e9-31058

[Federal Register: December 31, 2009 (Volume 74, Number 250)]

[Rules and Regulations]

[Page 69279-69283]

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

[DOCID:fr31de09-12]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AC66

Revised Adjusted Net Capital Requirements for Futures Commission

Merchants and Introducing Brokers

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

amending its regulations that prescribe minimum adjusted net capital

requirements for futures commission merchants (``FCMs'') and

introducing brokers (``IBs''). The amendments: increase the required

minimum dollar amount of adjusted net capital that an IB must maintain

from $30,000 to $45,000; increase the required minimum dollar amount of

adjusted net capital that an FCM must maintain from $250,000 to

$1,000,000; amend the computation of an FCM's margin-based minimum

adjusted net capital requirement to incorporate into the calculation

customer and noncustomer positions in over-the-counter derivative

instruments that are submitted for clearing by the FCM to derivatives

clearing organizations (``DCOs'') or other clearing organizations

(``cleared OTC derivative positions''); specify capital deductions for

FCM proprietary cleared OTC derivative positions based on the

deductions required by the Commission's regulations for FCM proprietary

positions in exchange-traded futures contracts and options contracts;

and amend the FCM capital computation to increase the applicable

percentage of the total margin-based requirement for futures, options

and cleared OTC derivative positions in noncustomer accounts to eight

percent.

DATES: Effective March 31, 2010.

FOR FURTHER INFORMATION CONTACT: Thelma Diaz, Associate Director,

Division of Clearing and Intermediary Oversight, 1155 21st Street, NW.,

Washington, DC 20581. Telephone number: 202-418-5137; facsimile number:

202-418-5547; and electronic mail: <A HREF="mailto:[email protected]">[email protected]</A> or Mark Bretscher,

Attorney-Advisor, Division of Clearing and Intermediary Oversight,

Commodity Futures Trading Commission, 525 W. Monroe, Suite 1100,

Chicago, Illinois 60661. Telephone number: 312-596-0529; facsimile

number: 312-596-0714; and electronic mail: <A HREF="mailto:[email protected]">[email protected]</A>.

SUPPLEMENTARY INFORMATION:

I. Background

On May 7, 2009, the Commission published in the Federal Register

for public comment proposed amendments to the minimum financial

requirements applicable to FCMs and IBs (``Proposing Release).\1\ As

noted in the Proposing Release, Section 4f(b) of the Commodity Exchange

Act (``Act'') provides that FCMs and IBs must meet such minimum

financial requirements as the Commission may prescribe to insure that

FCMs and IBs meet their obligations as registrants.\2\ FCMs are subject

to greater capital requirements than IBs because the Act permits FCMs,

but not IBs, to hold funds of customers trading on designated contract

markets and to clear such customer positions with a DCO. CFTC

Regulation 1.17 currently requires IBs and FCMs to maintain adjusted

net capital of $30,000 and $250,000 respectively, or to maintain some

greater amount as determined under other calculations required by the

regulation.\3\

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\1\ 74 FR 21290 (May 7, 2009). Copies of the Proposing Release

and the comment letters received by the Commission are also

available on the Commission's Web site at <A HREF="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov">http://www.cftc.gov</A>.

\2\ The Act is codified at 7 U.S.C. 1 et seq.

\3\ The Commission regulations cited herein may be found at 17

CFR Ch. I (2009).

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Specifically, Commission Regulation 1.17(a)(1)(iii) requires that

IBs maintain adjusted net capital in an amount that equals or exceeds

the greatest of: $30,000; the amount of adjusted net capital required

by a registered futures association of which the IB is a member; or, if

the FCM is also a securities broker and dealer registered with the U.S.

Securities and Exchange Commission (``SEC''), the amount of net capital

required by SEC Rule 15c3-1(a), 17 CFR Sec. 240.15c3-1(a). Regulation

1.17(a)(1)(i) requires FCMs to maintain adjusted net capital equal to

or in excess of the greatest of: $250,000; the FCM's margin-based or

``risk-based'' capital requirement, which is determined by adding

together eight percent of the total risk margin requirement for

positions in customer accounts, plus four percent of the total risk

margin requirement for positions carried in noncustomer accounts; the

amount of adjusted net capital required by a registered futures

association of which the FCM is a member; or, for an FCM also

registered with the SEC as securities broker and dealer, the amount of

net capital required by SEC Rule 15c3-1(a).

As described in the Proposing Release, the Commission proposed

several amendments to Regulation 1.17(a) that generally would increase

the adjusted net capital requirements of FCMs and IBs. The comment

period closed 60 days after publication in the Federal Register of the

Proposing Release, during which nine comment letters were received.

Responses were submitted by Mindy Yost (``Yost''), an individual non-

registrant; Newedge USA, LLC (``Newedge''), an FCM/broker-dealer; MF

Global, Inc. (``MF Global''), an FCM; R.J. O'Brien & Associates, LLC

(``RJO''), an FCM; FCStone, LLC (``FC Stone''), an FCM; the Securities

Industry and Financial Markets Association (``SIFMA''); CME Group, Inc.

(``CME''); the Futures Industry Association (``FIA''); and the National

Futures Association (``NFA''). The concerns and suggestions of each of

the commenters are addressed below, in connection with the description

of the amendments being adopted by the Commission.\4\

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\4\ The Proposing Release also included a query soliciting

comment on a topic for which no amendments to Commission regulations

have yet been proposed. Specifically, the Commission asked for

comment on the advisability of expanding ANC requirements for FCMs

that are also securities brokers and dealers, by increasing their

ANC by the amount of net capital required by SEC Rule 15c3-1(a). No

commenter supported this potential revision of FCM/BD capital

requirements.

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[[Page 69280]]

II. Required Minimum Dollar Amount of Adjusted Net Capital for IBs and

FCMs

As noted above, Regulation 1.17(a) includes the capital

requirements established by registered futures associations when

determining the level of adjusted net capital that FCM and IBs must

maintain. On July 31, 2006, the NFA, the sole registered futures

association, adopted minimum dollar amount requirements of $45,000 for

IBs and $500,000 for FCMs. These same amounts therefore were

effectively applied in 2006 as adjusted net capital requirements for

IBs and FCMs under CFTC Regulation 1.17(a).

The Proposing Release proposed amending Regulation 1.17(a)(1) to

revise the specified dollar amounts in CFTC Regulation 1.17(a)(1) from

$30,000 to $45,000 for IBs and from $250,000 to $1 million for FCMs. In

light of existing NFA requirements, only the proposal to increase the

minimum dollar amount requirement for FCMs would result in an actual

change in adjusted net capital requirements. The effect of such a

change also would be minimized because, as of September 30, 2009, all

but two FCMs holding customer funds already maintain adjusted net

capital of $1 million or more.

As noted in the Proposing Release, the adjusted net capital

requirements adopted in 1996 of $30,000 for IBs and $250,000 for FCMs

do not reflect inflation and generally are no longer consistent with

the regulatory objective of requiring registrants to maintain a minimum

base of liquid capital from which to meet their financial obligations,

including their obligations to customers. Comparing certain aspects of

the industry then and now, the Commission noted that as of August 31,

1995, there were 255 FCMs, which in total were required to hold

approximately $30 billion of segregated and secured amount funds for

their customers. By June 30, 2009, the total amount of such funds had

escalated to approximately $175 billion, which 132 FCMs were required

to hold for their customers. Thus, not only has there been a dramatic

increase in the amounts that FCMs must hold for their customers, but

those funds have become concentrated among far fewer FCMs. As an

additional measure to ensure the sound financial strength of FCMs and

IBs, the Commission therefore proposed revising the minimum dollar

amount requirements for FCMs and IBs in CFTC Regulation 1.17(a).

The comments received by the Commission generally supported the

revised minimum dollar amounts or offered no comment regarding such

amounts.\5\ RJO, CME and the NFA expressly supported the proposal to

increase the minimum dollar amount capital requirement for FCMs and

IBs. FIA also supported the increase in the minimum dollar amount for

FCM capital requirements, and noted that IBs were already required by

the NFA to maintain adjusted net capital of at least $45,000. SIFMA's

comment was that it lacked sufficient information, either from the CFTC

or derived on its own, on which to base a comment, while the letters

from FC Stone and Newedge were silent on the proposed amendments to

revise the specified dollar amounts in CFTC Regulation 1.17(a)(1). For

the reasons described above, the Commission has determined to adopt the

revised minimum dollar amounts as proposed in the Proposing Release.

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\5\ The objections in Yost's letter were directed primarily to

the requirement for her to register as an IB.

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III. Cleared OTC Positions in FCM Capital Calculations

In 2004, the Commission amended Regulation 1.17(a)(1)(i)(B) to

include a ``risk-based'' capital computation based on margin, or

performance bond, requirements applicable to positions carried by the

FCM for its customers and noncustomers.\6\ Specifically, Commission

Regulation 1.17(a)(1)(i)(B) was amended to require an FCM to compute

its risk-based capital requirement as the sum of: (1) Eight percent of

the total risk margin \7\ requirement for positions carried by the FCM

in customer accounts and (2) four percent of the total risk margin

requirement for positions carried by the FCM in noncustomer accounts.

The Commission did not revise its regulations with respect to

proprietary futures and granted options positions of FCMs, as such

positions were already subject to capital deductions under Commission

Regulation 1.17(c)(5)(x).\8\

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\6\ The term noncustomer refers generally to affiliated persons

of the FCM, including certain officers and other employees.

\7\ The term ``risk margin'' is defined at Commission Regulation

1.17(b)(8).

\8\ In general, an FCM's proprietary futures and granted options

positions are subject to a deduction equal to 100 percent of the

maintenance margin requirement for positions that are cleared by

clearing organizations of which the FCM is a clearing member, and

150 percent of the maintenance margin requirement for positions that

are cleared by clearing organizations of which the FCM is not a

clearing member.

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The Proposing Release noted that the risk-based calculations of

FCMs include margin requirements for positions in cleared OTC

derivative instruments \9\ held in customer segregated accounts

governed by Section 4d of the Act and Commission regulations. Various

DCOs, as part of their increasing efforts to clear OTC derivative

instruments, have requested Commission orders authorizing their

clearing FCMs to commingle customers' money, securities, and other

property margining OTC-cleared derivative positions with the money,

securities, and other property deposited by said customers to margin

futures and options positions in segregated accounts established

pursuant to Section 4d of the Act.\10\ Therefore, the risk exposure of

clearing OTC derivative instruments extends not only to the FCM, but

also to the segregated funds of its OTC, futures and options customers.

Where OTC customer funds are commingled with the funds of futures and

options customers, the Commission has deemed it necessary to include

OTC customer positions in the definition of ``customer

[[Page 69281]]

accounts'' for purposes of computing an FCM's risk-based capital

requirement.

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\9\ OTC derivative instrument is defined by Section 408(2) of

the Federal Deposit Insurance Corporation Improvement Act, 12

U.S.C.A. Sec. 4421. As defined there, the term ``over-the-counter

derivative instrument'' includes ``(A) any agreement, contract, or

transaction, including the terms and conditions incorporated by

reference in any such agreement, contract, or transaction, which is

an interest rate swap, option, or forward agreement, including a

rate floor, rate cap, rate collar, cross-currency rate swap, basis

swap, and forward rate agreement; a same day-tomorrow, tomorrow-

next, forward, or other foreign exchange or precious metals

agreement; a currency swap, option, or forward agreement; an equity

index or equity swap, option, or forward agreement; a debt index or

debt swap, option, or forward agreement; a credit spread or credit

swap, option, or forward agreement; a commodity index or commodity

swap, option, or forward agreement; and a weather swap, weather

derivative, or weather option; (B) any agreement, contract or

transaction similar to any other agreement, contract, or transaction

referred to in this clause that is presently, or in the future

becomes, regularly entered into by parties that participate in swap

transactions (including terms and conditions incorporated by

reference in the agreement) and that is a forward, swap, or option

on one or more occurrences of any event, rates, currencies,

commodities, equity securities or other equity instruments, debt

securities or other debt instruments, economic or other indices or

measures of economic or other risk or value; (C) any agreement,

contract, or transaction excluded from the Commodity Exchange Act

under section 2(c), 2(d), 2(f), or 2(g) of such Act, or exempted

under section 2(h) or 4(c) of such Act; and (D) any option to enter

into any, or any combination of, agreements, contracts or

transactions referred to in this subparagraph.''

\10\ Examples of Commission orders under Section 4d of the Act

related to OTC clearing by DCOs include an Order dated May 30, 2002

regarding Treatment of Funds Held in Connection with the Clearing of

Over-the-Counter Products by the New York Mercantile Exchange, and

also Orders dated March 3, 2006 and September 26, 2008 regarding

Treatment of Funds Held in Connection with the Clearing of Over-the-

Counter Products by Chicago Mercantile Exchange, Inc.

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FCMs may also, however, clear OTC derivative instruments for which

the margin received from customers is not held in segregated accounts

under Section 4d of the Act. The Proposing Release therefore included

amendments to enhance and update the provisions of Regulation 1.17 to

reflect the increase in clearing by FCMs of OTC derivative instruments.

Under the proposed amendments to paragraphs (b) and (c) of Regulation

1.17, the capital treatment for all cleared OTC derivative instrument

positions would be similar to the capital treatment applicable to

exchange-traded futures and options positions that are carried by the

FCM for itself, its customers, or its noncustomers.

Five commenters (RJO, MF Global, CME, FIA and the NFA) supported

the Commission's proposal to require FCMs to account for all cleared

OTC derivative positions carried for customers and noncustomers in

their risk-based capital calculations. They also supported the

Commission's proposal to require FCMs to take proprietary capital

deductions for their cleared OTC derivative positions similar to the

capital deductions required for their proprietary futures and options

positions. Yost, FC Stone and Newedge made no comments regarding either

proposal, and SIFMA stated that it was unable to offer a definitive

view on the appropriateness of the proposed changes and suggested that

the Commission refrain from taking action pending further analysis of

the issue. SIFMA also expressed concern that the capital requirements

for cleared OTC positions be coordinated among regulators to prevent

regulatory arbitrage or capital disincentives to clear such

transactions.

The adoption of the proposed amendments will neither prohibit nor

inhibit the existing interaction among Commission staff and the staff

members of other regulators of financial institutions regarding matters

of common interest and concern. To the extent that new developments

related to clearing suggest that further modification of the

Commission's capital regulations may be appropriate, the Commission may

proceed, as applicable, by issuing appropriate interpretive guidance to

FCMs or by requesting notice and comment on other proposed amendments

to its regulations.\11\

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\11\ Included in such continued review and analysis is the

possible revision of the definition of ``cover'' in 1.17(j) with

respect to cleared OTC derivative instruments, for which the

Commission requested comment but did not propose any specific

amendments in the Proposing Release. Only the CME and NFA commented

on this question, and both agreed with the general proposition that

the definition should be revised to reflect that proprietary

positions in cleared OTC derivatives instruments may be covered by

positions that would qualify as cover for proprietary futures and

option positions.

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The Commission has therefore adopted the amendments to 1.17(b) and

(c) as proposed in the Proposing Release. As hereby amended, the terms

proprietary account, noncustomer account, and customer account, as

defined in Regulations 1.17(b)(3), (b)(4), and (b)(7), are expanded to

include ``cleared OTC derivative positions'', which are defined in

Regulation 1.17(b)(9) as the over the counter derivative instrument

positions of any person \12\ in accounts carried on the books of the

FCM and cleared by any organization permitted to clear such instruments

under the laws of the relevant jurisdiction. Additionally, the term

``cleared OTC customers'' is defined in paragraph (b)(10), and such

customers have been included among the FCM customers listed in

paragraph (b)(2) of Regulation 1.17. Finally, the Commission has

amended Regulation 1.17(c)(5)(x) to require FCMs to take proprietary

capital deductions for their cleared OTC derivative positions similar

to the capital deductions required for their proprietary futures and

options positions.

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\12\ The term ``person'' is defined in CFTC Regulation 1.3(u).

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III. Increasing Risk Margin Percentage for Noncustomer Positions

The Commission also proposed amending Regulation 1.17 so that an

FCM's risk-based capital requirement would be ten percent of the total

risk margin requirement for positions carried by the FCM in both

customer accounts and noncustomer accounts. The proposed increase

represented a more significant increase with respect to noncustomer

accounts, as the FCM's risk-based capital calculations currently

includes a lower required percentage of risk maintenance margin for

noncustomer positions (four percent) than the required percentage for

the same positions in customer accounts (eight percent).

The Commission received no comments supporting the general increase

for all margin-based capital calculations to ten percent. The reasons

cited for this lack of support varied among the commenters, but the

Commission is mindful that a common underlying theme was that such an

indiscriminate, broad-brush approach may be inconsistent with the

current financial environment's continuing shifts and alterations. In

contrast, the majority of commenters (RJO, MF Global, CME, FIA and the

NFA) endorsed the Commission's proposed amendment to increase from four

percent to eight percent the required percentage applicable to

noncustomer accounts in the risk-based capital calculations of FCMs. In

proposing this amendment, the Commission had noted that when the lower

risk margin percentage for noncustomer positions had been adopted in

2004, the Commission and the self-regulatory organizations believed

that noncustomers' accounts reflected less credit risk to FCMs and the

clearing system because they were guaranteed by a parent organization

or other affiliated entity. However, the majority of the commenters

agreed with the Commission's conclusion in the Proposing Release that

recent events had demonstrated that the risk associated with

noncustomer accounts may not necessarily be less than the risk

associated with customer accounts. The Commission has therefore adopted

as proposed the amendment to Regulation 1.17(a) that requires the

application of the same percentage with respect to the noncustomer and

customer risk margin requirements, thus requiring the FCM's total risk

margin requirement to be multiplied by eight percent.

IV. Effective Date

The Commission stated in the Proposing Release that it was

contemplating an effective date of sixty days after publication in the

Federal Register of any of the amendments adopted as final by the

Commission. The Commission received comments from both the FIA and NFA

on this topic, each of whom urged a longer period of time before the

effective date, in order to avoid a potential undue burden as a result

of the increased capital requirements being adopted for FCMs. FIA

suggested a period of 120 days after publication before the effective

date, while NFA stated only that the period should be longer than 60

days. Taking into consideration these comments and the purposes of the

capital requirements adopted by this final rulemaking, the amendments

adopted herein will be effective as of the date 90 days after their

publication in the Federal Register.

V. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires

[[Page 69282]]

that agencies, in amending their rules, consider the impact of those

amendments on small businesses. The Commission has previously

determined that, based upon the fiduciary nature of FCM/customer

relationships, as well as the requirement that FCMs meet minimum

financial requirements, FCMs should be excluded from the definition of

small entity.\13\ With respect to IBs, the amendment to the minimum

adjusted net capital requirement for an IB merely conforms the

Commission's requirement to that of the NFA and, therefore, should have

no impact on an IB's financial operations. Thus, the proposal has no

significant economic impact on IBs. Accordingly, the Chairman, on

behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. Sec.

605(b), that the action it is taking herein will not have a significant

economic impact on a substantial number of small entities.

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\13\ See 47 FR 18618, 18619 (Apr. 30, 1982).

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B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995, (``PRA'') 44 U.S.C. 3501 et

seq., 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 rulemaking does

not include any increase in information collection requirements. The

increase in the percentage requirements applicable to risk margin

requirements for customer and noncustomer positions included in risk-

based capital calculation constitutes a minor change to line item 22 of

the Form 1-FR-FCM, as does the minor change to Line 16 to include OTC-

cleared products, but neither change would alter the related reporting

burden. The above analysis was included in the proposing release, and

as required by the PRA, the Commission submitted a copy of this section

to the Office of Management and Budget (``OMB'') for its review. No

comments were received in response to the Commission's invitation in

the notice of proposed rulemaking \14\ to comment on any change in the

potential paperwork burden associated with these rule amendments.

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\14\ 74 FR 21293 (May 7, 2009).

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C. Cost-Benefit Analysis

Section 15(a) of the Act, as amended by Section 119 of the

Commodity Futures Modernization Act,\15\ 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.

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\15\ 7 U.S.C. 19(a).

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Section 15(a) 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. The Commission, in its discretion, can choose to give

greater weight to any one of the five enumerated areas and determine

that, notwithstanding its costs, a particular regulation is necessary

or appropriate to protect the public interest or to effectuate any of

the provisions or to accomplish any of the purposes of the Act.

The Commission has considered the costs and benefits of the

proposed amendments and determined that the amendments will result in

additional protection of market participants and the public,

enhancements to sound risk management practices, enhanced financial

integrity of futures markets and other public interest considerations

and should have minimal or no effect on the following areas:

efficiency, competitiveness or price discovery. After considering these

factors, the Commission has determined to adopt the amendments to

Regulation 1.17 as discussed herein.

List of Subjects in 17 CFR Part 1

Brokers, Commodity futures, Minimum financial requirements,

Reporting and recordkeeping requirements.

0

Accordingly, 17 CFR Chapter I is amended as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0

1. The authority citation for Part 1 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g,

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

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

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

114 Stat. 2763 (2000).

0

2. Section 1.17 is amended by:

0

a. Revising paragraphs (a)(1)(i)(A), (a)(1)(i)(B), and (a)(1)(iii)(A);

0

b. Revising paragraphs (b)(2), (b)(3), introductory text of (b)(4),

introductory text of (b)(7) and introductory text of (b)(8);

0

c. Adding new paragraphs (b)(9) and (b)(10); and

0

d. Revising the introductory text of paragraph (c)(5)(x) to read as

follows:

Sec. 1.17 Minimum financial requirements for futures commission

merchants and introducing brokers.

(a)(1)(i) * * *

(A) $1,000,000;

(B) The futures commission merchant's risk-based capital

requirement, computed as eight percent of the total risk margin

requirement for positions carried by the futures commission merchant in

customer accounts and noncustomer accounts.

* * * * *

(iii) * * *

(A) $45,000;

* * * * *

(b) * * *

(1) * * *

(2) Customer means customer (as defined in Sec. 1.3(k)), option

customer (as defined in Sec. 1.3(jj) and in Sec. 32.1(c) of this

chapter), cleared over the counter customer (as defined in Sec.

1.17(b)(10)), and includes a foreign futures, foreign options customer

(as defined in Sec. 30.1(c) of this chapter).

(3) Proprietary account means an account in which commodity

futures, options or cleared over the counter derivative positions are

carried on the books of the applicant or registrant for the applicant

or registrant itself, or for general partners in the applicant or

registrant.

(4) Noncustomer account means an account in which commodity

futures, options or cleared over the counter derivative positions are

carried on the books of the applicant or registrant which is either:

* * * * *

(7) Customer account means an account in which commodity futures,

options or cleared over the counter derivative positions are carried on

the books of the applicant or registrant which is either:

* * * * *

(8) Risk margin for an account means the level of maintenance

margin or performance bond required for the customer or noncustomer

positions by the applicable exchanges or clearing organizations, and,

where margin or performance bond is required only for accounts at the

clearing organization, for purposes of the FCM's risk-based capital

calculations applying the same margin or performance bond requirements

to

[[Page 69283]]

customer and noncustomer positions in accounts carried by the FCM,

subject to the following.

* * * * *

(9) Cleared over the counter derivative positions means ``over the

counter derivative instrument'' (as defined in 12 U.S.C. 4421)

positions of any person in accounts carried on the books of the futures

commission merchant and cleared by any organization permitted to clear

such instruments under the laws of the relevant jurisdiction.

(10) Cleared over the counter customer means any person that is not

a proprietary person as defined in Sec. 1.3(y) and for whom the

futures commission merchant carries on its books one or more accounts

for the over the counter-cleared derivative positions of such person.

(c) * * *

(5) * * *

(x) In the case of open futures contracts or cleared OTC derivative

positions and granted (sold) commodity options held in proprietary

accounts carried by the applicant or registrant which are not covered

by a position held by the applicant or registrant or which are not the

result of a ``changer trade'' made in accordance with the rules of a

contract market:

* * * * *

Issued in Washington, DC, on December 24, 2009, by the

Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. E9-31058 Filed 12-30-09; 8:45 am]

Last Updated: December 31, 2009