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Comment for Orders and Other Announcements 76 FR 77670

  • From: Gregory G. Walker
    Monex Deposit Company
    Monex Credit Company

    Comment No: 56628
    Date: 2/14/2012

    Comment Text:

    Comments on Interpretation of the Term "Actual Delivery" RIN 3038-AD64

    I submit this comment on behalf of Monex Deposit Company ("MDC"), the largest retail precious metals dealer in the U.S., and its affiliate, Monex Credit Company ("MCC")(collectively "Monex").

    MDC sells gold, silver, platinum and palladium bullion and bullion coins to its customers. MCC arranges for storage of metals for MDC customers who do not take personal delivery. MCC also provides financing of metals purchases for MDC customers. Monex commenced operations in 1987. Monex conducts its business in compliance with the Model State Commodity Code ("Code"), as adopted in the various states. For customers in non-Code states, Monex follows the Code as adopted in California, where its offices are located. Pursuant to the Code, storage of customer metals is always in approved, independent depositories.

    In keeping with the Code, it is MDC's practice to deliver all financed customer purchases to an independent depository and pass title to the customer within 28 days (or less, as required by certain states) of MDC's receipt of the customer's payment. Occasionally, usually due to volatile market conditions, a customer will sell his metals before this
    occurs. In all such cases, MDC subsequently passes title to the full amount of the metals purchased to the customer at an independent depository within the required delivery period and title is not transferred back to MDC for at least 24 hours.

    In Example 5 of the Commission's Interpretation, it states that: "Actual delivery will not have occurred if, within 28 days, an agreement, contract or transaction for the purchase or sale of a commodity is rolled, offset, or otherwise netted with another transaction or settled in cash between the buyer and the seller, but the seller has not, in accordance with the methods described in Example 1 or 2, physically delivered the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin or financing, and transferred title to that quantity of the commodity to the buyer, regardless of whether the agreement, contract or transaction between the buyer and seller purports to create an enforceable obligation on the part of the seller, or a parent company, partner, agent or other affiliate of the seller, to deliver the commodity to the buyer."

    If it is the Commission's view that a customer that has financed a purchase of precious metals may not lawfully sell those metals until delivery is made, this view is contrary to the terms of Sections 2(c)(2)(D)(ii)(III)(aa) and (bb) of the Commodity Exchange Act as adopted in the recent Dodd-Frank legislation. When those sections were adopted, Congress was well aware of Monex's operations and, specifically, the manner and timing of delivery on financed customer purchases. Congress did not intend the legislation to prohibit or change the terms of Monex's financed sales to customers or grant the Commission jurisdiction over those transactions. To the contrary, Sections 2(c)(2)(D)(ii)(III)(aa) and (bb) were intended to continue i) to permit those forms of transactions and ii) to exempt them from Commission oversight. Moreover, to prevent customers who finance their precious metals purchases from mitigating losses if prices decline or realizing gains if prices rise just because delivery has not yet been made makes no sense.

    For the reasons stated Monex suggests that the Commission replace the word "has" with the word "does" in Example 5, and clarify that the Commission does not disapprove of customer sales of financed commodities pending delivery, so long as delivery is made in accordance with the methods described in Example 1 or 2 within the 28-day period prescribed by Section 2(c)(2)(D)(ii)(III)(aa) of the Commodity Exchange Act.


    Gregory G. Walker
    Monex Deposit Company

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