tomers' funds with the funds of a futures commission merchant shall not be construed to prevent such futures commission merchant from having a residual financial interest in the funds segregated and set apart for the benefit of commodity customers, nor shall such prohibition be construed to prevent a futures commission merchant from adding to customers' segregated funds from his own funds such amount or amounts of money as he may deem necessary to insure any and all customers' accounts from becoming undermargined at any time: Provided, however, That the books and records of such futures commission merchant shall at all times accurately reflect his interest in customers' segregated funds. Such futures commission merchant may draw upon such segregated funds to his own order to the extent of his actual interest therein: Provided, That such withdrawal shall not result in the money, securities, property, or equity of one customer being used to margin or carry the trades or contracts, or extend the credit, of any other customer or person.

(Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2)) § 1.24 Segregated

therefrom.

funds;

exclusions

Money held in segregated account by a futures commission merchant shall not include: (a) Money invested in obligations or stocks of any clearing organization, or in memberships in or obligations of any contract market; or (b) money held by any clearing organization of any contract market which may be used by such clearing organization for any purpose other than to margin, guarantee, secure, transfer, adjust, or settle the contracts or trades of the commodity customers of such futures commission merchant.

(Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2))

§ 1.25 Investment and lending of cus

tomers' money; conditions governing. Any futures commission merchant may, in accordance with the provisions of section 4d (2) of the Commodity Exchange Act,

(a) Invest customers' money in obligations or investment securities as described in said section; and

(b) Loan customers' money to other persons on the security of negotiable warehouse receipts conveying or secur

ing title to readily marketable commodities, subject to the following conditions:

(1) That such warehouse receipts be issued by a public warehouseman other than such futures commission merchant, licensed as warehouseman under the provisions of the United States Warehouse Act (39 Stat. 486; 7 U.S.C., Chapter 10) or the warehouse laws of any State; and

(2) The amount of any loan so made shall at no time exceed 85 percent of the current market value of the commodities represented by such warehouse receipts. (Sec. 4d, as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2))

CROSS REFERENCE: For regulations under the United States Warehouse Act, see 7 CFR Parts 101-114, 151.

§ 1.26

Deposit of investment securities, obligations, and warehouse receipts. Each futures commission merchant who, in accordance with section 4d(2) of the act and with these rules and regulations, invests money belonging or accruing to customers in obligations or investment securities described in said section, or loans such money on the security of negotiable warehouse receipts, shall promptly:

(a) Deposit such obligations, securities, and warehouse receipts in safekeeping with a bank or trust company under an account name which will clearly show that they represent investments of, or security for loans of, customers' funds segregated as required by the Commodity Exchange Act, and under a written agreement with such bank or trust company waiving any claim, lien, or right of set-off of any nature which such bank or trust company might otherwise have or obtain against such obligations, securities, and warehouse receipts, and authorizing inspection thereof at any reasonable time by representatives of the Commodity Exchange Authority; or

(b) Deposit such obligations, securities, and warehouse receipts with a clearing organization or clearing member of a contract market under an account name which will clearly show that they represent investments of, or security for loans of, customers' funds segregated as required by the Commodity Exchange Act, and under a written agreement with such clearing organization or clearing member providing that such obligations, securities, and warehouse receipts are deposited solely to margin, guarantee, secure, transfer, adjust, or settle the con

tracts or trades of the commodity customers of such futures commission merchant and waiving any other claim, lien, or right of set-off of any nature which such clearing organization or clearing member might otherwise have or obtain against such obligations, securities, and warehouse receipts. Such agreement shall authorize the inspection at any reasonable time by representatives of the Commodity Exchange Authority of such obligations, securities, and warehouse receipts.

An executed copy of the agreement prescribed in this section shall be kept by the futures commission merchant in accordance with the requirements of § 1.31. (Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d(2)) [13 F.R. 7834, Dec. 18, 1948, as amended at 23 F.R. 1985, Mar. 26, 1958; 27 F.R. 12673, Dec. 21, 1962]

§ 1.27

Record of investments and loans. Each futures commission merchant who, in accordance with section 4d (2) of the act and with the rules and regulations in this chapter, invests money belonging or accruing to customers in obligations or investment securities described in said section, or loans such money on the security of negotiable warehouse receipts, shall keep a record in accordance with the requirements of § 1.31 showing the following:

(a) With respect to obligations and investment securities,

(1) The date on which such investments were made,

(2) The name of the person from or through whom such obligations or securities were bought,

(3) The amount of money paid for such obligations or securities,

(4) A description of such obligations or securities,

(5) The date on which disposition was made of such obligations or securities and the amount of money received therefor, and

(6) The name of the person to or through whom such obligations or securities were sold; and

(b) With respect to warehouse receipts,

(1) The date on which such loans were made,

(2) The name of the person to whom such funds were loaned,

(3) The amount loaned on the security of such warehouse recipts,

(4) A description of such warehouse receipts,

(5) The date and particulars of any changes or substitutions in the warehouse receipts held as security for such loans, and

(6) The date on which such loans were repaid.

(Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2)) [13 F.R. 7834, Dec. 18, 1948, as amended at 27 F.R. 12673, Dec. 21, 1962]

§ 1.28 Appraisal of investment securities and obligations.

Futures commission merchants who invest customers' money in obligations or investment securities under the provisions of section 4d (2) of the Commodity Exchange Act shall include such obligations or investment securities in segregated account at values which at no time shall be greater than current market value, determined as of the close of the market on the last preceding market day, less the cost of disposal. (Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2))

§ 1.29 Increment or interest resulting from investment or lending of customers' funds.

The investment and lending of customers' funds in accordance with the provisions of section 4d (2) of the Commodity Exchange Act and these rules and regulations and the deposit, in accordance with the provisions of § 1.26, of obligations, investment securities, and warehouse receipts, shall not operate to prevent the depositor from receiving and retaining as his own any increment or interest resulting therefrom.

(Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2))

§ 1.30

Loans by futures commission merchants; treatment of proceeds. Nothing contained in the rules and regulations in this chapter, shall be construed to prevent a futures commission merchant from lending his own funds to commodity customers on securities and property pledged by such customers, or from re-pledging or selling such securities and property pursuant to specific written agreement with such customers: Provided, however, That the proceeds of such loans used to margin, guarantee, or secure the trades or contracts of such customers in any commodity for future delivery shall be treated and dealt with

by such futures commission merchant as belonging to such customers, in accordance with and subject to the provisions of section 4d (2) of the Commodity Exchange Act.

(Sec. 4d (2), as added by sec. 5, 49 Stat. 1494; 7 U.S.C. 6d (2))

§ 1.31

RECORD KEEPING

Books and records; keeping and inspection.

All books and records required to be kept by the act or by the rules and regulations in this chapter, shall be kept for a period of five years from the date thereof and shall be readily accessible during the first two years of such period. During the last two years of such period, the person required to keep such books and records may at his option substitute photographic reproductions thereof on film, together with facilities for the projection of such film in a manner which will permit it to be readily inspected or examined. All such books, records, and photographic reproductions shall be open to inspection by any representative of the United States Department of Agriculture or the United States Department of Justice.

(Secs. 4, 5, 42 Stat. 999, as amended, 1000, as amended, secs. 4g, 41, 5a, 49 Stat. 1496, 1497; 7 U.S.C. 6, 7, 6g, 6i, 7a) [15 F.R. 4443, July 13, 1950]

§ 1.31a Compliance with §§ 1.32–1.36.

With respect to a futures commission merchant who transmits all customers' commodity futures orders, together with all money, securities, and property received to margin, guarantee, or clear the trades or contracts of such customers, to another futures commission merchant for execution or clearance, and the latter renders confirmations and statements of purchase and sale, and transmits remittances, direct to such customers, the requirements of §§ 1.32-1.36, inclusive, shall be deemed to be complied with if the books and records described in the aforesaid sections are prepared and kept, in the form and manner therein set forth, by either the futures commission merchant transmitting such order or by the futures commission merchant to whom

such orders are transmitted.

§ 1.32 Segregated account; daily computation and record.

The amount of money, securities, and property which must be in segregated

account in order to comply with the requirements of section 4d (2) of the Commodity Exchange Act shall be computed by each futures commission merchant as of the close of the market each business day, based upon his accounting records. A record of such computation shall be made and kept, together with all supporting data, in accordance with the requirements of § 1.31.

[27 F.R. 12673, Dec. 21, 1962]

§ 1.33 Monthly statement for customer and record of customer's position in each future.

Each futures commission merchant shall promptly furnish in writing directly to each customer, as of the close of the last business day of each calendar month or as of any regular monthly date selected: (a) A statement which clearly shows the open contracts with prices at which acquired, and the ledger balance carried for the customer's account; and (b) a statement which clearly shows any securities or other property which the customer has deposited with the futures commission merchant to margin, guarantee, or secure the account. Copies of the statements prepared for customers shall be retained by the futures commission merchant in accordance with the requirements of § 1.31.

[27 F.R. 16272, Dec. 21, 1962]

With respect to any account controlled by any person other than the customer for whom such account is carried, each futures commission merchant shall:

(a) Promptly confirm in writing directly to the customer the execution of any trade originated by the controller of the account and retain a copy of such confirmation in accordance with the requirements of § 1.31; and,

(b) Clearly show on each monthly statement furnished as required by § 1.33, or on an accompanying supplemental statement, the net unrealized profit or loss in all open contracts figured to the .market;

Provided, however, That the provisions of this section shall not apply to an account controlled by the spouse, parent or child of the customer in whose name the account is carried.

[27 F.R. 16272, Dec. 21, 1962]

§ 1.34 Monthly record, "point balance".

Each futures commission merchant shall prepare, and keep in accordance with the requirements of § 1.31, a statement, commonly known as a "point balance", which accrues or brings to the official closing price, or settlement price fixed by the clearing organization, all open contracts of customers as of the last business day of each calendar month or of any regular monthly date selected: Provided, however, That a futures commission merchant who carries part or all of customers' open contracts with other futures commission merchants on an "instruct basis" will be deemed to have met the requirements of this section as to open contracts so carried if a monthly statement is prepared which shows that the prices and amounts of such contracts long and short in the customers' accounts are in balance with those in the carrying commission merchants' accounts, and such statements are retained in accordance with the requirements of § 1.31.

[27 F.R. 16272, Dec. 21, 1962]

merchants

(a) Futures commission and members of contract markets. Each futures commission merchant and each member of a contract market shall keep full, complete, and systematic records, together with all pertinent data and memoranda, of all transactions relating to his business of dealing in commodity futures and cash commodities. He shall retain the required records, data and memoranda in accordance with the requirements of § 1.31, and shall produce them for inspection and shall furnish true and correct information and reports as to the contents or the meaning thereof, when and as requested by any authorized representative of the United States Department of Agriculture or the United States Department of Justice. Included among such records shall be all orders (filled, unfilled, or canceled), trading cards, signature cards, street books, journals, ledgers, canceled checks, copies of confirmations, copies of statements of purchase and sale and all other records, data and memoranda which have been prepared in the course of his business of dealing in commodity futures and cash commodities.

(b) Futures commission merchants and clearing members of contract markets. Each futures commission merchant and each clearing member of a contract market shall, as a minimum requirement, prepare regularly and promptly, and keep systematically and in permanent form, the following:

(1) A financial ledger record which will show separately for each customer all charges against and credits to such customer's account, including but not limited to funds or securities deposited, withdrawn, or transferred, and charges or credits resulting from losses or gains on closed transactions;

(2) A record of transactions which will show separately for each account (including house accounts) all commodity futures transactions executed for such account, including the date, price, quantity, market, commodity, and future; and

(3) A record or journal which will show separately for each business day complete details of all commodity futures transactions executed on that day, including the date, price, quantity, market, commodity, future, and the person for whom such transaction was made.

(c) Clearing members of contract markets. In the daily record or journal required to be kept under paragraph (b)(3) of this section, each clearing member of a contract market shall also show the floor broker or other person executing each transaction and the opposite clearing member with whom it was made.

(d) Members of contract markets(1) Pit or ring trading. Each member of a contract market who, in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged, executes purchases or sales of any commodity for future delivery on or subject to the rules of such contract market, shall prepare regularly and promptly a trading card or other record showing such purchases and sales. Such trading card or record shall show his own name, the name of the member firm clearing the trade, the date, price, quantity, commodity, and future, and shall clearly identify the opposite floor broker or other person with whom such transaction was executed and the opposite clearing member (if, in accordance with the rules or practice of the contract market such opposite clearing member is made known to him).

(2) Board trading. Where such trading is conducted by the posting of bids and offers on a board and the acceptance of such bids and offers is posted in the same manner, and a record thereof is made and is retained by a contract market in a form and manner approved by the Secretary of Agriculture, no trading card or similar record need be prepared. If, however, a trading card or similar record is prepared on such transactions, it shall be retained in accordance with the requirements of § 1.31.

(3) The trading card or other record required to be kept under paragraphs (d) (1) and (d) (2) of this section shall be retained by the executing member: Provided, however, That if in accordance with the rules of the contract market upon which such transaction was executed, or the uniform custom or usage prevailing upon such market, such trading cards or records are regularly retained by the clearing members or by the contract market, such rule, custom or usage may be followed.

(Secs. 4, 5, 42 Stat. 999, as amended, 1000, as amended, sec. 4g, 49 Stat. 1496; 7 U.S.C. 6, 7, 6g) [28 F.R. 7471, July 23, 1963]

§ 1.36

Record of securities and property received from customers.

Each futures commission merchant shall keep, in permanent and readily accessible form, a record of all securities and property (other than money) received from customers in lieu of money to margin, guarantee, or secure the commodity trades and contracts of such customers. Such record shall include a description of the securities and property received from each customer, the name and address of such customer, the dates when such securities and property were received from and when returned to such customer, or otherwise disposed of, together with the facts and circumstances of such other disposition. (Sec. 4g, as added by sec. 5, 49 Stat. 1496; 7 U.S.C. 6g)

person as well as the name of any other person guaranteeing such account or exercising any trading control with respect to such account. Such record shall be open to inspection by any authorized representative of the Commodity Exchange Authority.

(Sec. 4, 5, 42 Stat. 999, 1000, sec. 4g, as added by sec. 5, 49 Stat. 1496; 7 U.S.C. 6, 7(b), 6g)

§ 1.38

Execution of transactions.

(a) Competitive execution required; exceptions. All purchases and sales of any commodity for future delivery on or subject to the rules of a contract market shall be executed openly and competitively as to price by open outcry or posting of bids and offers or by other equally open and competitive methods, in the trading pit or ring or similar place provided by the contract market, during the regular hours prescribed by the contract market for trading in such commodity: Provided, however, That this requirement shall not apply to such transactions as are executed in accordance with written rules of the contract market which have been submitted to and not disapproved by the Secretary of Agriculture, specifically providing for the noncompetitive execution of such transactions.

(b) Noncompetitive trades; exchange of futures, etc.; requirements. Every person handling, executing, clearing, or carrying trades or contracts which are not competitively executed, including transfer trades or office trades, or trades involving the exchange of futures for cash commodities or the exchange of futures in connection with cash commodity transactions, shall identify and mark by appropriate symbol or designation all such transactions or contracts and all orders, records, and memoranda pertaining thereto.

[18 F.R. 176, Jan. 19, 1953]