2010-19553

FR Doc 2010-19553[Federal Register: August 9, 2010 (Volume 75, Number 152)]

[Proposed Rules]

[Page 47738-47746]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr09au10-21]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 30, and 140

RIN 3038-AC72

Acknowledgment Letters for Customer Funds and Secured Amount

Funds

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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

``CFTC'') is proposing to amend its regulations regarding the required

content of the acknowledgment letter that a registrant must obtain from

any depository holding its segregated customer funds or funds of

foreign futures or foreign options customers, and certain technical

changes.

DATES: Submit comments on or before September 8, 2010.

ADDRESSES: You may submit comments, identified by RIN number, by any of

the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Agency Web Site: http://www.cftc.gov. Follow the

instructions for submitting comments on the Web site.

E-mail: acknowledgmentletter@cftc.gov. Include the RIN

number in the subject line of the message.

Fax: 202-418-5521.

Mail: David A. Stawick, Secretary of the Commission,

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

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

FOR FURTHER INFORMATION CONTACT: Phyllis P. Dietz, Associate Director,

202-418-5449, pdietz@cftc.gov, or Eileen A. Donovan, Special Counsel,

202-418-5096, edonovan@cftc.gov, Division of Clearing and Intermediary

Oversight, Commodity Futures Trading Commission, Three Lafayette

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

SUPPLEMENTARY INFORMATION:

I. Background

Regulation 1.20 (17 CFR 1.20) requires futures commission merchants

(FCMs) that accept customer funds and derivatives clearing

organizations (DCOs) that accept customer funds from FCMs to segregate

and separately account for those funds.\1\ Currently, Regulation 1.20

requires such FCMs and DCOs to obtain from the bank, trust company, FCM

or DCO \2\ holding customer funds in the capacity of a depository

(each, a ``Depository'') a written acknowledgment that the Depository

was informed that the customer funds deposited therein are those of

commodity or option customers and are being held in accordance with the

provisions of the Commodity Exchange Act (Act) \3\ and CFTC

regulations.\4\ Regulation 1.26 (17 CFR 1.26), which requires FCMs and

DCOs to segregate and separately account for instruments purchased with

customer funds, repeats the requirement to obtain an acknowledgment

letter. FCMs also must obtain a similar written acknowledgment from

Depositories holding ``secured amount'' funds \5\ required under

Regulation 30.7 (17 CFR 30.7), which governs the treatment of money,

securities, and property held for or on behalf of the FCM's foreign

futures and foreign options customers.

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\1\ See 17 CFR 1.3(gg) (defining the term ``customer funds'').

\2\ Regulation 1.20(a) does not require a written acknowledgment

to be obtained from ``a derivatives clearing organization that has

adopted and submitted to the Commission rules that provide for the

segregation as customer funds, in accordance with all relevant

provisions of the Act and the rules and orders promulgated

thereunder, of all funds held on behalf of customers.''

\3\ 7 U.S.C. 1 et seq.

\4\ 17 CFR parts 1-199.

\5\ See 17 CFR 1.3(rr) (defining the term ``foreign futures or

foreign options secured amount'').

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On February 20, 2009, the Commission published proposed amendments

to Regulations 1.20, 1.26, and 30.7 for public comment.\6\ The proposed

amendments set out specific representations that would be required in

the acknowledgment letters in order to reaffirm and clarify the

obligations that Depositories incur when accepting customer funds or

secured amount funds. The Commission also proposed several technical

changes.

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\6\ 74 FR 7838 (February 20, 2009).

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In response, the Commission received comment letters from the

Futures Industry Association (``FIA''), Joint Audit Committee

(``JAC''), National Futures Association (``NFA''), Managed Funds

Association (``MFA''), and Katten Muchin Rosenman LLP (``Katten''),

which are discussed below. In light of the comments received, the

Commission has determined to re-propose the amendments to Regulations

1.20, 1.26, and 30.7, with several changes made in response to the

comments. In addition, the Commission is proposing standard template

acknowledgment letters that would be required to be used. These are

proposed for inclusion in a new Appendix A to each of Regulations 1.20,

1.26, and 30.7. The Commission invites public comment on all aspects of

the proposed regulations and the proposed letters.

II. Comments Received

FIA generally supported the proposed regulations but requested that

the effective date of the final rule be extended beyond the proposed

date of 180 days from the date of publication in the Federal Register

to allow FCMs, DCOs, and Depositories sufficient time to negotiate and

put in place acknowledgment letters satisfying the proposed Commission

regulations and also to allow them an opportunity to work together to

develop a standard template acknowledgment letter that would satisfy

the proposed regulations. In addition, FIA expressed interest in having

its member Depositories work with the Commission on a standardized

notice, authentication, and instruction protocol and encouraged the

Commission to develop a system for electronic filing of the new

acknowledgment letters.

The JAC supported the proposed regulations but requested guidance

regarding the circumstances that would necessitate updating

acknowledgment letters (e.g., name change of FCM or depository, merger

of FCM or depository, addition or deletion of account number) as well

as acceptable timeframes for such updating. In addition, the JAC

questioned the benefit of requiring submission of acknowledgment

letters to the Commission without also requiring documentation

necessary for verification. Finally, the JAC requested that the

Commission amend Regulation 30.7 to provide relief, similar to that

provided under Regulations 1.20 and 1.26, that would exempt DCOs from

having to provide acknowledgment

[[Page 47739]]

letters if they follow the requirements of the CEA.

NFA supported the proposed regulations but recommended that the

Commission require that acknowledgment letters be filed with NFA as

well as the Commission when NFA is the firm's designated self-

regulatory organization (``DSRO''), so that NFA has ready access to the

same information that the Commission does. NFA also asked that the

Commission clarify when acknowledgment letters should be amended for

changes made after the effective date of the proposed regulations.

Katten supported the purpose of the proposed regulations but

suggested several revisions. First, Katten recommended that the

Commission require an FCM, in opening an account with a Depository, to

include in the account opening agreement an obligation on the

Depository to release customer funds ``immediately upon proper notice

and instruction'' from the FCM or the Commission (the same language

that would be required in the acknowledgment letter under the proposed

regulations). Katten expressed concern that a Depository would be

exposed to potential liability to the FCM if the Depository were to

honor an instruction from the Commission without the FCM's express

consent. Second, Katten noted that the proposed regulations set no

guidelines to be followed or conditions to be met before the Commission

could issue an instruction to release customer funds. Third, Katten

recommended that the Commission establish a reasonable means for a

Depository to authenticate an instruction from the Commission. Fourth,

Katten asked the Commission to confirm that, in the event that an FCM

files for bankruptcy, a Depository will have no obligation to release

customer funds except upon instruction from the bankruptcy trustee or

pursuant to a court order. Fifth, Katten requested that the Commission

provide additional guidance on a Depository's obligation to release

customer funds ``immediately'' upon instruction from the Commission and

suggested the use of the term ``promptly'' instead. Finally, Katten

noted that Depositories frequently contract with an FCM depositor to

advance monies to the FCM intraday, with the understanding that the FCM

will deposit in the customer segregated account prior to the end of the

business day (or by the start of the next business day), sums

sufficient to repay the advance. Katten requested that the Commission

confirm that, in the event that the FCM fails to repay the advance in a

timely manner, or in the event of the FCM's bankruptcy, a Depository is

entitled to recourse against the customer funds account for the amount

of such funds advanced.

MFA commended the Commission for the proposed rulemaking and stated

that it believes the proposed rules would provide customers with

greater clarity with respect to their deposited funds.

The Commission's response to the comments received is discussed

below.

III. Discussion of the Proposed Regulations

A. Regulation 1.20

In its original proposal, the Commission set out specific

representations that Depositories would have to include in the

acknowledgment letter required under Regulation 1.20. The proposed

changes to Regulation 1.20 would have required the Depository to

acknowledge in the letter that: (1) The FCM or DCO has established the

account for the purpose of depositing customer funds; (2) the customer

funds deposited therein are those of commodity or option customers of

the FCM, or clearing members of the DCO, and that those funds are to be

segregated in accordance with the provisions of the Act and Part 1 of

the CFTC regulations; (3) the customer funds shall not be subject to

any right of offset, or lien, for or on account of any indebtedness,

obligations or liabilities owed by the FCM or DCO; (4) the Depository

must treat the customer funds in accordance with the Act and CFTC

regulations; and (5) the Depository must immediately release the

customer funds upon proper notice and instruction from the FCM or DCO

or from the Commission.

As noted above, FIA recommended the development of a standard

template acknowledgment letter that would satisfy the proposed

regulations. The Commission agrees with this recommendation, and the

specific representations that the Commission originally proposed for

the letter have been incorporated into a standard template

acknowledgment letter that would be adopted as Appendix A to Regulation

1.20. An FCM or DCO would be required to use this letter to satisfy the

requirements of Regulation 1.20.

The Commission also has accepted the recommendation to develop a

system for electronic filing of the acknowledgment letters. As

initially proposed, paragraphs (d)(2) and (e)(2) of Regulation 1.20

would have required that a copy of the acknowledgment letter be filed

with the regional office of the Commission with jurisdiction over the

state in which the FCM or DCO's principal place of business is located;

to reflect the change to electronic filing, paragraphs (d)(2) and

(e)(2) now require that a copy of the letter be filed ``with the

Commission in the manner specified by the Commission.'' The Commission

will offer guidance on electronic filing procedures for the

acknowledgment letters before a final rule takes effect but expects

that filing will be done through ``WinJammerTM,'' an

application currently used by FCMs to file their financial reports with

the Commission. The use of WinJammerTM will ensure that only

those individuals authorized by an FCM to submit an acknowledgment

letter on its behalf will be able to do so, and it also will allow NFA

and other DSROs to have access to the acknowledgment letters.

Regulation 1.20 currently does not address the circumstances under

which an FCM or a DCO must amend an existing acknowledgment letter or

the amount of time allowed for doing so. Proposed paragraphs (d)(3) and

(e)(3) require the acknowledgment letter to be amended within 60 days

of any changes in the following: the name of the FCM or DCO depositing

the customer funds; the name of the bank, trust company, DCO or FCM

receiving the customer funds; or the account number(s) under which the

customer funds are held.

The proposed standard template acknowledgment letter includes

language that requires the Depository to acknowledge that it must

``immediately'' release customer funds upon ``proper notice and

instruction'' from the FCM or DCO or from the Commission. The

Commission recognizes that the release of customer funds may be delayed

by practical considerations (e.g., Fedwire is unavailable), but the

Depository must make every effort to execute the transfer as soon as

possible. The transfer of customer funds from a segregated account

cannot be delayed due to concerns about the financial status of the FCM

or DCO that deposited the funds.

The Commission is not proposing specific standards for what

constitutes ``proper notice'' from the Commission to the Depository.

This is because reasonable actions could vary, depending on the

situation. For example, in certain circumstances, it may not be

possible to expeditiously provide written notice, and a telephone call

would be sufficient and even preferable. However, the Commission would

confirm the instruction in writing as soon as practicable.

As noted above, the Commission received a comment letter expressing

concern that a Depository would be exposed to potential liability to

the FCM

[[Page 47740]]

if the Depository were to honor an instruction from the Commission

without the FCM's express consent. The Commission believes that the

acknowledgment letter and Regulation 1.20, as proposed, would provide

sufficient legal basis for the Depository to act on any such

instruction from the Commission. The letter, which must be agreed to

and signed by both the FCM (or DCO) and the Depository, states: ``We

will not hold you responsible for acting pursuant to any instruction

from the CFTC upon which you have relied after having taken reasonable

measures to assure that such instruction was provided to you by a duly

authorized officer or employee of the CFTC.'' The Commission would

issue such an instruction only when, in the judgment of the Commission,

it is necessary to do so for the protection of customer funds. For

example, the prospective insolvency of the FCM could prompt an

instruction from the Commission to release the customer funds. However,

the standard template acknowledgment letter does include language

confirming that, in the event that the FCM becomes subject to a

voluntary or involuntary petition for relief under the U.S. Bankruptcy

Code, the Depository will have no obligation to release the customer

funds except upon instruction from the bankruptcy trustee or pursuant

to a court order.

One of the comment letters also noted that Depositories frequently

contract with an FCM depositor to advance monies to the FCM intraday,

with the understanding that the FCM will deposit in the customer

segregated account prior to the end of the business day (or by the

start of the next business day), sums sufficient to repay the advance.

The Commission was asked to confirm that, in the event that the FCM

fails to repay the advance in a timely manner, or in the event of the

FCM's bankruptcy, a Depository is entitled to recourse against the

customer funds account for the amount of such funds advanced. The

Commission believes that Section 4d of the Act \7\ does not permit such

an arrangement because the advance is made to the FCM account holder

and Section 4d expressly prohibits ``any person, including* * *any

depository, that has received any money, securities, or property for

deposit in a [customer segregated account], to hold, dispose of, or use

any such money, securities, or property as belonging to the depositing

futures commission merchant or any person other than the customers of

such futures commission merchant.'' \8\

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\7\ 7 U.S.C. 6d.

\8\ See Section 4d(b) of the Act, 7 U.S.C. 6d(b). The

arrangement outlined in the comment letter is distinguishable from

other arrangements involving segregated funds that the Commission

has previously allowed. For example, CFTC Interpretative Letter No.

86-9 confirmed that, when there is sufficient aggregate value in the

form of cash and securities, but insufficient cash, in the customer

segregated account to meet a customer margin or variation call, a

bank may allow an overdraft in the account in order to meet the call

and may settle the overdraft by offsetting securities held in the

customer segregated account. The letter allowed such offsetting only

to meet the obligations of customers, not obligations of the FCM.

Similarly, CFTC No-Action Letter No. 04-26 confirmed that an FCM

that holds excess funds in segregation and has a residual interest

in such funds may pay account service charges directly out of a

customer segregated account as a reduction of such residual

interest, subject to additional conditions set forth in the letter.

Although the letter allowed the charges to be paid from the customer

segregated account, the funds being used had to belong to the FCM

and not to its customers.

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B. Regulation 1.26

The proposed changes to Regulation 1.26 would affirm that the

written acknowledgment required for instruments in which customer funds

are invested is identical to the written acknowledgment required under

Regulation 1.20 and therefore must meet the requirements set out in

Regulation 1.20. The Commission also is proposing a standard template

acknowledgment letter to be used when customer funds are invested in

money market mutual funds, which would be adopted as Appendix A to

Regulation 1.26.\9\

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\9\ Regulation 1.25(c) sets forth the requirements for

investment of customer funds in money market mutual funds. Among

them is the requirement that if the FCM or DCO ``holds its shares of

the fund with the fund's shareholder servicing agent, the sponsor of

the fund and the fund itself are required to provide the

acknowledgement letter required by Sec. 1.26.'' See 17 CFR

1.25(c)(3).

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C. Regulation 30.7

In its original proposal, the Commission proposed to amend

Regulation 30.7 to set out specific representations that Depositories

holding secured amount funds would have to include in the

acknowledgment letter required by the regulation.\10\ The proposed

changes to Regulation 30.7 would have required the Depository to

acknowledge in the letter that: (1) It meets the requirement set out in

Regulation 30.7(c)(1), which lists the types of depositories that may

accept secured amount funds; (2) the FCM has established the account

for the purpose of depositing money, securities, or property for or on

behalf of customers that include, but are not limited to, foreign

futures and foreign options customers; (3) the money, securities, or

property deposited therein are held on behalf of foreign futures and

foreign options customers of the FCM and may not be commingled with the

FCM's own funds or any other funds that the Depository may hold, in

accordance with the provisions of the Act and Part 30 of the CFTC

regulations; (4) the money, securities, or property shall not be

subject to any right of offset, or lien, for or on account of any

indebtedness, obligations or liabilities owed by the FCM; (5) the

Depository must treat the money, securities, or property in accordance

with the provisions of the Act and CFTC regulations; and (6) the

Depository must release immediately, subject to requirements of

applicable foreign law, the money, securities, or property upon proper

notice and instruction from the FCM or the Commission.

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\10\ The Commission has issued an interpretative statement with

respect to the secured amount requirement set forth in Regulation

30.7. See 17 CFR part 30, App. B.

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As noted above, the Commission now is proposing a standard template

acknowledgment letter under Regulations 1.20 and 1.26, and the

Commission is doing the same for Regulation 30.7. The specific

representations that the Commission originally proposed for the letter

required under Regulation 30.7 have been incorporated into a standard

template acknowledgment letter that would be adopted as Appendix A to

Regulation 30.7.

Also as noted above, the Commission has decided to develop a system

for electronic filing of the acknowledgment letters. As initially

proposed, paragraph (c)(2)(iii) of Regulation 30.7 would have required

the FCM to file a copy of the written acknowledgment with the regional

office of the Commission with jurisdiction over the state in which the

FCM's principal place of business is located; to reflect the change to

electronic filing, paragraph (c)(2)(ii) now requires that a copy of the

letter be filed ``with the Commission in the manner specified by the

Commission.'' The Commission will offer guidance on electronic filing

procedures for the acknowledgment letters before a final rule takes

effect but expects that filing will be done through

``WinJammerTM,'' an application currently used by FCMs to

file their financial reports with the Commission. The use of

WinJammerTM will ensure that only those individuals

authorized by an FCM to submit an acknowledgment letter on its behalf

will be able to do so, and it also will allow NFA and other DSROs to

have access to the acknowledgment letters.

Regulation 30.7 currently does not address the circumstances under

which an FCM must amend an existing

[[Page 47741]]

acknowledgment letter or the amount of time allowed for doing so.

Proposed paragraph (c)(2)(iii) requires the acknowledgment letter to be

amended within 60 days of any changes in the following: the name of the

FCM; the name of the Depository; \11\ or the account number(s) under

which the secured amount funds are held.

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\11\ Regulation 30.7(c)(1) (17 CFR 30.7(c)(1)) sets out certain

requirements that an entity must meet to qualify as a depository

that may accept from an FCM the money, securities, and property

representing the foreign futures or foreign options secured amount.

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The proposed standard template acknowledgment letter includes

language that requires the Depository to acknowledge that it must

``immediately'' release, subject to the requirements of U.S. or non-

U.S. law as applicable,\12\ secured amount funds upon ``proper notice

and instruction'' from the FCM or from the Commission. The Commission

recognizes that the release of secured amount funds may be delayed by

practical considerations (e.g., Fedwire is unavailable), but the

Depository must make every effort to execute the transfer as soon as

possible. The transfer cannot be delayed due to concerns about the

financial status of the FCM that deposited the funds.

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\12\ The Commission notes that under the laws of some foreign

countries, immediate release of customer funds may not always be

possible. Regulation 30.6(a) (17 CFR 30.6(a)) requires FCMs to

furnish customers with a separate written disclosure statement

containing the language set forth in Regulation 1.55(b) (17 CFR

1.55(b)). Regulation 1.55(b)(7) states in relevant part:

No domestic organization regulates the activities of a foreign

exchange * * * and no domestic regulator has the power to compel

enforcement of the rules of the foreign exchange or the laws of the

foreign country. Moreover, such laws or regulations will vary

depending on the foreign country in which the transaction occurs. *

* * [F]unds received from customers to margin foreign futures

transactions may not be provided the same protections as funds

received to margin futures transactions on domestic exchanges.

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The Commission is not proposing specific standards for what

constitutes ``proper notice'' from the Commission to the Depository.

This is because reasonable actions could vary, depending on the

situation. For example, in certain circumstances, it may not be

possible to expeditiously provide written notice, and a telephone call

would be sufficient and even preferable. However, the Commission would

confirm the instruction in writing as soon as practicable.

D. Technical Amendments

Regulation 1.20(a) imposes upon ``[e]ach registrant'' the

requirement to obtain and retain a written acknowledgment when customer

funds are deposited with ``any bank, trust company, clearing

organization, or another futures commission merchant.'' Regulation

1.20(a) applies to FCMs, as distinguished from Regulation 1.20(b),

which applies to DCOs. Therefore, the Commission proposes to substitute

the term ``futures commission merchant'' for the term ``registrant'' to

more accurately reflect the intent and meaning of Regulation 1.20(a).

In connection with this, the Commission further proposes to insert the

word ``other'' before the term ``futures commission merchant'' that

appears subsequently in the same sentence, to distinguish between the

FCM holding the funds of its own customers and an FCM holding customer

funds of another FCM.

Regulations 1.20, 1.26, and 30.7 currently require that

acknowledgment letters be retained for the period specified in

Regulation 1.31, which applies to all recordkeeping required by the Act

and CFTC regulations. Regulation 1.31 requires records to be kept for

five years and to be readily accessible for the first two years of that

five-year period. The proposed revisions would make clear that an

acknowledgment letter is to be kept readily accessible for as long as

the account remains open and that the retention requirements that would

otherwise apply under Regulation 1.31 would only take effect once the

account has been closed. For example, if the account remains open for

ten years, the letter must be kept readily accessible for twelve years

(the ten years during which the account is open plus the two years

required by Regulation 1.31) and then for an additional three years,

also as required by Regulation 1.31.

Regulations 1.20 and 1.26 use the term ``clearing organization'' to

describe an entity that performs clearing functions. The Act, as

amended by the Commodity Futures Modernization Act of 2000,\13\ now

provides that a clearing organization for a contract market must

register as a ``derivatives clearing organization.'' \14\ To be

consistent with the Act and other CFTC regulations, the Commission

proposes to replace the term ``clearing organization,'' wherever it

appears in Regulations 1.20 and 1.26, with the term ``derivatives

clearing organization.''

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\13\ Appendix E of Public Law 106-554, 114 Stat. 2763 (2000).

\14\ See Section 5b of the Act, 7 U.S.C. 7a-1. See also Section

1a(9) of the Act, 7 U.S.C. 1a(9) (defining the term ``derivatives

clearing organization'').

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Finally, the Commission also is proposing technical amendments to

Regulation 140.91 to explicitly delegate to the Director of the

Division of Clearing and Intermediary Oversight the authority to

perform certain functions that are reserved to the Commission under the

proposed changes to Regulations 1.20, 1.26, and 30.7. Thus, for

example, the Director of the Division of Clearing and Intermediary

Oversight would have delegated authority to instruct a Depository to

release customer funds or secured amount funds.

E. Proposed Effective Date

FCMs and DCOs will need to obtain new acknowledgment letters that

comply with the proposed regulations before the final regulations take

effect. The Commission recognizes the need for time to obtain the

letters. However, the adoption of a standard template acknowledgment

letter would eliminate the need for FCMs and Depositories to negotiate

new acknowledgment letters that satisfy the proposed regulations.

Therefore, the proposed effective date of the amendments to Regulations

1.20, 1.26, and 30.7 is 90 days from the date of publication of the

final regulations in the Federal Register.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \15\ requires Federal

agencies, in promulgating regulations, to consider the impact of those

regulations on small businesses. The amendments adopted herein will

affect FCMs and DCOs. The Commission has previously established certain

definitions of ``small entities'' to be used by the Commission in

evaluating the impact of its regulations on small entities in

accordance with the RFA.\16\ The Commission has previously determined

that FCMs \17\ and DCOs \18\ are not small entities for the purpose of

the RFA. Accordingly, pursuant to 5 U.S.C. 605(b), the Chairman, on

behalf of the Commission, certifies that the proposed regulations will

not have a significant economic impact on a substantial number of small

entities.

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\15\ 5 U.S.C. 601 et seq.

\16\ 47 FR 18618 (Apr. 30, 1982).

\17\ Id. at 18619.

\18\ 66 FR 45604, 45609 (Aug. 29, 2001).

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B. Paperwork Reduction Act

The Paperwork Reduction Act (``PRA'') \19\ imposes certain

requirements on Federal agencies in connection with their conducting or

sponsoring any collection of information as defined by the PRA. The

regulations to be amended under this proposal are part of an approved

collection of information (OMB Control No. 3038-0024). The proposed

amendments would not result

[[Page 47742]]

in any material modification to this approved collection. Accordingly,

for purposes of the PRA, the Commission certifies that these proposed

amendments, if promulgated in final form, would not impose any new

reporting or recordkeeping requirements.

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\19\ 44 U.S.C. 3501 et seq.

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C. Cost-Benefit Analysis

Section 15(a) of the Act requires that the Commission, before

promulgating a regulation under the Act or issuing an order, consider

the costs and benefits of its action. By its terms, Section 15(a) does

not require the Commission to quantify the costs and benefits of a new

regulation or determine whether the benefits of the regulation outweigh

its costs. Rather, Section 15(a) simply requires the Commission to

``consider the costs and benefits'' of its action.

Section 15(a) further specifies that costs and benefits shall be

evaluated in light of the following considerations: (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. Accordingly, the Commission could, in its discretion,

give greater weight to any one of the five considerations and could, in

its discretion, determine that, notwithstanding its costs, a particular

regulation was necessary or appropriate to protect the public interest

or to effectuate any of the provisions or to accomplish any of the

purposes of the Act.

The Commission has evaluated the costs and benefits of the proposed

regulations in light of the specific considerations identified in

Section 15(a) of the Act, as follows:

1. Protection of market participants and the public. The proposed

regulations would benefit FCMs and DCOs, as well as customers of the

futures and options markets, by reaffirming the legal obligation of

Depositories holding customer funds or secured amount funds to treat

those funds in accordance with the requirements of the Act and CFTC

regulations.

2. Efficiency and competition. The proposed regulations are not

expected to have an effect on efficiency or competition.

3. Financial integrity of futures markets and price discovery. The

proposed regulations would enhance and strengthen the protection of

customer funds and secured amount funds, thus contributing to the

financial integrity of the futures and options markets as a whole.

This, in turn, would further support the price discovery and risk

transfer functions of such markets.

4. Sound risk management practices. The proposed regulations would

reinforce the sound risk management practices already required of FCMs

and DCOs holding customer funds or secured amount funds.

5. Other public considerations. Requiring specific representations

in a Depository's written acknowledgment would reduce the likelihood

that the Depository would misinterpret its obligations in connection

with the safekeeping and administration of customer funds and secured

amount funds. The Commission recognizes that there are certain

administrative costs associated with obtaining new acknowledgment

letters. However, the Commission believes those costs are minimal and

are outweighed by the benefits. For example, because a template letter

is required, FCMs and DCOs will not have to expend resources to

negotiate new letters with their Depositories.

Accordingly, after considering the five factors enumerated in the

Act, the Commission has determined to propose the regulations set forth

below.

List of Subjects in 17 CFR Parts 1, 30, and 140

Commodity futures, Consumer protection.

For the reasons stated in the preamble, the Commission proposes to

amend 17 CFR parts 1, 30, and 140 as follows:

PART 1--GENERAL REGULATIONS

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, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c,

13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as amended by the Commodity

Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554,

114 Stat. 2763 (2000).

2. Revise Sec. 1.20 to read as follows:

Sec. 1.20 Customer funds to be segregated and separately accounted

for.

(a) All customer funds shall be separately accounted for and

segregated as belonging to commodity or option customers. Such customer

funds when deposited with any bank, trust company, derivatives clearing

organization or another futures commission merchant shall be deposited

under an account name which clearly identifies them as such and shows

that they are segregated as required by the Act and this part. Each

futures commission merchant shall obtain and maintain readily

accessible in its files in accordance with Sec. 1.31, for as long as

the account remains open, and thereafter for the period provided in

Sec. 1.31, a written acknowledgment from such bank, trust company,

derivatives clearing organization, or other futures commission

merchant, in accordance with the requirements of paragraph (d) of this

section: Provided, however, that an acknowledgment need not be obtained

from a derivatives clearing organization that has adopted and submitted

to the Commission rules that provide for the segregation as customer

funds, in accordance with all relevant provisions of the Act and the

rules and orders promulgated thereunder, of all funds held on behalf of

customers. Under no circumstances shall any portion of customer funds

be obligated to a derivatives clearing organization, any member of a

contract market, a futures commission merchant, or any depository

except to purchase, margin, guarantee, secure, transfer, adjust or

settle trades, contracts or commodity option transactions of commodity

or option customers. No person, including any derivatives clearing

organization or any depository, that has received customer funds for

deposit in a segregated account, as provided in this section, may hold,

dispose of, or use any such funds as belonging to any person other than

the option or commodity customers of the futures commission merchant

which deposited such funds.

(b) All customer funds received by a derivatives clearing

organization from a member of the derivatives clearing organization to

purchase, margin, guarantee, secure or settle the trades, contracts or

commodity options of the clearing member's commodity or option

customers and all money accruing to such commodity or option customers

as the result of trades, contracts or commodity options so carried

shall be separately accounted for and segregated as belonging to such

commodity or option customers, and a derivatives clearing organization

shall not hold, use or dispose of such customer funds except as

belonging to such commodity or option customers. Such customer funds

when deposited in a bank or trust company shall be deposited under an

account name which clearly shows that they are the customer funds of

the commodity or option customers of clearing members, segregated as

required by the Act and these regulations. The derivatives clearing

organization shall obtain and maintain readily accessible in its files

in accordance with Sec. 1.31, for as long as the account remains open,

and

[[Page 47743]]

thereafter for the period provided in Sec. 1.31, a written

acknowledgment from such bank or trust company, in accordance with the

requirements of paragraph (e) of this section.

(c) Each futures commission merchant shall treat and deal with the

customer funds of a commodity customer or of an option customer as

belonging to such commodity or option customer. All customer funds

shall be separately accounted for, and shall not be commingled with the

money, securities or property of a futures commission merchant or of

any other person, or be used to secure or guarantee the trades,

contracts or commodity options, or to secure or extend the credit, of

any person other than the one for whom the same are held: Provided,

however, That customer funds treated as belonging to the commodity or

option customers of a futures commission merchant may for convenience

be commingled and deposited in the same account or accounts with any

bank or trust company, with another person registered as a futures

commission merchant, or with a derivatives clearing organization, and

that such share thereof as in the normal course of business is

necessary to purchase, margin, guarantee, secure, transfer, adjust, or

settle the trades, contracts or commodity options of such commodity or

option customers or resulting market positions, with the derivatives

clearing organization or with any other person registered as a futures

commission merchant, may be withdrawn and applied to such purposes,

including the payment of premiums to option grantors, commissions,

brokerage, interest, taxes, storage and other fees and charges,

lawfully accruing in connection with such trades, contracts or

commodity options: Provided, further, That customer funds may be

invested in instruments described in Sec. 1.25.

(d)(1) The written acknowledgment required by paragraph (a) of this

section is set out in Appendix A to this section.

(2) The futures commission merchant shall file a copy of the

written acknowledgment with the Commission in the manner specified by

the Commission.

(3) The written acknowledgment shall be amended within 60 days of

any changes in the following:

(i) The name of the futures commission merchant depositing customer

funds;

(ii) The name of the bank, trust company, derivatives clearing

organization or futures commission merchant receiving customer funds;

or

(iii) The account number(s) under which customer funds are held.

(e)(1) The language set forth in the written acknowledgment

required under paragraph (b) of this section shall be as set out in

Appendix A to this section.

(2) The derivatives clearing organization shall file a copy of the

written acknowledgment with the Commission in the manner specified by

the Commission.

(3) The written acknowledgment shall be amended within 60 days of

any changes in the following:

(i) The name of the derivatives clearing organization depositing

customer funds;

(ii) The name of the bank or trust company receiving customer

funds; or

(iii) The account number(s) under which customer funds are held.

Appendix Sec. 1.20--Acknowledgment Letter for CFTC Regulation 1.20

Customer Segregated Account

[Date]

[Name and Address of Bank, Trust Company, Derivatives Clearing

Organization or Futures Commission Merchant]

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

Commission Merchant or Derivatives Clearing Organization] (``we'' or

``our'') have opened or will open with [Name of Bank, Trust Company,

Derivatives Clearing Organization or Futures Commission Merchant]

(``you'' or ``your'') entitled:

[Name of Futures Commission Merchant or Derivatives Clearing

Organization] CFTC Regulation 1.20 Customer Segregated Account

Account Number(s):

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

You acknowledge and agree 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 our customers who trade commodities, options, cleared

OTC derivatives products and other products, as required by

Commodity Futures Trading Commission (``CFTC'') Regulation 1.20, as

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

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

separately accounted for and segregated on your books from our own

Funds and all other accounts maintained 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 the

Act and CFTC regulations.

Furthermore, you acknowledge and agree that such Funds may not

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

may have owing to you, nor used by us to secure 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 you

make in lieu of liquidating assets held in the Account(s) for

purposes of variation settlement or posting original margin.

In addition, you agree that the Account(s) may be examined at

any reasonable time by an appropriate officer, agent or employee of

the CFTC or a self-regulatory organization, and this letter

constitutes the authorization and direction of the undersigned to

permit any such examination or audit to take place.

You acknowledge and agree that the Funds in the Account(s) shall

be released immediately, subject to the requirements of U.S. or non-

U.S. law as applicable, upon proper notice and instruction from an

appropriate officer or employee of us or of the CFTC. We will not

hold you responsible for acting pursuant to any instruction from the

CFTC upon which you have relied after having taken reasonable

measures to assure that such instruction was provided to you by a

duly authorized officer or employee of the CFTC. You further

acknowledge that we will provide to the CFTC a copy of this

acknowledgment.

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 set off against or lien on assets other than

assets maintained in the Account(s) nor 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, and

you shall not in any manner not expressly agreed to herein be

responsible for ensuring compliance by us with the provisions of the

Act and 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 such action or omission to

act, to us or to any other person, firm, association or corporation

[[Page 47744]]

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

reversed, modified, set aside or vacated.

This letter agreement constitutes the entire understanding of

the parties with respect to its subject matter and supersedes and

replaces all prior writings, including any applicable agreement

between the parties in connection with the Account(s), with respect

thereto. 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 the enclosed

copy of this letter.

[Name of Futures Commission Merchant or Derivatives Clearing

Organization]

By:

Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Bank, Trust Company, Derivatives Clearing Organization or

Futures Commission Merchant]

By:

Name:

Title:

DATE:

3. Revise Sec. 1.26 to read as follows:

Sec. 1.26 Deposit of instruments purchased with customer funds.

(a) Each futures commission merchant who invests customer funds in

instruments described in Sec. 1.25, except for investments in money

market mutual funds, shall separately account for such instruments and

segregate such instruments as belonging to such commodity or option

customers. Such instruments, when deposited with a bank, trust company,

derivatives clearing organization or another futures commission

merchant, shall be deposited under an account name which clearly shows

that they belong to commodity or option customers and are segregated as

required by the Act and this part. Each futures commission merchant

upon opening such an account shall obtain and maintain readily

accessible in its files in accordance with Sec. 1.31, for as long as

the account remains open, and thereafter for the period provided in

Sec. 1.31, a written acknowledgment from such bank, trust company,

derivatives clearing organization or other futures commission merchant,

in accordance with the requirements of paragraph (d) of Sec. 1.20:

Provided, however, that an acknowledgment need not be obtained from a

derivatives clearing organization that has adopted and submitted to the

Commission rules that provide for the segregation as customer funds, in

accordance with all relevant provisions of the Act and the rules and

orders promulgated thereunder, of all funds held on behalf of customers

and all instruments purchased with customer funds. Such bank, trust

company, derivatives clearing organization or other futures commission

merchant shall allow inspection of such instruments at any reasonable

time by representatives of the Commission.

(b) Each derivatives clearing organization which invests money

belonging or accruing to commodity or option customers of its clearing

members in instruments described in Sec. 1.25, except for investments

in money market mutual funds, shall separately account for such

instruments and segregate such instruments as belonging to such

commodity or option customers. Such instruments, when deposited with a

bank or trust company, shall be deposited under an account name which

will clearly show that they belong to commodity or option customers and

are segregated as required by the Act and this part. Each derivatives

clearing organization upon opening such an account shall obtain and

maintain readily accessible in its files in accordance with Sec. 1.31,

for as long as the account remains open, and thereafter for the period

provided in Sec. 1.31, a written acknowledgment from such bank or

trust company, in accordance with the requirements of paragraph (e) of

Sec. 1.20. Such bank or trust company shall allow inspection of such

instruments at any reasonable time by representatives of the

Commission.

(c) Each futures commission merchant or derivatives clearing

organization which invests customer funds in money market mutual funds,

as permitted by Sec. 1.25, shall separately account for such funds and

segregate such funds as belonging to such commodity or option

customers. Such funds shall be deposited under an account name which

clearly shows that they belong to commodity or option customers and are

segregated as required by the Act and this part. Each futures

commission merchant or derivatives clearing organization, upon opening

such an account, shall obtain and maintain readily accessible in its

files in accordance with Sec. 1.31, for as long as the account remains

open, and thereafter for the period provided in Sec. 1.31, a written

acknowledgment from the money market mutual fund as set out in Appendix

A to this section.

Appendix A Sec. 1.26--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 Futures Commission

Merchant or Derivatives Clearing Organization] (``we'' or ``our'')

on behalf of our commodity futures and options customers in shares

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

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

[Name of Futures Commission Merchant or Derivatives Clearing

Organization] CFTC Regulation 1.26 Customer Segregated Money Market

Mutual Fund Account

Account Number(s):

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

You acknowledge and agree that we are holding these funds,

including any shares issued and amounts accruing in connection

therewith (collectively the ``Funds''), for the benefit of our

customers who trade commodities, options, cleared OTC derivatives

products and other products (``Commodity Customers''), as required

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

as amended; that the Funds held by you, hereafter deposited in the

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

separately accounted for and segregated on your books from our own

funds and from any other funds 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 the

Act and CFTC regulations.

Furthermore, you acknowledge and agree that such Funds may not

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

may have owing to you, nor used by us to secure 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. In addition, you agree that the Account(s)

may be examined at any reasonable time by an appropriate officer,

agent or employee of the CFTC or a self-regulatory organization, and

this letter constitutes the authorization and direction of the

undersigned to permit any such examination or audit to take place.

You acknowledge and agree that the Funds in the Account(s) shall

be released immediately, subject to the requirements of U.S. or non-

U.S. law as applicable, upon proper notice and instruction from an

appropriate officer or employee of us or of the CFTC. We will not

hold you responsible for acting pursuant to any instruction from the

CFTC upon which you have relied after having taken reasonable

measures to assure that such instruction was provided to you by a

duly authorized officer or employee of the CFTC. You further

acknowledge that we will provide to the CFTC a copy of this

acknowledgment.

In the event 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

[[Page 47745]]

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 setoff against or lien on assets other than

assets maintained in the Account(s) nor 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, and

you shall not in any manner not expressly agreed to herein be

responsible for ensuring compliance by us with the provisions of the

Act and 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 such action or omission to

act, 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

our Commodity 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 our Commodity Customers'

funds must not contain any provision that would prevent us from

pledging or transferring fund shares to a third party permitted to

receive the shares under the rules of the SEC.

This letter agreement constitutes the entire understanding of

the parties with respect to its subject matter and supersedes and

replaces all prior writings, including any applicable agreement

between the parties in connection with the Account(s), with respect

thereto.

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 the enclosed

copy of this letter.

[Name of Futures Commission Merchant or Derivatives Clearing

Organization]

By:

Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Money Market Mutual Fund]

By:

Name:

Title:

DATE:

PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS

4. The authority citation for part 30 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise

noted.

5. Revise paragraph (c)(2) of Sec. 30.7 to read as follows:

Sec. 30.7 Treatment of foreign futures or foreign options secured

amount.

* * * * *

(c) * * *

(2)(i) Each futures commission merchant must obtain and maintain

readily accessible in its files in accordance with Sec. 1.31, for as

long as the account remains open, and thereafter for the period

provided in Sec. 1.31, a written acknowledgment from such depository

as set out in Appendix E to this part.

(ii) The futures commission merchant shall file a copy of the

written acknowledgment with the Commission in the manner specified by

the Commission.

(iii) The written acknowledgment shall be amended within 60 days of

any changes in the following:

(A) The name of the futures commission merchant;

(B) The name of the depository; or

(C) The account number(s) under which money, securities, and

property representing the foreign futures or foreign options secured

amount are held.

* * * * *

6. Add appendix E to read as follows:

Appendix E to Part 30--Acknowledgment Letter for CFTC Regulation 30.7

Customer Secured Account

[Date]

[Name and Address of Depository]

We refer to the Secured Amount Account(s) which [Name of Futures

Commission Merchant] (``we'' or ``our'') have opened or will open

with [Name of Depository] (``you'' or ``your'') entitled:

[Name of Futures Commission Merchant] CFTC Regulation 30.7 Customer

Secured Account

Account Number(s):

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

You acknowledge and agree 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

``Funds'') for or on behalf of our customers who trade commodities,

options, cleared OTC derivatives products and other products, that

include, but are not limited to, customers who are entering into

foreign futures and/or foreign options transactions (as such terms

are defined in U.S. Commodity Futures Trading Commission (``CFTC'')

Regulation 30.1, as amended). The Funds deposited in the Account(s)

or accruing to the credit of the Accounts will be kept separate and

apart and separately accounted for on your books from our own funds

in accordance with the provisions of the Commodity Exchange Act, as

amended (the ``Act''), and Part 30 of the CFTC's regulations, as

amended, and may not be commingled with our own Funds in any

proprietary account we maintain with you and the Funds must

otherwise be treated in accordance with the provisions of the Act

and CFTC regulations.

Furthermore, you acknowledge and agree that such Funds may not

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

may have owing to you, nor used by us to secure 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, and that you understand the nature of the

Funds held or hereafter deposited in the Account(s) and that you

will treat and maintain such Funds in accordance with the provisions

of the Act and CFTC regulations. This prohibition does not affect

your right to recover funds advanced in the form of cash transfers

you make in lieu of liquidating assets held in the Account(s) for

purposes of variation settlement or posting original margin.

In addition, you agree that the Account(s) may be examined at

any reasonable time by an appropriate officer, agent or employee of

the CFTC or a self-regulatory organization, and this letter

constitutes the authorization and direction of the undersigned to

permit any such examination or audit to take place.

You acknowledge and agree that you meet the requirements

detailed for depositories in CFTC Regulation 30.7, as amended. You

further acknowledge and agree that the Funds in the Account(s) shall

be released immediately, subject to the requirements of US or non-

U.S. law as applicable, upon proper notice and instruction from an

appropriate officer or employee of us or of the CFTC. We will not

hold you responsible for acting pursuant to any instruction from the

CFTC upon which you have relied after having taken reasonable

measures to assure that such instruction was provided to you by a

duly authorized officer or employee of the CFTC. You further

acknowledge that we will provide to the CFTC a copy of this

acknowledgment.

[[Page 47746]]

In the event 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 set off against or lien on assets

other than assets maintained in the Account(s) nor 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, and

you shall not in any manner not expressly agreed to herein be

responsible for ensuring compliance by us with the provisions of the

Act and 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 such action or omission to

act, 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.

This letter agreement constitutes the entire understanding of

the parties with respect to its subject matter and supersedes and

replaces all prior writings, including any applicable agreement

between the parties in connection with the Account(s), with respect

thereto.

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 the enclosed

copy of this letter.

[Name of Futures Commission Merchant]

By:

Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Depository]

By:

Name:

Title:

DATE:

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

7. The authority citation for part 140 continues to read as

follows:

Authority: 7 U.S.C. 2 and 12a.

7. In Sec. 140.91, redesignate paragraphs (a)(7) and (a)(8) as

paragraphs (a)(8) and (a)(11) respectively; add new paragraphs (a)(7),

(a)(9), and (a)(10); and revise newly designated paragraph (a)(11) to

read as follows:

Sec. 140.91 Delegation of authority to the Director of the Division

of Clearing and Intermediary Oversight.

(a) * * *

(7) All functions reserved to the Commission in Sec. 1.20 of this

chapter.

* * * * *

(9) All functions reserved to the Commission in Sec. 1.26 of this

chapter.

(10) All functions reserved to the Commission in Sec. 30.7 of this

chapter.

(11) All functions reserved to the Commission in Sec. 41.41 of

this chapter. Any action taken pursuant to the delegation of authority

under this paragraph (a)(11) shall be made with the concurrence of the

General Counsel or, in his or her absence, a Deputy General Counsel.

* * * * *

Issued in Washington, DC, on August 3, 2010, by the Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. 2010-19553 Filed 8-6-10; 8:45 am]

BILLING CODE P

Last Updated: August 9, 2010