[Federal Register Volume 59, Number 7 (Tuesday, January 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-541]
[[Page Unknown]]
[Federal Register: January 11, 1994]
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COMMODITY FUTURES TRADING COMMISSION
Trilateral Cross-Margining Program Among the Commodity Clearing
Corp., the Intermarket Clearing Corp., and the Options Clearing Corp.
The Intermarket Clearing Corporation (``ICC'') and the Commodity
Clearing Corporation (``CCC'') have submitted to the Commodity Futures
Trading Commission (``Commission''), pursuant to section 5a(a)(12)(A)
of the Commodity Exchange Act (``Act''), 7 U.S.C. 7a(a)(12)(A), and
Commission Regulation 1.41(b), 17 CFR 1.41(b), a proposal to implement
a trilateral cross-margining program with The Options Clearing
Corporation (``OCC'') (CCC, ICC, and OCC together being the
``participating clearing organizations''). The CCC-ICC-OCC program
would involve the cross-margining of positions in specified commodity
futures, commodity options, and securities options (``eligible
contracts'') carried for, among others, certain market professional
customers. These market professionals would include New York Cotton
Exchange (``NYCE'') or FINEX members and firms owning NYCE or FINEX
memberships, members of exchanges cleared by ICC, and market makers,
specialists, and registered traders on securities options markets whose
accounts would not be proprietary within the meaning of Commission
Regulation 1.3(y), 17 CFR 1.3(y), (``participating market
professionals'') and whose positions are carried by participating
futures commission merchants (``FCMs'') that also are participating
broker-dealers (``B/Ds'') or by participating FCMs and their affiliated
participating B/Ds which may also be FCMs (together ``participating
clearing firms'').
Section 5a(a)(12)(A) of the Act provides that the Commission shall
approve contract market rules only if such rules ``are determined by
the Commission not to be in violation of [the] Act or the regulations
of the Commission.'' Commingling of futures and non-futures funds of
customers currently is not permitted under the Commission's
regulations. Section 4d(2) of the Act, 7 U.S.C. 6d(2), however,
authorizes the Commission to issue an order prescribing the terms and
conditions under which ``money, securities, and property [received by
an FCM to margin, guarantee or secure the commodity futures trades or
contracts of a customer] may be commingled * * * with any other money,
securities, and property received by such [FCM] and required by the
Commission to be separately accounted for and treated and dealt with as
belonging to the customers of such [FCM].'' Accordingly, any proposal
which would permit such commingling would require Commission action
pursuant to section 4d(2) of the Act, as well as section 5a(a)(12)(A).
Whereas, the CCC-ICC-OCC non-proprietary cross-margining proposal
provides for calculation by the participating clearing organizations of
a single margin requirement to support the positions of participating
market professionals in eligible contracts carried by participating
clearing firms;
Whereas, the Commission has reviewed the CCC-ICC-OCC cross-
margining proposal; the proposed agreement among the participating
clearing organizations; the proposed agreements among the participating
clearing firms and the participating clearing organizations; and the
proposed agreements among the participating market professionals and
participating clearing firms submitted by letters dated April 7 through
November 16, 1993; the representations of the participating clearing
organizations as to the operation of the program; the representations
of the Securities Investor Protection Corporation (``SIPC'') and the
Securities and Exchange Commission (``SEC''); and such other documents
as constitute the complete record in this matter (``Record'');
Whereas, the agreements among participating market professionals,
participating clearing firms, and participating clearing organizations
require that:
(a) Each participating market professional acknowledge in writing
that any money, securities, or property, including securities option
positions, held on his behalf in a non-proprietary cross-margining
account (``cross-margining property'') will be treated in a manner
consistent with the terms of this Order and any other applicable order
issued by the Commission;
(b) Each participating market professional acknowledge and agree in
writing that any cross-margining property held on his behalf by a
participating FCM or a participating B/D affiliated with a
participating FCM will be customer property deemed to be received by
the participating FCM to be accounted for, treated, and dealt with by
such FCM as belonging to such market professional in a manner
consistent with section 4d of the Act;
(c) Each participating market professional agree in writing that,
in the event of the bankruptcy, liquidation, or receivership of or
other proceeding involving the distribution of funds held by a
participating clearing firm against which such market professional has
a customer net equity claim in respect of the cross-margining property,
such claim shall be subordinated to the customer net equity claims of
``public customers,'' as that term is defined in Commission Regulation
190.01(hh), 17 CFR 190.01(hh), of such clearing firm that do not relate
to money, securities, or property in any cross-margining account; and
(d) Each participating market professional acknowledge and agree in
writing that cross-margining property held for or on his behalf will
not be customer property under the Federal securities laws to the
extent necessary to effect this Order and will not be customer property
under subchapter III of chapter 7 of title 11 of the Bankruptcy Code,
11 U.S.C. 741-752 or the Securities Investor Protection Act (``SIPA''),
15 U.S.C. 78aaa et seq., and will not be claimed as such, and will be
customer property under the Act, subchapter IV of chapter 7 of title 11
of the Bankruptcy Code, 11 U.S.C. 761-766, and part 190 of the
Commission's regulations, 17 CFR part 190;
Whereas, each participating market professional which signs such a
participant agreement will be a customer of a participating FCM;
Whereas, each participating clearing firm will treat money,
securities, and property received in respect of all accounts other than
cross-margining accounts in a manner consistent with the requirements
of the Commission and the SEC appropriate thereto;
Whereas, SIPC has represented that it has no objection to the
agreements under which a participating market professional's cross-
margining property would not be deemed to be customer property for the
purposes of SIPA; and
Whereas, the SEC has concurred with the treatment of securities
positions and cross-margining accounts set forth in this Order;
Now Therefore, based on the Record in this matter, and provided
that the cross-margining proposal submitted by CCC and ICC is
implemented consistently with the representations and agreements cited
herein, and provided that:
(a) Each participating clearing organization, participating
clearing firm, and participating market professional execute the
agreements referred to herein;
(b) Each participating clearing organization, participating
clearing firm, and depository separately account for cross-margining
property maintained in non-proprietary cross-margining accounts and not
commingle such cross-margining property with money, securities, and
property maintained in any non-cross-margining accounts or proprietary
cross-margining accounts;
(c) Each participating clearing organization, participating
clearing firm, participating market professional, and depository
provide the Commission with access to its books and records with
respect to non-proprietary cross-margining accounts and positions in a
manner consistent with Commission Regulation 1.31, 17 CFR 1.31;
(d) Each participating clearing firm include all cross-margining
property received from participating market professionals as provided
herein to margin, guarantee, or secure commodity futures trades,
commodity futures contracts, commodity option transactions, or
securities option transactions, or accruing to such participating
market professionals as a result of such trades, contracts, commodity
option transactions, or securities option transactions, when
calculating segregation requirements for the purposes of Section 4d of
the Act;
(e) Each participating clearing firm compute total segregation
requirements under Section 4d of the Act and Commission Regulation
1.32, 17 CFR 1.32, by calculating separately the requirements for
cross-margining and non-cross-margining accounts without using any net
liquidating equity in one account to reduce a deficit in the other;
(f) Each participating clearing firm designate non-proprietary
cross-margining accounts and positions as such in its books and
records, including both internal documents maintained at the firms and
account statements sent to participating market professionals;
(g) Each participating clearing organization calculate the margin
requirements for each non-proprietary cross-margining account
separately from the margin requirements for other accounts, including
proprietary cross-margining accounts; collect any margin required with
respect to non-proprietary cross-margining accounts separately without
applying any margin in any such account to satisfy a margin requirement
in any proprietary account or any non-cross-margining customer account
and without applying any margin in a non-cross-margining customer
account to satisfy a margin requirement in any proprietary account or
any non-proprietary cross-margining account; and maintain all cross-
margining property received from participating clearing firms to
margin, guarantee, or secure commodity futures trades, commodity
futures contracts, commodity option transactions, or securities option
transactions that are effected for non-proprietary cross-margining
accounts or held in such accounts, and all accruals resulting from such
trades, contracts, commodity option transactions, or securities option
transactions, separately from money, securities, and property received
to margin, guarantee, or secure commodity futures trades, commodity
futures contracts, commodity option transactions, or securities option
transactions that are effected for or held in any proprietary account
or any non-cross-margining customer account, and related accruals; and
(h) Each participating clearing organization satisfy any deficiency
in a non-proprietary cross-margining account without recourse to non-
cross-margining segregated funds;
(i) Notwithstanding the foregoing, a participating clearing firm
may commingle cross-margining property maintained in respect of the
non-proprietary cross-margining arrangement among CCC, ICC, and OCC
with money, securities, and property maintained in respect of similar
Commission-approved non-proprietary cross-margining arrangements
between CCC and other commodity clearing organizations, between ICC and
other commodity clearing organizations, or between OCC and other
commodity clearing organizations, and may apply such commingled money,
securities, and property to meet its obligations to a commodity or
option clearing organization arising from trades or positions held in
its non-proprietary cross-margining account established pursuant to one
or more of such cross-margining arrangements, provided that the
participating clearing firm:
(i) Separately identify and account for the money, securities, and
property held pursuant to each of the non-proprietary cross-margining
arrangements; and
(ii) Separately calculate the margin requirements with respect to
each of the non-proprietary-cross-margining arrangements, treating each
position as being held pursuant to only one such arrangement;
It is hereby ordered, Pursuant to section 4d(2) of the Act:
(1) That all money, securities, and property received by a
participating FCM or a participating B/D affiliated with a
participating FCM to margin, guarantee, or secure securities option
trades or contracts carried in a non-proprietary-cross-margining
account for or on behalf of participating market professionals, or
accruing as a result of such trades or contracts, and held subject to
the terms of this Order, shall be deemed to have been received by the
participating FCM and shall be accounted for and treated and dealt with
as belonging to the participating market professional customers of the
participating FCM consistently with section 4d of the Act;
(2) That, subject to the terms of this Order, notwithstanding any
provisions to the contrary in the Commission's regulations (including,
but not limited to, Regulations 1.20(a), 1.22, and 1.24, 17 CFR
1.20(a), 1.22, and 1.24), the money, securities, and property described
in the preceding paragraph of this Order may be commingled in a non-
proprietary cross-margining account with money, securities, and
property received by a participating FCM to margin, guarantee, or
secure trades or positions in eligible commodity futures or commodity
option contracts, or accruing as a result of such trades or contracts,
and otherwise required by the Commission to be segregated under the
Act; and
(3) That, in the event of bankruptcy, liquidation, or receivership
of or other proceeding involving the distribution of funds held by a
participating clearing firm, any customer net equity claim which a
participating market professional has in respect of cross-margining
property held by such participating clearing firm in a non-proprietary
cross-margining account shall be treated as a customer net equity
claim, under part 190 of the Commission's regulations and subchapter IV
of chapter 7 of title 11 of the Bankruptcy Code, but shall be
subordinated to the customer net equity claims of ``public customers,''
as that term is defined in Commission Regulation 190.01(hh), of such
clearing firm that do not relate to cross-margining property.
It is further ordered, Pursuant to section 5a(a)(12)(A) of the Act
and based upon the Commission action in the three preceding paragraphs
of this Order, that the CCC's and ICC's request for Commission approval
of their proposal to establish a CCC-ICC-OCC cross-margining program
for proprietary and market professional accounts and approval of the
related proposed rules and rule amendments is hereby granted.
Issued in Washington, DC, this 28th day of December 1993.
By the Commission,
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-541 Filed 1-10-94; 8:45 am]
BILLING CODE 6351-01-P
