e9-10459

[Federal Register: May 7, 2009 (Volume 74, Number 87)]

[Proposed Rules]

[Page 21290-21294]

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

[DOCID:fr07my09-20]

=======================================================================

-----------------------------------------------------------------------

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: Notice of proposed rulemaking; request for comments.

-----------------------------------------------------------------------

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

proposes to amend its regulations that prescribe minimum adjusted net

capital (``ANC'') requirements for futures commission merchants

(``FCMs'') and introducing brokers (``IBs''). The proposed amendments

would increase the required minimum dollar amount of ANC, as defined in

the regulations, that an FCM must maintain from $250,000 to $1,000,000.

The proposed amendments also would increase the required minimum dollar

amount of ANC that IBs must maintain from $30,000 to $45,000. The

Commission also is proposing to amend the computation of an FCM's

margin-based minimum ANC 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''). In addition, the

Commission is proposing to amend the regulations to require that FCM

proprietary cleared OTC derivative positions be subject to capital

deductions in a manner that is consistent with the capital deductions

required by the Commission's regulations for FCM proprietary positions

in exchange-traded futures contracts and options contracts. Further,

the Commission proposes to 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 customer accounts from eight percent to ten percent and in

noncustomer accounts from four percent to ten percent. Lastly, the

Commission solicits public comments on the advisability of increasing

the ANC requirement for FCMs that are also securities brokers and

dealers by the amount of net capital required by the Securities and

Exchange Commission (``SEC'') Rule 15c3-1(a).

DATES: Submit comments on or before July 6, 2009.

ADDRESSES: You may submit comments, identified by RIN number, by any of

the following methods:

Federal eRulemaking Portal: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov http://www.regulations.gov.

Follow the instructions for submitting comments.

Agency Web Site: http://www.cftc.gov. Follow the

instructions for submitting comments on the Web site.

E-mail: secretary@cftc.gov. Include the RIN number in the

subject line of the message.

Fax: 202-418-5521.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

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: tdiaz@cftc.gov or Mark Bretscher,

Special Counsel, 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: mbretscher@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Minimum Financial Requirements for FCMs and IBs

Section 4f(b) of the Commodity Exchange Act (``Act'') provides that

FCMs and IBs must meet the minimum financial requirements that the

Commission ``may by regulation prescribe as necessary to insure'' that

FCMs and IBs meet their obligations as registrants.\1\ FCMs are subject

to higher 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 positions with a DCO. In addition, Section 4d

of the Act and the Commission's regulations provide

[[Page 21291]]

further protection for customer funds by requiring that they be held as

``segregated'' funds that are separate and apart from the FCM's own

proprietary funds. Part 30 of the Commission's regulations also

requires FCMs to hold ``secured amount'' funds for U.S. customers

trading in non-U.S. futures markets.

---------------------------------------------------------------------------

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

regulations cited herein may be found at 17 CFR Ch. I (2008).

---------------------------------------------------------------------------

As specified in Commission Regulation 1.17(a), the minimum dollar

amount of ANC that FCMs and IBs must maintain is $250,000 and $30,000,

respectively. The minimum ANC requirements in Commission Regulation

1.17(a) also set forth other computations which, if greater, will

increase the minimum capital requirement for the FCM or IB.

Specifically, the relevant provisions of Regulation 1.17(a)(1)(i)

require an FCM to maintain ANC equal to or in excess of the greatest

of: $250,000; the FCM's margin-based or ``risk-based'' capital

requirement, which is computed 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 ANC required by a registered

futures association of which the FCM 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 240.15c3-1(a). For an IB, Commission

Regulation 1.17(a)(1)(iii) requires ANC that equals or exceeds the

greatest of: $30,000; the amount of ANC required by a registered

futures association of which the IB is a member; or for an IB also

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

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

The minimum ANC requirements of $30,000 for IBs and $250,000 for

FCMs were adopted by the Commission over a decade ago,\2\ and are no

longer consistent with the regulatory objective of requiring these

registrants to maintain a minimum base of liquid capital from which to

meet their current financial obligations, including obligations to

customers. Adopting increased minimum ANC requirements for registrants

whose customers engage in exchange-traded futures activity would

recognize the striking increase over the past decade in the amount of

funds that such customers have deposited with their FCMs. As of August

31, 1995, approximately $30 billion of segregated and secured amount

funds were required to be held by FCMs for their customers, at a time

when there were 255 FCMs. As of December 31, 2008, the total amount of

such funds had escalated to approximately $200 billion, which 134 FCMs

were required to hold for their customers. Thus, not only has there

been a dramatic increase in the amount that FCMs must hold as

segregated and secured amount funds for their customers, but those

funds have become concentrated among far fewer FCMs, further supporting

additional measures to ensure the sound financial strength of such

firms.\3\

---------------------------------------------------------------------------

\2\ The Commission increased the minimum ANC requirements of IBs

and FCMs to $30,000 and $250,000 in May of 1996. See 61 FR 19177

(May 1, 1996).

\3\ The Commission also notes that Congress recently recognized

the importance of appropriate minimum capital requirements for

registrants with obligations to customers by establishing a $20

million capital requirement for retail over-the-counter forex firms.

---------------------------------------------------------------------------

Other considerations also support the proposed increase in FCM and

IB minimum dollar amount ANC requirements. As noted above, one of the

factors in determining the minimum ANC requirements for FCMs and IBs is

the minimum requirement imposed by a registered futures association of

which the FCM or IB is a member. The National Futures Association

(``NFA'') is the only registered futures association, and Commission

Regulation 170.15(a) requires each registered FCM to be a member of a

registered futures association. All registered IBs are also members of

the NFA. On July 31, 2006, NFA's amendments to Section 1 of its

Financial Requirements became effective, increasing its FCM members'

minimum ANC requirement from $250,000 to $500,000, and increasing the

required minimum dollar amount of ANC for member IBs from $30,000 to

$45,000. Consequently, when the NFA amended the minimum dollar amount

of ANC required of its member FCMs and IBs on July 31, 2006, the

required dollar level of minimum ANC for all FCMs and IBs increased to

$500,000 and $45,000 respectively. Therefore, the Commission's proposal

to increase the minimum dollar ANC requirement of IBs to $45,000 merely

harmonizes its regulations with NFA rules, which will simplify the

capital calculations of IBs. Lastly, Commission staff notes that the

number of FCMs that may have to add capital as a result of the proposed

ANC requirement of $1,000,000 is minimal and that the proposed

increased ANC requirement is appropriate for the reasons discussed

above. Accordingly, the Commission is proposing to amend Regulation

1.17(a)(1)(iii)(A) to raise the minimum dollar amount of required ANC

to $45,000 for IBs, and to amend Regulation 1.17(a)(1)(i)(A) to raise

the minimum dollar amount of required ANC for FCMs to $1,000,000. The

Commission is also proposing additional increases to ANC requirements

for FCMs, as discussed below.

II. Proposed Amendment To Include Cleared OTC Positions in the

Calculation of an FCM's Minimum Net Capital Requirement

The Commission's minimum financial requirements provide protection

to customers and other market participants by requiring FCMs and IBs to

maintain minimum levels of liquid assets in excess of their liabilities

to finance their business activities. In 2004, the Commission amended

Regulation 1.17(a)(1)(i)(B) to include a ``risk-based'' computation

based on the margin, or performance bond, requirements for the FCM's

customers and noncustomers. Specifically, Commission Regulation

1.17(a)(1)(i)(B) requires an FCM to compute its risk-based capital

requirement as the sum of: (1) Eight percent of the total risk margin

\4\ requirement for positions carried by the FCM in ``customer

accounts'', as defined in Regulation 1.17(b)(7), and (2) four percent

of the total risk margin requirement for positions carried by the FCM

in ``noncustomer accounts'', as defined in Regulation 1.17(b)(4). 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). 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.

---------------------------------------------------------------------------

\4\ The term ``risk margin'' is defined at Commission Regulation

1.17(b)(8).

---------------------------------------------------------------------------

In adopting risk-based capital requirements in Regulation 1.17 with

respect to the futures and options positions of FCM customers and

noncustomers, the Commission noted that the amendments included any

customer positions, including non-futures positions, that were held in

customer segregated accounts established in accordance with the

provisions of Section 4d of the Act and Commission regulations. Various

DCOs,

[[Page 21292]]

as part of their increasing efforts to clear OTC derivative

instruments,\5\ 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.\6\ 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 deemed it necessary to include OTC

customer positions in the definition of ``customer accounts'' for

purposes of computing an FCM's risk-based capital requirement.

---------------------------------------------------------------------------

\5\ OTC derivative instrument is defined by Section 408(2) of

the Federal Deposit Insurance Corporation Improvement Act, 12

U.S.C.A. 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.''

\6\ 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.

---------------------------------------------------------------------------

The Commission now proposes further amendments to Regulation 1.17,

in order to require FCMs to account for all cleared OTC derivative

positions the FCM carries for customers, whether or not included in a

Section 4d segregated customer account, in the FCM's risk-based capital

calculations. The proposed amendments would apply to OTC derivative

instruments cleared in either the U.S. or abroad by any organization

that is permitted to clear such products under the laws of the relevant

jurisdiction.\7\ As drafted, the proposed capital requirements would

also apply to credit default swaps, if these OTC derivative instruments

are submitted for clearing on any U.S. DCO or foreign clearing

organization and carried in accounts on the books of the FCM.

---------------------------------------------------------------------------

\7\ Some examples of OTC-clearing by foreign clearing

organizations include ICE, which clears through IceClear Europe, and

Bclear, an exchange service launched by Euronext/Liffe, which brings

derivatives transactions to LCH.Clearnet for clearing. The proposed

rule would also include OTC-clearing by multilateral clearing

organizations authorized under Section 409 of the Federal Deposit

Insurance Corporation Improvement Act and any securities clearing

organization.

---------------------------------------------------------------------------

The Commission is proposing these amendments because FCMs and DCOs

have become significant clearers of OTC derivative instruments. This

has increased the risk exposure of FCMs in a manner that is not

currently reflected in Regulation 1.17. Therefore, the Commission

proposes to amend Regulation 1.17 in order to expand the definitions of

``customer account'' in Regulation 1.17(b)(7), ``noncustomer account''

in Regulation 1.17(b)(4), and ``proprietary account'' in Regulation

1.17(b)(3) to include cleared OTC derivative positions. Cleared OTC

derivative positions would be defined in proposed Regulation 1.17(b)(9)

as over the counter derivative instrument positions of any person \8\

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, Commission Regulation 1.17(b)(2)

is proposed to be amended to include references to ``cleared OTC

customers'', which would be defined in a proposed new paragraph (b)(10)

to mean any person that is not a proprietary person as defined in

Commission Regulation Sec. 1.3(y) and for whom the FCM carries on its

books one or more accounts for such person's OTC-cleared derivative

positions. Finally, the Commission is also proposing to amend

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. The Commission notes that pursuant to the proposed

rulemaking, capital deductions to be applied to cleared OTC derivative

positions in proprietary accounts do not apply to ``covered''

positions, as that term is defined in Commission Regulation 1.17(j).

Therefore, the Commission is soliciting comments on the advisability of

revising Commission Regulation 1.17(j) to reflect that cleared OTC

positions in proprietary accounts may be covered by positions which

would qualify as cover for proprietary futures and options positions.

---------------------------------------------------------------------------

\8\ The term ``person'' is defined in CFTC Regulation. 1.3(u).

---------------------------------------------------------------------------

The proposed amendments continue the Commission's efforts to

enhance and update the Commission's ANC regulation to reflect the

increasing diversity of positions that are submitted for clearing by

clearing FCMs for their customers and noncustomers. In contemplation of

this proposed rule making, the Commission notes that the clearinghouses

that clear these OTC derivative instruments typically already require

margin for both exchange-traded and OTC positions, regardless of

whether the positions are held in customer segregated accounts.

Furthermore, the margin requirements for cleared OTC derivative

positions are often calculated in the same manner as that for exchange-

traded products. As such, it is quite appropriate to include cleared

OTC derivative positions in the calculation of an FCM's minimum ANC.

However, to ensure adequate capital requirements where the

clearinghouse imposes margin or performance bond requirements only for

clearing level accounts but does not prescribe minimum margin

requirements for customer or noncustomer accounts at the FCM level, the

Commission also proposes to amend the definition of ``risk margin'' in

Commission Regulation 1.17(b)(8) to mean ``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 customer and noncustomer positions in accounts carried by the FCM.''

III. Proposed Amendment To Increase Applicable Percentage for Customer

and Noncustomer Positions

As noted above, currently, an FCM's risk-based capital calculations

includes a lower required percentage of risk maintenance margin for

noncustomer

[[Page 21293]]

positions (four percent) than the required percentage for the same

positions in customer accounts (eight percent). The Commission believes

that rigorous standards for FCM financial strength support the increase

of the required percentages. As such, the Commission is proposing to

amend Regulation 1.17 so that an FCM's risk-based capital requirement

is ten percent of the total risk margin requirement for positions

carried by the FCM in both ``customer accounts'', as defined in

Regulation 1.17(b)(7), and ``noncustomer accounts'', as defined in

Regulation 1.17(b)(4).

With respect to noncustomer accounts, the Commission notes that in

general non-customers are persons affiliated with the FCM including

certain employees and officers of the FCM. In adopting this lower

percentage for noncustomer positions, the Commission noted that these

percentages were the same as those contained in the self-regulatory

organization rules upon which the Commission's regulation was modeled,

and that it was the belief of these self-regulatory organizations that

noncustomers' accounts reflected less credit risk to FCMs and the

clearing system. In more recent times, the Commission has observed that

the risk associated with noncustomer accounts may not necessarily be

less than the risk associated with customer accounts under conditions

of financial stress for the FCM. Therefore, to increase the financial

integrity of the futures markets, the Commission is proposing to amend

Regulation 1.17 to apply the same percentage requirement for both

customer and noncustomer accounts. As part of its assessment of the

proposed amendments, the Commission has been advised by staff that,

based on the information included in financial reports filed by FCMs

with the Commission, it appears that some FCMs whose minimum capital

requirements are determined under the risk-based computations do not

currently hold sufficient levels of capital to satisfy the proposed

amended requirements, but that the overwhelming majority do hold levels

of capital that are sufficient to satisfy the proposed new

requirements.

IV. Proposed Effective Date

Because some FCMs may need time to raise additional capital, the

Commission is contemplating making the effective date for any final

rule amendments to Regulation 1.17 that it adopts effective 60 days

from the date of publication of the final regulations in the Federal

Register.

V. Solicitation of Comments

The Commission requests comments on each of the proposed amendments

to Regulation 1.17 that are described in this release, and also as to

the proposed effective date. The Commission is further soliciting

comments on the advisability of expanding ANC requirements for FCMs

that are also securities brokers and dealers (``FCM/BDs''), by

increasing their ANC by the amount of net capital required by SEC Rule

15c3-1(a). Currently, Commission Regulation 1.17 and SEC Regulation

15c3-1 require FCM/BDs to compare the amounts of capital required under

the SEC's and Commission's regulations, and to maintain capital in

excess of whichever amount is greater.

The Commission notes that in event of liquidation, the adjusted net

capital of an FCM that is also a securities broker and dealer is

available to satisfy any unsecured claims of creditors, including any

unsecured claims of both its futures and securities customers. The

equity available to satisfy such unsecured claims of customers, would

be increased if the FCM/BD's capital requirement was not based only on

the higher of the CFTC's or SEC's requirements, but rather the combined

requirements of the two regulations. This would help ensure that the

FCM/BD's capital requirements reflected more fully the scope of

customer activity by both its securities and futures customers.

Therefore, the Commission is soliciting comments on the advisability of

increasing ANC requirements of FCMs that are also securities brokers

and dealers by the amount of net capital required by SEC Rule 15c3-

1(a).

VI. Related Matters

A. Regulatory Flexibility Act

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

requires that agencies, in proposing rules, consider the impact of

those rules on small businesses. The rule amendments proposed herein

would affect FCMs and non-guaranteed IBs. 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.\9\

---------------------------------------------------------------------------

\9\ See 47 FR 18618, 18619 (Apr. 30, 1982).

---------------------------------------------------------------------------

With respect to IBs, the Commission stated that it is appropriate

to evaluate within the context of a particular rule proposal whether

some or all IBs should be considered to be small entities and, if so,

to analyze the economic impact on such entities at that time.\10\ The

proposed amendment to the minimum ANC requirement for an IB would

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

should have no impact on an IB's financial operations. Thus, if

adopted, the proposal would not have a significant economic impact on a

substantial number of IBs. Therefore, pursuant to Section 3(a) of the

RFA, 5 U.S.C. 605(b), the Chairman certifies that these proposed rule

amendments will not have a significant economic impact on a substantial

number of small entities.

---------------------------------------------------------------------------

\10\ See 48 FR 35248, 35275-78 (Aug. 3, 1983).

---------------------------------------------------------------------------

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1990, (``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. The proposed inclusion

of OTC-cleared products in the risk-based net capital calculation

requires no change in line item 22A of the Statement of the Computation

of Minimum Capital Requirements on Form 1-FR-FCM. There is a change to

Line 22.B as a result of increasing the minimum dollar requirement to

$1,000,000, however, this is a minor change and would not alter the

reporting burden. The proposed 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. Therefore, the amendments

proposed herein have minimal burden.

Persons wishing to comment on the estimated paperwork burden

associated with these proposed rule amendments should contact Mark

Bretscher, Division of Clearing and Intermediary Oversight, 525 W.

Monroe St., Chicago, IL 60661, (312) 596-0529.

C. Cost-Benefit Analysis

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

Commodity Futures Modernization Act,\11\ 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

[[Page 21294]]

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.

---------------------------------------------------------------------------

\11\ 7 U.S.C. 19(a).

---------------------------------------------------------------------------

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 proposed 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 no effect on

the following areas: efficiency, competitiveness or price discovery.

Specifically, if adopted, the proposed amendments will increase the

minimum required dollar amount of ANC for FCMs from $250,000 to

$1,000,000; increase the minimum required dollar amount of ANC for IBs

from $30,000 to $45,000; require an FCM's risk based capital

computation to include risk margin for OTC-cleared positions; and

increase from 4 percent and 8 percent to 10 percent the applicable

percentage of risk margin for all noncustomer and customer positions

held by the FCM respectively.

After considering these factors, the Commission has determined to

propose the amendments to Regulation 1.17 discussed above. The

Commission invites public comment on its application of the cost-

benefit provision. Commenters also are invited to submit any data that

they may have quantifying the costs and benefits of the proposed

amendments with their comment letters.

List of Subjects in 17 CFR Part 1

Brokers, Commodity futures, Minimum financial requirements,

Reporting and recordkeeping requirements.

In consideration of the foregoing and pursuant to the authority

contained in the Commodity Exchange Act and, in particular, Sections

4f, 4g and 8a(5) thereof, 7 U.S.C. 6f, 6g and 12a(5), the Commission

hereby proposes to amend 17 CFR part 1 as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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).

2. Section 1.17 is amended by:

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

(a)(1)(iii)(A);

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

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

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

d. Revising 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 ten 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) * * *

(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 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 April 30, 2009 by the Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. E9-10459 Filed 5-6-09; 8:45 am]

BILLING CODE P

Last Updated: May 9, 2012