[Federal Register Volume 64, Number 167 (Monday, August 30, 1999)]
[Proposed Rules]
[Pages 47151-47156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22461]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
Use of Electronic Signatures by Customers, Participants and
Clients of Registrants
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: As part of its ongoing efforts to facilitate the use of
electronic technology and media in the futures industry, the Commodity
Futures Trading Commission (``Commission'' or ``CFTC'') is proposing to
adopt new rules allowing the use of electronic signatures in lieu of
handwritten signatures for certain purposes under the Commission's
regulations.\1\ The Commission seeks comment on these rules and on
issues relating generally to the use of electronic media for
communications necessary to establish an account for trading commodity
interests.
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1 et seq. (1999).
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DATES: Comments must be received on or before October 29, 1999.
ADDRESSES: Comments should be mailed to Jean A. Webb, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW, Washington, DC 20581; transmitted by facsimile to (202)
418-5521; or transmitted electronically to (secretary@cftc.gov).
Reference should be made to ``Internet Account-Opening Process.''
FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief
Counsel, or Christopher W. Cummings, Special Counsel, Division of
Trading and Markets, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. Telephone
(202) 418-5430.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
Notwithstanding the rapid pace at which business transactions of
all kinds are being converted from paper-based to electronic formats,
the opening of accounts to trade investment products in the commodity
futures and option markets continues to involve exchange of paperwork
between the broker and the customer. Strictly speaking, there is
nothing in the Commodity Exchange Act (the ``Act'') \2\ and the
Commission's regulations issued thereunder that prevents a futures
commission merchant (``FCM'') or introducing broker (``IB'') from
opening electronically a customer account. There are ancillary rules,
however, that effectively require the parties to exchange paper, such
as the requirement that the FCM or IB obtain a signed acknowledgment
that the customer has received the required risk disclosure
statement,\3\ or the requirement that an agreement to arbitrate
disputes be entered into by a separate signature from that which
executes the account agreement.\4\ In the current session of Congress,
several bills have been introduced to authorize the use of electronic
signatures.\5\ In addition, the National Conference of Commissioners on
Uniform State Laws has prepared a ``Uniform Electronic Transactions
Act'' (``UETA'') with the goal that it will be adopted by the States,
giving legal certainty to
[[Page 47152]]
electronic commerce, particularly from the perspective of contract law.
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\2\ 7 U.S.C. 1 et seq. (1994).
\3\ See Rule 1.55(a)(1).
\4\ See Rule 180.3(b)(6).
\5\See Senate Bills 761 (``Millennium Digital Commerce Act'')
and 921 (``Electronic Securities Transactions Act'') and House
Resolutions 1572 (``Digital Signature Act of 1999''), 1685
(``Internet Growth and Development Act of 1999'') and 1714
(``Electronic Signatures in Global and National Commerce Act'').
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Over the past several years, the Commission has modified or made
exception to rule provisions that were adopted originally with paper-
based transactions in mind in order to permit registrants to comply
with those provisions in the context of electronic commerce. For
example, as a result of such actions, the Commission now permits
commodity pool operators (``CPOs'') and commodity trading advisors
(``CTAs'') who deliver their prescribed Disclosure Documents by
electronic means to obtain the required acknowledgment of receipt by
electronic means that use a unique identifier to confirm the identity
of the recipient, including such means as a personal identification
number, or ``PIN.'' \6\ The Commission has accepted the use of PINs in
other contexts as well, such as in the attestation of financial reports
that FCMs are required to file with self-regulatory organizations.\7\
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\6\ See Rules 4.21(b) and 4.31(b), and 62 FR 39104, 39110 (July
22, 1997).
\7\ Rule 1.10(d)(4). See 62 FR 10441 (March 7, 1997).
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Recently, the Division was asked to interpret Commission rules to
permit an FCM to accept, in lieu of a prospective customer's manually
signed, paper acknowledgment that he received and understood the risk
disclosure statement specified in Rule 1.55, an electronic mail message
to that effect on which the customer has typed his name. The Commission
believes that customers of FCMs and IBs, as well as commodity pool
participants and clients of CTAs, should be permitted to use electronic
signatures in those instances where Commission regulations require the
customer's (or participant's or client's) manual signature. In
furtherance of this belief, the Commission is proposing Rule 1.4, ``Use
of electronic signatures.'' \8\
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\8\ As is discussed more fully below, the Commission also is
proposing to define in new Rule 1.3(tt) the term ``electronic
signature.''
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B. Current Regulatory Requirements Affecting the Account-Opening
Process
The process by which an FCM or IB actually establishes a customer
account to trade commodity interests primarily is governed by state
contract law. Neither the Act, the Commission's regulations nor the
rules adopted by commodity industry self-regulatory organizations
directly specify the steps to be taken to establish an account or the
manner in which those steps are to be taken, although certain
provisions of the Commission's regulations affect matters that are
pendant to the account opening process. The following discussion
highlights the CFTC rule provisions that may be implicated regarding
customer authorizations and endorsements necessary for opening and
maintaining a commodity interest trading account.
Rules 1.36 and 1.37
Rule 1.37(a) requires FCMs and IBs to keep permanent records, for
each commodity futures or option account, of the customer's true name,
address and principal occupation or business, as well as the name of
any person guaranteeing the account or exercising any trading control
with respect to the account. Rule 1.36 requires an FCM who receives
property other than cash to margin or secure futures or commodity
option transactions to keep a record of all such property and the name
and address of the customer (as well as information regarding the
segregation and ultimate disposition of the property).
Rules 1.55(a), (b), (c) and (f), and Rule 30.6
Rule 1.55(a) provides that prior to opening a commodity futures
account an FCM or IB must: (1) furnish the customer with a written
disclosure statement containing language specified in rule 1.55 (b) or
(c); and (2) obtain the customer's signed and dated acknowledgement
that he has received and understands the disclosure statement. Rule
30.6 extends a similar requirement to FCMs or IBs seeking to open
foreign futures trading accounts for customers. Rule 1.55(f) provides
that the FCM or IB may open a commodity interest account without
furnishing the customer with the disclosure statements required by
Rules 1.55(a), 30.6(a), 33.7(a) and 190.10(c) if the customer is among
a specified category of sophisticated customers.\9\
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\9\ A customer is considered sophisticated for purposes of Rule
1.55(f) if it is: a bank or trust company; a savings association or
credit union; an insurance company; an SEC-registered investment
company or a foreign investment company with total assets in excess
of $5 million; a pool operated by a registered (or foreign
registered) or exempt CPO; a corporation or other entity with total
assets in excess of $10 million or a net worth of $1 million; an
employee benefit plan subject to ERISA (or foreign person performing
similar functions and subject to foreign regulation) with assets in
excess of $5 million; a registered broker-dealer; a registered FCM,
floor broker or floor trader; or a natural person with total assets
exceeding $10 million.
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Rule 33.7
Where an FCM or IB seeks to open a commodity option account for a
customer, Rule 33.7 imposes requirements similar to those imposed by
Rule 1.55 for commodity futures accounts. As with Rule 1.55, the FCM or
IB must obtain a signed and dated acknowledgement that the required
disclosure statement was received and understood by the customer. As is
true for Rule 1.55(a), Rule 30.6 and Rule 190.10(c), this requirement
does not apply where the customer is one of the types of sophisticated
customers identified in rule 1.55(f).
Rule 190.10(c)
Rule 190.10(c) requires a commodity broker (other than a clearing
organization), before accepting property other than cash to margin or
secure a commodity contract, to furnish to the customer the bankruptcy
risk disclosure statement specified in Rule 190.10(c)(2). As is true of
Rule 1.55(a), Rule 30.6 and Rule 33.7, this requirement does not apply
where the customer is one of the types of sophisticated customers
identified in Rule 1.55(f).
Rule 190.06
Rule 190.06(d) requires that a commodity broker must provide an
opportunity for each customer to specify when undertaking the
customer's first hedging contract whether, in the event of the broker's
bankruptcy, the customer prefers that open commodity contracts held in
a hedging account be liquidated by the trustee in bankruptcy without
seeking instructions from the customer.
Rule 1.55(d)
Rule 1.55(d) provides that an FCM or IB may obtain the
acknowledgments required by rules 1.55, 33.7 and 190.06 by having the
customer sign once, provided that the customer has acknowledged on the
document he signs, by check or other indication, next to a description
of each required disclosure statement (or election) that the customer
has received and understood the disclosure statement (or made the
election).
Rule 180.3
Rule 180.3 regulates conditions under which FCMs and IBs \10\ may
enter agreements with customers requiring that disputes be submitted to
a settlement procedure, such as binding arbitration. Signing the
agreement to use the specified settlement procedure must not be made a
condition for the customer to utilize the services offered by the
registrant. The rule also provides that if the agreement is contained
as a clause or group of clauses in a broader agreement (e.g., an FCM's
customer agreement), the customer must
[[Page 47153]]
separately endorse the clause or clauses containing the prescribed
language regarding available dispute resolution fora and other
cautionary material specified in rule 180.3.
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\10\ Rule 180.3 also applies to registered floor brokers, CPOs
and CTAs and their respective associated persons (``APs'').
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Rule 166.2
Rule 166.2 requires that before an FCM, an IB or one of their APs
effects a transaction in a customer's commodity interest account the
customer (or the person designated by the customer to control the
account) must specifically authorize the transaction or the customer
must have authorized the FCM, IB or AP in writing to effect
transactions in the account without specific authorization. Under the
rule, any such authorization to effect transactions without specific
further authorization must be expressly documented.
Several other rule provisions may, but do not necessarily, affect
the account opening process:
Rule 1.65
Rule 1.65 applies to bulk transfers of customer accounts to another
FCM or IB under circumstances other than at the request of the customer
(an event that generally occurs subsequent to the opening of an
account). The transferor FCM or IB must first obtain the customer's
specific consent to the transfer. If the customer agreement contains a
valid consent by the customer to prospective transfers of the account,
the customer must nevertheless be provided with written notice of the
transfer and must be given a reasonable opportunity to object to the
transfer. The transferee FCM or IB must provide the risk disclosure
statements required by rules 1.55, 33.7 and 190.10(c) unless: (1) The
FCM or IB has clear written evidence that the customer has received and
acknowledged the required disclosure statements; (2) the FCM or IB has
clear written evidence that at the time the account was opened the
customer was one of the sophisticated customers identified in rule
1.55(f); or (3) the transferor IB and the transferee IB are both
guaranteed by the same FCM, and that FCM maintains the relevant
acknowledgments required by Rules 1.55(a)(1)(ii) and 33.7(a)(1)(ii) and
can establish compliance with Rule 190.10(c).
Rule 155.3
Rule 155.3(b)(2) prohibits an FCM or any of its affiliated persons
from knowingly taking the other side of any order of another person
revealed to the FCM or affiliated person by reason of their
relationship to such person except with the other person's prior
consent and in accordance with Commission-approved contract market
rules.
Rule 1.20(a)
An FCM may not remove funds from a customer's segregated account
and transfer those funds to another non-segregated account (such as a
securities account) without a separate writing clearly evidencing the
customer's authorization for the removal of those funds. The Commission
has consistently declined to permit FCMs to include in the customer
account agreement the requisite authorization to transfer funds from a
customer's segregated account to another account of that customer
carried by the FCM.\11\
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\11\ See Protection of Commodity Customers; Risk Disclosure by
Futures Commission Merchants and Introducing Brokers to Customers;
Bankruptcy Disclosure. 63 FR 17495 (April 5, 1993) at 17499 n.18 and
Staff Letters referenced there.
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II. Proposed New Rules
A. Rule 1.3(tt)
Rule 1.3 contains definitions of various terms used in the Act and
the Commission's regulations. The Commission is proposing to add a new
paragraph (tt) to the rule, which would define the term ``electronic
signature'' as ``an electronic sound, symbol, or process attached to or
logically associated with a record and executed or adopted by a person
with the intent of signing the record.'' The proposed definition is
taken from the Uniform Electronic Transactions Act (``UETA'') approved
and recommended for enactment in all the States by the National
Conference of Commissioners of Uniform State Laws during that
Conference's July 23-30, 1999 annual meeting.\12\
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\12\ The UETA definition is a broad one and is likely to be
generally consistent with state and Federal laws adopted in the
future.
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The wording of the proposed definition is intended to be broad
enough to encompass electronic signatures created under a variety of
current and future technologies, while requiring that the person
employing an electronic signature does so with the intent to accomplish
the signing of a particular electronic document or record. The
definition also expressly provides that the ``sound, signal or
process'' that will constitute the electronic signature be attached to
or logically associated with an electronic record. As the drafters of
the UETA noted:
A key aspect of this definition lies in the necessity that the
electronic signature be linked or logically associated with the
electronic record. For example, in the paper world, it is assumed
that the symbol adopted by a party is attached to or located
somewhere in the same paper that is intended to be authenticated.
These tangible manifestations do not exist in the electronic
environment, and accordingly, this definition expressly provides
that the symbol must in some way be linked to or connected with, the
electronic record being signed.\13\
\13\ National Conference of Commissioners on Uniform State Laws
Uniform Electronic Transactions Act, Draft prepared for the July 23-
30, 1999 meeting (the ``Annual Meeting Draft'') at page 15. The
Annual Meeting Draft is available online at the following URL:
http://www.law.upenn.edu/library/ulc/uecicta/etaam99.htm The text of
the UETA as approved is available online at the following URL:
http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta.htm.
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Thus, where a futures customer is required to sign or adopt a
particular phrase or statement (e.g., a specific disclosure statement
or portion thereof), the electronic signature must be linked or
associated in a logical way with that phrase or statement.
B. Rule 1.4
Proposed rule 1.4(a) would permit the customer of an FCM or IB, a
pool participant, or a client of a CTA to use an electronic signature
in lieu of a written signature in any situation in which a provision of
the Act or Commission regulations requires that person's signature. The
broad permission to use electronic signatures would be subject to
compliance with applicable Federal law and any standards regarding
electronic signatures that the Commission may later adopt and guidance
that Commission staff may provide.\14\ It would also be subject to the
futures commission merchant, introducing broker, commodity pool
operator or commodity trading advisor utilizing reasonable safeguards
regarding the use of electronic signatures (including, at a minimum,
measures to verify that the electronic signature belongs to the person
using it, procedures to prevent alteration of an electronically-signed
record, and procedures to detect changes or errors in an electronic
signature). The Commission continues to believe that it generally is
unwise to attempt to impose specific technological mandates or specific
system design criteria on registrants, and that requiring instead the
use of reasonable safeguards,
[[Page 47154]]
to be identified and implemented by the registrant itself, is the
better approach.\15\
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\14\ Although the Commission presently is not proposing to adopt
specific standards regarding electronic signatures, it is possible
that legislation pending in Congress may require Federal agencies to
adopt such standards. For example, House Resolution 1572 would
direct the National Institute of Standards and Technology to
establish minimum technical criteria for the use by Federal agencies
of electronic certification and management systems and to
participate in a national policy panel intended to develop a
national digital signature infrastructure based on uniform
standards.
\15\ Among the potential security procedures for electronic
signatures identified in the UETA are ``the use of algorithms or
other codes, identifying words or numbers, encryption, or callback
or other acknowledgement procedures.'' See UETA Section 2(14).
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As is clear from the rule, it is not the Commission's intention
that registrants (particularly small businesses) be required to
implement electronic signature technology. Rather, if a registrant
elects generally to accept electronically signed documents, proposed
Rule 1.4 eliminates any uncertainty under the Act or Commission rules
or regulations regarding the validity of the signatures.
Until such time as the Congress and State legislatures enact
definitive legislation, there will be some question as to the
sufficiency of electronic signatures in various contexts, and persons
desiring to use them should know that this question exists and
consequently that they should use electronic signatures with care. In
particular, although the proposed rules will make clear that electronic
signatures provided pursuant to the rules will comply with Commission
regulations, the validity of such signatures under state contract law
will vary depending on the relevant jurisdiction (i.e., these proposed
rules do not purport to preempt state law). In light of the foregoing,
an FCM, IB, CPO or CTA who elects to receive, handle and store
documents or records that have been signed by means of an electronic
signature would be required by proposed Rule 1.4(b) to disclose to the
customer, participant or client that although an electronic signature
is sufficient for purposes of the Act and Commission regulations, it
may be insufficient for purposes of other Federal or State laws or
regulations (such as common law of contracts). For their own protection
and the protection of their customers, registrants obviously should
take reasonable care to determine whether an electronic signature
intended to consummate a binding contract will be valid in a particular
jurisdiction.
It should be noted that proposed Rule 1.4 would not relieve a
registrant from any other applicable requirement under the Act or the
Commission's rules--e.g., applicable requirements to maintain records
of certain signed documents (whether signed with pen and ink or with an
electronic signature) in a manner consistent with Commission Rule
1.31.\16\ Similarly, proposed Rule 1.4 would not relieve a registrant
from requirements regarding the scope or type of customer information
required to be kept--e.g., Rule 1.37's requirement that FCMs and IBs
keep permanent records, for each commodity futures or option account,
of the customer's true name, address and principal occupation or
business, as well as the name of any person guaranteeing the account or
exercising any trading control with respect to the account. Lastly,
registrants should be cognizant of their obligations, among other
things, to report material inadequacies in their accounting and
internal controls in accordance with Rule 1.16(e) and their duties
diligently to supervise the handling of all commodity interest accounts
they carry, operate, advise or introduce in accordance with Rule 166.3
when they determine the manner in which they will accept electronic
signatures and the procedures and safeguards that they establish and
use in connection with electronic signatures.
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\16\ Regardless of the form that an electronic signature takes,
where a registrant is required by Commission regulations to retain a
signed record in accordance with Rule 1.31, the registrant must be
able to make the record available (as a signed record) to Commission
representatives at any time during the retention period specified in
Rule 1.31. Under Rule 1.31, as recently amended (64 FR 28735 (May
27, 1999)) persons who store required records electronically must
provide facilities for immediate production or projection of those
records for examination by representatives of the Commission or the
Department of Justice upon request.
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III. Issues on Which the Commission Requests Comment
General
As noted previously, for the past several years the Commission has
been engaged in a process of reviewing its regulatory scheme and
modernizing and streamlining its regulations to adapt to developments
in the marketplace (including developments in technology and screen-
based trading). As part of this process, the Commission believes that
allowing for the use of electronic signatures will reduce paperwork and
promote efficient access to futures markets. These proposed rules have
been structured to be consistent with any future action by Congress or
various states in this area. Should the Commission issue rules in this
area now? Should the Commission defer rulemaking on electronic
signatures pending possible legislation by Congress?
Security
As indicated above, Commission rules require that an FCM or IB
obtain information (such as name, address and occupation) and signed
acknowledgments (such as an acknowledgment of receipt of the Risk
Disclosure Statement) from a new customer. Wholly-electronic
communications such as interactive transactions over the Internet lend
themselves to anonymous dealings and permit persons to adopt assumed
identities. Is opening a commodity interest trading account entirely by
electronic means inherently less conducive to establishing that a
customer is who he or she claims to be than current practice involving
exchange of paper documents and/or face-to-face dealings? What
safeguards, if any, are appropriate to counteract any loss of security
that may result from elimination of such vestiges of non-electronic
commerce as manual signatures on acknowledgments, exchange of paper
documents and face-to-face transactions? How and to what extent might
encryption, personal identification numbers, callbacks or other
security measures be employed to safeguard the integrity of information
provided to or received from customers of FCMs and IBs, pool
participants or clients of CTAs?
Much has been written on the development of so-called digital
signatures and other electronic identification procedures. But each
such method depends upon unambiguous establishment at the outset of the
identity of the person who will use the identification procedure. If a
digital signature or a personal identification number is assigned to a
person who is using a false identity in the first place, the purpose of
the process has been defeated. Would digital signatures or other
electronic identification procedures be any less safe than is the case
in the current ``paper world?'' Is the language of the proposed rules
contained in this release adequate for purposes of permitting FCMs,
IBs, CPOs and CTAs to accept electronic signatures from their customers
or clients? Are any additional safeguards warranted?
Customer Protection
Under current practice, a customer who wants to trade commodity
interests electronically must generally download and print out an
account agreement and perhaps other documents, to be signed and
returned before trading can commence. Does this built-in delay operate
as a beneficial safeguard against high-pressure sales tactics or ill-
considered entry into potentially risky markets? If a customer is able
to log on to his computer, sign up electronically for a commodity
interest trading account and immediately begin trading, does that make
the customer more
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susceptible to unscrupulous and deceptive sales tactics? Would there be
a benefit to customers if the Commission imposed a specific waiting
period (e.g., twenty-four hours) before trading can commence in an
electronically-opened account? Would a customer's ability to begin
trading almost immediately upon electronically opening an account
subject the FCM to new risks (e.g., would it be more difficult or
impossible for the FCM to run credit checks that may currently be part
of the account opening process)?
Contract law issues
The Commission is aware that in spite of the fact that under
Federal securities laws and regulations securities broker-dealers may
be able to open and trade accounts electronically, broker-dealers have
generally continued to require some exchange of signed paper documents
in connection with opening trading accounts, largely because of the
existing variations in state contract laws. Agreements to submit
disputes to arbitration, for example, must be executed in such a way as
to survive a court challenge, and to date, most broker-dealers have
been reluctant to accept an electronic signature for this purpose. The
Commission has elected in these proposed rules to allow electronic
signatures, but to require disclosure to customers to the effect that
an electronically executed arbitration agreement may be unenforceable
in certain states. Are there any other legal issues besides questions
of contract enforceability or issues concerning provisions of the Act
or the Commission's regulations that may be raised if registrants open
customer accounts electronically?
Coordination with self-regulatory organizations
To the extent that self-regulatory organizations (``SROs'')
overseen by the Commission (including the National Futures Association
and the designated contract markets) propose or adopt rules regarding
electronic signatures, conflicts may arise between the proposed rule
and such SRO rules. Should the Commission expressly provide that SRO
rules must be consistent with the proposed rule? Is this matter better
handled in the context of the process pursuant to which the Commission
reviews and approves SRO rule changes?
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611,
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The Commission has previously
established certain definitions of ``small entities'' to be used by the
Commission in evaluating the impact of its rules on such entities in
accordance with the RFA.\17\ The Commission has previously determined
that FCMs and CPOs are not small entities for the purpose of the
RFA.\18\ With respect to CTAs and IBs, the Commission has stated that
it would evaluate within the context of a particular rule proposal
whether all or some affected CTAs and IBs would be considered to be
small entities and, if so, the economic impact on them of any rule.\19\
In this regard the Commission notes that the regulations being proposed
herein do not change the obligations of CTAs and IBs under the Act and
Commission regulations, but permit CTAs and IBs to comply with certain
existing obligations by using electronic means as an acceptable
alternative to paper-based compliance. The Chair, on behalf of the
Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that these
proposed regulations will not have a significant economic impact on a
substantial number of small entities. Nonetheless, the Commission
specifically requests comment on the impact these proposed rules may
have on small entities.
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\17\47 FR 18618-18621 (April 30, 1982).
\18\ 47 FR 18619-18620.
\19\ 47 FR 18618-18620.
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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 Office of Management and Budget (OMB) approved the collection
of information associated with this proposed rule (3038-0022, Rules
Pertaining to Contract Markets and Their Members) on October 24, 1998.
While the proposed rule discussed herein has no burden, the group of
rules (3038-0022) of which it is a part has the following burden:
Average Burden Hours Per Response: 3,609.89.
Number of Respondents: 15,893.
Frequency of Response: Annually and On Occasion.
Copies of the OMB-approved information collection submission are
available from the CFTC Clearance Officer, 1155 21st Street, NW,
Washington, DC 20581 (202) 418-5116.
List of Subjects in 17 CFR Part 1
Signatures, Commodity futures, Commodity brokers.
Accordingly, 17 CFR part 1 is proposed to be amended 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, 24.
2. Section 1.3 is proposed to be amended by adding new paragraph
(tt) to read as follows:
Sec. 1.3 Definitions.
* * * * *
(tt) Electronic signature means an electronic sound, symbol, or
process attached to or logically associated with a record and executed
or adopted by a person with the intent of signing the record.
3. Section 1.4 is proposed to be added to read as follows:
Sec. 1.4 Use of electronic signatures.
(a) For purposes of complying with any provision in the Commodity
Exchange Act or the rules or regulations in this Chapter I that
requires a document to be signed by a customer of a futures commission
merchant or introducing broker, a pool participant or a client of a
commodity trading advisor, an electronic signature executed by the
customer, participant or client will be sufficient, if the futures
commission merchant, introducing broker, commodity pool operator or
commodity trading advisor elects generally to accept electronic
signatures; Provided, however, That:
(i) The electronic signature must comply with applicable Federal
laws and such standards as the Commission may adopt and such guidance
as the Commission's staff may provide; and
(ii) The futures commission merchant, introducing broker, commodity
pool operator or commodity trading advisor must adopt and utilize
reasonable safeguards regarding the use of electronic signatures,
including at a minimum:
(A) Safeguards employed for the purpose of verifying that an
electronic signature is that of the person purporting to use it;
(B) Safeguards employed to prevent alteration of the electronic
record with which the electronic signature is associated, after such
record has been electronically signed; and
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(C) Safeguards employed for detecting changes or errors in a
person's electronic signature.
(b) Any futures commission merchant, introducing broker, commodity
pool operator or commodity trading advisor who elects to accept
documents that are executed by means of an electronic signature must
clearly disclose to the customer, participant or client using an
electronic signature that although an electronic signature is
sufficient for purposes of the Commodity Exchange Act and the rules or
regulations of this chapter, it may not be sufficient for purposes of
other Federal or State laws or regulations.
Issued in Washington D.C. on August 24, 1999.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 99-22461 Filed 8-27-99; 8:45 am]
BILLING CODE 6351-01-P
