Appendix B to Part 190 - Special Bankruptcy Distributions
17:2.0.1.1.33.0.1.11.28 : Appendix B
Appendix B to Part 190 - Special Bankruptcy Distributions Framework
1 - Special Distribution of Customer Funds for Futures Contracts
When FCM Participated in Cross-Margining
The Commission has established the following distributional
convention with respect to “customer funds” (as § 1.3 of this
chapter defines such term) for futures contracts held by a futures
commission merchant (FCM) that participated in a cross-margining
(XM) program which shall apply if participating market
professionals sign an agreement that makes reference to this
distributional rule and the form of such agreement has been
approved by the Commission by rule, regulation or order:
All customer funds for futures contracts held in respect of XM
accounts, regardless of the product that customers holding such
accounts are trading, are required by Commission order to be
segregated separately from all other customer segregated funds. For
purposes of this distributional rule, XM accounts will be deemed to
be commodity interest accounts and securities held in XM accounts
will be deemed to be received by the FCM to margin, guarantee or
secure commodity interest contracts. The maintenance of property in
an XM account will result in subordination of the claim for such
property to certain non-XM customer claims and thereby will operate
to cause such XM claim not to be treated as a customer claim for
purposes of the Securities Investors Protection Act and the XM
securities to be excluded from the securities estate. This creates
subclasses of futures customer accounts, an XM account and a non-XM
account (a person could hold each type of account), and results in
two pools of segregated funds belonging to futures customers: An XM
pool and a non-XM pool. In the event that there is a shortfall in
the non-XM pool of customer class segregated funds and there is no
shortfall in the XM pool of customer segregated funds, all futures
customer net equity claims, whether or not they arise out of the XM
subclass of accounts, will be combined and will be paid pro
rata out of the total pool of available XM and non-XM customer
funds for futures contracts. In the event that there is a shortfall
in the XM pool of customer segregated funds and there is no
shortfall in the non-XM pool of customer segregated funds, then
futures customer net equity claims arising from the XM subclass of
accounts shall be satisfied first from the XM pool of customer
segregated funds, and futures customer net equity claims arising
from the non-XM subclass of accounts shall be satisfied first from
the non-XM customer segregated funds. Furthermore, in the event
that there is a shortfall in both the non-XM and XM pools of
customer segregated funds: (1) If the non-XM shortfall as a
percentage of the segregation requirement in the non-XM pool is
greater than or equal to the XM shortfall as a percentage of the
segregation requirement in the XM pool, all futures customer net
equity claims will be paid pro rata; and (2) if the XM
shortfall as a percentage of the segregation requirement in the XM
pool is greater than the non-XM shortfall as a percentage of the
segregation requirement of the non-XM pool, non-XM futures customer
net equity claims will be paid pro rata out of the available
non-XM segregated funds, and XM futures customer net equity claims
will be paid pro rata out of the available XM segregated
funds. In this way, non-XM customers will never be adversely
affected by an XM shortfall.
The following examples illustrate the operation of this
convention. The examples assume that the FCM has two customers, one
with exclusively XM accounts and one with exclusively non-XM
accounts. However, the examples would apply equally if there were
only one customer, with both an XM account and a non-XM
account.
[77 FR 6386, Feb.
7, 2012]