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.

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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, [email protected], 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.

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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

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).

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:

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