[Federal Register Volume 79, Number 91 (Monday, May 12, 2014)]
[Rules and Regulations]
[Pages 26831-26834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10650]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AD88


Enhancing Protections Afforded Customers and Customer Funds Held 
by Futures Commission Merchants and Derivatives Clearing Organizations; 
Correction

AGENCY: Commodity Futures Trading Commission.

ACTION: Correcting amendments.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is correcting final rules published in the Federal Register 
of November 14, 2013 (78 FR 68506). Those rules, 17 CFR Parts 1, 3, 22, 
30, and 140, took effect on January 13, 2014. This correction amends 
Appendix B to 17 CFR 1.20 and Appendix B to 17 CFR 1.26 by removing a 
phrase from both appendices.

DATES: Effective on May 12, 2014.

FOR FURTHER INFORMATION CONTACT: Parisa Abadi, Attorney-Advisor, 202-
418-6620, [email protected], Division of Clearing and Risk, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street 
NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: In the Federal Register of November 14, 2013 
(78 FR 68506), the Commission published final rules adopting new 
regulations and amending existing regulations to require enhanced 
customer protections, risk management programs, internal monitoring and 
controls, capital and liquidity standards, customer disclosures, and 
auditing and examination programs for futures commission merchants 
(``FCMs''). The final rules also address certain related issues 
concerning derivatives clearing organizations (``DCOs''), including the 
requirement that a DCO obtain a written acknowledgment from each 
depository or money market mutual fund with which the DCO holds or 
invests customer funds, in the form of a standard template letter set 
forth in Appendix B to 17 CFR 1.20--Derivatives Clearing Organization 
Acknowledgment Letter for CFTC Regulation 1.20 Customer Segregated 
Account, and in Appendix B to 17 CFR 1.26--Derivatives Clearing 
Organization Acknowledgment Letter for CFTC Regulation 1.26 Customer 
Segregated Money Market Mutual Fund Account, respectively (each an 
``Acknowledgment Letter'').
    The sixth full paragraph \1\ of the body of the Acknowledgment 
Letter set forth in Appendix B to 17 CFR 1.20 and the seventh full 
paragraph of the body of the Acknowledgment Letter set forth in 
Appendix B to 17 CFR 1.26 address the depository's or money market 
mutual fund's obligations in the event of the bankruptcy of the DCO 
account holder. The provisions are intended to relate exclusively to 
the bankruptcy of the account holder and should not additionally refer 
to the bankruptcy of

[[Page 26832]]

``any of our futures commission merchant clearing members.''
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    \1\ This paragraph, as revised, will become the seventh full 
paragraph of the body of the Acknowledgment Letter set forth in 
Appendix B to 17 CFR 1.20, after the format of that Acknowledgment 
Letter is conformed to the format of the Acknowledgment Letter set 
forth in Appendix B to 17 CFR 1.26.
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    To correct this error, the Commission is making a correcting 
amendment to remove the reference to ``futures commission merchant 
clearing members'' found in the text of Appendix B to 17 CFR 1.20 and 
Appendix B to 17 CFR 1.26. The Commission is also adopting conforming 
changes in grammar, punctuation, and formatting.

List of Subjects in 17 CFR Part 1

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements.

    Accordingly, 17 CFR part 1 is corrected by making the following 
correcting amendments:

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, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).


0
2. Revise Appendix B to Sec.  1.20 to read as follows:


Sec.  1.20  Futures customer funds to be segregated and separately 
accounted for.

* * * * *

Appendix B to Sec.  1.20--Derivatives Clearing Organization 
Acknowledgment Letter for CFTC Regulation 1.20 Customer Segregated 
Account

[Date]

[Name and Address of Bank or Trust Company]

    We refer to the Segregated Account(s) which [Name of Derivatives 
Clearing Organization] (``we'' or ``our'') have opened or will open 
with [Name of Bank or Trust Company] (``you'' or ``your'') entitled:

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 
Account, CFTC Regulation 1.20 Customer Segregated Account under 
Sections 4d(a) and 4d(b) of the Commodity Exchange Act [and, if 
applicable, ``, Abbreviated as [short title reflected in the 
depository's electronic system]'']

Account Number(s): [ ]

(collectively, the ``Account(s)'').

    You acknowledge that we have opened or will open the above-
referenced Account(s) for the purpose of depositing, as applicable, 
money, securities and other property (collectively the ``Funds'') of 
customers who trade commodities, options, swaps, and other products, 
as required by Commodity Futures Trading Commission (``CFTC'') 
Regulations, including Regulation 1.20, as amended; that the Funds 
held by you, hereafter deposited in the Account(s) or accruing to 
the credit of the Account(s), will be separately accounted for and 
segregated on your books from our own funds and from any other funds 
or accounts held by us in accordance with the provisions of the 
Commodity Exchange Act, as amended (the ``Act''), and Part 1 of the 
CFTC's regulations, as amended; and that the Funds must otherwise be 
treated in accordance with the provisions of Section 4d of the Act 
and CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Funds may not 
be used by you or by us to secure or guarantee any obligations that 
we might owe to you, and they may not be used by us to secure or 
obtain credit from you. You further acknowledge and agree that the 
Funds in the Account(s) shall not be subject to any right of offset 
or lien for or on account of any indebtedness, obligations or 
liabilities we may now or in the future have owing to you. This 
prohibition does not affect your right to recover funds advanced in 
the form of cash transfers, lines of credit, repurchase agreements 
or other similar liquidity arrangements you make in lieu of 
liquidating non-cash assets held in the Account(s) or in lieu of 
converting cash held in the Account(s) to cash in a different 
currency.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other 
information regarding or related to the Account(s) from the director 
of the Division of Clearing and Risk of the CFTC or the director of 
the Division of Swap Dealer and Intermediary Oversight of the CFTC, 
or any successor divisions, or such directors' designees, and this 
letter constitutes the authorization and direction of the 
undersigned on our behalf to release the requested information 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to 
the above information requests will be made in accordance with, and 
subject to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information request, in order to provide 
for the secure transmission and delivery of the requested 
information to the appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information request from the director of the Division of Clearing 
and Risk of the CFTC or the director of the Division of Swap Dealer 
and Intermediary Oversight of the CFTC, or any successor divisions, 
or such directors' designees, upon which you have relied after 
having taken measures in accordance with your applicable policies 
and procedures to assure that such request was provided to you by an 
individual authorized to make such a request.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds 
held in the Account(s), except upon instruction of the Trustee in 
Bankruptcy or pursuant to the Order of the respective U.S. 
Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, 
nothing contained herein shall be construed as limiting your right 
to assert any right of offset or lien on assets that are not Funds 
maintained in the Account(s), or to impose such charges against us 
or any proprietary account maintained by us with you. Further, it is 
understood that amounts represented by checks, drafts or other items 
shall not be considered to be part of the Account(s) until finally 
collected. Accordingly, checks, drafts and other items credited to 
the Account(s) and subsequently dishonored or otherwise returned to 
you or reversed, for any reason, and any claims relating thereto, 
including but not limited to claims of alteration or forgery, may be 
charged back to the Account(s), and we shall be responsible to you 
as a general endorser of all such items whether or not actually so 
endorsed.
    You may conclusively presume that any withdrawal from the 
Account(s) and the balances maintained therein are in conformity 
with the Act and CFTC regulations without any further inquiry, 
provided that, in the ordinary course of your business as a 
depository, you have no notice of or actual knowledge of a potential 
violation by us of any provision of the Act or the CFTC regulations 
that relates to the segregation of customer funds; and you shall not 
in any manner not expressly agreed to herein be responsible to us 
for ensuring compliance by us with such provisions of the Act and 
CFTC regulations; however, the aforementioned presumption does not 
affect any obligation you may otherwise have under the Act or CFTC 
regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree 
or levy relates in whole or in part to the Account(s). In any event, 
you shall not be liable by reason of any action or omission to act 
pursuant to any such order, judgment, decree or levy, to us or to 
any other person, firm, association or corporation even if 
thereafter any such order, decree, judgment or levy shall be 
reversed, modified, set aside or vacated.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of 
doubt, regardless of a change in the name of either party. This 
letter agreement supersedes and replaces any prior agreement between 
the parties in connection with the Account(s), including but not 
limited to any prior acknowledgment letter agreement, to the extent 
that such prior agreement is inconsistent with the terms hereof. In 
the event of any conflict between this letter agreement and any 
other agreement between the parties in connection with the 
Account(s), this letter agreement shall govern with respect to 
matters specific to Section 4d of the Act and the CFTC's regulations 
thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws

[[Page 26833]]

of [Insert governing law] without regard to the principles of choice 
of law.
    Please acknowledge that you agree to abide by the requirements 
and conditions set forth above by signing and returning to us the 
enclosed copy of this letter agreement, and that you further agree 
to provide a copy of this fully executed letter agreement directly 
to the CFTC (via electronic means in a format and manner determined 
by the CFTC). We hereby authorize and direct you to provide such 
copy without further notice to or consent from us, no later than 
three business days after opening the Account(s) or revising this 
letter agreement, as applicable.

[Name of Derivatives Clearing Organization]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Bank or Trust Company]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

0
3. Revise Appendix B to Sec.  1.26 to read as follows:


Sec.  1.26  Deposit of instruments purchased with futures customer 
funds.

* * * * *

Appendix B to Sec.  1.26--Derivatives Clearing Organization 
Acknowledgment Letter for CFTC Regulation 1.26 Customer Segregated 
Money Market Mutual Fund Account

[Date]

[Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Derivatives Clearing 
Organization] (``we'' or ``our'') on behalf of customers in shares 
of [Name of Money Market Mutual Fund] (``you'' or ``your'') under 
account(s) entitled (or shares issued to):

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 
Account, CFTC Regulation 1.26 Customer Segregated Money Market 
Mutual Fund Account under Sections 4d(a) and 4d(b) of the Commodity 
Exchange Act [and, if applicable, ``, Abbreviated as [short title 
reflected in the depository's electronic system]'']

Account Number(s): [ ]

(collectively, the ``Account(s)'').

    You acknowledge that we are holding these funds, including any 
shares issued and amounts accruing in connection therewith 
(collectively, the ``Shares''), for the benefit of customers who 
trade commodities, options, swaps and other products, as required by 
Commodity Futures Trading Commission (``CFTC'') Regulation 1.26, as 
amended; that the Shares held by you, hereafter deposited in the 
Account(s) or accruing to the credit of the Account(s), will be 
separately accounted for and segregated on your books from our own 
funds and from any other funds or accounts held by us in accordance 
with the provisions of the Commodity Exchange Act, as amended (the 
``Act''), and Part 1 of the CFTC's regulations, as amended; and that 
the Shares must otherwise be treated in accordance with the 
provisions of Section 4d of the Act and CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Shares may not 
be used by you or by us to secure or guarantee any obligations that 
we might owe to you, and they may not be used by us to secure or 
obtain credit from you. You further acknowledge and agree that the 
Shares in the Account(s) shall not be subject to any right of offset 
or lien for or on account of any indebtedness, obligations or 
liabilities we may now or in the future have owing to you.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other 
information regarding or related to the Account(s) from the director 
of the Division of Clearing and Risk of the CFTC or the director of 
the Division of Swap Dealer and Intermediary Oversight of the CFTC, 
or any successor divisions, or such directors' designees, and this 
letter constitutes the authorization and direction of the 
undersigned on our behalf to release the requested information 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to 
the above information requests will be made in accordance with, and 
subject to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information request, in order to provide 
for the secure transmission and delivery of the requested 
information to the appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information request from the director of the Division of Clearing 
and Risk of the CFTC or the director of the Division of Swap Dealer 
and Intermediary Oversight of the CFTC, or any successor divisions, 
or such directors' designees, upon which you have relied after 
having taken measures in accordance with your applicable policies 
and procedures to assure that such request was provided to you by an 
individual authorized to make such a request.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Shares 
held in the Account(s), except upon instruction of the Trustee in 
Bankruptcy or pursuant to the Order of the respective U.S. 
Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, 
nothing contained herein shall be construed as limiting your right 
to assert any right of offset or lien on assets that are not Shares 
maintained in the Account(s), or to impose such charges against us 
or any proprietary account maintained by us with you. Further, it is 
understood that amounts represented by checks, drafts or other items 
shall not be considered to be part of the Account(s) until finally 
collected. Accordingly, checks, drafts and other items credited to 
the Account(s) and subsequently dishonored or otherwise returned to 
you or reversed, for any reason, and any claims relating thereto, 
including but not limited to claims of alteration or forgery, may be 
charged back to the Account(s), and we shall be responsible to you 
as a general endorser of all such items whether or not actually so 
endorsed.
    You may conclusively presume that any withdrawal from the 
Account(s) and the balances maintained therein are in conformity 
with the Act and CFTC regulations without any further inquiry, 
provided that, in the ordinary course of your business as a 
depository, you have no notice of or actual knowledge of a potential 
violation by us of any provision of the Act or the CFTC regulations 
that relates to the segregation of customer funds; and you shall not 
in any manner not expressly agreed to herein be responsible to us 
for ensuring compliance by us with such provisions of the Act and 
CFTC regulations; however, the aforementioned presumption does not 
affect any obligation you may otherwise have under the Act or CFTC 
regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree 
or levy relates in whole or in part to the Account(s). In any event, 
you shall not be liable by reason of any action or omission to act 
pursuant to any such order, judgment, decree or levy, to us or to 
any other person, firm, association or corporation even if 
thereafter any such order, decree, judgment or levy shall be 
reversed, modified, set aside or vacated.
    We are permitted to invest customers' funds in money market 
mutual funds pursuant to CFTC Regulation 1.25. That rule sets forth 
the following conditions, among others, with respect to any 
investment in a money market mutual fund:
    (1) The net asset value of the fund must be computed by 9:00 
a.m. of the business day following each business day and be made 
available to us by that time;
    (2) The fund must be legally obligated to redeem an interest in 
the fund and make payment in satisfaction thereof by the close of 
the business day following the day on which we make a redemption 
request except as otherwise specified in CFTC Regulation 
1.25(c)(5)(ii); and,
    (3) The agreement under which we invest customers' funds must 
not contain any provision that would prevent us from pledging or 
transferring fund shares.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of 
doubt, regardless of a change in the name of either party. This 
letter agreement supersedes and replaces any prior agreement between 
the parties in connection with the Account(s), including but not 
limited to any prior acknowledgment letter agreement, to the extent 
that such prior agreement is inconsistent with the terms hereof. In 
the event of any conflict between this letter agreement and any 
other agreement between the parties in connection with the

[[Page 26834]]

Account(s), this letter agreement shall govern with respect to 
matters specific to Section 4d of the Act and the CFTC's regulations 
thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to 
the principles of choice of law.
    Please acknowledge that you agree to abide by the requirements 
and conditions set forth above by signing and returning to us the 
enclosed copy of this letter agreement, and that you further agree 
to provide a copy of this fully executed letter agreement directly 
to the CFTC (via electronic means in a format and manner determined 
by the CFTC) in accordance with CFTC Regulation 1.20. We hereby 
authorize and direct you to provide such copy without further notice 
to or consent from us, no later than three business days after 
opening the Account(s) or revising this letter agreement, as 
applicable.
[Name of Derivatives Clearing Organization]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Money Market Mutual Fund]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

    Issued in Washington, DC, on May 5, 2014, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
[FR Doc. 2014-10650 Filed 5-9-14; 8:45 am]
BILLING CODE 6351-01-P