01-26027. Self-Regulatory Organizations; National Futures Association; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by National Futures Association Clarifying the Interpretive Notice Regarding Obligations to Customers and ...

October 10, 2001.

Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 (“Exchange Act”),^[1] and rule 19b-7 under the exchange Act,^[2] notice is hereby given that on September 18, 2001, the National Futures Association (“NFA”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change described in Items I, II, and III below, which Items have been prepared by NFA. The text of the proposed rule change is available for inspection and copying at the places specified in Item IV below. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

On August 29, 2001, pursuant to Section 17(j) of the Commodity Exchange Act (“CEA”),^[3] NFA requested that the Commodity Futures Trading Commission (“CFTC”) make a determination that review of the proposed rule change submitted by NFA to the CFTC is not necessary. The CFTC made such a determination on September 7, 2001.

I. Self-Regulatory Organization's Statement of the Terms and Substance of the Proposed Rule Change

The Commodity Futures Modernization Act of 2000 (“CFMA”) amended Section 15A of the Exchange Act to add a new subsection (k),^[4] which makes NFA a national securities association for the limited purpose of regulating the activities of NFA Memberss who are registered as brokers or dealers in security futures products under Section 15(b)(11) of the Exchange Act.^[5] The proposed rule change clarifies that certain provisions of the “Interpretive Notice Regarding Obligations to Customers and Other Market Participants” (“Interpretive Notice”) apply only to these NFA Members.^[6] The text of the proposed rule change is available at the Office of the Secretary, NFA, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

NFA has prepared statements concerning the purpose of, and basis for, the proposed rule change, burdens on competition, and comments received from members, participants, and others. The text of these statements may be examined at the places specified in Item IV below. These statements are set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The Interpretive Notice contains provisions: (1) Prohibiting trading ahead of research reports; (2) prohibiting trading based on knowledge of an imminent block transaction, with an exception for hedging counterparty risk under approved exchange block rules; and (3) requiring a sound basis for evaluating the facts regarding a particular security futures product. The proposed rule change clarifies that these requirements only apply to NFA Members who are registered as brokers or dealers in security futures products under Section 15(b)(11) of the Exchange Act.^[7]

2. Statutory Basis

The rule change is authorized by, and consistent with, Section 15A(k) of he Exchange Act.^[8]

B. Self-Regulatory Organization's Statement on Burden on Competition

The proposed rule change will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act and the CEA, as they were amended by the CFMA. In fact, the NFA believes that the proposed rule change will level the playing field between broker-dealers that are dual members of NFA and the National Association of Securities Dealers (“NASD”) and broker-dealers that are only members of NFA by assuring that dual members are not subject to duplicative regulation.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

NFA worked with industry representatives in developing the rule change. NFA did not, however, publish the rule change to its membership for comment. NFA did not receive comment letters concerning the rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The proposed rule change has become effective on September 7, 2001.

Within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of Section 19(b)(1) of the Exchange Act.^[9]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change conflicts with the Exchange Act. Persons making written submissions should file nine copies of the submission with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Comments also may be submitted electronically to the following e-mail address: [e-mail]. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of these filings also will be available for inspection and copying at the principal office of NFA. Electronically submitted comments will be posted on the Commission's Internet website (http://www.sec.gov). All submissions should refer to File No. SR-NFA-2001-02 and should be submitted by November 7, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(7).

2.  17 CFR 240.19b-7.

3.  7 U.S.C. 21(j).

4.  15 U.S.C. 78o-3(k).

5.  15 U.S.C. 78o-(b)(11).

6.  The instant proposed rule change amends the text of the Interpretive Notice that was contained in File No. SR-NFA-2001-01. See Securities Exchange Act Release No. 44823 (September 20, 2001), 66 FR 49439 (September 27, 2001).

7.  15 U.S.C. 78o(b)(11).

8.  15 U.S.C. 78o-3(k).

9.  15 U.S.C. 78s(b)(1).

10.  17 CFR 200.30-3(a)(75).