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On Jan. 11, the Commodity Futures Trading Commission (CFTC) finalized the heavily debated segregation model for cleared swaps customer collateral, referred to as the Legally Segregated Operationally Commingled Model (LSOC). In the same rule, the CFTC also re-adopted a previously repealed segregation model that was authorized for use until 2005 for futures (Interpretation No. 10). The finalized rule importantly interacts (or, arguably, counteracts) with Section 766(h) of the U.S. Bankruptcy Code, which requires that customer property be distributed “ratably to customers on the basis and to the extent of such customers’ allowed net equity claims.”

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