I am pleased to support today’s final rule amending the Commission’s regulations governing the bankruptcy proceedings of commodity brokers.[1]  This rulemaking makes the first comprehensive change to these regulations since they were first issued in 1983.  I commend both Chairman Tarbert for his leadership in continuing the Commission’s rulemaking agenda and former Chairman Giancarlo for laying the groundwork for this important rulemaking when he launched the CFTC’s Project KISS initiative.[2] 

I am pleased that today’s final rule carefully took into consideration comments from FCMs, DCOs, asset managers and other market participants.  I would like to highlight a few aspects of today’s final rule.  The rulemaking reaffirms the special treatment the U.S. Bankruptcy Code affords to the customer account of an insolvent commodity broker, so that customers’ positions can promptly be transferred.[3]  The Commission is, for the first time, issuing rules specific to an insolvent DCO, which are similar to the rules applicable to an insolvent FCM.  Next, taking advantage of the Commission’s experience with a few insolvent FCMs over the past decades, the final rule provides deference to the trustee that a U.S. Bankruptcy Court appoints to oversee the proceedings of an insolvent commodity broker.  This increased deference is intended to expedite the transfer of customer funds.  In response to comments from the asset management community, the final provisions provide additional guidance on how a trustee should balance various interests in seeking to protect public customers.[4]  In light of the Commission’s experience from the bankruptcy of MF Global in 2011, the new bankruptcy rules generally treat letters of credit equivalently to other collateral posted by customers, so that the pro rata distribution of customer property in the event of a shortfall in the customer account will apply equally to all collateral.  The final rule also reflects experience from MF Global by dividing the delivery account into “physical delivery” and “cash delivery” account classes.  Property other than cash is generally easier to trace, so it should have the benefit of a separate account class.  Finally, the final rule’s revised treatment of the “delivery account,” applicable in the context of physically-settled futures and cleared swaps, will apply not only to tangible commodities, as is currently the case, but also to digital assets.  This amendment will provide important legal certainty to the growing exchange-traded market for cleared, physically-settled, digital asset derivatives.

I acknowledge that the asset management community has raised concerns with certain existing DCO rules that would be recognized in the bankruptcy of an FCM or DCO.  I would support an on-going dialogue between the DCOs and their members and customers on resolution and resiliency concerns.

[1] Part 190 of the Commission’s regulations (17 C.F.R. 190).

[2] CFTC Requests Public Input on Simplifying Rules, https://www.cftc.gov/PressRoom/PressReleases/pr7555-17.

[3] 11 U.S.C. § 761 et seq.

[4] Reg. 190.00(c)(3)(i)(C).