Subchapter IV of chapter 7 represents a compromise between similar chapters in the House bill and Senate amendment. Section 761(2) of the House amendment defines “clearing organization” to cover an organization that clears commodity contracts on a contract market or a board of trade; the expansion of the definition is intended to include clearing organizations that clear commodity options. Section 761(4) of the House amendment adopts the term “commodity contract” as used in section 761(5) of the Senate amendment but with the more precise substantive definitions contained in section 761(8) of the House bill. The definition is modified to insert “board of trade” to cover commodity options. Section 761(5) of the House amendment adopts the definition contained in section 761(6) of the Senate amendment in preference to the definition contained in section 761(4) of the House bill which erroneously included onions. Section 761(9) of the House amendment represents a compromise between similar provisions contained in section 761(10) of the Senate amendment and section 761(9) of the House bill. The compromise adopts the substance contained in the House bill and adopts the terminology of “commodity contract” in lieu of “contractual commitment” as suggested in the Senate amendment. Section 761(10) of the House amendment represents a compromise between similar sections in the House bill and Senate amendment regarding the definition of “customer property.” The definition of “distribution share” contained in section 761(12) of the Senate amendment is deleted as unnecessary. Section 761(12) of the House amendment adopts a definition of “foreign futures commission merchant” similar to the definition contained in section 761(14) of the Senate amendment. The definition is modified to cover either an entity engaged in soliciting orders or the purchase or sale of a foreign future, or an entity that accepts cash, a security, or other property for credit in connection with such a solicitation or acceptance. Section 761(13) of the House amendment adopts a definition of “leverage transaction” identical to the definition contained in section 761(15) of the Senate amendment. Section 761(15) of the House amendment adopts the definition of “margin payment” contained in section 761(17) of the Senate amendment. Section 761(17) of the House amendment adopts a definition of “net equity” derived from section 761(15) of the House bill.
Paragraph (1) defines “Act” to mean the Commodity Exchange Act [7 U.S.C. 1 et seq.].
Paragraph (2) defines “clearing organization” to mean an organization that clears (i.e., matches purchases and sales) commodity futures contracts made on or subject to the rules of a contract market or commodity options transactions made on or subject to the rules of a commodity option exchange. Although commodity option trading on exchanges is currently prohibited, it is anticipated that CFTC may permit such trading in the future.
Paragraphs (3) and (4) define terms “Commission” and “commodity futures contract”.
Paragraph (5) [enacted as (4)] defines “commodity contract” to mean a commodity futures contract (§ 761(4)), a commodity option (§ 761(6)), or a leverage contract (§ 761(15)).
Paragraph (b) [probably should be “(6)” which was enacted as (5)] defines “commodity option” by reference to section 4c(b) of the Commodity Exchange Act [7 U.S.C. 6c(b)].
Paragraphs (7), (8), and (9) [enacted as (6), (7), and (8)] define “commodity options dealer,” “contract market,” “contract of sale,” “commodity,” “future delivery,” “board of trade,” and “futures commission merchant.”
Paragraph (10) [enacted as (9)] defines the term “customer” to mean with respect to a futures commission merchant or a foreign futures commission merchant, the entity for whom the debtor carries a commodity futures contract or foreign future, or with whom such a contract is carried (such as another commodity broker), or from whom the debtor has received, acquired, or holds cash, securities, or other property arising out of or connected with specified transactions involving commodity futures contracts or foreign futures. This section also defines “customer” in the context of leverage transaction merchants, clearing organizations, and commodity options dealers. Persons associated with a commodity broker, such as its employees, officers, or partners, may be customers under this definition.
The definition of “customer” serves to isolate that class of persons entitled to the protection subchapter IV provides to customers. In addition, section 101(5) defines “commodity broker” to mean a futures commission merchant, foreign futures commission merchant, clearing organization, leverage transaction merchant, or commodity options dealer, with respect to which there is a customer. Accordingly, the definition of customer also serves to designate those entities which must utilize chapter 7 and are precluded from reorganizing under chapter 11.
Paragraph (11) [enacted as (10)] defines “customer property” to mean virtually all property or proceeds thereof, received, acquired, or held by or for the account of the debtor for a customer arising out of or in connection with a transaction involving a commodity contract.
Paragraph (12) defines “distribution share” to mean the amount to which a customer is entitled under section 765(a).
Paragraphs (13), (14), (15), and (16) [enacted as (11), (12), (13), and (14)] define “foreign future,” “foreign futures commission merchant,” “leverage transaction,” and “leverage transaction merchant.”
Paragraph (17) [enacted as (15)] defines “margin payment” to mean a payment or deposit commonly known to the commodities trade as original margin, initial margin, or variation margin.
Paragraph (18) [enacted as (16)] defines “member property.”
Paragraph (19) [enacted as (17)] defines “net equity” to be the sum of (A) the value of all customer property remaining in a customer’s account immediately after all commodity contracts of such customer have been transferred, liquidated, or become identified for delivery and all obligations of such customer to the debtor have been offset (such as margin payments, whether or not called, and brokerage commissions) plus (B) the value of specifically identifiable customer property previously returned to the customer by the trustee, plus (C) if the trustee has transferred any commodity contract to which the customer is entitled or any margin or security for such contract, the value of such contract and margin or security. Net equity, therefore, will be the total amount of customer property to which a customer is entitled as of the date of the filing of the bankruptcy petition, although valued at subsequent dates. The Commission is given authority to promulgate rules and regulations to further refine this definition.
Paragraph (8) [enacted as (4)] is a dynamic definition of “contractual commitment”. The definition will vary depending on the character of the debtor in each case. If the debtor is a futures commission merchant or a clearing organization, then subparagraphs (A) and (D) indicate that the definition means a contract of sale of a commodity for future delivery on a contract market. If the debtor is a foreign futures commission merchant, a leverage transaction merchant, or a commodity options dealer, then subparagraphs (B), (C), and (E) indicate that the definition means foreign future, leverage transaction, or commodity option, respectively.
Paragraph (9) defines “customer” in a similar style. It is anticipated that a debtor with multifaceted characteristics will have separate estates for each different kind of customer. Thus, a debtor that is a leverage transaction merchant and a commodity options dealer would have separate estates for the leverage transaction customers and for the options customers, and a general estate for other creditors. Customers for each kind of commodity broker, except the clearing organization, arise from either of two relationships. In subparagraphs (A), (B), (C), and (E), clause (i) treats with customers to the extent of contractual commitments with the debtor in either a broker or a dealer relationship. Clause (ii) treats with customers to the extent of proceeds from contractual commitments or deposits for the purpose of making contractual commitments. The customer of the clearing organization is a member with a proprietary or customers’ account.
Paragraph (10) defines “customer property” to include all property in customer accounts and property that should have been in those accounts but was diverted through conversion or mistake. Clause (i) refers to customer property not properly segregated by the debtor or customer property converted and then recovered so as to become property of the estate. Clause (vii) is intended to exclude property that would cost more to recover from a third party than the value of the property itself. Subparagraph (B) excludes property in a customer’s account that belongs to the commodity broker, such as a contract placed in the account by error, or cash due the broker for a margin payment that the broker has made.
Paragraph (15) [enacted as (17)] defines “net equity” to include the value of all contractual commitments at the time of liquidation or transfer less any obligations owed by the customer to the debtor, such as brokerage fees. In addition, the term includes the value of any specifically identifiable property as of the date of return to the customer and the value of any customer property transferred to another commodity broker as of the date of transfer. This definition places the risk of market fluctuations on the customer until commitments leave the estate.
The Commodity Exchange Act, referred to in pars. (1), (2), (8), and (17), is act Sept. 21, 1922, ch. 369, 42 Stat. 998, which is classified generally to chapter 1 (§ 1 et seq.) of Title 7, Agriculture. Sections 4c(b) and 19 of the Act are classified to sections 6c(b) and 23, respectively, of Title 7. For complete classification of this Act to the Code, see section 1 of Title 7 and Tables.
2010—Par. (4)(F). Pub. L. 111–203, § 724(b)(1), added subpar. (F) and struck out former subpar. (F) which read as follows: “any other agreement or transaction that is similar to an agreement or transaction referred to in this paragraph;”.
Par. (9)(A)(i). Pub. L. 111–203, § 724(b)(2), substituted “a commodity contract account” for “the commodity futures account”.
2005—Par. (4)(F) to (J). Pub. L. 109–8 added subpars. (F) to (J).
2000—Par. (2). Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(6)(A)], amended par. (2) generally. Prior to amendment, par. (2) read as follows: “ ‘clearing organization’ means organization that clears commodity contracts made on, or subject to the rules of, a contract market or board of trade;”.
Par. (7). Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(6)(B)], amended par. (7) generally. Prior to amendment, par. (7) read as follows: “ ‘contract market’ means board of trade designated as a contract market by the Commission under the Act;”.
Par. (8). Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(6)(C)], amended par. (8) generally. Prior to amendment, par. (8) read as follows: “ ‘contract of sale’, ‘commodity’, ‘future delivery’, ‘board of trade’, and ‘futures commission merchant’ have the meanings assigned to those terms in the Act;”.
1994—Par. (1). Pub. L. 103–394, § 501(d)(29)(A), struck out “(7 U.S.C. 1 et seq.)” after “Act”.
Par. (5). Pub. L. 103–394, § 501(d)(29)(B), struck out “(7 U.S.C. 6c(b))” after “Act”.
Par. (13). Pub. L. 103–394, § 501(d)(29)(C), struck out “(7 U.S.C. 23)” after “Act”.
1984—Par. (10)(A)(viii). Pub. L. 98–353 substituted “from and that is the lawful property” for “and that is property”.
1982—Par. (2). Pub. L. 97–222, § 16(1), inserted “made” after “commodity contracts”.
Par. (4). Pub. L. 97–222, § 16(2), substituted “with respect to” for “if the debtor is” wherever appearing, and substituted “cleared by such clearing organization, or commodity option traded on, or subject to the rules of, a contract market or board of trade that is cleared by such clearing organization” for “cleared by the debtor” in subpar. (D).
Par. (9). Pub. L. 97–222, § 16(3), substituted “with respect to” for “if the debtor is” wherever appearing, in subpar. (A) substituted “such futures commission merchant” for “the debtor” wherever appearing and “such futures commission merchant’s” for “the debtor’s”, in subpar. (B) substituted “such foreign futures commission merchant” for “the debtor” wherever appearing and “such foreign futures commission merchant’s” for “the debtor’s”, in subpar. (C) substituted “such leverage transaction merchant” for “the debtor” wherever appearing and “such leverage transaction merchant’s” for “the debtor’s”, inserted “or” after the semicolon in cl. (i), and substituted “holds” for “hold” in cl. (ii), in subpar. (D) substituted “such clearing organization” for “the debtor” wherever appearing, and in subpar. (E) substituted “such commodity options dealer” for “the debtor” wherever appearing and “such commodity options dealer’s” for “the debtor’s”.
Par. (10). Pub. L. 97–222, § 16(4), struck out “at any time” after “security, or property,” in provisions preceding subpar. (A).
Par. (12). Pub. L. 97–222, § 16(5), inserted a comma after “property” and struck out the comma after “credit”.
Par. (13). Pub. L. 97–222, § 16(6), substituted “section 19 of the Commodity Exchange Act (7 U.S.C. 23)” for “section 217 of the Commodity Futures Trading Commission Act of 1974 (7 U.S.C. 15a)”.
Par. (14). Pub. L. 97–222, § 16(7), struck out “that is engaged” after “means person”.
Par. (15). Pub. L. 97–222, § 16(8), substituted “mark-to-market payments, settlement payments, variation payments, daily settlement payments, and final settlement payments made as adjustments to settlement prices” for “a daily variation settlement payment”.
Par. (16). Pub. L. 97–222, § 16(9), struck out “at any time” after “customer property”.
Par. (17). Pub. L. 97–222, § 16(10), in provisions preceding subpar. (A) substituted “has” for “holds”, in subpar. (A) inserted “the” after “(A)” in provisions preceding cl. (i), and “in such capacity” after “customer” in cl. (ii).
Amendment by Pub. L. 111–203 effective on the later of 360 days after
Amendment by Pub. L. 109–8 effective 180 days after
Amendment by Pub. L. 103–394 effective
Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after