made 

 130 Separately, in proposed § 190.04(d)(3)(ii), any portion of the letter of credit that is not drawn upon is 

treated as having been distributed to the customer (with any substitute customer property posted serving as 

an offset).
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pursuant to proposed §§ 190.04(a) and 190.07, which the Commission would clarify 

should be categorized as disbursements for the purposes of this paragraph. 

Proposed § 190.08(b)(2) is derived from current § 190.07(b)(2). Proposed 

§ 190.08(b)(2) would provide 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 proposed regulation would set forth how to determine whether accounts 

are held in the same capacity or in separate capacities. The Commission is proposing 

three changes in proposed § 190.08(b)(2) from current § 190.07(b)(2). First, in both 

proposed §§ 190.08(b)(2)(iii) and (iv), the Commission would add language to clarify 

that, in discussing accounts held in the name of an executor or administrator of an estate, 

the Commission is referring to accounts held in the name of an executor or administrator 

in its capacity as such. This clarification would reflect what was always intended in 

current §§ 190.07(b)(2)(iii) and (iv). Second, in proposed § 190.08(b)(2)(viii), the 

Commission would delete the terms “leverage accounts” and “options accounts,” as those 

types of accounts are no longer being addressed in proposed part 190.131 Third, also in 

proposed § 190.08(b)(2)(viii), the Commission would add a referenced exception to the 

paragraph, which notes that futures accounts, delivery accounts, and cleared swaps 

accounts of the same person shall not be deemed to be held in separate capacities, 

although such accounts may be aggregated in accordance with paragraph (b)(3) of the 

section. Current § 190.07(b)(2)(viii) is subject to one exception, paragraph (b)(2)(ix) of 

the section, which sets forth that an omnibus customer account of an FCM shall be 

deemed to be held in a separate capacity from the house account and any other omnibus 

 131 See proposed § 190.00(d)(1)(i).
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customer account of such person. Proposed § 190.08(b)(2)(viii) would also be subject to 

exception from paragraph (b)(ix) and would add another exception, from paragraph 

(b)(xiv), which would reflect that accounts held by a customer in separate capacities shall 

be deemed to be accounts of separate customers. Fourth, in proposed § 190.08(b)(2)(xi), 

the Commission would expand the scope of retirement or pension plans that are discussed 

in that paragraph. As written, current § 190.07(b)(2)(xi) refers only to retirement or 

pension plans under the Employee Retirement Income Security Act of 1974 (“ERISA”); 

the Commission’s proposal would expand the scope of plans dealt with in proposed 

§ 190.08(b)(2)(xi) to those under ERISA or similar federal,132 state or foreign laws or 

regulations applicable to pension and retirement plans since, in the Commission’s view, 

any such retirement or pension plan is a separate entity from its administrators, 

employers, employees, participants, or beneficiaries. 

Proposed § 190.08(b)(3), which sets forth instructions regarding how and when to 

set off positive and negative equity balances, is derived from current § 190.07(b)(3). The 

Commission would make several non-substantive edits to the current text for clarification 

purposes including, in proposed § 190.08(b)(3)(ii), adding letters to illustrate the equation 

that is described in the text. In addition, the Commission would edit §§ 190.08(b)(3)(ii) 

and (iii) to clarify that the provisions regarding the offset against a positive equity 

balance only apply in the event a customer has more than one class of account with a 

positive equity balance. Lastly, the Commission would make a slight change in proposed 

§ 190.08(b)(3)(v) to clarify that, prior to the entry of an order for relief, the provisions of 

§ 1.22 of the Commission’s regulations and section 4d of the CEA govern what setoffs 

 132 Including, e.g., a church plan exempt from ERISA pursuant to section 403(b)(9) thereof.
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are permitted. As written, current § 190.07(b)(3)(v) refers to both the date of entry of an 

order for relief and the filing date, but the Commission notes that, in an involuntary 

bankruptcy, there may be a time gap between those dates. The Commission’s proposed 

change to refer only to the date of entry of an order for relief would account for that 

inconsistency. 

Proposed § 190.08(b)(4), which would provide that the value of property that has 

been transferred or distributed must be added to the net equity amount calculated for that 

customer, is substantially similar to current § 190.07(b)(4). In the proviso language, the 

Commission would replace the term “customer claims” with “allowed customer claims.” 

This change is intended to clarify that the calculation of net equity for any late-filed 

claims should be based on the amount that the customer is actually entitled to. The 

Commission also would correct a typographical error in current § 190.07(b)(4) where the 

word “data” should be “date.”

Proposed § 190.08(b)(5), which would provide that the calculation of net equity 

should 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, would be substantially similar to 

current § 190.07(b)(5), with two minor changes. First, the Commission is proposing to 

revise the term “subsequent events” to “ongoing events” in order to recognize that such 

events may be “ongoing” during the administration of the estate, accounting for the 

volatility that may arise with such events. The prior term of “subsequent events” refers to 

the primary liquidation date. Second, the Commission would add the phrase “or 

specifically identifiable property” to clarify that one of the ongoing events that should 
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result in an adjustment to the calculation of net equity is the liquidation of unliquidated 

claims or specifically identifiable property at a value different from the estimated value 

previously used. 

Proposed § 190.08(c), concerning the calculation of the funded balance, is derived 

from current § 190.07(c). In the header language to proposed § 190.08(c), the references 

to calculation as of the primary liquidation date would be deleted, because the funded 

balance (i.e., each customer’s pro rata share of the customer estate with respect to an 

account class) is relevant both (i) before the primary liquidation date (in support of 

determining how much value may be transferred, if a prompt transfer can be arranged) 

and (ii) after the primary liquidation date (as the value of property in the estate relative to 

claims may change as assets (including claims by the estate) are marshalled and 

liquidated, and claims against the estate are made and resolved). 

Proposed § 190.08(c)(1), would set forth instructions for calculating the funded 

balance of any customer claim, and is derived from current § 190.07(c)(1). The 

Commission would make several non-substantive edits to the current text for clarification 

purposes, including (1) in proposed § 190.08(c)(1), clarifying that the funded balance of 

any customer claim shall be computed separately by account class and customer class; (2) 

in proposed § 190.08(c)(1)(i), adding letters to illustrate the equation that is described in 

the text; and (3) in proposed § 190.08(c)(1)(i)(B) and (C), referring to “other property” 

instead of simply “property.” In addition, the Commission would add 

§ 190.08(c)(1)(i)(A), which would state that the ratio calculated in proposed 

§ 190.08(c)(1)(i) should be multiplied by the sum of, among other items, the value of 

letters of credit received, acquired or held to margin, guarantee, secure, purchase, or sell a 
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commodity contract relating to all customer accounts of the same class. This provision 

would be added to provide consistency with the other new provisions regarding the use of 

letters of credit. 

Proposed § 190.08(c)(1)(i)(B) is derived from current § 190.07(c)(1)(i)(A). Here, 

the Commission would refer to “all customer accounts of the same class” rather than “all 

accounts of the same class.” This change is meant to clarify that this provision only 

applies to customer accounts. 

Proposed § 190.08(c)(1)(ii) is derived from current § 190.07(c)(1)(ii), with two 

proposed changes: First, the Commission would recognize that an FCM may be taken 

into insolvency involuntarily, and proposes to account for that possibility by starting the 

period during which 100% of margin is credited in an involuntary case on the date of the 

bankruptcy filing. Second, taking into account prior changes made with respect to the 

use of letters of credit, the Commission would add a proviso at the end of the paragraph

to describe how margin posted to substitute for a letter of credit would affect the 

calculation of funded balance. 

Proposed § 190.08(c)(2) is derived from current § 190.07(c)(2), and would require 

the funded balance to be adjusted to correct for ongoing events including, but not limited 

to, those events listed in the proposed and current regulation. Current § 190.07(c)(2)(v) 

would be deleted from the proposed regulation since, under the revised definition of 

“primary liquidation date,” no account will be continuing to operate after the primary 

liquidation date, thus rendering current § 190.07(c)(2)(v) moot. In this section the 

Commission would revise the term “subsequent events” to “ongoing events” for the same 

reasons discussed in § 190.08(b)(5).
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Proposed § 190.08(d) is derived from current § 190.07(e). Both set forth 

instructions about how to value commodity contracts and other property for purposes of 

calculating net equity as set forth in the rest of proposed § 190.08. The Commission is 

proposing to delete current §§ 190.07(e)(2) (valuation of principal contracts) and (e)(3) 

(valuation of bucketed contracts) in favor of the more generalized approach to valuing 

property held by or for a commodity broker set forth in proposed § 190.08(d)(5), which 

allows the trustee a certain degree of flexibility in valuing such property. Proposed 

§ 190.08(d)(5) is discussed in further detail below.

In addition, current § 190.07(e) contains, in the header language, instructions to 

the trustee about when the trustee may use the weighted average of the liquidation prices 

of commodity contracts and other property in computing the net equity of each customer. 

The Commission would retain the concept of using the weighted average of liquidation 

prices in certain circumstances, but would move such concept into other sections of 

proposed § 190.08(d); as such, this concept is discussed in further detail below.

Proposed § 190.08(d)(1) is derived from current § 190.07(e)(1), and would set 

forth instructions about how to value commodity contracts. The Commission would

reorganize proposed § 190.08(d)(1) into two paragraphs: (i) open commodity contracts, 

and (ii) liquidated commodity contracts. 

In proposed § 190.08(d)(1)(i) regarding the valuation of open commodity 

contracts, the Commission would maintain the requirement that the value of an open 

commodity contract shall be equal to the settlement price as calculated by the clearing 

organization pursuant to its rules. The Commission, however, would delete the 

requirement that the clearing organization’s rules must be approved by the Commission. 
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As noted above,

133 the Commission believes that the various processes set forth in part 40 

of the Commission’s regulations (including self-certification under § 40.6, voluntary 

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 valuation of open commodity contracts is no longer 

necessary.

In addition, current § 190.07(e)(1) provides that, if an open commodity contract is 

transferred, its value shall be determined as of the end of the settlement cycle in which it 

is transferred. The Commission would change the timing for valuation in proposed 

§ 190.08(d)(1)(i) to the end of the last settlement cycle on the day preceding the transfer. 

This would allow the value of the open commodity contract to be known prior to the 

transfer. There would be other non-substantive revisions to the wording of proposed 

§ 190.08(d)(1)(i) as compared to that in current § 190.08(e)(1). 

Proposed § 190.08(d)(1)(ii) would be changed to clarify how to value commodity 

contracts that have been liquidated. Current § 190.07(e)(1) provides that the value of a 

liquidated commodity contract “shall be equal to the net proceeds of liquidation.”

Proposed § 190.08(d)(1)(ii) instead provides that the value of a liquidated commodity 

contract “shall equal the actual value realized on liquidation of the commodity contract.” 

Proposed § 190.08(d)(1)(ii)(A) would allow 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. This concept derives from 

text that is currently in § 190.07(e). This provision is important because it recognizes 

 133 See discussion of proposed § 190.04(e)(2) in section II.B.2 above.
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that, in a bankruptcy situation, the trustee may liquidate identical commodity contracts 

over a short period of time but may not be able to liquidate them all at the same price. In 

order to provide the trustee with an appropriate mechanism for determining the value of 

such commodity contracts, the Commission is proposing to allow the trustee to use the 

weighted average of liquidation prices of identical commodity contracts liquidated within 

a certain period of time but at different prices. The Commission proposes certain 

changes to the current text including, for example, the time period within which such 

contracts must be liquidated in order for the trustee to use the weighted average of the 

liquidation prices. While current § 190.07(e) applies this concept to commodity contracts 

liquidated “on the same date,” proposed § 190.08(d)(1)(ii)(A) would apply this concept to 

commodity contracts liquidated “within a 24 hour period or business day (or such other 

period as the bankruptcy court may determine is appropriate).” The Commission notes 

that settlement days and business days often do not fall within one calendar date. For 

instance, in accordance with proposed § 190.01, a “business day” begins at 8 a.m. one 

day and ends at 7:59:59 a.m. the next day that is a business day. On weekends, a 

“business day” begins at 8 a.m. on Friday morning and ends at 7:59:59 a.m. on Monday 

morning. Thus, the Commission would revise the time frame in proposed 

§ 190.08(d)(1)(ii)(A) to bring it more in line with how settlement cycles and business 

days work. 

Proposed § 190.08(d)(1)(ii)(B), which would provide 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, is a new provision. It is important 

to recognize that commodity contracts are, at times, liquidated as part of a bulk auction or 
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otherwise outside of the open market, and to provide for a mechanism by which to value 

commodity contracts that are liquidated in such a manner. The proposed regulation 

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. The Commission is not 

proposing to set the value of a commodity contract that is liquidated as part of a bulk 

auction at the auction price, because the auction will not necessarily establish the price 

for each particular position; rather, the auction might cover an entire portfolio, or a 

portfolio that is divided into separate “lots” that consist of related (but not necessarily 

identical) positions. 

Proposed § 190.08(d)(2) is derived from current § 190.07(e)(4). Proposed 

§ 190.08(d)(2) would incorporate the same weighted average concept discussed above 

with respect to proposed § 190.08(d)(1)(ii)(A), allowing a trustee to use the weighted 

average of the liquidation prices of identical securities that are liquidated within a 24-

hour period or business day (or such other period as the bankruptcy court may determine 

is appropriate), but not at the same price. As discussed above, allowing a trustee to use 

the weighted average of liquidation prices of identical securities liquidated within a 

certain period of time but at different prices provides the trustee with an appropriate 

mechanism for determining the value of such securities. For the same reasons stated 

above, the Commission would revise the time period within which such securities must 

be liquidated in order for the trustee to use the weighted average of the liquidation prices. 

In addition, for clarification purposes, the Commission is proposing that the value of 

liquidated securities shall equal the actual value realized on liquidation of the securities.
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Proposed § 190.08(d)(3) is derived from current § 190.07(e)(5). While current 

§ 190.07(e)(5) determines how to value “cash commodities” held in inventory, the 

Commission believes that this concept is more appropriately applied to all “commodities” 

held in inventory. Additionally, recognizing that the fair market value of a commodity 

held in inventory is not always readily ascertainable, the Commission would provide that, 

in such an event, the trustee may value such commodity in accordance with proposed 

§ 190.08(d)(5), a catch-all provision providing the trustee with flexibility to value 

property using such professional assistance as they deem necessary. 

Proposed § 190.08(d)(4) is new, and would be added by the Commission to be 

consistent with other changes regarding the use of letters of credit received, acquired or 

held to margin, guarantee, secure, purchase, or sell a commodity contract.

Proposed § 190.08(d)(5) is derived from current § 190.07(e)(5). Proposed 

§ 190.08(d)(5) would provide the trustee with pragmatic flexibility in determining the 

value of customer property by allowing the trustee, in their discretion, to enlist the use of 

professional assistance to value customer property. In furtherance of the goal of 

providing flexibility to the trustee, the Commission would delete the requirement that the 

trustee seek approval of the court prior to enlisting professional assistance to value 

customer property.134 Such a constraint, in the Commission’s view, unduly restricts the 

trustee’s actions in a bankruptcy situation and is unnecessary. In addition, for 

 134 To be sure, the requirements of 11 U.S.C. 327 concerning the employment of professional persons 

would still apply. However, the regulation would no longer require the approval of the court to invoke the 

assistance of such an approved professional in valuing customer property, so long as such assistance falls 

within the scope of activity approved pursuant to Code section 327. 
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clarification purposes, the Commission is proposing that the value of property that is sold 

shall equal the actual value realized on sale of such property.

The Commission requests comment with respect to all aspects of proposed 

§ 190.08. Specifically, the Commission seeks comment with regards to the proposed 

revisions to the calculation of the equity balance of a commodity contract set forth in 

proposed § 190.08(b)(1). Are there any unintended consequences from the proposed 

revisions and, if so, how can such consequences be mitigated? The Commission also 

seeks comment as to 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).

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

Proposed § 190.09 is derived from current § 190.08. Generally, proposed 

§ 190.09 would provide that the property of a debtor’s estate must be allocated among 

account classes and between customer classes as provided in the proposed regulation. 

This property would constitute a separate estate of the customer class and the account 

class to which it is allocated and would be designated by reference to such customer class 

and account class. 

There are three substantive changes in proposed 190.09, and a significant number 

of technical changes. The substantive changes are as follows:

Proposed §§ 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). 
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Paragraph (G) would be a new category of property that constitutes customer 

property. It would include 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 under-margined amounts 

as provided in §§ 1.20, 1.22, 22.2 and, 30.7.135 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. The Commission is of the view that proposed 

§ 190.09(a)(1)(ii)(G) would be appropriate since an FCM is already required, under the 

Commission’s regulations, to set aside the funds referred to for the benefit of its 

customers, and because the provision limits the amount of funds a trustee may take from 

the debtor’s current assets to put into segregation for the FCM’s customers. Proposed 

§ 190.09(a)(1)(ii)(G) also fits within the definition of “customer property” in section 761 

of the Bankruptcy Code, which refers to “other property of the debtor that any applicable 

law, rule, or regulation requires to be set aside or held for the benefit of a customer.”136

 135 See ABA Cover Note at 15 (“recommend[ing] adding a provision to the customer property definition 

that deems property in the debtor’s estate to be customer property to the extent of the FCM’s obligation to 

maintain a targeted residual amount in segregation pursuant to CFTC Rule 1.11, or its obligation to cover 

debit balances or under-margined amounts in customer accounts under CFTC Rules 1.22, 22.2 or 30.7 ... 

adding a provision that expressly covers an FCM’s ‘top-up’ obligations prescribed under specific CFTC 

rules provides greater legal certainty.”)

136 11 U.S.C. 761(10)(A)(ix). 
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Proposed § 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 would state 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 FCM’s public 

customers. The Commission notes that in In re Griffin Trading Co.,

137 the United States 

Bankruptcy Court for the Northern District of Illinois ruled that the Commission 

exceeded its statutory authority by adopting current § 190.08(a)(1)(ii)(J) and held that it 

was invalid. This decision was vacated on appeal pursuant to a settlement reached by the 

parties. The property described in proposed § 190.09(a)(1)(ii)(L), like proposed 

§ 190.09(a)(1)(ii)(G) discussed above, would appear to fit within the definition of 

“customer property” in section 761 of the Bankruptcy Code, which refers to “other 

property of the debtor that any applicable law, rule, or regulation requires to be set aside 

or held for the benefit of a customer”138 because of the Commission’s regulations 

regarding segregation of customer property. Thus, though current § 190.08(a)(1)(ii)(J) 

may be subject to challenge, the Commission continues to be of the view that section 20 

of the CEA provides it with the authority to include proposed § 190.09(a)(1)(ii)(L) in part 

190. 

A new second sentence of proposed § 190.09(a)(1)(ii)(L) would note 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 

 137 245 B.R. 291 (Bankr. N.D. Ill. 2000), vacated, 270 B.R. 882 (N.D. Ill. 2001).

138 11 U.S.C. 761(10)(A)(ix). 
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in SIPA regarding allocation of (securities) customer property. SIPA provides that such 

remaining customer property would be allocated to the general estate.139 It would appear

that 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. 

Proposed § 190.09(d) would govern the distribution of customer property, and has 

its analog in current § 190.08(d). While current §§ 190.08(d)(1)(i) and (ii) and (d)(2) 

require customers to deposit cash in order to obtain the return of specifically identifiable 

property, proposed §§ 190.09(d)(1)(i) and (ii) and (d)(2) would require instead the 

posting of “substitute customer property,” a term proposed to be defined in proposed 

§ 190.01 to mean (in relevant part) “cash or cash equivalents.” “Cash equivalents” is 

proposed, in turn, to be 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.” 140

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 proposed § 190.00(d)(5). More 

particularly, section 766(d) provides that if the value of specifically identifiable property 

exceeds the amount to which the customer is entitled under subsection (h) or (i) of 

 139 See generally SIPA section 8(c)(1), 15 U.S.C. 78fff-2(c)(1).

140 The header language in proposed § 190.09(d)(1) deletes the phrase “other than a commodity contract,” 

though this deletion does not have a substantive effect, and is meant for clarification purposes only. 
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section 766, then the customer may deposit cash with the trustee equal to the difference 

between the value of such property and the amount to which the customer is entitled, and 

the trustee then shall return or transfer the property. 

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. In addition, each of proposed §§ 190.09(d)(1)(i) and (ii) 

and (d)(2)would replace the phrase “in an amount equal to” with “with a value equal to” 

to account for the proposal that customers may now use cash equivalents, rather than just 

cash, to redeem their specifically identifiable property. 141

The remaining provisions of proposed § 190.09 include only technical changes: 

The header language to the proposed regulation would note that property that is 

connected with certain cross-margining arrangements is subject to the provisions of 

appendix B, framework 1 of part 190. With the revisions in the header language to 

proposed § 190.09, the Commission has attempted to clarify that, where certain crossmargining arrangements are involved, allocation of customer property will be subject not 

just to proposed § 190.09, but also to the provisions in appendix B, framework 1. 

Proposed § 190.09(a)(1), like its analog in current § 190.08(a)(1), would define 

the scope of “customer property” that is available to pay the claims of a debtor FCM’s 

customers. Customers are entitled to a priority over other creditors of the debtor with 

 141 While section 766(d) would require the customer to deposit cash, section 20(a)(3) of the CEA permits 

the Commission to “[n]otwithstanding title 11 ... provide ... by rule or regulation ... the method by which 

the business of [a debtor] commodity broker is to be conducted or liquidated after the date of the filing of 

the petition” in bankruptcy. It would appear that this power extends to enacting a regulation permitting a 

customer to post cash equivalents rather than cash in this situation. 7 U.S.C. 24(a)(3).
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respect to distributions of customer property.

142 The claims of public customers are 

satisfied ahead of those of non-public customers. Proposed § 190.09(a)(1)(i), derived 

from current § 190.08(a)(1)(i), and would list the categories of property that are included 

in the term “customer property,” specifically “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.” Proposed changes to these categories from the current regulation text would 

be as follows (to the extent not addressed below, the provisions in proposed 

§ 190.09(a)(1)(i) would be the same as those in current § 190.08(a)(1)(i)): 

• While current § 190.08(a)(1)(i)(C) refers to “[w]arehouse receipts, bills of 

lading, or other documents of title or property held or acquired by the 

debtor to fulfill a commodity contract,” proposed § 190.09(a)(1)(i)(C) 

simply would refer back to the definition of “physical delivery property” 

set forth in proposed § 190.01.

• Proposed § 190.09(a)(1)(i)(D) is new, and would clarify explicitly that 

customer property includes cash delivery property, as well as any other 

property that the debtor received as payment for a commodity to be 

delivered to fulfill a commodity contract from or for the commodity 

customer account of a customer.

• Proposed § 190.09(a)(1)(i)(F), which is the analog to current 

§ 190.08(a)(1)(i)(E), would state that letters of credit are included in 

 142 However, consistent with section 766(h) of the Bankruptcy Code, certain claims involving 

administrative expenses connected with administering customer property take precedence over customer

claims. 11 U.S.C.766(h).
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customer property, including any proceeds of a letter of credit drawn by 

the trustee pursuant to proposed § 190.04(c)(3). Substitute customer 

property posted by a customer pursuant to proposed § 190.04(d)(3) also 

would be included. While current § 190.08(a)(1)(i)(E) also discusses 

letters of credit, the changes made to proposed § 190.09(a)(1)(i)(F) are 

meant to be consistent with the new letters of credit provisions added 

elsewhere in proposed part 190. 

• Proposed § 190.09(a)(1)(i)(G), which is the analog to current 

§ 190.08(a)(1)(i)(F), would delete the phrase “To the extent not otherwise 

included” solely for clarification purposes.

Proposed § 190.09(a)(1)(ii), derived from current § 190.08(a)(1)(ii), would list the 

categories of “[a]ll cash, securities, or other property” that are included in customer 

property. Proposed changes to these categories from the current regulation text are as 

follows (to the extent not addressed below, the provisions in proposed § 190.09(a)(1)(ii) 

would be the same as those in current § 190.08(a)(1)(ii)):

• Proposed § 190.09(a)(1)(ii)(A), which is the analog to current 

§ 190.08(a)(1)(ii)(A), would clarify that any cash, securities, or other 

property that is segregated for customers on the filing date is considered 

customer property. 

• Proposed § 190.09(a)(1)(ii)(D) would make a number of changes to its 

analog in current § 190.08(a)(1)(ii)(D). First, proposed 

§ 190.09(a)(1)(ii)(D) would include in customer property any “cash, 

securities, or other property” that was (rather than is, as the current 
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regulation text states) property received, acquired or held to margin, 

guarantee, secure, purchase, or sell a commodity contract. This change 

would be made for the sake of logical consistency with respect to time 

references; the reference is to the prior status of property that is 

subsequently recovered by the trustee. Second, proposed 

§ 190.09(a)(1)(ii)(D) would delete the phrase “which has been withdrawn” 

as unnecessary. Lastly, proposed § 190.09(a)(1)(ii)(D) would add the 

phrase “or is otherwise recovered by the trustee on any other claim or 

basis,” to account for the fact that the trustee may recover such property 

by means other than their avoidance powers and that, no matter the means 

of recovery, such property should be included in customer property. 

• Proposed § 190.09(a)(1)(ii)(E), which is the analog to current 

§ 190.08(a)(1)(ii)(E), would change the phrase “against a customer 

account” to “against a customer.” Such change is made for clarification 

purposes only.

• Proposed § 190.09(a)(1)(ii)(G) is discussed above as a substantive change.

• Proposed § 190.09(a)(1)(ii)(H), which is the analog to current 

§ 190.08(a)(1)(ii)(G), would delete the phrase “unless including such 

property in the customer estate would not significantly increase the 

customer estate.” The Commission views this restriction in the current 

regulation text as unnecessary and therefore proposes deleting it. 

• Proposed § 190.09(a)(1)(ii)(K) is new, and would include in customer 

property any cash, securities, or other property which is a payment from 
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an insurer to the trustee arising from or related to a claim related to the 

conversion or misuse of customer property. The Commission is of the 

view that adding this provision will ensure that any such cash, securities,

or other property would become part of the pool of customer property, and 

is appropriate because the funds recovered pursuant to such insurance 

payment would, absent the conversion or misuse, have been available to 

pay customers.

• Proposed § 190.09(a)(1)(ii)(L) is discussed above as a substantive change.

Proposed § 190.09(a)(2), like its analog in current § 190.08(a)(2), would list 

categories of property that are not included in the “customer property” that is available to 

pay the claims of a debtor FCM’s customers. Proposed changes to these categories from 

the current regulation text are as follows (to the extent not addressed below, the 

provisions in proposed § 190.09(a)(2) are the same as those in current § 190.08(a)(2)):

• Proposed § 190.09(a)(2)(iii), which is the analog to current 

§ 190.08(a)(2)(iii), would state that forward contracts will not be included 

in customer property, but would add “unless such contracts are cleared by 

a clearing organization or, in the case of forward contracts treated as 

foreign futures, a foreign clearing organization.” This addition is meant to 

clarify that any forward contracts that are cleared by a clearing 

organization are included in customer property, so it is only uncleared 
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forward contracts that will be excluded from the pool of customer 

property.143 

• Proposed § 190.09(a)(2)(iv), which is the analog to current 

§ 190.08(a)(2)(iv), would exclude from customer property any physical 

delivery property that is not held by the debtor and is delivered or received 

by a customer to fulfill the customer’s delivery obligation under a 

commodity contract. The definition of the term “physical delivery 

property” in proposed § 190.01 specifically would note that any 

commodities or documents of title that are not held by the debtor, and are 

delivered or received by a customer to fulfill the customer’s delivery 

obligation under a commodity contract outside the administration of the 

estate pursuant to proposed § 190.06(a)(2), are not subject to pro rata 

distribution. Thus, proposed § 190.09(a)(2)(iv) simply would import this 

concept into proposed § 190.09 by specifying that such physical delivery 

property is not considered “customer property” for purposes of allocation 

to customers.

• Proposed § 190.09(a)(2)(v), which is the analog to current 

§ 190.08(a)(2)(v), would delete the word “maintenance” as it appears in 

the current regulation text, so as to eliminate any distinction between 

initial and maintenance margin. As proposed, the provision would not 

include in customer property any property deposited by a customer with 

 143 Cf. 11 U.S.C. 761(4)(F)(ii) (including within the definition of “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.”).
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the commodity broker, after the entry of an order for relief, that is not 

necessary to meet the initial or maintenance margin requirements 

applicable to that customer’s account(s). 

• Proposed § 190.09(a)(2)(viii) is new, and would clarify that any money, 

securities or other property held in a securities account to fulfill delivery, 

under a commodity contract, from or for the account of a customer, is 

excluded from customer property. Proposed § 190.09(a)(2)(viii) would be

parallel to proposed § 190.09(a)(2)(vii) (which would be the same as 

current § 190.08(a)(2)(vii)), which excludes from customer property any 

money, securities or property held to margin, guarantee or secure security 

futures products if held in a securities account. These provisions, together, 

are meant to focus on securities futures contracts that are held in securities 

accounts, and that therefore would be protected under SIPA and would not 

constitute customer property for purposes of part 190. 

Proposed § 190.09(a)(3) is new. It would reserve the right of the bankruptcy 

trustee to assert claims against any person to recover the shortfall of property enumerated 

in proposed §§ 190.09(a)(1)(i)(F) and 190.0(a)(1)(ii)(A) through (L). The purpose of 

proposed § 190.09(a)(3) is to clarify, for the avoidance of doubt, that any claims that the 

trustee may have against a person to recover customer property will not be undermined or 

reduced by the fact that the trustee may have been, or might be, able to satisfy customer 

claims by other means.
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Proposed § 190.09(b) is analogous to current § 190.08(b).144 The Commission 

would add the phrase “or attributable to” when discussing how to treat property 

segregated on behalf of or attributable to non-public customers. This addition is to 

clarify that this provision would apply both to property that is in the debtor’s estate as of 

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 on a later date. 

Proposed § 190.09(c) would set forth instructions regarding allocation of 

customer property, including a few changes from its analog in current § 190.08(c). 

Specifically, proposed § 190.09(c)(1)(i) would add “or recovered by the trustee on behalf 

of or for the benefit of an account class” when describing property that must be allocated 

to the specific account class. This addition is meant to clarify, similar to the addition 

discussed above with respect to proposed § 190.09(b), that this provision regarding 

allocation of customer property would apply both to (1) property that is in the debtor’s 

estate as of the time of the bankruptcy filing as well as (2) property that is later recovered 

by the trustee and becomes part of the debtor’s estate on a later date. 

Proposed § 190.09(c)(1)(ii) is new. It would instruct the trustee with respect to 

the treatment of any property remaining after payment in full is made to allowed 

customer claims in a particular account class. Specifically, the new text would provide 

that such remaining property shall be allocated in accordance with proposed 

§ 190.09(c)(2), which would set forth the order of allocation for any customer money, 

 144 Cf. 11 U.S.C. 766(h) (“Notwithstanding any other provision of this subsection, a customer net equity 

claim based on a proprietary account, as defined by Commission rule, regulation, or order, 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.”).
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securities and property that cannot be traced to a specific customer account class. This 

new provision would also be consistent with the requirement, under section 766(h) of the 

Bankruptcy Code, that customer property must be distributed to customers in priority to 

all other claimants.

Proposed § 190.09(c)(2) would delete the restrictions that “money, securities, and 

property received from or for the account of customers” must also be “on behalf of any 

account class which is received on behalf of the customer estate.” The latter restriction is 

unnecessary: Any “money, securities and property received from or for the account of 

customers” should be treated as customer property, and needs to be allocated. Moreover, 

the reference to allocation as of “the primary liquidation date” is removed, because 

money, securities or property may be recovered or marshalled at a variety of times during 

the proceedings.

Proposed §§ 190.09(d)(1) and (d)(2) were discussed above as substantive 

changes. Certain other changes to proposed § 190(d)(2), and changes to the remaining 

paragraphs of § 190.09(d), governing the distribution of customer property, are technical:

There would be a few additional changes to § 190.09(d)(2) from the text in 

current § 190.08(d)(2), including (1) replacement of the phrase “[a]ny specifically 

identifiable commodity contract” with “[a]ny open commodity contract that is 

specifically identifiable property”; (2) replacement of the term “customer” with “public 

customer”; and (3) replacement of the phrase “adequate security for the non-recovery of 

any overpayments” with “to assure the recovery of any overpayments.” These changes 

are all meant for clarification purposes only.
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Proposed § 190.09(d)(3) is derived from current § 190.08(d)(3). Both the 

proposed and current regulations refer to the distribution, at the request of the customer, 

of “like-kind securities.” The purpose of this provision is to allow for distribution of 

securities that are interchangeable with the securities deposited by the customer.145

However, it would appear that there is no commonly understood definition of “like-kind 

securities.”

The Commission notes that SIPA addresses an analogous issue. SIPA section 

7(b)(1), 15 USC 78fff-1(b)(1), provides that “the trustee shall deliver securities to or on 

behalf of customers to the maximum extent practicable in satisfaction of customer claims 

for securities of the same class and series of an issuer ... .” In order to clarify the 

meaning of like-kind securities, proposed §190.03(d)(3) would adopt this approach, and 

would read, in relevant part, 

... 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 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.

Additional changes in proposed § 190.09(d)(3) from the text of current 

§ 190.08(d)(3) are (1) addition of a cross-reference to a portion of the definition of 

“specifically identifiable property” as set forth in proposed § 190.01; and (2) replacement 

of the phrase “if that customer had had no open commodity contracts” with “but the 

customer has no open commodity contracts.” 

 145 In the context of dematerialized securities, it is impracticable to identify the exact securities deposited 

by a customer (e.g., Class A Share #12345 of Acme, Inc.).
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Proposed § 190.09(d)(4) is substantially similar to current § 190.08(d)(4). The 

only difference is that proposed § 190.09(d)(4) would contain updated cross-references to 

proposed §§ 190.03(e) and (f), which discuss the customer proof of claim form. 

Proposed § 190.09(d)(5) is derived from current § 190.08(d)(5). The proposed 

regulation would contain a few changes to the text of current § 190.08(d)(5) that are 

meant solely for clarification, including (1) the addition of the phrase “with respect to a 

particular account class”; (2) the addition of the phrase “in such account class”; and (3) 

updated cross-references. 

Lastly, current § 190.08(d)(6) would be moved to proposed § 190.04(b)(1)(ii). 

The Commission requests comment with respect to all aspects of proposed 

§ 190.09. Specifically, the Commission seeks comment as to whether the proposed 

revisions to § 190.09(a)(1) would appropriately preserve customer property for the 

benefit of customers. In particular, the Commission seeks comment on 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. 

Moreover, is it advisable to permit customers to post “substitute customer property” 

rather than “cash” in proposed § 190.09(d)? Is it appropriate to clarify the term “likekind securities” by reference to the concept, derived from SIPA, of “securities of the 

same class and series of an issuer?”

8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants 

During Business as Usual 

The Commission is proposing to revise current § 190.10, which sets forth the 

provisions generally applicable to FCMs. Certain provisions in current § 190.10 would 
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be moved to proposed §§ 190.02 and 190.03, as described above. Proposed § 190.10 

would contain new and moved provisions that set forth an FCM’s obligations during 

business as usual. 

The most substantive change in proposed § 190.10 concerns subsection (d). This 

provision is new, and would address letters of credit. It would prohibit an FCM from 

accepting a letter of credit unless certain conditions (1) are met at the time of acceptance 

and (2) remain true through its date of expiration. 

First, 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, 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. 

As noted in § 190.00(c)(5), the concept of pro rata distribution would apply to all 

customers, including those posting letters of credit. Proposed § 190.04(d)(3) would 

describe how the trustee must treat letters of credit in bankruptcy. The trustee would be 

required to treat the letter of credit in a manner consistent with pro rata distribution and 

be permitted to draw upon the full amount of unexpired letters of credit or any portion 

thereof or treat the letter of credit as having been distributed to the customer for purposes 

of calculating entitlements to distribution or transfer. Regulation 190.10(d) is intended to 

ensure that an FCM’s treatment and acceptance of letters of credit during business as 
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usual is consistent with and does not preclude the trustee’s treatment of letters of credit in 

accordance with proposed §§ 190.00(c)(5) and 190.04(d)(3).146

The Commission has considered the impact that the implementation of this 

regulation would have on FCMs and their customers, since letters of credit are currently 

in use by the industry.147 Accordingly, upon the effective date of the regulation, 

proposed § 190.10(d) 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 proposes to include a 

reasonable transition period of one year from the effective date until § 190.10(d) would 

apply to existing letters of credit and customer agreements.

Proposed § 190.10(a) is also new. It would note that an FCM would be 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 would recognize that current and accurate records are 

 146 The Commission notes that, unlike the case in ConocoPhillips, 2012 WL 4757866 at *5-*6, it is entirely 

clear that this regulation does not constitute an “exercise of regulatory authority” with respect to an 

“identified banking product.” Assuming for the sake of analysis that letters of credit constitute identified 

banking products, the Commission would not exercise any regulatory authority over them, and would not 

specify what should be done with any letter of credit. Rather, the Commission simply is proposing to 

exercise regulatory authority over FCMs, and prohibit them from accepting certain letters of credit (i.e., 

those which do not meet the criteria specified in proposed § 190.10(d)) as collateral for CFTC-regulated 

futures, options, and swaps.

147 The Commission notes that the Joint Audit Committee (“JAC”) forms for an Irrevocable Standby Letter 

of Credit (both Pass-Through and Non Pass-Through) would appear to be consistent with the requirements 

of proposed § 190.10(d). 

See https://www.cmegroup.com/clearing/audit/files/rm_FU_Irrevocable_Standby_LOC920.pdf; 

https://www.cmegroup.com/clearing/audit/files/S_irrstandbynonpassthroughloc.pdf.

Based on staff discussions with industry participants, the Commission understands that most letters of 

credit currently in use by the industry follow the JAC forms. 
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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.148

Proposed § 190.10(b) would concern the designation of hedging accounts. It 

would incorporate concepts contained in current §§ 190.04(e), 190.06(d), and the current 

Bankruptcy appendix form 3 instructions. As noted below, for purposes of this 

regulation, a customer would not need to provide, and an FCM would not be required to 

judge, evidence of hedging intent for purposes of bankruptcy treatment. Rather, 

proposed § 190.10(b) would permit the FCM to treat the account as a hedging account for 

such purposes based solely upon the written record of the customer’s representation. 

Hedging treatment for these bankruptcy purposes would not be determinative for any 

other purpose.

Proposed § 190.10(b)(1) would 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). Giving this opportunity to each customer at the 

outset would provide the opportunity to allow for clear instruction at a point when both 

customer and FCM are focused on the specifics of the relationship between them, and 

would enhance the ability of the FCM properly to account for the customer property. The 

 148 As the ABA Cover Note observes:

Paragraph (a) requires an FCM to maintain current records relating to its customer 

accounts, and provides that those records may be provided to another FCM to facilitate 

transfer of open customer positions. The provision is not intended to expand an FCM’s

recordkeeping obligations under other Commission rules. It is intended to emphasize the

importance of current and accurate records for an FCM that is accepting the transfer of 

customer positions and property from the debtor FCM.

ABA Cover Note at 15.
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proposed regulation would also require, consistent with current § 190.06(d)(2), that the 

FCM indicate prominently in its accounting records for each customer account whether 

the account is designated as a hedging account.

Proposed § 190.10(b)(2) would 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 rule or rule of a DCO, DCM, SEF, or FBOT. 

This is in lieu of obtaining written hedging instructions as required under current 

§ 190.06(d).149

In order to avoid the significant burden that would be associated with requiring 

FCMs to re-obtain hedging instructions for existing accounts, proposed § 190.10(b)(3) 

would provide that the requirements of (b)(1) and (b)(2) do not apply to commodity 

contract accounts opened prior to the effective date of these revisions to part 190. Rather, 

the regulation would 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, proposed § 190.10(b)(4) would 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 proposed 

paragraph (b)(2) from such customer. As noted above with respect to § 190.10(b)(2), this 

treatment only would be relevant for purposes of hedging account treatment in 

bankruptcy.

 149 See ABA Cover Note at 16.
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Proposed § 190.10(c) is new. It would address the establishment of delivery 

accounts during business as usual.150 As recognized in current § 190.05 (and, in 

particular, current § 190.05(a)(2)) and the definition in current § 190.01(ll)(3,4, and 5), 

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 

§ 22.2.151 The Commission is proposing to recognize 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 would 

clarify that the property must be held in one of these types of accounts. The Commission 

is proposing to address the establishment of delivery accounts during business as usual 

because of their importance during bankruptcy, as addressed in proposed § 190.06.

Proposed 190.10(d) was addressed above as a substantive change.

Proposed § 190.10(e) would concern the disclosure statement for non-cash 

margin. It is derived from current § 190.10(c), with corresponding changes to crossreferences. The reference in the required disclosure statement to notice (in the event of 

 150 See proposed § 190.06 regarding the making and taking of deliveries during bankruptcy.

151 See 48 FR at 8731 (“Property segregated on behalf of a delivery account, under the allocation 

provisions, will be allocated only to that account class. This means that although this property will not be 

distributed to the extent its value exceeds a claimant’s net equity claim and will be distributed pro rata 

among claimants with delivery claims which are of the same class, it will not be diluted by other types of 

customer claims. This solution reduces the dilution effect of proration without offending the basic 

principle of proration of equivalent claims.”) (footnote omitted).
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bankruptcy) by publication would be deleted, consistent with the changes to notice 

provisions in proposed § 190.03(a)(2). 

The Commission notes, however, that the ABA Committee proposed to delete 

entirely the requirement that FCMs provide this disclosure statement, on the basis that the 

requirement was originally imposed in order to address a concern that customers might 

otherwise challenge pro rata distribution of non-cash collateral on the basis that they did 

not consent to such treatment. The ABA Committee stated that it “does not believe that 

such a risk exists today under prevailing bankruptcy law.”

 Do commenters believe that requiring this disclosure is helpful, either legally 

(with respect to pro rata distribution) or practically (with respect to enhancing customer 

understanding)? Should the form of disclosure be changed in some manner? Or do 

commenters believe that this requirement should be deleted?

The Commission also requests comment with respect to all other aspects of 

proposed § 190.10. Specifically, the Commission seeks comment with respect to the 

impact of proposed § 190.10(b) regarding the designation of hedging accounts and 

proposed § 190.10(c) regarding the establishment of delivery accounts during business as 

usual.

The Commission also specifically seeks comment on proposed § 190.10(d), 

regarding changes to the business as usual requirements for acceptance of letters of 

credit, and in particular seeks comment as to (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 
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with the treatment of other customers), and (c) whether the proposed one year transition 

period is reasonable.

C. Subpart C—Clearing Organization as Debtor 

The Commission is proposing to promulgate a new subpart C of part 190

(proposed §§ 190.11-190.19), addressing the currently unprecedented context of a 

clearing organization as debtor. 

1. Regulation 190.11: Scope and Purpose of Subpart C

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.152 The Commission explained that, beyond 

proposing that all open commodity contracts, even those in a deliverable 

position, be liquidated in the event of a clearing organization bankruptcy 

because it would be highly unlikely that an exchange could maintain a 

properly functioning futures market in the event of the collapse of its 

clearing organization[, t]he Commission has proposed no other rules with 

respect to the operation of clearing organization debtors. Under [s]ection 

764(b)(2) of the Code, the Commission has the power to permit a 

distribution of the proceeds of a clearing organization liquidation free 

from the avoidance powers of the trustee. Because the bankruptcy of a 

clearing organization would be unique, the Commission is not proposing a 

general rule in this regard. The potential for disruption of the Markets, 

and of the nation's economy as a whole, in the case of a clearing 

organization bankruptcy, together with the desirability of the 

Commission's active participation in developing a means of meeting such 

an emergency, has disposed the Commission to take a case-by-case 

approach with respect to clearing organizations.153

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 

 152 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 PL 95–598 (1978), 92 Stat 2549.

153 46 FR 57535, 57545 (Nov. 24, 1981).
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organization has increased. The Commodity Futures Modernization Act established 

DCOs as a separate registration category.154 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.155 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.156

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-Frank157 provides with respect to claims against the covered 

 154 Commodity Futures Modernization Act of 2000 Pub.L.No. 106-554 §1(a)(5); Appendix E, §112(f).

155 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.

156 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).

157 12 U.S.C. 5390(a)(7)(B).
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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)

158 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.159 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.

Accordingly, proposed § 190.11 would establish that this subpart C to part 190 

applies to proceedings under subchapter IV to chapter 7 of the Bankruptcy Code where 

the debtor is a clearing organization.

The Commission requests comment regarding the proposed scope of subpart C of 

part 190 as set forth in proposed § 190.11. Do commenters support or oppose the 

decision to establish an explicit, bespoke set of regulations for the bankruptcy of a 

clearing organization?

2. Regulation 190.12: Required Reports and Records

The operations of a clearing organization are extremely time-sensitive. For 

example, § 39.14 requires that a clearing organization complete settlement with each 

 158 12 U.S.C. 5390(d)(2).

159 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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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, and that the 

trustee that is appointed (and the Commission) are rapidly provided with critical 

documents, as discussed further below.

Proposed § 190.12(a)(1) would be analogous to proposed § 190.03(a), 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 proposed part 190.

160 For a discussion of how these notice provisions differ from 

those in current part 190, please refer to the discussion of proposed § 190.03(a).161

Proposed § 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).

162 

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, proposed 

 160 While proposed § 190.03(a)(2) would apply to notice to an FCM’s customers, and proposed 

§ 190.12(a)(1)(ii) would apply to notice to a clearing organization’s members, the means of giving notice 

are identical. 

161 See section II.B.1 above. 

162 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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§ 190.12(b)(1) would require 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 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 winddown plans the debtor maintained pursuant to § 39.39(b),163 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, proposed § 190.12(b)(2) would require the debtor clearing 

organization, in the same time-frame, to provide the trustee and the Commission with 

 163 See § 39.19(c)(4)(xxiv),
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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).

Current § 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, proposed § 190.12(c) would require the 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.164

 164 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 
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The Commission requests comment with respect to all aspects of proposed 

§ 190.12. In particular, are the reports and records identified in proposed § 190.12 to be 

provided to the Commission useful and appropriate? Are the proposed time deadlines 

appropriate? Are there additional reports and records that should be included in the 

regulation? 

3. Regulation 190.13: Prohibition on Avoidance of Transfers

Proposed § 190.13 would implement section 764(b) of the Bankruptcy Code, 

protecting certain transfers from avoidance (sometimes referred to as “claw-back”), with 

respect to a debtor clearing organization. It is analogous to proposed § 190.07(e) (and 

current § 190.06(g)), with certain changes. Specifically, while proposed § 190.07(e) 

approves FCM transfers unless they are explicitly disapproved, proposed §190.13 

requires explicit Commission approval for DCO transfers. While an FCM can transfer 

only a portion of its customer positions, a DCO must maintain a balanced book, and thus 

must transfer all of its customer positions (or at least all positions in a given product set). 

Given the importance of transferring open commodity contracts and the property 

margining such contracts in the event of a DCO bankruptcy, the Commission is 

proposing that any such transfer should require explicit Commission approval.

Thus, whereas current § 190.06(g)(1)(iii) provides that a pre-relief transfer by a 

clearing organization cannot be avoided as long as it is not disapproved by the 

 

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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Commission, proposed § 190.13(a) would instead provide that a pre-relief transfer of 

open commodity contracts and the 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, while current § 190.06(g)(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, proposed § 190.13(b) 

would instead provide 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 requests comment with respect to all aspects of proposed 

§ 190.13. In particular, do commenters agree with the approach of requiring explicit 

approval of transfers by clearing organization debtors?

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

Date

Proposed § 190.14(a) would provide discretion to the trustee to design the proof 

of claim form and to specify the information that is required. Broad discretion would 

appear to be appropriate, given the bespoke nature of a clearing organization bankruptcy.

Proposed § 190.14(b) addresses continued operation of a DCO. Proposed 

§ 190.14(b)(1) would provide that, after the order for relief, the debtor clearing 

organization would cease making calls for either variation or initial margin, except as 

otherwise provided in § 190.14(b).
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Proposed § 190.14(b)(2) would allow for the possibility that the trustee believes 

that continued operation of the debtor clearing organization would be both useful and 

practicable, in which event the trustee may request permission of the Commission to 

operate the clearing organization for up to six calendar days after the order for relief, to 

the extent practicable, in accordance with the rules and procedures of the debtor, and with 

respect to open commodity contracts of the debtor. 

In this context, usefulness would be addressed in paragraph (b)(2)(i), namely that 

such continued operation would facilitate accomplishing promptly (the outer limit of 

which would be no more than six calendar days) either (A) transfer of the clearing 

operations to another DCO or (B) resolution of the DCO pursuant to Title II of DoddFrank. (i.e., that such transfer or entry into a Title II resolution proceeding was not 

practicable to accomplish before the order for relief, but could be accomplished within a 

brief period thereafter).

Practicability would be addressed in paragraph (b)(2)(ii). If the rules of the debtor 

clearing organization compel the termination of all or substantially all outstanding 

contracts under the relevant circumstances (e.g., upon an order for relief), then continued 

operation would not be practicable. Moreover, cooperation by the members of the 

clearing organization would be required for practicability. Thus, it would be necessary 

that all (or substantially all) of the members of the clearing organization (other than those 

which are themselves subject to a bankruptcy proceeding) are both able and willing to 

make variation payments as owed during the temporary timeframe.

The reason for the six calendar day outer limit is that six calendar days is one less 

than seven calendar days, the maximum under section 764(b) of the Bankruptcy Code.
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Proposed § 190.14(b)(3) would require the Commission, upon receiving such a 

request, to consider it promptly (as a practical matter, a failure to grant such a request 

within a relatively small number of hours during business days would likely make 

continued operation impracticable). Where the Commission is persuaded that the 

trustee’s conclusions with respect to usefulness and practicability are well grounded (a 

standard that is intended to grant the Commission wide discretion in making a decision, 

which discretion appears necessary in light of the unprecedented and exigent 

circumstances), the Commission may grant the request. The proposed regulation would 

also permit the Commission to grant the request for fewer calendar days than the trustee

has requested, but then to renew permission to continue operations, so long as the total 

calendar days of continued operation total no more than six.

Proposed § 190.14(c)(1) would require 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, such liquidation would not be 

required if the Commission (whether at the request of the trustee or sua sponte) 

determines that such liquidation would be inconsistent with the avoidance of systemic 

risk165 or, in the expert judgment of the Commission, would not be in the best interests of 

the debtor clearing organization’s estate.166 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.

 165 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 . . .”).

166 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 . . . .”).
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Proposed § 190.14(c)(2) would, analogously to existing § 190.08(d)(3) and 

proposed § 190.09(d)(3), permit the trustee to, rather than liquidating securities and 

making distributions in the form of cash, instead 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. 

Proposed § 190.14(d) would 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.” Proposed § 190.14(d) is analogous to proposed § 190.05(b), modified for 

the context of a DCO bankruptcy. Similarly to proposed § 190.05(b), the Commission’s 

objective in proposed § 190.14(d) would be 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 would be required to calculate each 

customer’s funded balance prior to distributing property, to achieve an appropriate 

allocation of property between customers.

The Commission requests comment with respect to all aspects of proposed 

§ 190.14. In particular, the Commission seeks comment on 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 
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into resolution pursuant to Title II of Dodd-Frank. Is there a better way to frame either of 

these terms? Moreover, is it appropriate to provide for the possibility that the trustee may 

be permitted to delay liquidating contracts? 

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

Procedures

Proposed § 190.15 would favor implementation of the debtor’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.”167 Similarly, in 

adopting § 39.39, the Commission explained that it is “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.”168

Proposed § 190.15(a) would provide that the trustee shall not avoid or prohibit 

any action taken by the DCO debtor that was reasonably within the scope of, and was 

 167 78 FR 72476, 72492 (December 2, 2013).

168 Id. at 72494.
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provided for, in any recovery and wind-down plans maintained by the debtor and filed 

with the Commission, subject to section 766 of the Code. This is intended 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.

Proposed § 190.15(b) would instruct 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, proposed § 190.15(c) would instruct the trustee to, 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, to the extent reasonable and 

practicable. These proposed regulations are intended to provide the trustee, who will 

need quickly to take action to manage the DCO (and any member default), with a 

roadmap to manage such action, which roadmap is based on the rules, procedures, and 

plans the DCO has developed in advance, and subject to the requirements of the 

Commission’s regulations.

The Commission requests comment with respect to all aspects of proposed 

§ 190.15. In particular, is it appropriate to steer the trustee towards implementation of the 

debtor DCO’s default rules and procedures and recovery and wind-down plans in 

proposed §§ 190.15(b) and (c)? Are the qualifiers concerning discretion, reasonability 

and practicability appropriate and sufficient?
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6. Regulation 190.16: Delivery

Proposed § 190.16(a) would instruct the trustee to use reasonable efforts to 

facilitate and cooperate with completion of delivery in a manner consistent with proposed 

§ 190.06(a) (which would instruct 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 addressed in proposed § 190.00(c)(5). 

As noted in discussing proposed § 190.06(a), 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 would be limited to requiring “reasonable 

efforts.”

Proposed § 190.16(b) would carry 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 that would be set forth in proposed § 190.06(b). 

Specifically, physical delivery property that is held in delivery accounts for the purpose 

of making delivery would be treated as physical delivery property, as are 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 would be treated as cash delivery 

property, as would any physical delivery property for which delivery is subsequently 

taken.
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The Commission requests comment with respect to all aspects of proposed 

§ 190.16. Specifically, the Commission seeks comment 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. If so, should the physical delivery 

account class for a clearing organization be further divided into separate sub-classes for 

each type of physical delivery property? If so, what should be the definition of a “type of 

physical delivery property”? Alternatively, might it be more prudent in the context of a 

clearing organization to treat the delivery account class as a single, undivided account 

class? 

7. Regulation 190.17: Calculation of Net Equity

Proposed § 190.17(a) with respect to net equity is parallel to proposed § 190.18(a) 

with respect to customer property. Proposed § 190.17(a)(1) would confirm that a 

member of a clearing organization may have claims in separate capacities, that is, claims 

on behalf of its public customers (customer account) and claims on behalf of itself and its 

non-public customers (affiliates) (house account), and, within those separate customer 

classes, further separated by account class. The member would 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. Proposed § 190.17(a)(2) would direct 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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Proposed § 190.17(b)(1) would confirm that the calculation of members’ net 

equity claims—and, thus, the allocation of losses among members and their accounts—is 

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 preexisting loss allocation rules and procedures are the contract between and among the 

members and the DCO, and thus the Commission preliminarily believes it is appropriate 

to give them effect regardless of the bankruptcy of the DCO—and regardless of the 

timing of any such bankruptcy (i.e., regardless of whether such loss allocation rules and 

procedures have been applied fully 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.

DCOs also often have rules to “reverse the waterfall”—that is, to allocate to 

members’ accounts recoveries on claims against defaulting members169 in reverse order 

of the allocation of the losses.170 Proposed § 190.17(b)(2) would implement such rules in 

 169 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. 

170 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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bankruptcy, that is, to adjust members’ net equity claims (and the basis for distributing 

any such recoveries) in light of such recoveries. This regulation would similarly 

implement 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.

Proposed § 190.17(c) would incorporate by reference the equity calculations set 

forth in proposed § 190.08, to the extent applicable.171

Section 766(i) of the Bankruptcy Code (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. Proposed § 190.17(d) would implement this 

provision by defining funded balance as a clearing member’s pro rata share of member 

property (for a clearing member’s house accounts) or customer property other than 

member property (for accounts for a clearing member’s public customers). The pro rata 

amount is calculated with respect to each account class available for distribution to 

customers of the same customer class. Moreover, given that calculation of funded 

 171 For a discussion of the proposed changes between current § 190.07 and proposed § 190.08, which both 

set forth the methodology for calculating net equity, please see sections II.B.5 and II.B. 6 above.
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balance for FCMs is an analogous exercise, calculations would be made in the manner 

provided in the relevant regulation, proposed § 190.08(c), to the extent applicable.172

The Commission requests comment with respect to all aspects of proposed 

§ 190.17. Is it appropriate to base these calculations 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?

8. Regulation 190.18: Treatment of property

Proposed § 190.18(a), with respect to customer property, is parallel to proposed 

§ 190.17(a) with respect to net equity. It would provide that property of the debtor 

clearing organization’s estate is allocated between member property, and customer 

property other than member property, as provided in proposed § 190.18, in order to 

satisfy claims of clearing members, as customers of the debtor. The property so allocated 

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. 

Proposed § 190.18(b) would set out the scope of customer property for a clearing 

organization.

173 It is based in large part on proposed § 190.09(a) (scope of customer 

property for FCMs). Specifically, proposed §§ 190.18(b)(1)(i)(A through G) are based 

 172 For a discussion of the proposed changes between current § 190.07(c) and proposed § 190.08(c), which 

both set forth the methodology for calculating funded balance, please see sections II.B.5 and II.B.6 above.

173 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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on proposed §§ 190.09(a)(1)(i)(A through G). Proposed § 190.09(a)(1)(H) would not be 

mapped over because loans of margin are not applicable to DCOs.174

Proposed §§ 190.18(b)(1)(ii) (A through D) are based on proposed 

§§ 190.09(a)(1)(ii)(A, D, E and F) respectively, while proposed § 190.18(b)(1)(ii)(E) 

would incorporate by reference §§ 190.09(a)(1)(ii)(H through K), as if the term debtor 

used therein refers to a clearing organization as debtor. Proposed §§ 190.09(a)(1)(ii)(B, 

C, G, and L) would not be mapped over because they would not be applicable based on 

the differences in business models, structures, and activities between FCMs and of 

DCOs. 

Proposed § 190.18(b)(1)(iii) would be unique to a clearing organization. It would

include 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. It also would include 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.

Proposed § 190.18(b)(2), which would identify property that is not included in 

customer property, would incorporate by reference proposed § 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.175

 174 For a discussion of the proposed changes between current § 190.08(a) (on which proposed § 190.09(a) is 

based) and proposed § 190.09(a), please see section II.B.7 above.

175 For a discussion of the proposed changes between current § 190.08(a)(2) (on which proposed 

§ 190.09(a)(2) is based) and proposed § 190.09(a)(2), see section II.B.7 above.
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Proposed § 190.18(c) would allocate customer property between customer 

classes. It would operate in the following order of preference: 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. 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.

Thus, proposed § 190.18(c)(1) would allocate any property referred to in 

proposed § 190.18(b)(1)(iii) (guarantee deposits, assessments, etc.) first to customer 

property other than member property (i.e., to benefit public customers) to the extent any 

account class therein is not fully funded, and then to member property. This is a change 

from the proviso in current § 190.09(b), which would allocate such property to member 

property. This change is intended to favor public customers, consistent with the policy 

embodied in section 766(h) of the Bankruptcy Code.

Similarly, proposed § 190.18(c)(2) would allocate 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, proposed § 190.18(c)(3) would allocate 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. 
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Proposed § 190.18(d) would allocate customer property among account classes 

within customer classes. Proposed § 190.18(d)(1) would confirm 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 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).

Pursuant to proposed § 190.18(d)(2), customer property which cannot be allocated 

in accordance with the previous paragraph would be allocated in a manner that promotes 

equality of percentage distribution among account classes within a customer class. Thus, 

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.

Proposed § 190.18(e) would confirm, however, that 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.
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Proposed § 190.18(f) would be the analog in the DCO context to proposed 

§ 190.09(a)(3) in the context of FCMs. It would reserve the right of the trustee to assert 

claims against any person to recover the shortfall of property enumerated in proposed 

§§ 190.18(b)(1)(i)(E), (b)(1)(ii) and (b)(1)(iii). The purpose of proposed § 190.18(f), as 

with proposed § 190.09(a)(3), would be to clarify that any claims that the trustee may 

have against a person to recover customer property will not be undermined or reduced by 

the fact that the trustee may have been able to satisfy customer claims by other means.

The Commission requests comment with respect to all aspects of proposed 

§ 190.18. In particular, the Commission seeks comment on the comprehensiveness of the 

scope of customer property for a clearing organization in proposed § 190.18(b). The 

Commission also requests comment on 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). 

9. Regulation 190.19: Support of Daily Settlement

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.”176 

Indeed, Congress confirmed this by requiring that each DCO complete money settlements 

not less frequently than once each business day.177 

 176 76 FR 3608, 3708 (Jan. 11, 2011).

177 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,178 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.179 

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.180 Depending on the settlement bank and 

 178 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).

179 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.

180 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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operational 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. 

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. Accordingly, the Commission is 

proposing § 190.19(a), pursuant to section 20(a)(1) of the CEA,181 to provide that, upon 

and after an Order for Relief, such funds182 are to be included in the customer property of 

the DCO, that they will be considered traceable to, and shall promptly be distributed to, 

member and customer accounts entitled to payment with respect to the same daily 

settlement. 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.

Regulation 190.19(b) would deal with cases where there is a shortfall in funds 

received pursuant to paragraph (a) (i.e., settlement payments received by the DCO). This 

generally would occur in case of a member default. Proposed paragraph (b)(1), to the 

extent of such shortfall, would supplement the available settlement funds in accordance 

with the DCO’s default rules and procedures (adopted pursuant to § 39.16 for all DCOs 

 181 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, by rule or regulation (1) that 

certain cash, securities, other property, or commodity contracts are to be included or excluded from 

customer property or member property.”)

182 Because deposits of initial margin described in § 39.14(a)(iii) are separate from the variation settlement 

process, they are treated separately in proposed § 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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and, for DCOs subject to subpart C of part 39, § 39.35) and any recovery plans and winddown plans maintained pursuant to § 39.39 and submitted to the Commission pursuant to 

§ 39.19.183 These funds would be allocated in the same proportion as referred to in 

paragraph (a).

Four types of property would 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. 

This would be 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 (which include 

provisions restricting the use of customer margin);

(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 previous paragraph, (such assets are sometimes referred to as 

“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 DCO debtor’s default rules and procedures.

Paragraph (b)(2) would provide 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 

 183 See 39.19(c)(4)(xxiv).
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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 requests comment with respect to all aspects of proposed 

§ 190.19. 

D. Appendix A Forms

The Commission is proposing to delete forms 1 through 3 contained in appendix 

A and would replace form 4 with a streamlined proof of claim form. Current forms 1 

through 3 include (i) a schedule of the trustee’s duties in operating the debtor FCM’s 

estate, (ii) a form for requesting customer instructions regarding non-cash property; and 

(iii) a form for requesting instructions from a customer concerning transfer of hedging

positions. The forms contain outdated provisions that require unnecessary information to 

be collected. The Commission believes these changes provide a trustee with flexibility to 

act based on the specific circumstance of the case, while still acting consistently with the 

rules. 

As noted in proposed § 190.03(f), the trustee would be permitted, but not 

required, to use the revised template proof of claim form proposed as new appendix A. 

That template is intended to implement proposed § 190.03(e), and includes crossreferences to the detailed paragraphs of that section. Similarly, the proposed instructions 

would also be 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 requests comment with respect to all aspects of proposed 

revisions to the appendix A template proof of claim form. Is the information called for 
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by the template fit for the goal of providing the trustee with the information they will 

need to determine whether and in what amount to allow a claim? Is any of the 

information called for unnecessary, unhelpful, or disproportionately burdensome? Does 

the form fail to request any information that is necessary to accomplish that goal? Are 

the proposed instructions clear and correct?

E. Appendix B Forms

Appendix B to the current part 190 regulations 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.

 Framework 1 is applicable to specific cross-margining programs that explicitly 

refer to that distributional framework. The framework establishes separate pools of 

cross-margining and non-cross-margining funds and subordinates customer claims for 

cross-margining wherever that would be to the benefit of customer claims for non-crossmargining. 

The ABA Committee proposed clarifying changes to framework 1, and one 

substantive change:184 The ABA Committee “propose[s] deleting the specific limitation 

that customers must be market professionals, should the Commission decide to expand 

 184 See ABA Submission at 58-59. 
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the scope of customers that may participate in futures-securities cross-margining 

programs.”185 

More recent cross-margining programs established in Commission Orders 

pursuant to section 4d of the CEA treat all customer claims (whether involving crossmargining or not, whether involving securities or not) equally, and do not refer to 

Framework 1. Accordingly, it is already possible for customers who are not market 

professionals to participate in cross-margining programs, including those that involve 

securities. There thus appears no need substantively to change framework 1. On the 

other hand, framework 1 will continue to apply to the programs established pursuant to 

Orders that refer to that framework, and so it would appear helpful to make clarifying 

changes. 

The Commission is accordingly proposing the clarifying changes suggested in the 

ABA Submission, but is not proposing the substantive change incorporated in the ABA 

Submission. It would retain the current instructions and examples following the first 

three paragraphs in appendix B, framework 1 entirely unchanged.

The Commission is proposing to retain framework 2 with some clarifying changes

to the opening paragraph; no substantive change is intended. It would retain the current 

instructions and examples following the first paragraph in appendix B, framework 2 

entirely unchanged.

The Commission requests comment with respect to all aspects of the proposed 

revisions to the opening paragraph of appendix B, framework 2.

 185 See ABA Cover Note at 17.
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F. Technical Corrections to Other Parts

1. Part 1

The Commission is proposing several technical corrections and updates to part 1 

in order to update cross-references. These are as follows:

• In § 1.25(a)(2)(ii)(B) the Commission would revise the cross-reference to 

specifically identifiable property, since the definition would be updated in 

proposed § 190.01. 

• In §§ 1.55(d), (d)(1), and (d)(2), references to current § 190.06 would be 

removed consistent with the revisions to proposed § 190.10(b).

• In § 1.55(f), 1.65(a)(3) and 1.65(a)(3)(iii) the Commission would update

references to the customer acknowledgment in proposed § 190.10(e).

2. Part 4

In part 4, the Commission is proposing 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 would change 

the cross-references to the proposed defined term for “in-the-money-amount.”

3. Part 41

In part 41, the Commission would is proposing one technical correction. In 

§ 41.41(d), the Commission would delete the cross-reference to the recordkeeping 

obligations in current § 190.06, pursuant to the revisions to proposed § 190.10(b).
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III. Revisions proposed by the ABA Committee that have not been proposed by 

the Commission.

As noted in section I.A above, today’s NPRM has benefited greatly from the 

ABA Submission. In this section, the Commission will address those points where this 

proposal departs most significantly from the ABA Submission and ABA Cover Note.

First, as discussed in section II.A.1 above, the Commission has, in proposed 

§ 190.00(d)(2)(ii), proposed a more direct approach to addressing the issue of 

constructive and other trusts than the approach suggested in the ABA Submission. 

Second, as discussed in section II.B.3 above, the Commission would propose in 

§ 190.05(f) to modify the application to the trustee of the residual interest provisions in 

§ 1.11 rather than to exempt the trustee from those provisions completely as suggested in 

the ABA Submission.

Third, sections III A-E of the ABA Cover Note recommend that the Commission 

make changes to Commission Rules outside part 190, including (A) the definition of 

Foreign Option in § 30.1(d), (B) the definition of Proprietary Account in § 1.3, (C) the 

definition of Variation Margin in § 1.3, (D) part 22 regulations concerning non-swap and 

non-futures OTC transactions cleared by a DCO, and (E) part 31 regulations for Leverage 

Transaction Merchants. The ABA Committee “emphasize[s], though, that [these 

proposed changes] are not prerequisites for the Model Part 190 Rules to work as drafted. 

The Proposed Model Part 190 Rules stand on their own.”186

While these proposals merit due consideration, the Commission has determined, 

in light of practical limits to staff time and resources, to address these proposals at a later 

 186 ABA Cover Note at 18-19.
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time and separately from these proposed revisions to part 190. By contrast, the 

“Technical Housekeeping Changes” proposed in section III F of the ABA Cover Note are 

more simple, and have been addressed in today’s proposal, as discussed in section II.F 

above.

The ABA Submission also included proposed revisions to appendix B, framework 

1 (Special Distribution of Customer Funds When FCM Participated in Cross-Margining). 

As discussed in section II.E above, the Commission is proposing the clarifying changes 

included in the ABA Submission, but is declining to “delet[e] the specific limitation that 

customers must be market professionals.”187 

Finally, the ABA Cover Note suggests that the Commission delete 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) on the grounds that the framework is 

complicated and unnecessary.188 While the operation of framework 2 is undeniably 

complicated, it appears still to be necessary in order to protect those customers who post 

collateral in the form of U.S. dollars required to be held in the United States.189 Indeed, 

staff recently issued a no-action letter to Eurex Clearing conditioned upon FCMs 

providing customers with a written disclosure statement describing “the operation of 

Framework 2 of Part 190 of the Commission’s regulations in the event of an FCM 

 187 Id. at 17.

188 ABA Cover Note at 17.

189 Cf. § 1.49(e).
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bankruptcy.”190 Accordingly, while the Commission would welcome proposals to 

simplify framework 2, it does not intend to delete or amend that framework at this time.

IV. 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 

orders.191 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”).

The Commission recognizes that the proposed changes to part 190 could create 

benefits, but also could impose costs. The Commission has 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 Act192 (“PRA-related 

costs”), where possible. In situations where the Commission is unable to quantify the 

costs and benefits, the Commission identifies and considers the costs and benefits of the 

 190 See CFTC Staff Letter 18-31 at 7.

191 Section 15(a) of the CEA, 7 U.S.C. 19(a).

192 44 U.S.C. 3501 et. seq.
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applicable proposed rules in qualitative terms. The lack of data and information to 

estimate those costs is attributable in part to the nature of the proposed rules.

The Commission generally requests comment on all aspects of its cost-benefit 

considerations, including the identification and assessment of any costs and benefits not 

discussed herein; the potential costs and benefits of the alternatives discussed herein; data 

and any other information to assist or otherwise inform the Commission’s ability to 

quantify or qualitatively describe the costs and benefits of the proposed rules; and 

substantiating data, statistics, and any other information to support positions posited by 

commenters with respect to the Commission’s discussion. The Commission welcomes 

comment on such costs from all members of the public, but particularly from FCMs, 

DCOs, and persons with experience as bankruptcy and SIPA trustees (or professionals 

who have provided support to such trustees), who can provide quantitative cost data or 

other learning based on their respective experiences. Commenters may also suggest other 

alternatives to the proposed approaches. 

B. Baseline

The baselines for the Commission’s consideration of the costs and benefits of this 

proposed 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 
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contains two frameworks setting forth rules concerning distribution of customer funds or 

allocation of shortfall to customer claims in specific circumstances. The Commission 

seeks comment on all aspects of the baseline laid out above. 

C. Overarching Concepts

1. Changes to Structure of Industry

The Commission is proposing several revisions in proposed part 190 in order to 

take into account the changes to the structure of the industry since part 190 was originally 

published in 1983. In particular, the Commission would recognize that 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. These changes result from a 

number of factors, in particular advances in technology and the global nature of 

underlying markets. While trading through FCMs in the 1980’s took place 

predominantly through open-outcry during what were then considered business hours in 

the United States, in the 21st Century, FCMs and DCOs are responsible for trades that 

take place continuously from Sunday afternoon through Friday afternoon (U.S. Eastern 

time), due to overnight electronic trading, as well as trading in time zones that are up to 

16 hours ahead of U.S. Eastern time (Sydney, Australia, from approximately October 

through March).

As a result, several of the changes the Commission is proposing to part 190 would 

address these changed circumstances. For instance, proposed § 190.03(b)(2) would 

remove the current deadline of three days following the entry of an order for relief for the 

trustee or DSRO to notify the Commission its intent to transfer open commodity 

contracts. Instead, proposed § 190.03(b)(2) would provide that the trustee or DSRO must 
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notify the Commission of an intent to transfer “[a]s soon as possible.” As discussed 

further below, this change would be in recognition of the fact that a DCO or upstream 

FCM is unlikely to hold a position open for three days following entry of the order for 

relief, and that the trustee would be expected to be working on transferring any open 

positions immediately upon appointment.193 The Commission believes that the revisions 

in proposed part 190 that would address the computerized and fast-paced nature of the 

industry would benefit all parties involved in a bankruptcy proceeding, since the rules 

would reflect how the industry actually works today and would not unnecessarily delay 

the administration of a bankruptcy proceeding.

2. Trustee Discretion

In several places in proposed part 190, the Commission would attempt to provide 

additional flexibility and discretion to the bankruptcy trustee in taking certain actions.194 

For instance, proposed § 190.03(e) and (f) permit the trustee flexibility to modify the 

proof of claim form to take into account the particular facts and circumstances of the 

case. Proposed § 190.03(a)(2) would provide that the trustee the discretion to “establish 

 193 Another example appears in proposed § 190.04(b)(4), which provides that a trustee shall liquidate all 

open commodity contracts in any commodity contract account that is in deficit or for which the customer 

fails to meet a margin call made by the trustee within a reasonable time. The provision further provides 

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.” Proposed § 190.04(b)(4) 

thus allows for the possibility that, in the event of exigent circumstances, a “reasonable time” could be 

deemed by the trustee to be less than one hour, a possibility that accounts for the fast-paced nature of the 

industry. 

Other revisions that reflect changes to the structure of the industry are reflected in proposed 

§ 190.00(c)(6)(iv), which makes clear that the delivery provisions contained in the proposed regulations 

apply to any commodity that is subject to delivery under a commodity contract, whether the commodity 

itself is tangible or intangible, including virtual currencies, and in the definition of “physical delivery 

property” contained in proposed § 190.01, which reflects the fact that a document of title for a commodity 

can be electronic. 

194 The alternative, to forego providing such flexibility or discretion, would invert the benefits and costs 

discussed below.
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and follow procedures reasonably designed for giving adequate notice to customers under 

this part.” This discretionary approach would be in contrast to the customer notice 

procedures in current part 190, which are more prescribed and depend on the type of 

notice being given.195

The Commission is of the view 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. Moreover, each formal approval the trustee is required to obtain 

takes significant time and involves significant administrative costs, to the detriment of 

customers, 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.

Therefore, increased discretion of the trustee would benefit the estate by allowing 

the trustee to make decisions that are uniquely tailored to the particular case, rather than 

being compelled to follow a procrustean framework, or being required to request formal 

approval from the Commission or other parties before implementing those decisions. 

This approach leads to approaches that are better tailored to the specifics of the 

circumstances, reductions in administrative costs (to the benefit of customers and/or other 

creditors) and faster distributions of customer property (to the benefit of customers). It is 

 195 Other examples include proposed § 190.04(d)(3), providing the trustee with discretion to request that a 

customer deliver substitute customer property with respect to a letter of credit, which “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;” 

proposed § 190.08(d)(5), providing that a trustee shall value certain property “using such professional 

assistance as the trustee deems necessary in its sole discretion under the circumstances;” and proposed 

§ 190.14(a), providing that a trustee in a clearing organization bankruptcy 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.”
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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

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 

not to be in the best interests of the customers or other creditors. 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 would be mitigated by (1) the high 

degree of informal (and, where necessary, formal) involvement of Commission staff in 

FCM and DCO bankruptcy matters,196 and (2) the fact that such discretion would not be 

unbounded and would apply only in particular circumstances, as discussed below. 

Therefore, the Commission’s judgment in granting discretion to the trustee would apply

these principles.

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 have an opportunity to object) and (2) the 

 196 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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likelihood that bankruptcy courts would respect the Commission’s rules granting the 

trustee discretion, thereby mitigating the cost of such litigation.

Instances where the revisions to proposed part 190 would afford more flexibility 

or discretion to the bankruptcy trustee are discussed in further detail where they appear in 

each provision below. 

3. Cost Effectiveness and Promptness versus Precision

In its proposed revisions to part 190, the Commission is endeavoring 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, where, following the policy choice made by Congress in section 766(h) of the 

Bankruptcy Code, the Commission is proposing 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 proposed revisions to part 190 would 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. For instance, proposed § 190.05 would provide that the bankruptcy 

trustee shall use reasonable efforts to compute a funded balance for each customer 

account that contains open commodity contracts and other property as of the close of 

each business day, “which shall be as accurate as reasonably practicable under the 

circumstances, including the reliability and availability of information.” The quoted 

language would allow the trustee to avoid more precise calculations where such precision 
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would not be cost effective or could not reasonably be accomplished on a prompt basis 

(for example, in a situation where price information for particular assets or contracts was 

not readily available).197 The Commission believes that these revisions emphasizing cost 

effectiveness and promptness over precision would further the policy embodied in section 

766(h) of the bankruptcy code and benefit parties involved in a bankruptcy proceeding 

overall, as they 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. There could, however, be corresponding costs to 

this approach for some customers in that they may lose out on being treated precisely in 

terms of their individual circumstances (and may receive a smaller distribution of 

customer property than otherwise).

4. Unique Nature of Bankruptcy Events

The Commission would recognize in proposed part 190 that there is no one-sizefits-all approach to the administration of the bankruptcy of an FCM or a DCO, and that it 

would be 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, would address the uniqueness of these bankruptcy events and would 

allow for the bankruptcy trustee to tailor their approach in the way that most makes sense 

 197 Another example of advancing the overarching concept of favoring cost effectiveness over precision is 

in proposed § 190.08(d)(5), which would provide that, in computing net equity, a trustee may value all 

customer property not otherwise listed in proposed § 190.05(d) using such professional assistance as the 

trustee deems necessary. This provision, which would replace more specific valuation instructions that 

currently appear in part 190, would recognize that it is more cost effective for the trustee to enlist whatever 

professional help they need to value certain types of customer property rather than prescribe certain 

valuation methods for every type of customer property they may encounter in the course of a bankruptcy 

proceeding, and thereby would emphasize cost effectiveness over precision. 
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given the individual circumstances of the case at hand.198 History has shown that FCM 

bankruptcies play out in very different ways, and several of the Commission’s proposed 

revisions to part 190 would address that reality. For instance, proposed §§ 190.03(e) and 

(f), addressing the customer proof of claim form in an FCM bankruptcy, would allow the 

trustee, in their discretion, to modify the proof of claim form to take into account the 

particular facts and circumstances of the particular bankruptcy case rather than using, 

unmodified, a standardized proof of claim form that may not be appropriate for those 

circumstances. Similarly, proposed § 190.14(a) would allow the trustee in a DCO 

bankruptcy, “in its discretion based upon the facts and circumstances of the case,” to 

instruct each customer to file a proof of claim form containing such information as is 

deemed appropriate by the trustee. These provisions would reflect the fact that each 

FCM and DCO bankruptcy would present individual circumstances, and that the proof of 

claim form would likely have to be modified to take into account the unique facts and 

circumstances of each case. The Commission believes that the revisions of this type 

would benefit all parties involved in a bankruptcy proceeding by better tailoring such a 

proceeding to the unique needs of the particular case. 

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

In many instances in this proposal, the Commission has noted that a certain 

provision would impose or reduce administrative costs. The Commission notes that, in 

each of these cases, administrative costs would be a cost to the estate of the debtor, since 

 198 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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administrative expenses that the bankruptcy trustee would incur in administering the 

estate (including for the time of the trustee, accountants, counsel, consultants, etc.) would 

be passed onto the estate itself, which means that, in the event of a shortfall, such costs 

would be ultimately be borne by the customers of the debtor, who would receive smaller 

dividends on their claims as the value of the debtor’s estate decreases.199 By a parity of 

reasoning, reducing such administrative costs would reduce the shortfall, and increase 

recoveries by customers.

6. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to the overarching concepts described above. Are there 

additional costs or benefits that the Commission should consider? Are there any 

alternatives that could provide preferable costs or benefits than the costs and benefits 

related to the overarching concepts discussed above? Commenters are encouraged to 

include both qualitative and quantitative assessments of any costs and benefits.

D. Subpart A—General Provisions 

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

Construction 

a. Consideration of Costs and Benefits

Proposed § 190.00 would contain general provisions applicable to all of proposed 

part 190 that would set forth the concepts that guide the Commission’s bankruptcy 

 199 While such costs could 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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regulations. While all of proposed § 190.00 is new, in that current part 190 does not 

contain an analogous regulation, there would be cost-benefit implications only for certain 

provisions within proposed § 190.00, since the bulk of proposed § 190.00 is designed to 

explain concepts that would be either (1) not different from those contained in current 

part 190, but would be simply made explicit in the proposed rules, or (2) new, in that they 

would not be contained in current part 190, but simply would be 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 believes that there would be no cost-benefit implications to the 

following provisions within proposed § 190.00:

• Proposed § 190.00(a), which would set forth the statutory authority 

pursuant to which the Commission is proposing to adopt proposed part 

190.

• Proposed § 190.00(b), which would describe how the proposed rules are 

organized into three subparts. The Commission notes that, while the 

addition of DCO-specific rules in this proposal would be new, the costbenefit implications of the DCO-specific provisions (proposed §§ 190.11 

through 190.18) are discussed separately below.

• Proposed § 190.00(c)(2), which would provide that proposed part 190 

establishes four separate account classes, each of which would be treated 

differently under the proposed rules. In the Commission’s view, this 

provision would be a mere clarification, as current part 190 also 
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establishes different account classes for different types of cleared 

commodity contracts, and would treat each account class differently.

• Proposed § 190.00(c)(3), which would explain the distinction between 

“public customers” and “non-public customers,” and the priority that both 

public and non-public customers enjoy with respect to distributions of 

customer property. Both of these concepts exist in current part 190 and 

would be merely clarified and explained further in proposed 

§ 190.00(c)(3). 

• Proposed § 190.00(c)(4), which would clarify that the policy preference 

behind the rules in subpart B of part 190 is to transfer a debtor FCM’s 

customers’ open commodity contract positions to another FCM 

(frequently referred to as “porting” customer positions) rather than 

liquidating those customer positions. 

• Proposed § 190.00(c)(5), which would explain that proposed part 190 

applies the concept of pro rata distribution when it comes to shortfalls of 

property in a particular account class. In the Commission’s view, this 

provision would not add anything new to part 190 and would be merely 

explanatory, as current part 190, consistent with section 766(h) of the 

Bankruptcy Code, also rests on the concept of pro rata distribution. 

• Proposed § 190.00(d)(1)(i)(A), which would provide that the definition of 

“commodity broker” in proposed part 190 covers both “futures 

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because both are required to register as a FCMs under the CEA and 

Commission regulations.

• Proposed § 190.00(d)(1)(ii), which would provide that proposed 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. In the Commission’s view, this provision would be merely 

explanatory.

• Proposed § 190.00(d)(2)(i), which would state that the bankruptcy trustee 

may not recognize any account class that is not one of the account classes 

enumerated in proposed § 190.01. This provision, again, would be a mere 

clarification that is not meant to add anything new to proposed part 190. 

• Proposed § 190.00(d)(3), which would set forth the transactions that are 

excluded from the definition of “commodity contract.” This provision, in 

the Commission’s view, merely would explain and carry over concepts 

that are already embedded in current part 190. 

• Proposed § 190.00(e), which would set forth rules of construction 

concerning amendments to statutes and regulations referred to in proposed 

part 190, and defining the relationship between proposed part 190 and 

statutes and other regulations. In the Commission’s view, these rules of 

construction would have no cost-benefit implications, as they merely 

would make explicit the Commission’s expectations with respect to a very 

narrow set of issues involved in reading and interpreting the provisions in 

proposed part 190. 
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The Commission believes that there would be cost-benefit implications to the 

following provisions within proposed § 190.00:

• Proposed § 190.00(c)(1) would state that proposed 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 proposed narrowing of 

the application of part 190 (by excluding the empty categories of 

commodity options dealers and leverage transaction merchants) would 

benefit the Commission, the bankruptcy estate, and customers by allowing 

the Commission to propose regulations that are better tailored to the new, 

narrower, set of commodity brokers that are covered by the proposed 

regulations (and thus, less complex).

200 There would a corresponding 

cost, in that the Commission would need to develop such regulations, if 

and when a commodity options dealer or leverage transaction merchant 

registers as such.

• Proposed § 190.00(c)(6) would discuss the treatment of commodity 

contracts that require delivery performance. As in current part 190, 

proposed part 190 would reflect a policy preference for a bankruptcy 

trustee to liquidate commodity contracts that settle via delivery before they 

 200 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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190

move into a delivery position. When that cannot be done, however, and 

when parties to a commodity contract incur delivery obligations, the 

regulations in proposed part 190 would direct the trustee to use reasonable 

efforts to allow a customer to fulfill its delivery obligation directly, outside 

administration of the debtor’s estate, when the rules of the relevant market 

or clearinghouse allow delivery to be fulfilled (1) in the normal course 

directly by the customer, (2) by substitution of the customer for the 

commodity broker, or (3) through agreement of the buyer and seller to 

alternative delivery procedures. This is contrast to current § 190.05(b), 

which 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 proposed regulations, in allowing for more flexibility in how a 

customer could effect delivery outside of the debtor’s estate, would benefit 

customers by allowing for a more bespoke approach to effecting delivery 

when customers incur delivery obligations under their open commodity 

contracts. There, however, would be costs in acting in such a bespoke 

fashion in contrast to following standards established during business as 

usual. 

• Proposed § 190.00(d)(1)(i)(B) would note that there are currently no

registered leverage transaction merchants or commodity options dealers, 

and that the Commission would adopt rules with respect to leverage 

transaction merchants or commodity options dealers at such time as an 
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191

entity registers as one of those categories of commodity brokers. This 

change would benefit the Commission in terms of cost effectiveness by 

allowing the Commission to propose bankruptcy rules specifically tailored 

to leverage transaction merchants or commodity options dealers only in 

the event an entity registers as such. In the event that happens, there 

would be costs involved in doing so. It is possible that the cost of such a 

separate rulemaking or rulemakings would be greater than the marginal 

costs of proposing and finalizing such rules as part of this rulemaking. 

• Proposed § 190.00(d)(1)(iii), would provide that proposed 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. Section 210(m)(1)(B) of title II,201 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. This 

provision would have the benefits associated with transparently providing 

to FDIC during business-as-usual the guidance of the agency with 

regulatory and supervisory responsibility for supervising commodity 

brokers (i.e., FCMs and DCOs).202

 201 12 U.S.C. 5390(m)(1)(B).

202 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, FDIC staff (in 

cooperation with Commission staff) 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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192

• Proposed § 190.00(d)(2)(ii) would provide 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. This provision would

have 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 would mitigate the friction costs of particular 

customers structuring their relationships with their FCMs in order to 

establish such a trust for the purpose of thwarting their exposure to pro 

rata distribution, as well as the friction costs of litigation within the 

bankruptcy proceeding over the effectiveness of such structures in 

achieving that goal. 

• However, this approach would impose costs on those customers, if any 

there be, who would otherwise endeavor to rely on the trust concept to 

shield 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).

 

Thus, there is a public benefit to facilitating FDIC’s efforts in resolution planning for DCOs by setting forth 

clearly guidance as to the distribution of customer property and member property in a DCO resolution 

proceeding.
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b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.00. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

2. Regulation 190.01: Definitions 

a. Consideration of Costs and Benefits

Proposed § 190.01 would set forth definitions as they are used for purposes of 

proposed part 190. In the Commission’s view, only certain of the definitions in proposed 

§ 190.01 would have any cost-benefit implications, and these are discussed in more detail 

below. The rest of the definitions would set forth in proposed § 190.01, in the 

Commission’s view, would not impose any costs or benefits, as the changes to the 

definitions would be minor (in the vein of, for example, updating cross-references or 

updating language to reflect the changes in the rest of proposed part 190) or merely 

would clarify the current definition. 

Where, in the Commission’s view, a definition in proposed § 190.01 would have 

cost-benefit implications, those implications are discussed in more detail below:

• “Account class,” “cash delivery property,” and “physical delivery 

property:” The definition of the term “account class” would be expanded 

to include definitions of each type of account class set forth in proposed 

part 190: futures account, foreign futures account, cleared swaps account, 
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and delivery account. Including a specific definition of each type of 

account class would benefit all parties involved in a bankruptcy 

proceeding by ensuring that all parties would have a common 

understanding of how these various types of accounts would be defined 

for purposes of part 190. 

• The proposed definition of “account class” also would remove the 

category in current part 190 of “leverage account” because, as noted 

above, there are currently no registered leverage transaction merchants. 

Rather, the Commission would 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 would 

benefit market participants by allowing the Commission to propose 

bankruptcy rules specifically tailored to leverage transaction merchants 

(and, accordingly, to leverage accounts) in the event an entity registers as 

such. As noted above with respect to § 190.00(d)(1)(i)(B), in the event of 

the registration of a leverage transaction merchant, there would be costs 

involved in proposing and finalizing such tailored rules. It is possible that 

the cost of such a separate rulemaking or rulemakings would be greater 

than the marginal costs of proposing and finalizing such rules as part of 

this rulemaking. 

The proposed definition of “account class” also would split 

“delivery accounts” into separate physical and cash delivery account 
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195

classes. Because cash delivery property is, in some cases, more difficult 

to trace to specific customers and more vulnerable to loss,203 this separate 

treatment of physical delivery property and cash delivery property would

benefit customers with physical delivery property by allowing for more 

prompt distribution of such physical delivery property. This separation 

would also benefit the estate, because the trustee would 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 would be

potential added costs in the form of complications, in that 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, while others could obtain smaller 

recoveries.

Pursuant to section 4d of the CEA, certain contracts and associated 

collateral that would be associated with one account class may instead 

(pursuant to, e.g., Commission regulation204 or order) be commingled with 

a different account class.

205 The purpose of such arrangements is to 

 203 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)

204 See § 39.15(b)(2), which provides a mechanism for these arrangements to be implemented pursuant to 

clearing organization rules.

205 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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associate such contracts with an account class in which they are riskreducing related to other contracts in that latter account class. 

Paragraph 2 of the definition of account class confirms that such 

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 

would be to foster such risk-reducing (and margin-efficient) arrangements

during business as usual; there would be no associated costs in 

bankruptcy.

Finally, paragraph 3 of the definition addresses cases where a 

commodity broker’s account for a customer is non-current, or otherwise 

inaccurate, a matter over which the customer has, at best, limited control. 

Paragraph 3 would confirm that a commodity broker is considered to 

maintain an 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 would 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” would be revised to include separate definitions of those terms 
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197

for FCMs and DCOs. This change would reflect the new organization of 

proposed part 190, which would include separate provisions for when the 

debtor is (1) an FCM (subpart B), and (2) a DCO (subpart C). The “public 

customer” definition for FCMs also would be revised to define that term 

with respect to each of the relevant account classes.

These changes likely would result in the benefit of clarifying and 

making more transparent who qualifies as a “public” versus a “nonpublic” customer, a categorization which would have an effect on the 

distribution of property to which each customer is entitled. This clarity 

and transparency would, in turn, tend to reduce the administrative costs (to 

the estate and to claimants) involved in the claims allowance process, as 

well as the likelihood (and cost) of litigation by dissatisfied claimants. 

These changes could, however, impose costs on any customers (if they 

exist) for whom, under current part 190, it would not be clear which 

category they fall into. Given that the pool of customer property would be 

different for public and non-public customers, a hypothetical customer 

who could have been considered “public” under current part 190 but 

would be categorized as “non-public” under proposed part 190 could 

receive less in the distribution of customer property (with other customers 

receiving more).

• “Futures, futures contract:” The Commission is proposing to add a 

definition for the terms “futures” and “futures contract” to clarify what 

those terms mean for purposes of proposed part 190. This clarification 
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198

would serve the goals of clarity and transparency (and, consequently, 

reducing administrative costs) by making it more explicit, and transparent, 

which types of transactions are considered “futures” and therefore form 

part of the futures account or foreign futures account. 

• “House account:” The definition of the term “house account” would be 

revised to include separate definitions of that term for FCMs, foreign 

FCMs and DCOs, in a manner that clarifies the connection between the 

concept of a “house account” in part 190 and the concept of a proprietary 

account in § 1.3. This change would reflect the new organization of 

proposed part 190, which now includes separate provisions for when the 

debtor is (1) an FCM (subpart B), or (2) a DCO (subpart C). This change 

would serve the goals of clarity and transparency (and, consequently, 

reducing administrative costs) by clarifying what precisely constitutes a 

house account for purposes of each type of proceeding.

• “Primary liquidation date:” The definition of the term “primary 

liquidation date” would be revised to remove the reference to accounts 

being held open for later transfer, as currently reflected in § 190.03(a). 

The concept of holding certain commodity contracts open for later transfer 

would be removed from proposed part 190 in favor of a policy of 

transferring as many open commodity contracts as possible within a 

particular timeframe after entry of an order for relief206 or, if that is not 

possible, liquidating such commodity contracts. The proposed definition 

 206 See proposed § 190.04(a)(1).
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of “primary liquidation date” would reflect this preferred policy. This 

change in policy would benefit some customers, who would be able to 

avoid having their open commodity contracts liquidated in favor of 

transferring such contracts to another commodity broker. It could, 

however, impose costs on any customers, if they exist,207 who might have 

benefited from having their open commodity contracts held open for 

transfer after the primary liquidation date (by, for instance, being able to 

transfer such contracts to a preferred commodity broker). In the 

hypothetical event that a larger number of contracts is liquidated rather 

than transferred, that additional quantum of liquidation may result in 

additional (downward) pressure on prices. This policy shift could also 

impose administrative costs, since the bankruptcy trustee may expend time 

and effort to carry out its obligation to use its “best efforts” to transfer all 

open commodity contracts prior to the primary liquidation date. 

• “Specifically identifiable property:” The Commission is proposing to 

revise the definition of the term “specifically identifiable property” to 

update, clarify and streamline the current definition of that term. These 

updates, clarifications and streamlining edits would serve the goals of 

clarity and transparency (and, consequently, reducing administrative 

costs). Of course, increasing clarity and transparency may be to the 

 207 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 indeed hypothetical.
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200

detriment of those customers (if any there be) for whom such clarity 

results in assignment to a less favorable category.

• “Substitute customer property:” The definition of the term “substitute 

customer property” would be 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 

would benefit customers who, in a bankruptcy event, would like to redeem 

their specifically identifiable property or letters of credit and, under the 

current rules, have no way to do so.208 Introducing the concept of 

substitute customer property could impose administrative costs, however, 

because the trustee would have to expend time and resources on 

accounting for the substitute customer property and ensure that such 

property ends up in the proper pool of customer property once received. 

• “Swap:” The Commission would amend 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 would serve the 

goals of clarity and transparency (and, consequently, reducing 

administrative costs), 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.01. Are there additional costs or benefits 

 208 Benefits and costs associated with the use of substitute customer property are addressed further below in 

connection with proposed § 190.04(d)(3) in section IV.E.2.
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that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits to the costs and benefits related to the proposed amendments 

discussed above? Commenters are encouraged to include both qualitative and 

quantitative assessments of any costs and benefits.

3. Regulation 190.02: General

a. Consideration of Costs and Benefits

Proposed § 190.02(a)(1) would 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 from, or 

extension of, any time limit prescribed in current part 190. This change could benefit the 

estate, the Commission, and customers by allowing the trustee to request an exemption 

from a requirement in proposed part 190 that would lower administrative costs and 

increase timeliness. This change could, however, 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 would be any cost-benefit 

implications to proposed §§ 190.02(a)(2), (a)(3), (b), (c), (d), and (e), as those sections 

largely align with the provisions in current part 190 from which they would be derived. 

Proposed § 190.02(f) is a new section which would explicitly allow a receiver 

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, to file a petition for bankruptcy 

of such FCM in appropriate cases. This provision may benefit customers, in that a 
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202

bankruptcy proceeding may be necessary to protect customers’ interests in customer 

property. However, this provision could also impose costs on the customers, who may 

not receive as much 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 under the current rules; these costs could 

possibly be greater than the costs of continuing to administer the FCM under 

receivership.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.02. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

4. Section 15(a) Factors—Subpart A

a. Protection of Market Participants and the Public

Subpart A of the proposed rules would 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 

would be to promote clarity in terms of how the insolvency of an FCM or DCO would
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proceed, 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. 

b. Efficiency, Competitiveness, and Financial Integrity

Subpart A of the proposed rules would 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 would, in turn, enhance the 

competitiveness and financial integrity of U.S. FCMs and DCOs, by enhancing market 

confidence in the protection of customer funds and positions entrusted to U.S. FCMs and 

DCOs, 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. To the 

extent that the proposed regulations would mitigate the need for liquidations in conditions 

of distress, they would avoid negative impacts on price discovery. 

d. Sound Risk Management Practices

Subpart A of the proposed rules would 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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e. 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. An effective bankruptcy process that efficiently facilitates the 

proceedings is likely to benefit the financial system (and thus the public interest), as that 

process would help to attenuate the detrimental effects of the bankruptcy on the financial 

network. 

E. Subpart B—Futures Commission Merchant as Debtor

1. Regulation 190.03: Notices and Proofs of Claims

a. Consideration of Costs and Benefits

Proposed § 190.03(a)(1) would replace 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.209 This change would result in 

a benefit to all parties required to provide notices to the Commission because they would

be able to avoid the costs of sending such notice in hardcopy form via overnight mail. 

These revisions would also allow the Commission to receive such notices – and thus, to 

act – much more expeditiously.

Proposed § 190.03(a)(2), which is new, would replace the more specific 

procedures for providing notice to customers that appear in current § 190.02(b), allowing 

the trustee to establish and follow procedures “reasonably designed” for giving adequate 

 209 See also proposed § 190.03(d), which is proposing to adopt this new method of providing notice to the 

Commission for any court filings filed in a bankruptcy. 
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notice to customers.210 Proposed § 190.02(a)(2) also would provide that the trustee’s 

procedures for providing notice to customers should include “the use of a prominent 

website as well as communication to customers’ electronic addresses that are available in 

the debtor’s books and records.” Such a generalized and more modernized approach to 

notifying customers would benefit the debtor’s estate by leading to administrative cost 

savings, as the trustee would be able to choose cost effective means of providing notice to 

customers within the more flexible bounds of the proposed regulation. Similarly, it 

would 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 would 

carry the potential cost of trustee misfeasance and abuse of such discretion, as discussed 

above. 

Proposed § 190.03(b)(1) would revise the time in which a commodity broker must 

notify the Commission of a bankruptcy filing. In particular: (1) in the event of a 

voluntary bankruptcy filing, the commodity broker would be required to notify the 

Commission and the appropriate DSRO as soon as practicable before, and in any event 

no later than, the time of filing, and (2) in the event of an involuntary bankruptcy filing or 

an application for a protective decree under SIPA, the commodity broker would be 

 210 Proposed § 190.03(a)(2) would be referenced throughout proposed § 190.03 as the proper procedure for 

providing notice to customers in various circumstances. As an example, proposed § 190.03(c)(1) deletes 

the requirement in current § 190.02(b)(1) that the trustee publish notice to customers regarding specifically 

identifiable property in a newspaper for two consecutive days prior to liquidating such property, in favor of 

the more flexible approach for notice set forth in proposed § 190.03(a)(2). Similarly, see proposed 

§ 190.03(c)(3), which requires a trustee appointed in an involuntary proceeding to notify customers of the 

commencement of such a proceeding, and § 190.03(c)(4), which requires the trustee to notify customers 

that an order for relief has been entered, both of which require that such notice be made in accordance with 

the flexible notice provisions set forth in proposed § 190.03(a)(2).
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required to notify the Commission and the appropriate DSRO immediately upon the 

filing of such petition or application. These revisions would codify expectations that 

(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 notify the Commission 

immediately upon the filing. With respect to a voluntary bankruptcy filing, the 

Commission expects that both the Commission and the relevant DSRO would be aware 

of any financial circumstances in the lead-up to a bankruptcy filing in accordance with 

the mandatory reporting requirements in § 1.12; the revision in proposed § 190.03(b)(1) 

merely would codify the expectation that the FCM would notify the Commission of the 

actual bankruptcy filing as soon as practicable before, and in no event later than, the time 

of the filing. In addition, proposed § 190.03(b)(1) also would allow a commodity broker 

to provide the relevant docket number of the bankruptcy proceeding to the Commission 

“as soon as known,” while not waiting on notifying the Commission of the filing itself, to 

account for the potential time lag between the filing of a proceeding and the assignment 

of a docket number. These revisions would foster the ability of the Commission and its 

staff to perform their duties by providing the Commission with notice of any bankruptcy 

proceeding as soon as possible.

Proposed § 190.03(b)(2) would remove 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, instead instructing 

such parties to give such notice “[a]s soon as possible” of an intent to transfer. The 
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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 

does not expect that a DCO would be likely to hold a position open for more than three 

days following 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 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 

unique circumstances of each case. Under different circumstances, that is, where transfer 

arrangements cannot be made within three days after the order for relief, this revision 

would benefit the estate and some customers by removing time constraints that could be 

construed to prohibit notification after expiration of the deadline (and thus, prohibit the 

trustee from forming the intent to transfer after that time). 

The revision would also enhance the Commission’s ability to fulfil its 

responsibilities to customers and the markets by facilitating prompt notice of an 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 would 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. 
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Proposed § 190.03(c)(1) would no longer require the trustee to 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, 

instead requiring notification to customers with specifically identifiable property in 

accordance with proposed § 190.03(a)(2). Administrative costs would decrease, as the 

trustee would thus be relieved of the cost of identifying, and publishing notice in, such 

newspapers. Moreover, under the proposed regulation, the trustee would no longer have 

to wait seven days after the second publication date to commence liquidation of 

specifically identifiable property. Rather, under proposed § 190.03(c)(1), the trustee 

would be free to commence liquidation of specifically identifiable property starting on 

the seventh day after entry of the order for relief, which would benefit the estate, and 

potentially the affected customers, by allowing the trustee more freedom (from the time 

constraints set forth in the current regulations) in liquidating the specifically identifiable 

property, which could ultimately result in a better price. Moreover, by using the notice 

provisions that would be set forth in proposed § 190.03(a)(2) to notify customers with 

specifically identifiable property, such customers would benefit from receiving 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 increasing the chances that 

a customer who would like their specifically identifiable property returned could request 

such a return within the specified timeframe.

Proposed § 190.03(c)(2) would provide the bankruptcy trustee with authority to 

treat open commodity contracts of public customers held in hedging accounts designated 
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as such in the debtor’s records as specifically identifiable property.211 This would be 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 would be required to liquidate such contracts within a 

certain time period. To the extent the trustee would exercise the authority derived from 

proposed § 190.03(c)(2), they would 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 would treat these open 

commodity contracts the same as other customer property and effect a transfer of such 

contracts. This new framework would 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 swift and cost effective decisions 

regarding the treatment of open commodity contracts during a bankruptcy situation. 

However, it is possible that some customers would have been in a better position if 

treated on a bespoke basis.

The Commission does not believe that there would be any cost-benefit 

implications to proposed §§ 190.03(c)(3) or (c)(4), other than those discussed above with 

respect to the new notice provision referenced in each, or to proposed § 190.03(d). 

Proposed § 190.03(e), like its analog in current § 190.02(d), would set forth the 

information required from customers regarding their claims against the debtor. As 

revised, proposed § 190.03(e), would reorganize and add certain information items to 

 211 See proposed § 190.10(b)(2) for the process of designating an account as a “hedging account.”
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those listed in the current regulation including, for example, account numbers for 

accounts held by the claimant with the debtor,212 whether the account is an individual 

retirement account for which there is a custodian,213 and information regarding any 

accounts held by the claimant with the debtor that are not commodity contract 

accounts.214 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 would 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 would

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 proposed regulation would 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.

This proposed regulation also would provide that the specific items referred to 

would be included “in the discretion of the trustee.” This discretion would permit the 

trustee to tailor the information requested to the specifics of the debtor’s prior business, 

as well as the already-available records. This would permit the trustee to limit or to 

increase the information requested, in appropriate cases, with a corresponding increase in 

 212 Proposed § 190.03(e)(3)(i).

213 Proposed § 190.03(e)(3)(vii).

214 Proposed § 190.03(e)(4).
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cost effectiveness. To be sure, there could 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 would provide the trustee with 

flexibility to modify the customer proof of claim form set forth in appendix A to 

proposed part 190. Specifically, proposed § 190.03(f) would allow the trustee to modify 

the proof of claim form to take into account the particular facts and circumstances of the 

case. This provision would benefit the estate because the trustee would 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 

would no longer be required to get an order from the bankruptcy court to make such 

modifications, thereby saving time and resources. This new proposed section would also 

benefit customers, who would be able to take advantage of the more streamlined and 

tailored proof of claim forms developed by the trustee, and would therefore spend less 

time filling out such forms, and the estate, which would bear less administrative cost in 

evaluating such forms. Again, there could 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).

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.03. Are there additional costs or benefits 

that the Commission should consider? Is the information called for in proposed 
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§ 190.03(e) and the template proof of claim form in fact readily available to customers? 

If not, what changes should be made?

Are there any alternatives that could provide preferable costs or benefits than the 

costs and benefits related to the proposed amendments discussed above? In particular, 

what desirable results may be sacrificed by deleting existing requirements for newspaper 

publication? What are the costs associated with newspaper publication? Do the cost 

savings from deleting the requirement outweigh the associated loss? 

Commenters are encouraged to include both qualitative and quantitative 

assessments of any costs and benefits.

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

a. Consideration of Costs and Benefits

In proposed § 190.04(a), the Commission would revise current § 190.02(e). The 

revisions would identify explicitly a policy 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, while largely retaining the current provisions. The proposed 

changes would set forth a clear policy for trustees to follow, which would benefit 

customers of the failed FCM in a more streamlined description of the transfer process that 

is consistent with the core concepts set forth in this part. Thus, the Commission estimates 

that there would be very little to no cost to the changes. 

In addition in proposed § 190.04(a)(1), the Commission is proposing to replace 

the term “equity” with “property,” in order to clarify that the transfer is for all types of 

property that the commodity broker is holding on behalf of customers, rather than limited 

to equity. The Commission is also proposing to add the word “public” before “customer” 
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to clarify that the transfers discussed in the regulation related to the open commodity 

contracts and property of the debtor’s public customers. In each case, the Commission 

believes that the changes would clarify the existing regulation to conform to how it has 

been interpreted in the past, as demonstrated by industry practice. Thus, the type of 

property transferred would be unlikely to change. Nevertheless, the clarification would 

benefit customers of the failed FCM by minimizing the likelihood of future disputes 

concerning qualification of property for transfer. As compared to the text of the current 

regulation, the revision would be intended to reduce costs for customers and would be 

designed to increase the amount of property transferred following a default. Based on 

how the existing regulation has been interpreted in the past, as demonstrated by industry 

practice in prior bankruptcy proceedings, no additional costs would be anticipated.215

Proposed § 190.04(a)(2) is derived from current § 190.02(e)(2) and concerns 

transfers by a commodity broker against which an involuntary petition in bankruptcy has 

been filed. As discussed in more detail in section II.B.2 above, both the current and the 

proposed regulations require such a commodity broker to use best efforts to effect a 

transfer within seven calendar days. The current regulation also limits such a commodity 

broker to trading for liquidations only unless otherwise directed by the Commission, by 

any applicable self-regulatory organization or by the court. Proposed § 190.04(a)(2) 

deletes this limitation. Rather, proposed § 190.04(e)(4) more generally would cover 

limitations on the business of an FCM in bankruptcy. Similarly any requirement to 

 215 The Commission is proposing the same change—the addition of the word “public” before “customers” 

to proposed § 190.04(a)(2). The anticipated cost and benefit analysis of the change would be the same as in 

proposed § 190.04(a)(1).
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transfer customers would be more properly addressed by § 1.17(a)(4).216 Accordingly, 

the benefit would be the removal of redundant regulation (and corresponding mitigation 

of administrative costs). The Commission does not anticipate any resulting increase in 

cost. 

In proposed § 190.04(b)(1), the Commission is clarifying and updating conditions 

under which the trustee may make variation and maintenance margin payments on behalf 

of the FCM debtor’s customers via five changes to the current regulation, § 190.02(g)(1). 

First, the proposed regulations would replace the phrase “variation and maintenance 

margin payments” with “payments of initial margin and variation settlement” which, in 

the Commission’s view, more accurately would describe the types of payments being 

reflected in this provision. Second, the proposed regulation would replace 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. Third, the 

proposed revisions would permit the trustee to make margin payments pending transfer or 

liquidation rather than just pending liquidation. Fourth, the proposal would delete the 

phrase “required to be liquidated under current paragraph (f)(1) of this section” and 

instead applies more broadly to any open commodity contracts. In sum, the revisions 

would clarify that payments can be made prior to pending transfers or liquidation, not just 

 216 Reg. §1.17(a)(4) provides that an FCM that is not in compliance with the minimum financial 

requirements established by §1.17, or is unable to demonstrate such compliance as required by §1.17(a)(3), 

or cannot demonstrate that it has sufficient access to liquidity to operate as a going concern, must transfer 

all customer accounts and immediately cease doing business as an FCM until such time as it is able to 

demonstrate compliance. The FCM is nonetheless authorized to trade for liquidation purposes only unless 

otherwise directed by the Commission or the DSRO, or may be allowed by the Commission or the DSRO 

up to 10 business days in which to achieve compliance without having to transfer accounts.
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pending liquidation. The revision would 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. This change would clarify powers the trustee 

already had available under the Bankruptcy Code and would have no associated costs. 

More specifically, the changes would describe more accurately the types of payments that 

the trustee would be able to make and to account specifically for the types of entities to 

which the trustee would be able to make the types of payments referred to in this section. 

Finally, the deletion in the last portion of the section is being proposed in order to prevent 

a misreading of the current provision, which could be read to prohibit margin payments 

for contracts that are being held open, which would undermine the trustee’s ability to 

hold the contracts open. The revisions to proposed § 190.04(b)(1) would clarify the 

current regulatory text, which should benefit stakeholders. The Commission does not 

anticipate any increased cost from the changes.

Proposed § 190.04(b)(1)(i) is derived from current § 190.02(g)(1)(i), which would 

prevent 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 proposal would 

add the explicit phrase “to the extent within the trustee’s control” and would add a 

proviso noting that the regulation “shall not be construed to prevent a clearing 

organization, foreign clearing organization, [FCM] or foreign futures intermediary 

carrying an account of the debtor from exercising its rights to the extent permitted under 

applicable law.” The proposal would recognize 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 
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only make payment with respect to those customer accounts that are not in deficit. Thus, 

this change would reflect the nature of the omnibus accounts that are part of the 

regulatory and statutory framework. The proviso similarly would clarify that this 

prohibition on making margin payments on behalf of accounts in deficit is not intended to 

prohibit entities from exercising legal rights to margin under applicable law. Due to the 

structure of the accounts and the explicit requirement of lack of trustee control, any 

payments that would be made under the new provision would have been made pursuant 

to Commission authorization under the current regulation. Thus, neither provision would

add any new regulatory burden and the Commission does not estimate that there would

be any additional cost associated with the proposed changes.

Proposed § 190.04(b)(1)(ii) is a new regulation that would add 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. This restriction 

would support the pro rata distribution principle discussed in proposed § 190.00(c)(5), 

and would benefit the other customers of the FCM debtor – any payment of customer 

property in excess of a particular customer’s funded balance would be to the detriment of 

other customers. This change would be a clarification of the statutory requirements 

applicable to the customer account.

217

 217 While there would 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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Proposed § 190.04(b)(1)(iii) would be a minor, non-substantive clarification of 

current § 190.02(g)(1)(ii), that would not create any changes from the status quo with 

regards to costs and benefits.

In proposed § 190.04(b)(1)(iv)-(v), the Commission is expanding current 

§ 190.02(g)(1)(iii) to clarify that margin must only be used (i.e., paid to a clearing 

organization or upstream intermediary) consistent with section 4d of the CEA. Proposed

§ 190.04(b)(1)(vi) would revise the language in current § 190.02(g)(1)(iv), which states 

that “no payments need be made to restore initial margin.” The current regulation implies 

that the trustee may make such upstream payments, but does not specify the 

circumstances in which the trustee may do so. As discussed in detail in section II.B.2 

above, proposed §190.04(b)(1)(vi) would state 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 encourage 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, would 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 would be a clarification of the statutory requirements applicable to 

funds in the customer account. While there would be accounting requirements associated 
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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 would be any material additional costs associated with this change.

Proposed § 190.04(b)(2) would clarify and update existing § 190.02(g)(2). The 

current regulation requires retail-level analysis for determining whether to issue margin 

calls based on the funded balance of the account, and does not grant the trustee discretion 

as to whether to do so. It is based on a model of the FCM continuing in business. 

The Commission is proposing to revise this provision to delete the highly 

prescriptive conditions, and instead to allow the trustee discretion as to whether to issue 

margin calls to customers who are undermargined. The revision would 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 would cause no 

change to the related costs and benefits. 
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Proposed § 190.04(b)(3) would retain the concept in current § 190.02(g)(3) with 

updated cross-references. There Commission does not anticipate that there would be any 

costs or benefits to the proposed minor revisions.

Proposed § 190.04(b)(4) would combine parts of current §§ 190.03(b)(1), 

190.03(b)(2) and 190.04(e)(4). The proposal would make two changes. First, while the 

current provision would require the trustee to liquidate open commodity contracts if the 

account is on the threshold of deficit, the proposed revision also would apply to an 

account that is already in deficit. The revision would clarify the applicability of current 

authority to a situation that is already implicit in the current rule. The benefit would be a 

less ambiguous rule that clearly sets forth the applicability of the trustee’s authority (and 

thus results in reduced administrative costs). The Commission does not anticipate any 

increased cost associated with the change. Relatedly, the proposed rule would change 

“payment of margin” to “mark-to-market calculation.” This change would not require 

the trustee to make additional calculations but, if a calculation made by the trustee would 

reveal that the mark-to-market value of the account is a deficit, the trustee would be 

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 would be to liquidate accounts in 

deficit more promptly (thus mitigating potential further losses), the cost would 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). 

Second, the Commission is also proposing to add the concept of “exigent 

circumstances” as a new exception to the general and long-established rule that a 
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minimum of one hour is sufficient notice for a trustee to liquidate an undermargined 

account. The revision would benefit other customers of the debtor FCM by giving the 

trustee flexibility to respond to market conditions following an FCM default, and by 

recognizing that in stressed markets or in situations where communication protocols 

cannot practicably be followed, liquidation with one hour notice may be insufficiently 

prompt. This may mitigate losses to the estate. However, customers who are required to 

make payments more promptly would bear associated costs, from making such payments 

in a reduced time frame, or from having contracts liquidated that would otherwise not 

have been liquidated if the customer had more time to make payment.

The Commission is proposing to delete current § 190.03(b)(3), which permits 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. Under the proposed model, the trustee would liquidate as many open 

commodity contracts as possible. The Commission is of the view that this change would 

reflect actual practice in commodity broker bankruptcies in recent decades. The estate

would benefit from such a model in that they would be permitted to deal with the 

customers as a group, requiring less tailored analysis of individual customer positions. 

The trustee would have more flexibility and could be more cost effective. Many 

customers would benefit from the trustee being able to act with such flexibility and cost 

effectiveness. However, some others could fare less well due to losing the tailored 

treatment under the current model. 

The Commission is proposing to add § 190.04(b)(5) to guide the trustee in 

assigning liquidating positions to the FCM debtor’s customers when only a portion of the 
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open contracts are liquidated. Under the status quo, the trustee must allocate liquidating 

positions. The benefit of this new provision would be that it presents a clear and 

transparent mechanism by which the trustee is to allocate the positions. This mechanism 

would protect the customer account as a whole, by establishing a preference for assigning 

liquidating transactions to individual customer accounts in a risk-reducing manner: first 

to commodity contract accounts that are in deficit, next, to commodity contract accounts 

that are under-margined, and finally to liquidate any remaining open commodity 

contracts. Consistent with the pro rata distribution principle in § 190.00(c)(5), to the 

extent that there are multiple accounts in any of these groups, the trustee would be 

instructed to allocate the transactions on a pro rata basis, thereby minimizing the risk of 

further losses on the positions and reducing the risk of creating any additional debts for 

the debtor estate. The allocation mechanism would be, however, 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. 

Proposed § 190.04(c) would incorporate and clarify current § 190.03(b)(5) 

regarding the liquidation of contracts moving into the delivery position. Current 

§ 190.03(b)(5) requires the liquidation of 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. 

The proposed revision would amend this provision using more explicit language 

regarding physical delivery and includes an explicit reference addressing how options 

move into the delivery position (portions of this provision are moved from current 
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§ 190.02(f)(1)(ii)). These clarifications are likely to reduce administrative costs, to the 

benefit of the estate (and, ultimately, customers). There would be no cost associated with 

the revision.

Proposed § 190.04(d) would clarify and update portions of current §§ 190.02(f) 

and 190.04(d) regarding the liquidation and valuation of open positions. The proposal 

would make three changes to the header text in § 190.04(d) from the text in current 

§ 190.02(f): adding 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;

adding cross-references to proposed § 190.04(e) when discussing liquidation in the 

market and book entry via offset (as that provision contains instructions on how to effect 

such liquidation); and deleting the phrase “subject to limit moves and to applicable 

procedures under the Bankruptcy Code.” These changes would be non-substantive and 

would not have associated costs or benefits.

In proposed § 190.04(d)(1), the Commission is proposing to make two changes to

current § 190.02(f)(1). The proposal would delete the reference in current 

§ 190.02(f)(1)(i)) to dealer option contracts since such term no longer would be used in 

the proposal. Additionally, the proposal would revise the language of current 

§ 190.02(f)(1)(ii) to add references to the provisions of proposed § 190.03(c)(2) 

(concerning the trustee’s option to treat hedging accounts as specifically identifiable 

property) and proposed § 190.09(d)(2) (concerning the payments that customers on 

whose behalf specifically identifiable commodity contracts would be transferred must 

make to ensure that they do not receive property in excess of their pro rata share). These 

revisions would be non-substantive and would not have associated costs.
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Proposed § 190.04(d)(2) would clarify and update current § 190.02(f)(2) and 

would contain a number of proposed revisions. The current regulation applies only to 

specifically identifiable property other than open commodity contracts, while the 

proposal would apply to specifically identifiable property, other than open commodity 

contracts or physical delivery property. While the current regulation requires 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, the proposal would (in paragraph (d)(2)(i)) 

change that figure to 75% of the fair market value. The proposed regulation (in 

paragraph (d)(2)(ii)) would add an additional new condition that would 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. Finally, the proposal (in paragraph

(d)(2)(iii)), while similar to current § 190.02(f)(2)(ii), would include updated crossreferences that would discuss the return of specifically identifiable property. The 

proposal would benefit customers (including those customers with specifically 

identifiable property in a delivery account) by giving the trustee greater discretion to 

forego or postpone liquidation of specifically identifiable property in appropriate cases. 

It is, however, possible that the trustee would exercise their discretion poorly, or in a 

manner that in retrospect is regrettable, and postpone liquidation of specifically 

identifiable property or fail to liquidate specifically identifiable property when the estate 

would have realized more from a prompt liquidation of the property. Such failure could 

result in a cost to the estate of the FCM debtor to the extent that such funds are not 

available. 
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Proposed § 190.04(d)(3) is new and would codify the Commission’s longstanding 

policies of pro rata distribution and equitable treatment of customers in bankruptcy, as 

described in proposed § 190.00(c)(5) above, as applied to letters of credit posted as 

margin. Under the new provision, the trustee could 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 could, 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 proposed §§ 190.08 and 190.09. If necessary, the 

trustee could 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 could 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 would be 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 would be reduced by the value of any 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, would be considered customer property in the account class 

applicable to the original letter of credit.
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These proposed new provisions could impose costs on customers that use letters 

of credit as collateral for their positions in that 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 the full amount of the letter of credit. Under the status quo, the Commission 

has intended 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 section 766(h) of the Bankruptcy Code.218 

However, the treatment was not explicitly codified previously in the Commission’s 

regulations. The proposal would support the policy of pro rata treatment of customers 

embodied 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 would also avoid 

concentrating losses on those 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. 

In the proposal, § 190.04(e)(1)(i) would strike the requirement 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. The 

current regulation is superfluous in light of the regulatory framework set forth in part 40 

of the Commission’s regulations. In addition, proposed § 190.04(e)(1)(i) would add 

language that would apply the current provision to cases where the debtor FCM is a 

member of a foreign clearing organization, a new defined term added to § 190.01. 

 218 See, e.g., 48 FR at 8718-19.
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The first change simply would remove a superfluous regulatory requirement. It 

would have the benefit of enabling clearing organizations to avoid the cost of seeking 

rule approval. There would be potential costs, in that an ill-conceived rule could be more 

readily identified, and addressed, in a rule approval process. The second change would

provide a benefit by recognizing that there are circumstances in which the trustee must 

liquidate the open commodity contracts where the debtor is a member of a foreign 

clearing organization. Since the current regulation is silent as to the trustee’s handling of 

the debtor’s contracts where it is a member of a foreign clearing organization, the trustee 

arguably could have some discretion as to the handling of these contracts. However, 

where there are applicable rules of the foreign clearing organization, it is likely that the 

trustee would handle such contracts as specified in the proposed rule—and would 

liquidate such contracts pursuant to those rules. Accordingly, benefits and costs arising 

from the rule change likely would be minimal. 

Proposed § 190.04(e)(2) is derived from current § 190.04(d)(1)(ii) with one 

change: the Commission is proposing to delete the rule approval requirement. As with 

§ 190.04(e)(1)(i), the proposed deletion would remove a redundant regulatory 

requirement in light of the part 40 rule filing framework, and would enable clearing 

organizations to avoid the cost of seeking rule approval. As discussed immediately 

above, there would be both potential benefits and costs to foregoing the rule approval 

process.

The proposal would add a new, clarifying provision in § 190.04(e)(3), confirming 

that an FCM or foreign futures intermediary through which a debtor FCM carries open 

commodity contracts may exercise any enforceable contractual rights the FCM or foreign 
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futures intermediary has to liquidate such commodity contracts. In addition, proposed 

§ 190.04(e)(3) would add a provision 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 would be the only remedy; under no circumstance could the liquidation be 

voided. 

The proposed change would benefit carrying FCMs by confirming explicitly that

carrying FCMs are allowed to exercise enforceable contractual rights to liquidate 

contracts. This will reduce administrative costs by reducing ambiguity. At the same 

time, clarification of the damages remedy protects 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. Thus, the regulation itself would provide the estate with a 

potential mitigant for the costs in the form of a damages remedy. 

The remainder of the proposed changes to §§ 190.04(e)(4) and (f) would be nonsubstantive language changes and clarifications and updated cross-references and would

not have associated costs or benefits.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.04. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.
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3. Regulation 190.05: Operation of the Debtor’s Estate—General

a. Consideration of Costs and Benefits

In proposed § 190.05, the Commission is revising parts of current § 190.04 and 

adding certain provisions. Current § 190.04 provides that the trustee “shall comply with 

all of the provisions of the [CEA] and of the regulations thereunder as if it were the 

debtor” and “must compute a funded balance for each customer account which contains 

open commodity contracts as of the close of business day subsequent to the order for 

relief until the final liquidation date” (emphasis added). 

In both proposed §§ 190.05(a) and 190.05(b), the Commission would make 

revisions providing the trustee with more flexibility to act in a bankruptcy situation. 

Proposed § 190.05(a), for example, would provide that the trustee “shall use reasonable 

efforts” to comply with the CEA and the Commission’s regulations. Proposed 

§ 190.05(b) would require 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 would 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. On the other hand, affording the trustee increased 

discretion in complying with the CEA and the Commission’s regulations, and in 
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computing a funded balance for each customer account, could carry the potential cost of 

trustee mistake, misfeasance, or abuse of such discretion, as discussed above. The 

Commission also notes that, in proposing to add the phrase “which shall be as accurate as 

reasonably practicable under the circumstances” with respect to the trustee’s computation 

of funded balance, the Commission would be incorporating the principle of prioritizing 

cost effectiveness over precision, as discussed in more detail in the overarching concepts 

above.

Whereas current § 190.04(b) would require a trustee to compute a funded balance 

only for those customer accounts with open commodity contracts, proposed § 190.05(b) 

would expand the scope of customer accounts for which a trustee would be 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 would represent an administrative cost, as the trustee would 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 would 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 would, under the 

proposed revision, receive daily computations of the funded balance of their accounts 

with the debtor. 

In addition, as noted above, proposed § 190.05(b) only would require the trustee 

to compute the daily funded balance of customer accounts until the open commodity 
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contracts and other property in such account has been transferred or liquidated, rather 

than until the final liquidation date, as current § 190.04(b) provides. This would benefit 

both the estate, because the trustee would no longer be required to compute the funded 

balance of customer accounts that do not contain any property, and would also result in 

some benefit to the customers, who would no longer continue to receive daily account 

funded balance computations once their accounts do not contain any property.

Proposed § 190.05(c)(1) would impose certain administrative costs because it 

would expand the scope of records required to be maintained by the debtor from “records 

of the computations required by this part” in current § 190.04(c)(1) to “records required 

under this chapter to be maintained by the debtor, including records of the computations 

required by this part” in proposed § 190.05(c)(1). The proposed paragraph would revise 

downward the amount of time that such records are required to be kept, from “the greater 

of the period required by § 1.31 of this chapter or for a period of one ear after the close of 

the bankruptcy proceeding for which they were compiled” in current § 190.04(c)(1) to 

“until such time as the debtor’s case is closed” in proposed § 190.05(c)(1). This revision

would benefit the estate because it would limit the amount of time the trustee would have 

to maintain the relevant records, thereby mitigating the administrative costs associated 

with maintaining them. 

While current § 190.04(c)(2) requires the records referred to in the previous 

paragraph to be available during business hours to the Court, parties in interest, the 

Commission and the Department of Justice, proposed § 190.05(c)(2) no longer would 

require that such records be available to the Court or to parties in interest. This revision 

would be unlikely to impact either costs or benefits, as the Court itself would not be 
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reviewing these records, and parties in interest should already have access to these 

records under the discovery rules in the Bankruptcy Code. 

Proposed § 190.05(d) is a new provision. It would require 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 would result in administrative

costs, as the trustee would have to expend time and resources issuing account statements 

to customers, but would benefit customers because it would allow 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. 

Proposed § 190.05(e)(1) would allow a bankruptcy trustee to effect transfers of 

customer property in accordance with proposed § 190.07, but would require the trustee to 

obtain court approval prior to making any other disbursements to customers. This 

provision would 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.
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Proposed § 190.05(e)(2) would allow 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 proposed regulation would expand the scope 

of customer property that the trustee is permitted to invest in such a manner to include 

“any other customer property.” This change would benefit customers, in that additional 

customer property could be invested (in this limited manner).. 

Proposed § 190.05(f) is a new provision that does not appear in current part 190. 

It would, for the first time, require 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 

could result in administrative costs, since the trustee would require resources to do so. 

However, this provision would benefit customers by making it more likely that they 

would receive what they are entitled to receive from the debtor’s estate. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.05. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 
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amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

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

a. Consideration of Costs and Benefits

Proposed § 190.06 would revise current § 190.05 regarding the making and taking 

of deliveries under commodity contracts. 

Specifically, proposed § 190.06(a)(2) would replace current § 190.05(b), which 

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. Under the proposed revision, the trustee would use 

“reasonable efforts” (rather than “best efforts” under current § 190.06(a)(1)) 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 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. Management of contracts in the delivery positions 

involves a significant degree of tailored administration. Under the best efforts standard, 

the trustee could spend more time 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” would benefit creditors of the estate as 

the trustee would not need to provide a disproportionate amount of individualized 
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treatment to such contracts. However, particular customers that would otherwise have 

received the trustee’s focused treatment under the “best efforts” standard could suffer a 

cost from the change.

Proposed § 190.06(a)(3) would revise current § 190.05(c)(1)-(2) by providing 

additional 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 would clarify the current regulation. They also 

would provide the trustee with the flexibility to act “as it deems reasonable under the 

circumstances of the case,” but would set an outer bound to that discretion in requiring 

the trustee to act “consistent with the pro rata distribution of customer property by 

account class.” This provision again would have the benefits and costs of enhanced 

discretion discussed above, but would include an outer bound to that discretion.

In proposed § 190.06(a)(4) the Commission would add a new provision to reflect 

that delivery may need to be made in a securities account.219 Transfers would be subject 

to limits based on the customer’s funded balance for a commodity contract account and 

exceeding the minimum margin requirements for that account. Further, customers would

be required not to be undermargined or have a deficit balance in any other commodity 

contract accounts. The new provision would 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 would mitigate the risk of transferring 

too much value out of the commodity contract account (and creating a risk of an 

undermargin or deficit balance).

 219 This would only be relevant for debtor FCMs that are also broker-dealers.
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Proposed § 190.06(b) is also new and would create an account class for physical 

delivery property held in delivery accounts and the proceeds of such physical delivery 

property. This account class would further be sub-divided into separate physical delivery 

and cash delivery account subclasses. In general, creating the delivery account class 

would help protect customers with property in delivery accounts following a default, 

because delivery accounts are not subject to the Commission’s segregation requirements. 

The further sub-division into sub-classes would recognize that cash is more vulnerable to 

loss, and more difficult to trace, as compared to physical delivery property and would be

likely to benefit those with physical delivery claims. Since cash is more vulnerable to 

loss and more difficult to trace, then under the proposal, customers in the cash delivery 

sub-class would be more likely to get a pro rata distribution that is less than that in the 

physical delivery property sub-class. 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.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.06. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.
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5. Regulation 190.07: Transfers

a. Consideration of Costs and Benefits

Proposed § 190.07 would revise current § 190.06 regarding transfers. First, in 

proposed § 190.07(a)(3) the Commission would revise current § 190.06(a)(3). The 

current regulation would provide that no clearing organization or other self-regulatory 

organization may adopt, maintain in effect, or enforce rules that prevent 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 would change “prevent” to the more general term “[i]nterfere with,” thus 

proscribing a potentially broader range of conduct in order to promote transfers. 

However, the revised regulation would include the proviso 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 would modify, 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. Accordingly, 

there would not be any material cost associated with the change. The clarification that 

the regulations do not limit contractual risk management rights would provide a benefit to 

clearing organizations and their members in clarifying that the regulation would not 

nullify the contracts in this regard, and would not have an associated cost.
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In proposed § 190.07(b)(1), the Commission would clarify current § 190.06(c)(1) 

to set forth 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. Under current Commission regulations, 

FCMs are responsible for meeting the requirements under such regulations for customer 

accounts. The proposed revision would recognize these obligations under already 

existing regulations and would clarify that such obligations apply when an FCM is a 

transferee. Accordingly, the Commission does not anticipate any material cost from this 

proposed revision. Under one interpretation of the current regulation, the trustee would 

need to do further diligence in order to make the determination whether the transferee 

would continue to meet minimum financial requirements. Where time is of the essence 

in making a transfer, and given the transferee’s superior knowledge as to its own 

financial status, it would be more appropriate to leave this responsibility with the 

transferee,220 and not to impose any such responsibility on the trustee. The trustee’s 

resources could be better spent on other tasks for the debtor estate. Accordingly, the 

proposed clarification would reduce administrative burden as well. 

Proposed § 190.07(b)(3) is a new provision. It would permit 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 recognizes that customer 

diligence processes would have already been required to have been completed by the 

 220 The focus here is on the responsibilities of the transferee in contrast to those of the trustee. This is 

without prejudice to any review of the transferee’s status by any DCOs or SROs of which the transferee is a 

member, or of any regulators (including the Commission) with jurisdiction over the transferee.
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debtor FCM with respect to each of its customers as part of opening their accounts. The 

proposal would provide a benefit to customers and transferee clearing members and 

trustees, by facilitating the transfer process.221 If such flexibility were not provided, 

under the current regulations, transfer might not be accomplished, or may not be 

accomplished promptly, and liquidation might be the only available option. As discussed 

in proposed §190.00(c)(4), it is preferable to avoid liquidation, as liquidation is much 

more disruptive to markets and to the customers of the defaulted FCM. The proposal 

would recognize the importance of the account opening diligence requirements and 

would mitigate the risk from delay by requiring the diligence to be performed as soon as 

practicable and setting an outer limit at six months, unless that time is extended by the 

Commission.

Proposed § 190.07(b)(4) is also new. It would clarify that account agreements 

governing a transferred account are deemed assigned to the transferee until and unless a 

new agreement is reached. The provision would also explain that consequences for 

breaches pre-transfer are borne by the transferor rather than the transferee. Proposed 

§ 190.07(b)(4) would codify the industry understanding regarding the legal implications 

for transfer agreements and thus the primary benefit is to provide transparency to the 

industry. The Commission does not anticipate that there would be material costs

associated with the change.

 221 The corresponding costs would arise from the possibility that the transferee’s diligence would reveal 

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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Proposed § 190.07(b)(5) would carry forward current § 190.02(c), and would 

provide 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) would be merely clarifications, 

and there would be no costs or benefits associated with such revisions. 

Proposed § 190.07(c) would revise current § 190.06(e). The proposed revision 

would change the language “all accounts are eligible for transfer” in current 

§ 190.06(e)(1) to “all commodity contract accounts (including accounts with no open 

commodity contract positions) are eligible for transfer. . .” This change would recognize 

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 would clarify the current language and would not change the 

types of accounts that can be transferred. Accordingly, the Commission does not 

anticipate that there would be material added cost associated with the revision.

Proposed § 190.07(d) would revise special rules for transfers under section 764(b) 

of the Bankruptcy Code, set forth in primarily in current § 190.06(f). Proposed 

§ 190.07(d)(2)(i) would state that “[t]he Commission will not disapprove such a transfer 

for the sole reason that it was a partial transfer.” Current § 190.06(f)(3)(i) sets forth that 

“[t]he Commission will not disapprove such a transfer for the sole reason that it was a 

partial transfer if it would prefer the transfer of accounts, the liquidation of which could 

adversely affect the market or the bankrupt estate.” The revision would be made to 
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promote transfer. Cost and benefit considerations related to transfer are as discussed 

above.222 

Several changes would be proposed in § 190.07(d)(2)(ii). First, the Commission 

would clarify that associated property (i.e., collateral) would be transferred along with 

open commodity contracts, and thus would insert the term “property” throughout the 

section. This change would clarify the current regulation and would not have an 

associated cost. Second, the Commission would create a limitation on partial transfers 

where netting sets would be broken and customers’ net equity claims would increase. 

Trustees would therefore not permit partial transfers where individual customers would 

be in a worse position (with respect to margin) if the partial transfer were completed. 

While this provision would require the trustee to consider the impact of partial transfer, 

under current regulations, the trustee is already required to consider the extent to which a 

partial transfer would impact customer net equity claims against the FCM debtor’s estate. 

The revised regulation would provide a benefit to customers by codifying this limitation. 

Third, § 190.07(d)(2)(ii) would be revised to add language that clarifies that liquidation 

could either crystalize gains or have the effect of reducing the required margin. This 

change would have a similar impact to the limitation on partial transfers just considered. 

It would codify a consideration the trustee should already be addressing, and as such, 

would not create an additional cost. Finally, the Commission would insert language in 

§ 190.07(d)(2)(ii) that would 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. The inserted language would steer the 

 222 See section II.B.5 above.
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trustee toward respecting spreads and straddles, but would give the trustee more 

flexibility than the current regulation, so that the trustee can respond to the stressed 

market conditions and provide the best outcome for the FCM debtor estate and customers 

generally. The proposed insertion would recognize 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.223

Proposed § 190.07(d)(3) is new and would permit 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 (either because of its terms or because the 

transfer would result in a greater recovery of value for the customer then the customer is 

entitled to) and the customer does not deliver substitute property, the provision would 

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 proposed regulation 

would codify the Commission’s current intention with regards to letters of credit224 and 

the current practice trustees have used. It would ensure that letters of credit are treated in 

an economically similar fashion to other types of collateral and that customers using 

letters of credit would not be given any differential economic benefit, thus serving the 

goal of pro rata distribution. There could be administrative costs incurred by the estate 

associated with drawing upon a letter of credit, as well as costs to the customer that 

 223 See trustee discretion discussion in section IV.C.2 above.

224 See ConocoPhillips, 2012 WL 4757866, and related discussion in section II.B.2 above.
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posted the letter of credit as collateral. Such costs may be mitigated if the customer 

delivers substitute property, as set forth in the proposed regulation.

Proposed § 190.07(d)(4) is also new and would 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 would 

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 would benefit) the delivery process. Therefore, the additional administrative cost 

from the revised regulation would be minimal. There would be no cost to customers, 

who would benefit from the codification of a standard for the trustee.

Proposed § 190.07(d)(5) would revise current § 190.06(e)(2) by making several 

clarifications. The revised provision would prevent prejudice to customers and prohibit

the trustee from making transfers that would result in insufficient customer property 

being available to make equivalent percentage distributions to all equity claim holders in 

the applicable account class. This change would be a clarification of the current 

requirements. It would support achieving the statutory policy of pro rata distribution, but 

would work to the detriment of any customer who, absent the provision, would otherwise 

benefit from a larger distribution. The Commission is further proposing to clarify that the 

trustee should make determinations 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. The benefit here would be that the 

trustee is given discretion to make decisions based on the overarching principle set forth 
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above, valuing cost effectiveness over precise values of entitlement. However, the same 

potential costs would apply—risk of mistake or misfeasance.

Proposed § 190.07(e) would revise current § 190.06(g). The proposal would add 

language to clarify that transfers are approved by the Commission pursuant to the 

procedure set forth in the Bankruptcy Code and adding specific citations to the Code. 

Throughout proposed § 190.07(e), the Commission would insert “or customer property” 

following “the transfer of commodity contract accounts” to clarify that transfers of 

commodity contract accounts include the associated customer property. These revisions 

would be clarifications or reorganizations, and there would be no costs or benefits 

associated with the revisions. 

Proposed § 190.07(e)(1)(iii) would add a provision that would prohibit the trustee 

from avoiding a transfer from “a receiver that has been appointed for the FCM that is 

now a debtor.” The new provision would be 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 would 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 illadvised, a possibility which cannot be foreclosed given the exigencies of an FCM 

receivership, the proposal would prevent the correction of such actions. 

In proposed § 190.07(e)(2)(i), the Commission would revise current 

§ 190.06(g)(2)(i) to modify the term “SRO/commodity broker” to “clearing organization” 

because the only entities who can perform the transfers that are subject to the provision 
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are the trustee, and, in certain circumstances, clearing organizations. This revision would 

be a clarification and would not have any associated cost.

Proposed § 190.07(f) would revise § 190.06(h) regarding Commission action. 

The provision would 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 would clarify that the transfers of the commodity 

contract accounts includes the associated customer property. These revisions would be

clarifications and would not have any associated costs.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.07. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

6. Regulation 190.08: Calculation of Allowed Net Equity

a. Consideration of Costs and Benefits

In proposed § 190.08, the Commission would incorporate much of current 

§ 190.07, though with certain revisions, but also would delete parts of current § 190.07. 
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The Commission is proposing to delete current §§ 190.07(b)(6), 190.07(c)(2)(v), 

and 190.07(d)225 from the proposed rule text, all of which involve how to adjust the 

calculation of allowed net equity with respect to accounts remaining open after the 

primary liquidation date. The reason for these proposed deletions is that under the 

revised definition of the term “primary liquidation date,” all commodity contracts would

be liquidated or transferred prior to the primary liquidation date—none would be held 

open for transfer thereafter. Therefore, since no accounts would remain open subsequent 

to the primary liquidation date, these sections would be rendered moot. Accordingly, the 

Commission does not anticipate any associated costs or benefits.

Proposed § 190.08(b) would set forth the steps for a trustee to follow when 

calculating each customer’s net equity. While proposed § 190.08(b) would contain 

several revisions from its analog in current § 190.07(b), most of the revisions would be 

non-substantive and would clarify, not change, the meaning of the provisions in current 

§ 190.07(b). The cost and benefit considerations of the substantive changes to proposed 

§ 190.08(b) are discussed below. 

First, proposed § 190.08(b)(1) would set forth instructions for determining the 

equity balance of each commodity contract account of a customer. Proposed 

§ 190.08(b)(1)(ii) would provide instructions on how to calculate a customer’s ledger 

balance, which goes into determining that customer’s equity balance. Proposed 

§ 190.08(b)(1)(ii)(A)(4) is new, and would provide that a customer’s ledger balance 

includes “the face amount of any letter of credit received, acquired or held to margin, 

 225 In addition, as noted above, because the Commission is proposing to delete current § 190.07(d) from the 

proposed rule text, the Commission is also proposing to delete the reference to such provision in proposed 

§ 190.08(a). 
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guarantee, secure, purchase, or sell a commodity contract.” This treatment would balance 

the fact that any portion of a posted letter of credit that is not drawn upon would be 

treated as distributed to the customer. This new provision could result in administrative 

costs, since the trustee could, if a particular customer has posted a letter of credit as 

margin for a commodity contract, be required to take the extra step of determining the 

value of such letter of credit in calculating that customer’s equity balance. However, this 

provision could benefit customers posting letters of credit: Absent this addition to the 

rule text, such customers were not explicitly guaranteed that their letters of credit would 

be taken into account in calculations of their equity balance.226

Second, proposed § 190.08(b)(2) would provide instructions to the trustee 

regarding how to determine whether accounts are held in the same capacity or in separate 

capacities, for purposes of aggregating the credit and debit equity balances of all accounts 

of the same class held by a customer in the same capacity. Proposed § 190.08(b)(2)(viii), 

similar to current § 190.07(b)(2)(viii), would note that futures accounts, delivery

accounts, and cleared swaps accounts of the same person shall not be deemed to be held 

in separate capacities, although such accounts may be aggregated in accordance with 

paragraph (b)(3) of the section. Current § 190.07(b)(2)(viii) is subject to one exception, 

 226 The Commission considered similar costs and benefits when it proposed adding other references to 

letters of credit in proposed § 190.08. For instance, proposed § 190.08(c), which would set forth 

instructions for calculating the funded balance, includes in the computation “the value of letters of credit 

received, acquired or held to margin, guarantee, secure, purchase, or sell a commodity contract related to all 

customer accounts of the same class.” In addition, proposed § 190.08(d)(4) would set the value of a letter 

of credit “received, acquired or held to margin, guarantee, secure, purchase, or sell a commodity contract” 

as its face amount less the amount, if any, drawn and outstanding. These new provisions regarding letters 

of credit could result in administrative costs, in that they could involve certain additional steps being taken 

by the trustee with respect to calculating the allowed net equity of each customer when certain customers 

have posted letters of credit to margin their commodity contracts, but they would also benefit customers 

posting letters of credit, who would have explicit assurance that any such letters of credit would be taken 

into account in such calculations. 
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paragraph (b)(2)(ix) of the section, which sets forth that an omnibus customer account of 

an FCM shall be deemed to be held in a separate capacity from the house account and 

any other omnibus customer account of such person. Proposed § 190.08(b)(2)(viii) 

would also be subject to exception from paragraph (b)(ix) and would add another 

exception, from paragraph (b)(xiv), which would reflect that accounts held by a customer 

in separate capacities shall be deemed to be accounts of separate customers. This change 

provides additional cross-references and clarifies the existing regulations, but does not 

change any obligations. Accordingly, there is no cost from the revisions.

Proposed § 190.08(b)(2)(xi), like its analog in current § 190.07(b)(2)(xi), would 

state that certain retirement or pension accounts maintained with the debtor FCM shall be 

deemed to be held in a separate capacity from an account held in an individual capacity 

by the retirement or pension plan administrator, or by any employer, employee, 

participant, or beneficiary with respect to such plan. While current § 190.07(b)(2)(xi) 

would refer only to retirement or pension plans under ERISA, proposed 

§ 190.08(b)(2)(xi) would expand the scope of retirement and pension plans that would be 

described in this provision to include such plans under similar federal, state or foreign 

laws or regulations. This provision could result in administrative costs, because the 

trustee would need to ensure that all accounts in the name of a retirement or pension plan 

as described in proposed § 190.08(b)(2)(xi) would be properly categorized as being held 

in a separate capacity from accounts held in an individual capacity by the plan 

administrator, or by any employer, employee, participant, or beneficiary with respect to 

such plan. The benefit of this change would be to foster the achievement of the statutory 

policies favoring retirement accounts and pension plans. 
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While the Commission would make certain revisions in proposed §§ 190.08(b)(3), 

(b)(4) and (b)(5), as described above, the Commission views such revisions as nonsubstantive and would merely clarify the text in the current analogous provisions. Thus, 

the Commission would not expect these changes to result in any costs or benefits. 

Proposed § 190.08(c) would set forth instructions for calculating each customer’s 

funded balance. As noted above in section II.B.6, the references to calculation as of the 

primary liquidation date would be deleted, because the funded balance (i.e., each 

customer’s pro rata share of the customer estate with respect to an account class) is 

relevant both before the primary liquidation date as well as after.

In addition, proposed § 190.08(c)(1)(ii) would provide that, in calculating each 

customer’s funded balance, the trustee should add any margin payment made between 

(i) the entry of the order for relief or, in an involuntary case, the date on which the 

petition for bankruptcy is filed, and (ii) the primary liquidation date. In the analogous 

current provision, the text did not account for the possibility of an involuntary 

proceeding, so the Commission is proposing to add text to account for such possibility. 

This revision would promote the goal of fair distribution. It would likely benefit those 

customers of a debtor in an involuntary bankruptcy proceeding who make margin 

payments between the date on which the petition for bankruptcy is filed and the primary 

liquidation date, in that those payments would be taken into account when the trustee is 

calculating their funded balance under the proposed rules; it would correspondingly act to 

the detriment of other customers. 

In proposed § 190.08(d), the Commission is proposing in general to implement 

changes to provide more flexibility to the trustee in valuing commodity contracts and 
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other property held by or for a commodity broker. For instance, the Commission is 

proposing to delete current §§ 190.07(e)(2) and (e)(3), regarding the valuation of 

principal contracts and bucketed contracts, respectively, in favor of the more generalized 

approach to valuing property set forth in proposed § 190.08(d)(5). Moreover, in 

proposed § 190.08(d)(5), which is based on current § 190.07(e)(5), the Commission is 

proposing to delete the requirement that the trustee seek approval of the court prior to 

enlisting professional assistance to value customer property. These changes would

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 would 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 could carry 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 some of the specific provisions within proposed § 190.08(d), the 

Commission is proposing substantial changes with respect to the valuation of commodity 

contracts. First, the Commission is proposing to separate more explicitly the instructions 

concerning the valuation of (1) open commodity contracts, and (2) liquidated commodity 

contracts. With respect to open commodity contracts, the Commission would retain the 

provision that the value of an open commodity contract shall be equal to the settlement 

price as calculated by the clearing organization pursuant to its rules. However, the 

Commission is proposing that such clearing organization rules no longer need to be 
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approved by the Commission in order to be used in valuing such contracts for purposes of 

computing net equity. The benefits and costs of that change in approach are discussed 

above with respect to proposed § 190.04(e). 

With respect to commodity contracts that have been transferred, proposed 

§ 190.08(d)(1)(i) would provide that such contracts be valued at the end of the last 

settlement cycle on the day preceding such transfer, rather than at the end of the 

settlement cycle in which it is transferred. Again, this revision would benefit both the 

estate and customers by making it practical to calculate the value of the transferred 

commodity contracts prior to the transfer. 

With respect to liquidated commodity contracts, the Commission is proposing that 

the value of such contracts shall equal the value realized on liquidation of the contract. 

However, in certain circumstances, proposed § 190.08(d)(1)(ii) also would allow the

trustee to either (1) use the weighted average of commodity contracts liquidated within a 

24-hour period or business day, or (2) use the settlement price calculated by a clearing 

organization for commodity contract liquidated as part of a bulk auction by a clearing 

organization. With respect to the weighted average provision, the Commission is 

proposing to change the time period within which such contracts must be liquidated in 

order for the trustee to use the weighted average, from “on the same date” (as provided in 

current § 190.07(e)) to “within a 24 hour period or business day.” This change would

benefit the estate and the goal of pro rata distribution, since it has been proposed in order 

to bring the time frame more in line with how settlement cycles and business days 
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work.227 In addition, the Commission is proposing to add the provision regarding 

valuation in the case of a bulk auction by a clearing organization. In the Commission’s 

view, such an addition would benefit the estate by providing the trustee with another 

option for determining appropriately the value of commodity contracts that were 

liquidated as part of a bulk auction. 

In proposed § 190.08(d)(4), which would set forth the valuation method for 

commodities held in inventory, the Commission is proposing to allow the trustee, in 

circumstances where the fair market value of the commodity held in inventory is not 

readily ascertainable, to value the commodity in accordance with proposed 

§ 190.08(d)(5), discussed above. This change would benefit both the estate, since the 

trustee would have the flexibility to value a commodity held in inventory using such 

professional assistance as they deem necessary, as well as the customers, who would

benefit from a more appropriate valuation due to the trustee’s increased flexibility in 

determining such valuation. It would again, however, involve the costs of possible 

mistake, misfeasance or abuse of discretion discussed above.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.08. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives (e.g., approaches that 

will more likely lead to accurate valuation) that could provide preferable costs or benefits 

 227 The trading day is generally not the same as the calendar day, but instead may run from e.g. 5 p.m. on 

one business day until 4:59 p.m. on the next. Closing prices for contracts would thus be set at the end of 

the trading day, not at the end of the calendar day.

This consideration of costs and benefits also applies to proposed § 190.08(d)(2), which would incorporate 

the same weighted average concept as in proposed § 190.08(d)(1)(ii)(A). 
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than the costs and benefits related to the proposed amendments discussed above? In 

particular, do the proposed rules strike an appropriate balance of discretion and 

prescription? Commenters are encouraged to include both qualitative and quantitative 

assessments of any costs and benefits.

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

a. Consideration of Costs and Benefits

In proposed § 190.09, the Commission would incorporate much of current 

§ 190.08, though with certain revisions and additions. Proposed § 190.09(a)(1) would 

define the scope of “customer property” that is available to pay the claims of a debtor 

FCM’s customers, and proposed § 190.09(a)(1)(i) would set 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. The Commission is proposing

certain substantive changes to the categories listed in proposed § 190.09(a)(1)(i), as 

discussed below: 

• First, proposed § 190.09(a)(1)(i)(D) is a new section that would provide 

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.” While the 

Commission’s intention was always to include such property within the 

definition of “customer property,” clarifying this explicitly would benefit 

both the estate and customers by avoiding confusion or potential litigation.
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• Second, proposed § 190.09(a)(1)(i)(F) would provide that letters of credit, 

including proceeds of letters of credit drawn by the trustee, or substitute

customer property, constitute “customer property.” This section would be 

revised to be consistent with the other letters of credit provisions that 

would be added throughout the proposed part 190. The Commission does 

not anticipate that this provision would result in any material costs or 

benefits, as current § 190.08(a)(1)(i) already includes a provision 

regarding letters of credit.228 

Proposed § 190.09(a)(1)(ii) would set forth the categories of “[a]ll cash, 

securities, or other property” that would be included in customer property. The 

Commission is proposing certain substantive changes to the categories listed in 

§ 190.09(a)(1)(ii), as discussed below: 

• First, proposed § 190.09(a)(1)(ii)(D) would provide 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 proposed revisions to 

 228 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 

proposed § 190.04(d)(3) in section IV.E.2 above.
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this section would benefit the estate, by assuring that any property they

recover would be included in the pool of customer property, no matter the 

method of recovery, rather than going to some other creditor (to be sure, 

those other creditors would receive correspondingly less). 

• Second, proposed § 190.09(a)(1)(ii)(G) is new, and would provide that 

any current assets of the debtor in the greater of (i) the amount that the 

debtor would be obligated to be set aside as its targeted residual interest 

amount, or (ii) the debtor’s obligations to cover debit balances or undermargined amounts, constitutes customer property. This new provision 

would result in administrative costs, because the trustee would 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 would benefit customers (and serve the policy of protecting 

customer collateral), however, because it would mitigate the risk of a 

shortfall in customer funds by ensuring that the trustee would fulfill the 

Commission’s regulations that require an FCM to put certain funds into 

segregation on behalf of customers. This would result in such funds being

included in the pool of customer property, rather than going to some other 

creditor. It would, to the same extent, operate to the detriment of general 

creditors.

• Third, proposed § 190.09(a)(1)(ii)(K) is also new, and would provide 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 
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misuse of customer property constitutes customer property. This 

provision would benefit customers (and, again, the policy of protecting 

customer collateral), since any insurance payment as described in this 

proposed section would enlarge the pool of customer property, rather than 

going to some other creditor.229 It could result in administrative costs, 

however, as the trustee would 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 proposed § 190.09(a)(1)(ii)(L) is new, and 

would provide 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 would

benefit commodity customers (and act to the detriment of general 

creditors) because any securities customer property remaining after full 

allocation to securities customers would 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.230

 229 It would, again, to the same extent, act to the detriment of general creditors.

230 The Commission further notes that the first sentence of proposed § 190.09(a)(1)(ii)(L), which would 

provide that customer property would include 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 
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Proposed § 190.09(a)(2) sets forth the categories of property that are not included 

in customer property. The Commission has proposed certain substantive changes to the 

categories listed in proposed § 190.09(a)(2), as discussed below: 

• First, in proposed § 190.09(a)(2)(iii), the Commission would add 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 would 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, proposed § 190.09(a)(2)(v) would provide 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” would eliminate any distinction between 

initial and variation margin; this deletion would benefit the estate by 

ensuring that any amount deposited by a customer after the entry of an 

order for relief that is necessary to meet that customer’s margin 

requirements would be included in the pool of customer property. It also 

would benefit customers who post excess margin, who could be assured 

that any such excess margin they deposit after the entry of an order for 

relief will remain their property and will not be included in the pool of 

 

satisfy in full all claims of the debtor’s public customers, would impose no costs and benefits because such 

provision already appears in current § 190.08, and the only changes to the provision would be nonsubstantive updates to cross-references.
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customer property. This provision would correspondingly act to the 

detriment of general creditors. 

• Third, proposed § 190.09(a)(2)(viii), which is new, would provide 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. 

Proposed § 190.09(a)(3), which is new, would give the trustee the authority to 

assert claims against any person to recover the shortfall of customer property enumerated 

in certain paragraphs elsewhere in proposed § 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 would, however, benefit customers, since it would ensure that the trustee would 

be in a position to recover any such shortfalls and would give the trustee authority to take 

action to do so. Moreover, since this provision would make explicit what is implicit in 

current part 190, an additional benefit of this provision would be reduced litigation costs 

over a trustee’s authority to engage in attempts to recover shortfalls in customer 

property.

231 

Proposed § 190.09(b) would add the phrase “or attributable to” when describing 

how to treat property segregated on behalf of or attributable to non-public customers

 231 While the persons against whom such claims are successfully asserted may perceive a subjective cost, 

the Commission does not find these costs relevant to the analysis, as those persons would simply be forced 

to pay what they rightfully owe the debtor FCM’s estate. 
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(”house accounts”); the addition of this phrase, as described above, would clarify that 

proposed § 190.09(b)(1) would apply 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), 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.232

Proposed § 190.09(c)(1)(ii) is a new provision that would instruct 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 would set forth the order of 

allocation for any customer property that could not be traced to a specific customer 

account class. These provisions would benefit public customers who would otherwise 

face shortfalls (and then, non-public customers who would otherwise face shortfalls). 

Since these provisions would make explicit what is implicit in current part 190, an 

additional benefit of these provisions would result from the increased clarity over what to 

do with any excess customer property. However, the provisions would act to the 

detriment of general creditors who, under the current regime, could have been more 

 232 Proposed § 190.09(c)(1) would 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 would present similar 

costs and benefits to those discussed above. 
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likely to receive any excess customer property in the absence of an explicit provision 

providing what to do with any such excess customer property. 

Proposed § 190.09(d) would govern the distribution of customer property. The 

only substantive change in proposed § 190.09(d) from its analog in current § 190.08(d) 

would be in proposed §§ 190.09(d)(1)(i) and (ii), which would 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, proposed §§ 190.09(d)(1)(i) and (ii) would allow the posting of “substitute 

customer property.” This term, which would be defined in proposed § 190.01, would 

mean cash or cash equivalents. This revision would benefit customers because it would

make 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, would be required to value (and potentially to liquidate) such cash equivalents. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.09. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.
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8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants 

during Business as Usual

a. Consideration of Costs and Benefits

Proposed § 190.10 addresses provisions applicable to FCMs during business as 

usual. 

In § 190.10(a), the Commission would note that an FCM is required to maintain 

current records related to its customer accounts, consistent with current Commission 

regulations, and in a manner that would permit them to be provided to another FCM in 

connection with the transfer of open customer contracts and other customer property. 

The proposed regulation would not impose new obligations, but rather would inform the 

trustee regarding their duties by incorporating references to the Commission’s existing 

regulations. 

Proposed § 190.10(b) would incorporate concepts in current §§ 190.04(e), 

190.06(d), and the current Bankruptcy appendix form 3 instructions. Under this new 

provision, an FCM would be permitted to rely solely upon written record of the 

customer’s representation of hedging intent regarding the designation of a hedging 

account, thus mitigating administrative costs. 

Proposed § 190.10(b)(1) would require 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 clearing instruction to FCMs at the outset of the relationship. 

This provision is new, with regards to the timing of the opportunity. Clear instruction at 

the outset would facilitate the ability properly to account for customer property. There 

would be some disclosure and accounting costs associated with this provision. The 
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proposed regulation would require FCMs to give customers the opportunity to provide 

instructions as to whether an account is a hedging account at opening, including those 

who will never enter into hedging accounts. For those customers that do engage in 

hedging, it would be more cost effective to designate the account at opening, when both 

customer and FCM are focused on the specifics of the relationship between them, 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 would reduce the probability that the opportunity to designate the account as a 

hedging account will be missed. 

Proposed § 190.10(b)(2) would set forth the conditions for treating an account as 

a hedging account. The current § 190.06(d) requires written hedging instructions for such 

treatment to be given. By contrast, proposed § 190.10(b)(2) would permit 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. 

This provision is new and would follow from the designation of the accounts. There 

would be accounting burdens for FCMs and customers associated with the provision. 

In proposed § 190.10(b)(3), the Commission would provide that the requirements 

in §§ 190.10(b)(1)-(2) would not apply to commodity contract accounts opened prior to 

the effective date of the revisions to part 190 and that an FCM could continue to 

designate existing accounts as hedging accounts based on written hedging instructions 

obtained under current regulations. This provision would mitigate the impact of the 

changes to current requirements in proposed §§ 190.10(b)(1)-(2) by not applying those 

provisions to already opened hedging accounts and would give FCMs the ability to 
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continue to designated already-open hedging accounts based upon the information 

collected and maintained during the current regulatory framework. 

Proposed § 190.10(b)(4) would 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 would give FCMs 

and customers flexibility to apply the proposed regulations to existing accounts where the 

impact would not be overly burdensome.

In proposed § 190.10(c), the Commission would address the establishment of 

delivery accounts during business as usual. The Commission would recognize 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.233 Delivery accounts are of particular importance during bankruptcy although 

there are costs associated with the opening and maintenance of such accounts. The use of 

such accounts is considered to be cost effective in facilitating delivery.

234 The benefit of 

using such accounts would be twofold: to protect customer assets during the delivery

process, and to foster the integrity of the delivery process itself. 

Proposed § 190.10(d) is new. It would address letters of credit and would prohibit 

and FCM from accepting a letter of credit during business as usual unless certain 

conditions are met at the time of acceptance and remain true through the date of 

 233 As noted above in the discussion of proposed § 190.10(c) in section II.B.8, if the commodity that is 

subject to delivery is a security, the FCM may instead effect delivery through (and the property may be 

held in) a securities account.

234 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 would be mitigated.
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expiration. First, the trustee would be required to 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 would be permitted to be and would in fact be

passed through to a clearing organization, the trustee for such clearing organization (or 

the FDIC) would be required to 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). In 

addition, proposed § 190.00(c)(5) would clarify that the trustee is required to treat letters 

of credit in a manner consistent with pro rata distribution and is permitted to draw upon 

the full amount of unexpired letters of credit or any portion thereof or treat the letter of 

credit as having been distributed to the customer for purposes of calculating entitlements 

to distribution or transfer. 

Proposed § 190.10(d) would 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 proposed §§ 190.00(c)(5) and 

190.04(d)(3). Letters of credit are currently widely used in the industry. 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,235 and that these 

forms are consistent with the proposed new requirements. Nevertheless, FCMs would

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. The 

 235 See section II.B.8 above.
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Commission has considered the extent of the use of letters of credit in the industry and is 

proposing that upon the effective date of the regulation, proposed § 190.10(d) would 

apply only to new letters of credit and customer agreements. The Commission further is 

proposing to include a transition period of one year from the effective date until proposed 

§ 190.10(d) would apply to existing letters of credit and customer agreements. The 

transition period would give FCMs an opportunity to conduct the necessary review of 

existing letters of credit and customer agreements, and to make any necessary changes. 

It is possible that some letters of credit could become more expensive if the 

proposed regulation is adopted as there would be an increased likelihood that the letter of 

credit will be drawn upon. (As discussed above, this would appear to not apply to the 

majority of existing arrangements). As noted in the discussion of proposed 

§ 190.04(d)(3), the benefit of the proposed regulation would be ensuring consistent 

economic treatment of letters of credit with other types of collateral to ensure that all 

forms of collateral are treated similarly, thus promoting the goal of pro rata distribution.

Proposed § 190.10(e) would largely aligns with the provisions in current part 190 

from which it was derived. The statement concerning publication of notice in a 

newspaper of general circulation would be deleted to correspond to changes discussed in 

connection with proposed § 190.03(c)(1); there would be no additional cost or benefit 

implications. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.10. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 
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preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

9. Section 15(a) Factors—Subpart B 

a. Protection of Market Participants and the Public

Subpart B of the proposed rules would increase the protection of market 

participants and the public by clearly setting forth how the bankruptcy trustee is expected 

to treat the property of customers of FCMs in the event of an FCM insolvency, thereby 

promoting ex ante transparency for such customers. 

b. Efficiency, Competitiveness, and Financial Integrity

Subpart B of the proposed rules would 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 instructions for a bankruptcy trustee to follow in the event of an FCM 

insolvency, and by updating these instructions to account for current market practices. 

Moreover, subpart B would provide the bankruptcy trustee with discretion, in certain 

circumstances, to react flexibly to the particulars of the insolvency proceeding, thereby 

promoting efficiency of the administration of the proceeding. These effects would, 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. 
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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. To the 

extent that the proposed regulations would mitigate the need for liquidations in conditions 

of distress, they would avoid negative impacts on price discovery.

d. Sound Risk Management Practices

Subpart B of the proposed rules would promote sound risk management practices 

by encouraging the bankruptcy trustee effectively to manage the risk of the debtor FCM. 

Subpart B would accomplish this by revising the bankruptcy rules for an FCM insolvency 

that reflect current market practices and effectively protect customer property in the event 

of such an insolvency. 

e. Other Public Interest Considerations

Subpart B of the proposed rules 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. An effective bankruptcy process that efficiently facilitates 

the proceedings is likely to benefit the financial system (and thus the public interest), as 

that process would 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.
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F. Subpart C—Clearing Organization as Debtor

Proposed 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. While the Commission, in promulgating part 190 in 

the 1980s, determined to “take a case-by-case approach with respect to [the bankruptcy 

of] clearing organizations,”236 the Commission is now proposing to provide a more 

detailed set of instructions. 

The overarching benefits of this approach include the following: (1) uncertainty 

would be reduced both 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 in the unlikely event of the actual bankruptcy 

(or resolution) of a clearing organization (thus enhancing the cost effectiveness of either 

process). (2) 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, proposed subpart C 

would (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 could, to a 

 236 46 FR at 57545.
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certain extent, be costs imposed by proposed subpart C, in that there could be a 

corresponding reduction in flexibility with the addition of rules specifically tailored to 

address a DCO bankruptcy, but the Commission has attempted to draft these proposed 

rules with the intent of maintaining significant flexibility, where warranted. 

1. Regulation 190.11: Scope and Purpose of Subpart C

a. Consideration of Costs and Benefits

Proposed § 190.11 simply would state that the new subpart C of part 190 would 

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 

proposed § 190.11 would be the overarching costs and benefits stated above. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.11. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

2. Regulation 190.12: Required Reports and Records

a. Consideration of Costs and Benefits

Proposed § 190.12(a)(1) would be analogous to proposed § 190.03(a), 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. 
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For a discussion of the costs and benefits of this section, please refer to the discussion of 

the cost and benefit implications of proposed § 190.03(a).

Proposed § 190.12(a)(2) would 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 would 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 would 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 the filing, or 

within at the most three hours thereafter. With respect to a voluntary bankruptcy filing, 

the Commission expects that the DCO would have made it aware of its financial distress 

in the lead-up to a bankruptcy filing in accordance with the mandatory reporting 

requirements in part 39; the revision in proposed § 190.12(a) merely would codify the 

expectation that the clearing organization would 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, proposed § 190.12(a) also would allow a debtor clearing 

organization to provide the relevant docket number of the bankruptcy proceeding to the 

Commission “as soon as available,” while not waiting on notifying the Commission of 

the filing itself, to account for the potential time lag between the filing of a proceeding 

and the assignment by the relevant court of a docket number. These revisions would
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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.

Proposed §§ 190.12(b) and(c) would involve the provision of certain reports and 

records to the trustee and/or the Commission by the debtor clearing organization. In 

particular: proposed § 190.12(b) would set forth the reports and records that the clearing 

organization would 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 proposed § 190.12(c) would set 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 would impose 

administrative costs on the debtor clearing organization and/or the trustee, which would

be obligated to spend time and resources transmitting copies of the required reports and 

records to the trustee and/or Commission. However, these provisions would both benefit 

the estate, and enhance the Commission’s ability to fulfil 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.
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b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.12. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

3. Regulation 190.13: Prohibitions on Avoidance of Transfers

a. Consideration of Costs and Benefits

Proposed § 190.13 would implement section 764(b) of the Bankruptcy Code with 

respect to DCOs, and prohibits the avoidance of certain transfers made either before or 

after entry of the order for relief. This provision is derived from current § 190.06(g), 

with certain changes. While the prohibition of avoidance of pre- and post-relief transfers 

in current § 190.06(g) would apply so long as the transfer is not disapproved by 

Commission, the same prohibition on avoidance of pre- and post-relief transfers in 

proposed §§ 190.13(a) and (b) would require the affirmative approval of the Commission 

(though such approval can be given either before or after the transfer is made). This 

change would impose administrative costs on the clearing organization or the trustee, 

who would 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,237 a clearing organization must 

maintain a “balanced book,” and thus must transfer all of its customer positions (or at 

 237 See section II.C.3 above.
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least all positions in a given product set). Any such transfer would have significant 

effects on the markets cleared, and possibly on the broader financial system. There thus

would seem to be important benefits from requiring the Commission’s approval of such a 

significant transaction, and thus permitting the exercise of discretion by the 

administrative agency responsible for oversight of the derivatives markets.

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.13. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

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

Date

a. Consideration of Costs and Benefits

Proposed § 190.14(a) would provide 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 would benefit both the trustee and customers 

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 
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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.

Proposed § 190.14(b) would provide that a debtor clearing organization will cease 

making calls for variation or initial margin, except in the limited case where the debtor 

clearing organization continues operation for a limited time. Specifically, under 

proposed § 190.14(b)(2), the trustee could request permission of the Commission to 

continue to operate the clearing organization for up to six calendar days after the order 

for the relief if the trustee believes that continued operation would (1) facilitate either 

prompt transfer of the clearing operations of the clearing organization to another DCO or 

resolution of the DCO under Title II of Dodd-Frank, and (2) be practicable, in the sense 

that the rules of the DCO do not compel termination of all outstanding contracts under 

the circumstances then prevailing and all or substantially all of the DCO’s members 

would be able to, and would, make variation margin payments as owed during the period 

of continued operations. 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 so. Providing such a 

mechanism to enable the trustee to continue the operations of the debtor clearing 

organization for a set amount of time could, in certain circumstances, benefit clearing 

members and their customers as well as markets and the broader financial system by 

allowing time to accomplish an impending transfer of the debtor’s clearing operations to 

another clearing organization, or to allow for the possibility of resolving the debtor 
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clearing organization under Title II. Continuing operations of the debtor clearing 

organization could, however, impose administrative costs, as the trustee would have to 

essentially operate the clearing organization according to its rules and procedures, using

the estate’s already limited resources. Moreover, the attempt to continue operations 

could fail, despite the predictions of the trustee and of the Commission, and such failure 

could damage the interests of clearing members and their customers as well as markets 

and the broader financial system. 

The Commission notes that it considered alternatives to proposed § 190.14(b)(2). 

Specifically, the Commission could have left out the possibility of the debtor clearing 

organization continuing operations for any period of time after entry of the order for 

relief. As another alternative, the Commission could have allowed for continued 

operations with fewer requirements than those in proposed § 190.14(b)(2). The 

Commission decided that the framework set out in proposed § 190.14(b) for continuing 

operations of a debtor clearing organization would strike the proper balance between 

allowing for continuing operations where it is appropriate to do so while only allowing 

for continuing operations where such continued operations would be expected to be both 

useful and practical.

Proposed § 190.14(c)(1) would provide 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, 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 provision would impose 

administrative costs in that the trustee would have a hard deadline for terminating, 
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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 

would 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 could benefit the broader financial 

markets by mitigating uncertainty.

Proposed § 190.14(c)(2), which is derived from current § 190.08(d)(3), would 

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), proposed 

§ 190.14(c)(2) would not allow the customer to request that the trustee purchase like-kind 

securities and distribute those instead of cash, instead would leave it up 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 would take 

away their right to request such a distribution. However, it could benefit the estate by 

allowing the trustee to use their discretion as to whether to purchase and distribute 

equivalent securities, rather than being obligated to do so at the request of a customer.

Proposed § 190.14(d) would 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 
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information.” Setting forth an explicit requirement on the bankruptcy trustee to calculate 

the funded balance of customer accounts in certain circumstances would impose 

administrative costs due to the time and effort involved in making such calculations. 

However, this calculation would be necessary to achieve the goal of making distributions 

that would be consistent with each customer’s proportionate share. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.14. Are there additional costs or benefits 

that the Commission should consider? Is it plausible that there would be circumstances 

under which allowing the trustee to continue DCO operations for a limited period of time 

would be the best approach to resolving the DCO? Are there any alternatives that could

provide preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

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

Procedures

a. Consideration of Costs and Benefits

Proposed § 190.15, which is not derived from any provision in current part 190, 

would provide 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 winddown 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, 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. With respect to the first alternative, 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. This would be in contrast to the 

trustee’s power under the proposed rule to act differently to a limited extent, in cases 

where aspects of the plan would be impracticable. As for the second alternative, given 

the differences between DCOs, a one-size-fits-all approach likely would be less effective.

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 

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. However, adding concepts of 

reasonability and practicability would give the trustee the discretion to modify those 

rules, procedures, and plans where and to the extent necessary. 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 would be the most cost 

effective. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.15. Are there additional costs or benefits 

that the Commission should consider? Are there any other alternatives that could provide 

preferable costs or benefits to the costs and benefits related to the proposed amendments 

discussed above? Commenters are encouraged to include both qualitative and 

quantitative assessments of any costs and benefits.

6. Regulation 190.16: Delivery

a. Consideration of Costs and Benefits

Proposed § 190.16 would address delivery in the context of a clearing 

organization bankruptcy. Current part 190 does not contain any regulations specific to 

delivery in the context of a clearing organization bankruptcy. 

Proposed § 190.16(a) would provide that a bankruptcy trustee is be 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 would have the benefits of mitigating disruption to the cash market for the 

commodity and mitigating adverse consequences to parties that could be relying on 

delivery taking place in connection with their business operations. While the exertion of 

such reasonable efforts would necessarily involve administrative costs (predominantly, 

time of the trustee or their agents), the Commission is of the view that this approach 

would have important benefits relative to the two alternatives. Given the importance of 
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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. 

Proposed § 190.16(b) would clarify which property would be part of the physical 

delivery account class and which would be part of the cash delivery account class. It is 

analogous to proposed § 190.06(b) in the FCM context, and would carry forward the 

concepts in that section but would be modified for the context of a DCO bankruptcy. 

Clearly delineating between the physical delivery account class and the cash delivery 

account class would benefit customers because it would increase transparency in terms of 

which account class their property belongs in. Proposed § 190.16(b) could, however, 

impose administrative costs, since accounting separately for physical delivery property 

and cash delivery property would take the trustee’s time and resources. As noted 

above,238 the sub-division of the delivery account class into the physical and cash 

delivery account classes would recognize that cash is more vulnerable to loss, and more 

difficult to trace, as compared to physical delivery property. Therefore, such sub-division 

would be likely to benefit those with physical delivery claims. Since cash is more 

vulnerable to loss and more difficult to trace, then under the proposal, clearing members 

 238 See discussion of § 190.06(b) in section II.B.4 above. 
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and customers in the cash delivery sub-class would be more likely to get a pro rata 

distribution that would be less than that in the physical delivery property sub-class.239

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.16. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

7. Regulation 190.17: Calculation of Net Equity

a. Consideration of Costs and Benefits

Proposed § 190.17(a) would clarify 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 would state 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 proposed § 190.17(a) would be 

mere clarifications and would not impose any costs or benefits on any parties. 

Proposed § 190.17(b) would provide 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, as well as full application 

 239 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 proposed § 190.01, section II.A.2 above.
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of any recoveries made by the estate of the debtor in accordance with the debtor’s rules 

and procedures. These provisions would benefit the estate, as the trustee would (a) have 

a clear roadmap in calculating net equity in the bankruptcy of a clearing organization and 

would not be obligated to come up with an ad hoc methodology of doing so, and (b) face 

reduced likelihood and expected amount of litigation costs arising from challenges to the 

trustee’s choice of methodology. They would also benefit clearing members (and, 

therefore, their customers) by providing transparency as to how their net equity will be 

calculated. And in certain cases, where the debtor recovers any funds, application of the 

debtor’s “reverse waterfall” rules would benefit clearing members (and, in certain cases, 

their customers) by increasing the net equity claims of the entitled clearing members. 

These provisions could, however, impose costs on clearing members whose net equity 

claims may have been greater absent the application of the clearing organization’s loss 

allocation rules and procedures. 

Proposed § 190.17(c) would incorporate by reference the net equity calculations 

set forth in proposed § 190.08, to the extent applicable.240

Proposed § 190.17(d) would set forth a definition of the term “funded balance,” 

which is taken directly from Bankruptcy Code provisions. Clarifying the meaning of the 

term “funded balance” in the context of a clearing organization bankruptcy would benefit 

clearing members, in that they would know ex ante what is and is not included in their 

funded balance and how such amount is calculated. In addition, proposed § 190.17(d) 

 240 For a discussion of the cost and benefit considerations for proposed § 190.08, please see section IV.E.6 

above.
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would incorporate by reference the methodology for calculating funded balance that 

would be set forth in proposed § 190.08(c).241

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.17. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

8. Regulation 190.18: Treatment of Property

a. Consideration of Costs and Benefits

Proposed § 190.18(a) is analogous to proposed § 190.17(a), in that it would 

provide that property of the debtor clearing organization’s estate would be allocated 

between member property and customer property other than member property in order to 

satisfy the proprietary and customer claims of clearing members. In the Commission’s

view, the provisions in proposed § 190.18(a) would be mere clarifications and do not 

impose any costs or benefits on any parties.

Proposed §§ 190.18(b)(1)(i) and (ii) would set out the scope of customer property 

for a clearing organization, and would be largely based on proposed § 190.09(a).242

 241 For a discussion of the cost and benefit considerations for proposed § 190.08(c), please see section 

IV.E.6 above.

242 For a discussion of the cost and benefit considerations for proposed § 190.09(a), please see section 

IV.E.7 above.
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Proposed § 190.18(b)(1)(iii) would provide that customer property would include 

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 would support the goal of making customers 

whole. Specifically, it would benefit clearing members of the debtor, 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-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. 

Proposed § 190.18(b)(2) would incorporate by reference proposed § 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.243

Proposed § 190.18(c) would set forth the allocation of customer property among

customer classes (i.e., allocation between (1) customer property other than member 

property, and (2) member property). This provision, in general, would set forth the 

principle, consistent with the statutory preference for public customers over non-public 

customers embodied in Bankruptcy Code section 766(h), that allocation to customer 

 243 For a discussion of the cost and benefit considerations for proposed § 190.09(a)(2), please see section 

IV.E.7 above.
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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 benefit the public 

customers of the debtor’s clearing members, since it would make clear that allocation to 

such customers would be preferred over allocation to the clearing members’ house 

accounts. It could impose corresponding costs on the debtor’s clearing members and 

affiliates to the extent that, under the current regime, there would be a possibility that 

more customer property would be allocated to their house accounts. Overall, this 

provision would provide 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. 

Proposed § 190.18(d) would set forth the allocation of customer property among 

account classes. This provision would be similar in concept to proposed § 190.09(c) (and 

current § 190.08(c)). The Commission is proposing to take an additional step that applies 

specifically in the context of a clearing organization bankruptcy. Specifically, the 

Commission is proposing to include a provision that would set forth the allocation of 

customer property among account classes. This provision would benefit clearing 

members and their customers, who would have increased transparency, ex ante, into how 

customer property would be allocated. Prescribing such allocation would, however, 

impose administrative costs, because the trustee would lose some amount of flexibility in 

terms of how to allocate customer property between account classes. 

Proposed § 190.18(e) would provide that, where the debtor has, prior to the order 

for relief, kept initial margin for house accounts in accounts without separation by 
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account class, then member property would be considered to be in a single account class. 

This provision would benefit the estate, because the trustee would not be put to the 

considerable task of separating in bankruptcy that which was treated as a single account 

during business-as-usual. The proposed section would also benefit debtor’s clearing 

members, who would have increased transparency as to how their member property 

would be treated. 

Proposed § 190.18(f), which would be the analog to proposed § 190.03(a)(3), 

would give the trustee the authority to assert claims against any person to recover the 

shortfall of customer property enumerated in certain paragraphs elsewhere in proposed 

§ 190.18. This provision could impose administrative costs, since the trustee could 

expend time and resources to assert claims to make up for any shortfall in customer 

property. The provision would, however, benefit customers, since it would support the 

trustee’s efforts to recover any such shortfalls and by giving the trustee authority to take 

action to do so. Moreover, since this provision would make explicit what is implicit in 

current part 190, an additional benefit of this provision would be reduced litigation costs 

over a trustee’s attempts to recover shortfalls in customer property.244

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.18. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

 244 As discussed above in section IV.E.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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amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

9. Regulation 190.19: Support of Daily Settlement

a. Consideration of Costs and Benefits

Proposed § 190.19, which is new, would deal with the treatment of variation 

settlement in a clearing organization bankruptcy, and would set forth what to do when 

there is a shortfall in variation settlement owed to a debtor clearing organization’s 

clearing members and customers. Specifically, proposed § 190.19(a) would provide 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. Proposed § 190.19(b) 

would deal with a situation where there is a shortfall in variation settlement received by 

the clearing organization, and provides that such funds shall be supplemented in 

accordance with the clearing organization’s default rules and procedures and any 

recovery and wind-down plans maintained by the clearing organization. 

Proposed § 190.19 would benefit clearing members and their customers because it 

would ensure that any variation settlement received by the clearing organization would 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). There 

could be corresponding costs to general creditors of the clearing organization since, under 

current part 190, it would be conceivable that variation settlement received by the 

clearing organization could be diverted to the pool of general creditors rather than 
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becoming customer property (even though such diversion would be contrary to the 

expectations of both the Commission and the industry). In clarifying how variation 

settlement received by the clearing organization is to be treated by the bankruptcy trustee, 

proposed § 190.19 would also benefit clearing members and their customers by providing 

enhanced transparency. There could be administrative costs, however, to the extent the 

trustee would lose some amount of flexibility in terms of how to treat variation settlement 

received by the clearing organization, and in terms of the time and resources they could

need to spend to determine how to make up a shortfall in such settlement funds. 

b. Request for Comment

The Commission requests comment on all aspects of its cost and benefit 

considerations with respect to proposed § 190.19. Are there additional costs or benefits 

that the Commission should consider? Are there any alternatives that could provide 

preferable costs or benefits than the costs and benefits related to the proposed 

amendments discussed above? Commenters are encouraged to include both qualitative 

and quantitative assessments of any costs and benefits.

10. Section 15(a) Factors—Subpart C

a. Protection of Market Participants and the Public

Subpart C of the proposed rules would increase the protection of market 

participants and the public by clearly setting forth 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. Moreover, the addition in part 190 of bespoke bankruptcy rules for a DCO 

bankruptcy would provide better protections to market participants by accounting for the 
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unique position of clearing members (and the customers of such clearing member) of a 

DCO that is going through an insolvency proceeding. 

b. Efficiency, Competitiveness, and Financial Integrity

Subpart C of the proposed rules would promote efficiency (in the sense of both 

cost effectiveness and timeliness) in the administration of insolvency proceedings of 

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 would provide the bankruptcy trustee with discretion, in certain 

circumstances, to react flexibly to the particulars of the insolvency proceeding, thereby 

promoting efficiency of the administration of the proceeding. These effects would, 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.

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. To the 

extent that the proposed regulations would mitigate the need for liquidations in conditions 

of distress, they would avoid the resultant negative impacts on price discovery.

d. Sound Risk Management Practices

Subpart C of the proposed rules would promote sound risk management practices 

by encouraging the bankruptcy trustee to effectively manage the risk of the debtor DCO. 

Subpart C would accomplish this by adding bankruptcy rules to part 190 for a DCO 

insolvency that reflect current market practices and effectively would protect customer 
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property in the event of such an insolvency. Moreover, subpart C would promote sound 

risk management practices by instructing a bankruptcy trustee to implement the debtor 

DCO’s default rules and procedures and to take actions in accordance with the debtor 

DCO’s recovery and wind-down plans, which rules, procedures and plans are developed 

and overseen by the Commission.

e. 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 proposed rules would 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 would help to attenuate 

the detrimental effects of the bankruptcy on the financial network.

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

The Commission is proposing technical corrections to parts 1, 4, and 41 to update crossreferences. These corrections and clarifying and do not have any impact on the 

substantive obligations related to these sections. Thus, there are no costs associated with 

these minor technical updates.

H. 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 
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anticompetitive means of achieving the purposes of the CEA in issuing any order or 

adopting any Commission rule or regulation.245

The Commission believes that the public interest to be protected by the antitrust 

laws is the promotion of competition. The Commission requests comment on whether 

the proposed rulemaking implicates any other specific public interest to be protected by 

the antitrust laws. The Commission has considered the proposed rulemaking to 

determine whether it might have anticompetitive effects. The Commission has not 

identified any effect on competition of the proposed rulemaking, which would apply only 

in the rare instance of an FCM or DCO bankruptcy. Accordingly, the Commission has 

not identified any less anticompetitive means of achieving the purposes of the CEA. The 

Commission requests comment on whether there are less anticompetitive means of 

achieving the relevant purposes of the CEA that would otherwise be served by adopting 

the proposed rules. 

V. Related Matters

A. 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.246 The regulations proposed by the Commission would affect clearing 

organizations, FCMs, bankruptcy trustees, and customers. The Commission has 

 245 Section 15(b) of the CEA, 7 U.S.C. 19(b).

246 5 U.S.C. 601 et seq.
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previously established certain definitions of “small entities” to be used in evaluating the 

impact of its regulations in accordance with the RFA.247 

The Commission has previously determined that clearing organizations and FCMs 

are not small entities for purposes of the RFA.248 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. The proposed regulations 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 proposed amendments would not have a 

significant economic impact on a substantial number of small entities. The Commission

invites public comments on this determination.

B. Paperwork Reduction Act

The Paperwork Reduction Act (“PRA”) provides that Federal agencies, including 

the Commission, may not conduct or sponsor, and a person is not required to respond to, 

a collection of information unless it displays a valid control number from the Office of 

 247 47 FR 18618 (Apr. 30, 1982).

248 See 66 FR 45604, 45609 (Aug. 29, 2001); 67 FR 53146, 53171 (Aug. 14, 2002).
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Management and Budget (“OMB”).249 This proposed rulemaking contains reporting 

requirements that are collections of information within the meaning of the PRA and for 

which the Commission has previously received a control number from OMB: OMB 

Control Number 3038-0021 (Regulations Governing Bankruptcies of Commodity 

Brokers).

Information Collection 3038-0021250 contains the reporting, recordkeeping and 

third-party disclosure requirements in the Commission’s bankruptcy regulations for 

commodity broker liquidations (17 C.F.R. part 190). These regulations apply to 

liquidations under chapter 7, subchapter IV of the Bankruptcy Code.

251The Commission

promulgated part 190 pursuant to the authority of 7 U.S.C. 24. The Commission is 

proposing to amend Information Collection 3038-0021 to (1) accommodate new 

information collection requirements for FCMs and DCOs as a result of this proposal, and 

(2) revise the existing information collection requirements for FCMs and DCOs as a 

result of this proposal.

 249 44 U.S.C. 3501 et seq.

250 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) proposed 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 proposed §§ 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 proposed §§ 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), as provided for in proposed §§ 190.10(b) and 190.10(e) (which are analogs to current §§ 190.06(d) 

and 190.10(c)), as well as new a third-party disclosure requirement provided for in proposed § 190.10(d) 

(regarding letters of credit).

251 11 U.S.C. 761 et seq.
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The Commission therefore is submitting this proposal to the OMB for its review 

in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. Responses to this collection 

of information would be mandatory. The Commission will protect proprietary 

information according to the FOIA and 17 CFR 145, “Commission Records and 

Information.” In addition, section 8(a)(1) of the CEA strictly prohibits the Commission, 

unless specifically authorized by the CEA, from making public “data and information 

that would separately disclose the business transactions or market positions of any person 

and trade secrets or names of customers.”252 The Commission is also required to protect 

certain information contained in a government system of records according to the Privacy 

Act of 1974.253

The information collection requirements of proposed part 190 are necessary and 

will be used to facilitate the effective, efficient and fair conduct of liquidation 

proceedings for FCMs and DCOs and to protect the interests of customers in these 

proceedings both directly and by facilitating the participation of the Commission in such 

proceedings. The estimates below reflect estimated burden hours per information 

collection requirement; the Commission has not identified any start-up, operational or 

maintenance costs associated with the information collection requirements set forth 

below. The Commission requests comment on all aspects of its PRA analysis. 

1. Reporting Requirements in an FCM Bankruptcy

Proposed § 190.03(b)(1) would require FCMs that file a petition in bankruptcy to 

notify the Commission and the relevant DSRO, as soon as practicable before and in any 

 252 7 U.S.C. 12(a)(1).

253 5 U.S.C. 552a.
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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 would further require 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.

Proposed § 190.03(b)(2) would require 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. 

Based on its experience, the Commission anticipates that an FCM bankruptcy 

would occur once every three years.254 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: 1255

Estimated total annual number of responses for all respondents: 1

Estimated annual number of burden hours per respondent: 1256

 254 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

255 The Commission estimates that (1) under proposed § 190.03(b)(1), an FCM would make two 

notifications per bankruptcy (one to the Commission and one to its DSRO), and (2) under proposed 

§ 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 proposed § 190.03(b)(1), and 0.33 notifications annually pursuant to 

proposed § 190.03(b)(2), for a total of one notification annually per respondent. 

256 The Commission estimates that (1) the notifications required under proposed § 190.03(b)(1) would take 

0.5 hours to make, and (2) the notification required under proposed § 190.03(b)(2) would take 2 hours to 
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Estimated total annual burden hours for all respondents: 1

2. Recordkeeping Requirements in an FCM Bankruptcy

Proposed § 190.05(b) would require 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.

Proposed § 190.05(d) would require 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. 

Based on its experience, the Commission anticipates that an FCM bankruptcy 

would occur once every three years.257 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: 26,666.67258

Estimated total annual number of responses for all respondents: 26,666.67

Estimated annual number of burden hours per respondent: 266.67259

 

make. In terms of burden hours, this amounts to (0.5*0.67 under proposed § 190.03(b)(1)) plus (2*0.33 

under proposed § 190.03(b)(2)), or a total of one burden hour annually per respondent. 

257 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

258 The Commission estimates that (1) under proposed § 190.05(b), a trustee would compute a funded 

balance for customer accounts 40,000 times; and (2) under proposed § 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 proposed § 190.05(b), and 13,333.33 records annually pursuant to proposed § 190.05(d), for a 

total of 26,666.67 records annually per respondent.
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Estimated total annual burden hours for all respondents: 266.67

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

FCM Bankruptcy

Proposed § 190.03(c)(1) would require 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 proposed part 190.

Proposed § 190.03(c)(2) would allow 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.260

Proposed § 190.03(c)(4) would require 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 proposed § 190.03(e).

 259 The Commission estimates that the each record required under proposed §§ 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 

proposed § 190.05(b)) plus (0.01*13,333.33 under proposed § 190.05(d)), or a total of 266.67 burden hours 

annually per respondent.

260 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 proposed § 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 

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Proposed § 190.07(b)(5) would, in the event that specifically identifiable property 

has been or will be transferred, require the trustee 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.261 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: 10,003.32262

Estimated total annual number of responses for all respondents: 10,003.32

Estimated annual number of burden hours per respondent: 1,336.67263

Estimated total annual burden hours for all respondents: 1,336.67

 261 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the three-year period. 

262 The Commission estimates that a trustee would make the required disclosures under each of proposed 

§§ 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 proposed §§ 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 

proposed § 190.07(b)(5) 10 times per bankruptcy. Dividing this number by three results in 3.33 disclosures 

annually pursuant to proposed § 190.07(b)(5). This amounts to a total of 10,003.32 disclosures annually 

per respondent. 

263 The Commission estimates that (1) each disclosure required under proposed §§ 190.03(c)(1) and 

190.03(c)(2) (b) would take 0.1 hours to prepare; (2) each disclosure required under proposed 

§ 190.03(c)(4) would take 0.2 hours to prepare; and (3) each disclosure required under proposed 

§ 190.07(b)(5) would take 1 hour to prepare. In terms of burden hours, this amounts to (0.1*3,333.33 

under proposed § 190.03(c)(1)) plus (0.1*3,333.33 under proposed § 190.03(c)(2)) plus (0.2*3,333.33 

under proposed § 190.03(c)(4)) plus (1*3.33 under proposed § 190.07(b)(5)), or a total of 1336.67 burden 

hours annually per respondent.
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4. Reporting Requirements in a DCO Bankruptcy

Proposed § 190.12(a)(2) would require 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 would require 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.

Proposed § 190.12(b)(1) would require 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).

Proposed § 190.12(b)(2) would require 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. 

Proposed §§ 190.12(c)(1) and (c)(2) would 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 
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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.264 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: 2.98265

Estimated total annual number of responses for all respondents: 2.98

Estimated annual number of burden hours per respondent: 0.61266

Estimated total annual burden hours for all respondents: 0.61

 264 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. 

265 The Commission estimates that (1) under proposed § 190.12(a)(2), a clearing organization would make 

two notifications per bankruptcy; (2) under proposed § 190.12(b)(1), a clearing organization would provide 

40 reports to the trustee; (3) under proposed § 190.12(b)(2), a clearing organization would provide 5 reports 

to the trustee and the Commission; (4) under proposed § 190.12(c)(1), a clearing organization would 

provide 100 records to the trustee and the Commission; and (5) under proposed § 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 proposed § 190.12(a)(2); (2) 0.8 reports annually pursuant to 

proposed § 190.12(b)(1); (3) 0.1 reports annually pursuant to proposed § 190.12(b)(2); (4) 2 reports 

annually pursuant to proposed § 190.12(c)(1); and (5) 0.04 reports annually pursuant to proposed 

§ 190.12(c)(2). This amounts to a total of 2.98 reports annually per respondent. 

266 The Commission estimates that (1) each notification required under proposed § 190.12(a)(2) would take 

0.5 hours to make; (2) gathering the reports required under proposed § 190.12(b)(1) would take 0.2 hours; 

(3) gathering the reports required under proposed § 190.12(b)(2) would take 0.2 hours; (4) gathering the 

reports required under proposed § 190.12(c)(1) would take 0.2 hours; and (5) gathering the reports required 

under proposed § 190.12(c)(2) would take 0.2 hours. In terms of burden hours, this amounts to (0.5*0.04 

under proposed § 190.12(a)(2)) plus (0.2*0.8 under proposed § 190.12(b)(1)) plus (0.2*0.1 under proposed 

§ 190.12(b)(2)) plus (0.2*2 under proposed § 190.12(c)(1)) plus (0.2*0.04 under proposed § 190.12(c)(2)), 

or a total of 0.61 burden hours annually per respondent.
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5. Recordkeeping Requirements in a DCO Bankruptcy

Proposed § 190.14(d) would require 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.267 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: 9268

Estimated total annual number of responses for all respondents: 9

Estimated annual number of burden hours per respondent: 0.9269

Estimated total annual burden hours for all respondents: 0.9

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

DCO Bankruptcy

Proposed § 190.14(a) would allow the trustee, in their discretion based upon the 

facts and circumstances of the case, to instruct each customer to file a proof of claim 

 267 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the fifty-year period. 

268 The Commission estimates that, under proposed § 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. 

269 The Commission estimates that computing the funded balance of customer accounts pursuant to 

proposed § 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.
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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.270 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: 0.9271

Estimated total annual number of responses for all respondents: 0.9

Estimated annual number of burden hours per respondent: 0.18272

Estimated total annual burden hours for all respondents: 0.18

7. Third-Party Disclosure Requirements Applicable to Multiple Respondents During 

Business as Usual

Proposed § 190.10(b) would require 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.

 270 These estimates express the burdens in terms of those that would be imposed on one respondent during 

the fifty-year period. 

271 The Commission estimates that, under proposed § 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. 

272 The Commission estimates that instructing customers to file a proof of claim pursuant to proposed 

§ 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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Proposed § 190.10(d) would prohibit an FCM from accepting a letter of credit as 

collateral unless such letter of credit may be exercised under certain conditions specified 

in the proposed regulation.

Proposed § 190.10(e) would require an FCM to provide any customer with the 

disclosure statement set forth in proposed § 190.10(e) 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: 3,000273

Estimated total annual number of responses for all respondents: 375,000

Estimated annual number of burden hours per respondent: 60274

Estimated total annual burden hours for all respondents: 7,500

8. Request for Comment 

The Commission invites the public and other Federal agencies to comment on any 

aspect of the proposed information collection requirements discussed above. The 

 273 The Commission estimates that under proposed §§ 190.10(b), 190.10(d) and 190.10(e), an FCM would 

make the required disclosures 1,000 times per year. This amounts to a total of 3,000 responses annually per 

respondent. 

274 The Commission estimates that each disclosure required under §§ 190.10(b), 190.10(d) and 190.10(e) 

would take 0.02 hours to make. In terms of burden hours, this amounts to (0.02*1,000 under proposed 

§ 190.10(b)) plus (0.02*1,000 under proposed § 190.10(d)) plus (0.02*1,000 under proposed § 190.10(e)), 

or a60 burden hours annually per respondent.
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Commission will consider public comments on this proposed collection of information 

regarding: 

• evaluating whether the proposed collection of information is necessary for 

the proper performance of the functions of the Commission, including 

whether the information will have a practical use; 

• evaluating the accuracy of the estimated burden of the proposed collection 

of information, including the degree to which the methodology and the 

assumptions that the Commission employed were valid; 

• enhancing the quality, utility, and clarity of the information proposed to be 

collected; and 

• reducing the burden of the proposed information collection requirements 

on registered entities, including through the use of appropriate automated, 

electronic, mechanical, or other technological information collection 

techniques, e.g., permitting electronic submission of responses.

Copies of the submission from the Commission to OMB are available from the 

CFTC Clearance Officer, 1155 21st Street NW, Washington, DC 20581, (202) 418–5160 

or from http://RegInfo.gov. Organizations and individuals desiring to submit comments 

on the proposed information collection requirements should send those comments to:

• The Office of Information and Regulatory Affairs, Office of Management 

and Budget, Room 10235, New Executive Office Building, Washington, 

DC 20503, Attn: Desk Officer of the Commodity Futures Trading 

Commission;

• (202) 395–6566 (fax); or
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• OIRAsubmissions@omb.eop.gov (email).

List of Subjects

17 CFR Part 190

Part 190—BANKRUPTCY RULES

For the reasons stated in the preamble, the Commodity Futures Trading Commission 

proposes to amend 17 CFR chapter I as follows:

PART 1 – GENERAL REGULATIONS UNDER THE COMMODITY 

EXCHANGE ACT

1) In § 1.25 of this chapter, revise paragraph (a)(2)(ii)(B) to read as follows

* * * * *

(B) Securities subject to such repurchase agreements must not be “specifically 

identifiable property” as defined in §190.01 of this chapter.

* * * * *

2) In § 1.55, revise paragraphs (d), (d)(1), (d)(2), and (f) 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 

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 
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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) and 1.65(a)(3), and §§ 30.6(a), 33.7(a), 155.3(b)(2), 

155.4(b)(2), and 190.10(e) of this chapter.

* * * * *

3) 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.

4) In § 4.5, revise paragraph (c)(2)(iii)(A) to read as follows:

* * * *
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(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 

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

* * * *

5) 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 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 10 percent; and

* * * *

6) 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

* * * *

7) In § 41.41, revise paragraph (d) to read as follows:

* * * *
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(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.

* * * *

8) Replace Part 190 with the following:

PART 190—BANKRUPTCY RULES

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 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.
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(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 Commision regulation 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 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.
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(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.

(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.

(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 
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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 

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 
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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.

(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 
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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 DoddFrank 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.

(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.
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(v) any security-based swap or other security (as defined in section 3 of the Exchange 

Act), but a security futures product that is 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.

(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 crossmargining 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)).
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§ 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 has the same definition as set forth in § 1.3 of this chapter.

(ii) Foreign futures account means:

(A) a 30.7 account, as such term is defined in § 30.1(g) of this chapter; and 

(B) An account maintained on the books and records of a 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).

(iii) Cleared swaps account means a cleared swaps customer account, as such term is 

defined in § 22.1 of this Chapter.

(iv)(A) Delivery account means:

(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 
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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 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.

Allowed net equity means, for purposes of subpart B, the amount calculated as 

allowed net equity in accordance with § 190.08(a), and for purposes of subpart C, the 

amount calculated as allowed net equity in accordance with § 190.17(c).

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 
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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 three 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 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.

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.
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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.

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.
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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,

(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).

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 
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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 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, (1) in the case of a futures commission merchant, any 

proprietary account, as defined in § 1.3 of this chapter, with respect to futures contracts or 

swaps, (2) in the case of a foreign futures commission merchant, any proprietary account, 

as defined in § 1.3 of this chapter, with respect to foreign futures contracts and (3) 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).
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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.

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 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, shipping certificates or other 

documents of title (including electronic title documents) for the commodity, or the 

commodity itself:

(1) 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;

(2) 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 
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debtor as held in a delivery account for the benefit of such customer, regardless how long 

such property has been held in such account; 

(3) 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. 

(4) 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.

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 
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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:

(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, 
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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.

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. 
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§ 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.

(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 Division of Swap Dealer and Intermediary Oversight 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 Division of Swap Dealer and Intermediary 

Oversight, or such member 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).
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(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 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.

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 
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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 

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 
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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. If the trustee does not 

exercise such authority, such open commodity contracts do not constitute specifically 

identifiable property. If the trustee exercises such authority, the trustee shall use 

reasonable efforts to promptly notify, in accordance with § 190.03(a)(2), each relevant 

public customer of such determination and 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. Such notice must also inform the customer that (i) 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, (ii) any transfer of the open commodity contracts is 

subject to the terms for distribution contained in § 190.09(d)(2), (iii) absent compliance 

with any terms imposed by the trustee or the court, the trustee may liquidate the open 

commodity contracts, and (iv) providing 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 

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);
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(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;

(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
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(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 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 
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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 

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 
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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 to 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 

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:
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(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.

(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.

(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 
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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.

(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 
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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 (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.

§ 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.
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(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.

(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 
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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 

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 
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§ 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. 

(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.
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(5) Delivery made or taken on behalf of house account. If delivery of physical 

delivery property is to be made or taken on behalf of a house account 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 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 
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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.

(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 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) 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.
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(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) House accounts 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.

(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.
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(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 pass-through 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.

(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
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(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:

(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 allowed net equity. 

For purposes of this subpart, allowed net equity shall be computed as follows:

(a) Allowed claim. 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.

(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:
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(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

(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.
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(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.

(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.
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(ix) An omnibus customer account of a futures commission merchant maintained with 

a debtor shall be deemed to be held in a separate capacity from the house account and any 

other omnibus customer account of such futures commission merchant.

(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 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 
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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.

(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.
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(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

(D) The amount of any add-back required under paragraph (b)(4) of this section; and

(ii) Then adding 100% of 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.

(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 
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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.

(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) Commodites 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 
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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.

(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
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(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;

(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).
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(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;

(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.
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(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 

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 
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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 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 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).
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(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.
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§ 190.10 Provisions applicable to futures commission merchants during business as 

usual.

(a) Current records. 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 

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.

(b) Designation of hedging accounts. 

(1) 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.

(2) 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. 

(3) 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).

(4) 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.

(c) 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 held, the futures commission merchant must do so in a delivery 
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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.

(d) Letters of credit. 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: 

(1) 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).

(2) 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.

(e) 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 § 1.55(f) of this chapter, to margin, 

guarantee, or secure a commodity contract unless the commodity broker first furnishes 

the customer with the disclosure statement set forth in paragraph (e)(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 § 1.55(c) of this chapter and set forth in appendix A to § 1.55 which the 

Commission finds satisfies this requirement.

(2) The disclosure statement required by paragraph (e)(1) of this section is as follows:

THIS STATEMENT IS FURNISHED TO YOU BECAUSE § 190.10(e) 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 
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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 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 (e)(2) of this section need be furnished only 

once to each customer to whom it is required to be furnished by this section.

Subpart C—Clearing Organization as Debtor

§ 190.11 Scope and purpose of subpart C.

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.

§ 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. 

(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.
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(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 upto-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 

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.
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§ 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) Continued operation of the derivatives clearing organization. 

(1) Subsequent to the order for relief, the derivatives clearing organization shall cease 

making calls for variation or initial margin, except as otherwise explicitly provided in this 

subsection.

(2) If the trustee believes that continued operation of the derivatives clearing 

organization on a temporary basis would

(i) facilitate either (A) prompt transfer of the clearing operations of the derivatives 

clearing organization to another derivatives clearing organization or (B) resolution of the 

derivatives clearing organization pursuant to title II of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, and

(ii) be practicable, in the sense that (A) the rules of the derivatives clearing 

organization do not compel the termination of all or substantially all of the outstanding 

contracts under the circumstances then prevailing (e.g., upon the order for relief), and (B) 

all or substantially all of the members of the derivatives clearing organization (other than 

those who are themselves subject to a bankruptcy proceeding) would be able to, and 

would in fact, make variation payments as owed during the temporary timeframe,

then the trustee may request permission of the Commission to continue to operate the 

derivatives clearing organization for up to six calendar days after the order for relief to 

the extent practicable and in accordance with the rules and procedures of the debtor, with 

respect to open commodity contracts of the debtor.

(3) Upon receiving a request pursuant to paragraph (2) of this section, the 

Commission shall proceed promptly to consider the request and, if it is persuaded that the 

trustee’s conclusions with respect to paragraphs (2)(i) and (ii) of this section are well 

grounded, may grant the trustee’s request. Such grant may be for fewer calendar days 

than the trustee has requested, but then may be renewed at the Commission’s discretion 

so long as the calendar days of continued operation total no more than six.

(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, 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 
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estate. 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.

(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.

§ 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,

has moved into delivery position prior to the date and time of the order for relief, 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).
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(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 .

§ 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) 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. 

This includes, with respect to the clearing member’s house account, any assessments or 
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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.

(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 to (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.

§ 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;
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(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;

(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.

(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) Property referred to in paragraph (b)(1)(iii) of this section should be allocated 
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(i) 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.

(2) 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.

(3) 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. 

(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
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(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. 

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 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 any recovery and wind-down plans maintained 

pursuant to § 39.39 and submitted pursuant to § 39.19 of this chapter, including the 

following property, as applicable, to the extent necessary to meet the shortfall. 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 
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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.

Appendix A to Part 190 – Proof of Claim Form

Replace Appendix A, Forms 1-4, with the following:
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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. 

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.
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[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)]275

(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)]

(3) Please specify all capacities in which you hold the account (check all that are 

applicable) [§ 190.03(e)(3)(iv)]:

a. Individual capacity

 275 Bracketed references are to the corresponding provision in § 190.03(e) where the relevant information 

item is listed. 
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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. 

(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
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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)]

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 
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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

If you selected “YES,” please identify such person(s) and the category identified 

in IV.(1) under which they fit.
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V. SECURITY FUTURES PRODUCTS [§ 190.03(e)(8)]276

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)

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

 276 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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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):

_________________________________________________

_________________________________________________

_________________________________________________

Telephone number: _________________________________ 

Email:_____________________________________________ 

_________________________________________________

Signature (Date)
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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 

“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 

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. 

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.
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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.

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. 

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.
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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.

Appendix B to Part 190—Special Bankruptcy Distributions

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 
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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.

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
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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 nonXM 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.

Replace the title and first paragraph of 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 
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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 sovereign action of a foreign government or court has occurred that 

results in losses to the futures customer funds or Cleared Swaps Customer Collateral. 

Applying the allocation convention will result in reduction of certain customer claims for 

such futures customer funds or Cleared Swaps Collateral. 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.

Issued in Washington, DC, on ____, 2020, by the Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission