| Changes to Rule 930.C. - Acceptable Performance Bond Deposits: Account Holder Level Recently, the CFTC approved amendments to Rule 930.C. (attached) governing the types of collateral firms may accept from account holders to meet CME performance bond requirements. The amendments allow firms to accept cash (including all foreign currencies), readily marketable securities, and letters of credit for performance bond purposes. These changes were made in recognition of FCMs� requests for greater flexibility in accommodating the growing demands of international customers. Especially with the introduction of new foreign currency-settled contracts such as the 91-Day Mexican Treasury Bill (CETES) and the Mexican domestic interbank rate (TIIE), a generic rule allowing a vast array of performance bond deposits eliminates the regulatory burdens of obtaining approval for specific collateral each time a new contract is introduced. With the introduction of CETES and TIIE contracts, the Audit Department received several inquiries regarding the acceptability of certain foreign-domiciled banks for segregation and capital purposes. As a reminder, CFTC Interpretation 12 states in part that segregated accounts held at foreign-domiciled banks must meet the requirements set forth in CFTC Advisory 87-5 (attached). Generally, the Advisory states that a bank�s commercial paper or long term debt must be rated in one of the two highest rating categories by Standard & Poor�s Corporation or Moody�s Investors Services, Inc. to be automatically recognized as an acceptable depository. If the bank is not rated in one of the two highest categories, FCMs can apply to the CFTC for recognition of the bank as an acceptable depository. The requirements of the application are stated in the Advisory. Note that Interpretation 12 contains other requirements regarding foreign currencies held in segregation such as obtaining subordination agreements from customers and preparing separate foreign currency segregation statements. To be considered allowable for capital purposes, assets deemed "readily marketable" in accordance with SEC regulations held offshore must be held in a major money center. The CFTC has allowed current asset treatment for deposits that are not held in major money centers if the FCM obtains a "comfort letter" from the U.S. branch or U.S. affiliate of the depository. If you are considering depositories not located in a major money center, please consult your DSRO for guidance. For banks located in Mexico, the CME has received CFTC approval to maintain funds with three Mexican banks (Citibank Mexico S.A., Bank of America Mexico S.A., and First Chicago Bank (Mexico), S.A.). Thus, Mexican peso denominated segregated and house funds held by FCMs at these banks are allowable for segregation and capital purposes without further regulatory approval. FCMs desiring to open accounts with other banks located in Mexico must apply to the CFTC for approval in accordance with CFTC Advisory 87-5. If you have any questions, please call the Audit Department at (312) 930-3230 or e-mail us at audits@cme.com.
Rule 930.C - Acceptable Performance Bond Deposits 930. PERFORMANCE BOND REQUIREMENTS: ACCOUNT HOLDER LEVEL C. Acceptable Performance Bond Deposits
Clearing members may accept from their account holders as performance bond cash currencies of any denomination, readily marketable securities (as defined by SEC Rule 15c3-1(c)(11) and applicable SEC interpretations), and bank-issued letters of credit.
Clearing members shall not accept as performance bond from an account holder securities that have been issued by the account holder or an affiliate of the account holder unless the clearing member files a petition with and receives permission from the Clearing House Committee.
Bank-issued letters of credit must be in a form acceptable to the Exchange. Such letters of credit must be drawable in the United States. Clearing members shall not accept as performance bond from an account holder letters of credit issued by the account holder, an affiliate of the account holder, the clearing member, or an affiliate of the clearing member.
All assets deposited by account holders to meet performance bond requirements must be and remain unencumbered by third party claims against the depositing account holder.
Except to the extent that the Clearing House Committee shall prescribe otherwise, performance bond deposits other than U.S. dollars and letters of credit shall be valued at an amount not to exceed market value less applicable haircuts as set forth in SEC Rule 240.15c3-1.
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CFTC Advisory 87-5 CFTC Advisory 87-5. (Recognition of an FCM's Overseas Bank as a Designated Depository for a Separate Account under Rule 30.7(c)(i) of the Foreign Futures and Options Rules.) Commodity Futures Trading Commission. Division of Trading and Markets. December 3, 1987.
Advisory in full text. Rules - Foreign Transactions - Overseas Bank - Designated Depository. - In order to respond to inquiries regarding the distinction between the designated depositories of a member of a foreign board of trade or a foreign clearing organization and an FCM's designated overseas depository recognized by the Commission, the Division of Trading and Markets has issued Advisory 87-5. The advisory also clarifies the procedures pursuant to which a bank or trust company located outside the U.S., its territories or possessions may be recognized for purposes of the separate account requirement. On July 23, 1987, the Commodity Futures Trading Commission ("Commission") adopted final rules governing the domestic offer and sale of futures and options contracts traded on or subject to the rules of a foreign board of trade. 52 Fed. Reg. 28980 (August 5, 1987). Among other things, the rules provide for the protection of those funds constituting the foreign futures or foreign options customer's "secured amount." 1 Under the rules, futures commission merchants ("FCMs") are required to maintain the secured amount in a separate account at only those depositories specified under rule 30.7(c). 52 Fed. Reg. at 29000. Specifically, rule 30.7(c) provides, in part, as follows: The separate account or accounts referred to in paragraph (a) of this section must be maintained under an account name that clearly identifies them as such, with any of the following depositories: (i) a bank or trust company located in the United States or as designated; (ii) another person registered as a futures commission merchant; (iii) the clearing organization of any foreign board of trade; (iv) any member of such board of trade; or (v) such member of clearing organization's designated depositories.......(emphasis added). To respond to inquires regarding the distinction between the designated depositories of a foreign exchange member firm or clearing organization which are recognized depositories under rule 30.7(c)(v) and a bank or trust company located outside the U.S., its territories or possessions designated by an FCM as its depository which must first be recognized by the Commission under rule 30.7(c)(i), the Division of Trading and Markets, pursuant to delegated authority, is publishing the advisory herein.2 The advisory also clarifies the procedures pursuant to which a bank or trust company located outside the U.S., territories or possessions may be recognized for purposes of rule 30.7(c)(i). Distinction between (1) designated depository of a member of a foreign board of trade or a foreign clearing organization and (2) an FCM's designated overseas depository recognized by the Commission. A designated depository of a member of a foreign board of trade or a foreign clearing organization for purposes of holding margin or other required funds deposited with such foreign exchange member or clearing association consistent with the laws of the jurisdiction where such member or clearing organization is located, and any rules or regulation to which such member or clearing organization is subject. Because the legislative history of section 4(b) of the Commodity Exchange Act ("Act"), U.S.C. �6(b) (1982), generally suggests that the Commission take cognizance of foreign requirements with respect to segregation in adopting its own rules, the Commission adopted a rule which does not, in the first instance, require it to directly designate the depositories of foreign exchange member firms and foreign clearing organizations to which an FCM may transfer funds in respect of foreign futures and options customers. 3 Instead, the Commission has determined at this time on to seek notification through its revised Form 1-FR of the location of funds deposited in respect of foreign futures or option customers to the extent such funds are deposited directly with a foreign exchange member firm or clearing organization.4 Specifically, proposed revisions to the Commission's Form 1-FR would require FCMs to disclose the identity of, among other depositories, any foreign exchange member firm, foreign clearing association and their depositories at which such funds are held. However, the Commission expects to monitor the use of such depositories and my revisit the issue of whether additional criteria should be applied to determine whether such depositories are appropriate for the transfer of U.S. customer funds in respect of foreign futures and options transactions. To the extent that and FCM maintains customer deposits in a separate account at a bank or trust company outside the U.S., its territories or possessions from which funds are transferred to a foreign exchange member firm, foreign clearing association or their respective depositories, the Commission, by rule 30.7(c)(i), has determined that such bank or trust company of the FCM must first be recognized. In that connection, any bank or trust company located outside the U.S., its territories or possessions designated by an FCM whose commercial paper or long term debt is rate in one of the two highest rating categories by Standard & Poor's Corporation or Moody's Investors Service, Inc. is deemed automatically recognized.5 All other such banks or trust companies may be considered recognized only in accordance with the procedures adopted by the Division of Trading and Markets as hereinafter set forth. Recognition of and overseas bank designated by and FCM as its depository pursuant to rule 30.7(c)(i) for purposes of the separate account requirement. An applicant by an FCM for the recognition of a bank or trust company depository located outside the U.S., its territories or possessions which is not rated in on of the two highest categories by Standard and Poor's Corporation or Moody's Investors Service, Inc. must include the following information: (1) A statement by the FCM that it has obtained from such bank or trust company and will retain in its files for the period provided in �1.31 of the Commission's regulations, 17 C.F.R. �1.31 (1987), an acknowledgement that such bank or trust company was informed that: a) the money, securities or property deposited in the separate account are held for, or on behalf of foreign futures and foreign options customers and are being held in accordance with thee provisions of Regulation 30.7, and that b) such money, securities or property are not subject to any right, charge, security interest, lien or claim of any kind by the bank or trust company; (2) The name, address and principal place of business of the bank or trust company; the name, address, and principal place of business of the bank or trust company's parent firm or company (if any); the name, address and principal place of business of the bank or trust company's affiliate or subsidiary located in the United States (if any); and the name and address of the bank or trust company location where records of the separate account are kept; (3) The name, title, address and telephone number of an officer or other contact person at the bank or trust company; (4) The name and address of the government agency or regulatory authority which supervises the bank or trust company; and (5) The current rating by Standard & Poor's Corporation, Moody's Investors Service, Inc. or other rating service of the bank or trust company's commercial paper or long term debt, if applicable. Such bank or trust company shall be deemed recognized unless the Division of Trading and Markets gives the FCM notice to the contrary, which notice shall be complete upon mailing, within 60 days of the first business day following actual receipt of the application.6 All such applications for recognition of a bank or trust company located outside the U.S., its territories or possessions designated by an FCM as its depository shall be filed with the Office of the Secretariat, Commodity Futures Trading Commission Attn: Division of Trading and Markets, 2033 K Street, N.W., Washington, D.C. 20581, with a copy to Daniel A. Driscoll, Vice President-Compliance, National Futures Association, 200 W. Madison Street, Suite 1600, Chicago, Illinois 60606. ____________________________________________ 1 Rule 1.3(rr), 52 Fed. Reg. at 28994, defines the foreign futures or foreign options secured amount as: [A]ll money, securities and property held by or held for or on behalf of a futures commission merchant from, for, or on behalf of foreign futures or foreign options customers as defined in � 30.1 of this chapter: (1) In the case of foreign futures customers, money, securities and property required by a futures commission merchant to margin, guarantee, or secure open foreign futures contracts plus or minus any unrealized gain or loss on such contracts; and (2) In the case of foreign options customers in connection with open foreign options transactions money, securities and property representing premiums paid or received, plus any other funds required to guarantee or secure open transactions plus or minus any unrealized gain or loss on such transactions. 2 The order of delegation was approved by the Commission on December 3, 1987. Copies of the order may by obtained from the Office of the Secretariat, Commodity Futures Trading Commission, 2033 K Street, N.W., Washington, D.C. 20581. 3 See S. Rep. No. 384, 97th Cong. 2d Sess. 45-46 (1982). 4 The Commission may, of course, impose certain conditions on an FCM's ability to transfer funds constituting the secured amount to a foreign clearing member, foreign clearing association or their respective depositories should the facts warrant the imposition of such conditions. 5 Such bank or trust company must remain so rated in order to be deemed automatically recognized. to top |