THIS DOCUMENT HAS BEEN EDITED TO INCLUDE CERTAIN CURRENCY CODES AND TO REPAIR SOME OF ITS TABLES. IT IS NOT AS ORIGINALLY PRODUCED BY THE GPO.

[Federal Register: August 13, 2002 (Volume 67, Number 156)]
[Proposed Rules]
[Page 52641-52659]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13au02-14]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1 and 190

RIN 3038-AB31


Denomination of Customer Funds and Location of Depositories

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission ("Commission" or
"CFTC") is proposing to adopt a new rule that would permit futures
commission merchants and derivatives clearing organizations, under
certain conditions, to deposit customer funds in foreign depositories
and in certain currencies other than United States

[[Page 52642]]

dollars. The Commission is also proposing to adopt an amendment to
Appendix B of its bankruptcy rules that would govern the distribution
of property where the bankrupt futures commission merchant or
derivatives clearing organization maintains customer property in
depositories outside the United States or in a foreign currency. This
new distributional framework is intended to assure that customers whose
funds are held in a United States depository will not be adversely
affected by a shortfall in the pool of funds held in a depository
outside the United States that is due to the sovereign action of a
foreign government or court. The proposed rule would replace Financial
and Segregation Interpretation No. 12.

DATES: Comments on the proposed new rule and amendments must be
received by October 15, 2002.

ADDRESSES: Comments on the proposed rule should be sent to Jean A.
Webb, Secretary, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be
sent by facsimile transmission to (202) 418-5528, or by e-mail to
secretary@cftc.gov. Reference should be made to "Foreign
Depositories."

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Deputy Director,
or Michael A. Piracci, Attorney-Advisor, Division of Clearing and
Intermediary Oversight, for further information regarding amendments to
appendix B of part 190, contact Robert B. Wasserman, Associate
Director, Division of Clearing and Intermediary Oversight, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW., Washington, DC 20581. Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Background

    One of the most important functions of the Commodity Exchange Act
(the "Act") \1\ and the rules thereunder is the protection of
customer funds. Section 4d(a)(2) of the Act requires that every futures
commission merchant ("FCM"):
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    \1\ 7 U.S.C. 1 et seq. (2000).

treat and deal with all money, securities, and property received by
such person to margin, guarantee, or secure the trades or contracts
of any customer of such person, or accruing to such customer as the
result of such trades or contracts, as belonging to such customer.
Such money, securities, and property shall be separately accounted
for and shall not be commingled with the funds of such commission
merchant or be used to margin or guarantee the trades or contracts,
or to secure or extend the credit, of any customer or person other
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than the one for whom the same are held.

Prior to 1988, the Commission, and its predecessor agency, the
Commodity Exchange Authority, had construed this provision to require
that customer funds deposited with an FCM relating to trading on a
domestic exchange be held in the United States ("U.S."), unless the
funds were being held for a foreign-domiciled customer.\2\ In light of
the growing internationalization of the futures and options markets,
the Commission in 1988 issued Financial and Segregation Interpretation
No. 12 ("Interp. 12"),\3\ which provided that, under certain
conditions, an FCM may deposit segregated funds of customers domiciled
in the U.S. in foreign depositories.
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    \2\ See Commodity Exchange Authority Administrative
Determination No. 238 (Sep. 4, 1974); see also Foreign Options and
Foreign Futures Transactions, 51 FR 12104, note 36 (Apr. 8, 1986);
Leverage Transactions, [1982-1984 Transfer Binder] Comm. Fut. L.
Rep. para. 21,742 at p. 26,952, note 52 (May 25, 1983).
    \3\ Financial and Segregation Interpretation No. 12--Deposit of
Customer Funds in Foreign Depositories, 53 FR 46911 (Nov. 21, 1988).
The document was published in the Federal Register as a Statement of
Agency Interpretation. It was also published in the Commodity
Futures Law Reporter at para. 7122 together with a series of
Financial and Segregation Interpretations issued by the Commission's
Division of Trading and Markets.
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    Interp. 12 permits FCMs to hold the funds of customers domiciled in
the U.S. offshore if such funds are used to margin positions "in a
contract traded on a domestic contract market that is priced and
settled in a foreign currency or accrue to such a customer as a result
of positions in such contracts."\4\ Interp. 12 requires that such
funds be held in depositories that meet the criteria under Commission
Rule 30.7(c) \5\ and are located in the country of the applicable
currency or a country with which the Commission has an information
sharing arrangement. Additionally, FCMs and clearing organizations must
obtain from the depository a written acknowledgement of the
applicability of Commission regulations regarding the segregation of
customer funds required under Commission Rule 1.20.
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    \4\ Id. at 46913.
    \5\ Commission Rules referred to herein are found at 17 CFR Ch.
I (2001). Rule 30.7(c) provides that the funds of foreign futures or
foreign options customers maintained in a separate account be with a
depository that is: "(1) A bank or trust company located in the
United States or as designated; (2) Another person registered as a
futures commission merchant; (3) The clearing organization of any
foreign board of trade; (4) Any member of such board of trade; or
(5) Such member or clearing organization's designated
depositories." See also CFTC Advisory 87-5, [1987-1990 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 23,997 (Dec. 3, 1987)
(discussing Rule 30.7(c)).
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    Under Interp. 12, before an FCM may deposit customer funds
offshore, it must obtain an agreement from the customer that authorizes
the deposit of the customer's funds into a foreign depository. The
agreement must also authorize the "subordination of the customer's
claim attributable to funds held offshore in a particular foreign
currency to the claims of customers whose funds are held in [U.S.]
dollars or other foreign currencies in the event the FCM is placed in
bankruptcy or receivership and there are insufficient funds available
for distribution from the funds held in the particular currency to
satisfy all customer claims against those funds."\6\ The subordination
applies if the insufficiency in funds was a result of the offshore
account being underfunded or if all of the funds in the account could
not be recovered. For example, the government of the foreign country
where the funds are being held may freeze or confiscate the assets or
the applicable bankruptcy laws may prevent the full recovery of the
funds. An FCM must hold in segregation in the U.S. sufficient funds
denominated in U.S. dollars to meet all U.S. dollar-denominated
obligations to persons domiciled in the U.S., regardless of whether
there are excess funds in segregation in a foreign currency-denominated
account.
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    \6\ 53 FR at 46913.
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    As stated above, when the Commission issued Interp. 12, it noted
that the change in the Commission's interpretation concerning
appropriate depositories for segregated customer funds was appropriate
"in light of the growing internationalization of the futures and
option markets."\7\ In the more than a dozen years since Interp. 12
was issued, the futures and options markets, along with almost all
other segments of the business world, have seen greater
internationalization. As a result, there is an increased need and
desire of certain customers to be able to more easily conduct business
in currencies other than the U.S. dollar.
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    \7\ Id. at 46912.
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    In the Commodity Futures Modernization Act of 2000 (the
"CFMA"),\8\ Congress noted that "regulatory impediments to the
operation of global interests can compromise the competitiveness of
[U.S.] business" and that regulatory policy should be "flexible to
account for rapidly changing derivatives industry practices." \9\ Due
to restrictions placed on holding segregated funds offshore, U.S.
markets and futures professionals may find themselves at a disadvantage

[[Page 52643]]

to their foreign competitors. One of the purposes of the CFMA is to
"enhance the competitive position of [U.S.] financial institutions and
financial markets." \10\ Based upon the foregoing, the Commission is
now proposing a rule to permit FCM obligations owed to customers to be
denominated in currencies other than the U.S. dollar and to permit FCMs
and derivatives clearing organizations ("DCOs") to hold segregated
customer funds in certain foreign depositories, subject to certain
restrictions, but without requiring customers to sign a subordination
agreement. The Commission previously solicited comments on possible
rulemaking in this area.\11---------------------------------------------------------------------------

    \8\ Appendix E of Pub. L. No. 106-554, 114 Stat. 2763 (2000).
    \9\ Section 126(a) of the CFMA.
    \10\ Section 2(8).
    \11\ 62 FR 67841 (Dec. 30, 1997).
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II. The Proposed New Rule and Amendments

A. Proposed New Rule 1.49

1. Permissible Currencies
    The Commission is proposing to adopt Rule 1.49 to provide that FCM
obligations owed to customers shall be held in: (1) U.S. dollars; (2) a
currency in which funds were deposited by the customer, or converted to
at the request of the customer, to the extent of such deposits and
conversions; or (3) a currency in which funds have accrued to the
customer as a result of trading on a designated contract market or
registered derivatives transaction execution facility ("DTF"). Any
customer would be able to deposit foreign currency with an FCM if the
FCM permits it, not just those customers trading contracts priced and
settled in a foreign currency.
    As noted above, the internationalization of the futures markets has
resulted in customers who, for many different reasons, want funds
denominated in currencies other than the U.S. dollar. If a customer or
prospective customer of an FCM prefers to deposit funds with an FCM in
a currency other than the U.S. dollar, or to convert funds from one
currency to another, the FCM should not be prevented from accepting or
holding funds in the preferred currency of the customer or prospective
customer. An FCM may not convert customer funds from one currency to
another without customer authorization. An account agreement could
provide, however, that by placing an order in a contract settled in a
particular currency, a customer agrees to convert to the appropriate
currency funds sufficient to meet the applicable margin requirement.
Under the proposed rule, an FCM would be required to prepare and
maintain a written record each time customer funds were converted from
one currency to another. The record must include the date the
transaction was executed, the currencies converted, the amount
converted, and the resulting amount.
    The FCM will also be required to make the information contained in
this record available to the customer upon the customer's request. The
FCM may provide this information through any means agreed upon by the
customer and FCM. Additionally, the Commission notes that, pursuant to
Rule 1.33(a), the FCM must include this information in the monthly
statements provided to the customer.
    Another aspect of the internationalization of the futures and
options markets is the increasing number of contracts offered on
foreign financial instruments and indices. For example, the Chicago
Mercantile Exchange offers a futures contract on the Nikkei Stock
Average. These contracts are priced and settled in the currency of the
underlying instrument or index. Accordingly, accruals resulting from
trading in such instruments will be in currency other than U.S.
dollars. Under the proposed rule, such accruals may be held in the
applicable currency. A customer may, of course, request that such
accruals be converted to U.S. dollars.
    Currently, pursuant to Interp. 12, customers must authorize the
deposit of foreign currency funds into foreign depositories as part of
the subordination agreement. The Commission is proposing to eliminate
this written authorization requirement.\12\ If a customer deposits
funds with an FCM in a currency other than U.S. dollars, or requests a
conversion of funds to a non-U.S. dollar currency, the customer will be
aware of the fact that the funds are being held in a currency other
than U.S. dollars. With regard to funds other than U.S. dollars that
have accrued to the customer as a result of trading in contracts priced
and settled in a non-U.S. currency, the Commission notes that the
specifications for contracts traded on designated contract markets are
widely known and generally available.\13\ Accordingly, when a customer
trades in a futures or options contract that is priced and settled in a
currency other than U.S. dollars, a customer should be aware that the
accruals from such trading may be made in the applicable currency. If a
customer has previously not traded in contracts that are priced and
settled in a currency other than U.S. dollars, a firm should inform the
customer if the accruals from the trades will be held in a currency
other than U.S. dollars, at the time the customer places an order that
might result in such accruals.\14\ FCMs and their associated persons
("APs") should also be ready to respond to inquiries that any
customer may have about accruals or other issues arising in connection
with monthly account statements.\15---------------------------------------------------------------------------

    \12\ As discussed below, the proposal would also eliminate the
need for a subordination agreement.
    \13\ For example, the specifications for contracts traded on the
Chicago Mercantile Exchange are available on its web site at:
http://www.cme.com.
    \14\ See, Clayton Brokerage Co. v. Commodity Futures Trading
Commission, 794 F.2d 573, 580 (11th Cir. 1986) (providing a customer
with the risk disclosure statement does not relieve a broker of any
obligation to disclose all material information about risk to
customers). With respect to accounts controlled by a registered
commodity trading advisor on behalf of a commodity or option
customer, the FCM would not need to inform the customer about such
accruals.
    \15\ The basic risk disclosure statement required under
Commission Rule 1.55 for customers contemplating trading foreign
futures and options includes a warning about currency risks (see
paragraph 8), as does the generic risk disclosure statement used
internationally (Appendix A to Commission Rule 1.55(c), paragraph
9).
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2. Location of Depositories
    The proposed rule would permit an FCM or DCO to hold customer funds
of any denomination in the United States or in any money center country
(Canada, France, Italy, Germany, Japan, and the United Kingdom). Hence,
customer funds of any denomination could be held in any of the Group of
Seven ("G7") countries. The G7 countries represent the world's
largest industrial democracies. Furthermore, representatives from these
countries meet several times a year to coordinate their cooperation on
issues of economic policy. In this regard, the United States and its
financial regulatory agencies have had successful cooperation with the
respective financial regulatory agencies of these countries.
    An FCM or DCO also could hold any particular currency in the
country of origin of that currency,\16\ except that customer funds may
not be held in any of the restricted countries subject to sanctions by
the Office of Foreign Assets and Control ("OFAC") of the U.S.
Department of the Treasury.\17\ The rule would further provide that
funds could be held outside the United States only to the extent
specifically authorized by the customer. Holding funds in each country
may pose different risks and different operational costs and benefits.

[[Page 52644]]

Therefore, the Commission believes that the customer must be able to
choose whether, and to what extent, to incur such risks and costs. The
Commission, however, is not establishing a particular format that such
an authorization must follow. It is simply requiring that the FCM make
and maintain a written record detailing the terms and conditions of any
such authorization. No separate customer signature would be required.
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    \16\ For the Euro, the country of origin includes any country
that is a member of the European Union and has recognized the Euro
as its official currency.
    \17\ The list of restricted countries may be viewed on OFAC's
web site at http://www.ustreas.gov/ofac.
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    FCMs and DCOs should also be aware that the Financial Action Task
Force ("FATF") of the Organization for Economic Co-Operation and
Development maintains a list of non-cooperative countries or
territories with respect to anti-money laundering programs and that the
Secretary of the Treasury may designate, in accordance with Section 311
of the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism ("USA PATRIOT") Act of
2001,\18\ certain countries as areas of primary money laundering
concern.\19\ Before holding any customer funds in a depository in any
of these countries or territories, FCMs and DCOs should undertake due
diligence to assure themselves that the depository is reputable, has
appropriate operational systems to safeguard customer funds, and has an
adequate program to deter money laundering.
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    \18\ Pub. L. No. 107-56.
    \19\ The list of non-cooperative countries and territories may
be viewed on FATF's web site at: www1.oecd.org/fatf/. The Secretary
of the Treasury has not yet designated any countries as being of
primary money laundering concern; however, if such designations are
made, the Commission understands that they will be publicly
available on the Department of the Treasury web site at:
http://www.ustreas.gov.
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3. Qualifications of Depositories
    Under the proposal, if the depository is located in the U.S., it
must be: (1) A bank or trust company; (2) an FCM registered with the
Commission; or (3) a DCO. If the depository is located outside the
U.S., it must be: (1) A bank or trust company that has (a) in excess of
$1 billion in regulatory capital, or (b) commercial paper or long-term
debt rated in the highest rating category by at least one nationally
recognized statistical rating organization (where the bank or trust
company is part of a holding company system, the holding company may
satisfy the rating criterion); (2) an FCM registered with the
Commission; or (3) a DCO.
    Only depositories that provide the FCM or DCO with the written
acknowledgment required under Commission Rules 1.20 or 1.26 may hold
customer funds required to be segregated.\20\ However, a DCO acting as
a depository does not need to provide an acknowledgment letter to an
FCM where the DCO's rules provide for the segregation of funds held on
behalf of customers.\21---------------------------------------------------------------------------

    \20\ Commission Rule 1.20 provides that when an FCM or DCO
deposits customer funds with a depository the FCM or DCO must obtain
and retain a written acknowledgement from the depository that it was
informed that the funds are subject to the provisions of the Act and
regulations. Rule 1.26 requires an FCM or DCO to obtain such an
acknowledgment in regard to the deposit of instruments purchased
with customer funds as described under Rule 1.25.
    \21\ See 65 FR 77993, 78009-13 (Dec. 13, 2000) (amending, among
other things, Rules 1.20 and 1.26 to provide that a DCO acting as a
depository does not need to provide an acknowledgement letter where
the DCO's rules provide for the segregation of funds held on behalf
of customers); 65 FR 82270 (Dec. 28, 2000) (moving forward the
effective date of the amendments to Rule 1.20 and 1.26 to December
28, 2000).
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4. Segregation Requirements
    As noted above, protection of customer funds is one of the most
important purposes of the Act and the Commission's regulations.
Customer funds must be segregated so as to assure that the obligations
owed to customers will be met. Through segregation, customer funds are
readily identifiable in the event that a registrant becomes insolvent.
Accordingly, the proposed rule requires that the FCM or DCO, at the
close of each business day, have in segregated accounts on behalf of
its customers sufficient U.S. dollars held in the U.S. to meet all U.S.
dollar obligations and sufficient funds in each other currency to meet
obligations in such currency with certain permitted substitutions. The
segregation requirements of the proposed rule are meant to ensure that
FCMs and DCOs maintain enough funds, and in the appropriate currency,
to meet the obligations owed to customers.
    As noted, the proposed rule would permit limited substitutions
among currencies. U.S. dollars held in the U.S. may be used to meet
obligations denominated in any other currency. Money center currencies
and U.S. dollars held in money center countries may be held to meet
obligations denominated in currencies other than the U.S. dollar. In
essence, three tiers of currencies would be established, U.S. dollars
held in the U.S. ("Tier I"), U.S. dollars and money center currencies
held in money center countries or money center currencies held in the
U.S. ("Tier II"), and non-money center currencies ("Tier III").
Tier I currency could be used for any obligation. For U.S. dollar
obligations to customers only Tier I currency could be used. Tier II
currencies could be used for any obligation except U.S. dollars. Tier
III currencies could only be used for obligations denominated in that
particular currency.

B. Recordkeeping

    The Commission is also proposing to amend Rule 1.32 to require FCMs
to compute segregated funds on a currency-by-currency basis if they are
held in other than U.S. dollars, in accordance with proposed new Rule
1.49. Under proposed Rule 1.49, customer funds may be held in the
United States, a money center country, or the country of origin of the
currency. Proposed Rule 1.49 also would require FCMs and DCOs that hold
funds in foreign currency or offshore to maintain records sufficient to
demonstrate compliance with the additional segregation requirements set
forth in proposed paragraph 1.49(e).

C. Bankruptcy

    In Interp. 12, the Commission noted two types of risk associated
with holding funds offshore that might result in customers failing to
fully recover segregated funds, either upon demand or in a bankruptcy
or receivership, (1) currency risk and (2) location risk.\22---------------------------------------------------------------------------

    \22\ 53 FR at 46912.
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    Currency risk is the risk of currency exchange rate fluctuations.
This can be a concern where an FCM is in bankruptcy or receivership and
it holds deposits denominated in currencies other than U.S. dollars.
Due to changes in currency exchange rates, the size of the pool of
funds available for distribution to customers and the size of claims
against the funds may vary from day to day while the bankruptcy is
pending, thereby exposing customers with U.S. dollar-denominated claims
to currency risk.\23---------------------------------------------------------------------------

    \23\ See 53 FR at 46915 (providing an example of currency risk).
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    Location risk is the risk that funds held in a foreign depository
might not be fully recoverable by a customer upon demand or in the
event of bankruptcy or receivership. It includes the risk that foreign
depositories may not be cooperative with the Commission concerning
questions of compliance with segregation requirements, or that a
foreign court might refuse to enforce provisions of the Commission's
rules that prohibit a foreign depository from offsetting obligations of
an FCM against customer funds. There is also a risk that, in the event
of an FCM becoming insolvent, deposits at a foreign depository might be
subject to an insolvency regime that is different from

[[Page 52645]]

U.S. bankruptcy law. Additionally, a foreign government might limit the
availability of funds by freezing or confiscating assets held within
its jurisdiction or taking actions that affect their currency, even if
the assets are located in the U.S.\24---------------------------------------------------------------------------

    \24\ Part of the impetus for Interp. 12 was the fact that,
historically, U.S. banks could not pay interest on deposits of
foreign currency. Shortly after the issuance of Interp. 12, however,
the Board of Governors of the Federal Reserve System permitted U.S.
banks to pay interest on foreign currency deposits, increasing the
likelihood of such deposits. Presumably, certain sovereign action of
a foreign government could affect foreign currency even if held in
the U.S. Any discussion of sovereign risk herein pertains to non-
U.S. currency, wherever held.
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    Currently, pursuant to Interp. 12, before placing a customer's
funds offshore, an FCM must obtain from the customer a subordination
agreement. In the agreement, the customer consents to the subordination
of claims concerning funds held offshore or in a foreign currency to
the claims of customers whose funds are held in U.S. dollars in the
U.S. or in other currencies in the event the FCM is placed in
bankruptcy or receivership and there are insufficient funds available
for distribution from the funds held in that particular currency to
satisfy customer claims against those funds. The subordination
agreement was meant to protect customers whose funds are held in the
U.S. and denominated in U.S. dollars from both currency and location
risk that might result in customers receiving less than their pro-rata
share of funds.
    In Interp. 12, the Commission stated that "currency risk is
similar to the price risk which can occur in cases where an FCM becomes
insolvent while holding customer deposits in forms which fluctuate in
value," using the example of Treasury securities.\25\ The Commission
noted, however, that there were distinctions between price risk and
currency risk, such that it was more equitable to spread the price risk
among all customers in the event of a bankruptcy than it was the
currency risk. First, the Commission indicated that all customers had
the opportunity to post Treasury securities as margin, but under
Interp. 12 only customers trading certain contracts could post foreign
currency. Second, shortfalls in foreign currency accounts were more
likely because of sovereign or location risk. Third, it would be easier
and quicker for a trustee or receiver to convert Treasury securities
held in the U.S. to cash than to convert foreign currency held offshore
into U.S. dollars.
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    \25\ 53 FR at 46915, note 22.
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    Under proposed rule 1.49, subject to exchange margin rules, any
customer may deposit foreign currency with an FCM, not just those
trading certain contracts. Additionally, as discussed below, the
proposed rule and the amendment to Appendix B of the Commission's
bankruptcy rules limit sovereign risk and protect customers who deposit
U.S. dollars from being adversely affected due to the sovereign action
of a foreign government or court, including the effect of a non-U.S.
insolvency regime. While converting Treasury securities held in the
U.S. to cash may be quick and easy, converting foreign currency into
U.S. dollars or transferring U.S. dollars held offshore to the U.S. is
not extremely difficult. This is particularly true in the money center
countries. As a result, the Commission believes spreading currency risk
among all customers is no less equitable than spreading price risk
among all customers.
    In this proposal, the Commission has sought to address many aspects
of currency and location risks through the safeguards discussed above.
One aspect of location risk that remains, however, is sovereign risk.
This is the risk that the actions of a foreign government or court
might result in a shortfall in segregated funds.
    To address sovereign risk, the Commission is proposing to amend
Framework 2 of Appendix B of its bankruptcy rules to govern the
distribution of customer funds segregated pursuant to the Act and
Commission rules thereunder, held by an FCM or DCO in a depository
outside the U.S. or in a foreign currency.\26\ The maintenance of
customer funds in a depository outside the U.S. or denominated in a
foreign currency would result, in certain circumstances, in the
reduction of customer claims for such funds.
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    \26\ The current Framework 2 sets forth a plan for distribution
in the case of trades made on the Chicago Board of Trade-London
International Financial Futures and Options Exchange Link
("Link"). Since the Link ceased operations in 1997, there is no
need to maintain the existing Framework 2. Accordingly, the
Commission is proposing to replace the existing Framework 2 related
to Link with a new Framework 2 that addresses U.S. held segregated
funds and non-U.S. held segregated funds.
---------------------------------------------------------------------------

    For purposes of the proposed bankruptcy convention, sovereign
action of a foreign government or court would include, but not be
limited to, the application or enforcement of statutes, rules,
regulations, interpretations, advisories, decisions, or orders, formal
or informal, by a federal, state, or provincial executive, legislature,
judiciary, or government agency.
    If an FCM filed, or had filed against it, a petition in bankruptcy
and maintained customer funds in a depository located in the U.S. in a
currency other than U.S. dollars, or in a depository outside the U.S.,
the following allocation procedure would be used to calculate the claim
of each customer. After reducing each customer's claim by the
percentage of the shortfall that is not attributable to sovereign
action, certain customer claims will be further reduced based upon
their exposure to loss attributable to sovereign action. This framework
is designed to prevent a shortfall in funds held outside the U.S. or in
a currency other than U.S. dollars resulting from the sovereign action
of a foreign government or court from adversely affecting customers
whose funds are held in U.S. dollars or in the U.S. or in a currency or
a country other than the one undertaking the sovereign action resulting
in the shortfall.
    The proposed rule and the proposed framework to the bankruptcy
appendix address the risks associated with holding customer funds
outside the U.S. or in currencies other than U.S. dollars. Accordingly,
the requirement that each customer who seeks to have funds held outside
the U.S. must execute a separate subordination agreement would be
eliminated.

III. Request for Comments Regarding the Location of Foreign Futures
or Foreign Options Secured Amount

    The rule proposed herein would expand the permitted depositories at
which customer funds for trading on designated contract markets and
registered DTFs could be held. The proposed rule, however, would not be
applicable to the funds of U.S. customers for purposes of trading on a
foreign board of trade; Commission Rule 30.7 would still govern in that
situation.
    Rule 30.7 provides, among other things, that an FCM must maintain
the funds of foreign futures or options customers, in a separate
account, with: (1) A bank or trust company located in the U.S. or as
designated; (2) another person registered as an FCM; (3) the clearing
organization of a foreign board of trade; (4) any member of such board
of trade; or (5) such member or clearing organization's designated
depository. To the extent that an FCM wishes to maintain customer funds
at a bank or trust company outside the U.S., pursuant to Rule
30.7(c)(1), the Commission must first recognize the depository. The
Commission's Division of Trading and Markets, in CFTC

[[Page 52646]]

Advisory 87-5,\27\ indicated that any bank or trust company located
outside the U.S. whose commercial paper or long term debt is rated in
one of the two highest rating categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc., is automatically deemed
recognized. With regard to a bank or trust company located outside the
U.S. that is not rated in one of the two highest rating categories by
Standard & Poor's Corporation or Moody's Investors Service, Inc., an
FCM must file an application for recognition of the subject depository,
as set forth in Advisory 87-5.\28---------------------------------------------------------------------------

    \27\ See note 5, supra. As of July 1, 2002, a reorganization of
Commission staff became effective. The Division of Trading and
Markets is the predecessor to the Division of Clearing and
Intermediary Oversight.
    \28\ CFTC Advisory 87-5, [1987-1990 Transfer Binder] Comm. Fut.
L. Rep. (CCH) at 34,496-34,497.
---------------------------------------------------------------------------

    The Commission seeks comment on whether, in light of the proposed
rules herein, Rule 30.7 should also be amended to expand the types of
depositories at which an FCM may hold the funds of foreign futures or
options customers. In particular, the Commission seeks comment on
whether such amendments should permit the holding of customer funds in
the same depositories as those permitted under proposed Rule 1.49, or
whether there are special circumstances regarding foreign futures and
options customers that would require a unique approach.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act ("RFA") \29\ requires that
agencies, in proposing rules, consider the impact of those rules on
small businesses. The Commission has previously established certain
definitions of "small entities" to be used by the Commission in
evaluating the impact of its rules on such entities in accordance with
the RFA.\30\ The Commission has previously determined that FCMs are not
small entities for the purpose of the RFA.\31\ Additionally, the
Commission has determined that DCOs are not small entities for purposes
of the RFA.\32\ Accordingly, the Chairman, on behalf of the Commission,
certifies pursuant to section 3(a) of the RFA \33\ that the proposed
rules will not have a significant economic impact on a substantial
number of small entities.
---------------------------------------------------------------------------

    \29\ 5 U.S.C. 601 et seq.
    \30\ 47 FR 18618 (April 30, 1982).
    \31\ 47 FR 18619.
    \32\ 47 FR 45604, 45609 (Aug. 29, 2001.
    \33\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 ("PRA") \34\ imposes certain
requirements on federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. This proposed rulemaking contains
information or collection requirements. The Commission has submitted a
copy of this part to the Office of Management and Budget ("OMB") for
its review.
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

Collection of Information
    Regulations and Forms Pertaining to the Financial Integrity of the
Marketplace, OMB Control Number 3038-0024.
    The effect of the proposed rules would be to increase the burden
previously approved by OMB by 120 hours. The burden associated with the
proposed new rule is estimated to be 120 hours, which will result from
new recordkeeping requirements for FCMs that, at the request of the
customer, convert customer funds to a currency other than that
deposited with the FCM and for FCMs that, as authorized by the
customer, hold customer funds outside the United States.
    The estimated burden of the proposed new rule was calculated as
follows:
    Estimated number of respondents: 120.
    Reports annually by each respondent: 100.
    Total annual responses: 12,000.
    Estimated average number of hours per response: .01.
    Estimated total number of hours of annual burden in fiscal year:
120.
    Persons wishing to comment on the information collection
requirements that would be required by the proposed rule should contact
the Office of Information and Regulatory Affairs, Office of Management
and Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Desk Officer for the Commodity Futures Trading Commission.
    The Commission considers comments by the public on this proposed
collection of information in--
     Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
     Evaluating the accuracy of the Commission's estimate of
the burden of the proposed collection of information including the
validity of the methodology and assumptions used;
     Enhancing the quality, utility, and clarity of the
information to be collected; and
     Minimizing the burden of the collection of the information
on those who are to respond, including through the use of appropriate
automated, electronic, mechanical or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submissions of responses.
    OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Commission on the
proposed regulations.
    Copies of the information collection submission to OMB are
available from the CFTC Clearance Officer, 1155 21st Street, NW.,
Washington, DC 20581 (202) 418-5160.

C. Cost-Benefit Analysis

    Section 15(a) of the Act, as amended by Section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation under the Act. By its terms,
Section 15(a) as amended does not require the Commission to quantify
the costs and benefits of a new regulation or to determine whether the
benefits of the proposed regulation outweigh its costs. Rather, Section
15(a) simply requires the Commission to "consider the costs and
benefits" of its action.
    Section 15(a) of the Act further specifies that costs and benefits
shall be evaluated in light of five broad areas of market and public
concern: protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. Accordingly, the Commission could in its discretion
give greater weight to any one of the five enumerated areas and could
in its discretion determine that, notwithstanding its costs, a
particular rule 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 proposed rule and amendments are intended to provide greater
flexibility for FCMs, DCOs, and their customers in their methods of
doing

[[Page 52647]]

business. The Commission is considering the costs and benefits of these
rules in light of the specific provisions of Section 15(a) of the Act:
    1. Protection of market participants and the public. To protect
market participants and the public, the proposal requires that
depositories used to hold customer funds meet certain requirements to
assure that customer funds are dealt with properly. Additionally, the
proposal includes a new framework to the bankruptcy appendix to protect
customer funds held in U.S. dollars in the U.S. from being diluted if
there is an insufficiency in the funds held outside the U.S. or in a
currency other than U.S. dollars due to the sovereign action of a
foreign government or court.
    2. Efficiency and competition. The proposed rules are expected to
benefit competition and market efficiency. The proposed rule will help
to facilitate continued international growth of the futures industry by
permitting customer funds to be denominated in currencies other than
U.S. dollars and to be held in offshore depositories.
    3. Financial integrity of futures markets and price discovery. The
proposed rules should have no effect, from the standpoint of imposing
costs or creating benefits, on the financial integrity or price
discovery function of the futures and options markets.
    4. Sound risk management practices. The Commission in proposing the
rule and amendments has included risk-limiting features, such as
requiring FCMs and DCOs to maintain sufficient funds to meet
obligations in each currency, and requiring depositories to meet
certain criteria, including signing an acknowledgment regarding the
segregation requirements under the Act and Commission rules, to
minimize the risks to customer funds.
    5. Other public interest considerations. The proposed rules and
amendments contained herein offer greater opportunity for taking full
advantage of contracts being offered by domestic designated contract
markets and registered DTFs and the ever increasing
internationalization of the futures industry, while establishing
safeguards for customer funds.
    After considering these factors, the Commission has determined to
propose the rule and amendments discussed above. The Commission invites
public comment on its application of the cost-benefit provision.
Commenters also are invited to submit any data that they may have
quantifying the costs and benefits of the proposal with their comment
letters.

Lists of Subjects

17 CFR Part 1

    Brokers, Commodity Futures, Consumer protection.

17 CFR Part 190

    Bankruptcy.

    In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act and, in particular, sections
2(a)(1)(A), 4d, 8a(5), and 20, 7 U.S.C. 2(i), 6d, 12a(5), and 24, and
11 U.S.C. 362, 546, 548, 556 and 761-766, the Commission hereby
proposes to amend chapter I of Title 17 of the Code of Federal
Regulations as follows:

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, 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 2001, Appendix E of Pub. L. No. 106-
554, 114 Stat. 2763 (2000).

    2. Section 1.32 is amended by revising paragraph (a) introductory
text to read as follows:


Sec. 1.32  Segregated account; daily computation and record.

    (a) Each futures commission merchant must compute as of the close
of each business day, on a currency-by-currency basis:
* * * * *
    3. Section 1.49 is added to read as follows:


Sec. 1.49  Denomination of customer funds and location of depositories.

    (a) Definitions. For purposes of this section:
    (1) Money center country. This term means Canada, France, Italy,
Germany, Japan, and the United Kingdom.
    (2) Money center currency. This term means the currency of any
money center country and the Euro.
    (3) Non-money center country. This term means any country other
than a money center country or the United States.
    (4) Non-money center currency. This term means any currency other
than a money center currency or the United States dollar.
    (b) Permissible denominations of obligations. (1) Subject to the
terms and conditions set forth in this section, a futures commission
merchant's obligations to a customer shall be denominated:
    (i) In the United States dollar;
    (ii) In a currency in which funds were deposited by the customer or
were converted at the request of the customer, to the extent of such
deposits and conversions; or
    (iii) In a currency in which funds have accrued to the customer as
a result of trading conducted on a designated contract market or
registered derivatives transaction execution facility, to the extent of
such accruals.
    (2)(i) A futures commission merchant shall prepare and maintain a
written record of each transaction converting customer funds from one
currency to another.
    (ii) A written record prepared under paragraph (b)(2)(i) of this
section must include the date the transaction was executed, the
currencies converted, the amount converted, and the resulting amount.
    (iii) The information required under paragraph (b)(2)(ii) of this
section must be provided to the customer upon the customer's request.
    (c) Permissible locations of depositories. (1) Subject to
paragraphs (c)(2) and (c)(3) of this section, a futures commission
merchant or a derivatives clearing organization may hold customer
funds:
    (i) In the United States;
    (ii) In a money center country; or
    (iii) In the country of origin of the currency.
    (2) Customer funds may not be held in a restricted country subject
to sanctions by the Office of Foreign Assets and Control of the U.S.
Department of Treasury.
    (3) Customer funds may be held outside the United States only to
the extent specifically authorized by the customer. A futures
commission merchant must make and maintain a written record detailing
the terms and conditions of any such authorization.
    (d) Qualifications for depositories. (1) To hold customer funds
required to be segregated pursuant to the Act and Secs. 1.20 through
1.30, 1.32 and 1.36, a depository must provide the depositing futures
commission merchant or derivatives clearing organization with the
appropriate written acknowledgment as required under Secs. 1.20 and
1.26.
    (2) A depository, if located in the United States, must be:
    (i) A bank or trust company;
    (ii) A futures commission merchant registered as such with the
Commission; or
    (iii) A derivatives clearing organization.
    (3) A depository, if located outside the United States, must be:

[[Page 52648]]

    (i) A bank or trust company:
    (A) That has in excess of $1 billion of regulatory capital, or
    (B) Whose commercial paper or long-term debt instrument or, if a
part of a holding company system, its holding company's commercial
paper or long-term debt instrument, is rated in the highest rating
category by at least one nationally recognized statistical rating
organization;
    (ii) A futures commission merchant that is registered as such with
the Commission; or
    (iii) A derivatives clearing organization.
    (e) Segregation requirements. (1) Each futures commission merchant
and each derivatives clearing organization must, as of the close of
each business day, hold in segregated accounts on behalf of commodity
or option customers:
    (i) Sufficient United States dollars, held in the United States, to
meet all United States dollar obligations; and
    (ii) Sufficient funds in each other currency to meet obligations in
such currency.
    (2) Notwithstanding paragraph (e)(1)(ii) of this section, assets
denominated in one currency may be held to meet obligations denominated
in another currency as follows:
    (i) United States dollars may be held in the United States or in
money center countries to meet obligations denominated in any other
currency; and
    (ii) Funds in money center currencies may be held in the United
States or in money center countries to meet obligations denominated in
currencies other than the United States dollar.
    (3) Each futures commission merchant and each derivatives clearing
organization shall make and maintain records sufficient to demonstrate
compliance with this paragraph (e).

PART 190--BANKRUPTCY RULES

    4. The authority citation for Part 190 continues to read as
follows:

    Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7, 7a, 12, 19, 23,
and 24, and 11 U.S.C. 362, 546, 548, 556 and 761-766, unless
otherwise noted.

    5. Part 190 is amended by revising at the end of Appendix B,
Framework 2 to read as follows:

Appendix B to Part 190--Special Bankruptcy Distributions

* * * * *

Framework 2--Special Allocation of Shortfall to Customer Claims When
Customer Funds Are Held in a Depository Outside of the United States or
in a Foreign Currency

    The Commission has established the following allocation
convention with respect to customer funds segregated pursuant to the
Act and Commission rules thereunder held by a futures commission
merchant ("FCM") or derivatives clearing organization ("DCO") in
a depository outside the United States ("U.S.") or in a foreign
currency. The maintenance of customer funds in a depository outside
the U.S. or denominated in a foreign currency will result, in
certain circumstances, in the reduction of customer claims for such
funds. For purposes of this proposed bankruptcy convention,
sovereign action of a foreign government or court would include, but
not be limited to, the application or enforcement of statutes,
rules, regulations, interpretations, advisories, decisions, or
orders, formal or informal, by a federal, state, or provincial
executive, legislature, judiciary, or government agency. If an FCM
enters into bankruptcy and maintains customer funds in a depository
located in the U.S. in a currency other than U.S. dollars or in a
depository outside the U.S., the following allocation procedures
shall be used to calculate the claim of each customer.

I. Reduction in Claims for General Shortfall

A. Determination of Losses Not Attributable to Sovereign Action

    1. Convert each customer's claim in each currency to U.S.
Dollars at the exchange rate in effect on the Final Net Equity
Determination Date, as defined in Sec. 190.01(s) (the "Exchange
Rate").
    2. Determine the amount of assets available for distribution to
customers. In making this calculation, include customer funds that
would be available for distribution but for the sovereign action.
    3. Convert the amount of assets available for distribution to
U.S. Dollars at the Exchange Rate.
    4. Determine the Shortfall Percentage that is not attributable
to sovereign action, as follows:
[GRAPHIC] [TIFF OMITTED] TP13AU02.034

B. Allocation of Losses Not Attributable to Sovereign Action

    1. Reduce each customer's claim by the Shortfall Percentage.

II. Reduction in Claims for Sovereign Loss

A. Determination of Losses Attributable to Sovereign Action
("Sovereign Loss")

    1. If any portion of a customer's claim is required to be kept
in U.S. dollars in the U.S., that portion of the customer's claim is
not exposed to Sovereign Loss.
    2. If any portion of a customer's claim is authorized to be kept
in only one location and that location is:
    a. The U.S. or a location in which there is no Sovereign Loss,
then that portion of the customer's claim is not exposed to
Sovereign Loss.
    b. A location in which there is Sovereign Loss, then that entire
portion of the customer's claim is exposed to Sovereign Loss.
    3. If any portion of a customer's claim is authorized to be kept
in only one currency and that currency is:
    a. U.S. dollars or a currency in which there is no Sovereign
Loss, then that portion of the customer's claim is not exposed to
Sovereign Loss.
    b. A currency in which there is Sovereign Loss, then that entire
portion of the customer's claim is exposed to Sovereign Loss.
    4. If any portion of a customer's claim is authorized to be kept
in more than one location and:
    a. There is no Sovereign Loss in any of those locations, then
that portion of the customer's claim is not exposed to Sovereign
Loss.
    b. There is Sovereign Loss in one of those locations, then that
entire portion of the customer's claim is exposed to Sovereign Loss.
    c. There is Sovereign Loss in more than one of those locations,
then an equal share of that portion of the customer's claim will be
exposed to Sovereign Loss in each such location.
    5. If any portion of a customer's claim is authorized to be kept
in more than one currency and:
    a. There is no Sovereign Loss in any of those currencies, then
that portion of the customer's claim is not exposed to Sovereign
Loss.
    b. There is Sovereign Loss in one of those currencies, then that
entire portion of the customer's claim is exposed to Sovereign Loss.
    c. There is Sovereign Loss in more than one of those currencies,
then an equal share of that portion of the customer's claim will be
exposed to Sovereign Loss.

B. Calculation of Sovereign Loss

    1. The total Sovereign Loss for each location is the difference
between:
    a. The total customer funds deposited in depositories in that
location and
    b. The amount of funds in that location that are available to be
distributed to customers, after taking into account any sovereign
action.
    2. The total Sovereign Loss for each currency is the difference
between:
    a. The value, in U.S. dollars, of the funds held in that
currency on the day before the sovereign action took place and

[[Page 52649]]

    b. The value, in U.S. dollars, of the funds held in that
currency on the Final Net Equity Determination Date.

C. Allocation of Sovereign Loss

    1. Each portion of a customer's claim exposed to Sovereign Loss
in a location will be reduced by:
[GRAPHIC] [TIFF OMITTED] TP13AU02.035

    2. Each portion of a customer's claim exposed to Sovereign Loss
in a currency will be reduced by:
[GRAPHIC] [TIFF OMITTED] TP13AU02.036

    3. A portion of a customer's claim exposed to Sovereign Loss in
a location or currency will not be reduced below zero. (The above
calculations might yield a result below zero where the FCM kept more
customer funds in a location or currency than it was authorized to
keep.)
    4. Any amount of Sovereign Loss from a location or currency in
excess of the total amount of funds authorized to be kept in that
location or currency (calculated in accord with Section II.1 above)
("Total Excess Sovereign Loss") will be divided among all
customers who have authorized funds to be kept outside the U.S., or
in currencies other than U.S. dollars, with each such customer claim
reduced by the following amount:
[GRAPHIC] [TIFF OMITTED] TP13AU02.037

    The following examples illustrate the operation of this
convention. 1. No shortfall in any location:

------------------------------------------------------------------------
                                                    Location(s) customer
              Customer                   Claim        has consented to
                                                     having funds held
------------------------------------------------------------------------
A...................................          $50  U.S.
B...................................          €50  U.K.
C...................................          €50  Germany
D...................................         300  U.K.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
U.S........................................................          $50
U.K........................................................         300
U.K........................................................          €50
Germany....................................................          €50
------------------------------------------------------------------------

Conversion Rates: €1=$1; 1=$1.5

    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion   Claim  in
             Customer                 Claim         Rate         US$
------------------------------------------------------------------------
A................................          $50          1.0          $50
B................................          €50          1.0           50
C................................          €50          1.0           50
D................................     300   1.5      450
                                  --------------
    Total........................  ...........  ...........          600
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................          $50          1.0          $50  ...........  ...........          $50
U.K...............................    300   1.5        450  ...........  ...........      450
U.K...............................          €50          1.0           50  ...........  ...........           50

[[Page 52650]]


Germany...........................          €50          1.0           50  ...........  ...........           50
                                   -----------------------------------------------------------------------------
    Total.........................  ...........  ...........          600  ...........            0          600
----------------------------------------------------------------------------------------------------------------

    There are no shortfalls in funds held in any location.
Accordingly, there will be no reduction of customer claims.

------------------------------------------------------------------------
                                     Claim in
                                       U.S.      Allocation
                                     dollars         of
                                      after      shortfall   Claim after
             Customer               allocated      due to        all
                                       non-      sovereign    reductions
                                    sovereign      action
                                    shortfall
------------------------------------------------------------------------
A................................          $50           $0          $50
B................................           50            0           50
C................................           50            0           50
D................................          450            0          450
                                  --------------------------------------
    Total........................          600            0          600
------------------------------------------------------------------------

    2. Shortfall in funds held in the U.S.

------------------------------------------------------------------------
                                                           Location(s)
                                                          customer has
                 Customer                     Claim       consented to
                                                          having funds
                                                              held
------------------------------------------------------------------------
A........................................         $100  U.S.
B........................................          €50  U.K.
C........................................         €100  U.K., Germany,
                                                         or Japan.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
 U.S.......................................................          $50
 U.K.......................................................         €100
Germany....................................................          €50
------------------------------------------------------------------------
Conversion Rates: €1=$1.

Reduction in Claims for General Shortfall

    There is a shortfall in the funds held in the U.S. such that
only \1/2\ of the funds are available.
    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion    Claim in
             Customer                 Claim         rate         US$
------------------------------------------------------------------------
A................................         $100          1.0         $100
B................................          €50          1.0           50
C................................         €100          1.0          100
                                  --------------------------------------
    Total........................  ...........  ...........          250
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................          $50          1.0          $50  ...........  ...........          $50
U.K...............................         €100          1.0          100  ...........  ...........          100
Germany...........................          €50          1.0           50  ...........  ...........           50
                                   -----------------------------------------------------------------------------
    Total.........................  ...........  ...........          200  ...........  ...........          200
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action:

Shortfall Percentage = (1-200/250) = (1-80%) = 20%.


[[Page 52651]]


    Reduce each customer's claim by the Shortfall Percentage:

------------------------------------------------------------------------
                                                               Claim in
                                                 Allocated       U.S.
                                     Claim in    Shortfall     dollars
             Customer                 U.S.$        (non-        after
                                                 sovereign)   allocated
                                                              shortfall
------------------------------------------------------------------------
A................................         $100       $20.00       $80.00
B................................           50        10.00        40.00
C................................          100        20.00        80.00
                                  --------------------------------------
  Total..........................          250           50          200
------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    There is no shortfall due to sovereign action. Accordingly, the
customer claims will not be further reduced.

Claims After Reductions

------------------------------------------------------------------------
                                     Claim in
                                       U.S.      Allocation
                                     dollars         of
                                      after      shortfall   Claim after
             Customer               allocated      due to        all
                                       non-      sovereign    reductions
                                    sovereign      action
                                    shortfall
------------------------------------------------------------------------
A................................          $80  ...........       $80.00
B................................           40  ...........        40.00
C................................           80  ...........        80.00
                                  --------------------------------------
    Total........................          200            0       200.00
------------------------------------------------------------------------

    3. Shortfall in funds held outside the U.S., or in a currency
other than U.S. dollars, due to sovereign action.

------------------------------------------------------------------------
                                                  Location(s) where
               Customer                   Claim   customer has consented
                                                  to have funds held
------------------------------------------------------------------------
A.....................................       $50  U.S.
B.....................................       €50  U.K.
C.....................................       €50  Germany
D.....................................      $100  U.S.
D.....................................      €100  U.K. or Germany.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
U.S........................................................         $150
U.K........................................................         €100
Germany....................................................         €100
------------------------------------------------------------------------
Conversion Rates: €1=$1; 1=$0.01, 1=$1.5.

Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion    Claim in
             Customer                 Claim         rate        U.S.$
------------------------------------------------------------------------
A................................          $50          1.0          $50
B................................          €50          1.0           50
C................................          €50          1.0           50
D................................         $100          1.0          100
D................................         €100          1.0          100
                                  --------------------------------------
  Total..........................  ...........  ...........          350
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................         $150          1.0         $150  ...........  ...........         $150
U.K...............................         €100          1.0          100  ...........  ...........          100
Germany...........................         €100          1.0          100           50          $50           50
                                   -----------------------------------------------------------------------------

[[Page 52652]]


    Total.........................  ...........  ...........          350  ...........           50          300
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-350/350) = (1-100%) =
0%. Reduce each customer's claim by the shortfall percentage:

------------------------------------------------------------------------
                                                               Claim in
                                                 Allocated       U.S.
                                     Claim in    shortfall     dollars
             Customer                  US$         (non-        after
                                                 sovereign)   allocated
                                                              shortfall
------------------------------------------------------------------------
A................................          $50           $0       $50.00
B................................           50            0        50.00
C................................           50            0        50.00
D................................          200            0       200.00
  Total..........................          350            0       350.00
------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, only \1/2\ of the funds in Germany are
available.

------------------------------------------------------------------------
                                         Presumed location of funds
             Customer             --------------------------------------
                                       U.S.         U.K.       Germany
------------------------------------------------------------------------
A................................          $50  ...........  ...........
B................................  ...........          $50  ...........
C................................  ...........  ...........          $50
D................................          100  ...........          100
                                  --------------------------------------
  Total..........................          150           50          150
------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign
action.
    Germany ($50 shortfall to be allocated):

------------------------------------------------------------------------
                                           Allocation share     Actual
          Customer             Allocation      of actual      shortfall
                                 share         shortfall      allocated
------------------------------------------------------------------------
C...........................     $50/$150  33.3% of $50....       $16.67
D...........................    $100/$150  66.7% of 50.....        33.33
                             -------------------------------------------
  Total.....................  ...........  ................        50.00
------------------------------------------------------------------------

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                                                       Claim in
                                                                         U.S.
                                                                       dollars      Allocation of
                                                                        after     shortfall due to   Claim after
                              Customer                                allocated   sovereign action       all
                                                                         non-       from Germany     reductions
                                                                      sovereign
                                                                      shortfall
----------------------------------------------------------------------------------------------------------------
  A................................................................       $50     ................        $50
  B................................................................        50     ................         50
  C................................................................        50               $16.67         33.33
  D................................................................       200                33.33        166.67
                                                                    --------------------------------------------
    Total..........................................................       350                50.00        300.00
----------------------------------------------------------------------------------------------------------------

    4. Shortfall in funds held outside the U.S., or in a currency
other than U.S. dollars, due to sovereign action and a shortfall in
funds held in the U.S.

------------------------------------------------------------------------
                                                   Location(s) customer
               Customer                   Claim    has consented to
                                                   having funds held
------------------------------------------------------------------------
A.....................................      $100  U.S.
B.....................................       €50  U.K.
C.....................................      €150  Germany
D.....................................      $100  U.S.
D.....................................     300  U.K.
D.....................................     €150  U.K. or Germany
[Page 52653]
Location     Actual asset balance
------------------------------------------------------------------------
U.S............................................. $100
U.K.............................................        300
U.K............................................. €200
Germany.........................................        €150

    Conversion Rates: €1=$1; 1=$1.5.

Reduction in Claims for General Shortfall

    Convert each customer s claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion  Claim in US
             Customer                 Claim         rate          $
------------------------------------------------------------------------
A................................         $100          1.0         $100
B................................          €50          1.0           50
C................................         €150          1.0          150
D................................         $100          1.0          100
D................................     300  1.5      450
D................................         €150          1.0          150
                                  --------------------------------------
  Total..........................  ...........  ...........         1000
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................         $100          1.0         $100  ...........  ...........         $100
U.K...............................      300   1.5       450  ...........  ...........      450
U.K...............................         €200          1.0          200  ...........  ...........          200
Germany...........................         €150          1.0          150          100          150            0
                                   -----------------------------------------------------------------------------
Total.............................  ...........  ...........          900  ...........          150          750
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-900/1000)= (1-90%) =
10%. Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
                                                                                                      Claim in
                                                                                      Allocated     U.S. dollars
                              Customer                                 Claim in    shortfall (non-      after
                                                                         US$         sovereign)       allocated
                                                                                                      shortfall
----------------------------------------------------------------------------------------------------------------
A..................................................................      $100               $10.00        $90.00
B..................................................................        50                 5.00         45.00
C..................................................................       150                15.00        135.00
D..................................................................       700                70.00        630.00
                                                                    --------------------------------------------
  Total............................................................      1000               100.00        900.00
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany is
available.

------------------------------------------------------------------------
                                         Presumed location of funds
             Customer             --------------------------------------
                                       U.S.         U.K.       Germany
------------------------------------------------------------------------
A................................         $100  ...........  ...........
B................................  ...........           50  ...........
C................................  ...........  ...........          150
D................................          100          450          150
                                  --------------------------------------
  Total..........................          200          500          300
------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign
action.
    Germany ($150 shortfall to be allocated):

------------------------------------------------------------------------
                                           Allocation share     Actual
          Customer             Allocation      of actual      shortfall
                                 share         shortfall      allocated
------------------------------------------------------------------------
C...........................    $150/$300  50% of $150.....          $75

[[Page 52654]]


D...........................    $150/$300  50% of $150.....           75
                                                            ------------
  Total.....................  ...........  ................          150
------------------------------------------------------------------------

Claims After Reductions:

------------------------------------------------------------------------
                                     Claim in
                                       U.S.      Allocation
                                     dollars         of
                                      after      shortfall   Claim after
             Customer               allocated      due to        all
                                       non-      sovereign    reductions
                                    sovereign   action from
                                    shortfall     Germany
------------------------------------------------------------------------
A................................          $90  ...........          $90
B................................           45  ...........           45
C................................          135          $75           60
D................................          630           75          555
                                  --------------------------------------
  Total..........................          900          150          750
------------------------------------------------------------------------

    5. Shortfall in funds held outside the U.S., or in a currency
other than U.S. dollars, not due to sovereign action.

------------------------------------------------------------------------
                                                   Location(s) customer
              Customer                  Claim        has consented to
                                                     having funds held
------------------------------------------------------------------------
A..................................         $150  U.S.
B..................................         €100  U.K.
C..................................          €50  Germany.
D..................................         $100  U.S.
D..................................         €100  U.K. or Germany.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
U.S........................................................         $250
U.K........................................................          €50
Germany....................................................         €100
------------------------------------------------------------------------
Conversion Rates: €1=$1.

Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion    Claim in
             Customer                 Claim         rate         US$
------------------------------------------------------------------------
A................................         $150          1.0         $150
B................................         €100          1.0          100
C................................          €50          1.0           50
D................................         $100          1.0          100
D................................         €100          1.0          100
                                  --------------------------------------
  Total..........................  ...........  ...........          500
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................         $250          1.0         $250  ...........  ...........         $250
U.K...............................          €50          1.0           50  ...........  ...........           50
Germany...........................         €100          1.0          100  ...........  ...........          100
                                   -----------------------------------------------------------------------------
  Total...........................  ...........  ...........          400  ...........            0          400
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-400/500) = (1-80%) =
20%. Reduce each customer's claim by the shortfall percentage:

------------------------------------------------------------------------
                                                               Claim in
                                                 Allocated       U.S.
                                     Claim in    shortfall     dollars
             Customer                 U.S.$        (non-        after
                                                 sovereign)   allocated
                                                              shortfall
------------------------------------------------------------------------
A................................         $150       $30.00      $120.00
B................................          100        20.00        80.00
C................................           50        10.00        40.00

[[Page 52655]]


D................................          200        40.00       160.00
                                  --------------------------------------
  Total..........................          500       100.00       400.00
------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    There is no shortfall due to sovereign action. Accordingly, the
claims will not be further reduced.

Claims After Reductions

------------------------------------------------------------------------
                                     Claim in
                                       U.S.      Allocation
                                     dollars         of
                                      after      shortfall   Claim after
             Customer               allocated      due to        all
                                       non-      sovereign    reductions
                                    sovereign      action
                                    shortfall
------------------------------------------------------------------------
A................................      $120.00  ...........         $120
B................................        80.00  ...........           80
C................................        40.00  ...........           40
D................................       160.00  ...........          160
                                  --------------------------------------
  Total..........................       400.00            0          400
------------------------------------------------------------------------

    6. Shortfall in funds held outside the U.S., or in a currency
other than U.S. dollars, due to sovereign action, shortfall in funds
held outside the U.S., or in a currency other than U.S. dollars, not
due to sovereign action, and a shortfall in funds held in the U.S.

------------------------------------------------------------------------
                                                    Location(s) customer
              Customer                   Claim        has consented to
                                                     having funds held
------------------------------------------------------------------------
A...................................          $50  U.S.
B...................................          €50  U.K.
C...................................          $20  U.S.
C...................................          €50  Germany.
D...................................         $100  U.S.
D...................................        300  U.K.
D...................................         €100  U.K., Germany, or Japan.
E...................................          $80  U.S.
E...................................      10,000  Japan
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
U.S........................................................         $200
U.K........................................................       200
U.K........................................................         €100
Germany....................................................          €50
Japan......................................................        1000
------------------------------------------------------------------------
Conversion Rates: €1=$1; 1=$0.01, 1=$1.5.

Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion    Claim in
             Customer                 Claim         rate         US$
------------------------------------------------------------------------
A................................          $50          1.0          $50
B................................          €50          1.0           50
C................................          $20          1.0           20
C................................          €50          1.0           50
D................................         $100          1.0          100
D................................     300  1.5      450
D................................         €100          1.0          100
E................................          $80          1.0           80
E................................      10,000         0.01          100
                                  --------------------------------------
  Total..........................  ...........  ...........         1000
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

[[Page 52656]]



----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                 Assets     Conversion       U.S.      sovereign      due to       actual
                                                    rate        dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S..............................         $200          1.0          $200  ...........  ...........         $200
U.K..............................     200  1.5       300  ...........  ...........      300
U.K..............................         €100          1.0           100  ...........  ...........          100
Germany..........................          €50          1.0            50          100          $50            0
Japan............................      10,000          0.01          100           50           50           50
                                  ------------------------------------------------------------------------------
  Total..........................  ...........  ............          750  ...........          100          650
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-750/1000) = (1-75%) =
25%.
    Reduce each customer's claim by the shortfall percentage:

------------------------------------------------------------------------
                                                               Claim in
                                                 Allocated       U.S.
                                     Claim in    shortfall     dollars
             Customer                 U.S.$        (non-        after
                                                 sovereign)   allocated
                                                              shortfall
------------------------------------------------------------------------
A................................          $50       $12.50       $37.50
B................................           50        12.50        37.50
C................................           70        17.50        52.50
D................................          650       162.50       487.50
E................................          180        45.00       135.00
                                  --------------------------------------
  Total..........................         1000       250.00       750.00
------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany and only
1/2 of the funds in Japan are available.

----------------------------------------------------------------------------------------------------------------
                                                                     Presumed location of funds
                     Customer                      -------------------------------------------------------------
                                                        U.S.           U.K.            Germany          Japan
----------------------------------------------------------------------------------------------------------------
A.................................................       $50     ................  ...............  ............
B.................................................  ...........            $50     ...............  ............
C.................................................        20     ................              $50  ............
D.................................................       100               450                  50        $50
E.................................................        80     ................  ...............        100
                                                   -------------------------------------------------------------
  Total...........................................       250               500                 100        150
----------------------------------------------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign
action.
    Germany ($50 shortfall to be allocated):

------------------------------------------------------------------------
                                           Allocation share     Actual
          Customer             Allocation      of actual      shortfall
                                 share         shortfall      allocated
------------------------------------------------------------------------
C...........................     $50/$100  50% of $50......          $25
D...........................     $50/$100  50% of $50......           25
                             -------------------------------------------
  Total.....................  ...........  ................           50
------------------------------------------------------------------------

    Japan ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                                                        Actual
                Customer                        Allocation share         Allocation share of actual   shortfall
                                                                                 shortfall            allocated
----------------------------------------------------------------------------------------------------------------
D.......................................  $50/$150....................  33.3% of $50...............       $16.67
E.......................................  $100/$150...................  66.6% of $50...............        33.33
                                         -----------------------------------------------------------------------
  Total.................................  ............................  ...........................        50.00
----------------------------------------------------------------------------------------------------------------

Claims After Reductions:

[[Page 52657]]



----------------------------------------------------------------------------------------------------------------
                                                                 Claim in
                                                                   U.S.      Allocation   Allocation
                                                                 dollars         of           of
                                                                  after      shortfall    shortfall     Claims
                           Customer                             allocated      due to       due to       after
                                                                   non-      sovereign    sovereign   reductions
                                                                sovereign   action from  action from
                                                                shortfall     Germany       Japan
----------------------------------------------------------------------------------------------------------------
A............................................................       $37.50  ...........  ...........  $37.50
B............................................................        37.50  ...........  ...........   37.50
C............................................................        52.50          $25  ...........   27.50
D............................................................       487.50           25       $16.67  445.83
E............................................................       135.00  ...........        33.33  101.67
                                                              --------------------------------------------------
  Total......................................................       750.00           50        50.00  650.00
----------------------------------------------------------------------------------------------------------------

    7. Shortfall in funds held outside the U.S., or in a currency
other than U.S. dollars, due to sovereign action, where the FCM kept
more funds than permitted in such location or currency.

------------------------------------------------------------------------
                                                   Location(s) customer
               Customer                   Claim      has consented to
                                                     having funds held
------------------------------------------------------------------------
A.....................................       $50  U.S.
B.....................................       $50  U.S.
B.....................................       €50  U.K.
C.....................................       €50  Germany
D.....................................      $100  U.S.
D.....................................      €100  U.K. or Germany
E.....................................       $50  U.S.
E.....................................       €50  U.K.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                                Actual
                          Location                              asset
                                                               balance
------------------------------------------------------------------------
U.S........................................................         $250
U.K........................................................          €50
Germany....................................................         €200
------------------------------------------------------------------------
Conversion Rates: €1=$1.

Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. dollars:

------------------------------------------------------------------------
                                                 Conversion    Claim in
             Customer                 Claim         rate         US$
------------------------------------------------------------------------
A................................          $50          1.0          $50
B................................          $50          1.0           50
B................................          €50          1.0           50
C................................          €50          1.0           50
D................................         $100          1.0          100
D................................         €100          1.0          100
E................................          $50          1.0           50
E................................          €50          1.0           50
                                  --------------------------------------
  Total..........................  ...........  ...........          500
------------------------------------------------------------------------

    Determine assets available for distribution to customers,
converting to U.S. dollars:

----------------------------------------------------------------------------------------------------------------
                                                                            Shortfall      Actual
                                                               Assets in      due to     shortfall      Amount
             Location                  Assets     Conversion      U.S.      sovereign      due to      actually
                                                     rate       dollars       action     sovereign    available
                                                                            percentage     action
----------------------------------------------------------------------------------------------------------------
U.S...............................         $250          1.0         $250  ...........  ...........         $250
U.K...............................          €50          1.0           50  ...........  ...........           50
Germany...........................         €200          1.0          200         100%          200            0
                                   -----------------------------------------------------------------------------
  Total...........................  ...........  ...........          500  ...........          200          300
----------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-500/500) = (1-100%) =
0%.
    Reduce each customer's claim by the shortfall percentage:

[[Page 52658]]



------------------------------------------------------------------------
                                                               Claim in
                                                 Allocated       U.S.
                                     Claim in    shortfall     dollars
             Customer                  US$         (non-        after
                                                 sovereign)   allocated
                                                              shortfall
------------------------------------------------------------------------
A................................          $50           $0       $50.00
B................................          100            0       100.00
C................................           50            0        50.00
D................................          200            0       200.00
E................................          100            0       100.00
                                  --------------------------------------
  Total..........................          500            0          500
------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany is
available.

------------------------------------------------------------------------
                                         Presumed location of funds
             Customer             --------------------------------------
                                       U.S.         U.K.       Germany
------------------------------------------------------------------------
A................................          $50  ...........  ...........
B................................           50          $50  ...........
C................................  ...........  ...........          $50
D................................          100  ...........          100
E................................           50           50  ...........
                                  --------------------------------------
  Total..........................          250          100          150
------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign
action. Germany ($200 shortfall to be allocated):

------------------------------------------------------------------------
                                           Allocation share     Actual
          Customer             Allocation      of actual      shortfall
                                 share         shortfall      allocated
------------------------------------------------------------------------
C...........................     $50/$150  33.3% of $200...       $66.67
D...........................    $100/$150  66.7% of $200...       133.33
                             -------------------------------------------
  Total.....................  ...........  ................       200.00
------------------------------------------------------------------------

    This would result in the claims of customers C and D being
reduced below zero. Accordingly, the claims of customer C and D will
only be reduced to zero, or $50 for C and $100 for D. This results
in a Total Excess Shortfall of $50.

----------------------------------------------------------------------------------------------------------------
                                                                   Allocation of   Allocation of
                        Actual shortfall                           shortfall for   shortfall for   Total Excess
                                                                    customer C      customer D       shortfall
----------------------------------------------------------------------------------------------------------------
$200............................................................             $50            $100             $50
----------------------------------------------------------------------------------------------------------------

    This shortfall will be divided among the remaining customers who
have authorized funds to be held outside the U.S. or in a currency
other than U.S. dollars.

----------------------------------------------------------------------------------------------------------------
                                        Total                   Allocation
                                      claims of                   Share
                                      customers    Portion of  (Column B-C                          Actual total
                                      permitting     claim      / Column B    Allocation share of      excess
              Customer               funds to be  required to   Total--All    actual total excess     shortfall
                                         held      be in the     Customer          shortfall          allocated
                                     outside the      U.S.      Claims in
                                         U.S.                     U.S.)
----------------------------------------------------------------------------------------------------------------
B..................................         $100          $50     $50/$200  25% of $50............        $12.50
C..................................           50            0       ( \1\)  ......................          0
D..................................          200          100    $100/$200  50% of $50............         25
E..................................          100           50     $50/$100  25% of $50............         12.50
                                    ----------------------------------------------------------------------------
  Total............................          450  ...........  ...........  ......................         50.00
----------------------------------------------------------------------------------------------------------------
\1\ Claim already reduced to $0.


[[Page 52659]]


----------------------------------------------------------------------------------------------------------------
                                                                Claim in
                                                                  U.S.      Allocation
                                                                dollars         of       Allocation
                                                                 after      shortfall     of total      Claims
                          Customer                             allocated      due to       excess     after all
                                                                  non-      sovereign    shortfall    reductions
                                                               sovereign   action from
                                                               shortfall     Germany
----------------------------------------------------------------------------------------------------------------
Claims after reductions:
A...........................................................          $50  ...........  ...........       $50.00
B...........................................................          100  ...........        12.50        87.50
C...........................................................           50           50  ...........         0.00
D...........................................................          200          100        25.00        75.00
E...........................................................          100  ...........        12.50        87.50
                                                             ---------------------------------------------------
Total.......................................................          500          150        50.00       300.00
----------------------------------------------------------------------------------------------------------------


    Issued in Washington, DC, on August 7, 2002, by the Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.

[FR Doc. 02-20471 Filed 8-12-02; 8:45 am]
BILLING CODE 6351-01-P