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Comment for KISS Initiative Reporting

  • From: John E. Mattesich
    ETD Consultants, Inc.

    Comment No: 61309
    Date: 9/28/2017

    Comment Text:

    The Commodity Exchange Act and the regulations thereunder provide for the protection of customers’ funds. The protection is provided to customers trading derivatives on domestic and foreign markets and to traders engaged in cleared swaps. As part of this program futures commission merchants (“FCM’s”) are required to prepare and file a daily statement of funds required and provided for each of three segregation segments. CFTC, NFA and the exchanges monitor compliance by FCM’s.

    Each statement consists of three sections: funds required, funds provided, and excess funds in segregation. The focus of this submission is on the funds required or the liability section of the statement.

    The liquidating value of any commodity account is the true measure of its value. It can be a debit or a credit. The sum of the credit liquidating vale for all customer accounts is the amount required to be segregated (domestic markets), secured (foreign markets) and sequestered (swaps). The term “liquidating value”, however, is absent from the regulations. Yet it is a term commonly used in the parlance of industry and accounting professionals.

    Specifically the term is defined as the sum of several financial components of any commodity account. The components are: account balance, open trade equity, long option value, short option value, and value of securities or any other property in the account.
    My recommendation is that CFTC include a definition of liquidating value debit and liquidating value credit in the regulations and amend the pertinent sections of the regulations to simply state that liquidating value credits must be segregated, secured or sequestered.

    In this KISS Project you are seeking ideas for simplification that do not require amendment of the regulations. This limits the number that can be submitted. You are urged to consider amendments as I am proposing in this submission and the one filed on September 22, 2017. The one filed on August 9, 2017 requires no amendment to implement.

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