At the Commodity Futures Trading Commission (CFTC) open meeting on April 14, the CFTC unanimously approved proposed amendments to Part 190 of its rules governing bankruptcy proceedings of commodity brokers, including futures commission merchants (FCMs) and derivatives clearing organizations (DCOs). The proposed amendments are intended to comprehensively update Part 190 to reflect current market practices. Among other revisions, the proposed amendments to Part 190 would:
- confirm that shortfalls in segregated property should be made up from a FCM’s general assets;
- establish a policy preference for transferring (as opposed to liquidating) positions of public customers and those customers’ proportionate share of associated collateral;
- establish a new subpart C to Part 190 governing the bankruptcy of DCOs, which would establish the approach to be taken to foster prompt action in the event such a bankruptcy occurs. Among other things, the trustee would be directed to follow, to the extent appropriate, the DCO’s pre-existing default management rules and procedures and recovery and wind-down plans that have been submitted to the CFTC. Likewise, with respect to assets that are intended to flow through to members as part of daily settlement (including both daily variation payments and default resources), the trustee would be directed to devote these assets to that purpose, rather than to the general estate. Other provisions of proposed Subpart C would draw on provisions of Part 190 that are applicable to FCMs;
- generally enhance the discretion granted to bankruptcy trustees to adapt to the unique characteristics of a particular commodity broker bankruptcy; and
- clarify text in existing provisions of Part 190.
The comment period on the proposed amendments expires July 13, 2020.
The CFTC press release with a link to the proposed amendments is available here.