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6351-01-P COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 1, 4, 41, and 190 RIN 3038-AE67 Bankruptcy Regulations AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. SUMMARY: The Commodity Futures Trading Commission (the “Commission”) is amending its regulations governing bankruptcy proceedings of commodity brokers. The amendments are meant to comprehensively update those regulations to reflect current market practices and lessons learned from past commodity broker bankruptcies. DATES: Effective date: The effective date for this final rule is [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. The compliance date for § 1.43 is [INSERT DATE 1 YEAR AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER], for all letters of credit accepted, and customer agreements entered into, by a futures commission merchant prior to [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Chief Counsel and Senior Advisor, 202-418-5092, [email protected], Ward P. Griffin, Senior Special Counsel, 202-418-5425, [email protected], Jocelyn Partridge, 202-418- 5926, [email protected], Abigail S. Knauff, 202-418-5123, [email protected], Division 1 of Clearing and Risk; Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. Table of Contents I. Background A. Background of the NPRM B. Major Themes in the Revisions to Part 190 II. Finalized Regulations A. Subpart A—General Provisions 1. Regulation 190.00: Statutory Authority, Organization, Core Concepts, Scope, and Construction 2. Regulation 190.01: Definitions 3. Regulation 190.02: General B. Subpart B—Futures Commission Merchant as Debtor 1. Regulation 190.03: Notices and Proofs of Claims 2. Regulation 190.04: Operation of the Debtor’s Estate—Customer Property 3. Regulation 190.05: Operation of the Debtor’s Estate—General 4. Regulation 190.06: Making and Taking Delivery under Commodity Contracts 5. Regulation 190.07: Transfers 6. Regulation 190.08: Calculation of Funded Net Equity 7. Regulation 190.09: Allocation of Property and Allowance of Claims 8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants During Business as Usual C. Subpart C—Clearing Organization as Debtor 1. Regulation 190.11: Scope and Purpose of Subpart C 2. Regulation 190.12: Required Reports and Records 3. Regulation 190.13: Prohibition on Avoidance of Transfers 4. Regulation 190.14: Operation of the Estate of the Debtor Subsequent to the Filing Date 5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules and Procedures 6. Regulation 190.16: Delivery 7. Regulation 190.17: Calculation of Net Equity 8. Regulation 190.18: Treatment of property 9. Regulation 190.19: Support of Daily Settlement D. Appendix A Forms E. Appendix B Forms F. Technical Corrections to Other Parts 1. Part 1 2. Part 4 3. Part 41 G. Additional Comments H. Supplemental Proposal III. Cost-Benefit Considerations 2 A. Introduction 1. Baseline 2. Overarching Concepts a. Changes to Structure of Industry b. Trustee Discretion c. Cost Effectiveness and Promptness versus Precision d. Unique Nature of Bankruptcy Events e. Administrative Costs are Costs to the Estate, and Often to the Customers f. Preference for public customers over non-public customers and for both over general creditors. B. Subpart A—General Provisions 1. Regulation 190.00: Statutory Authority, Organization, Core Concepts, Scope, and Construction: Consideration of Costs and Benefits 2. Regulation 190.01: Definitions: Consideration of Costs and Benefits 3. Regulation 190.02: General: Consideration of Costs and Benefits 4. Section 15(a) Factors—Subpart A C. Subpart B—Futures Commission Merchant as Debtor 1. Regulation 190.03: Notices and Proofs of Claims: Consideration of Costs and Benefits 2. Regulation 190.04: Operation of the Debtor’s Estate—Customer Property: Consideration of Costs and Benefits 3. Regulation 190.05: Operation of the Debtor’s Estate—General: Consideration of Costs and Benefits 4. Regulation 190.06: Making and Taking Delivery Under Commodity Contracts: Consideration of Costs and Benefits 5. Regulation 190.07: Transfers: Consideration of Costs and Benefits 6. Regulation 190.08: Calculation of Funded Net Equity: Consideration of Costs and Benefits 7. Regulation 190.09: Allocation of Property and Allowance of Claims: Consideration of Costs and Benefits 8. Regulation 190.10: Provisions Applicable to Futures Commission Merchants during Business as Usual: Consideration of Costs and Benefits 9. Section 15(a) Factors—Subpart B D. Subpart C—Clearing Organization as Debtor 1. Regulation 190.11: Scope and Purpose of Subpart C: Consideration of Costs and Benefits 2. Regulation 190.12: Required Reports and Records: Consideration of Costs and Benefits 3. Regulation 190.13: Prohibitions on Avoidance of Transfers: Consideration of Costs and Benefits 4. Regulation 190.14: Operation of the Estate of the Debtor Subsequent to the Filing Date: Consideration of Costs and Benefits 5. Regulation 190.15: Recovery and Wind-down Plans; Default Rules and Procedures: Consideration of Costs and Benefits 6. Regulation 190.16: Delivery: Consideration of Costs and Benefits 3 7. Regulation 190.17: Calculation of Net Equity: Consideration of Costs and Benefits 8. Regulation 190.18: Treatment of Property: Consideration of Costs and Benefits 9. Regulation 190.19: Support of Daily Settlement: Consideration of Costs and Benefits 10. Section 15(a) Factors—Subpart C E. Changes to Appendices A and B F. Technical Corrections to Parts 1, 4, and 41 IV. Related Matters A. Antitrust Considerations B. Regulatory Flexibility Act C. Paperwork Reduction Act 1. Reporting Requirements in an FCM Bankruptcy 2. Recordkeeping Requirements in an FCM Bankruptcy 3. Third-Party Disclosure Requirements Applicable to a Single Respondent in an FCM Bankruptcy 4. Reporting Requirements in a DCO Bankruptcy 5. Recordkeeping Requirements in a DCO Bankruptcy 6. Third-Party Disclosure Requirements Applicable to a Single Respondent in a DCO Bankruptcy 7. Third-Party Disclosure Requirements Applicable to Multiple Respondents During Business as Usual I. Background A. Background of the NPRM The basic structure of the Commission’s bankruptcy regulations, part 190 of title 17 of the Code of Federal Regulations, was proposed in 1981 and finalized in 1983. In April of this year, the Commission proposed a comprehensive revision of part 190 (the “Proposal”),1 and in September of this year, the Commission issued a supplemental proposal (the “Supplemental Proposal”)2 addressing a particular issue involving the interaction between bankruptcy and resolution of a clearing organization pursuant to Title 1 85 FR 36000 (June 12, 2020). 2 85 FR 60110 (Sept. 24, 2020). 4 II of the Dodd-Frank Wall Street Reform and Consumer Protection Act3 (hereinafter, “Title II” and “Dodd-Frank”). The Commission is revising part 190 comprehensively in light of several major changes to the industry over the 37 years since part 190 was first finalized. These changes include exponential growth in the speed of transactions and trade processing, important lessons learned over prior bankruptcies, and the increased importance of derivatives clearing organizations (“DCOs”) to the financial system. In promulgating these rules, the Commission is exercising its broad power under the Commodity Exchange Act (“CEA” or “Act”) to make regulations with respect to commodity broker debtors. Specifically, section 20(a) states that notwithstanding title 11, the Commission may provide, with respect to a commodity broker that is a debtor under chapter 7 of title 11, by rule or regulation (1) that certain cash, securities, other property, or commodity contracts are to be included in or excluded from customer property or member property; (2) that certain cash, securities, other property, or commodity contracts are to be specifically identifiable to a particular customer in a specific capacity; (3) the method by which the business of such commodity broker is to be conducted or liquidated after the date of the filing of the petition under such chapter, including the payment and allocation of margin with respect to commodity contracts not specifically identifiable to a particular customer pending their orderly liquidation; (4) any persons to which customer property and commodity contracts may 3 P.L. 111-203 (July 21, 2010). 5 be transferred under section 766 of title 11; and (5) how the net equity of a customer is to be determined.4 In developing this rulemaking, the Commission benefited from outside contributions. In particular, the Proposal benefited from a thoughtful and detailed model set of part 190 rules submitted by the Part 190 Subcommittee of the Business Law Section of the American Bar Association (“ABA Subcommittee”).5 In addition, and as discussed further below, the Commission benefited from thoughtful, analytical, and detailed public comments submitted in response to the Proposal and Supplemental Proposal. B. Major Themes in the Revisions to Part 190 The major themes in the revisions to part 190 include the following: 1) The Commission is adding § 190.00, which sets out the statutory authority, organization, core concepts, scope, and rules of construction for part 190. More generally, this section sets out, after notice and comment rulemaking, the Commission’s thinking and intent regarding part 190 in order to benefit and to enhance the understanding of DCOs, FCMs, their customers, trustees,6 and the public at large.

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