[Federal Register Volume 63, Number 166 (Thursday, August 27, 1998)]
[Rules and Regulations]
[Pages 45711-45715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23021]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
Maintenance of Minimum Financial Requirements by Futures
Commission Merchants and Introducing Brokers
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: Rule 1.12 of the Commodity Futures Trading Commission
(Commission or CFTC) \1\ sets forth the early warning reporting
requirements for futures commission merchants (FCMs) and introducing
brokers (IBs). These requirements are designed to afford the CFTC and
industry self-regulatory organizations (SROs) sufficient advance notice
of a firm's financial or operational problems to take any protective or
remedial action that may be needed to assure the safety of customer
funds and the integrity of the marketplace.
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\1\ Commission rules are found at 17 CFR Ch. I (1998).
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The Commission is adopting as proposed an amendment to Rule 1.12,
applicable to FCMs only, to require immediate notification by an FCM to
the CFTC and its designated self-regulatory organization (DSRO) if an
FCM knows or should know that it is in an undersegregated or
undersecured condition, i.e., that the FCM has insufficient funds in
accounts segregated for the benefit of customers trading on U.S.
contract markets or has insufficient funds set aside for customers
trading on non-U.S. markets to meet the FCM's obligations to its
customers. The term ``funds'' in this context includes accrued amounts
due to or from the FCM's clearing organizations and/or carrying brokers
in connection with customer-related activities, typically the daily or
intraday variation settlement.
The Commission is also adopting amendments to Rule 1.12, as
proposed, to require immediate notification of certain events
pertaining to undercapitalization or failure to satisfy margin calls,
where notice has been required within 24 hours. In addition, the
Commission has determined to codify a previous staff interpretation
that permits notices required by Rule 1.12 to be filed by facsimile in
lieu of telegraphic means and to require immediate telephonic notice as
well.
EFFECTIVE DATE: September 28, 1998.
FOR FURTHER INFORMATION CONTACT:
Paul H. Bjarnason, Jr., Deputy Director and Chief Accountant, or
Lawrence B. Patent, Associate Chief Counsel, Division of Trading and
Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W.,
Washington, D.C. 20581. Telephone (202) 418-5430.
SUPPLEMENTARY INFORMATION:
I. Introduction
On January 6, 1998, the Commission proposed amendments to the early
warning requirements set forth in Rule 1.12.\2\ These proposals
included: (1) a new requirement for an FCM to notify the CFTC and its
DSRO immediately (by telephone call to be followed immediately by
telegraphic or facsimile notice) when it knows or should know that it
is in an undersegregated or undersecured condition; (2) requiring
immediate telephonic notice, rather
[[Page 45712]]
than notice within 24 hours, when an FCM or IB is undercapitalized or
when an account must be liquidated, transferred or allowed to trade for
liquidation only; and (3) codifying a previous staff interpretation
that permits written notices to be filed by facsimile in lieu of
telegraphic means.\3\
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\2\ 63 FR 2188 (Jan. 14, 1998).
\3\ The CFTC's Division of Trading and Markets has stated that
any notice required to be transmitted to the CFTC under Rule 1.12 by
telegraphic notice may be transmitted by facsimile machine. See
CFTC's Advisory No. 90-2, [1987-1990] Transfer Binder] Comm. Fut. L.
Rep. (CCH) para. 24,599 (Feb. 6, 1990). The CFTC proposes to codify
this Advisory throughout Rule 1.12 to make clear that any written
notice can be provided either through telegraphic means or via
facsimile transmission.
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The 60-day comment period expired on March 16, 1998. The Commission
received eight comment letters. Three FCMs, GNI Incorporated (GNI),
FIMAT USA Inc. (FIMAT) and Lind-Waldock & Company (LWC), each submitted
a comment letter. One comment letter was submitted on behalf of six
exchanges (Chicago Board of Trade, Chicago Mercantile Exchange (CME),
Kansas City Board of Trade, Minneapolis Grain Exchange, New York Cotton
Exchange and New York Mercantile Exchange, collectively referred to as
the Exchanges). Another exchange, the Coffee, Sugar & Cocoa Exchange
(CSCE), submitted its own comment letter. The other commenters were the
Association of the Bar of the City of New York's Committee on Futures
Regulation (NYC Bar), National Futures Association (NFA) and the
Futures Industry Association (FIA).\4\ The commenters expressed concern
about the ``should know'' portion of the reporting standard in the
proposed undersegregation notice rule. Some of the commenters suggested
alternatives to the proposals. These comments and alternatives are
discussed more fully below.
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\4\ In addition, the comment file contains a memorandum from
Commissioner Holum's office concerning a meeting on February 10,
1998, with staff of Cargill Investor Services, Inc. and Cargill
Grain Division (collectively, Cargill) during which the rule
proposals, among other things, were discussed.
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The Commission has considered carefully the comments received.
Based upon these comments, discussions between Commission staff and
industry representatives and the Commission's reconsideration of this
subject, the Commission has determined to adopt a new Rule 1.12(h) as
proposed so that an FCM will be required to notify immediately the CFTC
and its DSRO of an undersegregated or undersecured condition if it
knows or should know the condition exists. The Commission has also
provided in the preamble of this release, in response to suggestions
from FIA and NFA, an example of the circumstances that would trigger a
requirement to report under the new standard. The other rule amendments
have been adopted essentially as proposed.
II. Rule Amendments
A. Undersegregation Notice
1. Proposal
FCMs occasionally have become undersegregated as a result of market
movements which cause deficits in the accounts they carry on behalf of
their customers. Generally, the undersegregated condition is discovered
as a result of the segregation calculation, which under Commission
rules is required to be completed by noon on the business day following
the day of the market movements. Most FCMs are able to avoid any
undersegregated condition which might have occurred on the same
business day for which the segregation calculation is made, using
proprietary funds or through collection of deficits by wire transfer
arrangements made with customers. However, this is not always the case.
During the market downturn on October 27, 1997, the Commission was made
aware that a few FCMs experienced undersegregation to a degree that
they were unable to make up the shortfall from their own internal
proprietary funds. Infusions of external capital were required in those
cases to correct the undersegregated conditions. The Commission is also
aware that, in at least one case, an FCM was aware that it was
undersegregated as of the close of business on October 27, due to
losses in the accounts of a single customer. Further, this FCM was
aware on October 27 that it was likely this customer would default in
its obligations to the FCM and that, as a result, the FCM would be
undersegregated. Further, the FCM also knew that it did not have
sufficient proprietary funds within the firm to correct the
undersegregated condition. As explained further below, the Commission
was notified on or about the close of business October 28--at least one
day after the FCM was well aware of the situation.
An evaluation of the Commission's early warning notification rules
indicated that these rules, which require notice to the Commission
upon, among other events, an FCM falling below the adjusted net capital
early warning level, which is 150 percent of the minimum required, may
not result in notice to the commission until as much as a day or a day
and a half after the occurrence of a major market event that causes an
undersegregated condition. In particular, on October 27, 1997, some
firms knew that they had a major problem by noon of that day, but did
not provide notice of these problems to the Commission until on or
about the close of business on October 28.
The Commission, therefore, proposed a new Rule 1.12(h) \5\ that
would require an FCM to notify the Commission and its DSRO immediately
after it knows or should know that funds segregated for customers
trading on U.S. markets or set aside for customers trading on non-U.S.
markets are less than the amount required to be segregated or set aside
by the Commodity Exchange Act (Act) or Commission rules.\6\ In this
context, the term ``funds'' includes funds on deposit and funds due to
or from the FCM's clearing organizations or carrying brokers. The
Commission's proposal would require an immediate telephone call by an
FCM, to be followed immediately by telegraphic or facsimile notice. The
notification to the Commission would be directed to the Division of
Trading and Markets, to the attention of the Director and the Chief
Accountant, and notice to the DSRO was to be directed to the person or
unit provided for under the DSRO's rules. For example, the notice
required by CME Rule 971 must be sent to CME's Audit Department.\7\
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\5\The Commission proposed to redesignate current paragraph (h)
of Rule 1.12 as paragraph (i) and to include the new rule in a new
paragraph (h).
\6\ Background on the segregation and set aside requirements is
set forth at 63 FR 2188, 2189.
\7\ The CME has a rule requiring that a FCM for which it acts as
the DSRO provide written notice to CME within 24 hours after the FCM
becomes aware of its failure to maintain sufficient funds in
segregation or set aside in separate accounts. Rules of the Chicago
Mercantile Exchange, Rule 971 Segregation and Secured Requirements
(1997).
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2. Comments on Proposed Reporting Standard
Most of the commenters objected to the ``should know'' standard in
proposed new Rule 1.12(h). GNI, Cargill and LWC criticized this
language as being too vague and granting the Commission too much
discretion. NYC Bar and CSCE claimed that a ``should know'' standard
would lead to overreporting by firms fearful of an enforcement action.
Overreporting could create or exacerbate, rather than prevent or
ameliorate, a market crisis, causing rumors to spread of problems at
reporting firms, according to the NYC Bar and GNI. FIA expressed
concern that this could cause the Commission to take precipitous
action, such as ordering the transfer of accounts.
NYC Bar also stated that ``the `should know' standard has not been
the subject of litigation or addressed by any staff interpretations.''
The Commission notes that the ``should know'' standard has
[[Page 45713]]
been part of the standard for reporting undercapitalization in Rule
1.12(a) since it was adopted 20 years ago.\8\ The Commission was
intending to conform the reporting requirements for undersegregation
and undercapitalization, a concept that FIMAT deemed sensible in its
comment letter (although, as discussed below, FIMAT objected to the
timing element). The Commission further notes that Rule 1.12(a) has
been the subject of litigation.\9\
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\8\ 43 FR 39956, 39969 (Sept. 8, 1978).
\9\ See, e.g., In the Matter of First Commercial Financial
Group, Inc., et al., CFTC Docket No. 95-10, [Current Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 27,180 (Initial Decision Oct.
27, 1997); In the Matter of Eagan & Company, Inc., et al. CFTC
Docket No. 92-20, [1990-1992 Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 25,350 (Initial Decision July 31, 1992).
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Some commenters suggested alternatives. FIA stated that it could
support reporting of undersegregation subject to three conditions,
which should be set forth in the rule itself or in the preamble of the
Federal Register notice announcing adoption of the rule: (1) there is a
significant undermargined account; (2) the customer makes clear that it
is unable or unwilling to meet the margin call; and (3) the FCM is
aware that it will be unable to transfer enough funds from its own
accounts into segregation in a timely manner to cover the shortfall.
NFA stated that, in extraordinary markets, an FCM may know earlier than
the formal computation deadline of noon the following business day that
it is undersegregated and suggested that the Commission clarify that
this is the exception rather than the norm.
In an effort to respond to the commenters, the Commission's staff
explored the use of language other than ``knows or should know'' for
the undersegregation notice requirement on an informal basis with
representatives of entities that submitted comment letters. Following
these discussions and Commission reconsideration of the issue, the
Commission has determined to adopt as the standard for reporting an
undersegregated or undersecured condition that an FCM ``knows or should
know'' either condition exists, as the Commission proposed. Of course,
this standard would be met if the daily calculations of segregation and
secured amount requirements pursuant to Rules 1.32 and 30.7(f) reveal
deficiencies. However, the requirement to report under new Rule 1.12(h)
could also arise even before the required daily calculations of
segregation and secured amount must be made. The Commission notes, in
response to FIA's and NFA's suggestion referred to above, the one
example of when the Commission would conclude that an FCM knows or
should know that the new reporting requirement is triggered is the
following circumstance: (1) there is a significant undermargined
account; (2) the customer makes clear that it is unable or unwilling to
meet the margin call; and (3) the FCM is aware that it will be unable
to transfer enough funds from its own accounts into segregation or
separate set-aside accounts to cover the shortfall.
That part of the standard requiring an FCM to report when it
``should know'' of a problem may be defined as the point at which a
party, in the exercise of reasonable diligence, should become aware of
an event. This is an objective standard that has been applied by courts
on numerous occasions.\10\ As noted above, the standard ``knows or
should know'' has been used in Commission Rule 1.12(a) for almost 20
years, and this language is used in other federal regulations.\11\
Because of the severe financial consequences that could arise from an
FCM's failure to comply with segregation and secured amount
requirements, and to achieve consistency between the treatment of
undercapitalization and undersegregation conditions, the Commission
believes that it is appropriate to adopt the ``knows or should know''
standard for new Rule 1.12(h).
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\10\ See, e.g., Anixter v. Home-State Production Company, 947 F.
2d 897, 899 & n.5 (10th Cir. 1991); Maloley v. R.J. O'Brien &
Associates, Inc., 819 F.2d 1435, 1442-1444 (8th Cir. 1987).
\11\ See, e.g., 17 CFR 240.14e-3 (1998); 29 CFR 1604.11 (1997).
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By this rule change, the Commission requires reporting of serious
problems, such as occurred on October 27, 1997, as soon as they become
apparent to the FCM. In addition, the Commission wishes to make clear
that an FCM cannot avoid the reporting requirement by failing to
perform or by delaying the required segregation and secured amount
calculations pursuant to Rules 1.32 and 30.7(f). Failure to make the
required calculations, which are rule violations in and of themselves,
cannot be used as an excuse for failing to report as required by new
Rule 1.12(h).
3. Comments on When to Report
The Commission proposed that an FCM be required to report an
undersegregated or undersecured condition immediately by telephone,
which is to be confirmed in writing immediately by telegraphic or
facsimile notice. The Exchanges and FIMAT stated that, during major
market moves, the first priority of an FCM should be to monitor
accounts, to collect required deposits and to ensure that settlement
variation requirements can be met. In their view, it is less important
to perform immediately a ministerial calculation to determine whether a
precise violation of segregation requirements has occurred than to
address immediately all severe problems. These commenters, as well as
GNI, NYC Bar and FIA, also noted that, given the nature of today's
financial markets, with round-the-clock, round-the-globe trading and
increased give-up business, it takes time for an FCM to gather and to
review the necessary information concerning an FCM's segregation and
secured amount requirements; moment-to-moment calculations are not
possible. Two commenters (GNI and FIMAT) questioned whether Commission
staff would be available at all times to receive calls if immediate
telephonic notice is required.
Certain commenters also suggested alternatives on this aspect of
the proposals. FIMAT noted that, pursuant to CME Rule 971(C), it is
already required to report undersegregation to the CME within 24 hours.
FIMAT stated that it would not object to a similar time frame in a
Commission rule; earlier reporting could be encouraged, but mandating
immediate reporting is too severe in FIMAT's view. NYC Bar suggested
that the Commission amend Rule 1.32 to require earlier completion of
the daily segregation record (now required by noon on the following
business day) and immediate reporting of undersegregation as of the
earlier time.
The Commission considered the time for reporting in connection with
the rule proposal and determined that immediate reporting would be the
appropriate standard. The Commission recognizes, however, that time may
be needed for consultation by FCM staff with senior management, and it
did not intend to foreclose that activity. The Commission also did not
intend to require FCMs to make additional segregation calculations on a
routine basis, but only to do so if a problem arises that could trigger
the reporting requirement under new Rule 1.12(h). It is the
Commission's intent that the ``knows or should know'' standard be
implemented by FCMs using existing sources of information and
computations. Nor does the Commission wish to accelerate the
requirement for completion of the daily segregation record, as
suggested by the NYC Bar, since the Commission would have to propose
such a rule change and allow
[[Page 45714]]
further comment thereon and the Commission does not believe at this
time that such a rule change is needed. The Commission is requiring
that, when an FCM knows or should know that it is undersegregated or
undersecured, it must report that immediately. As to the availability
of Commission staff for immediate telephonic notification under new
Rule 1.12(h), the Commission does not believe that this will be a
problem given modern telecommunications facilities.
After reviewing other provisions of the early warning requirements,
the Commission proposed that notices of events that had been required
within 24 hours (namely, when an FCM or IB is undercapitalized or when
an account must be liquidated, transferred or allowed to trade for
liquidation only) be made immediately. Such notifications would be
required by telephone immediately, to be confirmed in writing by
telegraph or facsimile. See Rule 1.12(a)(1), (f)(1), and (f)(2).
Certain other provisions of Rule 1.12 already require immediate
notifications. See paragraphs (e), (f)(3), (f)(4) and (f)(5) of Rule
1.12. The Commission also proposed that these notifications be made by
telephone as well as by telegraph or facsimile. The Commission received
no comment on these proposals and is adopting them as proposed.\12\
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\12\ The Commission is also adopting as proposed a correction to
the cross-reference in Sec. 1.12(g)(2) concerning consolidation that
now refers to ``Sec. 1.10(f)'' to read ``1.17(f)''.
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4. Comments on Where to Report
The Commission proposed new Rule 1.12(h) to require an FCM to
report an undersegregated or undersecured condition both to its DSRO
and to the Commission, which is consistent with the other provisions of
Rule 1.12. The Exchanges, FIA, GNI and LWC commented that all early
warning notices, including those unaffected by the recent proposals,
should be filed only with a firm's DSRO, which would in turn be
responsible for informing the CFTC and other SROs. This would eliminate
the requirement for a firm to report directly to the Commission. Taking
a different viewpoint, CSCE complained that DSROs fail to share early
warning notice information in a timely manner with other exchanges and
clearing organizations where the FCM that filed an early warning notice
is carrying large positions.
The Commission did not consider this to be an issue in drafting the
proposals, and the proposal as to where to report an undersegregated or
undersecured condition was consistent with the other provisions of Rule
1.12. Since time is of the essence in situations addressed by Rule
1.12, and in light of the Commission's review of all of the comments on
this point, the Commission has determined to adopt as proposed the
requirement for direct notice by firms to the Commission under new Rule
1.12(h). The Commission also wishes to note, however, that it
encourages FCMs to communicate with their DSROs on an ongoing basis and
believes that DSROs can perform an important role in determining when
it is appropriate for early warning notices to be filed. In any event,
at the point when an FCM knows or should know that it is in an
undersegregated or undersecured condition, it must report that
condition immediately to its DSRO and the Commission.
The Exchanges requested that paragraphs (f)(3)-(f)(5) of Rule 1.12
be deleted as ineffectual. These provisions require immediate reporting
whenever (1) an FCM issues a margin call in excess of its adjusted net
capital,\13\ (2) a margin call is not met by the close of business on
the day following its issuance, or (3) an FCM's excess adjusted net
capital is less than six percent of maintenance margin required on
positions carried for noncustomers other than another FCM or a
securities broker-dealer.
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\13\ FIMAT commented that the existence of Rule 1.12(f)(3),
which requires immediate reporting when an FCM issues a margin call
in excess of its adjusted net capital, is a reason not to require
immediate reporting of undersegregation.
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The Commission's only proposals with respect to paragraphs (f)(3)-
(f)(5) of Rule 1.12, which were adopted in conjunction with and were
derived from the proposals for the Commission's risk assessment rules,
Rules 1.14 and 1.15, concerned telephonic and facsimile notice as
described above. The Commission believes that these provisions should
be retained, but that, if the Commission pursues further rulemaking
concerning risk assessment, it may be appropriate at that time to
reconsider Rule 1.12(f)(3)-(f)(5).
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611 (1994),
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The rule amendments discussed herein
would affect primarily FCMs. The amendment of one provision,
Sec. 1.12(f)(1), would affect clearing organizations, and the amendment
of another provision, Sec. 1.12(a)(1), would affect IBs. The Commission
has previously determined that, based upon the fiduciary nature of FCM/
customer relationships, as well as the requirement that FCMs meet
minimum financial requirements, FCMs should be excluded from the
definition of small entity.\14\ Contract markets and their clearing
organizations have also been excluded from the definition of small
entity.\15\
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\14\ 47 FR 18618-18621 (April 30, 1992).
\15\ Id.
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The amendment to Sec. 1.12(a)(1) concerning notice of
undercapitalization affects the minority of IBs that rely upon their
own capital to meet adjusted net capital rules, ``independent'' IBs, as
well as FCMs. The Commission has determined to require that this notice
be provided immediately rather than within 24 hours as previously
required. The notification requirement will remain essentially the
same, but the time within which to report has been shortened. The
Commission believes that this rule amendment is necessary for the
Commission and DSROs to be able to carry out their oversight and
monitoring functions concerning the financial condition of futures
industry intermediaries and to protect the customers of those firms and
the markets. Therefore, any slight increase in the burden on an
independent IB caused by the amendment to Rule 1.12(a)(1) is necessary
for the Commission to fulfill its regulatory obligations.\16\
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\16\ The Commission evaluates within the context of a particular
rule proposal whether all or some IBs should be considered small
entities and, if so, analyzes the impact on IBs of the proposal. 48
FR 35248, 35276 (Aug. 3, 1983).
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Therefore, the Chairperson, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that the action taken herein
will not have a significant economic impact on a substantial number of
small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA''), 44 U.S.C. 3501 et
seq. (Supp. I 1995), 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. The
Commission anticipates that fewer than ten FCMs per year will file
reports under the new rule, and thus the new rule will not constitute a
collection of information under the PRA.\17\ The group of rules (3038-
0024) of which this is a part has the following burden:
\17\ 44 U.S.C. 3502(3) (Supp. I 1995).
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Average Burden Hours Per Response: 128
[[Page 45715]]
Number of Respondents: 1366
Frequency of Response: On ocassion
Copies of the OMB approved information collection package
associated with this rule may be obtained from Desk Officer, CFTC,
Office of Management and Budget, Room 10202, NEOB, Washington, D.C.
20503, (202) 395-7340.
List of Subjects in 17 CFR Part 1
Commodity futures, Minimum financial and related reporting
requirements.
In consideration of the foregoing, and pursuant to the authority
contained in the Commodity Exchange Act, and in particular, Sections
4f, 4g and 8a(5) thereof, 7 U.S.C. 6f, 6g and 12a(5), the Commission
hereby amends Part 1 of chapter I of title 17 of the Code of Federal
Regulations as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
1. The authority citation for Part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f,
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a,
12c, 13a, 13a-1, 16, 16a, 19, 21, 23 and 24.
2. Section 1.12 is amended by revising paragraph (a)(1), by
revising the first sentence of paragraph (b)(4), by adding the phrase
``or facsimile'' after the word ``telegraphic'' in paragraphs (c) and
(d), by revising paragraph (e), by adding the phrase ``telephonic,
confirmed in writing by'' before the word ``telegraphic,'' by adding
the phrase ``or facsimile,'' after the word ``telegraphic'' and by
revising the phrase at the end which reads ``within 24 hours'' to read
``immediately'' in paragraphs (f)(1) and (f)(2), by adding the phrase
``telephonic, confirmed in writing by'' before the word ``telegraphic''
and by adding the phrase ``or facsimile,'' after the word
``telegraphic'' in paragraph (f)(3), by adding the phrase ``by
telephone, confirmed in writing immediately by telegraphic or facsimile
notice,'' after the word ``immediately'' in paragraphs (f)(4) and
(f)(5), by revising the phrase in paragraph (g)(2) which reads
``Sec. 1.10(f)'' to read ``Sec. 1.17(f)'', by redesignating paragraphs
(h)(1) and (h)(2) as paragraphs (i)(1) and (i)(2), respectively, by
revising the last sentence of paragraph (i)(2), and by adding a new
paragraph (h). The additions and revisions follow:
Sec. 1.12 Maintenance of minimum financial requirements by futures
commission merchants and introducing brokers.
(a) * * *
(1) Give telephonic notice, to be confirmed in writing by
telegraphic or facsimile notice, as set forth in paragraph (i) of this
section that the applicant's or registrant's adjusted net capital is
less than required by Sec. 1.17 or by other capital rule, identifying
the applicable capital rule. The notice must be given immediately after
the applicant or registrant knows or should know that its adjusted net
capital is less than required by any of the aforesaid rules to which
the applicant or registrant is subject; and
* * * * *
(b) * * *
(4) For securities brokers or dealers, the amount of net capital
specified in Rule 17a-11(b) of the Securities and Exchange Commission
(17 CFR 240.17a-11(b)), must file written notice to that effect as set
forth in paragraph (i) of this section within five (5) business days of
such event. * * *
* * * * *
(e) Whenever any self-regulatory organization learns that a member
registrant has failed to file a notice or written report as required by
Sec. 1.12, that self-regulatory organization must immediately report
this failure by telephone, confirmed in writing immediately by
telegraphic or facsimile notice, as provided in paragraph (i) of this
section.
* * * * *
(h) Whenever a person registered as a futures commission merchant
knows or should know that the total amount of its funds on deposit in
segregated accounts on behalf of customers, or that the total amount
set aside on behalf of customers trading on non-United States markets,
is less than the total amount of such funds required by the Act and the
Commission's rules to be on deposit in segregated or secured amount
accounts on behalf of such customers, the registrant must report
immediately by telephone, confirmed in writing immediately by
telegraphic or facsimile notice, such deficiency to the registrant's
designated self-regulatory organization and the principal office of the
Commission in Washington, D.C., to the attention of the Director and
the Chief Accountant of the Division of Trading and Markets.
(i) * * *
(2) * * * Any notice or report filed with the National Futures
Association pursuant to this paragraph shall be deemed for all purposes
to be filed with, and to be the official record of, the Commission.
Issued in Washington, D.C. on August 24, 1998 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-23021 Filed 8-26-98; 8:45 am]
BILLING CODE 6351-01-M
