[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR190.07]

[Page 626-631]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 190_BANKRUPTCY--Table of Contents
 
Sec.  190.07  Calculation of allowed net equity.

    Allowed net equity shall be computed as follows:
    (a) Allowed claim. The allowed net equity claim of a customer shall 
be equal to the aggregate of the funded balances of such customer's net 
equity claim for each account class plus or minus the adjustments 
specified in paragraph (d) of this section.
    (b) Net equity. Net equity means the total claim of a customer 
against the estate of the debtor based on the commodity contracts held 
by the debtor for or on behalf of such customer less any indebtedness of 
the customer to the debtor. Net equity shall be calculated as follows:

[[Page 627]]

    (1) Step 1--Equity determination. Determine the equity balance of 
each customer account by computing, with respect to such account, the 
sum of:
    (i) The ledger balance;
    (ii) The open trade balance; and
    (iii) The current realizable market value, determined as of the 
close of the market on the last preceding market day, of any securities 
or other property held by or for the debtor from or for such account, 
plus accrued interest, if any.
    (A) For the purposes of this paragraph (b)(1), the ledger balance of 
a customer account shall be calculated by adding:
    (1) Cash deposited to purchase, margin, guarantee, secure, or settle 
a commodity contract;
    (2) Except as is otherwise provided in this chapter, the cash 
proceeds of such cash, or of securities or other property referred to in 
paragraph (b)(1) of this section held from or for the customer by or for 
the account of the commodity broker; and
    (3) Gains realized on trades, and
    (B) Subtracting from the result:
    (1) Losses realized on trades;
    (2) Disbursements to or on behalf of the customer; and
    (3) The normal costs attributable to the payment of commissions, 
brokerage, interest, taxes, storage, transaction fees, insurance and 
other costs and charges lawfully incurred in connection with the 
purchase, sale, exercise, or liquidation of any commodity contract in 
such account. For purposes of this paragraph (b)(1), the open trade 
balance of a customer's account shall be computed by subtracting the 
unrealized loss in value of the open commodity contracts held by or for 
such account from the unrealized gain in value of the open commodity 
contracts held by or for such account. In calculating the ledger balance 
or open trade balance of any customer, exclude any security futures 
products, any gains or losses realized on trades in such products, any 
property received to margin, guarantee or secure such products 
(including interest thereon or the proceeds thereof), to the extent any 
of the foregoing are held in a securities account, and any disbursements 
to or on behalf of such customer in connection with such products or 
such property held in a securities account.
    (2) Step 2--Customer determination (aggregation). Aggregate the 
credit and debit equity balances of all accounts of the same class held 
by a customer in the same capacity. Paragraphs (b)(2)(i) through 
(b)(2)(xiii) of this section prescribe which accounts must be treated as 
being held in the same capacity and which accounts must be treated as 
being held in a separate capacity.
    (i) Except as otherwise provided in this paragraph (b)(2), all 
accounts which are maintained with a debtor in a person's name and 
which, under this paragraph (b)(2), are deemed to be held by that person 
in its individual capacity shall be deemed to be held in the same 
capacity.
    (ii) An account maintained with a debtor by a guardian, custodian, 
or conservator for the benefit of a ward, or for the benefit of a minor 
under the Uniform Gift to Minors Act, shall be deemed to be held in a 
separate capacity from accounts held by such guardian, custodian or 
conservator in its individual capacity.
    (iii) An account maintained with a debtor in the name of an executor 
or administrator of an estate shall be deemed to be held in a separate 
capacity from accounts held by such executor or administrator in its 
individual capacity.
    (iv) Subject to paragraph (b)(2)(iii) of this section, an account 
maintained with a debtor in the name of a decedent, in the name of the 
decedent's estate, or in the name of the executor or administrator of 
such estate shall be deemed to be accounts held in the same capacity.
    (v) An account maintained with a debtor by a trustee shall be deemed 
to be held in the individual capacity of the grantor of the trust unless 
the trust is created by a valid written instrument for a purpose other 
than avoidance of an offset under the regulations contained in this 
part. A trust account which is not deemed to be held in the individual 
capacity of its grantor under paragraph (b)(2)(v) of this section shall 
be deemed to be held in a separate capacity from accounts held in an 
individual capacity by the trustee, by the grantor or any successor in 
interest of

[[Page 628]]

the grantor, or by any trust beneficiary, and from accounts held by any 
other trust.
    (vi) An account maintained with a debtor by a corporation, 
partnership, or unincorporated association shall be deemed to be held in 
a separate capacity from accounts held by the shareholders, partners or 
members of such corporation, partnership or unincorporated association, 
if such entity was created for purposes other than avoidance of an 
offset under the regulations contained in this part.
    (vii) A hedging account of a person shall be deemed to be held in 
the same capacity as a speculative account of such person.
    (viii) Subject to paragraph (b)(2)(ix) of this section, the futures 
accounts, leverage accounts, options accounts, foreign futures accounts 
and delivery accounts of the same person shall not be deemed to be held 
in separate capacities: Provided, however, That such accounts may be 
aggregated only in accordance with paragraph (b)(3) of this section.
    (ix) An omnibus customer account of a futures commission merchant 
maintained with a debtor shall be deemed to constitute one account and 
to be held in a separate capacity from the house account and any other 
omnibus customer account of such futures commission merchant.
    (x) A joint account maintained with the debtor shall be deemed to be 
held in a separate capacity from any account held in an individual 
capacity by the participants in such account, from any account held in 
an individual capacity by a commodity pool operator or commodity trading 
advisor for such account, and from any other joint account: Provided, 
however, That if such account is not transferred in accordance with 
Sec.  190.06, it shall be deemed to be held in the same capacity as any 
other joint account held by identical participants and a participant's 
percentage interest therein shall be deemed to be held in the same 
capacity as any account held in an individual capacity by such 
participant.
    (xi) An account maintained with a debtor in the name of a plan 
which, on the filing date, has in effect a registration statement in 
accordance with the requirements of section 1031 of the Employee 
Retirement Income Security Act of 1974 and the regulations thereunder 
shall be deemed to be held in a separate capacity from an account held 
in an individual capacity by the plan administrator, any employer, 
employee, participant, or beneficiary with respect to such plan.
    (xii) Except as otherwise provided in this section, an account 
maintained with a debtor by an agent or nominee for a principal or a 
beneficial owner shall be deemed to be an account held in the individual 
capacity of such principal or beneficial owner.
    (xiii) Accounts held by a customer in separate capacities shall be 
deemed to be accounts of different customers. The burden of proving that 
an account is held in a separate capacity shall be upon the customer.
    (3) Step 3--Setoffs. (i) The net equity of one customer account may 
not be offset against the net equity of any other customer.
    (ii) Any obligation which is not required to be included in 
computing the equity of a customer under paragraph (b)(1) of this 
section, but which is owed by such customer to the debtor must be 
deducted from any obligation not required to be included in computing 
the equity of a customer which is owed by such debtor to the customer. 
If the former amount exceeds the latter, the excess must be deducted 
from the equity balance of the customer obtained after performing the 
preceding calculations required by paragraph (b) of this section: 
Provided, That if the customer owns more than two classes of accounts 
the excess must be offset against each positive equity balance in the 
same proportion as that positive equity balance bears to the total of 
all positive equity balances of accounts of different classes held by 
such customer.
    (iii) A negative equity balance obtained with respect to one 
customer account class must be set off against a positive equity balance 
in any other account class of such customer held in the same capacity: 
Provided, That if a customer owns more than two classes of accounts such 
balance must be offset against each positive equity balance in the same 
proportion as that positive

[[Page 629]]

equity balance bears to the total of all positive equity balances in 
accounts of different classes held by such customer.
    (iv) To the extent any indebtedness of the debtor to the customer 
which is not required to be included in computing the equity of such 
customer under paragraph (b)(1) of this section exceeds such 
indebtedness of the customer to the debtor, the customer claim therefor 
will constitute a general creditor's claim rather than a customer 
property claim, and the net equity therefor shall be separately 
calculated.
    (v) The rules pertaining to separate capacities and permitted 
setoffs contained in this section must be applied subsequent to the 
entry of an order for relief; prior to the filing date the provisions of 
Sec.  1.22 of this chapter and of section 4d(a)(2) of the Act shall 
govern what setoffs are permitted.
    (4) Step 4--Correction for distributions. The value on the date of 
transfer or distribution of any property transferred or distributed 
subsequent to the filing date and prior to the primary liquidation data 
with respect to each class of account held by a customer must be added 
to the equity obtained for that customer for accounts of that class 
after performing the steps contained in paragraphs (b)(1)-(3) of this 
section: Provided, however, That if all accounts for which there are 
customer claims of record and 100% of the equity pertaining thereto are 
transferred in accordance with Sec.  190.06 and section 764(b) of the 
Bankruptcy Code, net equity shall be computed based solely upon those 
customer claims, if any, filed subsequent to bankruptcy which are not 
claims of record on the filing date.
    (5) Step 5--Correction for subsequent events. Compute any 
adjustments to Steps 1 through 4 of this paragraph (b) required to 
correct misestimates or errors including, without limitation, 
corrections for subsequent events such as the liquidation of 
unliquidated claims at a value different from the estimated value 
previously used in computing net equity.
    (6) Step 6--Net equity of accounts which remain open subsequent to 
the primary liquidation date. If the accounts of a customer contain 
commodity contracts which remain open subsequent to the primary 
liquidation date, the trustee must adjust the net equity obtained for 
that customer pursuant to the steps contained in paragraphs (b) (1) 
through (5) of this section as provided in paragraphs (d)(1) and (d)(2) 
of this section.
    (c) Calculation of funded balance. ``Funded balance'' means a 
customer's pro rata share of the customer estate with respect to each 
account class available as of the primary liquidation date for 
distribution to customers of the same class.
    (1) The funded balance of any customer claim shall be computed by:
    (i) Multiplying the ratio of the amount the net equity claim less 
the amounts referred to in (1)(ii) of this section of such customer for 
any account class bears to the sum of the net equity claims less the 
amounts referred to in (1)(ii) of this section of all customers for 
accounts of that class by the sum of:
    (A) The value of the money, securities or property segregated on 
behalf of all accounts of the same class less the amounts referred to in 
(1)(ii) of this section;
    (B) The value of any money, securities or property which must be 
allocated under Sec.  190.08 to customer accounts of the same class; and
    (C) The amount of any add-back required under paragraph (b)(4) of 
this section; and
    (ii) Then adding 100% of any margin payment made between the entry 
of the order for relief and the primary liquidation date.
    (2) Corrections to funded balance. The funded balance must be 
adjusted, as of the primary liquidation date, to correct for subsequent 
events including, without limitation:
    (i) Added claimants;
    (ii) Disallowed claims;
    (iii) Liquidation of unliquidated claims at a value other than their 
estimated value;
    (iv) Recovery of property; and
    (v) Deficits generated by the continued operation of accounts after 
the primary liquidation date which cannot be fully adjusted under 
paragraph (d) of this section.

[[Page 630]]

    (d) Adjustments to funded balance for operations subsequent to the 
primary liquidation date. If accounts of a customer contain commodity 
contracts which remain open subsequent to the primary liquidation date, 
the funded balance for each class must be adjusted until liquidation or 
transfer of all such open commodity contracts of that customer of the 
same class, as follows:
    (1) Unrealized and realized gains and any receipts of margin with 
respect thereto must be added to the funded balance;
    (2) Unrealized and realized losses, and the normal costs 
attributable to the payment of commissions, brokerage, interest, taxes, 
storage, transaction fees and other costs and charges lawfully incurred 
with respect to the maintenance or liquidation of such open commodity 
contracts, and any distributions must be subtracted from the funded 
balance; and
    (3) Subject to claims against the trustee for failure to liquidate, 
any deficit which is not recovered from the customer on whose behalf it 
is incurred must be charged against the funded balance of each account 
which remained open on the date the deficit occurred in the same 
proportion as the funded balance of each account bears to all the funded 
balances of all accounts which remained open on that date.
    (e) Valuation. In computing net equity, commodity contracts and 
other property held by or for a commodity broker must be valued as 
provided in this paragraph (e): Provided, however, That if identical 
commodity contracts, securities, or other property are liquidated on the 
same date, but cannot be liquidated at the same price, the trustee may 
use the weighted average of the liquidation prices in computing the net 
equity of each customer holding such contracts, securities or property.
    (1) Exchange-traded contracts. The value of an open commodity 
contract which is traded on a board of trade shall be equal to the 
settlement price as of the close of business on the board of trade upon 
which it is traded: Provided, That if such contract is transferred its 
value shall be determined at the time of its transfer: and Provided 
further, That if such contract is liquidated, its value shall be equal 
to the net proceeds of liquidation.
    (2) Principal contracts. The valuation date of principal contracts 
which are not transferred shall be the date of the order for relief 
unless there is specific property which constitutes cover by the 
principal for the principal contract in which case it shall be the date 
of liquidation of the cover. For purposes of valuing contracts for which 
there is no established secondary market:
    (i) Cash price series approved by Commission. The market value of 
the physical commodity which is the subject of a principal contract 
shall be computed using a cash price series approved by the Commission 
for use by the dealer option grantor, in the case of dealer options, and 
by the leverage transaction merchant, in the case of leverage contracts.
    (ii) No cash price series approved by Commission. If no applicable 
cash price series has been submitted to the Commission, or if such a 
cash price series has been submitted, but has not been approved by the 
Commission, the market value of the physical commodity which is the 
subject of a principal contract shall be equal to the lesser of:
    (A) The market value of the physical commodity as of the close of 
business on the local cash market most proximate to the debtor's 
principal place of business; or
    (B) The spot month settlement price on a contract market which 
trades contracts in that physical commodity most proximate to the 
debtor's principal place of business: Provided, That where there is more 
than one local market as described in paragraphs (e)(2)(ii) (A) or (B) 
of this section, the trustee should use the most active market.
    (iii) Special rule for valuing dealer options. A dealer option which 
is in-the-money will be deemed to have been exercised for purposes of 
determining its value which shall be equal to the greater of:
    (A) The in-the-money amount; or
    (B) The premium paid for such option divided by the number of days 
contained in the option period and multiplied by the number of days 
remaining in such period on the liquidation date:

[[Page 631]]

Provided, That in the trustee's sole discretion, the trustee may reduce 
such value to an amount which does not exceed the average of the 
premiums recently paid for similar options granted by the same grantor.

Any time value not reflected in this computation claimed by a customer 
must be treated as a general creditor's claim.
    (iv) Special rule for valuing leverage contracts. Notwithstanding 
paragraphs (e)(2) (i) and (ii) of this section, if the records of the 
debtor are not sufficient to substantiate customer claims for profits 
and to identify the owners of contracts with losses, the liquidation 
value of a leverage contract shall be deemed to be an amount equal to 
the total deposit made by a customer in respect to such contract.
    (3) Bucketed contracts. The value of a commodity contract which has 
not been established in fact shall be deemed to be equal to the value of 
the total deposit made by a customer in respect to such contract.
    (4) Securities. The value of a listed security shall be equal to the 
closing price for such security on the exchange upon which it is traded. 
The value of over-the-counter securities traded pursuant to the National 
Association of Securities Dealers Automated Quotation system shall be 
equal, in the case of a long position, to the closing bid price and, in 
the case of a short position, to the closing asking price. The value of 
all other over-the-counter securities shall be equal in the case of a 
long position, to the average of the bid prices for long positions, and 
in the case of a short position, to the average of the asking prices for 
the short positions. If liquidated prior to the primary liquidation 
date, the value of such security shall be equal to the net proceeds of 
its liquidation. Securities which are not publicly traded shall be 
valued by the trustee subject to approval of the court, using such 
professional assistance as the trustee deems necessary in its sole 
discretion under the circumstances.
    (5) Property. Cash commodities held in inventory, as collateral or 
otherwise, shall be valued at their fair market value. Subject to the 
other provisions of this paragraph (e), all other property shall be 
valued by the trustee subject to approval by the court, using such 
professional assistance as the trustee deems necessary in its sole 
discretion under the circumstances: Provided, however, That if such 
property is sold, its value for purposes of the calculations required by 
this part shall be the net proceeds of such sale: Provided further, That 
the sale is made in compliance with all applicable statutes, rules and 
orders of any court or governmental entity with jurisdiction thereover.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 67 FR 58298, Sept. 13, 2002; 69 FR 41427, July 9, 2004]