Release:             #4494-01
For Release:     March 12, 2001

CFTC PROPOSES RULE FOR OPTING OUT OF SEGREGATION FOR TRADING CONDUCTED ON A REGISTERED DERIVATIVES TRANSACTION EXECUTION FACILITY

    The Commodity Futures Trading Commission (CFTC) is proposing a rule to permit certain customers to opt out of having their funds segregated by a Futures Commission Merchant (FCM) for trades executed on or through a registered Derivatives Transaction Execution Facility (DTF). Section 5a(f) of the newly-amended Commodity Exchange Act provides that a registered DTF may authorize an FCM to offer its customers that are eligible contract participants (generally, institutional customers) the right not to have their funds that are carried by the FCM, for purposes of trading on a registered DTF, separately accounted for and segregated. The proposed rule 1.68 provides that an FCM shall not segregate a customer's funds where: (i) the customer is an eligible contract participant; (ii) the funds are deposited with the FCM for purposes of trading on a registered DTF; (iii) the DTF has authorized the FCM to permit eligible contract participants to elect not to have such funds segregated; and (iv) there is a written agreement signed by the customer in which the customer elects to opt out of segregation and acknowledges that it is aware of the consequences of not having its funds segregated. In particular, the agreement must explain that, to the extent a customer has a claim against the estate of a bankrupt FCM in connection with trades for which it has opted out of segregation, the customer would not be entitled to the usual customer priority in bankruptcy.

    The proposed new rule and rule amendments are being published in the Federal Register for a 30-day comment period. Copies of these documents can be obtained by contacting the Office of the Secretariat, Three Lafayette Centre, 1155, 21st Street, N.W., Washington, DC 20581, (202) 418-5100 or by accessing the Commodity Futures Trading Commission website.