[Federal Register Volume 59, Number 146 (Monday, August 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15630]
[[Page Unknown]]
[Federal Register: August 1, 1994]
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COMMODITY FUTURES TRADING COMMISSION
Adverse Registration Actions by National Futures Association With
Respect to Floor Brokers, Floor Traders, and Applicants for
Registration in Either Category
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and Order.
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SUMMARY: The Commodity Futures Trading Commission (Commission) is
authorizing National Futures Association (NFA) to deny, condition,
suspend, modify, restrict or revoke the registration of any floor
broker (FB), floor trader (FT), or an applicant for registration in
either category. The Commission has previously authorized NFA to
perform various functions with respect to processing registration
records of FBs, FTs and applicants therefor, including, among other
things, granting such registrations where appropriate and serving as
the official custodian of those Commission records. This Order does not
authorize NFA to accept or act upon requests for exemption or to render
``no-action'' opinions with respect to applicable registration
requirements. This Order generally will conform NFA's authority
regarding the FB and FT registration categories to the authority
delegated by the Commission to NFA concerning the other categories of
registration under the Commodity Exchange Act (Act).1
\1\7 U.S.C. 1 et seq. (1988 & Supp. IV 1992).
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EFFECTIVE DATE: August 1, 1994.
FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief
Counsel, or Robert P. Shiner, Assistant Director, Division of Trading
and Markets, Commodity Futures Trading Commission, 2033 K Street NW.,
Washington, DC 20581. Telephone: (202) 254-8955 or 254-3688,
respectively.
SUPPLEMENTARY INFORMATION:
Introduction
The Commission has previously issued Orders authorizing NFA to
perform registration processing functions with respect to FBs and FTs.
These functions have included: (1) processing and, where appropriate,
granting applications for registration under the Act; (2) issuing and
terminating, where appropriate, temporary licenses; (3) processing the
triennial review of registration information, periodic updates,
terminations of trading privileges and requests for withdrawal from
registration; and (4) establishing and maintaining systems of records
regarding FBs and FTs and serving as the official custodian of those
Commission records.2 However, the Commission has not previously
authorized NFA to take adverse actions against FBs, FTs or persons
applying for registration in either category, or to accept or act upon
requests for exemption or to render ``no-action'' opinions with respect
to applicable registration requirements.3 By the Order below
issued on this date, the Commission is authorizing NFA to assume the
performance of additional registration functions on behalf of the
Commission, specifically, to deny, condition, suspend, modify, restrict
or revoke the registration of any FB, FT or applicant for registration
in either category.4 However, the Commission will continue to
handle any matter that has already been referred to it by NFA.
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\2\51 FR 25929 (July 7, 1986); 51 FR 34490 (September 29, 1986);
58 FR 19657 (April 15, 1993).
\3\When the Commission issued its most recent delegation Order,
it noted that:
Certain commenters on the Commission's proposed rules concerning
FT registration suggested that authority to take adverse action
against FTs and FBs should be delegated to NFA. The Commission will
take the matter under advisement and may consider authorizing NFA to
perform such functions at a subsequent date when it has more
experience with the FT registration process. 58 FR 19657, 19658
(footnote omitted).
\4\See Sections 8a(2), 8a(3), 8a(4) and 8a(11) of the Act, 7
U.S.C. 12a(2), 12a(3), 12a(4) and 12a(11) (1988 & Supp. IV 1992).
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The Commission's order also provides that, until the Commission
orders otherwise, with respect to an application for registration as an
FB or an FT that NFA previously would have forwarded to the Commission
for review of disciplinary history, if NFA determines that registration
should be granted in such a case, either with or without conditions,
NFA shall transmit the file to the Commission and stay the granting of
registration until the Commission has had an opportunity to object to
such granting of registration.\5\
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\5\See 58 FR 19657, 19659. The same treatment will apply in the
case of a registered FB or FT with new disciplinary history where
NFA determines to maintain registration, either with or without
restrictions. NFA need not, however, forward to the Commission any
matter related to an FB, FT or applicant for registration in either
category where the only ``yes'' answer to a disciplinary history
question relates to a single arrest where there was no subsequent
conviction, guilty plea or plea of nolo contendere, or a single
misdemeanor conviction based on conduct unrelated to financial
market activity that predates the application for registration by at
least five years, provided such matter is disclosed on the
registration application or any update thereto. If a person
willfully makes any materially false or misleading statement or
omits to state any material fact in his registration application or
any update thereto, that is a separate ground for statutory
disqualification from registration. Sections 8a(2)(G) and 8a(3)(G)
of the Act, 7 U.S.C. 12a(2)(G) and 12a(3)(G) (1988 & Supp. IV 1992).
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Further, this Order does not authorize NFA to accept or act upon
requests for exemption or to render ``no-action'' opinions with respect
to applicable registration requirements. This Order will conform NFA's
authority concerning the FB and FT registration categories to the
authority delegated by the Commission to NFA concerning the other
categories of registration under the Act, except with respect to the
temporary requirement for forwarding certain matters to the Commission
referred to above.\6\
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\6\The Commission has previously authorized NFA to perform
registration processing functions, and to take adverse registration
actions, with respect to futures commission merchants, introducing
brokers, commodity pool operators, commodity trading advisors,
leverage transactions merchants and associated persons of such
entities, as well as applicants for registration in any of the
aforementioned categories. See 48 FR 15940 (April 13, 1983); 48 FR
35158 (August 3, 1983); 48 FR 51809 (November 14, 1983); 49 FR 8226
(March 5, 1984); 49 FR 39593 (October 9, 1984); 50 FR 34885 (August
28, 1985); 54 FR 19594 (May 8, 1989); and 54 FR 41133 (October 5,
1989). In performing Commission registration functions, NFA is
required to monitor compliance with the conditions and restrictions
imposed on conditioned and restricted registrants.
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The Commission further notes that in enacting Section 227 of the
Futures Trading Practices Act of 1992, Congress added Section 8a(11) to
the Act, 7 U.S.C. 12a(11) (Supp. IV 1992), which provided rulemaking
authority for the Commission to suspend the registration of any person
charged with a felony if the Commission determines that continued
registration of the person may pose a threat to the public interest or
may threaten to impair public confidence in any market regulated by the
Commission. The Commission adopted Rule 3.56 to implement this
authority at the same time that it adopted rules to govern registration
of FTs. 58 FR 19575, 19587-19588, 19595-19596 (April 15, 1993). The
Commission expects that NFA will promptly notify the Commission when
NFA becomes aware that any registrant has been charged with a felony.
United States of America Before the Commodity Futures Trading
Commission Order Authorizing the Performance of Registration Processing
Functions
I. Authority and Background
Section 8a(10) of the Act (7 U.S.C. 12a(10) (1988 and Supp. IV
1992)) provides that the Commission may authorize any person to perform
any portion of the registration functions under the Act,
notwithstanding any other provision of law, in accordance with rules
adopted by such person and submitted to the Commission for approval or,
if applicable, for review pursuant to Section 17(j) of the Act and
subject to the provisions of the Act applicable to registrations
granted by the Commission. Section 17(o)(2) of the Act provides that
the Commission may authorize NFA, in performing Commission registration
functions, to deny, condition, suspend, restrict or revoke any
registration, subject to Commission review.7
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\7\7 U.S.C. 21(o)(2) (1988).
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NFA submitted under cover of a letter dated March 8, 1994
amendments to its bylaws and rules to govern adverse actions against
FTs, FBs and applicants for registration in either category. These
amendments reflect actions taken by NFA's Board at meetings on May 20,
1993 and February 24, 1994. NFA's rule amendments establish procedures
for conducting adverse registration proceedings with respect to the FB
and FT registration categories that closely track the Commission's Part
3 rules in this regard. NFA's amended rules further provide that NFA's
Membership Committee will conduct adverse proceedings regarding FB and
FT registrations and applicants for registration in either category and
that a Subcommittee conducting such a proceeding will consist of at
least three persons, the majority of whom are members of the Membership
Committee and the remainder of whom are FBs or FTs drawn from a list
approved by NFA's Board. By letter dated June 17, 1994, NFA has
indicated that, in composing such designated Subcommittees, it will
utilize its best efforts to avoid having as Subcommittee members FBs
and FTs who have trading privileges at the same exchange as the subject
of the proceeding.8
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\8\Letter from Michael J. Crowley, Associate General Counsel,
NFA, to Lawrence B. Patent, Associate Chief Counsel, Division of
Trading and Markets.
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NFA has indicated that in carrying out the function of taking
adverse registration action involving the FB and FT registration
categories, it will be bound by restrictions in Commission rules
regarding who may act as a supervisor. Therefore, if NFA determines to
condition or restrict the registration of an FB or an FT, someone
eligible to do so under Commission rules must sign a Supplemental
Sponsor Certification Statement (SSCS) for the FB or FT and supervise
compliance with any conditions or restrictions that may be imposed. In
the case of an FB, the SSCS must be signed by his employer or, if he
has no employer, by another floor broker;9 if an FT is involved,
the SSCS must be signed by an officer of the floor trader's clearing
member, if such officer is a registrant or a principal of a registrant,
or the chief operating officer on behalf of each contract market that
has granted trading privileges.10
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\9\If the FB has no employer and another FB signs the SSCS, the
Commission has required that the FB subject to conditions or
restrictions receive customer orders only from the person who signed
the SSCS or agents of that person. See In the Matter of John V.
Piccolo, CFTC Docket No. SD-93-8 (July 20, 1993).
\1\0Such a supervising employer or FB, supervising registrant or
principal may not be subject to a pending adjudicatory proceeding
under the Act or barred from service on self-regulatory organization
governing boards or committees based on disciplinary history in
accordance with Commission Rule 1.63, 17 CFR 1.63 (1993). See
Commission Rule 3.60(b)(2)(i), 17 CFR Sec. 3.60(b)(2)(i) (1993); NFA
letter dated June 17, 1994.
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Upon consideration, the Commission has determined to authorize NFA,
effective August 1, 1994, to deny, condition, suspend, modify, restrict
or revoke the registration of any FB, FT or an applicant for
registration in either category in accordance with the standards
established by the Act and rules promulgated thereunder.11
However, the Commission will continue to handle any matter that has
already been referred to it by NFA. The Commission is also authorizing
NFA to perform records custodianship functions with respect to such
adverse registration actions.12 The Commission has separately
approved on this date amendments to NFA Bylaws 305 and 708 and NFA
Registration Rules 101, 201, 203, 501, 502, and 504-510 to authorize
implementation of these grants of authority.
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\1\1In conjunction with this authorization to take adverse
action, the Commission is also directing that, until the Commission
orders otherwise, with respect to the file of an FB, an FT or an
applicant for registration in either category that NFA previously
would have forwarded to the Commission for review of disciplinary
history, if NFA determines that registration should be maintained or
granted in such a case, either with or without restrictions or
conditions, NFA shall transmit the file to the Commission and stay
the maintenance or granting of registration until the Commission has
had an opportunity to object to such maintenance or granting of
registration. NFA need not, however, forward to the Commission any
matter related to an FB, FT or applicant for registration in either
category where the only ``yes'' answer to a disciplinary history
question relates to a single arrest where there was no subsequent
conviction, guilty plea or plea of nolo contendere, or a single
misdemeanor conviction based on conduct unrelated to financial
market activity that predates the application for registration by at
least five years, provided such matter is disclosed on the
registration application or any update thereto. See note 5, supra.
\1\2In this connection, in a separate notice published elsewhere
today in the Federal Register, the Commission is publishing a Notice
under the Privacy Act of 1974 of modified descriptions of systems of
records to incorporate records applicable to adverse registration
actions against FBs, FTs or applicants for registration in either
category.
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By prior orders, the Commission has authorized NFA to maintain
various other Commission registration records and certified NFA as the
official custodian of such records for this agency.13 The
Commission has now determined, in accordance with its authority under
Section 8a(10) of the Act, to authorize NFA to maintain and serve as
official custodian of the Commission's registration records with
respect to adverse actions against FBs, FTs, and applicants for
registration in either category from this time forward. This
determination is based upon NFA's representations regarding the
implementation of rules and procedures for maintaining and safeguarding
all such records, as well as the need to facilitate NFA's assumption of
responsibility for taking adverse registration action against FBs, FTs,
and applicants for registration in either category.
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\1\349 FR 39593; 50 FR 34885; 51 FR 25929; 54 FR 19594; 54 FR
41133; 58 FR 19657.
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In maintaining the Commission's registration records pursuant to
this Order, NFA shall be subject to all other requirements and
obligations imposed upon it by the Commission in existing or future
Orders or regulations.14 In this regard, NFA shall also implement
such additional procedures (or modify existing procedures) as are
necessary and acceptable to the Commission to ensure the security and
integrity of the FB, FT or applicant records in NFA's custody; to
facilitate prompt access to those records by the Commission and its
staff, particularly as described in other Commission Orders or rules;
to facilitate disclosure of public or nonpublic information in those
records when permitted by Commission Orders or rules and to keep logs
as required by the Commission concerning disclosure of nonpublic
information; and otherwise to safeguard the confidentiality of the
records.
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\1\4See, e.g., 49 FR 39593, 39595-97; 50 FR 34885, 34887.
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II. Conclusion and Order
The Commission has determined, in accordance with the provisions of
Section 8a(10) of the Act, to authorize NFA, effective August 1, 1994,
to perform the following registration functions:
(1) To deny, condition, suspend, modify, restrict or revoke
registration under the Commodity Exchange Act as a floor broker, floor
trader or applicant for registration in either category;
(2) To establish and maintain a system of records regarding such
adverse actions involving floor brokers, floor traders and applicants
for registration in either category, and to serve as the official
custodian of those Commission records.
NFA shall perform these functions in accordance with the standards
established by the Act and the regulations promulgated thereunder.
These determinations are based upon the Congressional intent
expressed in Sections 8a(10) and 17(o) of the Act that the Commission
be allowed to authorize NFA to perform any portion of the Commission's
registration responsibilities under the Act for purposes of carrying
out these responsibilities in the most efficient and cost-effective
manner, and NFA's representations concerning standards and procedures
to be followed in administering these functions.
This Order does not, however, authorize NFA to accept or act upon
requests for exemption from registration or to render ``no-action''
opinions or interpretations with respect to applicable registration
requirements.
Nothing in this Order or in Sections 8a(10) or 17 of the Act shall
affect the Commission's authority to review the granting of a
registration application by NFA in the performance of Commission
registration functions, or to review any adverse registration action
taken by NFA. See also Sections 17(o)(3) and (4) of the Act, 7 U.S.C.
21(o)(3) and (4) (1988 and Supp. IV 1992), and 17 CFR Part 171.
Issued in Washington, D.C. on July 26, 1994 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-15630 Filed 7-29-94; 8:45 am]
BILLING CODE 6351-01-P
