Applicability of CFTC and SEC Customer Protection, Recordkeeping, Reporting, and Bankruptcy Rules and the Securities Investor Protection Act of 1970 to Accounts Holding Security Futures Products

The Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC") (collectively the "Commissions") have adopted rules under the Commodity Exchange Act ("CEA") and the Securities Exchange Act of 1934 ("Exchange Act") as part of the joint regulatory framework under which futures commission merchants ("FCMs") and brokers or dealers ("broker-dealers" or "BDs") may effect transactions in security futures products for customers. The rules require all firms conducting business in security futures products to make disclosures to customers that transact business in security futures products concerning the protections provided by both the CEA and Exchange Act regulatory schemes, the regulatory scheme that will be applicable to their accounts, and the alternative regulatory scheme that will not be applicable to their accounts. In addition, the rules require that every firm engaged in this business that is fully-registered both as an FCM and as a broker- dealer establish written procedures regarding how customer security futures products will be held. The rules also specify how CEA and Exchange Act recordkeeping, reporting, and certain other rules will apply to security futures product transactions and accounts in which security futures products are held. These rules are adopted pursuant to the provisions of the Commodity Futures Modernization Act of 2000 ("CFMA") that direct the Commissions to address certain duplicative or conflicting regulations applicable to any firm fully-registered both as an FCM and as a broker-dealer. These rules also are intended to address certain other differences between the CEA and Exchange Act requirements, and reduce duplicative regulations applicable to firms that are notice-registered with either the CFTC or SEC.