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2014-10650

  • Federal Register, Volume 79 Issue 91 (Monday, May 12, 2014)

    [Federal Register Volume 79, Number 91 (Monday, May 12, 2014)]

    [Rules and Regulations]

    [Pages 26831-26834]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2014-10650]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 1

    RIN 3038-AD88

    Enhancing Protections Afforded Customers and Customer Funds Held

    by Futures Commission Merchants and Derivatives Clearing Organizations;

    Correction

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Correcting amendments.

    -----------------------------------------------------------------------

    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is correcting final rules published in the Federal Register

    of November 14, 2013 (78 FR 68506). Those rules, 17 CFR Parts 1, 3, 22,

    30, and 140, took effect on January 13, 2014. This correction amends

    Appendix B to 17 CFR 1.20 and Appendix B to 17 CFR 1.26 by removing a

    phrase from both appendices.

    DATES: Effective on May 12, 2014.

    FOR FURTHER INFORMATION CONTACT: Parisa Abadi, Attorney-Advisor, 202-

    418-6620, pabadi@cftc.gov, Division of Clearing and Risk, Commodity

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

    NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION: In the Federal Register of November 14, 2013

    (78 FR 68506), the Commission published final rules adopting new

    regulations and amending existing regulations to require enhanced

    customer protections, risk management programs, internal monitoring and

    controls, capital and liquidity standards, customer disclosures, and

    auditing and examination programs for futures commission merchants

    (``FCMs''). The final rules also address certain related issues

    concerning derivatives clearing organizations (``DCOs''), including the

    requirement that a DCO obtain a written acknowledgment from each

    depository or money market mutual fund with which the DCO holds or

    invests customer funds, in the form of a standard template letter set

    forth in Appendix B to 17 CFR 1.20--Derivatives Clearing Organization

    Acknowledgment Letter for CFTC Regulation 1.20 Customer Segregated

    Account, and in Appendix B to 17 CFR 1.26--Derivatives Clearing

    Organization Acknowledgment Letter for CFTC Regulation 1.26 Customer

    Segregated Money Market Mutual Fund Account, respectively (each an

    ``Acknowledgment Letter'').

    The sixth full paragraph \1\ of the body of the Acknowledgment

    Letter set forth in Appendix B to 17 CFR 1.20 and the seventh full

    paragraph of the body of the Acknowledgment Letter set forth in

    Appendix B to 17 CFR 1.26 address the depository's or money market

    mutual fund's obligations in the event of the bankruptcy of the DCO

    account holder. The provisions are intended to relate exclusively to

    the bankruptcy of the account holder and should not additionally refer

    to the bankruptcy of

    [[Page 26832]]

    ``any of our futures commission merchant clearing members.''

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    \1\ This paragraph, as revised, will become the seventh full

    paragraph of the body of the Acknowledgment Letter set forth in

    Appendix B to 17 CFR 1.20, after the format of that Acknowledgment

    Letter is conformed to the format of the Acknowledgment Letter set

    forth in Appendix B to 17 CFR 1.26.

    ---------------------------------------------------------------------------

    To correct this error, the Commission is making a correcting

    amendment to remove the reference to ``futures commission merchant

    clearing members'' found in the text of Appendix B to 17 CFR 1.20 and

    Appendix B to 17 CFR 1.26. The Commission is also adopting conforming

    changes in grammar, punctuation, and formatting.

    List of Subjects in 17 CFR Part 1

    Brokers, Commodity futures, Consumer protection, Reporting and

    recordkeeping requirements.

    Accordingly, 17 CFR part 1 is corrected by making the following

    correcting amendments:

    PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    0

    1. The authority citation for part 1 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g,

    6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8,

    9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as

    amended by Title VII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    0

    2. Revise Appendix B to Sec. 1.20 to read as follows:

    Sec. 1.20 Futures customer funds to be segregated and separately

    accounted for.

    * * * * *

    Appendix B to Sec. 1.20--Derivatives Clearing Organization

    Acknowledgment Letter for CFTC Regulation 1.20 Customer Segregated

    Account

    [Date]

    [Name and Address of Bank or Trust Company]

    We refer to the Segregated Account(s) which [Name of Derivatives

    Clearing Organization] (``we'' or ``our'') have opened or will open

    with [Name of Bank or Trust Company] (``you'' or ``your'') entitled:

    [Name of Derivatives Clearing Organization] Futures Customer Omnibus

    Account, CFTC Regulation 1.20 Customer Segregated Account under

    Sections 4d(a) and 4d(b) of the Commodity Exchange Act [and, if

    applicable, ``, Abbreviated as [short title reflected in the

    depository's electronic system]'']

    Account Number(s): [ ]

    (collectively, the ``Account(s)'').

    You acknowledge that we have opened or will open the above-

    referenced Account(s) for the purpose of depositing, as applicable,

    money, securities and other property (collectively the ``Funds'') of

    customers who trade commodities, options, swaps, and other products,

    as required by Commodity Futures Trading Commission (``CFTC'')

    Regulations, including Regulation 1.20, as amended; that the Funds

    held by you, hereafter deposited in the Account(s) or accruing to

    the credit of the Account(s), will be separately accounted for and

    segregated on your books from our own funds and from any other funds

    or accounts held by us in accordance with the provisions of the

    Commodity Exchange Act, as amended (the ``Act''), and Part 1 of the

    CFTC's regulations, as amended; and that the Funds must otherwise be

    treated in accordance with the provisions of Section 4d of the Act

    and CFTC regulations thereunder.

    Furthermore, you acknowledge and agree that such Funds may not

    be used by you or by us to secure or guarantee any obligations that

    we might owe to you, and they may not be used by us to secure or

    obtain credit from you. You further acknowledge and agree that the

    Funds in the Account(s) shall not be subject to any right of offset

    or lien for or on account of any indebtedness, obligations or

    liabilities we may now or in the future have owing to you. This

    prohibition does not affect your right to recover funds advanced in

    the form of cash transfers, lines of credit, repurchase agreements

    or other similar liquidity arrangements you make in lieu of

    liquidating non-cash assets held in the Account(s) or in lieu of

    converting cash held in the Account(s) to cash in a different

    currency.

    You agree to reply promptly and directly to any request for

    confirmation of account balances or provision of any other

    information regarding or related to the Account(s) from the director

    of the Division of Clearing and Risk of the CFTC or the director of

    the Division of Swap Dealer and Intermediary Oversight of the CFTC,

    or any successor divisions, or such directors' designees, and this

    letter constitutes the authorization and direction of the

    undersigned on our behalf to release the requested information

    without further notice to or consent from us.

    The parties agree that all actions on your part to respond to

    the above information requests will be made in accordance with, and

    subject to, such usual and customary authorization verification and

    authentication policies and procedures as may be employed by you to

    verify the authority of, and authenticate the identity of, the

    individual making any such information request, in order to provide

    for the secure transmission and delivery of the requested

    information to the appropriate recipient(s).

    We will not hold you responsible for acting pursuant to any

    information request from the director of the Division of Clearing

    and Risk of the CFTC or the director of the Division of Swap Dealer

    and Intermediary Oversight of the CFTC, or any successor divisions,

    or such directors' designees, upon which you have relied after

    having taken measures in accordance with your applicable policies

    and procedures to assure that such request was provided to you by an

    individual authorized to make such a request.

    In the event that we become subject to either a voluntary or

    involuntary petition for relief under the U.S. Bankruptcy Code, we

    acknowledge that you will have no obligation to release the Funds

    held in the Account(s), except upon instruction of the Trustee in

    Bankruptcy or pursuant to the Order of the respective U.S.

    Bankruptcy Court.

    Notwithstanding anything in the foregoing to the contrary,

    nothing contained herein shall be construed as limiting your right

    to assert any right of offset or lien on assets that are not Funds

    maintained in the Account(s), or to impose such charges against us

    or any proprietary account maintained by us with you. Further, it is

    understood that amounts represented by checks, drafts or other items

    shall not be considered to be part of the Account(s) until finally

    collected. Accordingly, checks, drafts and other items credited to

    the Account(s) and subsequently dishonored or otherwise returned to

    you or reversed, for any reason, and any claims relating thereto,

    including but not limited to claims of alteration or forgery, may be

    charged back to the Account(s), and we shall be responsible to you

    as a general endorser of all such items whether or not actually so

    endorsed.

    You may conclusively presume that any withdrawal from the

    Account(s) and the balances maintained therein are in conformity

    with the Act and CFTC regulations without any further inquiry,

    provided that, in the ordinary course of your business as a

    depository, you have no notice of or actual knowledge of a potential

    violation by us of any provision of the Act or the CFTC regulations

    that relates to the segregation of customer funds; and you shall not

    in any manner not expressly agreed to herein be responsible to us

    for ensuring compliance by us with such provisions of the Act and

    CFTC regulations; however, the aforementioned presumption does not

    affect any obligation you may otherwise have under the Act or CFTC

    regulations.

    You may, and are hereby authorized to, obey the order, judgment,

    decree or levy of any court of competent jurisdiction or any

    governmental agency with jurisdiction, which order, judgment, decree

    or levy relates in whole or in part to the Account(s). In any event,

    you shall not be liable by reason of any action or omission to act

    pursuant to any such order, judgment, decree or levy, to us or to

    any other person, firm, association or corporation even if

    thereafter any such order, decree, judgment or levy shall be

    reversed, modified, set aside or vacated.

    The terms of this letter agreement shall remain binding upon the

    parties, their successors and assigns and, for the avoidance of

    doubt, regardless of a change in the name of either party. This

    letter agreement supersedes and replaces any prior agreement between

    the parties in connection with the Account(s), including but not

    limited to any prior acknowledgment letter agreement, to the extent

    that such prior agreement is inconsistent with the terms hereof. In

    the event of any conflict between this letter agreement and any

    other agreement between the parties in connection with the

    Account(s), this letter agreement shall govern with respect to

    matters specific to Section 4d of the Act and the CFTC's regulations

    thereunder, as amended.

    This letter agreement shall be governed by and construed in

    accordance with the laws

    [[Page 26833]]

    of [Insert governing law] without regard to the principles of choice

    of law.

    Please acknowledge that you agree to abide by the requirements

    and conditions set forth above by signing and returning to us the

    enclosed copy of this letter agreement, and that you further agree

    to provide a copy of this fully executed letter agreement directly

    to the CFTC (via electronic means in a format and manner determined

    by the CFTC). We hereby authorize and direct you to provide such

    copy without further notice to or consent from us, no later than

    three business days after opening the Account(s) or revising this

    letter agreement, as applicable.

    [Name of Derivatives Clearing Organization]

    By:

    Print Name:

    Title:

    ACKNOWLEDGED AND AGREED:

    [Name of Bank or Trust Company]

    By:

    Print Name:

    Title:

    Contact Information: [Insert phone number and email address]

    DATE:

    0

    3. Revise Appendix B to Sec. 1.26 to read as follows:

    Sec. 1.26 Deposit of instruments purchased with futures customer

    funds.

    * * * * *

    Appendix B to Sec. 1.26--Derivatives Clearing Organization

    Acknowledgment Letter for CFTC Regulation 1.26 Customer Segregated

    Money Market Mutual Fund Account

    [Date]

    [Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Derivatives Clearing

    Organization] (``we'' or ``our'') on behalf of customers in shares

    of [Name of Money Market Mutual Fund] (``you'' or ``your'') under

    account(s) entitled (or shares issued to):

    [Name of Derivatives Clearing Organization] Futures Customer Omnibus

    Account, CFTC Regulation 1.26 Customer Segregated Money Market

    Mutual Fund Account under Sections 4d(a) and 4d(b) of the Commodity

    Exchange Act [and, if applicable, ``, Abbreviated as [short title

    reflected in the depository's electronic system]'']

    Account Number(s): [ ]

    (collectively, the ``Account(s)'').

    You acknowledge that we are holding these funds, including any

    shares issued and amounts accruing in connection therewith

    (collectively, the ``Shares''), for the benefit of customers who

    trade commodities, options, swaps and other products, as required by

    Commodity Futures Trading Commission (``CFTC'') Regulation 1.26, as

    amended; that the Shares held by you, hereafter deposited in the

    Account(s) or accruing to the credit of the Account(s), will be

    separately accounted for and segregated on your books from our own

    funds and from any other funds or accounts held by us in accordance

    with the provisions of the Commodity Exchange Act, as amended (the

    ``Act''), and Part 1 of the CFTC's regulations, as amended; and that

    the Shares must otherwise be treated in accordance with the

    provisions of Section 4d of the Act and CFTC regulations thereunder.

    Furthermore, you acknowledge and agree that such Shares may not

    be used by you or by us to secure or guarantee any obligations that

    we might owe to you, and they may not be used by us to secure or

    obtain credit from you. You further acknowledge and agree that the

    Shares in the Account(s) shall not be subject to any right of offset

    or lien for or on account of any indebtedness, obligations or

    liabilities we may now or in the future have owing to you.

    You agree to reply promptly and directly to any request for

    confirmation of account balances or provision of any other

    information regarding or related to the Account(s) from the director

    of the Division of Clearing and Risk of the CFTC or the director of

    the Division of Swap Dealer and Intermediary Oversight of the CFTC,

    or any successor divisions, or such directors' designees, and this

    letter constitutes the authorization and direction of the

    undersigned on our behalf to release the requested information

    without further notice to or consent from us.

    The parties agree that all actions on your part to respond to

    the above information requests will be made in accordance with, and

    subject to, such usual and customary authorization verification and

    authentication policies and procedures as may be employed by you to

    verify the authority of, and authenticate the identity of, the

    individual making any such information request, in order to provide

    for the secure transmission and delivery of the requested

    information to the appropriate recipient(s).

    We will not hold you responsible for acting pursuant to any

    information request from the director of the Division of Clearing

    and Risk of the CFTC or the director of the Division of Swap Dealer

    and Intermediary Oversight of the CFTC, or any successor divisions,

    or such directors' designees, upon which you have relied after

    having taken measures in accordance with your applicable policies

    and procedures to assure that such request was provided to you by an

    individual authorized to make such a request.

    In the event that we become subject to either a voluntary or

    involuntary petition for relief under the U.S. Bankruptcy Code, we

    acknowledge that you will have no obligation to release the Shares

    held in the Account(s), except upon instruction of the Trustee in

    Bankruptcy or pursuant to the Order of the respective U.S.

    Bankruptcy Court.

    Notwithstanding anything in the foregoing to the contrary,

    nothing contained herein shall be construed as limiting your right

    to assert any right of offset or lien on assets that are not Shares

    maintained in the Account(s), or to impose such charges against us

    or any proprietary account maintained by us with you. Further, it is

    understood that amounts represented by checks, drafts or other items

    shall not be considered to be part of the Account(s) until finally

    collected. Accordingly, checks, drafts and other items credited to

    the Account(s) and subsequently dishonored or otherwise returned to

    you or reversed, for any reason, and any claims relating thereto,

    including but not limited to claims of alteration or forgery, may be

    charged back to the Account(s), and we shall be responsible to you

    as a general endorser of all such items whether or not actually so

    endorsed.

    You may conclusively presume that any withdrawal from the

    Account(s) and the balances maintained therein are in conformity

    with the Act and CFTC regulations without any further inquiry,

    provided that, in the ordinary course of your business as a

    depository, you have no notice of or actual knowledge of a potential

    violation by us of any provision of the Act or the CFTC regulations

    that relates to the segregation of customer funds; and you shall not

    in any manner not expressly agreed to herein be responsible to us

    for ensuring compliance by us with such provisions of the Act and

    CFTC regulations; however, the aforementioned presumption does not

    affect any obligation you may otherwise have under the Act or CFTC

    regulations.

    You may, and are hereby authorized to, obey the order, judgment,

    decree or levy of any court of competent jurisdiction or any

    governmental agency with jurisdiction, which order, judgment, decree

    or levy relates in whole or in part to the Account(s). In any event,

    you shall not be liable by reason of any action or omission to act

    pursuant to any such order, judgment, decree or levy, to us or to

    any other person, firm, association or corporation even if

    thereafter any such order, decree, judgment or levy shall be

    reversed, modified, set aside or vacated.

    We are permitted to invest customers' funds in money market

    mutual funds pursuant to CFTC Regulation 1.25. That rule sets forth

    the following conditions, among others, with respect to any

    investment in a money market mutual fund:

    (1) The net asset value of the fund must be computed by 9:00

    a.m. of the business day following each business day and be made

    available to us by that time;

    (2) The fund must be legally obligated to redeem an interest in

    the fund and make payment in satisfaction thereof by the close of

    the business day following the day on which we make a redemption

    request except as otherwise specified in CFTC Regulation

    1.25(c)(5)(ii); and,

    (3) The agreement under which we invest customers' funds must

    not contain any provision that would prevent us from pledging or

    transferring fund shares.

    The terms of this letter agreement shall remain binding upon the

    parties, their successors and assigns and, for the avoidance of

    doubt, regardless of a change in the name of either party. This

    letter agreement supersedes and replaces any prior agreement between

    the parties in connection with the Account(s), including but not

    limited to any prior acknowledgment letter agreement, to the extent

    that such prior agreement is inconsistent with the terms hereof. In

    the event of any conflict between this letter agreement and any

    other agreement between the parties in connection with the

    [[Page 26834]]

    Account(s), this letter agreement shall govern with respect to

    matters specific to Section 4d of the Act and the CFTC's regulations

    thereunder, as amended.

    This letter agreement shall be governed by and construed in

    accordance with the laws of [Insert governing law] without regard to

    the principles of choice of law.

    Please acknowledge that you agree to abide by the requirements

    and conditions set forth above by signing and returning to us the

    enclosed copy of this letter agreement, and that you further agree

    to provide a copy of this fully executed letter agreement directly

    to the CFTC (via electronic means in a format and manner determined

    by the CFTC) in accordance with CFTC Regulation 1.20. We hereby

    authorize and direct you to provide such copy without further notice

    to or consent from us, no later than three business days after

    opening the Account(s) or revising this letter agreement, as

    applicable.

    [Name of Derivatives Clearing Organization]

    By:

    Print Name:

    Title:

    ACKNOWLEDGED AND AGREED:

    [Name of Money Market Mutual Fund]

    By:

    Print Name:

    Title:

    Contact Information: [Insert phone number and email address]

    DATE:

    Issued in Washington, DC, on May 5, 2014, by the Commission.

    Christopher J. Kirkpatrick,

    Deputy Secretary of the Commission.

    [FR Doc. 2014-10650 Filed 5-9-14; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: May 12, 2014



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