For Release: April 25, 2001
CFTC Adopts Rules for Opting Out of Segregation, as to Trading Conducted on a Registered Derivatives Transaction Execution Facility
The Commodity Futures Trading Commission (CFTC) has adopted rules to permit certain customers to opt out of having their funds segregated by a futures commission merchant (FCM) for trades on or through a registered derivatives transaction execution facility (DTF). Section 5a(f) of the newly-amended Commodity Exchange Act (the 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 new 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 new rule and rule amendments were published in the Federal Register on April 25, 2001. Copies may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.