Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices 5417

1 7 U.S.C. 6d(a)(2). The Commission segregation 

requirements are set forth in Regulations 1.20–1.30, 

132 and 1.36 [17 CFR 1.20–1.30, 1.32 and 1.36].

2See Financial and Segregation Interpretation No. 

10, Treatment of Funds Deposited in Safekeeping 

Accounts, Comm. Fut. L. Rep. (CCH) ¶ 7120 (May 

23, 1984).

3Until immediately prior to the issuance of 

Interpretation No. 10, the Department of Labor 

(‘‘DOL’’) viewed customer margin as client assets 

for purposes of the custody requirements and 

certain other fiduciary provisions of the Employee 

Retirement Income Security Act of 1974 (‘‘ERISA’’) 

[29 U.S.C. 1001–1461], requiring separate 

safekeeping of such assets. Since then, and 

currently, DOL subscribes to the view that such 

assets are not client assets for purposes of ERISA.

4U.S.C. 6(d)(a)2).

5See also, note 16, Interpretation No. 10, citing 

Administrative Determination No. 29 of the 

Commodity Exchange Authority, the Commission’s 

predecessor agency, dated September 28, 1937, 

which stated in pertinent part that ‘‘the deposit, by 

a futures commission merchant, of customer funds 

* * * under conditions whereby such funds would 

not be subject to withdrawal upon demand would 

be repugnant to the spirit and purpose of the 

Commodity Exchange Act. All funds deposited in 

a bank should in all cases be subject to withdrawal 

on demand.’’

antidumping duties, all unliquidated 

entries of pure magnesium from Canada 

entered, or withdrawn from warehouse, 

for consumption on or after August 1, 

2000, the effective date of the revocation 

of the order. The Department has further 

instructed CBP to refund with interest 

any estimated duties collected with 

respect to unliquidated entries of pure 

magnesium entered, or withdrawn from 

warehouse, for consumption on or after 

August 1, 2000, in accordance with 

section 778 of the Act. 

Notification Regarding APOs 

This notice also serves as a reminder 

to parties subject to administrative 

protective orders (‘‘APOs’’) of their 

responsibility concerning the return or 

destruction of proprietary information 

disclosed under APO in accordance 

with 19 CFR 351.305, which continues 

to govern business proprietary 

information in this segment of the 

proceeding. Timely written notification 

of the return/destruction of APO 

materials or conversion to judicial 

protective order is hereby requested. 

Failure to comply with the regulations 

and terms of an APO is a violation 

which is subject to sanction. 

This notice is issued and published in 

accordance with section 777(i) of the 

Act, as amended and 19 CFR 

351.213(d)(4).

Dated: January 26, 2005. 

Joseph A. Spetrini, 

Acting Assistant Secretary for Import 

Administration.

[FR Doc. 05–1957 Filed 2–1–05; 8:45 am] 

BILLING CODE 3510–DS–P

COMMODITY FUTURES TRADING 

COMMISSION

AGENCY: Commodity Futures Trading 

Commission.

ACTION: Proposed withdrawal of staff 

interpretation. 

SUMMARY: Section 4d(a)(2) of the 

Commodity Exchange Act (‘‘CEA’’) and 

related Commission regulations 

(hereinafter collectively referred to as 

‘‘segregation requirements’’) require 

that, among other things, all funds 

deposited with a futures commission 

merchant (‘‘FCM’’) to purchase, margin, 

guarantee, or secure futures or 

commodity options transactions and all 

accruals thereon (‘‘customer funds’’ or 

‘‘customer margin’’) be accounted for 

separately, be held for the benefit of 

customers and deposited under an 

account name that clearly identifies 

them as such, and not be commingled 

with the FCM’s own funds,1 Further, the 

Division of Clearing and Intermediary 

Oversight (‘‘Division’’) has construed 

these provisions to prohibit any 

impediments or restrictions upon an 

FCM’s ability to obtain immediate 

access to customer funds.

In 1984, the Division of Trading and 

Markets (‘‘T&M,’’ predecessor to the 

Division) issued an interpretation, 

Financial and Segregation Interpretation 

No. 10 (‘‘Interpretation No. 10’’), to 

address whether, and the circumstances 

under which, the use of bank custodial 

accounts (otherwise known as 

‘‘safekeeping accounts’’ or ‘‘third-party 

custodial accounts’’) to maintain 

customer funds would be consistent 

with the segregation requirements of the 

CEA.2 At the time, investment 

companies registered under the 

Investment Company Act of 1940 (the 

‘‘Investment Company Act’’) (‘‘RICs’’) 

were generally barred from using any 

FCM or futures clearinghouse as a 

custodian of fund assets and, thus, 

third-party custodial accounts were the 

only permissible means available to 

RICs to use the risk management tools 

available through the futures markets.3

With Interpretation No. 10, T&M took 

the position that customer funds held in 

third-party custodial accounts could be 

deemed properly segregated for 

purposes of Section 4d(a)(2), provided 

that certain terms and conditions 

designed to ensure FCMs’ immediate 

and unimpeded access to the funds 

were met.

Today, RICs are, for the most part, no 

longer prohibited from depositing 

customer margin directly with FCMs 

and thus may engage in futures trading 

generally in the same manner as other 

futures customers. This, coupled with 

the fact that third-party custodial 

accounts may present not insignificant 

regulatory concerns, as well as costs and 

burdens for market participants, leads 

the Division to believe that 

Interpretation No. 10 is no longer 

necessary or justified, except in certain 

limited circumstances. In this notice, 

the Division is inviting comments 

concerning Interpretation No. 10 and 

specifically, whether Interpretation No. 

10 should be withdrawn.

DATES: Comments must be received on 

or before April 4, 2005.

ADDRESSES: Comments should be sent to 

Jean A. Webb, Secretary, Commodity 

Futures Trading Commission, Three 

Lafayette Center, 1155 21st Street, NW., 

Washington, DC 20581. Comments may 

be sent by facsimile transmission to 

(202) 418–5521, by e-mail to 

secretary@cftc.gov, or electronically by 

accessing http://www.regulations.gov.

Reference should be made to ‘‘Proposed 

Withdrawal of Interpretation No. 10.’’

FOR FURTHER INFORMATION CONTACT:

Carlene S. Kim, Senior Special Counsel, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone: (202) 418–5613.

SUPPLEMENTAL INFORMATION: 

I. Interpretation No. 10

Section 4d(a)(2) of the CEA and 

related Commission regulations require 

that, among other things, all funds 

deposited with an FCM to purchase, 

margin, guarantee, or secure futures or 

commodity options transactions and all 

accruals thereon, be accounted for 

separately by the FCM and deposited 

under an account name that clearly 

identifies them as such, not be 

commingled with the FCM’s own funds, 

and be held for the benefit of 

customers.4 The segregation 

requirements are intended to prevent an 

FCM from using customer property to 

margin the trades of other customers or 

of the FCM itself. Further, the Division 

has interpreted the segregation 

requirements to preclude any 

impediments or restrictions on the 

FCM’s ability to obtain the immediate 

access to customer funds.5 The 

immediate and unfettered access 

requirement avoids potential delay or 

interruption in securing required margin 

payments that, in times of significant 

market disruption or otherwise, could 

magnify the impact of such market 

5418 Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices 

6See Section 17(f) of the Investment Company 

Act, 15 U.S.C. 80a–17(f). At that time (but no 

longer), under Section 17(f) and related rules RICs 

were generally permitted to maintain their assets 

only in the custody of a bank, a member of a 

national securities exchange, or a national securities 

depository. FCMs and futures clearinghouses did 

not fall within one of these categories. In this 

regard, the SEC did not adopt the position taken by 

DOL, which did not view customer margin as client 

assets for purposes of the custody requirements and 

certain other fiduciary provisions of the ERISA.

7This relief was available pursuant to SEC staff 

no-action letters and exemptive orders. Other 

conditions to the relief required that prior to 

directing any disposition of funds, the FCM 

represent that all conditions precedent to its right 

to direct disposition have been satisfied. In 

addition, the RIC, when it had the right to receive 

variation payment from an FCM, was required to 

promptly demand such payment. See, e.g.,

Prudential-Bache IncomeVertible Plus Fund, Inc., 

SEC No-Action Letter (Nov. 20, 1985), available at 

1985 SEC No-Act. LEXIS 2782.

8While specifically directed to the third-party 

accounts of pension plans and RICs, the views 

expressed in the interpretation applied equally to 

any other customer of an FCM (e.g., an insurance 

company). See Interpretation No. 10, Comm. Fut. L. 

Rep. (CCH) ¶ 7120, note 1.

9 Investment Company Act Rule 17f–6(b)(3) [17 

CFR 270.17f–6(b)(3)]. Specifically, a RIC may not 

place fund assets with an FCM that is an affiliate 

of the fund or its adviser. Other conditions in the 

rule provide that the manner in which an FCM 

maintains fund assets must be governed by a 

written contract and any gains on fund transactions 

must be maintained with the carrying FCM only in 

de minimis amounts.

10The Division’s position is that third-party 

custodial accounts are subject to the U.S. 

Bankruptcy Code and applicable provision in the 

CEA, which provide that customer assets relating to 

futures transactions generally have priority over 

other creditors’ claims, and are subject to 

distribution based on each customer’s pro data 

share of the available customer property. 11 U.S.C. 

766; Commission rule 190.18 [17 CFR 190.08]. 

However, this issue has not been judicially 

determined.

11See also Staff Advisory entitled 

‘‘Responsibilities of Futures Commission Merchants 

and Relevant Depositories with Respect to Third 

Party Custodial Accounts’’ (July 25, 1996) 

(‘‘Advisory)’’, available at http://www.cftc.gov/opa/

press96/opa37–96.htm. The Advisory addressed 

certain third-party custodial practices and 

arrangements that appeared to be, or could be 

implemented in a manner that is, inconsistent with 

the terms and conditions of Interpretation No. 10.

12As discussed above, under Rule 17f–6, a RIC 

may not deposit fund assets with any FCM that is 

an affiliate of the fund or its adviser.

disruption and impair the liquidity of 

other FCMs and clearinghouses.

At the time that T&M issued 

Interpretation No. 10, institutional 

participation in the futures market was 

on the rise. Certain of these institutional 

participants—including pension plans 

and RICs—sought to use bank custodial 

accounts to hold margin under 

circumstances that raised questions 

about whether the accounts would be 

deemed properly segregated for 

purposes of Section 4d(a)(2) of the CEA. 

For example, RICs were prohibited from 

using FCMs and futures clearinghouses 

as custodians of their assets.6 They 

were, however, permitted (but not 

required) to maintain a bank custodial 

account under the name of an FCM to 

hold initial margin under an 

arrangement whereby the FCM would 

be permitted to dispose of the funds in 

the account upon default by the 

investment company in making a 

required margin payment.7

In view of the fact that RICs were 

barred from depositing customer funds 

directly with an FCM or a futures 

clearinghouse, and that third-party 

custodial arrangements represented 

their sole means of utilizing the risk 

management tools offered by the futures 

markets, T&M issued Interpretation No. 

10 to allow third-party custodial 

accounts to be deemed properly 

segregated within the meaning of 

Section 4d(a)(2) of the CEA, under 

conditions designed to ensure that 

FCMs have immediate and unfettered 

access to customer funds in the thirdparty custodial accounts.8 Specifically, 

an FCM could consider funds 

maintained in a third-party bank 

custodial account to be properly 

segregated if: (i) The account were 

maintained in the name of the FCM 

carrying the account, for the benefit of 

the customer; (ii) the FCM could 

liquidate open positions if the account 

became undermargined or went into 

deficit, without obtaining permission 

from a third party custodian of the 

account; (iii) the FCM could withdraw 

funds from the account upon demand 

with no right of the customer (or its 

fiduciary) to stop, interrupt or otherwise 

interfere with such withdrawal and the 

customer (and its fiduciary) could not 

withdraw or otherwise have access to 

the funds in the account except through 

the FCM; (iv) the account would not be 

located in a bank which was an affiliate 

or fiduciary of the customer; and (v) any 

release of funds to the customer from 

the account would be preceded by a 

notice to and consent of the carrying 

FCM.

II. Developments Concerning 

Interpretation No. 10

Today RICs may directly deposit 

customer margin with FCMs and futures 

clearing houses and thus participate in 

futures trading generally in the same 

manner as other futures customers. In 

1996 the SEC adopted rule 17f–6, which 

permits, but does not require a RIC to 

maintain its assets with an FCM in 

connection with futures transactions 

effected on U.S. and foreign exchanges, 

provided that the FCM is not an affiliate 

of the RIC.9 As a result, Interpretation 

No. 10 is no longer necessary in most 

cases for RICs to participate in the 

futures market.

This, considered together with the 

potentially significant supervisory risks 

associated with the use of third-party 

accounts in connection with futures 

trading, make it necessary and 

appropriate to consider the withdrawal 

of Interpretation No. 10. Specifically, 

third-party custodial accounts continue 

to raise concerns about potential 

systemic liquidity risks which could 

result from any potential diversion of 

FCM capital to cover undermargined 

customer accounts, which would 

otherwise be available for use in the 

marketplace. These risks may be 

heightened in times of market volatility 

when liquidity is most critical. In 

addition, initial margin requirements 

typically rise during such periods, 

creating additional stress on FCM 

resources. 

In addition, the holding of customer 

margin in any such account has and 

continues to present both some 

uncertainty as to the treatment of funds 

in the event of an FCM insolvency,10

and some potential for funds to be 

inadvertently released from the account 

without the prior knowledge or consent 

of the FCM.11 For these reasons, the 

Division solicits comments on whether 

Interpretation No. 10 should be 

withdrawn, except in the following 

limited circumstance. Specifically, an 

FCM would be permitted to rely on 

Interpretation No. 10 to the extent that 

it is not eligible to hold RIC assets under 

SEC rule 17f–6.12 The Division believes 

that retaining the application of 

Interpretation No. 10 in this limited 

circumstance would be appropriate 

because to do otherwise would require 

a RIC that clears through an FCM that 

is its affiliate (or an affiliate of its 

adviser) to alter existing clearing 

arrangements with potentially undue 

disruption and cost.

The Division notes that the 

withdrawal of Interpretation No. 10 

would not forbid the use of such 

accounts but, rather, would mean that 

funds in such accounts would not be 

deemed properly segregated under 

Section 4d(a)(2) and therefore could not 

be included in an FCM’s required daily 

computation of total customer amount 

of customer funds on deposit in 

segregated accounts. 

III. Request for Comments. 

The Division is requesting comments 

on whether withdrawal of Interpretation 

No. 10 would have any adverse impact 

on institutional customers, such as 

pension plans or RICs, or their ability to 

participate in the futures market and 

Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices 5419

whether there are any legal or 

prudential considerations that support 

the use by institutional customers of 

third-party custodial accounts in 

effecting futures transactions. In 

addition, the Division is seeking 

comments on the costs and expenses 

incurred by FCMs, including financing 

and potential opportunity costs, in 

connection with maintaining third-party 

accounts relative to regular customer 

accounts. Finally, the Division would 

expect that any withdrawal of 

Interpretation No. 10 would be made 

effective not less than six months 

following the publication of a final 

notice. The Division seeks comment on 

whether the six-month time period is 

appropriate and sufficient for FCMs and 

banks to make the necessary 

adjustments with respect to third-party 

custodial arrangements.

Dated: January 27, 2005.

By the Division of Clearing and 

Intermediary Oversight. 

James L. Carley, 

Director, Division of Clearing and 

Intermediary Oversight.

[FR Doc. 05–1907 Filed 2–1–05; 8:45 am] 

BILLING CODE 6351–01–M

CORPORATION FOR NATIONAL AND 

COMMUNITY SERVICE 

Proposed Information Collection; 

Comment Request

AGENCY: Corporation for National and 

Community Service.

ACTION: Notice.

SUMMARY: The Corporation for National 

and Community Service (hereinafter the 

‘‘Corporation’’), as part of its continuing 

effort to reduce paperwork and 

respondent burden, conducts a preclearance consultation program to 

provide the general public and Federal 

agencies with an opportunity to 

comment on proposed and/or 

continuing collections of information in 

accordance with the Paperwork 

Reduction Act of 1995 (PRA95) (44 

U.S.C. sec. 3506(c)(2)(A)). This program 

helps to ensure that requested data can 

be provided in the desired format, 

reporting burden (time and financial 

resources) is minimized, collection 

instruments are clearly understood, and 

the impact of collection requirement on 

respondents can be properly assessed. 

Currently, the Corporation is 

soliciting comments concerning its 

proposed renewal of its Learn and Serve 

America (hereinafter ‘‘LSA’’) Grant 

Applications. These applications are 

used by current and prospective 

grantees to apply for funds to support 

K–12 School-Based Formula, 

Competitive and Indian Tribe and 

Territory Set-aside programs; 

Community-Based programs; and 

Higher Education programs. Completion 

of the grant application is required to be 

considered for or obtain grant funding 

support from LSA. 

Copies of the information collection 

requests can be obtained by contacting 

the office listed in the ADDRESSES

section of this notice.

DATES: Written comments must be 

submitted to the individual and office 

listed in the ADDRESSES section by April 

4, 2005.

ADDRESSES: You may submit comments, 

identified by the title of the information 

collection activity, by any of the 

following methods: 

(1) Electronically through the 

Corporation’s e-mail address system to 

Mr. Mark Abbott at mabbott@cns.gov.

(2) By fax to: (202) 565–2787, 

Attention Mark Abbott. 

(3) By mail sent to: Corporation for 

National and Community Service, Learn 

and Serve America, 9th Floor, Attention 

Mark Abbott, 1201 New York Avenue, 

NW, Washington, DC 20525. 

(4) By hand delivery or by courier to 

the Corporation’s mailroom at Room 

6010 at the mail address given in 

paragraph (1) above, between 9 a.m. and 

4 p.m. Monday through Friday, except 

Federal holidays.

FOR FURTHER INFORMATION CONTACT:

Mark Abbott, (202) 606–5000, ext. 120.

SUPPLEMENTARY INFORMATION: 

The Corporation is particularly 

interested in comments which: 

• Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Corporation, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

proposed collection of information, 

including the validity of the 

methodology and assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are expected to respond, including 

through the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques or other forms of information 

technology (e.g., permitting electronic 

submissions of responses). 

I. Background 

The Learn and Serve America Grant 

Application is completed by applicant 

organizations interested in managing a 

service-learning program directly or 

administering grant funds to other 

eligible organizations to manage servicelearning programs. The application is 

completed electronically using eGrants, 

the Corporation’s Web-based grants 

management system. 

The Corporation seeks to renew and 

revise the current applications. When 

revised, the application will update 

eGrants instructions to reflect the new, 

Web-based user interface for eGrants; 

shorten background information on 

Learn and Serve America and clarify 

guidance on development of program 

performance measures. The application 

will otherwise be used in the same 

manner as the existing application. The 

Corporation will continue using the 

current application until the revised 

application is approved by OMB. 

II. Current Action 

Type of Review: Renewal. 

Agency: Corporation for National and 

Community Service. 

Title: Learn and Serve America Grant 

Applications. 

OMB Numbers: 3045–0045 for Learn 

and Serve America School and 

Community-Based Application 

Instructions and 3045–0046 for Learn 

and Serve America Higher Education 

Instructions. 

Agency Number: SF 424–NSSC. 

Affected Public: Current/prospective 

recipients of Learn and Serve America 

Grants. 

Total Respondents: 600. (400 for 

3045–0045 and 200 for 3045–0046) 

Frequency: Annually, with 

exceptions. 

Average Time Per Response: 12 hours 

for first time respondents and 5 hours 

for revisions (3045–0045 and –0046); 6 

hours for Continuation grantees and 2 

hours for revisions. 

Estimated Total Burden Hours: 10,200 

New grantees (2045–0045 & 0046); 1200 

Total Burden Hours for Continuing 

grantees. 

Total Burden Cost (capital/startup):

None. 

Total Burden Cost (operating/

maintenance): None. 

Comments submitted in response to 

this notice will be summarized and/or 

included in the request for Office of 

Management and Budget approval of the 

information collection request; they will 

also become a matter of public record.

Dated: January 27, 2005. 

Mark Abbott, 

Associate Director for Grants Management, 

Learn and Serve America.

[FR Doc. 05–1932 Filed 2–1–05; 8:45 am] 

BILLING CODE 6050–$$–P