11 U.S.C. § 766 — Treatment of customer property

Page 220 TITLE 11—BANKRUPTCY § 765 by the Commission by rule or order, either be- fore or after such transfer, and if such transfer is— (1) a transfer of a commodity contract en- tered into or carried by or through the debtor on behalf of a customer, and of any cash, secu- rities, or other property margining or securing such commodity contract; or (2) the liquidation of a commodity contract entered into or carried by or through the debt- or on behalf of a customer. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2618; Pub. L. 97–222, § 17, July 27, 1982, 96 Stat. 240; Pub. L. 98–353, title III, § 487, July 10, 1984, 98 Stat. 383; Pub. L. 111–16, § 2(9), May 7, 2009, 123 Stat. 1607.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 764 of the House amendment is derived from the House bill. SENATE REPORT NO. 95–989 Section 764 permits the trustee to void any transfer of property that, except for such transfer, would have been customer property, to the extent permitted under section 544, 545, 547, 548, 549, or 724(a). HOUSE REPORT NO. 95–595 Section 764 indicates the extent to which the avoid- ing powers may be used by the trustee under sub- chapter IV of chapter 7. If property recovered would have been customer property if never transferred, then subsection (a) indicates that it will be so treated when recovered. Subsection (b) prohibits avoiding any transaction that occurs before or within five days after the petition if the transaction is approved by the Commission and concerns an open contractual commitment. This en- ables the Commission to exercise its discretion to pro- tect the integrity of the market by insuring that trans- actions cleared with other brokers will not be undone on a preference or a fraudulent transfer theory. Subsection (c) insulates variation margin payments and other deposits from the avoiding powers except to the extent of actual fraud under section 548(a)(1). This facilitates prepetition transfers and protects the ordi- nary course of business in the market. Editorial Notes AMENDMENTS 2009—Subsec. (b). Pub. L. 111–16 substituted ‘‘seven days’’ for ‘‘five days’’ in introductory provisions. 1984—Subsec. (a). Pub. L. 98–353 substituted ‘‘any transfer by the debtor’’ for ‘‘any transfer’’. 1982—Subsec. (a). Pub. L. 97–222, § 17(a), substituted ‘‘but’’ for ‘‘except’’, inserted ‘‘such property’’ after ‘‘trustee, and’’, and substituted ‘‘shall be’’ for ‘‘is’’ wherever appearing. Subsec. (b). Pub. L. 97–222, § 17(b), substituted ‘‘order for relief’’ for ‘‘date of the filing of the petition’’. Subsec. (c). Pub. L. 97–222, § 17(c), struck out subsec. (c) which provided that the trustee could not avoid a transfer that was a margin payment to or deposit with a commodity broker or forward contract merchant or was a settlement payment made by a clearing organiza- tion and that occurred before the commencement of the case. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2009 AMENDMENT Amendment by Pub. L. 111–16 effective Dec. 1, 2009, see section 7 of Pub. L. 111–16, set out as a note under section 109 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 765. Customer instructions (a) The notice required by section 342 of this title to customers shall instruct each cus- tomer— (1) to file a proof of such customer’s claim promptly, and to specify in such claim any specifically identifiable security, property, or commodity contract; and (2) to instruct the trustee of such customer’s desired disposition, including transfer under section 766 of this title or liquidation, of any commodity contract specifically identified to such customer. (b) The trustee shall comply, to the extent practicable, with any instruction received from a customer regarding such customer’s desired disposition of any commodity contract specifi- cally identified to such customer. If the trustee has transferred, under section 766 of this title, such a commodity contract, the trustee shall transmit any such instruction to the commodity broker to whom such commodity contract was so transferred. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97–222, § 18, July 27, 1982, 96 Stat. 240; Pub. L. 98–353, title III, § 488, July 10, 1984, 98 Stat. 383.) HISTORICAL AND REVISION NOTES For Historical and Revision Notes for this section, see Historical and Revision Notes set out under section 766 of this title. Editorial Notes AMENDMENTS 1984—Subsec. (a). Pub. L. 98–353 substituted ‘‘notice required by’’ for ‘‘notice under’’. 1982—Subsec. (b). Pub. L. 97–222 substituted ‘‘com- modity contract’’ for ‘‘commitment’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 766. Treatment of customer property (a) The trustee shall answer all margin calls with respect to a specifically identifiable com- modity contract of a customer until such time as the trustee returns or transfers such com- modity contract, but the trustee may not make a margin payment that has the effect of a dis- tribution to such customer of more than that to which such customer is entitled under sub- section (h) or (i) of this section. (b) The trustee shall prevent any open com- modity contract from remaining open after the last day of trading in such commodity contract, or into the first day on which notice of intent to deliver on such commodity contract may be ten- dered, whichever occurs first. With respect to any commodity contract that has remained Page 221 TITLE 11—BANKRUPTCY § 766 open after the last day of trading in such com- modity contract or with respect to which deliv- ery must be made or accepted under the rules of the contract market on which such commodity contract was made, the trustee may operate the business of the debtor for the purpose of— (1) accepting or making tender of notice of intent to deliver the physical commodity un- derlying such commodity contract; (2) facilitating delivery of such commodity; or (3) disposing of such commodity if a party to such commodity contract defaults. (c) The trustee shall return promptly to a cus- tomer any specifically identifiable security, property, or commodity contract to which such customer is entitled, or shall transfer, on such customer’s behalf, such security, property, or commodity contract to a commodity broker that is not a debtor under this title, subject to such rules or regulations as the Commission may prescribe, to the extent that the value of such security, property, or commodity contract does not exceed the amount to which such cus- tomer would be entitled under subsection (h) or (i) of this section if such security, property, or commodity contract were not returned or trans- ferred under this subsection. (d) If the value of a specifically identifiable se- curity, property, or commodity contract exceeds the amount to which the customer of the debtor is entitled under subsection (h) or (i) of this sec- tion, then such customer to whom such security, property, or commodity contract is specifically identified may deposit cash with the trustee equal to the difference between the value of such security, property, or commodity contract and such amount, and the trustee then shall— (1) return promptly such security, property, or commodity contract to such customer; or (2) transfer, on such customer’s behalf, such security, property, or commodity contract to a commodity broker that is not a debtor under this title, subject to such rules or regulations as the Commission may prescribe. (e) Subject to subsection (b) of this section, the trustee shall liquidate any commodity con- tract that— (1) is identified to a particular customer and with respect to which such customer has not timely instructed the trustee as to the desired disposition of such commodity contract; (2) cannot be transferred under subsection (c) of this section; or (3) cannot be identified to a particular cus- tomer. (f) As soon as practicable after the commence- ment of the case, the trustee shall reduce to money, consistent with good market practice, all securities and other property, other than commodity contracts, held as property of the es- tate, except for specifically identifiable securi- ties or property distributable under subsection (h) or (i) of this section. (g) The trustee may not distribute a security or other property except under subsection (h) or (i) of this section. (h) Except as provided in subsection (b) of this section, the trustee shall distribute customer property ratably to customers on the basis and to the extent of such customers’ allowed net eq- uity claims, and in priority to all other claims, except claims of a kind specified in section 507(a)(2) of this title that are attributable to the administration of customer property. Such dis- tribution shall be in the form of— (1) cash; (2) the return or transfer, under subsection (c) or (d) of this section, of specifically identi- fiable customer securities, property, or com- modity contracts; or (3) payment of margin calls under subsection (a) of this section. Notwithstanding any other provision of this sub- section, a customer net equity claim based on a proprietary account, as defined by Commission rule, regulation, or order, may not be paid ei- ther in whole or in part, directly or indirectly, out of customer property unless all other cus- tomer net equity claims have been paid in full. (i) If the debtor is a clearing organization, the trustee shall distribute— (1) customer property, other than member property, ratably to customers on the basis and to the extent of such customers’ allowed net equity claims based on such customers’ ac- counts other than proprietary accounts, and in priority to all other claims, except claims of a kind specified in section 507(a)(2) of this title that are attributable to the administration of such customer property; and (2) member property ratably to customers on the basis and to the extent of such customers’ allowed net equity claims based on such cus- tomers’ proprietary accounts, and in priority to all other claims, except claims of a kind specified in section 507(a)(2) of this title that are attributable to the administration of member property or customer property. (j)(1) The trustee shall distribute customer property in excess of that distributed under sub- section (h) or (i) of this section in accordance with section 726 of this title. (2) Except as provided in section 510 of this title, if a customer is not paid the full amount of such customer’s allowed net equity claim from customer property, the unpaid portion of such claim is a claim entitled to distribution under section 726 of this title. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2619; Pub. L. 97–222, § 19, July 27, 1982, 96 Stat. 240; Pub. L. 98–353, title III, § 489, July 10, 1984, 98 Stat. 383; Pub. L. 109–8, title XV, § 1502(a)(4), Apr. 20, 2005, 119 Stat. 216.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Sections 765 and 766 of the House amendment rep- resent a consolidation and redraft of sections 765, 766, 767, and 768 of the House bill and sections 765, 766, 767, and 768 of the Senate amendment. In particular, section 765(a) of the House amendment is derived from section 765(a) of the House bill and section 767(a) of the Senate amendment. Under section 765(a) of the House amend- ment customers are notified of the opportunity to im- mediately file proofs of claim and to identify specifi- cally identifiable securities, property, or commodity contracts. The customer is also afforded an opportunity to instruct the trustee regarding the customer’s desires concerning disposition of the customer’s commodity contracts. Section 767(b) [probably should be 765(b)] Page 222 TITLE 11—BANKRUPTCY § 766 makes clear that the trustee must comply with in- structions received to the extent practicable, but in the event the trustee has transferred commodity contracts to a commodity broker, such instructions shall be for- warded to the broker. Section 766(a) of the House amendment is derived from section 768(c) of the House bill and section 767(f) of the Senate amendment. Section 766(b) of the House amendment is derived from section 765(d) of the House bill, and section 767(g) of the Senate amendment. Sec- tion 766(c) of the House amendment is derived from sec- tion 768(a) of the House bill and section 767(e) of the Senate amendment. Section 766(d) of the House amend- ment is derived from section 768(b) of the House bill and the second sentence of section 767(e) of the Senate amendment. Section 766(e) of the House amendment is derived from section 765(c) of the House bill and sections 767(c) and (d) of the Senate amendment. The provision clari- fies that the trustee may liquidate a commodity con- tract only if the commodity contract cannot be trans- ferred to a commodity broker under section 766(c), can- not be identified to a particular customer, or has been identified with respect to a particular customer, but with respect to which the customer’s instructions have not been received. Section 766(f) of the House amendment is derived from section 766(b) of the House bill and section 767(h) of the Senate amendment. The term ‘‘all securities and other property’’ is not intended to include a commodity contract. Section 766(g) of the House amendment is de- rived from section 766(a) of the House bill. Section 766(h) of the House amendment is derived from section 767(a) of the House bill and section 765(a) of the Senate amendment. In order to induce private trustees to un- dertake the difficult and risky job of liquidating a com- modity broker, the House amendment contains a provi- sion insuring that a pro rata share of administrative claims will be paid. The provision represents a com- promise between the position taken in the House bill, subordinating customer property to all expenses of ad- ministration, and the position taken in the Senate amendment requiring the distribution of customer property in advance of any expenses of administration. The position in the Senate amendment is rejected since customers, in any event, would have to pay a brokerage commission or fee in the ordinary course of business. The compromise provision requires customers to pay only those administrative expenses that are attrib- utable to the administration of customer property. Section 766(i) of the House amendment is derived from section 767(b) of the House bill and contains a similar compromise with respect to expenses of admin- istration as the compromise detailed in connection with section 766(h) of the House amendment. Section 766(j) of the House amendment is derived from section 767(c) of the House bill. No counterpart is contained in the Senate amendment. The provision takes account of the rare case where the estate has customer property in excess of customer claims and administrative expenses attributable to those claims. The section also specifies that to the extent a customer is not paid in full out of customer property, that the unpaid claim will be treat- ed the same as any other general unsecured creditor. Section 768 of the Senate amendment was deleted from the House amendment as unwise. The provision in the Senate amendment would have permitted the trust- ee to distribute customer property based upon an esti- mate of value of the customer’s account, with no provi- sion for recapture of excessive disbursements. More- over, the section would have exonerated the trustee from any liability for such an excessive disbursement. Furthermore, the section is unclear with respect to the customer’s rights in the event the trustee makes a dis- tribution less than the share to which the customer is entitled. The provision is deleted in the House amend- ment so that this difficult problem may be handled on a case-by-case basis by the courts as the facts and cir- cumstances of each case require. Section 769 of the Senate amendment is deleted in the House amendment as unnecessary. The provision was intended to codify Board of Trade v. Johnson, 264 U.S. 1 (1924) [Ill.1924, 44 S.Ct. 232]. Board of Trade against John- son is codified in section 363(f) of the House amendment which indicates the only five circumstances in which property may be sold free and clear of an interest in such property of an entity other than the estate. Section 770 of the Senate amendment is deleted in the House amendment as unnecessary. That section would have permitted commodity brokers to liquidate com- modity contracts, notwithstanding any contrary order of the court. It would require an extraordinary cir- cumstance, such as a threat to the national security, to enjoin a commodity broker from liquidating a com- modity contract. However, in those circumstances, an injunction must prevail. Failure of the House amend- ment to incorporate section 770 of the Senate amend- ment does not imply that the automatic stay prevents liquidation of commodity contracts by commodity bro- kers. To the contrary, whenever by contract, or other- wise, a commodity broker is entitled to liquidate a po- sition as a result of a condition specified in a contract, other than a condition or default of the kind specified in section 365(b)(2) of title 11, the commodity broker may engage in such liquidation. To this extent, the commodity broker’s contract with his customer is treated no differently than any other contract under section 365 of title 11. SENATE REPORT NO. 95–989 [Section 765] Subsection (a) of this section [enacted as section 766(h)] provides that with respect to liquida- tion of commodity brokers which are not clearing orga- nizations, the trustee shall distribute customer prop- erty to customers on the basis and to the extent of such customers’ allowed net equity claims, and in priority to all other claims. This section grants customers’ claims first priority in the distribution of the estate. Subsection (b) [enacted as section 766(i)] grants the same priority to member property and other customer property in the liquidation of a clearing organization. A fundamental purpose of these provisions is to ensure that the property entrusted by customers to their bro- kers will not be subject to the risks of the broker’s business and will be available for disbursement to cus- tomers if the broker becomes bankrupt. As a result of section 765, a customer need not trace any funds in order to avoid treatment as a general creditor as was required by the Seventh Circuit in In re Rosenbaum Grain Corporation. Section 766 lists certain transfers which are not void- able by the trustee of a commodity broker. Subsection (a) exempts transfers approved by the Commission by rule or order, either before or after the transfer. It is expected that the Commission will use this power spar- ingly and only when necessary to effectuate the reme- dial purposes of this legislation, bearing in mind that the immediate transfer of customer accounts from bankrupt commodity brokers to solvent commodity brokers is one of the primary goals of this subchapter. The committee considered and rejected a provision in subsection (b) that would have exempted payments made to a commodity broker. The Commission may not by rule exempt such transfers. The Commission’s prompt attention to the promulgation of such rules and regulations is expected. Subsection (b) [enacted as section 764(c)] provides for the nonavoidability of margin payments made by a commodity broker, other than a clearing organization. If such payments are made by or to a clearing organiza- tion, they are nonavoidable pursuant to subsection (c). All other margin payments made by a commodity broker, other than a clearing organization, are non- avoidable if they meet the conditions set forth in sub- section (b). Subsections (b)(1) and (b)(2) parallel the re- quirements for avoidance of fraudulent transfers and obligations under section 548. Subsection (b)(3) adds a requirement that there be collusion between the trans- feree and transferor in order for such payments to be voidable. It would be unfair to permit recovery from an innocent commodity broker since such brokers are, for Page 223 TITLE 11—BANKRUPTCY § 766 the most part, simply conduits for margin payments and do not retain margin for use in their operations. Subsection (b)(4) would permit recovery of a subse- quent transferee only if it had actual knowledge at the time of that subsequent transfer of the scheme to de- fraud. Again it should be noted that if the transfer is a margin payment and the subsequent transferee is a clearing organization, the transfer is nonavoidable under section 766(c). Subsection (c) [enacted as section 548(d)(2)] overrules Seligson v. New York Produce Exchange, and provides as a matter of law that margin payments made by or to a clearing organization are not voidable. Section 767 sets forth the procedures to be followed by the trustee. It should be emphasized that many of the duties imposed on the trustee are required to be discharged by the trustee immediately upon his ap- pointment. The earlier these duties are discharged the less potential market disruption can result. The initial duty of the trustee is to endeavor to transfer to another commodity broker or brokers all identified customer accounts together with the cus- tomer property margining such accounts, to the extent the trustee deems appropriate. Although it is pref- erable for all such accounts to be transferred, exigen- cies may dictate a partial transfer. The requirement that the value of the accounts and property transferred not exceed the customer’s distribution share may ne- cessitate a slight delay until the trustee can submit to the court, for its disapproval, an estimate of each cus- tomer’s distribution share pursuant to section 768. Subsection (c) [enacted as section 766(e)] provides that contemporaneously with the estimate of the dis- tribution share and the transfer of identified customer accounts and property, subsection (c) provides that the trustee should make arrangements for the liquidation of all commodity contracts maintained by the debtor that are not identifiable to specific customers. These contracts would, of course, include all such contracts held in the debtor’s proprietory [sic] account. At approximately the same time, the trustee should notify each customer of the debtor’s bankruptcy and instruct each customer immediately to submit a claim including any claim to a specifically identifiable secu- rity or other property, and advise the trustee as to the desired disposition of commodity contracts carried by the debtor for the customer. This requirement is placed upon the trustee to insure that producers who have hedged their production in the commodities market are allowed the opportunity to preserve their positions. The theory of the commodity market is that it exists for producers and buyers of commodities and not for the benefit of the speculators whose transactions now comprise the overwhelming majority of trades. Maintenance of positions by hedges may require them to put up additional margin pay- ments in the hours and days following the commodity broker bankruptcy, which they may be unable or un- willing to do. In such cases, their positions will be quickly liquidated by the trustee, but they must have the opportunity to make those margin payments before they are summarily liquidated out of the market to the detriment of their growing crop. The failure of the cus- tomer to advise the trustee as to disposition of the cus- tomer’s commodity contract will not delay a transfer of a contract pursuant to subsection (b) so long as the contract can otherwise be identified to the customer. Nor will the failure of the customer to submit a claim prevent the customer from recovering the net equity in that customer’s account, absent a claim the customer cannot participate in the determination of the net eq- uity in the account. If the customer submits instructions pursuant to sub- section (a) after the customer’s commodity contracts are transferred to another commodity broker, the trustee must transmit the instruction to the trans- feree. If the customer’s commodity contracts are not transferred before the customer’s instructions are re- ceived, the trustee must attempt to comply with the instruction, subject to the provisions of section 767(d). Under subsection (d) [enacted as section 766(e)], the trustee has discretion to liquidate any commodity con- tract carried by the debtor at any time. This discretion must be exercised with restraint in such cases, con- sistent with the purposes of this subchapter and good business practices. The committee intends that hedged accounts will be given special consideration before liq- uidation as discussed in connection with subsection (c). Subsection (e) [enacted as section 766(c)] instructs the trustee as to the disposition of any security or other property, not disposed of pursuant to subsection (b) or (d), that is specifically identifiable to a customer and to which the customer is entitled. Such security or other property must be returned to the customer or promptly transferred to another commodity broker for the benefit of the customer. If the value of the security or other property retained or transferred, together with any other distribution made by the trustee to or on be- half of the customer, exceeds the customer’s distribu- tion share the customer must deposit cash with the trustee equal to that difference before the return or transfer of the security or other property. Subsection (f) [enacted as section 766(a)] requires the trustee to answer margin calls on specifically identifi- able customer commodity contracts, but only to the extent that the margin payment, together with any other distribution made by the trustee to or on behalf of the customer, does not exceed the customer’s dis- tribution share. Subsection (g) [enacted as section 766(b)] requires the trustee to liquidate all commodity futures contracts prior to the close of trading in that contract, or the first day on which notice of intent to deliver on that contract may be tendered, whichever occurs first. If the customer desires that the contract be kept open for de- livery, the contract should be transferred to another commodity broker pursuant to subsection (b). If for some reason the trustee is unable to transfer a contract on which delivery must be made or accepted and is unable to close out such contract, the trustee is authorized to operate the business of the debtor for the purpose of accepting or making tender of notice of in- tent to deliver the physical commodity underlying the contract, facilitating delivery of the physical com- modity or disposing of the physical commodity in the event of a default. Any property received, not pre- viously held, by the trustee in connection with its oper- ation of the business of the debtor for these purposes, is not by the terms of this subchapter specifically in- cluded in the definition of customer property. Finally, subsection (h) [enacted as section 766(f)] re- quires the trustee to liquidate the debtor’s estate as soon as practicable and consistent with good market practice, except for specifically identifiable securities or other property distributable under subsection (e). Section 768 is an integral part of the commodity broker liquidation procedures outlined in section 767. Prompt action by the trustee to transfer or liquidate customer commodity contracts is necessary to protect customers, the debtor’s estate, and the marketplace generally. However, transfers of customer accounts and property valued in excess of the customer’s distribution share are prohibited. Since a determination of the cus- tomer’s distribution share requires a determination of the customer’s net equity and the total dollar value of customer property held by or for the account of the debtor, it is possible that the customer’s distribution share will not be determined, and thus the customer’s contracts and property will not be transferred, on a timely basis. To avoid this problem, and to expedite transfers of customer property, section 768 permits the trustee to make distributions to customers in accord- ance with a preliminary estimate of the debtor’s cus- tomer property and each customer’s distribution share. It is acknowledged that the necessity for prompt ac- tion may not allow the trustee to assemble all relevant facts before such an estimate is made. However, the trustee is expected to develop as accurate an estimate as possible based on the available facts. Further, in order to permit expeditious action, section 768 does not Page 224 TITLE 11—BANKRUPTCY § 767 require that notice be given to customers or other creditors before the court approves or disapproves the estimate. Nor does section 768 require that customer claims be received pursuant to section 767(a) before the trustee may act upon and in accordance with the esti- mate. If the estimate is inaccurate, the trustee is ab- solved of liability for a distribution which exceeds the customer’s actual distribution share so long as the dis- tribution did not exceed the customer’s estimated dis- tribution share. However, a trustee may have a claim back against a customer who received more than its ac- tual distribution share. HOUSE REPORT NO. 95–595 Section 765(a) indicates that a customer must file a proof of claim, including any claim to specifically iden- tifiable property, within such time as the court fixes. Subsection (c) [of section 765 (enacted as section 766(e))] sets forth the general rule requiring the trustee to liquidate contractual commitments that are either not specifically identifiable or with respect to which a customer has not instructed the trustee during the time fixed by the court. Subsection (d) [enacted as sec- tion 766(b)] indicates an exception to the time limits in the rule by requiring the trustee to liquidate any open contractual commitment before the last day of trading or the first day during which delivery may be de- manded, whichever first occurs, if transfer cannot be effectuated. Section 766(a) [enacted as section 766(g)] indicates that the trustee may distribute securities or other property only under section 768. This does not preclude a distribution of cash under section 767(a) or distribu- tion of any excess customer property under section 767(c) to the general estate. Subsection (b) [enacted as section 766(f)] indicates that the trustee shall liquidate all securities and other property that is not specifically identifiable property as soon as practicable after the commencement of the case and in accordance with good market practice. If securities are restricted or trading has been suspended, the trustee will have to make an exempt sale or file a registration statement. In the event of a private place- ment, a customer is not entitled to ‘‘bid in’’ his net eq- uity claim. To do so would enable him to receive a greater percentage recovery than other customers. Section 767(a) [enacted as section 766(h)] provides for the trustee to distribute customer property pro rata ac- cording to customers’ net equity claims. The court will determine an equitable portion of customer property to pay administrative expenses. Paragraphs (2) and (3) in- dicate that the return of specifically identifiable prop- erty constitutes a distribution of net equity. Subsection (b) [enacted as section 766(i)] indicates that if the debtor is a clearing organization, customer property is to be segregated into customers’ accounts and proprietary accounts and distributed accordingly without offset. This protects a member’s customers from having their claims offset against the member’s proprietary account. Subsection (c)(1) [enacted as sec- tion 766(j)(1)] indicates that any excess customer prop- erty will pour over into the general estate. This un- likely event would occur only if customers fail to file proofs of claim. Subsection (c)(2) [enacted as section 766(j)(2)] indicates that to the extent customers are not paid in full, they are entitled to share in the general es- tate as unsecured creditors, unless subordinated by the court under proposed 11 U.S.C. 510. Section 768(a) [enacted as section 766(c)] requires the trustee to return specifically identifiable property to the extent that such distribution will not exceed a cus- tomer’s net equity claim. Thus, if the customer owes money to a commodity broker, this will be offset under section 761(15)(A)(ii). If the value of the specifically identifiable property exceeds the net equity claim, then the customer may deposit cash with the trustee to make up the difference after which the trustee may re- turn or transfer the customer’s property. Subsection (c) [enacted as section 766(a)] permits the trustee to answer all margin calls, to the extent of the customer’s net equity claim, with respect to any spe- cifically identifiable open contractual commitment. It should be noted that any payment under subsections (a) or (c) will be considered a reduction of the net eq- uity claim under section 767(a). Thus the customer’s net equity claim is a dynamic amount that varies with distributions of specifically identifiable property or margin payments on such property. This approach dif- fers from the priority given to specifically identifiable property under subchapter III of chapter 7 by limiting the priority effect to a right to receive specific prop- erty as part of, rather than in addition to, a ratable share of customer property. This policy is designed to protect the small customer who is unlikely to have property in specifically identifiable form as compared with the professional trader. The CFTC is authorized to make rules defining specifically identifiable property under section 302 of the bill, in title III. Editorial Notes AMENDMENTS 2005—Subsec. (h). Pub. L. 109–8, § 1502(a)(4)(A), sub- stituted ‘‘507(a)(2)’’ for ‘‘507(a)(1)’’ in introductory pro- visions. Subsec. (i). Pub. L. 109–8, § 1502(a)(4)(B), substituted ‘‘507(a)(2)’’ for ‘‘507(a)(1)’’ in pars. (1) and (2). 1984—Subsec. (j)(2). Pub. L. 98–353 substituted ‘‘sec- tion 726’’ for ‘‘section 726(a)’’. 1982—Subsec. (a). Pub. L. 97–222, § 19(a), inserted ‘‘to such customer’’ after ‘‘distribution’’. Subsec. (b). Pub. L. 97–222, § 19(b), struck out ‘‘that is being actively traded as of the date of the filing of the petition’’ after ‘‘any open commodity contract’’ and in- serted ‘‘the’’ after ‘‘rules of’’. Subsec. (d). Pub. L. 97–222, § 19(c), substituted ‘‘the amount to which the customer of the debtor is entitled under subsection (h) or (i) of this section, then such’’ for ‘‘such amount, then the’’ and ‘‘the trustee then shall’’ for ‘‘the trustee shall’’. Subsec. (h). Pub. L. 97–222, § 19(d), inserted provision that notwithstanding any other provision of this sub- section, a customer net equity claim based on a propri- etary account, as defined by Commission rule, regula- tion, or order, may not be paid either in whole or in part, directly or indirectly, out of customer property unless all other customer net equity claims have been paid in full. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 767. Commodity broker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants Notwithstanding any other provision of this title, the exercise of rights by a forward con- tract merchant, commodity broker, stock- broker, financial institution, financial partici- pant, securities clearing agency, swap partici- pant, repo participant, or master netting agree- ment participant under this title shall not affect