[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Rules and Regulations]
[Pages 2719-2720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1509]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 33
Deletion of Option Regulation Requiring That Futures Commission
Merchants Give Notification of Disciplinary Actions to Their Designated
Self-Regulatory Organizations; Regulation 33.4(b)(6)
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
amending 17 CFR Part 33 to delete Regulation 33.4(b)(6), under which a
board of trade must adopt rules that require each member futures
commission merchant (``FCM'') that engages in the offer or sale of Part
33 option contracts to give notice to the FCM's designated self-
regulatory organization (``DSRO'') of any disciplinary action taken
against the FCM or any of its associated persons by the Commission or
by another self-regulatory organization (``SRO''). The purpose of this
deletion is to eliminate unnecessary recordkeeping requirements
affecting FCMs.
EFFECTIVE DATE: February 28, 1996.
FOR FURTHER INFORMATION CONTACT:
Kimberly A. Browning, Attorney, Commodity Futures Trading Commission,
Division of Trading and Markets, Three Lafayette Centre, 1155 21 Street
NW., Washington, DC 20581. Telephone (202) 418-5490.
SUPPLEMENTARY INFORMATION:
I. Background
Regulation 33.4(b)(6) is part of a group of regulations that date
from the Commission's three-year pilot program, instituted by the
Commission on November 3, 1981, for the trading on domestic exchanges
of options on non-agricultural futures contracts. The establishment of
the pilot program was the culmination of a long history of Commission
efforts to provide for the trading of commodity options in a regulated
environment. Subsequently, the Commission adopted a pilot program that
expanded the trading of options to non-agricultural physical
commodities. 47 FR 65996 (December 22, 1982). On January 23, 1984, the
Commission adopted a separate three-year pilot program that expanded
the trading of options on futures contracts to domestic agricultural
commodities. 49 FR 2752. Overall, the Commission found that each pilot
program had been a success.\1\
\1\ By February 9, 1987, the Commission had made the programs
permanent. Option trading on non-agricultural futures was made
permanent effective August 1, 1986. 51 FR 17464 (May 13, 1986); 51
FR 27529 (August 1, 1986). Option trading on agricultural futures
and options on non-agricultural physicals were made permanent
effective February 9, 1987. 52 FR 777 (January 9, 1987).
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Part 33 of the Commission's regulations governs domestic exchange-
traded commodity option transactions. Regulation 33.4, in conjunction
with the requirements of Section 5 of the Commodity Exchange Act
(``Act''), sets forth the requirements which a board of trade must meet
in order to be designated as a contract market for the trading of
option contracts. Part 33, including Regulation 33.4, was adopted
concurrently with the initial implementation of the first pilot program
in 1981. Under Regulation 33.4(b)(6), a board of trade must adopt rules
that require each member FCM which engages in the offer or sale of Part
33 option contracts to give notice to the FCM's DSRO of any
disciplinary action taken against the FCM or any of its associated
persons by the Commission or by another SRO.
By letter dated September 11, 1992, the Chicago Board of Trade
(``CBT'') petitioned the Commission for deletion of Regulation
33.4(b)(6). In support of its petition, the CBT explained that, along
with other futures exchanges, it has joined the National Futures
Association (``NFA'') in implementing a centralized repository for the
entry of information on exchange disciplinary actions the (``NFA
Clearinghouse'').\2\ The CBT stated that it believes that because the
NFA Clearinghouse includes data on Commission, NFA and exchange
disciplinary actions, the reporting requirements imposed on FCMs by
Regulation 33.4(b)(6) are now duplicative and should be abolished.\3\
\2\ For background on the NFA Clearinghouse, see generally 58 FR
4949 (January 19, 1993).
\3\ It should be noted that on September 4, 1992, the Commission
proposed the deletion of two other provisions in Regulation 33.4:
Regulation 33.4(b)(4)(iii) and Regulation 33.4(b)(8). 57 FR 40626.
On December 14, 1992, the deletion of these two regulations became
final. See 57 FR 58976. Under these regulations, boards of trade
designated as contract markets for options were required to adopt
rules requiring member FCMs that engaged in the offer or sale of
commodity options regulated under Part 33 to send copies of customer
complaints, the record of the final disposition thereof, and copies
of all promotional material to the member's DSRO.
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The NFA Clearinghouse went into effect in late January 1991. At
that time, several exchanges began to file their disciplinary action
data electronically into the NFA Clearinghouse database through what
the NFA refers to as the exchange disciplinary action portion for the
NFA Clearinghouse. The NFA Clearinghouse, which the exchanges have
entered into voluntarily, permits the Commission and the exchanges to
enter and review disciplinary action data, including disciplinary
actions taken against an FCM or any of its associated persons by the
Commission or by another SRO, via computer terminals at their
respective locations.\4\
\4\ Currently, the exchanges are required to submit hardcopy
notices of disciplinary actions to the Commission pursuant to
Regulation 9.11. Ultimately, however, it is anticipated that data
will be entered into the NFA Clearinghouse in lieu of filing
hardcopy notices. Until the Commission permits such data entry
directly into the NFA Clearinghouse, in lieu of such filings,
exchanges must continue to file hardcopy notices with the Commission
within the 30-day requirement of Regulation 9.11.
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II. Proposed Rule
On January 19, 1993, the Commission's proposal to delete Regulation
33.4(b)(6) was published in the Federal Register (58 FR 4948). This
proposal was made in response to the CBT's September 11, 1992 petition
for deletion of Regulation 33.4(b)(6). The Commission stated that the
NFA Clearinghouse appeared to satisfy the objective of Regulation
33.4(b)(6) by providing a repository for, among other things, exchange
disciplinary actions. In making the proposal to delete Regulation
33.4(b)(6), the Commission stated that before it approved final
deletion of the regulation, it intended to examine exchange and NFA
refinements to the operation of the NFA Clearinghouse to determine
whether the system would serve the purpose of Regulation 33.4(b)(6).
III. Comments Received
The Commission received one comment letter, from the NFA, that
supported the proposed deletion of Regulation 33.4(b)(6). The NFA
commented that it believes that Regulation 33.4(b)(6) places an
unnecessary regulatory burden upon FCMs because the Commission, members
of the public, and any DSRO may already obtain disciplinary
information, without an FCM's specific disclosure, by accessing the NFA
Clearinghouse.
IV. Final Rule
Commission staff has been monitoring each exchange's use of the NFA
Clearinghouse. Since August 1991, the majority of the exchanges have
been
[[Page 2720]]
electronically filing their respective disciplinary actions into the
NFA Clearinghouse in an accurate and timely manner, including
disciplinary actions taken against an FCM or any of its associated
persons by the Commission or by another SRO, thus satisfying the
purpose of Regulation 33.4(b)(6). Typically, exchanges enter directly
or with the assistance of NFA, disciplinary action data into the NFA
Clearinghouse in an accurate and timely manner.\5\
\5\ The Commission's deletion of the reporting requirement is
based, in part, on the existence of the NFA Clearinghouse which
provides an adequate substitute mechanism by which SROs may obtain
disciplinary information. Should there be any material changes in
the operation of the NFA Clearinghouse, the Commission would
necessarily evaluate the need for any supplementary reporting
requirements.
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The disciplinary action data that the exchanges have agreed to
enter into the NFA Clearinghouse by the NFA and that are being entered
include: (1) The respondent's name; (2) the rule number violated and a
description of the rule; (3) which of the ten uniform categories of
rule violations adopted by the Joint Compliance Committee (``JCC''),\6\
applies to the disciplinary action; \7\ (4) the date of the violation;
(5) the effective date of the disciplinary action; (6) the sanction or
penalty imposed on the named respondent; (7) the name of the exchange
committee that imposed the sanction; and (8) whether the offense cited
is one that renders the named respondent ineligible from serving on an
exchange disciplinary committee, oversight panel, arbitration panel or
governing board under the requirements of Commission Regulation
1.63.\8\
\6\ The JCC was formed in May 1989 and consists of senior
compliance officials from each exchange and the NFA. Commission
staff is present at each meeting as observers. The JCC was
established to aid the development of improved compliance systems
through joint exchange efforts and information sharing among the
self-regulators. In addition, the JCC has undertaken efforts to
enhance exchange compliance with Commission regulations by
developing uniform standards and definitions where appropriate.
\7\ The ten uniform categories of rule violations adopted by the
JCC include: trade practice, sales practice, speculative position
limits, financial, financial and position reporting, floor
recordkeeping, office recordkeeping, registration, decorum and
attire, and general conduct.
\8\ Commission Regulation 1.63 prohibits an individual from
serving on exchange disciplinary committees, oversight panels,
arbitration panels or governing boards who, among other things, was
found within the prior three years by a final decision of a SRO, an
administrative law judge, a court of competent jurisdiction or the
Commission to have committed a disciplinary offense or who currently
is subject to an agreement with the Commission or any SRO not to
apply for registration with the Commission or membership in any SRO.
For a complete listing of the conditions under Commission Regulation
1.63 that prohibit an individual from serving on such exchange
committees, panels, or boards, see 55 FR 7884 (March 6, 1990).
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In addition, on March 15, 1995, the Commission advised the JCC that
the Clearinghouse must include exchange membership denial actions and
requested that the exchange enter into the Clearinghouse all membership
denial actions from January 1990 to the present to bring the
Clearinghouse up-to-date. Currently, the exchanges are entering such
data into the Clearinghouse.
V. Conclusion
The Commission believes that, consistent with the other deletions
made of Regulation 33.4(b)(4)(iii) and Regulation 33.4(b)(8), the
requirements set forth in Regulation 33.4(b)(6) also should be deleted.
The Commission also believes that the NFA Clearinghouse satisfies the
objective of Regulation 33.4(b)(6) by providing an adequate repository
for, among other things, exchange disciplinary actions. The Commission
no longer believes that it is necessary for FCMs that engage in the
offer or sale of Part 33 option contracts to give notice to the FCM's
DSRO of any disciplinary action taken against the FCM or any of its
associated persons by the Commission or by another SRO. Accordingly,
the Commission amends 17 CFR Part 33 by deleting Regulation 33.4(b)(6).
VI. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) 5 U.S.C. 601 et seq., requires
that agencies, in proposing rules, consider the impact of those rules
on small businesses. The Commission previously has established that
contract markets and FCMs are not ``small entities'' for purposes of
the RFA. 47 FR 18618-18621 (April 30, 1982). This deletion to Part 33
will permit contract markets to delete rules affecting FCMs and thereby
relieve them of that requirement.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1980 (``PRA'') 44 U.S.C. 3501 et
seq., imposes certain requirements on federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as defined by the PRA. In compliance with the
PRA, the Commission previously submitted this rule in proposed form and
its associated information collection requirements to the Office of
Management and Budget (``OMB''). The OMB approved the collection of
information associated with this rule on October 2, 1991 and assigned
OMB control number 3038-0007 to the rule. While this rule has no
burden, the group of rules of which this is a part has the following
burden:
Average burden hours per response................................50.32.
Number of respondents.........................................190,19.7.
Frequency of response......................................on occasion.
Copies of the OMB approved information collection package
associated with this rule may be obtained from the Office of Management
and Budget, Room 3220, NEOB Washington, DC, (202) 395-7340.
List of Subjects in 17 CFR Part 33
Regulation of domestic exchange-traded commodity option
transactions.
In consideration of the foregoing and pursuant to the authority
contained in the Act and, in particular, section 4(b) of the Act, the
Commission proposes to amend Part 33 of Title 17 of the Code of Federal
Regulations as follows:
PART 33--REGULATION OF DOMESTIC EXCHANGE-TRADED COMMODITY OPTION
TRANSACTIONS
1. The authority citation for Part 33 continues to read as follows:
Authority: 7 U.S.C. 2, 2a, 4, 6, 6a, 6b, 6e, 6f, 6g, 6i, 6j, 6k,
6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 13a-1, 13b, 19, and 21,
unless otherwise noted.
Sec. 33.4 [Amended]
2. Section 33.4(b)(6) is removed.
Issued in Washington, DC, January 23, 1996 by the Commodity
Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 96-1509 Filed 1-26-96; 8:45 am]
BILLING CODE 6351-01-M
