[Title 17 CFR 41]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter I - COMMODITY FUTURES TRADING COMMISSION]
[Part 41 - SECURITY FUTURES PRODUCTS]
[From the U.S. Government Printing Office]
17COMMODITY AND SECURITIES EXCHANGES12003-04-012003-04-01falseSECURITY FUTURES PRODUCTS41PART 41COMMODITY AND SECURITIES EXCHANGESCOMMODITY FUTURES TRADING COMMISSION
PART 41--SECURITY FUTURES PRODUCTS--Table of Contents
Subpart A--General Provisions
Sec.
41.1 Definitions.
41.2 Required records.
41.3 Application for an exemptive order pursuant to section 4f(a)(4)(B)
of the Act.
41.4-41.9 [Reserved]
Subpart B--Narrow-Based Security Indexes
41.11 Method for determining market capitalization and dollar value of
average daily trading volume; application of the definition of
narrow-based security index.
41.12 Indexes underlying futures contracts trading for fewer than 30
days.
41.13 Futures contracts on security indexes trading on or subject to
the rules of a foreign board of trade.
41.14 Transition period for indexes that cease being narrow-based
security indexes.
Subpart C--Requirements and Standards for Listing Security Futures
Products
41.21 Requirements for underlying securities.
41.22 Required certifications.
41.23 Listing of security futures products for trading.
41.24 Rule amendments to security futures products.
41.25 Additional conditions for trading for security futures products.
[[Page 439]]
41.27 Prohibition of dual trading in security futures products by floor
brokers.
Subpart D--Notice--Designated Contract Markets in Security Futures
Products
41.31 Notice-designation requirements.
41.32 Continuing obligations.
41.33 Applications for exemptive orders.
41.34 Exempt provisions.
Subpart E--Customer Accounts and Margin Requirements
41.41 Security futures products accounts.
41.42 Customer margin requirements for security futures--authority,
purpose, interpretation, and scope.
41.43 Definitions.
41.44 General provisions.
41.45 Required margin.
41.46 Type, form and use of margin.
41.47 Withdrawal of margin.
41.48 Undermargined accounts.
41.49 Filing proposed margin rule changes with the Commission.
Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat.
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).
Source: 66 FR 44511, Aug. 23, 2001, unless otherwise noted.
Subpart A--General Provisions
Sec. 41.1 Definitions.
For purposes of this part:
(a) Alternative trading system shall have the meaning set forth in
section 1a(1) of the Act.
(b) Board of trade shall have the meaning set forth in section 1a(2)
of the Act.
(c) Broad-based security index means a group or index of securities
that does not constitute a narrow-based security index.
(d) Foreign board of trade means a board of trade located outside of
the United States, its territories or possessions, whether incorporated
or unincorporated, where foreign futures or foreign options are entered
into.
(e) Narrow-based security index has the same meaning as in section
1a(25) of the Commodity Exchange Act.
(f) National securities association means a board of trade
registered with the Securities and Exchange Commission pursuant to
section 15A(a) of the Securities Exchange Act of 1934.
(g) National securities exchange means a board of trade registered
with the Securities and Exchange Commission pursuant to section 6(a) of
the Securities Exchange Act of 1934.
(h) Rule shall have the meaning set forth in Commission regulation
40.1.
(i) Security futures product shall have the meaning set forth in
section 1a(32) of the Act.
(j) Opening price means the price at which a security opened for
trading, or a price that fairly reflects the price at which a security
opened for trading, during the regular trading session of the national
securities exchange or national securities association that lists the
security. If the security is not listed on a national securities
exchange or a national securities association, then opening price shall
mean the price at which a security opened for trading, or a price that
fairly reflects the price at which a security opened for trading, on the
primary market for the security.
(k) Regular trading session of a security means the normal hours for
business of a national securities exchange or national securities
association that lists the security.
(l) Regulatory halt means a delay, halt, or suspension in the
trading of a security, that is instituted by the national securities
exchange or national securities association that lists the security, as
a result of:
(1) A determination that there are matters relating to the security
or issuer that have not been adequately disclosed to the public, or that
there are regulatory problems relating to the security which should be
clarified before trading is permitted to continue; or
(2) The operation of circuit breaker procedures to halt or suspend
trading in all equity securities trading on that national securities
exchange or national securities association.
[66 FR 44511, Aug. 23, 2001, as amended at 66 FR 44965, Aug. 27, 2001;
67 FR 36761, May 24, 2002]
Sec. 41.2 Required records.
A designated contract market or registered derivatives transaction
execution facility that trades a security index or security futures
product shall maintain in accordance with the requirements of Sec. 1.31
books and records of all activities related to the trading
[[Page 440]]
of such products, including: Records related to any determination under
subpart B of this part whether or not a futures contract on a security
index is a narrow-based security index or a broad-based security index.
Sec. 41.3 Application for an exemptive order pursuant to section 4f(a)(4)(B) of the Act.
(a) Any futures commission merchant or introducing broker registered
in accordance with the notice registration provisions of Sec. 3.10 of
this chapter, or any broker or dealer exempt from floor broker or floor
trader registration pursuant to section 4f(a)(3) of the Act, may apply
to the Commission for an order pursuant to section 4f(a)(4)(B) of the
Act granting exemption to such person from any provision of the Act or
the Commission's regulations other than sections 4c(b), 4c(d), 4c(e),
4c(g), 4d, 4e, 4h, 4f(b), 4f(c), 4j, 4k(1), 4p, 6d, 8(d), 8(g), and 16
of the Act and the rules thereunder.
(b) An application pursuant to this section must set forth in
writing or in an electronic mail message the following information:
(1) The name, main business address and main business telephone
number of the person applying for an order;
(2) The capacity in which the person is registered with the
Securities and Exchange Commission and the person's CRD number (if a
member of the National Association of Securities Dealers, Inc.) or
equivalent self-regulatory organization identification, together with a
certification, if true, that the person's registration is not suspended
pursuant to an order of the Securities and Exchange Commission;
(3) The particular section(s) of the Act and/or provision(s) of the
Commission's regulations with respect to which the person seeks
exemption;
(4) Any provision(s) of the securities laws or rules, or of the
rules of a securities self-regulatory organization analogous to the
provision(s);
(5) A clear explanation of the facts and circumstances under which
the person believes that the requested exemptive relief is necessary or
appropriate in the public interest; and
(6) A clear explanation of the extent to which the requested
exemptive relief is consistent with the protection of investors.
(c) A national securities exchange or other securities industry
self-regulatory organization may submit an application for an order
pursuant to this section on behalf of its members.
(d) An application for an order must be submitted to the Director of
the Division of Clearing and Intermediary Oversight, Commodity Futures
Trading Commission, 1155 21st Street, NW., Washington, DC 20581, if in
paper form, or to [email protected] if submitted via electronic mail.
(e) The Commission may, in its sole discretion, grant the
application, deny the application, decline to entertain the application,
or grant the application subject to one or more conditions.
[66 FR 43086, Aug. 17, 2001. Redesignated at 67 FR 53171, Aug. 14, 2002,
as amended at 67 FR 62352, Oct. 7, 2002]
Secs. 41.4--41.9 [Reserved]
Subpart B--Narrow-Based Security Indexes
Sec. 41.11 Method for determining market capitalization and dollar value of average daily trading volume; application of the definition of narrow-based
security index.
(a) Market capitalization. For purposes of Section 1a(25)(B) of the
Act (7 U.S.C. 1a(25)(B)):
(1) On a particular day, a security shall be 1 of 750 securities
with the largest market capitalization as of the preceding 6 full
calendar months when it is included on a list of such securities
designated by the Commission and the SEC as applicable for that day.
(2) In the event that the Commission and the SEC have not designated
a list under paragraph (a)(1) of this section:
(i) The method to be used to determine market capitalization of a
security as of the preceding 6 full calendar months is to sum the values
of the market capitalization of such security for each U.S. trading day
of the preceding 6 full calendar months, and to divide this sum by the
total number of such trading days.
(ii) The 750 securities with the largest market capitalization shall
be identified from the universe of all reported
[[Page 441]]
securities, as defined in Sec. 240.11Ac1-1, that are common stock or
depositary shares.
(b) Dollar value of ADTV.
(1) For purposes of Section 1a(25)(A) and (B) of the Act (7 U.S.C.
1a(25)(A) and (B)):
(i)(A) The method to be used to determine the dollar value of ADTV
of a security is to sum the dollar value of ADTV of all reported
transactions in such security in each jurisdiction as calculated
pursuant to paragraphs (b)(1)(ii) and (iii) of this section.
(B) The dollar value of ADTV of a security shall include the value
of all reported transactions for such security and for any depositary
share that represents such security.
(C) The dollar value of ADTV of a depositary share shall include the
value of all reported transactions for such depositary share and for the
security that is represented by such depositary share.
(ii) For trading in a security in the United States, the method to
be used to determine the dollar value of ADTV as of the preceding 6 full
calendar months is to sum the value of all reported transactions in such
security for each U.S. trading day during the preceding 6 full calendar
months, and to divide this sum by the total number of such trading days.
(iii)(A) For trading in a security in a jurisdiction other than the
United States, the method to be used to determine the dollar value of
ADTV as of the preceding 6 full calendar months is to sum the value in
U.S. dollars of all reported transactions in such security in such
jurisdiction for each trading day during the preceding 6 full calendar
months, and to divide this sum by the total number of trading days in
such jurisdiction during the preceding 6 full calendar months.
(B) If the value of reported transactions used in calculating the
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a
currency other than U.S. dollars, the total value of each day's
transactions in such currency shall be converted into U.S. dollars on
the basis of a spot rate of exchange for that day obtained from at least
one independent entity that provides or disseminates foreign exchange
quotations in the ordinary course of its business.
(iv) The dollar value of ADTV of the lowest weighted 25% of an index
is the sum of the dollar value of ADTV of each of the component
securities comprising the lowest weighted 25% of such index.
(2) For purposes of Section 1a(25)(B)(III)(cc) of the Act (7 U.S.C.
1a(25)(B)(III)(cc)):
(i) On a particular day, a security shall be 1 of 675 securities
with the largest dollar value of ADTV as of the preceding 6 full
calendar months when it is included on a list of such securities
designated by the Commission and the SEC as applicable for that day.
(ii) In the event that the Commission and the SEC have not
designated a list under paragraph (b)(2)(i) of this section:
(A) The method to be used to determine the dollar value of ADTV of a
security as of the preceding 6 full calendar months is to sum the value
of all reported transactions in such security in the United States for
each U.S. trading day during the preceding 6 full calendar months, and
to divide this sum by the total number of such trading days.
(B) The 675 securities with the largest dollar value of ADTV shall
be identified from the universe of all reported securities as defined in
Sec. 240.11Ac1-1 that are common stock or depositary shares.
(c) Depositary Shares and Section 12 Registration. For purposes of
Section 1a(25)(B)(III)(aa) of the Act (7 U.S.C. 1a(25)(B)(III)(aa)), the
requirement that each component security of an index be registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) shall be satisfied with respect to any security that is a
depositary share if the deposited securities underlying the depositary
share are registered pursuant to Section 12 of the Securities Exchange
Act of 1934 and the depositary share is registered under the Securities
Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).
(d) Definitions. For purposes of this section:
(1) SEC means the Securities and Exchange Commission.
(2) Closing price of a security means:
[[Page 442]]
(i) If reported transactions in the security have taken place in the
United States, the price at which the last transaction in such security
took place in the regular trading session of the principal market for
the security in the United States.
(ii) If no reported transactions in a security have taken place in
the United States, the closing price of such security shall be the
closing price of any depositary share representing such security divided
by the number of shares represented by such depositary share.
(iii) If no reported transactions in a security or in a depositary
share representing such security have taken place in the United States,
the closing price of such security shall be the price at which the last
transaction in such security took place in the regular trading session
of the principal market for the security. If such price is reported in a
currency other than U.S. dollars, such price shall be converted into
U.S. dollars on the basis of a spot rate of exchange relevant for the
time of the transaction obtained from at least one independent entity
that provides or disseminates foreign exchange quotations in the
ordinary course of its business.
(3) Depositary share has the same meaning as in Sec. 240.12b-2.
(4) Foreign financial regulatory authority has the same meaning as
in Section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(52)).
(5) Lowest weighted 25% of an index. With respect to any particular
day, the lowest weighted component securities comprising, in the
aggregate, 25% of an index's weighting for purposes of Section
1a(25)(A)(iv) of the Act (7 U.S.C. 1a(25)(A)(iv)) (``lowest weighted 25%
of an index'') means those securities:
(i) That are the lowest weighted securities when all the securities
in such index are ranked from lowest to highest based on the index's
weighting methodology; and
(ii) For which the sum of the weight of such securities is equal to,
or less than, 25% of the index's total weighting.
(6) Market capitalization of a security on a particular day:
(i) If the security is not a depositary share, is the product of:
(A) The closing price of such security on that same day; and
(B) The number of outstanding shares of such security on that same
day.
(ii) If the security is a depositary share, is the product of:
(A) The closing price of the depositary share on that same day
divided by the number of deposited securities represented by such
depositary share; and
(B) The number of outstanding shares of the security represented by
the depositary share on that same day.
(7) Outstanding shares of a security means the number of outstanding
shares of such security as reported on the most recent Form 10-K, Form
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a,
249.310b, 249.308b, or 249.220f) filed with the Securities and Exchange
Commission by the issuer of such security, including any change to such
number of outstanding shares subsequently reported by the issuer on a
Form 8-K (17 CFR 249.308).
(8) Preceding 6 full calendar months means, with respect to a
particular day, the period of time beginning on the same day of the
month 6 months before and ending on the day prior to such day.
(9) Principal market for a security means the single securities
market with the largest reported trading volume for the security during
the preceding 6 full calendar months.
(10) Reported transaction means:
(i) With respect to securities transactions in the United States,
any transaction for which a transaction report is collected, processed,
and made available pursuant to an effective transaction reporting plan,
or for which a transaction report, last sale data, or quotation
information is disseminated through an automated quotation system as
described in Section 3(a)(51)(A)(ii) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(51)(A)(ii)); and
(ii) With respect to securities transactions outside the United
States, any transaction that has been reported to a foreign financial
regulatory authority in the jurisdiction where such transaction has
taken place.
(11) U.S. trading day means any day on which a national securities
exchange is open for trading.
[[Page 443]]
(12) Weighting of a component security of an index means the
percentage of such index's value represented, or accounted for, by such
component security.
Sec. 41.12 Indexes underlying futures contracts trading for fewer than 30 days.
(a) An index on which a contract of sale for future delivery is
trading on a designated contract market, registered derivatives
transaction execution facility, or foreign board of trade is not a
narrow-based security index under Section 1a(25) of the Act (7 U.S.C.
1a(25)) for the first 30 days of trading, if:
(1) Such index would not have been a narrow-based security index on
each trading day of the preceding 6 full calendar months with respect to
a date no earlier than 30 days prior to the commencement of trading of
such contract;
(2) On each trading day of the preceding 6 full calendar months with
respect to a date no earlier than 30 days prior to the commencement of
trading such contract:
(i) Such index had more than 9 component securities;
(ii) No component security in such index comprised more than 30
percent of the index's weighting;
(iii) The 5 highest weighted component securities in such index did
not comprise, in the aggregate, more than 60 percent of the index's
weighting; and
(iv) The dollar value of the trading volume of the lowest weighted
25% of such index was not less than $50 million (or in the case of an
index with 15 or more component securities, $30 million); or
(3) On each trading day of the 6 full calendar months preceding a
date no earlier than 30 days prior to the commencement of trading such
contract:
(i) Such index had at least 9 component securities;
(ii) No component security in such index comprised more than 30
percent of the index's weighting; and
(iii) Each component security in such index was:
(A) Registered pursuant to Section 12 of the Securities Exchange Act
of 1934 (15 U.S.C. 78) or was a depositary share representing a security
registered pursuant to Section 12 of the Securities Exchange Act of
1934;
(B) 1 of 750 securities with the largest market capitalization that
day; and
(C) 1 of 675 securities with the largest dollar value of trading
volume that day.
(b) An index that is not a narrow-based security index for the first
30 days of trading pursuant to paragraph (a) of this section, shall
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive
calendar months.
(c) An index that becomes a narrow-based security index solely
because it was a narrow-based security index for more than 45 business
days over 3 consecutive calendar months pursuant to paragraph (b) of
this section shall not be a narrow-based security index for the
following 3 calendar months.
(d) Definitions. For purposes of this section:
(1) Market capitalization has the same meaning as in
Sec. 41.11(d)(6) of this chapter.
(2) Dollar value of trading volume of a security on a particular day
is the value in U.S. dollars of all reported transactions in such
security on that day. If the value of reported transactions used in
calculating dollar value of trading volume is reported in a currency
other than U.S. dollars, the total value of each day's transactions
shall be converted into U.S. dollars on the basis of a spot rate of
exchange for that day obtained from at least one independent entity that
provides or disseminates foreign exchange quotations in the ordinary
course of its business.
(3) Lowest weighted 25% of an index has the same meaning as in
Sec. 41.11(d)(5) of this chapter.
(4) Preceding 6 full calendar months has the same meaning as in
Sec. 41.11(d)(8) of this chapter.
(5) Reported transaction has the same meaning as in
Sec. 41.11(d)(10) of this chapter.
Sec. 41.13 Futures contracts on security indexes trading on or subject to the rules of a foreign board of trade.
When a contract of sale for future delivery on a security index is
traded on or subject to the rules of a foreign
[[Page 444]]
board of trade, such index shall not be a narrow-based security index if
it would not be a narrow-based security index if a futures contract on
such index were traded on a designated contract market or registered
derivatives transaction execution facility.
Sec. 41.14 Transition period for indexes that cease being narrow-based security indexes.
(a) Forty-five day tolerance provision. An index that is a narrow-
based security index that becomes a broad-based security index for no
more than 45 business days over 3 consecutive calendar months shall be a
narrow-based security index.
(b) Transition period for indexes that cease being narrow-based
security indexes for more than forty-five days. An index that is a
narrow-based security index that becomes a broad-based security index
for more than 45 business days over 3 consecutive calendar months shall
continue to be a narrow-based security index for the following 3
calendar months.
(c) Trading in months with open interest following transition
period. After the transition period provided for in paragraph (b) of
this section ends, a national securities exchange may continue to trade
only in those months in the security futures product that had open
interest on the date the transition period ended.
(d) Definition of calendar month. Calendar month means, with respect
to a particular day, the period of time beginning on a calendar date and
ending during another month on a day prior to such date.
Subpart C--Requirements and Standards for Listing Security Futures
Products
Source: 66 FR 55083, Nov. 1, 2001, unless otherwise noted.
Sec. 41.21 Requirements for underlying securities.
(a) Security futures products based on a single security. A futures
contract on a single security is eligible to be traded as a security
futures product only if:
(1) The underlying security is registered pursuant to Section 12 of
the Securities Exchange Act of 1934;
(2) The underlying security is:
(i) Common stock, or
(ii) Such other equity security as the Commission and the SEC
jointly deem appropriate; and,
(3) The underlying security conforms with the listing standards for
the security futures product that the designated contract market or
registered derivatives transaction execution facility has filed with the
SEC under Section 19(b) of the Securities Exchange Act of 1934.
(b) Security futures product based on two or more securities. A
futures contract on an index of two or more securities is eligible to be
traded as a security futures product only if:
(1) The index is a narrow-based security index as defined in Section
1a(25) of the Act;
(2) The securities in the index are registered pursuant to Section
12 of the Securities Exchange Act of 1934;
(3) The securities in the index are:
(i) Common stock, or
(ii) Such other equity securities as the Commission and the SEC
jointly deem appropriate; and,
(4) The index conforms with the listing standards for the security
futures product that the designated contract market or registered
derivatives transaction execution facility has filed with the SEC under
Section 19(b) of the Securities Exchange Act of 1934.
Sec. 41.22 Required certifications.
It shall be unlawful for a designated contract market or registered
derivatives transaction execution facility to list for trading or
execution a security futures product unless the designated contract
market or registered derivatives transaction execution facility has
provided the Commission with a certification that the specific security
futures product or products and the designated contract market or
registered derivatives transaction execution facility meet, as
applicable, the following criteria:
(a) The underlying security or securities satisfy the requirements
of Sec. 41.21;
(b) If the security futures product is not cash settled,
arrangements are in
[[Page 445]]
place with a clearing agency registered pursuant to section 17A of the
Securities Exchange Act of 1934 for the payment and delivery of the
securities underlying the security futures product;
(c) Common clearing. [Reserved]
(d) Only futures commission merchants, introducing brokers,
commodity trading advisors, commodity pool operators or associated
persons subject to suitability rules comparable to those of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, except to the extent otherwise permitted under the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, may solicit, accept any order for, or otherwise deal in any
transaction in or in connection with security futures products;
(e) If the board of trade is a designated contract market pursuant
to section 5 of the Act or is a registered derivatives transaction
execution facility pursuant to section 5a of the Act, dual trading in
these security futures products is restricted in accordance with
Sec. 41.27;
(f) Trading in the security futures products is not readily
susceptible to manipulation of the price of such security futures
product, nor to causing or being used in the manipulation of the price
of any underlying security, option on such security, or option on a
group or index including such securities, consistent with the conditions
for trading of Sec. 41.25;
(g) Procedures are in place for coordinated surveillance among the
board of trade, any market on which any security underlying a security
futures product is traded, and other markets on which any related
security is traded to detect manipulation and insider trading. A board
of trade that is an alternative trading system does not need to make
this certification, provided that:
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures;
(h) An audit trail is in place to facilitate coordinated
surveillance among the board of trade, any market on which any security
underlying a security futures product is traded, and any market on which
any related security is traded. A board of trade that is an alternative
trading system does not need to make this certification, provided that:
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures;
(i) Procedures are in place to coordinate regulatory trading halts
between the board of trade and markets on which any security underlying
the security futures product is traded and other markets on which any
related security is traded. A board of trade that is an alternative
trading system does not need to make this certification, provided that:
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures; and
(j) The margin requirements for the security futures product will
comply with the provisions specified in Sec. 41.43 through Sec. 41.48.
Sec. 41.23 Listing of security futures products for trading.
(a) Initial listing of products for trading. To list new security
futures products for trading, a designated contract
[[Page 446]]
market or registered derivatives transaction execution facility shall
submit to the Commission at its Washington, DC headquarters, either in
electronic or hard-copy form, to be received by the Commission no later
than the day prior to the initiation of trading, a filing that:
(1) Is labeled ``Listing of Security Futures Product;''
(2) Includes a copy of the product's rules, including its terms and
conditions;
(3) Includes the certifications required by Sec. 41.22;
(4) Includes a certification that the terms and conditions of the
contract comply with the additional conditions for trading of
Sec. 41.25; and
(5) If the board of trade is a designated contract market pursuant
to section 5 of the Act or a registered derivatives transaction
execution facility pursuant to section 5a of the Act, it includes a
certification that the security futures product complies with the Act
and rules thereunder.
(b) Voluntary submission of security futures products for Commission
approval. A designated contract market or registered derivatives
transaction execution facility may request that the Commission approve
any security futures product under the procedures of Sec. 40.5 of this
chapter, provided however that the registered entity shall include the
certification required by Sec. 41.22 with its submission under Sec. 40.5
of this chapter. Notice designated contract markets may not request
Commission approval of security futures products.
Sec. 41.24 Rule amendments to security futures products.
(a) Self-certification of rules and rule amendments by designated
contract markets and registered derivatives clearing organizations. A
designated contract market or registered derivatives clearing
organization may implement any new rule or rule amendment relating to a
security futures product by submitting to the Commission at its
Washington, DC headquarters, either in electronic or hard-copy form, to
be received by the Commission no later than the day prior to the
implementation of the rule or rule amendment, a filing that:
(1) Is labeled ``Security Futures Product Rule Submission;'
(2) Includes a copy of the new rule or rule amendment;
(3) Includes a certification that the designated contract market or
registered derivatives clearing organization has filed the rule or rule
amendment with the Securities and Exchange Commission, if such a filing
is required; and
(4) If the board of trade is a designated contract market pursuant
to section 5 of the Act or is a registered derivatives clearing
organization pursuant to section 5b of the Act, it includes the
documents and certifications required to be filed with the Commission
pursuant to Sec. 40.6 of this chapter, including a certification that
the security futures product complies with the Act and rules thereunder.
(b) Self-certification of rules by registered derivatives
transaction execution facilities. Notwithstanding Sec. 37.7 of this
chapter, a registered derivatives transaction execution facility may
only implement a new rule or rule amendment relating to a security
futures product if the registered derivatives transaction execution
facility has certified the rule or rule amendment pursuant to the
procedures of paragraph (a) of this section.
(c) Voluntary submission of rules for Commission review and
approval. A designated contract market, registered derivatives
transaction execution facility, or a registered derivatives clearing
organization clearing security futures products may request that the
Commission approve any rule or proposed rule or rule amendment relating
to a security futures product under the procedures of Sec. 40.5 of this
chapter, provided however that the registered entity shall include the
certifications required by Sec. 41.22 with its submission under
Sec. 40.5 of this chapter. Notice designated contract markets may not
request Commission approval of rules.
Sec. 41.25 Additional conditions for trading for security futures products.
(a) Common provisions. (1) Reporting of data. The designated
contract market or registered derivatives transaction execution facility
shall comply with
[[Page 447]]
chapter 16 of this title requiring the daily reporting of market data.
(2) Regulatory trading halts. The rules of a designated contract
market or registered derivatives transaction execution facility that
lists or trades one or more security futures products must include the
following provisions:
(i) Trading of a security futures product based on a single security
shall be halted at all times that a regulatory halt has been instituted
for the underlying security; and
(ii) Trading of a security futures product based on a narrow-based
security index shall be halted at all times that a regulatory halt has
been instituted for one or more underlying securities that constitute 50
percent or more of the market capitalization of the narrow-based
security index.
(3) Speculative position limits. The designated contract market or
registered derivatives transaction execution facility shall have rules
in place establishing position limits or position accountability
procedures for the expiring futures contract month. The designated
contract market or registered derivatives transaction execution facility
shall,
(i) Adopt a net position limit no greater than 13,500 (100-share)
contracts applicable to positions held during the last five trading days
of an expiring contract month; except where,
(A) For security futures products where the average daily trading
volume in the underlying security exceeds 20 million shares, or exceeds
15 million shares and there are more than 40 million shares of the
underlying security outstanding, the designated contract market or
registered derivatives transaction execution facility may adopt a net
position limit no greater than 22,500 (100-share) contracts applicable
to positions held during the last five trading days of an expiring
contract month; or
(B) For security futures products where the average daily trading
volume in the underlying security exceeds 20 million shares and there
are more than 40 million shares of the underlying security outstanding,
the designated contract market or registered derivatives transaction
execution facility may adopt a position accountability rule. Upon
request by the designated contract market or registered derivatives
transaction execution facility, traders who hold net positions greater
than 22,500 (100-share) contracts, or such lower level specified by
exchange rules, must provide information to the exchange and consent to
halt increasing their positions when so ordered by the exchange.
(ii) For a security futures product comprised of more than one
security, the criteria in paragraphs (a)(3)(i)(A) and (a)(3)(i)(B) of
this section must apply to the security in the index with the lowest
average daily trading volume.
(iii) Exchanges may approve exemptions from these position limits
pursuant to rules that are consistent with Sec. 150.3 of this chapter.
(iv) For purposes of this section, average daily trading volume
shall be calculated monthly, using data for the most recent six-month
period. If the data justify a higher or lower speculative limit for a
security future, the designated contract market or registered
derivatives transaction execution facility may raise or lower the
position limit for that security future effective no earlier than the
day after it has provided notification to the Commission and to the
public under the submission requirements of Sec. 41.24. If the data
require imposition of a reduced position limit for a security future,
the designated contract market or registered derivatives transaction
execution facility may permit any trader holding a position in
compliance with the previous position limit, but in excess of the
reduced limit, to maintain such position through the expiration of the
security futures contract; provided that the designated contract market
or registered derivatives transaction execution facility does not find
that the position poses a threat to the orderly expiration of such
contract.
(b) Final settlement prices for security futures products. (1) The
final settlement price of a cash-settled security futures product must
fairly reflect the opening price of the underlying security or
securities;
(2) Notwithstanding paragraph (b)(1) of this section, if an opening
price for
[[Page 448]]
one or more securities underlying a security futures product is not
readily available, the final settlement price of the security futures
product shall fairly reflect:
(i) The price of the underlying security or securities during the
most recent regular trading session for such security or securities; or
(ii) The next available opening price of the underlying security or
securities.
(3) Notwithstanding paragraphs (b)(1) or (b)(2) of this section, if
a derivatives clearing organization registered under Section 5b of the
Act or a clearing agency exempt from registration pursuant to Section
5b(a)(2) of the Act, to which the final settlement price of a security
futures product is or would be reported determines, pursuant to its
rules, that such final settlement price is not consistent with the
protection of customers and the public interest, taking into account
such factors as fairness to buyers and sellers of the affected security
futures product, the maintenance of a fair and orderly market in such
security futures product, and consistency of interpretation and
practice, the clearing organization shall have the authority to
determine, under its rules, a final settlement price for such security
futures product.
(c) Special requirements for physical delivery contracts. For
security futures products settled by actual delivery of the underlying
security or securities, payment and delivery of the underlying security
or securities must be effected through a clearing agency that is
registered pursuant to section 17A of the Securities Exchange Act of
1934.
(d) The Commission may exempt from the provisions of paragraphs
(a)(2) and (b) of this section, either unconditionally or on specified
terms and conditions, any designated contract market or registered
derivatives transaction execution facility, if the Commission determines
that such exemption is consistent with the public interest and the
protection of customers. An exemption granted pursuant to this paragraph
shall not operate as an exemption from any Securities and Exchange
Commission rules. Any exemption that may be required from such rules
must be obtained separately from the Securities and Exchange Commission.
[66 FR 55083, Nov. 1, 2001, as amended at 67 FR 36761, May 24, 2002]
Sec. 41.27 Prohibition of dual trading in security futures products by floor brokers.
(a) Definitions. For purposes of this section:
(1) Trading session means hours during which a designated contract
market or registered derivatives transaction execution facility is
scheduled to trade continuously during a trading day, as set forth in
its rules, including any related post settlement trading session. A
designated contract market or registered derivatives transaction
execution facility may have more than one trading session during a
trading day.
(2) Member shall have the meaning set forth in section 1a(24) of the
Act.
(3) Broker association includes two or more designated contract
market or registered derivatives transaction execution facility members
with floor trading privileges of whom at least one is acting as a floor
broker who:
(i) Engage in floor brokerage activity on behalf of the same
employer;
(ii) Have an employer and employee relationship which relates to
floor brokerage activity;
(iii) Share profits and losses associated with their brokerage or
trading activity; or
(iv) Regularly share a deck of orders.
(4) Customer means an account owner for which a trade is executed
other than:
(i) An account in which such floor broker has any interest;
(ii) An account for which a floor broker has discretion;
(iii) An account controlled by a person with whom a floor broker has
a relationship through membership in a broker association;
(iv) A house account of the floor broker's clearing member; or
(v) An account for another member present on the floor of a
designated contract market or registered derivatives transaction
execution facility or an account controlled by such other member.
[[Page 449]]
(5) Dual trading means the execution of customer orders by a floor
broker through open outcry during the same trading session in which the
floor broker executes directly or by initiating and passing to another
member, either through open outcry or through a trading system that
electronically matches bids and offers pursuant to a predetermined
algorithm, a transaction for the same security futures product on the
same designated contract market or registered derivatives transaction
execution facility for an account described in paragraphs (a)(4)(i)-(v)
of this section.
(b) Dual Trading Prohibition. (1) No floor broker shall engage in
dual trading in a security futures product on a designated contract
market or registered derivatives transaction execution facility, except
as otherwise provided under paragraphs (d), (e), and (f) of this
section.
(2) A designated contract market or a registered derivatives
transaction execution facility operating an electronic market or
electronic trading system that provides market participants with a time
or place advantage or the ability to override a predetermined algorithm
must submit an appropriate rule proposal to the Commission consistent
with the procedures set forth in Sec. 40.5. The proposed rule must
prohibit electronic market participants with a time or place advantage
or the ability to override a predetermined algorithm from trading a
security futures product for accounts in which these same participants
have any interest during the same trading session that they also trade
the same security futures product for other accounts. This paragraph,
however, is not applicable with respect to execution priorities or
quantity guarantees granted to market makers who perform that function,
or to market participants who receive execution priorities based on
price improvement activity, in accordance with the rules governing the
designated contract market or registered derivatives transaction
execution facility.
(c) Rules Prohibiting Dual Trading. (1) Designated contract markets.
Prior to listing a security futures product for trading on a trading
floor where bids and offers are executed through open outcry, a
designated contract market:
(i) Must submit to the Commission in accordance with Sec. 40.6, a
rule prohibiting dual trading, together with a written certification
that the rule complies with the Act and the regulations thereunder,
including this section; or
(ii) Must obtain Commission approval of such rule pursuant to
Sec. 40.5.
(2) Registered derivatives transaction execution facilities. Prior
to listing a security futures product for trading on a trading floor
where bids and offers are executed through open outcry, a registered
derivatives transaction execution facility:
(i) Must notify the Commission in accordance with Sec. 37.7(b) that
it has adopted a rule prohibiting dual trading; or
(ii) Must obtain Commission approval of such rule pursuant to
Sec. 37.7(c).
(d) Specific Permitted Exceptions. Notwithstanding the applicability
of a dual trading prohibition under paragraph (b) of this section, dual
trading may be permitted on a designated contract market or a registered
derivatives transaction execution facility pursuant to one or more of
the following specific exceptions:
(1) Correction of errors. To offset trading errors resulting from
the execution of customer orders, provided, that the floor broker must
liquidate the position in his or her personal error account resulting
from that error through open outcry or through a trading system that
electronically matches bids and offers as soon as practicable, but,
except as provided herein, not later than the close of business on the
business day following the discovery of error. In the event that a floor
broker is unable to offset the error trade because the daily price
fluctuation limit is reached, a trading halt is imposed by the
designated contract market or registered derivatives transaction
execution facility, or an emergency is declared pursuant to the rules of
the designated contract market or registered derivatives transaction
execution facility, the floor broker must liquidate the position in his
or her personal error account resulting from that error as soon as
practicable thereafter.
[[Page 450]]
(2) Customer consent. To permit a customer to designate in writing
not less than once annually a specifically identified floor broker to
dual trade while executing orders for such customer's account. An
account controller acting pursuant to a power of attorney may designate
a dual trading broker on behalf of its customer, provided, that the
customer explicitly grants in writing to the individual account
controller the authority to select a dual trading broker.
(3) Spread transactions. To permit a broker who unsuccessfully
attempts to leg into a spread transaction for a customer to take the
executed leg into his or her personal account and to offset such
position, provided, that a record is prepared and maintained to
demonstrate that the customer order was for a spread.
(4) Market emergencies. To address emergency market conditions
resulting in a temporary emergency action as determined by a designated
contract market or registered derivatives transaction execution
facility.
(e) Rules Permitting Specific Exceptions. (1) Designated contract
markets. Prior to permitting dual trading under any of the exceptions
provided in paragraphs (d)(1)-(4) of this section, a designated contract
market:
(i) Must submit to the Commission in accordance with Sec. 40.6, a
rule permitting the exception(s), together with a written certification
that the rule complies with the Act and the regulations thereunder,
including this section; or
(ii) Must obtain Commission approval of such rule pursuant to
Sec. 40.5.
(2) Registered derivatives transaction execution facilities. Prior
to permitting dual trading under any of the exceptions provided in
paragraphs (d)(1)-(4) of this section, a registered derivatives
transaction execution facility:
(i) Must notify the Commission in accordance with Sec. 37.7(b) that
it has adopted a rule permitting the exception(s); or
(ii) Must obtain Commission approval of such rule pursuant to
Sec. 37.7(c).
(f) Unique or Special Characteristics of Agreements, Contracts, or
Transactions, or of Designated Contract Markets or Registered
Derivatives Transaction Execution Facilities. Notwithstanding the
applicability of a dual trading prohibition under paragraph (b) of this
section, dual trading may be permitted on a designated contract market
or registered derivatives transaction execution facility to address
unique or special characteristics of agreements, contracts, or
transactions, or of the designated contract market or registered
derivatives transaction execution facility as provided herein. Any rule
of a designated contract market or registered derivatives transaction
execution facility that would permit dual trading when it would
otherwise be prohibited, based on a unique or special characteristic of
agreements, contracts, or transactions, or of the designated contract
market or registered derivatives transaction execution facility must be
submitted to the Commission for prior approval under the procedures set
forth in Sec. 40.5. The rule submission must include a detailed
demonstration of why an exception is warranted.
[67 FR 11227, Mar. 13, 2002]
Subpart D--Notice-Designated Contract Markets in Security Futures
Products
Source: 66 FR 44965, Aug. 27, 2001, unless otherwise noted.
Sec. 41.31 Notice-designation requirements.
(a) Any board of trade that is a national securities exchange, a
national securities association, or an alternative trading system, and
that seeks to operate as a designated contract market in security
futures products under section 5f of the Act, shall so notify the
Commission. Such notification shall be filed with the Secretary of the
Commission at its Washington, D.C. headquarters, in either electronic or
hard copy form, shall be labeled as ``Notice of Designation as a
Contract Market in Security Futures Products,'' and shall include:
(1) The name and address of the board of trade;
(2) The name and telephone number of a contact person designated to
receive communications from the Commission on behalf of the board of
trade;
[[Page 451]]
(3) A description of the security futures products that the board of
trade intends to make available for trading, including an identification
of all facilities that would clear transactions in security futures
products on behalf of the board of trade;
(4) A copy of the current rules of the board of trade; and
(5) A certification that the board of trade--
(i) Will not list or trade any contracts of sale for future
delivery, except for security futures products;
(ii) Is registered with the Securities and Exchange Commission as a
national securities exchange, national securities association, or
alternative trading system, and such registration is not suspended
pursuant to an order by the Securities and Exchange Commission;
(iii) Will meet the criteria specified in subclauses (I) through
(XI) of section 2(a)(1)(D)(i) of the Act, except as otherwise provided
in section 2(a)(1)(D)(vi) of the Act, for each specific security futures
product that the board of trade intends to make available for trading;
(iv) Will comply with the conditions for designation under this
section and section 5f of the Act, including a specific representation
by any alternative trading system that it is a member of a futures
association registered under section 17 of the Act; and
(v) Will comply with the continuing obligations of regulation 41.32.
(b) A board of trade which files notice with the Commission under
this section shall be deemed a designated contract market in security
futures products upon the Commission's receipt of such notice.
Accordingly, the Commission shall send prompt acknowledgment of receipt
to the filer.
(c) Designation as a contract market in security futures products
pursuant to this section shall be deemed suspended if the board of
trade:
(1) Lists or trades any contracts of sale for future delivery,
except for security futures products; or
(2) Has its registration as a national securities exchange, national
securities association, or alternative trading system suspended pursuant
to an order by the Securities and Exchange Commission.
Sec. 41.32 Continuing obligations.
(a)(1) A board of trade designated as a contract market in security
futures products pursuant to Sec. 41.31 of this chapter shall:
(i) Notify the Commission of any change in its regulatory status
with the Securities and Exchange Commission or with a futures
association registered under section 17 of the Act;
(ii) Comply with the filing requirements of section 2(a)(1)(D)(vii)
of the Act each time the board of trade lists a security futures product
for trading;
(iii) Provide the Commission with any new rules or rule amendments
that relate to the trading of security futures products, including both
operational rules and the terms and conditions of products listed for
trading on the facility, promptly after final implementation of such
rules or rule amendments; and
(iv) Upon request, file promptly with the Commission--
(A) Such information related to its business as a designated
contract market in security futures products as the Commission may
request; and
(B) A written demonstration, containing such supporting data and
other information and documents as the Commission may specify, that the
board of trade is in compliance with one or more applicable provisions
of the Act or regulations thereunder as specified in the request.
(2) Any information filed pursuant to paragraph (a) of this section
shall be addressed to the Secretary of the Commission at its Washington,
D.C. headquarters, shall be labeled ``SFPCM Continuing Obligations,''
and may be transmitted in either electronic or hard copy form.
(b) Except as exempted under section 5f(b) of the Act or under
Secs. 41.33 and 41.34 of this chapter, any board of trade designated as
a contract market in security futures products pursuant to Sec. 41.31 of
this chapter shall be subject to all applicable requirements of the Act
and regulations thereunder. Failure to comply shall subject the board of
trade to Commission action under, among other provisions, sections 5e
and 6(b) of the Act.
[[Page 452]]
Sec. 41.33 Applications for exemptive orders.
(a) Any board of trade designated as a contract market in security
futures products pursuant to Sec. 41.31 of this chapter may apply to the
Commission for an exemption from any provision of the Act or regulations
thereunder. Except as provided in sections 5f(b)(1) and 5f(b)(2) of the
Act, the Commission shall have sole discretion to exempt a board of
trade, conditionally or unconditionally, from any provision of the Act
or regulations thereunder pursuant to this section. The Commission may
issue such an exemptive order in response to an application only to the
extent it finds, after review, that the issuance of an exemptive order
is necessary or appropriate in the public interest and is consistent
with the protection of investors.
(b) Each application for exemptive relief must comply with the
requirements of this section. The Commission may, in its sole
discretion, decline to entertain any application for an exemptive order
under this section without explanation; provided, however, that the
Commission shall notify the board of trade of such a decision in
writing.
(c) Application requirements. (1) Each application for an exemptive
order made pursuant to this section must include:
(i) The name and address of the board of trade requesting relief,
and the name and telephone number of a person whom Commission staff may
contact to obtain additional information regarding the request;
(ii) A certification that the registration of the board of trade is
not suspended pursuant to an order of the Securities and Exchange
Commission;
(iii) The provision(s) of the Act or regulations thereunder from
which the board of trade seeks relief and, if applicable, whether the
board of trade is otherwise subject to similar provisions as a result of
Securities and Exchange Commission jurisdiction; and
(iv) The type of relief requested and the order sought; an
explanation of the need for relief, including all material facts and
circumstances giving rise to the request; and the extent to which such
relief is necessary or appropriate in the public interest and consistent
with the protection of investors.
(2) Each application must be filed with the Secretary of the
Commission at its Washington, D.C. headquarters, in either electronic or
hard copy form, signed by an authorized representative of the board of
trade, and labeled ``Application for an Exemptive Order pursuant to
Commission regulation 41.33.''
(d) Review Period. (1) The Commission shall have 90 days upon
receipt of an application for an exemptive order in which to make a
determination as to whether such relief should be granted or denied.
(2) The Commission may request additional information from the
applicant at any time prior to the end of the review period.
(3) The Commission may stay the review period if it determines that
an application is materially incomplete; provided, however, that this
paragraph (d) does not limit the Commission's authority, under paragraph
(b) of this section, to decline to entertain an application.
(e) Upon conclusion of the review period, the Commission shall issue
an order granting or denying relief, or granting relief subject to
conditions; provided, however, that the Commission's obligations under
this paragraph shall not limit its authority, under paragraph (b) of
this section, to decline to entertain an application. The Commission
shall notify the board of trade in writing of its decision to grant or
deny relief under this paragraph.
(f) An application for an exemptive order may be withdrawn by the
applicant at any time, without explanation, by filing with the Secretary
of the Commission a written request for withdrawal, signed by an
authorized representative of the board of trade.
(g) The Commission hereby delegates, until it orders otherwise, to
the Director of the Division of Division of Market Oversight, with the
concurrence of the General Counsel, authority to make determinations on
applications for exemptive orders pursuant to this section; provided,
however, that:
(1) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any
[[Page 453]]
matter which has been delegated pursuant to paragraph (g) of this
section; and
(2) Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated to
the Director of the Division of Market Oversight under paragraph (g) of
this section.
[66 FR 44511, Aug. 23, 2001, as amended at 67 FR 62352, Oct. 7, 2002]
Sec. 41.34 Exempt Provisions.
Any board of trade notice-designated as a contract market in
security futures products pursuant to Sec. 41.31 also shall be exempt
from:
(a) The following provisions of the Act, pursuant to section
5f(b)(1) of the Act:
(1) Section 4(c)(c);
(2) Section 4(c)(e);
(3) Section 4(c)(g);
(4) Section 4j;
(5) Section 5;
(6) Section 5c;
(7) Section 6a;
(8) Section 8(d);
(9) Section 9(f);
(10) Section 16 and;
(b) The following provisions, pursuant to section 5f(b)(4) of the
Act:
(1) Section 6(a);
(2) Part 38 of this chapter;
(3) Part 40 of this chapter; and
(4) Section 41.27.
[67 FR 11229, Mar. 13, 2002]
Subpart E--Customer Accounts and Margin Requirements
Source: 67 FR 53171, Aug. 14, 2002, unless otherwise noted.
Sec. 41.41 Security futures products accounts.
(a) Where security futures products may be held. (1) A person
registered with the Commission as a futures commission merchant pursuant
to section 4f(a)(1) of the Commodity Exchange Act (``CEA'') and
registered with the Securities and Exchange Commission (``SEC'') as a
broker or dealer pursuant to section 15(b)(1) of the Securities Exchange
Act of 1934 (``Securities Exchange Act'') (``Full FCM/Full BD'') may
hold all of a customer's security futures products in a futures account,
all of a customer's security futures products in a securities account,
or some of a customer's security futures products in a futures account
and other security futures products of the same customer in a securities
account. A person registered with the Commission as a futures commission
merchant pursuant to section 4f(a)(2) of the CEA (a notice-registered
FCM) may hold a customer's security futures products only in a
securities account. A person registered with the SEC as a broker or
dealer pursuant to section 15(b)(11) of the Securities Exchange Act (a
notice-registered broker-dealer) may hold a customer's security futures
products only in a futures account.
(2) A Full FCM/Full BD shall establish written policies or
procedures for determining whether customer security futures products
will be placed in a futures account and/or a securities account and, if
applicable, the process by which a customer may elect the type or types
of account in which security futures products will be held (including
the procedure to be followed if a customer fails to make an election of
account type).
(b) Disclosure requirements. (1) Except as provided in paragraph
(b)(2), before a futures commission merchant accepts the first order for
a security futures product from or on behalf of a customer, the firm
shall furnish the customer with a disclosure document containing the
following information:
(i) A description of the protections provided by the requirements
set forth under section 4d of the CEA applicable to a futures account;
(ii) A description of the protections provided by the requirements
set forth under Securities Exchange Act Rule 15c3-3 and the Securities
Investor Protection Act of 1970 applicable to a securities account;
(iii) A statement indicating whether the customer's security futures
products will be held in a futures account and/or a securities account,
or whether the firm permits customers to make or change an election of
account type; and
(iv) A statement that, with respect to holding the customer's
security futures products in a securities account or a
[[Page 454]]
futures account, the alternative regulatory scheme is not available to
the customer in connection with that account.
(2) Where a customer account containing an open security futures
product position is transferred to a futures commission merchant, that
futures commission merchant may instead provide the statements described
in paragraphs (b)(1)(iii) and (b)(1)(iv) above no later than ten
business days after the date the account is transferred.
(c) Changes in account type. A Full FCM/Full BD may change the type
of account in which a customer's security futures products will be held;
provided, that:
(1) The firm creates a record of each change in account type,
including the name of the customer, the account number, the date the
firm received the customer's request to change the account type, if
applicable, and the date the change in account type became effective;
and
(2) The firm, at least ten business days before the customer's
account type is changed:
(i) Notifies the customer in writing of the date that the change
will become effective; and
(ii) Provides the customer with the disclosures described in
paragraph (b)(1) above.
(d) Recordkeeping requirements. The Commission's recordkeeping rules
set forth in Secs. 1.31, 1.32, 1.35, 1.36, 1.37, 4.23, 4.33, 18.05 and
190.06 of this chapter shall apply to security futures product
transactions and positions in a futures account (as that term is defined
in Sec. 1.3(vv) of this chapter). These rules shall not apply to
security futures product transactions and positions in a securities
account (as that term is defined in Sec. 1.3(ww) of this chapter);
provided, that the SEC's recordkeeping rules apply to those transactions
and positions.
(e) Reports to customers. The Commission's reporting requirements
set forth in Secs. 1.33 and 1.46 of this chapter shall apply to security
futures product transactions and positions in a futures account (as that
term is defined in Sec. 1.3(vv) of this chapter). These rules shall not
apply to security futures product transactions and positions in a
securities account (as that term is defined in Sec. 1.3(ww) of this
chapter); provided, that the SEC's rules set forth in Secs. 240.10b-10
and 240.15c3-2 of this chapter regarding delivery of confirmations and
account statements apply to those transactions and positions.
(f) Segregation of customer funds. All money, securities, or
property held to margin, guarantee or secure security futures products
held in a futures account, or accruing to customers as a result of such
products, are subject to the segregation requirements of section 4d of
the CEA and the rules thereunder.
[67 FR 58297, Sept. 13, 2002]
Sec. 41.42 Customer margin requirements for security futures--authority, purpose, interpretation, and scope.
(a) Authority and purpose. Subpart E, Secs. 41.42 through 41.49, and
17 CFR 242.400 through 242.406 (``this Regulation'') are issued by the
Commodity Futures Trading Commission (``Commission'') jointly with the
Securities and Exchange Commission (``SEC''), pursuant to authority
delegated by the Board of Governors of the Federal Reserve System under
section 7(c)(2)(A) of the Securities Exchange Act of 1934 (``Exchange
Act''). The principal purpose of this Regulation (Subpart E, Secs. 41.42
through 41.49) is to regulate customer margin collected by brokers,
dealers, and members of national securities exchanges, including futures
commission merchants required to register as brokers or dealers under
section 15(b)(11) of the Exchange Act, relating to security futures.
(b) Interpretation. This Regulation (Subpart E, Secs. 41.42 through
41.49) shall be jointly interpreted by the SEC and the Commission,
consistent with the criteria set forth in clauses (i) through (iv) of
section 7(c)(2)(B) of the Exchange Act and the provisions of Regulation
T (12 CFR part 220).
(c) Scope. (1) This Regulation (Subpart E, Secs. 41.42 through
41.49) does not preclude a self-regulatory authority, under rules that
are effective in accordance with section 19(b)(2) of the Exchange Act or
section 19(b)(7) of the Exchange Act and, as applicable, section 5c(c)
of the Commodity Exchange Act (``Act''), or a security futures
[[Page 455]]
intermediary from imposing additional margin requirements on security
futures, including higher initial or maintenance margin levels,
consistent with this Regulation (Subpart E, Secs. 41.42 through 41.49),
or from taking appropriate action to preserve its financial integrity.
(2) This Regulation (Subpart E, Secs. 41.42 through 41.49) does not
apply to:
(i) Financial relations between a customer and a security futures
intermediary to the extent that they comply with a portfolio margining
system under rules that meet the criteria set forth in section
7(c)(2)(B) of the Exchange Act and that are effective in accordance with
section 19(b)(2) of the Exchange Act and, as applicable, section 5c(c)
of the Act;
(ii) Financial relations between a security futures intermediary and
a foreign person involving security futures traded on or subject to the
rules of a foreign board of trade;
(iii) Margin requirements that clearing agencies registered under
section 17A of the Exchange Act or derivatives clearing organizations
registered under section 5b of the Act impose on their members;
(iv) Financial relations between a security futures intermediary and
a person based on a good faith determination by the security futures
intermediary that such person is an exempted person; and
(v) Financial relations between a security futures intermediary and,
or arranged by a security futures intermediary for, a person relating to
trading in security futures by such person for its own account, if such
person:
(A) Is a member of a national securities exchange or national
securities association registered pursuant to section 15A(a) of the
Exchange Act; and
(B) Is registered with such exchange or such association as a
security futures dealer pursuant to rules that are effective in
accordance with section 19(b)(2) of the Exchange Act and, as applicable,
section 5c(c) of the Act, that:
(1) Require such member to be registered as a floor trader or a
floor broker with the Commission under section 4f(a)(1) of the Act, or
as a dealer with the SEC under section 15(b) of the Exchange Act;
(2) Require such member to maintain records sufficient to prove
compliance with this paragraph (c)(2)(v) and the rules of the exchange
or association of which it is a member;
(3) Require such member to hold itself out as being willing to buy
and sell security futures for its own account on a regular or continuous
basis; and
(4) Provide for disciplinary action, including revocation of such
member's registration as a security futures dealer, for such member's
failure to comply with this Regulation (Subpart E, Secs. 41.42 through
41.49) or the rules of the exchange or association.
(d) Exemption. The Commission may exempt, either unconditionally or
on specified terms and conditions, financial relations involving any
security futures intermediary, customer, position, or transaction, or
any class of security futures intermediaries, customers, positions, or
transactions, from one or more requirements of this Regulation (Subpart
E, Secs. 41.42 through 41.49), if the Commission determines that such
exemption is necessary or appropriate in the public interest and
consistent with the protection of customers. An exemption granted
pursuant to this paragraph shall not operate as an exemption from any
SEC rules. Any exemption that may be required from such rules must be
obtained separately from the SEC.
Sec. 41.43 Definitions.
(a) For purposes of this Regulation (Subpart E, Secs. 41.42 through
41.49) only, the following terms shall have the meanings set forth in
this section.
(1) Applicable margin rules and margin rules applicable to an
account mean the rules and regulations applicable to financial relations
between a security futures intermediary and a customer with respect to
security futures and related positions carried in a securities account
or futures account as provided in Sec. 41.44(a) of this subpart.
(2) Broker shall have the meaning provided in section 3(a)(4) of the
Exchange Act.
(3) Contract multiplier means the number of units of a narrow-based
security index expressed as a dollar amount, in
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accordance with the terms of the security future contract.
(4) Current market value means, on any day:
(i) With respect to a security future:
(A) If the instrument underlying such security future is a stock,
the product of the daily settlement price of such security future as
shown by any regularly published reporting or quotation service, and the
applicable number of shares per contract; or
(B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 1a(25)(A) of the Act, the
product of the daily settlement price of such security future as shown
by any regularly published reporting or quotation service, and the
applicable contract multiplier.
(ii) With respect to a security other than a security future, the
most recent closing sale price of the security, as shown by any
regularly published reporting or quotation service. If there is no
recent closing sale price, the security futures intermediary may use any
reasonable estimate of the market value of the security as of the most
recent close of business.
(5) Customer excludes an exempted person and includes:
(i) Any person or persons acting jointly:
(A) On whose behalf a security futures intermediary effects a
security futures transaction or carries a security futures position; or
(B) Who would be considered a customer of the security futures
intermediary according to the ordinary usage of the trade;
(ii) Any partner in a security futures intermediary that is
organized as a partnership who would be considered a customer of the
security futures intermediary absent the partnership relationship; and
(iii) Any joint venture in which a security futures intermediary
participates and which would be considered a customer of the security
futures intermediary if the security futures intermediary were not a
participant.
(6) Daily settlement price means, with respect to a security future,
the settlement price of such security future determined at the close of
trading each day, under the rules of the applicable exchange, clearing
agency, or derivatives clearing organization.
(7) Dealer shall have the meaning provided in section 3(a)(5) of the
Exchange Act.
(8) Equity means the equity or margin equity in a securities or
futures account, as computed in accordance with the margin rules
applicable to the account and subject to adjustment under Sec. 41.46(c),
(d) and (e) of this subpart.
(9) Exempted person means:
(i) A member of a national securities exchange, a registered broker
or dealer, or a registered futures commission merchant, a substantial
portion of whose business consists of transactions in securities,
commodity futures, or commodity options with persons other than brokers,
dealers, futures commission merchants, floor brokers, or floor traders,
and includes a person who:
(A) Maintains at least 1000 active accounts on an annual basis for
persons other than brokers, dealers, persons associated with a broker or
dealer, futures commission merchants, floor brokers, floor traders, and
persons affiliated with a futures commission merchant, floor broker, or
floor trader that are effecting transactions in securities, commodity
futures, or commodity options;
(B) Earns at least $10 million in gross revenues on an annual basis
from transactions in securities, commodity futures, or commodity options
with persons other than brokers, dealers, persons associated with a
broker or dealer, futures commission merchants, floor brokers, floor
traders, and persons affiliated with a futures commission merchant,
floor broker, or floor trader; or
(C) Earns at least 10 percent of its gross revenues on an annual
basis from transactions in securities, commodity futures, or commodity
options with persons other than brokers, dealers, persons associated
with a broker or dealer, futures commission merchants, floor brokers,
floor traders, and persons affiliated with a futures commission
merchant, floor broker, or floor trader.
(ii) For purposes of paragraph (a)(9)(i) of this section only,
persons affiliated with a futures commission merchant, floor broker, or
floor trader means any
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partner, officer, director, or branch manager of such futures commission
merchant, floor broker, or floor trader (or any person occupying a
similar status or performing similar functions), any person directly or
indirectly controlling, controlled by, or under common control with such
futures commission merchant, floor broker, or floor trader, or any
employee of such a futures commission merchant, floor broker, or floor
trader.
(iii) A member of a national securities exchange, a registered
broker or dealer, or a registered futures commission merchant that has
been in existence for less than one year may meet the definition of
exempted person based on a six-month period.
(10) Exempted security shall have the meaning provided in section
3(a)(12) of the Exchange Act.
(11) Floor broker shall have the meaning provided in section 1a(16)
of the Act.
(12) Floor trader shall have the meaning provided in section 1a(17)
of the Act.
(13) Futures account shall have the meaning provided in Sec. 1.3(vv)
of this chapter.
(14) Futures commission merchant shall have the meaning provided in
section 1a(20) of the Act.
(15) Good faith, with respect to making a determination or accepting
a statement concerning financial relations with a person, means that the
security futures intermediary is alert to the circumstances surrounding
such financial relations, and if in possession of information that would
cause a prudent person not to make the determination or accept the
notice or certification without inquiry, investigates and is satisfied
that it is correct.
(16) Listed option means a put or call option that is:
(i) Issued by a clearing agency that is registered under section 17A
of the Exchange Act or cleared and guaranteed by a derivatives clearing
organization that is registered under section 5b of the Act; and
(ii) Traded on or subject to the rules of a self-regulatory
authority.
(17) Margin call means a demand by a security futures intermediary
to a customer for a deposit of cash, securities or other assets to
satisfy the required margin for security futures or related positions or
a special margin requirement.
(18) Margin deficiency means the amount by which the required margin
in an account is not satisfied by the equity in the account, as computed
in accordance with Sec. 41.46 of this subpart.
(19) Margin equity security shall have the meaning provided in
Regulation T.
(20) Margin security shall have the meaning provided in Regulation
T.
(21) Member shall have the meaning provided in section 3(a)(3) of
the Exchange Act, and shall include persons registered under section
15(b)(11) of the Exchange Act that are permitted to effect transactions
on a national securities exchange without the services of another person
acting as executing broker.
(22) Money market mutual fund means any security issued by an
investment company registered under section 8 of the Investment Company
Act of 1940 that is considered a money market fund under Sec. 270.2a-7
of this title.
(23) Persons associated with a broker or dealer shall have the
meaning provided in section 3(a)(18) of the Exchange Act.
(24) Regulation T means Regulation T promulgated by the Board of
Governors of the Federal Reserve System, 12 CFR part 220, as amended
from time to time.
(25) Regulation T collateral value, with respect to a security,
means the current market value of the security reduced by the percentage
of required margin for a position in the security held in a margin
account under Regulation T.
(26) Related position, with respect to a security future, means any
position in an account that is combined with the security future to
create an offsetting position as provided in Sec. 41.45(b)(2) of this
subpart.
(27) Related transaction, with respect to a position or transaction
in a security future, means:
(i) Any transaction that creates, eliminates, increases or reduces
an offsetting position involving a security future and a related
position, as provided in Sec. 41.45(b)(2) of this subpart; or
[[Page 458]]
(ii) Any deposit or withdrawal of margin for the security future or
a related position, except as provided in Sec. 41.47(b) of this subpart.
(28) Securities account shall have the meaning provided in
Sec. 1.3(ww) of this chapter.
(29) Security futures intermediary means any creditor as defined in
Regulation T with respect to its financial relations with any person
involving security futures, including:
(i) Any futures commission merchant;
(ii) Any partner, officer, director, or branch manager (or person
occupying a similar status or performing similar functions) of a futures
commission merchant;
(iii) Any person directly or indirectly controlling, controlled by,
or under common control with (except for business entities controlling
or under common control with) a futures commission merchant; and
(iv) Any employee of a futures commission merchant (except an
employee whose functions are solely clerical or ministerial).
(30) Self-regulatory authority means a national securities exchange
registered under section 6 of the Exchange Act, a national securities
association registered under section 15A of the Exchange Act, a contract
market registered under section 5 of the Act or section 5f of the Act,
or a derivatives transaction execution facility registered under section
5a of the Act.
(31) Special margin requirement shall have the meaning provided in
Sec. 41.46(e)(1)(ii) of this subpart.
(32) Variation settlement means any credit or debit to a customer
account, made on a daily or intraday basis, for the purpose of marking
to market a security future or any other contract that is:
(i) Issued by a clearing agency that is registered under section 17A
of the Exchange Act or cleared and guaranteed by a derivatives clearing
organization that is registered under section 5b of the Act; and
(ii) Traded on or subject to the rules of a self-regulatory
authority.
(b) Terms used in this Regulation (Subpart E, Secs. 41.42 through
41.49) and not otherwise defined in this section shall have the meaning
set forth in the margin rules applicable to the account.
(c) Terms used in this Regulation (Subpart E, Secs. 41.42 through
41.49) and not otherwise defined in this section or in the margin rules
applicable to the account shall have the meaning set forth in the
Exchange Act and the Act; if the definitions of a term in the Exchange
Act and the Act are inconsistent as applied in particular circumstances,
such term shall have the meaning set forth in rules, regulations, or
interpretations jointly promulgated by the SEC and the Commission.
Sec. 41.44 General provisions.
(a) Applicable margin rules. Except to the extent inconsistent with
this Regulation (Subpart E, Secs. 41.42 through 41.49):
(1) A security futures intermediary that carries a security future
on behalf of a customer in a securities account shall record and conduct
all financial relations with respect to such security future and related
positions in accordance with Regulation T and the margin rules of the
self-regulatory authorities of which the security futures intermediary
is a member.
(2) A security futures intermediary that carries a security future
on behalf of a customer in a futures account shall record and conduct
all financial relations with respect to such security future and related
positions in accordance with the margin rules of the self-regulatory
authorities of which the security futures intermediary is a member.
(b) Separation and consolidation of accounts. (1) The requirements
for security futures and related positions in one account may not be met
by considering items in any other account, except as permitted or
required under paragraph (b)(2) of this section or applicable margin
rules. If withdrawals of cash, securities or other assets deposited as
margin are permitted under this Regulation (Subpart E, Secs. 41.42
through 41.49), bookkeeping entries shall be made when such cash,
securities, or assets are used for purposes of meeting requirements in
another account.
(2) Notwithstanding paragraph (b)(1) of this section, the security
futures intermediary shall consider all futures
[[Page 459]]
accounts in which security futures and related positions are held that
are within the same regulatory classification or account type and are
owned by the same customer to be a single account for purposes of this
Regulation (Subpart E, Secs. 41.42 through 41.49). The security futures
intermediary may combine such accounts with other futures accounts that
are within the same regulatory classification or account type and are
owned by the same customer for purposes of computing a customer's
overall margin requirement, as permitted or required by applicable
margin rules.
(c) Accounts of partners. If a partner of the security futures
intermediary has an account with the security futures intermediary in
which security futures or related positions are held, the security
futures intermediary shall disregard the partner's financial relations
with the firm (as shown in the partner's capital and ordinary drawing
accounts) in calculating the margin or equity of any such account.
(d) Contribution to joint venture. If an account in which security
futures or related positions are held is the account of a joint venture
in which the security futures intermediary participates, any interest of
the security futures intermediary in the joint account in excess of the
interest which the security futures intermediary would have on the basis
of its right to share in the profits shall be margined in accordance
with this Regulation (Subpart E, Secs. 41.42 through 41.49).
(e) Extensions of credit. (1) No security futures intermediary may
extend or maintain credit to or for any customer for the purpose of
evading or circumventing any requirement under this Regulation (Subpart
E, Secs. 41.42 through 41.49).
(2) A security futures intermediary may arrange for the extension or
maintenance of credit to or for any customer by any person, provided
that the security futures intermediary does not willfully arrange credit
that would constitute a violation of Regulation T, U or X of the Board
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and
224) by such person.
(f) Change in exempted person status. Once a person ceases to
qualify as an exempted person, it shall notify the security futures
intermediary of this fact before entering into any new security futures
transaction or related transaction that would require additional margin
to be deposited under this Regulation (Subpart E, Secs. 41.42 through
41.49). Financial relations with respect to any such transactions shall
be subject to the provisions of this Regulation (Subpart E, Secs. 41.42
through 41.49).
Sec. 41.45 Required margin.
(a) Applicability. Each security futures intermediary shall
determine the required margin for the security futures and related
positions held on behalf of a customer in a securities account or
futures account as set forth in this section.
(b) Required margin--(1) General rule. The required margin for each
long or short position in a security future shall be twenty (20) percent
of the current market value of such security future.
(2) Offsetting positions. Notwithstanding the margin levels
specified in paragraph (b)(1) of this section, a self-regulatory
authority may set the required initial or maintenance margin level for
an offsetting position involving security futures and related positions
at a level lower than the level that would be required under paragraph
(b)(1) of this section if such positions were margined separately,
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B)
of the Exchange Act and are effective in accordance with section
19(b)(2) of the Exchange Act and, as applicable, section 5c(c) of the
Act.
(c) Procedures for certain margin level adjustments. An exchange
registered under section 6(g) of the Exchange Act, or a national
securities association registered under section 15A(k) of the Exchange
Act, may raise or lower the required margin level for a security future
to a level not lower than that specified in this section, in accordance
with section 19(b)(7) of the Exchange Act.
Sec. 41.46 Type, form and use of margin.
(a) When margin is required. Margin is required to be deposited
whenever the required margin for security futures and related positions
in an account is
[[Page 460]]
not satisfied by the equity in the account, subject to adjustment under
paragraph (c) of this section.
(b) Acceptable margin deposits. (1) The required margin may be
satisfied by a deposit of cash, margin securities (subject to paragraph
(b)(2) of this section), exempted securities, any other asset permitted
under Regulation T to satisfy a margin deficiency in a securities margin
account, or any combination thereof, each as valued in accordance with
paragraph (c) of this section.
(2) Shares of a money market mutual fund may be accepted as a margin
deposit for purposes of this Regulation (Subpart E, Secs. 41.42 through
41.49), Provided that:
(i) The customer waives any right to redeem the shares without the
consent of the security futures intermediary and instructs the fund or
its transfer agent accordingly;
(ii) The security futures intermediary (or clearing agency or
derivatives clearing organization with which the shares are deposited as
margin) obtains the right to redeem the shares in cash, promptly upon
request; and
(iii) The fund agrees to satisfy any conditions necessary or
appropriate to ensure that the shares may be redeemed in cash, promptly
upon request.
(c) Adjustments--(1) Futures accounts. For purposes of this section,
the equity in a futures account shall be computed in accordance with the
margin rules applicable to the account, subject to the following:
(i) A security future shall have no value;
(ii) Each net long or short position in a listed option on a
contract for future delivery shall be valued in accordance with the
margin rules applicable to the account;
(iii) Except as permitted in paragraph (e) of this section, each
margin equity security shall be valued at an amount no greater than its
Regulation T collateral value;
(iv) Each other security shall be valued at an amount no greater
than its current market value reduced by the percentage specified for
such security in Sec. 240.15c3-1(c)(2)(vi) of this title;
(v) Freely convertible foreign currency may be valued at an amount
no greater than its daily marked-to-market U.S. dollar equivalent;
(vi) Variation settlement receivable (or payable) by an account at
the close of trading on any day shall be treated as a credit (or debit)
to the account on that day; and
(vii) Each other acceptable margin deposit or component of equity
shall be valued at an amount no greater than its value under Regulation
T.
(2) Securities accounts. For purposes of this section, the equity in
a securities account shall be computed in accordance with the margin
rules applicable to the account, subject to the following:
(i) A security future shall have no value;
(ii) Freely convertible foreign currency may be valued at an amount
no greater than its daily mark-to-market U.S. dollar equivalent; and
(iii) Variation settlement receivable (or payable) by an account at
the close of trading on any day shall be treated as a credit (or debit)
to the account on that day.
(d) Satisfaction restriction. Any transaction, position or deposit
that is used to satisfy the required margin for security futures or
related positions under this Regulation (Subpart E, Secs. 41.42 through
41.49), including a related position, shall be unavailable to satisfy
the required margin for any other position or transaction or any other
requirement.
(e) Alternative collateral valuation for margin equity securities in
a futures account. (1) Notwithstanding paragraph (c)(1)(iii) of this
section, a security futures intermediary need not value a margin equity
security at its Regulation T collateral value when determining whether
the required margin for the security futures and related positions in a
futures account is satisfied, provided that:
(i) The margin equity security is valued at an amount no greater
than the current market value of the security reduced by the lowest
percentage level of margin required for a long position in the security
held in a margin account under the rules of a national securities
exchange registered pursuant to section 6(a) of the Exchange Act;
[[Page 461]]
(ii) Additional margin is required to be deposited on any day when
the day's security futures transactions and related transactions would
create or increase a margin deficiency in the account if the margin
equity securities were valued at their Regulation T collateral value,
and shall be for the amount of the margin deficiency so created or
increased (a ``special margin requirement''); and
(iii) Cash, securities, or other assets deposited as margin for the
positions in an account are not permitted to be withdrawn from the
account at any time that:
(A) Additional cash, securities, or other assets are required to be
deposited as margin under this section for a transaction in the account
on the same or a previous day; or
(B) The withdrawal, together with other transactions, deposits, and
withdrawals on the same day, would create or increase a margin
deficiency if the margin equity securities were valued at their
Regulation T collateral value.
(2) All security futures transactions and related transactions on
any day shall be combined to determine the amount of a special margin
requirement. Additional margin deposited to satisfy a special margin
requirement shall be valued at an amount no greater than its Regulation
T collateral value.
(3) If the alternative collateral valuation method set forth in
paragraph (e) of this section is used with respect to an account in
which security futures or related positions are carried:
(i) An account that is transferred from one security futures
intermediary to another may be treated as if it had been maintained by
the transferee from the date of its origin, if the transferee accepts,
in good faith, a signed statement of the transferor (or, if that is not
practicable, of the customer), that any margin call issued under this
Regulation (Subpart E, Secs. 41.42 through 41.49) has been satisfied;
and
(ii) An account that is transferred from one customer to another as
part of a transaction, not undertaken to avoid the requirements of this
Regulation (Subpart E, Secs. 41.42 through 41.49), may be treated as if
it had been maintained for the transferee from the date of its origin,
if the security futures intermediary accepts in good faith and keeps
with the transferee account a signed statement of the transferor
describing the circumstances for the transfer.
(f) Guarantee of accounts. No guarantee of a customer's account
shall be given any effect for purposes of determining whether the
required margin in an account is satisfied, except as permitted under
applicable margin rules.
Sec. 41.47 Withdrawal of margin.
(a) By the customer. Except as otherwise provided in
Sec. 41.46(e)(1)(ii) of this subpart, cash, securities, or other assets
deposited as margin for positions in an account may be withdrawn,
provided that the equity in the account after such withdrawal is
sufficient to satisfy the required margin for the security futures and
related positions in the account under this Regulation (Subpart E,
Secs. 41.42 through 41.49).
(b) By the security futures intermediary. Notwithstanding paragraph
(a) of this section, the security futures intermediary, in its usual
practice, may deduct the following items from an account in which
security futures or related positions are held if they are considered in
computing the balance of such account:
(1) Variation settlement payable, directly or indirectly, to a
clearing agency that is registered under section 17A of the Exchange Act
or a derivatives clearing organization that is registered under section
5b of the Act;
(2) Interest charged on credit maintained in the account;
(3) Communication or shipping charges with respect to transactions
in the account;
(4) Payment of commissions, brokerage, taxes, storage and other
charges lawfully accruing in connection with the positions and
transactions in the account;
(5) Any service charges that the security futures intermediary may
impose; or
(6) Any other withdrawals that are permitted from a securities
margin account under Regulation T, to the extent permitted under
applicable margin rules.
[[Page 462]]
Sec. 41.48 Undermargined accounts.
(a) Failure to satisfy margin call. If any margin call required by
this Regulation (Subpart E, Secs. 41.42 through 41.49) is not met in
full, the security futures intermediary shall take the deduction
required with respect to an undermargined account in computing its net
capital under SEC or Commission rules.
(b) Accounts that liquidate to a deficit. If at any time there is a
liquidating deficit in an account in which security futures are held,
the security futures intermediary shall take steps to liquidate
positions in the account promptly and in an orderly manner.
(c) Liquidation of undermargined accounts not required.
Notwithstanding Sec. 41.44(a)(1) of this subpart, Sec. 220.4(d) of
Regulation T (12 CFR 220.4(d)) respecting liquidation of positions in
lieu of deposit shall not apply with respect to security futures carried
in a securities account.
Sec. 41.49 Filing proposed margin rule changes with the Commission.
(a) Notification requirement for notice-designated contract markets.
Any self-regulatory authority that is registered with the Commission as
a designated contract market under section 5f of the Act shall, when
filing a proposed rule change regarding customer margin for security
futures with the SEC for approval in accordance with section 19(b)(2) of
the Exchange Act, concurrently provide to the Commission a copy of such
proposed rule change and any accompanying documentation filed with the
SEC.
(b) Filing requirements under the Act. Any self-regulatory authority
that is registered with the Commission as a designated contract market
under section 5 of the Act or a derivatives transaction execution
facility under section 5a of the Act shall, when filing a proposed rule
change regarding customer margin for security futures with the SEC for
approval in accordance with section 19(b)(2) of the Exchange Act, submit
such proposed rule change to the Commission as follows:
(1) If the self-regulatory authority elects to request the
Commission's prior approval for the proposed rule change pursuant to
section 5c(c)(2) of the Act, it shall concurrently file the proposed
rule change with the Commission in accordance with Sec. 40.5 of this
chapter.
(2) If the self-regulatory authority elects to implement a proposed
rule change by written certification pursuant to section 5c(c)(1) of the
Act, it shall concurrently provide to the Commission a copy of the
proposed rule change and any accompanying documentation filed with the
SEC. Promptly after obtaining SEC approval for the proposed rule change,
such self-regulatory authority shall file its written certification with
the Commission in accordance with Sec. 40.6 of this chapter.