Release: #4093-98
For Release: January 8, 1998

Commodity Futures Trading Commission Issues a Concept Release on the Denomination of Customer Funds and the Location of Depositories

Washington, D.C. In a concept release published on December 30, 1997 (62 FR 67841), the Commodity Futures Trading Commission (Commission) seeks comment on possible revisions to the requirements regarding the maintenance of customer funds offshore or in foreign currencies. This undertaking is intended to help ensure sound financial practices and to facilitate the continued development of an effective, flexible, regulatory environment responsive to evolving market conditions.

Section 4d of the Commodity Exchange Act and Part 1 of the Commission Regulations require the segregation of customer funds and their exclusive use to margin or secure customer trades. Interpretation 12, which was issued in 1988, permits the deposit of U.S. customer funds offshore under limited circumstances and subject to conditions intended to protect customer funds. In view of the evolution of market conditions since Interpretation 12 was issued and of the apparent increased need or desire to maintain customer funds offshore and in foreign currencies, the Commission intends to take a comprehensive look at the issues. However, the Commission is aware that funds held offshore or in foreign currencies are exposed to increased risks such as currency rate fluctuations and inaccessibility due to failure of the depository or to a foreign government action, and wishes to reaffirm its continued commitment to ensuring the safety of customer funds.

The concept release requests members of the industry to explain their current practices in this area and their need to hold customer funds offshore or in foreign currencies. It outlines several possible areas of intervention to limit risks and to apportion losses in the event of a bankruptcy and requests commenters to choose or to propose a course of action in each area. To illustrate the interaction of choices under the various areas and to better elicit public comment, the release includes a specific approach and requests comment on that approach. Following its analysis of comments, the Commission will publish for public comment a proposal intended to protect customers from risks related to holding customer funds offshore or in foreign currencies, without impeding multinational access to the U.S. markets.

The Federal Register release is posted on the Commission's home page ( Copies of the release may be obtained by contacting the Office of Secretariat, Three Lafayette Center, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100. Comments must be received on or before March 2, 1998.