| Recently, we have received several questions regarding the treatment of deposits at foreign banks. The purpose of this bulletin is to summarize the current regulatory treatment of these investments. Customer Segregated and Secured 30.7: In order to hold segregated and secured deposits offshore, foreign-domiciled banks must meet the requirements established in CFTC Regulation 30.7(c) and Advisories No. 87-5 and No. 88-7 (attached). In brief, these advisories require a bank's long-term debt or commercial paper to be rated in one of the two highest rating categories by Standard & Poor's Corporation or Moody's Investors Service, Inc. However, if the bank is not rated in one of the two highest categories, an FCM may apply to the Commission for specific recognition as an acceptable depository. Further, segregated accounts at foreign-based banks must either be located in the country of origin of the applicable currency or located in a country in which the CFTC has an information sharing agreement. A current list of countries in which the Commission has an information agreement may be found at www.cftc.gov. Finally, pursuant to CFTC Interpretation No. 12, segregated U.S. dollar cash deposits must be held in the United States. Net Capital: To be considered allowable for capital purposes, offshore deposits must be held by a financial institution with net assets in excess of $100 million and in a major money center.' An authority of a sovereign national government must also supervise this institution. If funds are held in a foreign branch of a domestic or foreign bank, the U.S. or foreign bank must meet the segregated, secured, and net capital requirements described above. However, if the foreign bank is a separate and legal subsidiary of a domestic or foreign bank, the net asset and long-term debt requirements are based upon the subsidiary's financial position. As a result, it is critical to determine the legal relationship for proper regulatory treatment. Therefore, a foreign domiciled bank with less than $100 million in net assets whose long-term debt or commercial paper is rated in the two highest categories, is a proper depository for segregated and secured purposes, but not for regulatory capital computations. Finally, various U.S. and foreign banks have relationships in areas such as Nassau and the Cayman Islands. Currently, these areas are not considered major money market centers. However, these investments may be allowable for regulatory capital, provided the funds are unconditionally guaranteed by a U.S. bank or a New York foreign branch. If you have any questions, please call the Audit Department at (312) 930-3230 or e-mail us at audits@cme.com. | 