CFTC Staff Letter 04-27: No-Action Relief for Bank Service Charges on Remote Customer-Segregated Accounts

CFTC Letter 04-27
CFTC letter No. 04-27
October 1, 2004
No-Action
Division of Clearing and Intermediary Oversight Mr. Thomas R. Kadlec Vice-President & Chief Financial Officer ADM Investor Services, Inc. 1600A Board of Trade Building 141 W. Jackson Boulevard Chicago, Illinois 60604 Re: “No-Action” Relief for Bank Service Charges on Specified Customer-Segregated Accounts Dear Mr. Kadlec:
This is in response to your letter dated April 21, 2004, submitted on behalf of ADM Investor Services, Inc. (“ADM”), a registered futures commission merchant, to the Division of Clearing and Intermediary Oversight (the “Division” or “DCIO”) of the Commodity Futures Trading Commission (“Commission”). By your letter, you have asked whether ADM may use customer funds, which have been deposited in segregated accounts under Section 4d(a) of the Commodity Exchange Act[1] (the “Act”), to pay account service charges to banks for the maintenance of such accounts in which the customer funds are held. Such bank account service charges are expenses of ADM and not of its customers, and Section 4d(b) of the Act and Commission Rule 1.20 prohibit the use of customer-segregated funds for any person other than an FCM’s customers. The Division hereby confirms by this letter that, so long as ADM holds excess funds in segregation and has a residual interest in such funds[2], it will not recommend that the Commission commence an enforcement action against ADM with respect to the payment of account services charges directly out of a Section 4d(a) customer-segregated account as a reduction of such residual interest, subject to all the additional conditions set forth in this letter.[3] As represented in your letter, almost all customer-segregated funds held by ADM are maintained in accounts near its main office. In order to facilitate customer business, however, ADM often will open accounts to hold customer funds in bank locations near its seven branch offices and/or one hundred and thirty-one guaranteed introducing brokers. As of November 30, 2003, ADM maintained eighty-four (84) such accounts, which taken together represented only 0.48 percent of all customer-segregated funds held by ADM. The monthly bank service charges for these 84 accounts totaled $144.88 as of that same date. By your letter, ADM seeks confirmation that these bank service charges may be deducted directly by the bank from the funds maintained in the customer-segregated accounts in these 84 locations. If such deductions are not permissible, ADM advises that it will be required either to (1) open in each of file:///H|/Desktop/04letters/tm04-27.htm (1 of 3) [5/6/2010 5:31:36 PM]