DIVISION OF TRADING AND MARKETS

FINANCIAL AND SEGREGATION INTERPRETATION NO. 5 

Interpretation Relating to Unsecured Accounts Receivable Included in "Current Assets"

The Division of Trading and Markets has recently received an inquiry from a futures commission merchant ("FCM") in which the FCM requested an Interpretation of Commission Regulation 1.17(c)(2)(ii)(A). The Division believes that the interpretation requested by the FCM is applicable to all futures commission merchants. For that reason the Division has decided to issue a formal interpretation in response to the inquiry.

The FCM asked the following question: Can receivables arising from bookkeeping, consulting and tax services regularly performed by the FCM in the usual course of its business activity be included as current assets under Regulation 1.17(c)(2)(ii)(A)?

Regulation 1.17(c)(2) provides that:

The term "Current Assets" means cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold during the next 12 months. "Current Assets" shall:

(ii) exclude all unsecured receivables, advances and loans except for:

(A) Receivables resulting from the marketing of inventories commonly associated with business activities of the applicant or registrant and advances on fixed price purchases commitments: Provided, such receivables or advances are outstanding no longer than 3 calendar months from the date that they are accrued.

The principal purpose of Section 1.17(c)(2)(ii)(A) of the regulations is to exclude from current assets unsecured receivables which:

1. are outstanding longer than 3 calendar months from the date they are accrued;

2. result from transactions outside of the normal and ordinary course of the FCM's business, for example, unsecured loans made by the FCM to any person(s);

3. result from isolated transactions, for example, those which might result from the sale of fixed assets.

Receivables resulting from services rendered in the ordinary course of an FCM's business are not of the same nature as those described in 2 and 3 above but are similar to those resulting from the marketing of inventories commonly associated with business activities. Therefore, unsecured receivables which result from services rendered in the ordinary course of the FCM's business will receive the same treatment for capital purposes as those receivables resulting from the marketing of inventories commonly associated with the business activities of the applicant or registrant and advances on fixed-price purchases commitments.

In order for the receivables to receive this treatment, the FCM must be able to demonstrate that:

1. the services are rendered by an operating unit of the FCM which is in business of regularly offering such services;

2. such services are rendered to the general public in addition to persons affiliated (subsidiaries, parent, or entities under common ownership) with the FCM; and

3. such services are billed to and paid for by persons affiliated with the FCM in a regular manner, consistent with billings to and payments by persons not affiliated with the FCM.

The proration of costs and expenses by an FCM to its affiliates would not meet the above tests.

The statements made in this interpretation are not rules or interpretations of the Commodity Futures Trading Commission, nor are they published as bearing the Commission's official approval; they represent interpretations and practices followed by the Division of Trading and Markets in administering the financial and segregation requirements of the Commodity Exchange Act and the regulations thereunder.

FOR FURTHER INFORMATION CONTACT: Daniel A. Driscoll, Assistant Chief Accountant, Division of Trading and Markets, Commodity Futures Trading Commission, (202) 254-8955.

Issued in Washington, D.C., on September 7, 1979, by the Division of Trading and Markets.

 

 

JOHN L. MANLEY

DIRECTOR

DIVISION OF TRADING AND MARKETS