Commodity Futures Trading Commission 17 CFR Parts 1, 30, and 190 Denomination of Customer Funds and Location of Depositories

[Federal Register: February 4, 2003 (Volume 68, Number 23)]
[Rules and Regulations]
[Page 5545-5562]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe03-6]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 30, and 190

RIN 3038-AB31

Denomination of Customer Funds and Location of Depositories

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission ("Commission" or
"CFTC") is adopting a new Rule 1.49 that permits futures commission
merchants and derivatives clearing organizations, under certain
conditions, to deposit customer funds in foreign depositories and in
certain currencies other than United States dollars. The Commission is
also adopting an amendment to Appendix B of its bankruptcy rules that
governs the distribution of property where the bankrupt futures
commission merchant or derivatives clearing organization maintains
customer property in depositories outside the United States or in a
foreign currency. This new distributional framework is intended to
assure that customers whose funds are held in a United States
depository will not be adversely affected by a shortfall in the pool of
funds held in a depository outside the United States that is due to the
sovereign action of a foreign government or court. The rule replaces
Financial and Segregation Interpretation No. 12.

EFFECTIVE DATE: March 6, 2003.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Deputy Director,
Compliance and Registration Section, or Michael A. Piracci, Attorney-
Advisor, Division of Clearing and Intermediary Oversight, and for
further information regarding amendments to appendix B of part 190,
contact Robert B. Wasserman, Associate Director, Division of Clearing
and Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Background

One of the most important functions of the Commodity Exchange Act
(the "Act")\1\ and the rules thereunder is the protection of customer
funds. Section 4d(a)(2) of the Act requires that every futures
commission merchant ("FCM"):

\1\ 7 U.S.C. 1 et seq (2000).

Treat and deal with all money, securities, and property received by
such person to margin, guarantee, or secure the trades or contracts
of any customer of such person, or accruing to such customer as the
result of such trades or contracts, as belonging to such customer.
Such money, securities, and property shall be separately accounted
for and shall not be commingled with the funds of such commission
merchant or be used to margin or guarantee the trades or contracts,
or to secure or extend the credit, of any customer or person other
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than the one for whom the same are held.

Prior to 1988, the Commission, and its predecessor agency, the
Commodity Exchange Authority, had construed this provision to require
that customer funds deposited with an FCM relating to trading on a
domestic exchange be held in the United States ("U.S."), unless the
funds were being held for a foreign-domiciled customer.\2\ In light of
the growing internationalization of the futures and options markets,
the Commission in 1988 issued Financial and Segregation Interpretation
No. 12 ("Interp. 12"),\3\ which provided that, under certain
conditions, an FCM may deposit segregated funds of customers domiciled
in the U.S. in foreign depositories.
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\2\ See Commodity Exchange Authority Administrative
Determination No. 238 (Sep. 4, 1974); see also Foreign Options and
Foreign Futures Transactions, 51 FR 12104, note 36 (Apr. 8, 1986);
Leverage Transactions, [1982-1984 Transfer Binder] Comm. Fut. L.
Rep. [para] 21,742 at p. 26,952, note 52 (May 25, 1983).
\3\ Financial and Segregation Interpretation No. 12--Deposit of
Customer Funds in Foreign Depositories, 53 FR 46911 (Nov. 21, 1988).
The document was published in the Federal Register as a Statement of
Agency Interpretation. It was also published in the Commodity
Futures Law Reporter at [para] 7122 together with a series of
Financial and Segregation Interpretations issued by the Commission's
Division of Trading and Markets.
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As stated above, when the Commission issued Interp. 12, it noted
that the change in the Commission's interpretation concerning
appropriate depositories for segregated customer funds was appropriate
"in light of the growing internationalization of the futures and
option markets."\4\ In the more than 14 years since Interp. 12 was
issued, the futures and options markets, along with almost all other
segments of the business world, have seen greater internationalization.
As a result, there is an increased need and desire of certain customers
to be able to more easily conduct business in currencies other than the
U.S. dollar.
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\4\ Id. at 46912.
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In the Commodity Futures Modernization Act of 2000 (the
"CFMA"),\5\ Congress noted that "regulatory impediments to the
operation of global interests can compromise the competitiveness of
[U.S.] business" and that regulatory policy should be "flexible to
account for rapidly changing derivatives industry practices."\6\ Due
to restrictions placed on holding segregated funds offshore, U.S.
markets and futures professionals may find themselves at a disadvantage
to their foreign competitors. One of the purposes of the CFMA is to
"enhance the competitive position of [U.S.] financial institutions and
financial markets."\7\
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\5\ Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
\6\ Section 126(a) of the CFMA.
\7\ Section 2(8) of the CFMA.
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Based upon the foregoing, on August 7, 2002, the Commission
proposed the rule being adopted herein.\8\ The Commission received two
comment letters on the proposed rule. The commenters were the National
Futures Association ("NFA"), a registered futures association, and
the Futures Industry Association ("FIA"), an industry trade
association. Both commenters stated that they supported the proposed
rule and amendments, but each suggested certain changes and
clarifications that they believed would be appropriate. These
suggestions, along with the Commission's assessment of these
suggestions, are discussed more fully in conjunction with the
discussion of the appropriate section of the rule and amendments.
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\8\ 67 FR 52641 (Aug. 13, 2002).

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[[Page 5546]]

II. The New Rule and Amendments

A. New Rule 1.49

1. Definitions
In the proposed rule, the Commission had defined the terms "non-
money center country" and "non-money center currency." These terms,
however, were not used elsewhere in Rule 1.49. Accordingly, the
Commission is not including these definitions in the final rule.
2. Permissible Currencies
The Commission is adopting Rule 1.49 to provide that FCM
obligations owed to customers shall be held in: (1) U.S. dollars; (2) a
currency in which funds were deposited by the customer, or converted to
at the request of the customer, to the extent of such deposits and
conversions; or (3) a currency in which funds have accrued to the
customer as a result of trading on a designated contract market or
registered derivatives transaction execution facility ("DTF"). Any
customer may deposit foreign currency with an FCM if the FCM permits
it, not just those customers trading contracts priced and settled in a
foreign currency.
As noted above, the internationalization of the futures markets has
resulted in customers who, for many different reasons, want funds
denominated in currencies other than the U.S. dollar. If a customer or
prospective customer of an FCM prefers to deposit funds with an FCM in
a currency other than the U.S. dollar, or to convert funds from one
currency to another, the FCM should not be prevented from accepting or
holding funds in the preferred currency of the customer or prospective
customer.
An FCM may not convert customer funds from one currency to another
without customer authorization. An account agreement could provide,
however, that by placing an order in a contract settled in a particular
currency, a customer agrees to convert to the appropriate currency
funds sufficient to meet the applicable margin requirement. Under Rule
1.49(b)(2), an FCM is required to prepare and maintain a written record
each time customer funds are converted from one currency to another.
The record must include the date the transaction was executed, the
currencies converted, the amount converted, and the resulting amount.
The FCM is also required to make the information contained in this
record available to the customer upon the customer's request.
Additionally, the Commission noted in the proposing release that,
pursuant to Rule 1.33(a), the FCM must include this information in the
monthly statements provided to the customer.
FIA noted that FCMs frequently execute multiple transactions on
behalf of a customer throughout a trading day. NFA noted that FCMs will
often execute foreign currency transactions using bunched orders that
combine orders involving multiple customers, multiple counterparties,
and multiple transactions. To provide detailed information regarding
each transaction on the customer's monthly statement would impose a
significant burden on the FCM. FIA asked that the Commission confirm
its view that providing the required information on the monthly
statement in the aggregate rather than with respect to each transaction
would be sufficient to meet the FCM's obligation under Rule 1.33. The
Commission concurs that such a procedure would fulfill the FCM's
obligation under Rule 1.33. As noted in the FIA comment letter, to be
in compliance with Rule 1.49(b)(2), an FCM must be able to prepare a
report that provides the details of individual transactions upon a
customer's request.
Another aspect of the internationalization of the futures and
options markets is the increasing number of contracts offered on
foreign financial instruments and indices. These contracts are priced
and settled in the currency of the underlying instrument or index.
Accordingly, accruals resulting from trading in such instruments will
be in currency other than U.S. dollars. Under the rule, such accruals
may be held in the applicable currency. A customer, of course, may
request that such accruals be converted to U.S. dollars.
Pursuant to Interp. 12, customers had to authorize the deposit of
foreign currency funds into foreign depositories as part of a
subordination agreement. The Commission is eliminating this written
authorization requirement. If a customer deposits funds with an FCM in
a currency other than U.S. dollars, or requests a conversion of funds
to a non-U.S. dollar currency, the customer will be aware of the fact
that the funds are being held in a currency other than U.S. dollars.
With regard to funds other than U.S. dollars that are held for margin
or have accrued to the customer as a result of trading in contracts
priced and settled in a non-U.S. currency, the Commission notes that
the specifications for contracts traded on designated contract markets
are widely known and generally available.\9\ Accordingly, when a
customer trades in a futures or options contract that is priced and
settled in a currency other than U.S. dollars, a customer should be
aware that the margin for and accruals from such trading may be held in
the applicable currency.
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\9\ Section 5(b)(7) of the Act and Section 5a(d)(4) of the Act
require contract markets and derivatives transaction execution
facilities, respectively, to make contract specifications publicly
available. For example, the specifications for contracts traded on
the Chicago Mercantile Exchange are available on its Web site at:
http://www.cme.com.
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In the proposing release, the Commission noted "that if a customer
has previously not traded in contracts that are priced and settled in a
currency other than U.S. dollars, a firm should inform the customer if
the accruals from the trades will be held in a currency other than U.S.
dollars."\10\ NFA and FIA both objected to this statement, as they
believed it seemed to impose disclosure obligations beyond those under
Commission Rule 1.55.\11\ It was not the Commission's intention to
impose a disclosure obligation with respect to such customers and such
contracts. Rather, as suggested by FIA in its letter, the Commission
"intended solely to caution FCMs to consider whether they should make
such disclosure" by taking into consideration the facts and
circumstances of the particular customer.
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\10\ 67 FR at 52643. (Emphasis added).
\11\ Rule 1.55 permits FCMs to open an account for an
"institutional customer" without first furnishing the customer
with a disclosure statement.
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3. Location of Depositories
The rule permits an FCM or derivatives clearing organization
("DCO") to hold customer funds of any denomination in the U.S. or in
any money center country (Canada, France, Italy, Germany, Japan, and
the United Kingdom). Hence, customer funds of any denomination could be
held in any of the Group of Seven ("G7") countries. The G7 countries
represent the world's largest industrial democracies. Representatives
from these countries meet several times a year to coordinate their
cooperation on issues of economic policy. In this regard, the U.S. and
its financial regulatory agencies have had successful cooperation with
the respective financial regulatory agencies of these countries.
Both NFA and FIA indicated a desire to have the definition of a
money center country expanded. NFA suggested that the definition
include "other locations with stable currencies and other indicia that
customer funds will be relatively secure." The Commission has decided
not to expand the definition in this manner. The Commission believes
that the establishment of a broad and

[[Page 5547]]

subjective standard, as suggested by NFA, would be unwieldy in practice
and could require the Commission to expend significant resources. To
make a determination as suggested by NFA would require the Commission
to conduct a broad evaluation of, among other things, a country's
banking, monetary, and economic policies and systems.
FIA suggested that the Commission expand the definition to include
any country with which the Commission has an information sharing
arrangement. When the Commission enters into an information sharing
arrangement with another country, it does not undertake a complete
analysis of the country's laws, policies, and systems, as they would
pertain to the holding of customer funds. Moreover, a country may deny
sharing information with the Commission under these arrangements if,
among other things, it would constitute a violation of applicable laws.
Accordingly, the Commission has decided not to extend the definition of
money center country as suggested by FIA.
In addition to the money center countries, an FCM or DCO also could
hold any particular currency in the country of origin of that
currency,\12\ except that customer funds may not be held in any of the
restricted countries subject to sanctions by the Office of Foreign
Assets Control ("OFAC") of the U.S. Department of Treasury.\13\
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\12\ For the Euro, the country of origin includes any country
that is a member of the European Union and has recognized the Euro
as its official currency.
\13\ The list of restricted countries may be viewed on OFAC's
Web site at http://www.ustreas.gov/ofac.
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Proposed Rule 1.49(c)(3) provided that funds could be held outside
the U.S. only to the extent specifically authorized by the customer. It
further required the FCM to make and maintain a written record
detailing the terms and conditions of any such authorization. For the
reasons explained below, the Commission has significantly revised
paragraph (c). As revised, paragraph (c) makes clear that customer
consent will be required only when customer funds are held outside of
the U.S. in a jurisdiction other than a money center country or the
country of origin of the currency.
As discussed above, an FCM or DCO may hold customer segregated
funds in the following denominations: (1) In U.S. dollars; (2) in the
currency deposited by the customer or converted at the customer's
request; or (3) in the currency in which funds have accrued to the
customer as the result of trading on a U.S. contract market or
registered DTF. In the absence of customer instructions to the
contrary, the Commission believes that a customer that deposits funds
with an FCM or DCO in a foreign currency or requests that the funds on
deposit be converted to a foreign currency should assume that the
currency will be held in an account outside of the U.S. in the
currency's country of origin. Similarly, accruals in a foreign currency
should also be deemed to be held in the country of origin.\14\
Consequently, the Commission has concluded that requiring an FCM or DCO
to obtain a customer's consent to hold a foreign currency in the
currency's country of origin is unnecessary.
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\14\ As noted earlier, a customer may request that any such
accruals be converted to U.S. dollars.
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With respect to money center countries, the Commission has
previously determined that customer segregated funds denominated in a
foreign currency may be held in a money center country. As the
Commission noted in proposing Rule 1.49:

The G7 countries represent the world's largest industrial
democracies. Furthermore, representatives from these countries meet
several times a year to coordinate their cooperation on issues of
economic policy. In this regard, the United States and its financial
regulatory agencies have had successful cooperation with the
respective financial regulatory agencies of these countries.

In these circumstances and in the absence of customer instructions
to the contrary, the Commission believes that it would be appropriate
for an FCM or DCO to hold customer funds denominated in a foreign
currency in a money center country without receiving the customer's
prior consent.
Because funds held outside of the U.S. other than in the currency's
country of origin or a money center country might pose different risks
and different operational costs and benefits, the Commission believes
that the customer must be able to choose whether, and to what extent,
to incur such risks and costs. The Commission, however, is not
establishing a particular format that a customer authorization must
follow. A customer may authorize the holding of funds outside the U.S.,
a money center country, or in a country other than the currency's
country of origin, in writing or orally.\15\ Authorization may be
satisfied where a customer fails to object when informed that the
customer's funds will be held outside the U.S., a money center country,
or in a country other than the currency's country of origin. Moreover,
the Commission notes that, just as under Rule 1.49(b)(1)(ii) regarding
the conversion of customer funds, authorization may be obtained as part
of the account agreement.
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\15\ See Peltz v. SHB Commodities, Inc., 115 F.3d 1082 (2d Cir.
1997); [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) [para]
27,052.
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The rule does not require that a separate customer signature be
obtained. Rule 1.49(c) simply requires that an FCM make and maintain a
contemporaneous written record of any customer authorization to hold
funds outside the U.S. in a country other than the currency's country
of origin or a money center country. An FCM may choose to comply with
this requirement in whatever manner it finds easiest. An FCM, if it
chooses, may comply with this requirement as part of the account
opening documents or, if done orally, by making a written memorandum or
notation to be placed in the customer's file. The confirmation
statement required pursuant to Commission Rule 1.33(b) may serve the
purpose of meeting the requirement of a written record under Rule
1.49(c). If, after receiving the confirmation statement, the customer
objects to the transaction, the FCM must, of course, take steps to
address the customer's concerns.
FCMs and DCOs should also be aware that the Financial Action Task
Force ("FATF") of the Organization for Economic Co-Operation and
Development maintains a list of non-cooperative countries or
territories with respect to anti-money laundering programs and that the
Secretary of the Treasury may designate, in accordance with Section 311
of the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism ("USA PATRIOT") Act of
2001,\16\ certain countries as areas of primary money laundering
concern.\17\ Before holding any customer funds in a depository in any
of these countries or territories, FCMs and DCOs should undertake due
diligence to assure themselves that the depository is reputable, has
appropriate operational systems to safeguard customer funds, and has an
adequate program to deter money laundering. \18\
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\16\ Pub. L. 107-56; 115 Stat. 272 (2001).
\17\ The list of non-cooperative countries and territories may
be viewed on FATF's Web site at: href="http://www.cftc.gov/exit/index.htm?http://www1.oecd.org/fatf/" shape="rect">http://www1.oecd.org/fatf/.
Countries that have been designated by the Secretary of the Treasury
as being of primary money laundering concern may be viewed on the
Department of Treasury Web site at: http://www.ustreas.gov.
\18\ On April 23, 2002, the Commission approved NFA Compliance
Rule 2-9(c) and a related Interpretive Notice that set forth minimum
standards for anti-money laundering programs of NFA FCM members.

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[[Page 5548]]

4. Qualifications of Depositories
The Commission proposed that, if the depository is located in the
U.S., it must be: (1) A bank or trust company; (2) an FCM registered
with the Commission; or (3) a DCO. The Commission also proposed that,
if the depository is located outside the U.S., it must be: (1) A bank
or trust company that has (a) in excess of $1 billion in regulatory
capital, or (b) commercial paper or long-term debt rated in the highest
rating category by at least one nationally recognized statistical
rating organization (where the bank or trust company is part of a
holding company system, the holding company may satisfy the rating
criterion); (2) an FCM registered with the Commission; or (3) a DCO.
Both NFA and FIA noted that, under Commission Rule 30.7, a bank
located outside the U.S. is recognized as a permitted depository if its
commercial paper or long-term debt is rated in one of the two highest
rating categories.\19\ NFA and FIA urged the Commission to make Rule
1.49 consistent with Rule 30.7. The Commission has determined that this
is appropriate. Accordingly, the final rule will permit the use of a
bank outside the U.S. whose commercial paper or long-term debt is rated
in one of the two highest rating categories of a nationally recognized
statistical rating organization. The term "nationally recognized
statistical rating organization" as used in this release refers to
those rating organizations designated as such by the Securities and
Exchange Commission ("SEC").\20\ Although the Commission did not
receive any comments on this point, in order to avoid any possible
confusion, the Commission wishes to make clear that when using the term
"nationally recognized statistical rating organization" in Rules 1.49
and 30.7, it refers to a rating organization designated as a
"nationally recognized statistical rating organization" by the SEC.
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\19\ See CFTC Advisory 87-5, [1987-1990 Transfer Binder] Comm.
Fut. L. Rep. (CCH) [para] 23,997 (Dec. 3, 1987).
\20\ See, e.g., 17 CFR 240.15c3-1; see also 17 CFR Sec. 270.2a-
7(a)(17).
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NFA asked the Commission to confirm that, under Rule 1.49, funds
for the trading of security futures could be deposited with an FCM
registered pursuant to Section 4f(a)(2) of the Act.\21\ The Commission
confirms that an FCM registered pursuant to Section 4f(a)(2) would be a
qualified depository for security futures funds under Rule 1.49.\22\
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\21\ Section 4f(a)(2) of the Act provides for notice-
registration of securities broker-dealers whose only futures-related
activity involves security futures products. See also, 66 FR 43080
(Aug. 17, 2001).
\22\ The Commission notes that FCMs registered pursuant to
Section 4f(a)(2) may only accept such funds in accordance with any
applicable rules promulgated by the SEC.
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Only depositories that provide the FCM or DCO with the written
acknowledgment required under Commission Rules 1.20 or 1.26 may hold
customer funds required to be segregated.\23\ However, a DCO acting as
a depository does not need to provide an acknowledgment letter to an
FCM where the DCO's rules provide for the segregation of funds held on
behalf of customers.\24\
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\23\ Commission Rule 1.20 provides that, when an FCM or DCO
deposits customer funds with a depository, the FCM or DCO must
obtain and retain a written acknowledgement from the depository that
it was informed that the funds are subject to the provisions of the
Act and Commission regulations. Rule 1.26 requires an FCM or DCO to
obtain such an acknowledgment in regard to the deposit of
instruments purchased with customer funds as described under Rule
1.25.
\24\ See 65 FR 77993, 78009-13 (Dec. 13, 2000) (amending, among
other things, Rules 1.20 and 1.26 to provide that a DCO acting as a
depository does not need to provide an acknowledgement letter where
the DCO's rules provide for the segregation of funds held on behalf
of customers); 65 FR 82270 (Dec. 28, 2000) (moving forward the
effective date of the amendments to Rule 1.20 and 1.26 to December
28, 2000).
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5. Segregation Requirements
As noted above, protection of customer funds is one of the most
important purposes of the Act and the Commission's regulations.
Customer funds must be segregated so as to assure that the obligations
owed to customers will be met. Through segregation, customer funds are
readily identifiable in the event that a registrant becomes insolvent.
Accordingly, Rule 1.49 requires that the FCM or DCO, at the close of
each business day, have in segregated accounts on behalf of its
customers sufficient U.S. dollars held in the U.S. to meet all U.S.
dollar obligations and sufficient funds in each other currency to meet
obligations in such currency with certain permitted substitutions. The
segregation requirements of the rule are meant to ensure that FCMs and
DCOs maintain enough funds, and in the appropriate currency, to meet
the obligations owed to customers.
As noted, the rule permits limited substitutions among currencies.
U.S. dollars held in the U.S. may be used to meet obligations
denominated in any other currency. Money center currencies and U.S.
dollars held in money center countries may be held to meet obligations
denominated in currencies other than the U.S. dollar. In essence, three
tiers of currencies have been established, U.S. dollars held in the
U.S. ("Tier I"), U.S. dollars and money center currencies held in
money center countries or money center currencies held in the U.S.
("Tier II"), and currencies other than U.S. dollars and money-center
currencies ("Tier III"). Tier I currency could be used for any
obligation. For U.S. dollar obligations to customers, only Tier I
currency could be used. Tier II currencies could be used for any
obligation except U.S. dollars. Tier III currencies could only be used
for obligations denominated in that particular currency.

B. Recordkeeping

The Commission is also amending Rule 1.32 to require FCMs to
compute segregated funds on a currency-by-currency basis if they are
held in other than U.S. dollars, in accordance with new Rule 1.49.
Under Rule 1.49, customer funds may be held in the U.S., a money center
country, or the country of origin of the currency. Rule 1.49 also would
require FCMs and DCOs that hold funds in foreign currency or offshore
to maintain records sufficient to demonstrate compliance with the
additional segregation requirements set forth in Rule 1.49(e).

C. Bankruptcy

In Interp. 12, the Commission noted two types of risk associated
with holding funds offshore that might result in customers failing to
fully recover segregated funds, either upon demand or in a bankruptcy
or receivership, (1) currency risk and (2) location risk.\25\
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\25\ 53 FR at 46912.
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Currency risk is the risk of currency exchange rate fluctuations.
This can be a concern where an FCM is in bankruptcy or receivership and
it holds deposits denominated in currencies other than U.S. dollars.
Due to changes in currency exchange rates, the size of the pool of
funds available for distribution to customers and the size of claims
against the funds may vary from day to day while the bankruptcy is
pending, thereby exposing customers with U.S. dollar-denominated claims
to currency risk.\26\
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\26\ See 53 FR at 46915 (providing an example of currency risk).
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Location risk is the risk that funds held in a foreign depository
might not be fully recoverable by a customer upon demand or in the
event of bankruptcy or receivership. It includes the risk that foreign
depositories may not be cooperative with the Commission concerning
questions of compliance with segregation requirements, or that a
foreign court might refuse to enforce

[[Page 5549]]

provisions of the Commission's rules that prohibit a foreign depository
from offsetting obligations of an FCM against customer funds. There is
also a risk that, in the event of an FCM becoming insolvent, deposits
at a foreign depository might be subject to an insolvency regime that
is different from U.S. bankruptcy law. Additionally, a foreign
government might limit the availability of funds by freezing or
confiscating assets held within its jurisdiction or taking actions that
affect its currency, even if the assets are located in the U.S.\27\
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\27\ Presumably, certain sovereign action of a foreign
government could affect foreign currency even if held in the U.S.
Any discussion of sovereign risk herein pertains to non-U.S.
currency, wherever held.
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Pursuant to Interp. 12, before placing a customer's funds offshore,
an FCM had to obtain from the customer a subordination agreement. In
the agreement, the customer consented to the subordination of claims
concerning funds held offshore or in a foreign currency to the claims
of customers whose funds are held in U.S. dollars or in other
currencies in the event the FCM was placed in bankruptcy or
receivership and there were insufficient funds available for
distribution from the funds held in that particular currency to satisfy
customer claims against those funds. The subordination agreement was
meant to protect customers whose funds were held in the U.S. and
denominated in U.S. dollars from both currency and location risk that
might result in customers receiving less than their pro-rata share of
funds.
In Interp. 12, the Commission stated that "currency risk is
similar to the price risk which can occur in cases where an FCM becomes
insolvent while holding customer deposits in forms which fluctuate in
value," using the example of Treasury securities.\28\ The Commission
noted, however, that there were distinctions between price risk and
currency risk, such that it was more equitable to spread the price risk
among all customers in the event of a bankruptcy than it was the
currency risk. First, the Commission indicated that all customers had
the opportunity to post Treasury securities as margin, but under
Interp. 12 only customers trading certain contracts could post foreign
currency. Second, shortfalls in foreign currency accounts were more
likely because of sovereign or location risk. Third, it would be easier
and quicker for a trustee or receiver to convert Treasury securities
held in the U.S. to cash than to convert foreign currency held offshore
into U.S. dollars.
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\28\ 53 FR at 46915, note 22.
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Under Rule 1.49, subject to exchange margin rules, any customer may
deposit foreign currency with an FCM, not just those trading certain
contracts, provided the FCM is willing to accept foreign currency. In
effect, such deposits would be similar to a customer depositing U.S.
Treasury securities, which is currently permitted. In the case of a
customer who deposits U.S. Treasury securities with an FCM to satisfy
margin, there exists a price and liquidity risk related to the time it
would take to convert those securities into U.S. dollars. Similarly,
customer funds held in a foreign currency create an exposure during the
time in which it takes to convert those currencies into U.S. dollars.
As with converting U.S. Treasury securities, converting foreign
currency into U.S. dollars, particularly those involving money center
countries, is not extremely difficult. As a result, the Commission
believes spreading currency risk among all customers is no less
equitable than spreading price risk among all customers. Additionally,
as discussed below, the rule and the amendment to Appendix B of the
Commission's bankruptcy rules limit sovereign risk and protect
customers who deposit U.S. dollars from being adversely affected due to
the sovereign action of a foreign government or court, including the
effect of a non-U.S. insolvency regime. As a result, the Commission
believes spreading currency risk among all customers is no less
equitable than spreading price risk among all customers.
In adopting the new rule, the Commission has sought to address many
aspects of currency and location risks through the safeguards discussed
above. One aspect of location risk that remains, however, is sovereign
risk. This is the risk that the actions of a foreign government or
court might result in a shortfall in segregated funds.
To address sovereign risk, the Commission is amending Framework 2
of Appendix B of its bankruptcy rules to govern the distribution of
customer funds segregated pursuant to the Act and Commission rules
thereunder, held by an FCM or DCO in a depository outside the U.S. or
in a foreign currency.\29\ The maintenance of customer funds in a
depository outside the U.S. or denominated in a foreign currency would
result, in certain circumstances, in the reduction of customer claims
for such funds. For purposes of the bankruptcy convention, sovereign
action of a foreign government or court would include, but not be
limited to, the application or enforcement of statutes, rules,
regulations, interpretations, advisories, decisions, or orders, formal
or informal, by a federal, state, or provincial executive, legislature,
judiciary, or government agency. Commission staff was asked whether the
devaluation of a currency by government decree would be considered a
sovereign action. The Commission believes such a decree would be a
sovereign action for purposes of this bankruptcy convention. The
Commission recognizes that it is impossible to envision every possible
sovereign action. The Commission has purposely defined sovereign risk
broadly so as to afford the bankruptcy trustee the ability to exercise
its discretion and judgment to fully effectuate the purpose of this
bankruptcy convention.
---------------------------------------------------------------------------

\29\ The current Framework 2 sets forth a plan for distribution
in the case of trades made on the Chicago Board of Trade-London
International Financial Futures and Options Exchange Link
("Link"). Since the Link ceased operations in 1997, there is no
need to maintain the existing Framework 2. Accordingly, the
Commission is replacing the existing Framework 2 related to the Link
with a new Framework 2 that addresses U.S. held segregated funds and
non-U.S. held segregated funds.
---------------------------------------------------------------------------

If an FCM filed, or had filed against it, a petition in bankruptcy
and maintained customer funds in a depository located in the U.S. in a
currency other than U.S. dollars, or in a depository outside the U.S.,
the following allocation procedure will be used to calculate the claim
of each customer. After reducing each customer's claim by the
percentage of the shortfall that is not attributable to sovereign
action, certain customer claims will be further reduced based upon
their exposure to loss attributable to sovereign action. This framework
is designed to prevent a shortfall in funds held outside the U.S. or in
a currency other than U.S. dollars resulting from the sovereign action
of a foreign government or court from adversely affecting customers
whose funds are held in U.S. dollars or in the U.S. or in a currency or
a country other than the one undertaking the sovereign action resulting
in the shortfall.
NFA, in its comment letter, asked what would happen if a bankruptcy
proceeding is commenced while a firm is in the process of converting
customer funds between currencies. As noted in the framework, the first
step to be taken in the event of a bankruptcy is to convert each
customer's claim in each currency to U.S. Dollars at the exchange rate
in effect on the Final Net Equity Determination Date as defined in

[[Page 5550]]

Commission Rule 190.01(s). Customer funds will be converted to U.S.
Dollars from whatever currency in which the customer's funds are
denominated as of the close of business on the Final Net Equity
Determination Date.
The Commission has drafted the bankruptcy convention as a means to
give prospective bankruptcy trustees a certain amount of direction in
the event of a bankruptcy involving customer funds denominated in
currencies other than U.S. Dollars and held in depositories located
throughout the world. Such a bankruptcy, however, is likely to be
extremely complicated and it is impossible to anticipate every factual
variant. Accordingly, the Commission, in adopting this bankruptcy
convention, has endeavored to avoid undermining the ability of the
trustee to use his or her own discretion and judgment as required by
the particular facts of each bankruptcy.
The rule and the framework to the bankruptcy appendix address the
risks associated with holding customer funds outside the U.S. or in
currencies other than U.S. dollars. Accordingly, the requirement that
each customer who seeks to have funds held outside the U.S. must
execute a separate subordination agreement has been eliminated.

III. Comments Regarding the Location of Foreign Futures or Foreign
Options Secured Amount

In the proposal, the Commission asked for comments as to whether,
in light of the proposed rules, Rule 30.7 should also be amended to
expand the types of depositories at which an FCM may hold the funds of
foreign futures or options customers. Only NFA provided comments as to
the expansion of Rule 30.7. NFA indicated its belief that Rule 30.7
should be expanded to include all depositories permitted under Rule
1.49(d)(3), as well as those already permitted under Rule 30.7. The
Commission agrees. Accordingly, Rule 30.7 will be amended to provide
that the funds of foreign futures or options customers may, in addition
to those depositories already enumerated, be held at a bank or trust
company outside the U.S. that has in excess of $1 billion of regulatory
capital or whose commercial paper or long-term debt instrument, or if
part of a holding company system, its holding company's commercial
paper or long-term debt instrument, is rated in one of the two highest
rating categories by at least one nationally recognized statistical
rating organization.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act ("RFA")\30\ requires that
agencies, in proposing rules, consider the impact of those rules on
small businesses. The Commission has previously established certain
definitions of "small entities" to be used by the Commission in
evaluating the impact of its rules on such entities in accordance with
the RFA.\31\ The Commission has previously determined that FCMs are not
small entities for the purpose of the RFA.\32\ Additionally, the
Commission has determined that DCOs are not small entities for purposes
of the RFA.\33\ The Commission notes that no comments were received
from the public on the RFA and its relation to the new rule and rule
amendments.
---------------------------------------------------------------------------

\30\ 5 U.S.C. 601 et seq.
\31\ 47 FR 18618 (April 30, 1982).
\32\ 47 FR at 18619.
\33\ 66 FR 45604, 45609 (Aug. 29, 2001).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

This rulemaking contains information collection requirements. As
required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d), the
Commission has submitted a copy of the new rule and rule amendments to
the Office of Management and Budget (OMB) for its review. No comments
were received in response to the Commission's invitation in the
proposed rules to comment on any potential paperwork burden associated
with this regulation.

C. Cost-Benefit Analysis

Section 15(a) of the Act, as amended by Section 119 of the CFMA,
requires the Commission to consider the costs and benefits of its
action before issuing a new regulation under the Act. By its terms,
Section 15(a) as amended does not require the Commission to quantify
the costs and benefits of a new regulation or to determine whether the
benefits of the regulation outweigh its costs. Rather, Section 15(a)
simply requires the Commission to "consider the costs and benefits"
of its action.
Section 15(a) of the Act further specifies that costs and benefits
shall be evaluated in light of five broad areas of market and public
concern: protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. Accordingly, the Commission could in its discretion
give greater weight to any one of the five enumerated areas and could
in its discretion determine that, notwithstanding its costs, a
particular rule was necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to accomplish any of
the purposes of the Act.
The new rule and rule amendments are intended to provide greater
flexibility for FCMs, DCOs, and their customers in their methods of
doing business. The Commission is considering the costs and benefits of
these rules in light of the specific provisions of Section 15(a) of the
Act:
1. Protection of market participants and the public. To protect
market participants and the public, the rule requires that depositories
used to hold customer funds meet certain requirements to assure that
customer funds are dealt with properly. Additionally, the rule includes
a new framework to the bankruptcy appendix to protect customer funds
held in U.S. dollars in the U.S. from being diluted if there is an
insufficiency in the funds held outside the U.S. or in a currency other
than U.S. dollars due to the sovereign action of a foreign government
or court.
2. Efficiency and competition. The rules are expected to benefit
competition and market efficiency. The rule will help to facilitate
continued international growth of the futures industry by permitting
customer funds to be denominated in currencies other than U.S. dollars
and to be held in offshore depositories.
3. Financial integrity of futures markets and price discovery. The
rule should have no effect, from the standpoint of imposing costs or
creating benefits, on the financial integrity or price discovery
function of the futures and options markets.
4. Sound risk management practices. The Commission in adopting the
rule and amendments has included risk-limiting features, such as
requiring FCMs and DCOs to maintain sufficient funds to meet
obligations in each currency, and requiring depositories to meet
certain criteria, including signing an acknowledgment regarding the
segregation requirements under the Act and Commission rules, to
minimize the risks to customer funds.
5. Other public interest considerations. The rule and amendments
contained herein offer greater opportunity for taking full advantage of
contracts being offered by domestic designated contract markets and
registered DTFs and the ever increasing internationalization of the
futures industry, while establishing safeguards for customer funds.

[[Page 5551]]

After considering these factors, the Commission has determined to
adopt the rule and amendments discussed above. The Commission invited
public comment on its application of the cost-benefit provision. The
Commission did not receive any comments regarding the application of
the cost-benefit provision.

List of Subjects

17 CFR Part 1

Brokers, Commodity Futures, Consumer protection.

17 CFR Part 30

Commodity Futures, Consumer Protection

17 CFR Part 190

Bankruptcy, Reporting and recordkeeping requirements.

In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act and, in particular, Sections
2(a)(1)(A), 4d, 8a(5), and 20, 7 U.S.C. 2(a)(1)(A), 6d, 12a(5), and 24,
and 11 U.S.C. 362, 546, 548, 556 and 761-766, the Commission hereby
amends Chapter I of Title 17 of the Code of Federal Regulations as
follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

1. The authority citation for Part 1 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,
6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,
13a-1, 16, 16a, 19, 21, 23, and 24, as amended by the Commodity
Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554,
114 Stat. 2763 (2000).

2. Section 1.32 is amended by revising paragraph (a) introductory
text to read as follows:

Sec. 1.32 Segregated account; daily computation and record.

(a) Each futures commission merchant must compute as of the close
of each business day, on a currency-by-currency basis:
* * * * *

3. Section 1.49 is added to read as follows:

Sec. 1.49 Denomination of customer funds and location of
depositories.

(a) Definitions. For purposes of this section:
(1) Money center country. This term means Canada, France, Italy,
Germany, Japan, and the United Kingdom.
(2) Money center currency. This term means the currency of any
money center country and the Euro.
(b) Permissible denominations of obligations. (1) Subject to the
terms and conditions set forth in this section, a futures commission
merchant's obligations to a customer shall be denominated:
(i) In the United States dollar;
(ii) In a currency in which funds were deposited by the customer or
were converted at the request of the customer, to the extent of such
deposits and conversions; or
(iii) In a currency in which funds have accrued to the customer as
a result of trading conducted on a designated contract market or
registered derivatives transaction execution facility, to the extent of
such accruals.
(2)(i) A futures commission merchant shall prepare and maintain a
written record of each transaction converting customer funds from one
currency to another.
(ii) A written record prepared under paragraph (b)(2)(i) of this
section must include the date the transaction was executed, the
currencies converted, the amount converted, and the resulting amount.
(iii) The information required under paragraph (b)(2)(ii) of this
section must be provided to the customer upon the customer's request.
(c) Permissible locations of depositories. (1) Unless a customer
provides instructions to the contrary, a futures commission merchant or
a derivatives clearing organization may hold customer funds:
(i) In the United States;
(ii) In a money center country; or
(iii) In the country of origin of the currency.
(2) A futures commission merchant or derivatives clearing
organization may hold customer funds outside the United States, in a
jurisdiction that is not a money center country, or the country of
origin of the currency only to the extent authorized by the customer,
provided, that the futures commission merchant or derivatives clearing
organization must make and maintain a written record of such
authorization. Notwithstanding the foregoing, in no event shall a
futures commission merchant or a derivatives clearing organization hold
customer funds in a restricted country subject to sanctions by the
Office of Foreign Assets Control of the U.S. Department of Treasury.
(d) Qualifications for depositories. (1) To hold customer funds
required to be segregated pursuant to the Act and Sec. Sec. 1.20
through 1.30, 1.32 and 1.36, a depository must provide the depositing
futures commission merchant or derivatives clearing organization with
the appropriate written acknowledgment as required under Sec. Sec.
1.20 and 1.26.
(2) A depository, if located in the United States, must be:
(i) A bank or trust company;
(ii) A futures commission merchant registered as such with the
Commission; or
(iii) A derivatives clearing organization.
(3) A depository, if located outside the United States, must be:
(i) A bank or trust company:
(A) That has in excess of $1 billion of regulatory capital; or
(B) Whose commercial paper or long-term debt instrument or, if a
part of a holding company system, its holding company's commercial
paper or long-term debt instrument, is rated in one of the two highest
rating categories by at least one nationally recognized statistical
rating organization;
(ii) A futures commission merchant that is registered as such with
the Commission; or
(iii) A derivatives clearing organization.
(e) Segregation requirements. (1) Each futures commission merchant
and each derivatives clearing organization must, as of the close of
each business day, hold in segregated accounts on behalf of commodity
or option customers:
(i) Sufficient United States dollars, held in the United States, to
meet all United States dollar obligations; and
(ii) Sufficient funds in each other currency to meet obligations in
such currency.
(2) Notwithstanding paragraph (e)(1)(ii) of this section, assets
denominated in one currency may be held to meet obligations denominated
in another currency as follows:
(i) United States dollars may be held in the United States or in
money center countries to meet obligations denominated in any other
currency; and
(ii) Funds in money center currencies may be held in the United
States or in money center countries to meet obligations denominated in
currencies other than the United States dollar.
(3) Each futures commission merchant and each derivatives clearing
organization shall make and maintain records sufficient to demonstrate
compliance with this paragraph (e).

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

4. The authority citation for Part 30 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise
noted.

5. Section 30.7 is amended by revising paragraph (c) to read as
follows:

[[Page 5552]]

Sec. 30.7 Treatment of foreign futures or foreign options secured
amount.

* * * * *
(c)(1) 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;
(ii) A bank or trust company located outside the United States:
(A) That has in excess of $1 billion of regulatory capital; or
(B) Whose commercial paper or long-term debt instrument or, if a
part of a holding company system, its holding company's commercial
paper or long-term debt instrument, is rated in one of the two highest
rating categories by at least one nationally recognized statistical
rating organization; or
(C) As designated;
(iii) A futures commission merchant registered as such with the
Commission;
(iv) A derivatives clearing organization;
(v) A member of any foreign board of trade; or
(vi) Such member or clearing organization's designated
depositories.
(2) Each futures commission merchant must obtain and retain in its
files for the period provided in Sec. 1.31 of this chapter an
acknowledgment from such depository that it was informed that such
money, securities or property are held for or on behalf of foreign
futures and foreign options customers and are being held in accordance
with the provisions of these regulations.
* * * * *

PART 190--BANKRUPTCY

6. The authority citation for Part 190 continues to read as
follows:

Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7, 7a, 12, 19, 23,
and 24, and 11 U.S.C. 362, 546, 548, 556 and 761-766, unless
otherwise noted.

7. Part 190 is amended by revising at the end of Appendix B,
Framework 2 to read as follows:

Appendix B to Part 190--Special Bankruptcy Distributions

* * * * *

Framework 2--Special Allocation of Shortfall to Customer Claims When
Customer Funds are Held in a Depository Outside of the United States or
in a Foreign Currency

The Commission has established the following allocation
convention with respect to customer funds segregated pursuant to the
Act and Commission rules thereunder held by a futures commission
merchant ("FCM") or derivatives clearing organization ("DCO") in
a depository outside the United States ("U.S.") or in a foreign
currency. The maintenance of customer funds in a depository outside
the U.S. or denominated in a foreign currency will result, in
certain circumstances, in the reduction of customer claims for such
funds. For purposes of this proposed bankruptcy convention,
sovereign action of a foreign government or court would include, but
not be limited to, the application or enforcement of statutes,
rules, regulations, interpretations, advisories, decisions, or
orders, formal or informal, by a federal, state, or provincial
executive, legislature, judiciary, or government agency. If an FCM
enters into bankruptcy and maintains customer funds in a depository
located in the U.S. in a currency other than U.S. dollars or in a
depository outside the U.S., the following allocation procedures
shall be used to calculate the claim of each customer.

I. Reduction in Claims for General Shortfall

A. Determination of losses not attributable to sovereign action

1. Convert each customer's claim in each currency to U.S.
Dollars at the exchange rate in effect on the Final Net Equity
Determination Date, as defined in Sec. 190.01(s) (the "Exchange
Rate").
2. Determine the amount of assets available for distribution to
customers. In making this calculation, include customer funds that
would be available for distribution but for the sovereign action.
3. Convert the amount of assets available for distribution to
U.S. Dollars at the Exchange Rate.
4. Determine the Shortfall Percentage that is not attributable
to sovereign action, as follows:
[GRAPHIC] [TIFF OMITTED] TR04FE03.000

B. Allocation of Losses Not Attributable to Sovereign Action

1. Reduce each customer's claim by the Shortfall Percentage.

II. Reduction in Claims for Sovereign Loss

A. Determination of Losses Attributable to Sovereign Action
("Sovereign Loss")

1. If any portion of a customer's claim is required to be kept
in U.S. dollars in the U.S., that portion of the customer's claim is
not exposed to Sovereign Loss.
2. If any portion of a customer's claim is authorized to be kept
in only one location and that location is:
a. The U.S. or a location in which there is no Sovereign Loss,
then that portion of the customer's claim is not exposed to
Sovereign Loss.
b. A location in which there is Sovereign Loss, then that entire
portion of the customer's claim is exposed to Sovereign Loss.
3. If any portion of a customer's claim is authorized to be kept
in only one currency and that currency is:
a. U.S. dollars or a currency in which there is no Sovereign
Loss, then that portion of the customer's claim is not exposed to
Sovereign Loss.
b. A currency in which there is Sovereign Loss, then that entire
portion of the customer's claim is exposed to Sovereign Loss.
4. If any portion of a customer's claim is authorized to be kept
in more than one location and:
a. There is no Sovereign Loss in any of those locations, then
that portion of the customer's claim is not exposed to Sovereign
Loss.
b. There is Sovereign Loss in one of those locations, then that
entire portion of the customer's claim is exposed to Sovereign Loss.
c. There is Sovereign Loss in more than one of those locations,
then an equal share of that portion of the customer's claim will be
exposed to Sovereign Loss in each such location.
5. If any portion of a customer's claim is authorized to be kept
in more than one currency and:
a. There is no Sovereign Loss in any of those currencies, then
that portion of the customer's claim is not exposed to Sovereign
Loss.
b. There is Sovereign Loss in one of those currencies, then that
entire portion of the customer's claim is exposed to Sovereign Loss.
c. There is Sovereign Loss in more than one of those currencies,
then an equal share of that portion of the customer's claim will be
exposed to Sovereign Loss.

B. Calculation of Sovereign Loss

1. The total Sovereign Loss for each location is the difference
between:
a. The total customer funds deposited in depositories in that
location and
b. The amount of funds in that location that are available to be
distributed to customers, after taking into account any sovereign
action.
2. The total Sovereign Loss for each currency is the difference
between:
a. The value, in U.S. dollars, of the funds held in that
currency on the day before the sovereign action took place and
b. The value, in U.S. dollars, of the funds held in that
currency on the Final Net Equity Determination Date.

[[Page 5553]]

C. Allocation of Sovereign Loss

1. Each portion of a customer's claim exposed to Sovereign Loss
in a location will be reduced by:
[GRAPHIC] [TIFF OMITTED] TR04FE03.001

2. Each portion of a customer's claim exposed to Sovereign Loss
in a currency will be reduced by:
[GRAPHIC] [TIFF OMITTED] TR04FE03.002

3. A portion of a customer's claim exposed to Sovereign Loss in
a location or currency will not be reduced below zero. (The above
calculations might yield a result below zero where the FCM kept more
customer funds in a location or currency than it was authorized to
keep.)
4. Any amount of Sovereign Loss from a location or currency in
excess of the total amount of funds authorized to be kept in that
location or currency (calculated in accord with Section II.1 above)
("Total Excess Sovereign Loss") will be divided among all
customers who have authorized funds to be kept outside the U.S., or
in currencies other than U.S. dollars, with each such customer claim
reduced by the following amount:
[GRAPHIC] [TIFF OMITTED] TR04FE03.003

The following examples illustrate the operation of this
convention.

Example 1. No shortfall in any location.

------------------------------------------------------------------------
Actual asset
Location balance
------------------------------------------------------------------------
U.S..................................................... $50
U.K..................................................... [pound]300
U.K..................................................... [euro]50
Germany................................................. [euro]50
------------------------------------------------------------------------
Note: Conversion Rates: [euro]1 = $1; [pound]1=$1.5.

Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
Conversion Claim in U.S.
Customer Claim rate dollars
----------------------------------------------------------------------------------------------------------------
A............................................................... $50 1.0 $50
B............................................................... [euro]50 1.0 50
C............................................................... [euro]50 1.0 50
D............................................................... [pound]300 1.5 450
=================
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $50 1.0 $50 .............. .............. $50
U.K..................................................... [pound]300 1.5 450 .............. .............. 450
U.K..................................................... [euro]50 1.0 50 .............. .............. 50
Germany................................................. [euro]50 1.0 50 .............. .............. 50
---------------- -----------------
Total............................................... .............. .............. 600.00 .............. 0 600.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

There are no shortfalls in funds held in any location.
Accordingly, there will be no reduction of customer claims.

Claims:

[[Page 5554]]

B............................................................... 50 0 50
C............................................................... 50 0 50
D............................................................... 450 0 450
-----------------
Total....................................................... 600.00 0.00 600.00
----------------------------------------------------------------------------------------------------------------

Example 2. Shortfall in funds held in the U.S.

------------------------------------------------------------------------
Actual
Location asset
balance
------------------------------------------------------------------------
U.S.......................................................... $50
U.K.......................................................... [euro]100
Germany...................................................... [euro]50
------------------------------------------------------------------------
Note: Conversion Rates: [euro]1=$1.

Reduction in Claims for General Shortfall

There is a shortfall in the funds held in the U.S. such that
only \1/2\ of the funds are available.
Convert each customer's claim in each currency to U.S. Dollars:

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $50 1.0 $50.00 .............. .............. $50
U.K..................................................... [euro]100 1.0 100 .............. .............. 100
Germany................................................. [euro]50 1.0 50 .............. .............. $50
---------------- ---------------
Total............................................... .............. .............. 200.00 .............. .............. 200.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-200/250) = (1-80%) =
20%.
Reduce each customer's claim by the Shortfall Percentage:

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
Allocated dollars after
Customer Claim in US$ shortfall (non- allocated
sovereign) shortfall
----------------------------------------------------------------------------------------------------------------
A............................................................... $100 $20.00 $80.00
B............................................................... 50 10.00 40.00
C............................................................... 100 20.00 80.00
-----------------
Total....................................................... 250.00 50.00 200.00
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

There is no shortfall due to sovereign action. Accordingly, the
customer claims will not be further reduced.

[[Page 5555]]

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
dollars after Allocation of
Customer allocated non- shortfall due Claim after
sovereign to sovereign all reductions
shortfall action
----------------------------------------------------------------------------------------------------------------
A............................................................... $80 .............. $80.00
B............................................................... 40 .............. 40.00
C............................................................... 80 .............. 80.00
-----------------
Total....................................................... 200.00 0 200.00
----------------------------------------------------------------------------------------------------------------

Example 3. Shortfall in funds held outside the U.S., or in a
currency other than U.S. dollars, not due to sovereign action.

------------------------------------------------------------------------
Location(s) customer
Customer Claim has consented to having
funds held
------------------------------------------------------------------------
A.............................. $150 U.S.
B.............................. [euro]100 U.K.
C.............................. [euro]50 Germany
D.............................. $100 U.S.
D.............................. [euro]100 U.K. or Germany
------------------------------------------------------------------------

------------------------------------------------------------------------
Note: Conversion Rates: [euro]1=$1.

Reduction in Claims for General Shortfall

Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
Conversion
Customer Claim rate Claim in US$
----------------------------------------------------------------------------------------------------------------
A............................................................... $150 1.0 $150
B............................................................... [euro]100 1.0 100
C............................................................... [euro]50 1.0 50
D............................................................... $100 1.0 100
---------------
D............................................................... [euro]100 1.0 100
-----------------
Total....................................................... .............. .............. 500.00
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $250 1.0 $250 .............. .............. $250
U.K..................................................... [euro]50 1.0 50 .............. .............. 50
Germany................................................. [euro]100 1.0 100 .............. .............. 100
---------------- -----------------
Total............................................... .............. .............. 400.00 .............. 0 400.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-400/500) = (1-80%) =
20%.
Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
Allocated dollars after
Customer Claim in US$ shortfall (non- allocated
sovereign) shortfall
----------------------------------------------------------------------------------------------------------------
A............................................................... $150 $30.00 120.00
B............................................................... 100 20.00 80.00
C............................................................... 50 10.00 40.00
D............................................................... 200 40.00 160.00
-----------------
----------------------------------------------------------------------------------------------------------------

[[Page 5556]]

Reduction in Claims for Shortfall Due to Sovereign Action

There is no shortfall due to sovereign action. Accordingly, the
claims will not be further reduced.

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
dollars after Allocation of
Customer allocated non- shortfall due Claim after
sovereign to sovereign all reductions
shortfall action
----------------------------------------------------------------------------------------------------------------
A............................................................... $120.00 .............. $120
B............................................................... 80.00 .............. 80
C............................................................... 40.00 .............. 40
D............................................................... 160.00 0 160
-----------------
Total....................................................... 400.00 0 400
----------------------------------------------------------------------------------------------------------------

Example 4. Shortfall in funds held outside the U.S., or in a
currency other than U.S. dollars, due to sovereign action.

------------------------------------------------------------------------
Location(s) where
Customer Claim customer has consented
to have funds held
------------------------------------------------------------------------
A.............................. $50 U.S.
B.............................. [euro]50 U.K.
C.............................. [euro]50 Germany
D.............................. $100. U.S.
D.............................. [euro]100 U.K. or Germany
------------------------------------------------------------------------

------------------------------------------------------------------------
Notice: Conversion Rates: [euro]1 = $1; [yen]1= $0.01, [pound]1= $1.5.

Reduction in Claims for General Shortfall

Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
Conversion
Customer Claim rate Claim in US$
----------------------------------------------------------------------------------------------------------------
A............................................................... $50 1.0 $50
B............................................................... [euro]50 1.0 50
C............................................................... [euro]50 1.0 50
D............................................................... $100 1.0 100
D............................................................... [euro]100 1.0 100
---------------
Total....................................................... .............. .............. 350.00
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $150 1.0 $150 .............. .............. $150
U.K..................................................... [euro]100 1.0 100 .............. .............. 100
Germany................................................. [euro]100 1.0 100 50% 50 50
---------------- -----------------
Total............................................... .............. .............. 350.00 .............. 50.00 300.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-350/350) = (1-100%) =
0%.
Reduce each customer's claim by the shortfall percentage:

[[Page 5557]]

D............................................................... 200 0 200.00
-----------------
Total....................................................... 350.00 0.00 350.00
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

Due to sovereign action, only \1/2\ of the funds in Germany are
available.

----------------------------------------------------------------------------------------------------------------
Presumed location of funds
Customer -----------------------------------------------
U.S. U.K. Germany
----------------------------------------------------------------------------------------------------------------
A............................................................... $50 .............. ..............
B............................................................... .............. $50 ..............
C............................................................... .............. .............. $50
D............................................................... 100 .............. 100
-----------------
Total....................................................... 150.00 50.00 150.00
----------------------------------------------------------------------------------------------------------------

Calculation of the allocation of the shortfall due to sovereign
action--Germany ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
Allocation share of actual Actual shortfall
Customer Allocation share shortfall allocated
----------------------------------------------------------------------------------------------------------------
C........................................... $50/$150 33.3% of $50.................. $16.67
D........................................... 100/$150 66.7% of $50.................. 33.33
-----------------
----------------------------------------------------------------------------------------------------------------

Claims After Reductions:

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
dollars after Allocation of
Customer allocated non- shortfall due to Claim after all
sovereign sovereign action reductions
shortfall from Germany
----------------------------------------------------------------------------------------------------------------
A......................................................... $50 ................ $50
B......................................................... 50 ................ 50
C......................................................... 50 $16.67 33.33
D......................................................... 200 33.33 166.67
-------------------
Total................................................. 350.00 50.00 300.00
----------------------------------------------------------------------------------------------------------------

Example 5. Shortfall in funds held outside the U.S., or in a
currency other than U.S. dollars, due to sovereign action and a
shortfall in funds held in the U.S.

------------------------------------------------------------------------
Location(s) customer
Customer Claim has consented to having
funds held
------------------------------------------------------------------------
A.............................. $100 U.S.
B.............................. [euro]50 U.K.
C.............................. [euro]150 Germany
D.............................. $100 U.S.
D.............................. [pound]300 U.K.
D.............................. [euro]150 U.K. or Germany
------------------------------------------------------------------------

------------------------------------------------------------------------
Actual asset
Location balance
---------------------------------------------------------------
U.S............................................ $100
U.K............................................ [pound]300
U.K............................................ [euro]200
Germany........................................ [euro]150
------------------------------------------------------------------------
Conversion Rates: [euro]1=$1; [pound]1=$1.5.

Reduction in Claims for General Shortfall

Convert each customer's claim in each currency to U.S. Dollars:

[[Page 5558]]

B............................................................... [euro]50 1.0 50
C............................................................... [euro]150 1.0 150
D............................................................... $100 1.0 100
D............................................................... [pound]300 1.5 450
D............................................................... [euro]150 1.0 150
---------------
Total....................................................... .............. .............. 1000.00
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $100 1.0 $100 .............. .............. $100
U.K..................................................... [pound]300 1.5 450 .............. .............. 450
U.K..................................................... [euro]200 1.0 200 .............. .............. 200
Germany................................................. [euro]150 1.0 150 100% $150 0
---------------- -----------------
Total............................................... .............. .............. 900.00 .............. 150.00 750.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign action: Shortfall Percentage = (1-900/1000)= (1--90%) =
10%.
Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
Allocated dollars after
Customer Claim in US$ shortfall (non- allocated
sovereign) shortfall
----------------------------------------------------------------------------------------------------------------
A............................................................... $100 $10.00 $90.00
B............................................................... 50 5.00 45.00
C............................................................... 150 15.00 135.00
D............................................................... 700 70.00 63.00
-----------------
Total....................................................... 1000.00 100.00 900.00
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

Due to sovereign action, none of the money in Germany is
available.

----------------------------------------------------------------------------------------------------------------
Presumed location of funds
Customer -----------------------------------------------
U.S. U.K. Germany
----------------------------------------------------------------------------------------------------------------
A............................................................... $100 .............. ..............
B............................................................... .............. $50 ..............
C............................................................... .............. .............. $150
D............................................................... 100 450 150
-----------------
Total....................................................... 200.00 500.00 300.00
----------------------------------------------------------------------------------------------------------------

Calculation of the allocation of the shortfall due to sovereign
action Germany ($150 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
Allocation
Allocation Share of Actual
Customer share actual shortfall
shortfall allocated
----------------------------------------------------------------------------------------------------------------
C............................................................... $150/$300 50% of $150 $75
D............................................................... 150/$300 50% of $150 75
---------------
Total....................................................... .............. .............. 150.00
----------------------------------------------------------------------------------------------------------------

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
dollars after Allocation of
Customer allocated non- shortfall due to Claim after all
sovereign sovereign action reductions
shortfall from Germany
----------------------------------------------------------------------------------------------------------------
A......................................................... $90 ................ $90
B......................................................... 45 ................ 45
C......................................................... 135 $75 60
D......................................................... 630 75 555
-------------------

[[Page 5559]]

Total................................................. 900.00 150.00 750.00
----------------------------------------------------------------------------------------------------------------

Example 6. Shortfall in funds held outside the U.S., or in a
currency other than U.S. dollars, due to sovereign action, shortfall
in funds held outside the U.S., or in a currency other than U.S.
dollars, not due to sovereign action, and a shortfall in funds held
in the U.S.

------------------------------------------------------------------------
Location(s) customer
Customer Claim has consented to having
funds held
------------------------------------------------------------------------
A.............................. $50 U.S.
B.............................. [euro]50 U.K.
C.............................. $20 U.S.
C.............................. [euro]50 Germany
D.............................. $100. U.S.
D.............................. [pound]300 U.K.
D.............................. [euro]100 U.K., Germany, or Japan
E.............................. $80 U.S.
E.............................. [yen]10,000 Japan
------------------------------------------------------------------------

------------------------------------------------------------------------
Actual
Location asset
balance
------------------------------------------------------------------------
U.S.......................................................... $200
U.K.......................................................... [pound]20
0
U.K.......................................................... [euro]100
Germany...................................................... [euro]50
Japan........................................................ [yen]10,0
00
------------------------------------------------------------------------
Conversion Rates: [pound] 1 = $1; [yen]1=$0.01, [pound] 1=$1.5.

Reduction in Claims for General Shortfall

Convert each customer s claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
Conversion
Customer Claim rate Claim in US$
----------------------------------------------------------------------------------------------------------------
A............................................................... $50 1.0 $50
B............................................................... [euro]50 1.0 50
C............................................................... $20 1.0 20
C............................................................... [euro]50 1.0 50
D............................................................... $100. 1.0 100
D............................................................... [euro]300 1.5 450
D............................................................... [pound] 100 1.0 100
E............................................................... $80 1.0 80
E............................................................... [yen]10,000 0.01 100
---------------
Total....................................................... .............. .............. 1000.00
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $200 1.0 $200 .............. .............. $200
U.K..................................................... [pound]200 1.5 300 .............. .............. 300
U.K..................................................... [euro]100 1.0 100 .............. .............. 100
Germany................................................. [euro]50 1.0 50 100% $50 0
Japan................................................... [yen]10,000 0.01 100 50% 50 50
---------------- -----------------
Total............................................... .............. .............. 750 .............. 100.00 650.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign action:
Shortfall Percentage = (1-750/1000) = (1-75%) = 25%.
Reduce each customer's claim by the shortfall percentage:

[[Page 5560]]

B............................................................... 50 12.50 37.50
C............................................................... 70 17.50 52.50
D............................................................... 650 162.50 487.50
E............................................................... 180 45.00 135.00
-----------------
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

Due to sovereign action, none of the money in Germany and only
\1/2\ of the funds in Japan are available.

----------------------------------------------------------------------------------------------------------------
Presumed location of funds
Customer ---------------------------------------------------------------
U.S. U.K. Germany Japan
----------------------------------------------------------------------------------------------------------------
A............................................... $50 .............. .............. ..............
B............................................... .............. $50 .............. ..............
C............................................... 20 .............. $50 ..............
D............................................... 100 450 50 $50
E............................................... 80 .............. .............. 100
-----------------
----------------------------------------------------------------------------------------------------------------

Calculation of the allocation of the shortfall due to sovereign
action--Germany ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
Actual
Customer allocation Allocation Allocation share of actual shortfall
share shortfall allocated
----------------------------------------------------------------------------------------------------------------
C............................................. $50/$100 50% of $50...................... $25
D............................................. 50/100 50% of 50....................... 25
---------------
Total..................................... .............. ................................ 50
----------------------------------------------------------------------------------------------------------------

Japan ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
Allocation share of actual Actual shortfall
Customer Allocation share shortfall allocated
----------------------------------------------------------------------------------------------------------------
D........................................... $50/$150 33.3% of $50.................. $16.67
E........................................... 100/150 66.6% of 50................... 33.33
-----------------
Total................................... ................ .............................. 50.00
----------------------------------------------------------------------------------------------------------------

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
Claim in US
dollars after Allocation of Allocation of
Customer allocated non- shortfall due to shortfall due to Claim after all
sovereign soverign action sovereign action reductions
shortfall from Germany from Japan
----------------------------------------------------------------------------------------------------------------
A....................................... $37.50 ................ ................ 37.50
B....................................... 37.50 ................ ................ 37.50
C....................................... 52.50 $25 ................ 27.50
D....................................... 487.50 25 16.67 445.83
E....................................... 135.00 ................ 33.33 101.67
-------------------
Total............................... 750.00 50.00 50.00 650.00
----------------------------------------------------------------------------------------------------------------

Example 7. Shortfall in funds held outside the U.S., or in a
currency other than U.S. dollars, due to sovereign action, where the
FCM kept more funds than permitted in such location or currency.

------------------------------------------------------------------------
Location(s) customer
Customer Claim has consented to having
funds held
------------------------------------------------------------------------
A.............................. $50 U.S.
B.............................. 50 U.S.
B.............................. [euro]50 U.K.
C.............................. [euro]50 Germany.
D.............................. 100. U.S.
D.............................. [euro]100 U.K. or Germany.
E.............................. 50 U.S.
E.............................. [euro]50 U.K.
------------------------------------------------------------------------

[[Page 5561]]

Conversion Rates: [euro]1 = $1.

Reduction in Claims for General Shortfall

Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
Conversion
Customer Claim rate Claim in US$
----------------------------------------------------------------------------------------------------------------
A............................................................... $50 1.0 $50
B............................................................... 50 1.0 50
B............................................................... [euro]50 1.0 50
C............................................................... [euro]50 1.0 50
D............................................................... [euro]100. 1.0 100
D............................................................... [euro]100 1.0 100
E............................................................... 50 1.0 50
E............................................................... [euro]50 1.0 50
---------------
Total....................................................... .............. .............. 500.00
----------------------------------------------------------------------------------------------------------------

Determine assets available for distribution to customers,
converting to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Shortfall due Actual
Conversion Assets in U.S. to sovereign shortfall due Amount
Location Assets rate dollars action to sovereign actually
percentage action available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S..................................................... $250 1.0 $250 .............. .............. $250
U.K..................................................... [euro]50 1.0 50 .............. .............. 50
Germany................................................. [euro]200 1.0 200 100% 200 0
---------------- -----------------
Total............................................... .............. .............. 500.00 .............. 200 300.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Determine the percentage of shortfall that is not attributable
to sovereign
Shortfall Percentage = (1-500/500) = (1-100%) = 0%.
Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
Allocated dollars after
Customer Claim in US$ shortfall (non- allocated
sovereign) shortfall
----------------------------------------------------------------------------------------------------------------
A......................................................... $50 $0 $50.00
B......................................................... 100 0 100.00
C......................................................... 50 0 50.00
D......................................................... 200 0 200.00
E......................................................... 100 0 100.00
-------------------
Total................................................. 500.00 0.00 500.00
----------------------------------------------------------------------------------------------------------------

Reduction in Claims for Shortfall Due to Sovereign Action

Due to sovereign action, none of the money in Germany is
available.

----------------------------------------------------------------------------------------------------------------
Presumed location of funds
Customer -----------------------------------------------
U.S. U.K. Germany
----------------------------------------------------------------------------------------------------------------
A............................................................... $50
B............................................................... 50 50
C............................................................... 50
D............................................................... 100 100
E............................................................... 50 50
-----------------
Total....................................................... 250.00 100.00 150.00
----------------------------------------------------------------------------------------------------------------

[[Page 5562]]

Calculation of the allocation of the shortfall due to sovereign
action--Germany ($200 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
Allocation share of actual Actual shortfall
Customer Allocation share shortfall allocated
----------------------------------------------------------------------------------------------------------------
C........................................... $50/$150 33.3% of $200................. $66.67
D........................................... $100/$150 66.7% of $200................. $133.33
-----------------
Total................................... $200.000
----------------------------------------------------------------------------------------------------------------

This would result in the claims of customers C and D being
reduced below zero.
Accordingly, the claims of customer C and D will only be reduced
to zero, or $50 for C and $100 for D. This results in a Total Excess
Shortfall of $50.

----------------------------------------------------------------------------------------------------------------
Allocation of Allocation of
Actual shortfall shortfall for shortfall for Total excess
customer C customer D shortfall
----------------------------------------------------------------------------------------------------------------
$200...................................................... $50 $100 $50
----------------------------------------------------------------------------------------------------------------

This shortfall will be divided among the remaining customers who
have authorized funds to be held outside the U.S. or in a currency
other than U.S. dollars.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Allocation share
Total claims of (column B-C/
customers Portion of claim column B Total-- Allocation share of actual total Actual total
Customer permitting funds required to be all customer excess shortfall excess shortfall
to be held int the U.S. claims in U.S.) allocated
outside the U.S.
--------------------------------------------------------------------------------------------------------------------------------------------------------
B............................................. $100 $50 $50/$200 25% of $50...................... $12.50
C............................................. 50 0 \(1)\ 0
D............................................. 200 100 $100/200 50% of $50...................... 25
E............................................. 100 50 50/100 25% of $50...................... 12.50
------------------ -----------------
Total..................................... 450.00 50.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Claim already reduced to $0.

Claims After Reductions

----------------------------------------------------------------------------------------------------------------
Claim in U.S.
dollars after Allocation of Allocation of
Customer allocated non- shortfall due to total excess Claim after all
sovereign sovereign action shortfall reductions
shortfall Germany
----------------------------------------------------------------------------------------------------------------
A....................................... $50 $50.00
B....................................... 100 12.50 87.50
C....................................... 50 50 0
D....................................... 200 100 25 75.00
E....................................... 100 12.50 87.50
Total............................... 500.00 150.00 50.00 300.00
----------------------------------------------------------------------------------------------------------------

Issued in Washington, DC on January 29, 2003, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 03-2508 Filed 2-3-03; 8:45 am]
BILLING CODE 6351-01-P